Anchor BanCorp Wisconsin (ABCW) 10-K 2012 FY Annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

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

For the fiscal year endedMarch 31, 2012

or

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

For the transition period from                     to                

Commission File Number001-34955

ANCHOR BANCORP WISCONSIN INC.

(Exact name of registrant as specified in its charter)

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

25 West Main Street

Madison, Wisconsin 53703

(Address of principal executive office)

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

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

Common stock, par value $.10 per share	OTC Market
(Title of Class)	(Name of each exchange on which registered	)

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

Not Applicable

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

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

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

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

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

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

Large accelerated filer    ¨	Accelerated filer    ¨	Non-accelerated filer    ¨	Smaller reporting company	þ
	(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 Act).    Yes  ¨        No  þ

As of September 30, 2011, the aggregate market value of the 21,677,594 outstanding shares of the Registrant’s common stock deemed to be held by non-affiliates of the registrant was $10.4 million, based upon the closing price of $0.50 per share of common stock as reported by the Nasdaq Global Select Market on such date. Although directors and executive officers of the Registrant and certain of its employee benefit plans were assumed to be “affiliates” of the Registrant for purposes of this calculation, the classification is not to be interpreted as an admission of such status.

As of May 31, 2012, 21,247,725 shares of the Registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual Meeting of Stockholders to be held on July 31, 2012 (Part III, Items 10 to 14).

ANCHOR BANCORP WISCONSIN INC.

FISCAL 2012 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

		Page
	PART I
Item 1.	BUSINESS		1
	General		1
	Market Area		2
	Competition		2
	Lending Activities		3
	Investment Securities		8
	Sources of Funds		10
	Subsidiaries		11
	Regulation and Supervision		12
	Taxation		24
Item 1A.	RISK FACTORS.		24
Item 1B.	UNRESOLVED STAFF COMMENTS		40
Item 2.	PROPERTIES		40
Item 3.	LEGAL PROCEEDINGS		40
Item 4.	MINE SAFETY DISCLOSURES		40
	PART II
Item 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		40
Item 6.	SELECTED FINANCIAL DATA		43
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		46
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		73
Item 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		78
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		142
Item 9A.	CONTROLS AND PROCEDURES		142
Item 9B.	OTHER INFORMATION		143
	PART III
Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		143
Item 11.	EXECUTIVE COMPENSATION		143
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		143
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		144
Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		144
	PART IV
Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		145
	SIGNATURES		150

(i)

FORWARD-LOOKING STATEMENTS

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

Although we believe that the anticipated results or other expectations reflected in our forward-looking statements are based on reasonable assumptions, we can give no assurance that those results or expectations will be attained. Forward-looking statements involve risks, uncertainties and assumptions (some of which are beyond our control), and as a result actual results may differ materially from those expressed in forward-looking statements due to several factors more fully described in Item 1A, “Risk Factors,” as well as elsewhere in this Annual Report on Form 10-K. Factors that could cause actual results to differ from forward-looking statements include, but are not limited to, the following, as well as those discussed elsewhere herein:

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

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

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

• changes in technology;

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

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

• our ability to address our own liquidity issues;

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

• our ability to pay dividends;

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

• unprecedented volatility in the market and fluctuations in the value of our common stock;

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

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

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

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

• increases in Federal Deposit Insurance Corporation premiums due to market developments and regulatory changes;

• changes in accounting principles, policies or guidelines;

(ii)

• significant unforeseen legal expenses;

• uncertainties about market interest rates;

• security breaches of our information systems;

• acts or threats of terrorism and actions taken by the United States or other governments as a result of such acts or threats, severe weather, natural disasters, acts of war;

• environmental liability for properties to which we take title;

• expiration of our Amended and Restated Credit Agreement;

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

• uncertainties relating to the Emergency Economic Stabilization Act of 2008, the American Recovery and Reinvestment Act of 2009, the Dodd-Frank Act, the implementation by the U.S. Department of the Treasury and federal banking regulators of a number of programs to address capital and liquidity issues in the banking system and additional programs that will apply to us in the future, all of which may have significant effects on us and the financial services industry;

• changes in the U.S. Department of the Treasury’s Capital Purchase Program;

• changes in the extensive laws, regulations and policies governing financial holding companies and their subsidiaries;

• regulation of the Bank by the Office of the Comptroller of the Currency;

• regulation of the Corporation by the Federal Reserve;

• monetary and fiscal policies of the U.S. Department of the Treasury; and

• challenges relating to recruiting and retaining key employees.

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

(iii)

PART I

Item 1. Business

General

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

The Bank was organized in 1919 as a Wisconsin chartered savings institution and converted to a federally chartered savings institution in 2000. AnchorBank, fsb is the third largest depository institution headquartered in the State of Wisconsin and its largest thrift in terms of assets. The Bank’s deposits are insured up to the maximum allowable amount by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Chicago. As of July 21, 2011, regulation of the Bank was assumed by the Office of the Comptroller of the Currency (“OCC”), and the Federal Reserve became the primary regulator for the Corporation. The Corporation is regulated as a savings and loan holding company and is subject to the periodic reporting requirements of the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). See “Regulation and Supervision.”

We offer checking, savings, money market accounts, mortgages, home equity and other consumer loans, credit cards, annuities, investment products and related consumer financial services. The Bank also provides banking services to businesses, including checking accounts, lines of credit, secured loans and commercial real estate loans. AnchorBank’s branch network serves as the primary vehicle through which we offer our products, cross sell additional products to existing customers and generate new customer relationships.

In addition to our branch network, we provide products and services online via our WebBranch™ online banking system and our Speed e-App™ online mortgage application tool. During the fiscal year ending March 31, 2012, we saw a substantial increase in mortgage applications received through Speed e-App.

The Corporation also has a non-banking subsidiary, Investment Directions, Inc. (“IDI”), a Wisconsin corporation which has historically invested in real estate partnerships. During 2010, IDI sold substantially all of its assets and its investment activities have been significantly curtailed.

On June 25, 2010, the Corporation completed the sale of eleven branches located in Northwest Wisconsin to Royal Credit Union headquartered in Eau Claire, Wisconsin. Royal Credit Union assumed approximately $171.2 million in deposits and acquired $61.8 million in loans and $9.8 million in office properties and equipment. The net gain on the sale was $5.0 million. The net gain included a write off of the $3.9 million core deposit intangible that was required when designated core deposits were sold in this transaction. On July 23, 2010, the Corporation completed the sale of four branches located in Green Bay, Wisconsin and surrounding communities to Nicolet National Bank headquartered in Green Bay, Wisconsin. Nicolet National Bank assumed $105.1 million in deposits and acquired $24.8 million in loans and $0.4 million in office properties and equipment. The net gain on the sale was $2.3 million.

The Bank has one wholly-owned subsidiary: ADPC Corporation (“ADPC”), a Wisconsin corporation, holds and develops certain of the Bank’s foreclosed properties. In November 2011, Anchor Investment Corporation (“AIC”) was dissolved and the remaining assets were transferred to the Bank. AIC was a Nevada Corporation that managed a portion of the Bank’s investment portfolio (primarily mortgage related securities).

As of March 31, 2012, the Corporation had 738 full-time equivalent employees. The Corporation promotes equal employment opportunity and considers employee relations to be excellent. The average tenure of AnchorBank employees is 12 years. None of the AnchorBank employees are represented by a collective bargaining group.

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

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Market Area

The Bank’s primary market area consists of south-central, east-central and southeastern Wisconsin, as well as contiguous counties in Illinois. At March 31, 2012, the Bank conducted business from its headquarters and main office in Madison, Wisconsin, and from 55 other full-service offices and one loan origination office which services our more than 130,000 households and businesses. During the fiscal year ended March 31, 2011, fifteen branches in the Northwest region of Wisconsin and the Green Bay area were sold. Additionally, in fiscal 2011, the Bank’s lending-only office in Hudson, Wisconsin was closed. One lending-only office in Lake Geneva, Wisconsin remains, while all other offices operate as full-service branches.

AnchorBank’s market area is concentrated in the greater Madison/Dane County, Suburban Milwaukee and Fox Valley areas. Together these areas account for nearly half of Wisconsin’s population and provide a strong platform for long term growth, both locally and regionally. Within its market footprint AnchorBank exhibits a strong retail franchise with the second highest market share of both deposits and mortgage origination in the Madison area and with the sixth largest deposit and mortgage origination share in the state overall.

Our home office in Madison provides a strong base in a highly attractive market. Madison is home to both state and county governments as well as the University of Wisconsin. Madison has enjoyed rapid population growth of 12.1 percent since 2000, a median household income 1.2 percent above the national average and relatively low unemployment at 5.3 percent (as of April 2012) versus the national average of 8.4 percent. Madison frequently ranks in the top 100 Places to Live in America by Money Magazine.

The Fox Valley, consisting primarily of the cities of Appleton and Oshkosh and their associated satellite communities is one of the state’s fastest growing areas and also benefits from significantly higher than median income levels at approximately $51,000, which approximates the national average. The Bank operates eight branches in the Fox Valley area.

In the Milwaukee area, AnchorBank operates eight branches, all located in suburban areas outside the City of Milwaukee. The largest city in Wisconsin, the Milwaukee metropolitan area is home to roughly 1.8 million people with a median income of $51,279 and more than 70,000 businesses.

Competition

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

Customer demand for loans secured by real estate has been reduced by a weak economy, an increase in unemployment and a decrease in real estate values. Low demand for real estate loans has decreased the Bank’s income because alternative investments, such as securities, typically earn a lower return than real estate secured loans.

The principal factors that are used to attract deposit accounts and that distinguish one financial institution from another include rates of return, quality of service to the customers, types of accounts, service fees, convenience of office locations and hours, and other services. We offer a full array of deposit, savings and investment products to meet the needs of our consumer and business customers with features, high service levels, convenience and rates/fees structured to provide a competitive value proposition for our customers and prospective customers. In return, our customers have rewarded us with high levels of satisfaction and loyalty as proven by our recent JD Powers Bank ratings which showed Anchor to be one of the highest rated banks in the upper Midwest.

The primary factors in competing for loans are interest rates, loan fee charges, and timeliness and quality of service to the borrower. Similar to the market for deposit and investment products, we focus on offering the best overall value to our loan customers. During the fiscal year ending March 31, 2012 we originated $913 million in single

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family “conforming” loans. While single family “conforming” loans are subsequently sold to investors, a key competitive difference is that AnchorBank retains servicing on our residential mortgages, thereby ensuring a high level of continuing customer service. AnchorBank currently has a servicing portfolio of approximately $3.13 billion.

Lending Activities

General.    At March 31, 2012, the Bank’s net loans held for investment totaled $2.06 billion, representing approximately 73.8% of its $2.79 billion of total assets at that date. Loans held for investment consist of single-family residential loans of $569.8 million, multi-family residential loans of $425.1 million, commercial real estate loans of $477.6 million, construction and land loans of $172.6 million, commercial and industrial loans of $33.9 million, and consumer loans of $509.3 million.

The Bank originates residential loans secured by properties located primarily in Wisconsin, with adjustable-rate loans generally being originated for inclusion in the Bank’s loan portfolio and fixed-rate loans generally being originated for sale into the secondary market.

Loan Portfolio Composition.    The following table presents the composition of loans held for investment at the dates indicated. During the fiscal year ended March 31, 2011, the Corporation began disaggregating its loans by portfolio segment, the level at which the Corporation has developed and documented its systematic method for determining its allowance for loan losses, and class of financing receivable, which is a disaggregation of portfolio segment in accordance with current accounting standards. For comparative purposes, the following table presents the loan portfolio according to the previous classifications.

	March 31,
	2012						2011						2010						2009						2008
	Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total
	(Dollars in thousands)
Single-family residential	$	569,848			26.04	%	$	652,237			24.31	%	$	765,312			22.27	%	$	843,482			20.52	%	$	893,001			20.35	%
Multi-family residential		425,084			19.42			499,645			18.62			614,930			17.89			662,483			16.12			694,423			15.82
Commercial real estate		477,550			21.82			645,683			24.07			842,905			24.53			1,020,981			24.84			1,088,004			24.79
Construction		29,772			1.36			52,014			1.94			108,486			3.16			267,375			6.51			402,395			9.17
Land		142,808			6.53			173,168			6.45			231,330			6.73			266,756			6.49			306,363			6.98
Total mortgage loans		1,645,062			75.17			2,022,747			75.39			2,562,963			74.58			3,061,077			74.48			3,384,186			77.11
Second mortgage and home equity		253,922			11.60			268,264			10.00			352,795			10.27			394,708			9.61			356,009			8.11
Education		240,331			10.98			276,735			10.31			331,475			9.64			358,784			8.73			275,850			6.29
Other		15,094			0.70			18,345			0.69			24,990			0.73			56,302			1.37			95,149			2.17
Total consumer loans		509,347			23.28			563,344			21.00			709,260			20.64			809,794			19.71			727,008			16.57
Commercial business loans		33,938			1.55			96,755			3.61			164,329			4.78			238,940			5.81			277,312			6.32
Total commercial business loans		33,938			1.55			96,755			3.61			164,329			4.78			238,940			5.81			277,312			6.32
Total loans receivable		2,188,347			100.00	%		2,682,846			100.00	%		3,436,552			100.00	%		4,109,811			100.00	%		4,388,506			100.00	%
Contras to loans:
Allowance for loan losses		(111,215	)					(150,122	)					(179,644	)					(137,165	)					(38,285	)
Undisbursed loan proceeds		(16,034	)					(8,761	)					(23,334	)					(71,672	)					(141,219	)
Unearned net loan fees		(3,086	)					(3,476	)					(3,898	)					(4,441	)					(6,075	)
Unearned interest		(4	)					(115	)					(88	)					(84	)					(83	)
Net (discount) premium on purchased loans		—						(5	)					(8	)					(10	)					(11	)
Total contras to loans		(130,339	)					(162,479	)					(206,972	)					(213,372	)					(185,673	)
Loans receivable, net	$	2,058,008					$	2,520,367					$	3,229,580					$	3,896,439					$	4,202,833

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The following table presents, at March 31, 2012, the scheduled contractual maturities of gross loans held for investment, as well as the dollar amount of such loans which are scheduled to mature after one year which have fixed or adjustable interest rates disaggregated according to current classifications.

	Residential		Commercial and  Industrial		Commercial Real Estate		Consumer		Total
	(In thousands)
Amounts due:
In one year or less	$	16,225	$	20,301	$	524,244	$	36,513	$	597,283
After one year through five years		28,529		13,650		376,807		132,104		551,090
After five years		519,937		5,026		173,765		341,246		1,039,974
	$	564,691	$	38,977	$	1,074,816	$	509,863	$	2,188,347
Interest rate terms on amounts due after one year:
Fixed	$	162,345	$	11,029	$	306,456	$	303,975	$	783,805
Adjustable	$	386,121	$	7,647	$	244,116	$	169,375	$	807,259

Residential Loans.    At March 31, 2012, $564.7 million, or 25.8%, of the Corporation’s total loans unpaid principal balance receivable consisted of residential loans, substantially all of which were 1 to 4 family dwellings. Residential loans consist of both adjustable and fixed-rate loans. The adjustable-rate loans currently in the Corporation’s portfolio have up to 30-year maturities and terms which permit the Corporation to annually increase or decrease the rate on the loans, based on a designated index. These rate changes are generally subject to a limit of 2% per adjustment and an aggregate 6% adjustment over the life of the loan. These loans are documented according to standard industry practices. The Corporation makes a limited number of interest-only loans which tend to have a shorter term to maturity and does not originate negative amortization and option payment adjustable rate mortgages.

Adjustable-rate loans decrease the Corporation’s risks associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. The Corporation believes that these risks, which have not had a material adverse effect on the Corporation to date, generally are less than the risks associated with holding fixed-rate loans in an increasing interest rate environment. Also, as interest rates decline, borrowers may refinance their mortgages into fixed-rate loans thereby prepaying the balance of the loan prior to maturity. At March 31, 2012, approximately $387.7 million, or 68.7%, of the Corporation’s held for investment residential loans unpaid principal balance consisted of loans with adjustable interest rates.

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

At March 31, 2012, approximately $177.0 million, or 31.3%, of the Corporation’s held for investment residential loans unpaid principal balance consisted of loans with fixed rates of interest. Although these loans generally provide for repayments of principal over a fixed period of 10 to 30 years, it is the Corporation’s experience that, because of prepayments and due-on-sale clauses, such loans generally remain outstanding for a substantially shorter period of time.

Commercial and Industrial Loans.    The Corporation originates loans for commercial, corporate and business purposes, including issuing letters of credit. At March 31, 2012, the unpaid principal balance receivable of commercial and industrial loans amounted to $39.0 million, or 1.8%, of the Corporation’s total loans unpaid principal balance receivable. The Corporation’s commercial and industrial loan portfolio is comprised of loans

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for a variety of business purposes and generally is secured by equipment, machinery and other corporate assets. These loans generally have terms of five years or less and interest rates that float in accordance with a designated published index. Substantially all of such loans are secured and backed by the personal guarantees of the owners of the business.

Commercial Real Estate Loans.    The Corporation originates commercial real estate loans that it typically holds in its loan portfolio which includes land and construction, multi-family, retail/office and other commercial real estate. Such loans generally have adjustable rates and shorter terms than single-family residential loans, thus increasing the earnings sensitivity of the loan portfolio to changes in interest rates, as well as providing higher fees and rates than residential loans. At March 31, 2012, the Corporation had $1.07 billion of loans unpaid principal balance receivable secured by commercial real estate, which represented 49.1% of the total loans unpaid principal balance receivable. The Corporation generally limits the origination of such loans to its primary market area.

The Corporation’s commercial real estate loans are primarily secured by apartment buildings, office and industrial buildings, land, warehouses, small retail shopping centers and various special purpose properties, including hotels, and nursing homes.

Although terms vary, commercial real estate loans generally have amortization periods of 15 to 25 years, as well as balloon payments of two to five years, and terms which provide that the interest rates thereon may be adjusted annually at the Corporation’s discretion, based on a designated index.

Consumer Loans.    The Corporation offers consumer loans in order to provide a wider range of financial services to its customers. At March 31, 2012, $509.9 million, or 23.3%, of the Corporation’s total loans unpaid principal balance receivable consisted of consumer loans. Consumer loans typically have higher interest rates than mortgage loans but generally involve more risk than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral.

Approximately $240.3 million, or 11.0%, of the Corporation’s total loans unpaid principal balance receivable at March 31, 2012 consisted of education loans. These loans are generally made for a maximum of $3,500 per year for undergraduate studies and $8,500 per year for graduate studies and are placed in repayment status on an installment basis within six months of graduation. Education loans generally have interest rates that adjust annually in accordance with a designated index. Both the principal amount of an education loan and interest thereon are typically guaranteed by the Great Lakes Higher Education Corporation up to 97% of the balance of the loan, which often obtains reinsurance of its obligations from the U.S. Department of Education. During the quarter ended September 30, 2010, the Corporation discontinued the origination of student loans. Education loans may be sold to the U.S. Department of Education or to other investors. The Corporation received no proceeds from sale of education loans during fiscal 2012.

The largest component of the Corporation’s other consumer loan portfolio is second mortgage and home equity loans. The primary home equity loan product has an adjustable interest rate that is linked to the prime interest rate and is secured by a mortgage, either a primary or a junior lien, on the borrower’s residence. New home equity lines do not exceed 85% of appraised value of the property at the loan origination date. A fixed-rate home equity second mortgage term product is also offered.

The remainder of the Corporation’s other consumer loan portfolio consists of vehicle loans and other secured and unsecured loans made for a variety of consumer purposes. These include credit cards issued by a third party, ELAN Financial Services (ELAN), pursuant to an agency arrangement under which the Corporation participates in outstanding balances, currently at 23% to 26%. The Corporation also shares 36% to 40% of annual fees, and 30% of late payment, over limit and cash advance fees, as well as 27% to 28% of interchange income paid to ELAN.

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

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

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Origination, Purchase and Sale of Loans.    The Corporation’s loan originations come from a number of sources. Residential mortgage loan originations are attributable primarily to depositors, branch customers, the Corporation’s website, referrals from real estate brokers, builders and direct solicitations. Commercial real estate loan originations are obtained by direct solicitations and referrals. Consumer loans are originated from branch customers, existing depositors and mortgagors and direct solicitation.

Applications for all types of loans are taken in three regional lending offices, certain branch locations and one loan origination facility. Loans may be approved by certain underwriting/concurrence officers or the Senior Loan Committee, within designated limits, or by the Board of Directors.

The Corporation’s general policy is to lend up to the lesser of 80% of the appraised value or purchase price of the property, whichever is less, securing a single-family residential loan (referred to as the loan-to-value ratio). The Corporation will lend more than 80% of the appraised value of the property, but will require that the borrower obtain when possible, private mortgage insurance in an amount intended to reduce exposure to 80% or less of the appraised value of the underlying property.At March 31, 2012, approximately $4.7 million of loans had original loan-to-value ratios of greater than 80% and did not have private mortgage insurance for the portion of the loans above such amount.

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

The Corporation’s underwriting criteria generally require that multi-family residential and commercial real estate loans have loan-to-value ratios which amount to 75% to 80% or less and debt coverage ratios of a minimum of 120%. The Corporation also obtains personal guarantees on its multi-family residential and commercial real estate loans from the principals of the borrowers, as well as appraisals of the collateral from independent appraisal firms.

The portfolio of commercial real estate and commercial and industrial loans is reviewed on a continuing basis to identify any potential risks that exist in regard to the property management, financial criteria of the loan, operating performance, competitive marketplace and collateral valuation. The relationship manager is responsible for identifying and reporting credit risk quantified through a loan rating system and making recommendations to mitigate credit risk in the portfolio. The risk management function provides an independent review of this activity. These and other underwriting standards are documented in written policy statements, which are periodically updated and approved by the Bank’s Board of Directors.

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

The Corporation has been actively involved in the mortgage secondary market since the mid-1980s and generally originates single-family residential mortgage loans under terms, conditions and documentation which permit sale to Freddie Mac, Fannie Mae, and other investors. Substantially all of the fixed-rate, single-family residential loans with terms over 15 years originated are sold in order to decrease the amount of such loans in our loan portfolio. The volume of loans originated and sold is dependent on a number of factors, but is most influenced by general interest rates. In periods of lower interest rates, demand for fixed-rate mortgages increases.

In periods of higher interest rates, customer demand for fixed-rate mortgages declines. Sales are usually made through forward sale contracts. The Corporation attempts to limit any interest rate risk created by interest rate

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lock commitments by limiting the number of days between the commitment and closing, charging fees for commitments, and limiting the amounts of unhedged commitments at any one time. Forward sale contracts used to economically hedge closed loans and rate lock commitments to customers range from 70% to 100% of committed amounts. The Corporation also periodically has used loans to securitize mortgage-backed securities that are subsequently held in the investment portfolio.

The Corporation generally services all originated loans that have been sold to other investors. This includes the collection of payments, the inspection of the secured property, and the disbursement of certain insurance and tax advances on behalf of borrowers. Servicing fees are recognized when the related loan payments are received. At March 31, 2012, $3.13 billion of loans are serviced for others.

The Corporation is not an active purchaser of loans. At March 31, 2012, approximately $240.3 of education loans, $10.2 million of purchased participation mortgage loans and $7.4 million of credit card loans were being serviced for the Corporation by others. Servicing of loans or loan participations purchased by the Corporation is performed by the seller, with a portion of the interest being paid by the borrower retained by the seller to cover servicing costs.

During the fiscal year ended March 31, 2011, the Corporation began disaggregating its loans by portfolio segment, the level at which the Corporation has developed and documented its systematic method for determining its allowance for loan losses, and class of financing receivable, which is a disaggregation of portfolio segment in accordance with current accounting standards. Prior year activity is shown under the previous classifications.

The following table shows consolidated total loans on a gross basis originated, purchased, sold and repaid during the periods indicated.

	Year Ended March 31,
	2012			2011			2010
	(In thousands)
Gross loans receivable at beginning of year(1)	$	2,690,384		$	3,456,036		$	4,271,775
Total loans originated for investment		215,304			113,934			631,103
Repayments		(709,803	)		(867,640	)		(1,255,484	)
Transfers of loans to held for sale		—			—			(48,878	)
Net activity in loans held for investment		(494,499	)		(753,706	)		(673,259	)
Total loans originated for sale		961,947			804,538			887,466
Transfers of loans from held for investment		—			—			48,878
Sales of loans		(930,153	)		(816,484	)		(1,029,946	)
Loans converted into mortgage-backed securities		—			—			(48,878	)
Net activity in loans held for sale		31,794			(11,946	)		(142,480	)
Gross loans receivable at end of period(1)	$	2,227,679		$	2,690,384		$	3,456,036

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

Delinquency Procedures.    Delinquent and problem loans are a normal part of any lending business. When a borrower fails to make a required payment by the 15th day after which the payment is due, internal collection procedures are instituted. The borrower is contacted to determine the reason for non-payment and attempts are made to cure the delinquency. Loan status, the condition of the property, and circumstances of the borrower are regularly reviewed. Based upon the results of its review, the Corporation may negotiate and accept a repayment program with the borrower, accept a voluntary deed in lieu of foreclosure, agree to the terms of a short sale or initiate foreclosure proceedings.

A decision as to whether and when to initiate foreclosure proceedings is based upon such factors as the amount of the outstanding loan in relation to the original indebtedness, the extent of delinquency, the value of the collateral, and the borrower’s financial ability and willingness to cooperate in curing the deficiencies. If

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foreclosed on, the property is sold at a public sale and the Corporation will generally bid an amount reasonably equivalent to the fair value of the foreclosed property or the amount of judgment due.

Real estate acquired as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned until it is sold. When property is acquired, it is recorded at the estimated fair value less cost to sell at the date of acquisition, with charge-offs, if any, charged to the allowance for loan losses prior to transfer to foreclosed property. Following acquisition, all costs incurred in maintaining the property are expensed. In the case of a short sale, any remaining loan balance in excess of the net proceeds is charged to the allowance for loan losses.

For discussion of the Corporation’s asset quality, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7. See also Notes 1 and 5 to the Consolidated Financial Statements in Item  8.

Investment Securities

In addition to lending activities, the Corporation conducts other investing activities on an ongoing basis in order to diversify assets, limit interest rate and credit risk, and meet regulatory liquidity requirements. The Corporation invests in mortgage-related securities which are insured or guaranteed by Freddie Mac, Fannie Mae, or Ginnie Mae and also invests in non-agency collateralized mortgage obligations (“CMOs”). Investment decisions are made by authorized officers in accordance with policies established by the Board of Directors.

Management determines the appropriate financial reporting classification of securities at the time of purchase. Debt securities are classified as held-to-maturity when the Corporation has the intent and ability to hold the securities to maturity. Held-to-maturity securities are carried at amortized cost. Securities are classified as trading when the Corporation intends to actively buy and sell securities in order to make a profit. Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. There were no securities designated as trading during the three years ended March 31, 2012.

Securities not classified as held-to-maturity or trading are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax (if any), reported as a separate component of stockholders’ equity. For the years ended March 31, 2012 and 2011, this component of stockholders’ equity increased $20.1 million and decreased $14.6 million, respectively, to reflect net unrealized gains and losses on holding securities classified as available-for-sale.

The Corporation’s policy does not permit investment in non-investment grade bonds. Permissible investments under OCC regulations, include U.S. Government obligations, municipal bonds, securities of various federal agencies, certain certificates of deposit of insured banks and savings institutions, certain bankers’ acceptances, repurchase agreements and federal funds. Although the Corporation does not purchase non-investment grade securities, it does own $21.6 million, or 8.9% of the total investment security portfolio, of non-investment grade securities as a result of ratings downgrades subsequent to purchase.

Agency-backed securities increase the quality of the Corporation’s assets by virtue of the insurance or guarantees of federal agencies that back them, require less capital under risk-based regulatory capital requirements than non-insured or guaranteed mortgage loans, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Corporation. At March 31, 2012, securities with a fair value of $220.7 million held by the Corporation are either AAA rated or are guaranteed by government sponsored agencies. At March 31, 2012, $216.3 million of the Corporation’s securities available-for-sale were pledged to secure various obligations of the Corporation. No held-to-maturity securities were pledged at March 31, 2012.

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

	March 31,
	2012				2011				2010
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Available-for-sale:
U.S. government sponsored and federal agency obligations	$	3,556	$	3,531	$	4,037	$	4,126	$	51,029	$	51,031
Corporate stock and other		652		661		1,151		1,219		1,176		1,198
Non-agency CMOs		25,067		21,592		49,921		46,637		91,140		85,367
Government sponsored agency mortgage-backed securities		3,944		4,195		6,473		6,747		16,300		16,853
GNMA mortgage-backed securities		208,948		212,320		481,659		464,560		261,957		261,754
		242,167		242,299		543,241		523,289		421,602		416,203
Held-to-maturity:
Government sponsored agency mortgage-backed securities		20		20		27		28		39		40
Total investment securities	$	242,187	$	242,319	$	543,268	$	523,317	$	421,641	$	416,243

The Corporation’s mortgage-backed securities are made up of GNMA, government sponsored agency, and non-agency mortgage-backed securities. At March 31, 2012, the Corporation had $20,000 of mortgage-backed securities held to maturity. The fair value of the mortgage-backed securities available for sale amounted to $238.1 million at the same date.

The following table sets forth the maturity and weighted average yield characteristics of investment securities at March 31, 2012, classified by term to maturity. The balance is at amortized cost for held-to-maturity securities and at fair value for available-for-sale securities.

	Less than Five Years					Five to Ten Years					Over Ten Years					Total
	Balance		Weighted Average Yield			Balance		Weighted Average Yield			Balance		Weighted Average Yield
						(Dollars in thousands)
Available-for-sale:
U.S. government sponsored and federal agency obligations	$	3,531		1.08	%	$	—		—	%	$	—		—	%	$	3,531
Corporate stock and other		—		—			—		—			661		7.86			661
Non-agency CMOs		—		—			884		5.29			20,708		6.09			21,592
Government sponsored agency mortgage-backed securities		53		5.39			929		5.21			3,213		3.09			4,195
GNMA mortgage-backed securities		—		—			459		5.17			211,861		2.05			212,320
		3,584		1.14			2,272		5.24			236,443		2.49			242,299
Held-to-maturity:
Government sponsored agency mortgage-backed securities		—		—			20		4.65			—		—			20
Total investment securities	$	3,584		1.14	%	$	2,292		5.23	%	$	236,443		2.49	%	$	242,319

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Due to prepayments of the underlying loans, the actual maturities of certain investment securities are expected to be substantially sooner than the scheduled maturities.

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

Sources of Funds

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

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

Deposits are obtained primarily from residents of Wisconsin. The Corporation has entered into agreements with certain brokers that provide funds for a specified fee. While brokered deposits are a good source of funds, they are interest rate driven and thus inherently have more liquidity and interest rate risk. At March 31, 2012, brokered deposits totaled $2.1 million, which accounted for 0.09% of the $2.26 billion of total deposits. At March 31, 2012, the Corporation is precluded from obtaining new or renewing existing brokered deposits. Out of network certificates of deposit totaled $24.9 million at March 31, 2012. These deposits are opened via internet listing services and the balances are kept within FDIC insured limits.

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

The following table sets forth the amount and maturities of certificates of deposit at March 31, 2012.

Interest Rate	Six Months and Less		Over Six Months Through One Year		Over One Year Through Two Years		Over Two Years Through Three Years		Over Three Years		Total
	(In thousands)
0.00% to 2.99%	$	437,556	$	287,071	$	122,479	$	16,717	$	42,498	$	906,321
3.00% to 4.99%		20,189		13,751		26,318		3,064		—		63,322
5.00% to 6.99%		149		115		—		—		—		264
	$	457,894	$	300,937	$	148,797	$	19,781	$	42,498	$	969,907

At March 31, 2012, $195.2 million of certificates of deposit were greater than or equal to $100,000, of which $27.0 million are scheduled to mature in less than three months, $63.9 million in three to six months, $69.9 million in six to twelve months and $34.4 million in over twelve months.

Borrowings.    From time to time the Corporation obtains advances from the FHLB, which generally are secured by capital stock of the FHLB and certain mortgage loans and investment securities. See “Regulation.”

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Such advances are made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. The FHLB may prescribe the acceptable uses for these advances, as well as limitations on the size of the advances and repayment provisions.

The Corporation used a short-term line of credit in part to fund IDI’s partnership interests and investments in real estate held for development and sale. This line of credit also funded other Corporation needs. The final maturity of the line of credit was extended to November 30, 2012. At March 31, 2012 and 2011, the Corporation had drawn $116.3 million under this line of credit, respectively. The Corporation is currently in default and does not have credit remaining on this line. See Note 11 to the Corporation’s Consolidated Financial Statements in Item 8 for more information on borrowings.

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

	March 31,
	2012					2011					2010
	Balance		Weighted Average Rate			Balance		Weighted Average Rate			Balance		Weighted Average Rate
	(Dollars in thousands)
FHLB advances	$	357,500		2.49	%	$	478,479		2.57	%	$	613,429		3.08	%
Other borrowed funds		118,603		14.71			180,526		8.66			183,403		8.54

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

	March 31,
	2012					2011					2010
	Balance		Weighted Average Rate			Balance		Weighted Average Rate			Balance		Weighted Average Rate
	(Dollars in thousands)
Balance at end of period:
FHLB advances	$	—		0.00	%	$	40,000		0.20	%	$	—		0.00	%
Short term line of credit		118,603		14.71			120,526		11.60			123,403		11.36
Maximum month-end balance:
FHLB advances		25,000		0.13			50,000		0.26			—		0.00
Short term line of credit		121,021		14.71			123,801		11.66			129,027		11.50
Average balance:
FHLB advances		4,167		0.13			11,500		0.26			—		0.00
Short term line of credit		119,983		14.07			121,237		11.54			124,904		11.24

Subsidiaries

Investment Directions, Inc.    IDI is a wholly-owned, non-banking subsidiary of the Corporation that has invested in various limited partnerships and subsidiaries funded by borrowings from the Corporation. The assets at IDI at March 31, 2012 include an equity interest in one commercial real estate property and one real estate development totaling $457,000 along with various notes receivable totaling $80,000.

At March 31, 2012 and 2011 the Corporation had loans of $4.2 million to IDI to fund various partnership and subsidiary investments. These amounts are eliminated in consolidation.

ADPC Corporation.    ADPC is a wholly owned subsidiary of the Bank that holds certain of the Bank’s foreclosed properties. The Bank’s investment in ADPC at March 31, 2012 amounted to $15.4 million as compared to $8.9 million at March 31, 2011. ADPC had net income of $758,000 for the year ended March 31, 2012 as compared to $233,000 for the year ended March 31, 2011.

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Anchor Investment Corporation.    AIC was an operating subsidiary of the Bank incorporated in the State of Nevada and formed for the purpose of managing a portion of the Bank’s investment portfolio (primarily mortgage-backed securities). As an operating subsidiary, AIC’s results of operations are combined with the Bank’s for financial and regulatory purposes. The Bank’s investment in AIC amounted to zero at March 31, 2012 as compared to $219.7 million at March 31, 2011. AIC had net income of $3.3 million for the year ended March 31, 2012 as compared to $6.5 million for the year ended March 31, 2011. In November 2011, AIC was dissolved and the remaining assets were transferred to the Bank.

Regulation and Supervision

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

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

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

The Bank is a federal savings bank organized under the laws of the United States and subject to regulation and examination by the Office of the Comptroller of the Currency (“OCC”). On July 21, 2011, the Office of Thrift Supervision, which was the Bank and Corporation’s primary regulator, ceased operations pursuant to the provisions of the Dodd-Frank Act. As of July 21, 2011, regulation of the Bank was assumed by the, OCC and the Federal Reserve became the primary regulator for the Corporation. The full impact of the change in regulators on our operations will not be known for some time. The OCC regulates all areas of the Bank’s banking operations, including investments, reserves, lending, mergers, payment of dividends, interest rates, transactions with affiliates (including the Corporation), establishment of branches and other aspects of the Bank’s operations. The Bank is subject to regular examinations by the OCC and is assessed amounts to cover the costs of such examinations.

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

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

12

and impose additional and possibly more burdensome regulatory requirements on the Corporation. See “— The Bank — Qualified Thrift Lender Test” below.

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

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

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

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

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

Change of Control.    Federal law requires, with few exceptions, OCC approval (or, in some cases, notice and effective clearance) prior to any acquisition of control of the Corporation. Among other criteria, under OCC regulations, “control” is conclusively presumed to exist if a person or Corporation acquires, directly or indirectly, more than 25% of any class of voting stock of the savings association or holding company. Control is also presumed to exist, subject to rebuttal, if an acquiror acquires more than 10% of any class of voting stock (or more than 25% of any class of stock) and is subject to any of several “control factors,” including, among other matters, the relative ownership position of a person, the existence of control agreements and board composition. The Dodd-Frank Act amends the Bank Holding Company Act in regard to bank holding company acquisitions of control of out-of-state banks, replacing the prior “adequately-capitalized” and “adequately-managed” standards by now requiring the acquiring bank holding company to be well-capitalized and well-managed. The Federal Deposit Insurance Act is similarly amended with respect to interstate merger transactions, now requiring that the resulting bank be well-capitalized and well-managed following the transaction.

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

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

13

precluded from paying dividends on common stock under provisions of TARP and on common and preferred stock under provisions of the OCC Order to Cease and Desist.

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

Capital Requirements.    OCC regulations require that federal savings banks maintain: (i) tier 1 capital in an amount not less than 4.0% of adjusted total assets, (ii) tier 1 capital in an amount not less than 6.0% of risk weighted assets and (iii) total risk-based capital in an amount not less than 8.0% of risk-weighted assets.

Tier 1 capital includes common stockholders’ equity (including common stock, additional paid in capital and retained earnings, but excluding any net unrealized gains or losses, net of related taxes, on certain securities available for sale), noncumulative perpetual preferred stock and any related surplus and noncontrolling interests in the equity accounts of full consolidated subsidiaries. Intangible assets generally must be deducted from tier 1 capital, other than certain servicing assets and purchased credit card relationships, subject to limitations. “Total capital,” for purposes of the risk-based capital requirement, equals the sum of tier 1 capital plus supplementary (Tier 2) capital (which, as defined, includes the sum of, among other items, perpetual preferred stock not counted as tier 1 capital, limited life preferred stock, subordinated debt and general loan and lease loss allowances up to 1.25% of risk-weighted assets) less certain deductions. Risk-weighted assets are determined by multiplying certain categories of assets, including off-balance sheet equivalents, by an assigned risk weight of 0% to 100% based on the credit risk associated with those assets as specified in OCC regulations.

As of March 31, 2012, the Bank met the standard minimum regulatory capital requirements noted above, with tier 1 leverage, tier 1 risk based capital and total risk-based capital ratios of 4.51%, 7.08% and 8.42%, respectively. Capital requirements higher than the generally applicable minimum requirement may be established for a particular savings association if the OCC determines that the institution’s capital was or may become inadequate in view of its particular circumstances. In June 2009, the Bank consented to the issuance of a Cease and Desist Order with the OTS which requires, among other things, capital requirements in excess of the generally applicable minimum requirements. See Note 2 to the Consolidated Financial Statements included in Item 8.

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

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

Capital Category	Tier 1 Leverage Ratio	Tier 1 Risk-Based Capital Ratio	Total Risk-Based Capital Ratio
Well capitalized	5% or above	6% or above	10% or above
Adequately capitalized	4% or above(1)	4% or above	8% or above
Undercapitalized	Less than 4%	Less than 4%	Less than 8%
Significantly undercapitalized	Less than 3%	Less than 3%	Less than 6%
Critically undercapitalized	Less than 2%	—	—

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

The applicable federal banking agency also has authority, after providing an opportunity for a hearing, to downgrade an institution from “well capitalized” to “adequately capitalized” or to subject an “adequately

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capitalized” or “undercapitalized” institution to the supervisory actions applicable to the next lower category, for supervisory concerns.

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

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

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

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

As of March 31, 2012, the Bank was “adequately capitalized” under standard PCA guidelines. Under these OCC requirements, a bank must have a total Risk-Based Capital Ratio of 8.0 percent or greater to be considered “adequately capitalized.” The Bank continues to work toward the requirements of the previously issued Cease and Desist Order which requires a total Risk-Based Capital Ratio of 12.0 percent, which exceeds traditional capital levels for a bank. At March 31, 2012, the Bank had not met the elevated capital levels. See Note 12 to the Consolidated Financial Statements included in Item 8.

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

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

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

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

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

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

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

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

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Qualified Thrift Lender Test.    A savings association can comply with the qualified thrift lender, or QTL, test set forth in the HOLA and implementing regulations of the OCC by either meeting the QTL test set forth therein or qualifying as a domestic building and loan association as defined in Section 7701(a)(19) of the Internal Revenue Code of 1986. The QTL test set forth in the HOLA requires a savings association to maintain 65% of portfolio assets in qualified thrift investments, or QTLs. Portfolio assets are defined as total assets less intangibles, property used by a savings association in its business and liquidity investments in an amount not exceeding 20% of assets. Generally, QTLs are residential housing related assets. At March 31, 2012, the amount of the Bank’s assets which were invested in QTLs exceeded the percentage required to qualify the Bank under the QTL test.

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

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

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

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

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

Federal Deposit Insurance.    Deposits held by the Bank are insured by the Deposit Insurance Fund (the “DIF”) as administered by the FDIC. The Dodd-Frank Act raised the standard maximum deposit insurance amount to $250,000 per depositor, per insured depository institution for each account ownership category. The change makes permanent the temporary coverage limit increase from $100,000 to $250,000 that had been in effect since October 2008.

In November 2008, the FDIC adopted a final rule relating to its Temporary Liquidity Guarantee Program (“TLGP”). The TLGP was first announced by the FDIC on October 14, 2008, preceded by the determination of systemic risk by the Secretary of the Treasury (after consultation with the President), as an initiative to counter

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the system-wide crisis in the nation’s financial sector. Under the TLGP, the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008 and before June 30, 2009 and (ii) provide full FDIC deposit insurance coverage through December 31, 2009 for non-interest bearing transaction deposit accounts paying less than 0.5% interest per annum and held at participating FDIC-insured institutions. Coverage under the TLGP was available for the first 30 days without charge. The Bank signed a master agreement with the FDIC on December 5, 2008 for issuance of bonds under the program. As of March 31, 2011, the Bank had $60.0 million of bonds issued under the program out of the $88.0 million that the Bank is eligible to issue bearing interest at a fixed rate of 2.74%. The bonds, matured on February 11, 2012.

The FDIC maintains the DIF by assessing each depository institution an insurance premium. The amount of the FDIC assessments paid by a DIF member institution is based on its relative risk of default as measured by the company’s FDIC supervisory rating, and other various measures, such as the level of brokered deposits, secured debt and debt issuer ratings.

The DIF assessment base rate currently ranges from 12 to 45 basis points for institutions that do not trigger factors for brokered deposits and unsecured debt, and higher rates for those that do trigger those risk factors. In February 2011, the FDIC redefined the deposit insurance assessment base, and updated the assessment rates. Excluding any changes in the FDIC risk category due to other factors, the change in DIF assessment rates decreased the Corporation’s FDIC insurance expense.

The Dodd-Frank Act effects further changes to the law governing deposit insurance assessments. There is no longer an upper limit for the reserve ratio designated by the FDIC each year, and the maximum reserve ratio may not be less than 1.35% of insured deposits, or the comparable percentage of the assessment base. Under prior law the maximum reserve ratio was 1.15%. The Dodd-Frank Act permits the FDIC until September 30, 2020 to raise the reserve ratio, which is currently negative, to 1.35%. The FDIC is required to offset the effect of increased assessments necessitated by the Dodd-Frank Act on insured depository institutions with total consolidated assets of less than $10 billion, but we cannot currently predict how this offset will affect us, and implementing rules are not expected until mid-2011. See “Risk Factors — Recent changes have created regulatory uncertainty” and “Risk Factors — Current and future increases in FDIC insurance premiums, including FDIC special assessments imposed on all FDIC-insured institutions, will decrease our earnings.” The Dodd-Frank Act also eliminates requirements under prior law that the FDIC pay dividends to member institutions if the reserve ratio exceeds certain thresholds, and the FDIC has proposed that in lieu of dividends, it will adopt lower rate schedules when the reserve ratio exceeds certain thresholds.

All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds, which are referred to as FICO bonds, were issued to capitalize the Federal Savings and Loan Insurance Corporation. FDIC-insured depository institutions paid between 1.02 cents to 1.14 cents per $100 of DIF-assessable deposits in 2009, and between 1.04 to 1.06 cents during 2010.

Brokered Deposits.    The FDIC restricts the use of brokered deposits by certain depository institutions. Under the FDIC and applicable regulations, (i) a “well capitalized insured depository institution” may solicit and accept, renew or roll over any brokered deposit without restriction, (ii) an “adequately capitalized insured depository institution” may not accept, renew or roll over any brokered deposit unless it has applied for and been granted a waiver of this prohibition by the OCC and (iii) an “undercapitalized insured depository institution” may not (x) accept, renew or roll over any brokered deposit or (y) solicit deposits by offering an effective yield that exceeds by more than 75 basis points the prevailing effective yields on insured deposits of comparable maturity in such institution’s normal market area or in the market area in which such deposits are being solicited. The term “undercapitalized insured depository institution” is defined to mean any insured depository institution that fails to meet the minimum regulatory capital requirement prescribed by its appropriate federal banking agency. The OCC may, on a case-by-case basis and upon application by an adequately capitalized insured depository institution, waive the restriction on brokered deposits upon a finding that the acceptance of brokered deposits does not constitute an unsafe or unsound practice with respect to such institution. The Corporation had $2.1 million of outstanding brokered deposits at March 31, 2012. At March 31, 2012, the Bank is adequately

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capitalized under PCA guidelines although it is precluded from accepting, renewing or rolling over brokered deposits without prior approval of the OCC. Under OCC requirements, a bank must have a total Risk-Based Capital Ratio of 8.0 percent or greater to be considered “adequately capitalized.” The Bank continues to work toward the requirements of the previously issued Cease and Desist Order which requires a total Risk-Based Capital Ratio of 12.0 percent, which exceeds traditional capital levels for a bank. At March 31, 2012, the Bank had not met the elevated capital levels. See Note 2 to the Consolidated Financial Statements included in Item 8.

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

Federal Reserve System.    The Federal Reserve Board has adopted regulations that require savings associations to maintain non-earning reserves against their transaction accounts (primarily regular checking accounts). These reserves may be used to satisfy liquidity requirements imposed by the OCC. Because required reserves must be maintained in the form of cash or a non-interest-bearing account at a Federal Reserve Bank, the effect of this reserve requirement is to potentially reduce the amount of the Bank’s interest-earning assets if branch cash is not sufficient to meet the required reserve.

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

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

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The Dodd-Frank Act expands the 23A and 23B affiliate transaction rules. Among other things, upon the statutory changes’ effective date, which will likely be mid- to late- 2012, the scope of the definition of “covered transaction” under 23A will expand, collateral requirements will increase and certain exemptions will be eliminated. At March 31, 2012, the Bank was in compliance with the above restrictions.

Anti-Money Laundering.    Financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function. We are prohibited from entering into specified financial transactions and account relationships and must meet enhanced standards for due diligence in dealings with foreign financial institutions and foreign customers. We also must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious transactions. Recent laws provide law enforcement authorities with increased access to financial information maintained by banks. Anti-money laundering obligations have been substantially strengthened as a result of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA Patriot Act”), enacted in 2001, renewed in 2006 and extended, in part, in 2011. Bank regulators routinely examine institutions for compliance with these obligations and are required to consider compliance in connection with the regulatory review of applications.

The USA Patriot Act amended, in part, the Bank Secrecy Act and provides for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering. The statute also creates enhanced information collection tools and enforcement mechanics for the U.S. government, including: (1) requiring standards for verifying customer identification at account opening; (2) promulgating rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (3) requiring reports by nonfinancial trades and businesses filed with the Treasury’s Financial Crimes Enforcement Network for transactions exceeding $10,000; and (4) mandating the filing of suspicious activities reports if a bank believes a customer may be violating U.S. laws and regulations. The statute also requires enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.

The Federal Bureau of Investigation may send bank regulatory agencies lists of the names of persons suspected of involvement in terrorist activities. We may be subject to a request for a search of its records for any relationships or transactions with persons on those lists and may be required to report any identified relationships or transactions. Furthermore, the Office of Foreign Assets Control (“OFAC”) is responsible for helping to ensure that U.S. entities do not engage in transactions with certain prohibited parties, as defined by various Executive Orders and Acts of Congress. OFAC has sent, and will send, bank regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts, known as Specially Designated Nationals and Blocked Persons. If we find a name on any transaction, account or wire transfer that is on an OFAC list, we must freeze such account, file a suspicious activity report and notify the appropriate authorities.

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

• ensure the security and confidentiality of customer information;

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

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

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

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

Sarbanes-Oxley Act of 2002.    The Sarbanes-Oxley Act of 2002 (i) created a public company accounting oversight board; (ii) strengthened auditor independence from corporate management; (iii) heightened the responsibility of public company directors and senior managers for the quality of the financial reporting and disclosure made by their companies; (iv) adopted a number of provisions to deter wrongdoing by corporate management; (v) imposed a number of new corporate disclosure requirements; (vi) adopted provisions which generally seek to limit and expose to public view possible conflicts of interest affecting securities analysts; and (vii) imposed a range of new criminal penalties for fraud and other wrongful acts, as well as extended the period during which certain types of lawsuits can be brought against a company or its insiders.

Overdraft Fees.    In November 2009, the Federal Reserve Board adopted amendments under its Regulation E that impose new restrictions on banks’ abilities to charge overdraft fees. The final rule prohibits financial institutions from charging fees for paying overdrafts on ATM and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

Interchange Fee.    The Dodd-Frank Act, through a provision known as the Durbin Amendment, requires the Federal Reserve Board to establish standards for interchange fees that are “reasonable and proportional” to the cost of processing the debit card transaction and imposes other requirements on card networks. On December 16, 2010, the Federal Reserve Board proposed an interchange fee cap of twelve cents per transaction, although institutions like the Bank with less than 10 billion in assets would be exempt. Notwithstanding the exemption, it is widely expected that retailers may require smaller institutions to accept the same limitation as a condition of acceptance of their debit cards. Consequently if the interchange fee cap is implemented, we expect it could result in decreased revenues and increased compliance costs for the banking industry and the Bank.

Source of Strength Doctrine.    Federal Reserve policy requires bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act requires this Federal Reserve policy to be made law. Under this policy, the holding company is expected to commit resources to support its bank subsidiary, including at times when the holding company may not be in a financial position to provide it. Any capital loans by a bank holding company to its subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and entitled to priority of payment.

Temporary Liquidity Guarantee Program.    In October 2008, the Secretary of the United States Department of the Treasury (“Treasury”) invoked the systemic risk exception of the FDIC Improvement Act of 1991 and the FDIC announced the Temporary Liquidity Guarantee Program (the “TLGP”). The TLGP provides a guarantee, through the earlier of maturity or June 30, 2012, of certain senior unsecured debt issued by participating Eligible Entities (including the Corporation) between October 14, 2008 and October 31, 2009. The maximum amount of FDIC-guaranteed debt a participating Eligible Entity (including the Corporation) may have outstanding is 125% of the entity’s senior unsecured debt that was outstanding as of September 30, 2008 that was scheduled to mature on or before October 31, 2009. The ability of Eligible Entities (including the Corporation) to issue guaranteed debt under the TLGP expired on October 31, 2009. As of October 31, 2009, the Corporation had no senior unsecured debt outstanding under the TLGP. The Corporation and the Bank signed a master agreement with the FDIC on December 5, 2008 for issuance of bonds under the program. The Corporation did not have any unsecured debt, thus had to file for an exemption to be able to issue bonds under this program. As of March 31,

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2011, the Bank had $60.0 million of bonds issued under the program out of the $88.0 million that the Bank was eligible to issue bearing interest at a fixed rate of 2.74%. The bonds, matured on February 11, 2012.

Another aspect of the TLGP, also established by the FDIC in October 2008, is the transaction account guarantee program (“TAG Program”) under which the FDIC fully guaranteed all non-interest-bearing transaction accounts until December 31, 2009, for FDIC-insured institutions that agreed to participate in the program. The TAG Program applies to all personal and business checking deposit accounts that do not earn interest at participating institutions. The TAG Program was subsequently extended, until December 31, 2010, with an assessment of between 15 and 25 basis points after January 1, 2010. The assessment depends upon an institution’s risk profile and is assessed quarterly on balances in noninterest-bearing transaction accounts that exceed the existing deposit insurance limit of $250,000 for insured depository institutions that have not opted out of this component of the TLGP. The Corporation opted to participate in this component of the TLPG. The Dodd-Frank Act has extended unlimited deposit insurance to non-interest-bearing transaction accounts until December 31, 2012.

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

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

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

• Permanent increase in deposit insurance coverage. Pursuant to the EESA, the FDIC temporarily raised the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. Dodd-Frank permanently raised the limit to $250,000.

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

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

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

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

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

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

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

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

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

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

Homeowners Affordability and Stability Plan

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

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

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

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

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

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

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

Dodd-Frank Act

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

Federal Housing Finance Agency

In January 2011, the Federal Housing Finance Agency (FHFA) announced that it directed Fannie Mae and Freddie Mac to work on a joint initiative, in coordination with FHFA and HUD, to consider alternatives for future mortgage servicing structures and servicing compensation for their single-family mortgage loans. Alternatives that may be considered include a fee for service compensation structure for nonperforming loans, as well as the possibility of reducing or eliminating the minimum mortgage servicing fee for performing loans, or other structures. In its announcement, FHFA stated that any implementation of a new servicing compensation structure would not be expected to occur before summer 2012.

Legislative and Regulatory Proposals

Proposals to change the laws and regulations governing the operations and taxation of, and federal insurance premiums paid by, savings banks and other financial institutions and companies that control such institutions are frequently raised in the U.S. Congress, state legislatures and before the FDIC, the OTS and other bank regulatory authorities. The likelihood of any major changes in the future and the impact such changes might have on us or our subsidiaries are impossible to determine. Similarly, proposals to change the accounting treatment applicable to savings banks and other depository institutions are frequently raised by the SEC, the federal banking agencies, the IRS and other appropriate authorities, including, among others, proposals relating to fair market value accounting for certain classes of assets and liabilities. The likelihood and impact of any additional future accounting rule changes and the impact such changes might have on us or our subsidiaries are impossible to determine at this time.

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Taxation

Federal

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

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

State

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

Item 1A.    Risk Factors

Set forth below and elsewhere in this Annual Report on Form 10-K and in other documents we file with the SEC are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K. The risks described below are not the only ones facing our company. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition, results of operations or prospects could be materially and adversely affected by any of these risks. The trading price of, and market for, shares of our common stock could decline due to any of these risks. This report, including the documents incorporated by reference herein, also contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks described below and in the documents incorporated by reference herein.

Risks Related to Our Industry

Our business may be adversely affected by current conditions in the financial markets, the real estate market and economic conditions generally.

Beginning in the latter half of 2007 and continuing into 2012, negative developments in the capital markets resulted in uncertainty and instability in the financial markets, and an economic downturn. The housing market declined, resulting in decreasing home prices and increasing delinquencies and foreclosures. The credit performance of residential and commercial real estate, construction and land loans resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. The declines in the performance and value of mortgage assets encompassed all mortgage and real estate asset types, leveraged bank loans and nearly all other asset classes, including equity securities. These write-downs have caused many financial institutions to seek additional capital or to merge with larger and stronger institutions. Some financial institutions have failed. Continued, and potentially increased, volatility, instability and weakness could affect our ability to sell investment securities and other financial assets, which in turn could adversely affect our liquidity and financial position. This instability also could affect the prices at which we could make any such sales, which could adversely affect our earnings and financial condition.

Concerns over the stability of the financial markets and the economy have resulted in decreased lending by some financial institutions to their customers and to each other. This tightening of credit has led to increased loan delinquencies, lack of customer confidence, increased market volatility and a widespread reduction in general business activity. Competition among depository institutions for deposits has increased significantly, and access to deposits or borrowed funds has decreased for many institutions. It has also become more difficult to assess the creditworthiness of customers and to estimate the losses inherent in our loan portfolio.

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Current conditions, including high unemployment, weak corporate performance, soft real estate markets, and the decline of home sales and property values, could negatively affect the volume of loan originations and prepayments, the value of the real estate securing our mortgage loans, and borrowers’ ability to repay loan obligations, all of which could adversely impact our earnings and financial condition. Business activity across a wide range of industries and regions is greatly reduced, and local governments and many companies are in serious difficulty due to the lack of consumer spending and the lack of liquidity in the credit markets. A worsening of current conditions would likely adversely affect our business and results of operations, as well as those of our customers. As a result, we may experience increased foreclosures, delinquencies and customer bankruptcies, as well as more restricted access to funds.

The soundness of other financial institutions could negatively affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.

Regulation by federal and state agencies could adversely affect our business, revenue, and profit margins.

We are heavily regulated by federal and state agencies. This regulation is to protect depositors, the federal deposit insurance fund and the banking system as a whole. Congress and state legislatures and federal and state regulatory agencies continually review banking laws, regulations, and policies for possible changes. Changes to statutes, regulations, or regulatory policies, including interpretation or implementation of statutes, regulations, or policies, could affect us adversely, including limiting the types of financial services and products we may offer and/or increasing the ability of non-banks to offer competing financial services and products. Also, if we do not comply with laws, regulations, or policies, we could receive regulatory sanctions and damage to our reputation.

Competition in the financial services industry is intense and could result in losing business or reducing margins.

We operate in a highly competitive industry that could become even more competitive as a result of legislative, regulatory and technological changes, and continued consolidation. We face aggressive competition from other domestic and foreign lending institutions and from numerous other providers of financial services. The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified competition. Because non-banking financial institutions are not subject to the same regulatory restrictions as banks and bank holding companies, they can often operate with greater flexibility and lower cost structures. Securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions. This may significantly change the competitive environment in which we conduct business. Some of our competitors have greater financial resources and/or face fewer regulatory constraints. As a result of these various sources of competition, we could lose business to competitors or be forced to price products and services on less advantageous terms to retain or attract clients, either of which would adversely affect our profitability.

We continually encounter technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.

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Many competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition, results of operations and cash flows.

Risks Related to Our Business

We experienced a net loss in fiscal 2012 directly attributable to a substantial deterioration in our land and construction loan portfolio and the resulting provision for credit losses.

We realized a net loss of $36.7 million in fiscal 2012. The net loss is primarily the result of a $33.6 million provision to our credit loss reserve. The credit loss reserve is the amount required to maintain the allowance for loan losses at an adequate level to absorb probable loan losses. The provision for credit losses is primarily attributable to our residential construction and residential land loan portfolios, which continue to experience deterioration in estimated collateral values and repayment abilities of some of our customers. Other reasons for the level of the provision for credit losses are attributable to the continued weak economic conditions and decline in real estate values in the markets served by the Corporation.

At March 31, 2012, our non-performing loans (consisting of loans past due more than 90 days, loans less than 90 days delinquent but placed on non-accrual status due to anticipated probable loss and non-accrual troubled debt restructurings) were $224.9 million compared to $282.6 million at March 31, 2011. For the year ended March 31, 2012, net charge-offs as a percentage of average loans were 3.14% compared to 2.76% for the corresponding period in 2011.

Despite the improvement in the State of Wisconsin unemployment rate from 8.3% at March 31, 2011 to 7.5% at March 31, 2012, the economy remains fragile. The deterioration in our land and construction loan portfolios has been caused primarily by the weakening economy and the slowdown in sales of the housing market. With many real estate projects requiring an extended time to market, some of our borrowers have exhausted their liquidity which may require us to place their loans into non-accrual status.

We have expressed substantial doubt about our ability to continue as a going concern.

We have expressed substantial doubt about our ability to continue as a going concern. Continued operations depend on our ability to meet our existing debt obligations and the financing or other capital required to do so may not be available or may not be available on reasonable terms. The Bank has low levels of capital, significant operating losses and significant deterioration in the quality of its assets. Further, we have become subject to enhanced regulatory scrutiny. The potential lack of sources of liquidity raises substantial doubt about our ability to continue as a going concern for the foreseeable future. Our Consolidated Financial Statements were prepared under the assumption that we will continue our operations on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business. Our Consolidated Financial Statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. If we cannot continue as a going concern, our shareholders will lose some or all of their investment.

We are actively pursuing a broad range of strategic alternatives in order to address any doubt related to the Corporation’s ability to continue as a going concern. There can be no assurance that the pursuit of strategic alternatives will result in any transaction, or that any such transaction, if consummated, will allow the Corporation’s shareholders to avoid a loss of all or substantially all of their investment in the Corporation. In addition, a transaction, which would likely involve equity financing, would result in substantial dilution to our current shareholders and could adversely affect the price of our common stock. The pursuit of strategic alternatives may also involve significant expenses and management time and attention.

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We have reported material weaknesses in our internal control over financial reporting in past fiscal years and if additional material weaknesses are discovered in the future, our stock price and investor confidence in us may be adversely affected.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. In connection with management’s assessments of our internal control over financial reporting over the prior two fiscal years and interim quarterly periods in the current fiscal year, we identified material weakness in our internal control over financial reporting.

As disclosed in Item 9A control deficiency, we believe we have taken the steps necessary to remediate certain material weaknesses identified during these periods. The controls implemented to remediate these material weaknesses were determined to be operating effectively as of March 31, 2012.

We may, in the future, identify additional internal control deficiencies that could rise to the level of a material weakness or uncover errors in financial reporting. Material weaknesses in our internal control over financial reporting may cause investors to lose confidence in us, which could have an adverse effect on our business and stock price.

The Bank may be subject to a federal conservatorship or receivership if it cannot comply with the Cease and Desist Order, the Capital Restoration Plan, or if its condition continues to deteriorate.

In June 2009, the Bank voluntarily entered into a Cease and Desist Order with the OTS (now administered by the OCC) which required, among other things, capital requirements in excess of the generally applicable minimum requirements. The Bank was also required to create and implement a Capital Restoration Plan. The condition of the Bank’s loan portfolio may continue to deteriorate in the current economic environment and thus continue to deplete the Bank’s capital and other financial resources. Therefore, should the Bank fail to comply with the Cease and Desist Order, fail to fulfill the terms of its Capital Restoration Plan, fail to comply with capital and liquidity funding requirements, or suffer a continued deterioration in its financial condition, the Bank may be subject to being placed into a federal conservatorship or receivership by the OCC, with the FDIC appointed as conservator or receiver. If these events occur, the Corporation probably would suffer a complete loss of the value of its ownership interest in the Bank, and the Corporation subsequently may be exposed to significant claims by the FDIC and the OCC.

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

Our ability to make loans is directly related to our ability to secure funding. Retail deposits and core deposits are our primary source of liquidity. We also rely on advances from the FHLB of Chicago as a funding source. We have also been granted access to Federal Reserve Bank of Chicago’s discount window, but as of March 31, 2012 we had no borrowings outstanding from this source. In addition, as of March 31, 2012, the Corporation had outstanding borrowings from the FHLB of $357.5 million, out of our maximum borrowing capacity from the FHLB at this time, based on collateral currently pledged, of $514.2 million.

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

Concern of our customers over deposit insurance may cause a decrease in deposits.

With recent increased concerns about bank failures, customers increasingly are concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits in an effort to ensure that the

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amount they have on deposit with their bank is fully insured. The Dodd-Frank Provision, which became effective on December 31, 2010, provides unlimited FDIC insurance coverage for all noninterest-bearing transaction accounts, as well as IOLTA accounts. This full deposit insurance coverage is in effect until December 31, 2012. We have elected to participate in the program. If this program is not extended beyond December 31, 2012, we may experience a decrease in deposits. Decreases in deposits may adversely affect our funding costs, net income, and liquidity.

Our liquidity is largely dependent upon our ability to receive dividends from our subsidiary bank, which accounts for most of our revenue and could affect our ability to pay dividends, and we may be unable to enhance liquidity from other sources.

We are a separate and distinct legal entity from our subsidiaries, including the Bank. We receive substantially all of our revenue from dividends from the Bank. These dividends are the principal source of funds to pay dividends on our common stock and interest and principal on our debt. Various federal and/or state laws and regulations limit the amount of dividends that the Bank and certain of our non-bank subsidiaries may pay us. Additionally, if our subsidiaries’ earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, our ability to make dividend payments to our preferred and common shareholders will be negatively impacted. The Bank is currently precluded from paying dividends to the Corporation.

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

Weakening conditions in the real estate sector have adversely affected, and may continue to adversely affect, our loan portfolio. Non-performing assets decreased by $59.6 million to $313.8 million, or 11.25% of total assets, at March 31, 2012 from $373.4 million, or 11.0% of total assets, at March 31, 2011. If loans that are currently non-performing further deteriorate, we may need to increase our allowance to cover additional charge-offs. If loans that are currently performing become non-performing, we may need to continue to increase our allowance for loan losses if additional losses are anticipated which would have an adverse impact on our financial condition and results of operations. The increased time and expense associated with the work out of non-performing assets and potential non-performing assets also could adversely affect our operations.

Future equity financing will adversely affect the market price of the Corporation’s common stock and dilute the Corporation’s equity.

We have been seeking additional equity financing to provide additional capital for the Corporation. Based on discussions with possible equity participants to date, we believe that any such financing is likely to be at a per share price significantly below the current market price, and as a result, the market price of the Corporation’s common stock would decline significantly. In addition, we believe the issuance of additional capital stock would dilute the ownership interest of the Corporation’s existing shareholders.

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

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

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

The Cease and Desist Orders required that, no later than December 31, 2009, the Bank had to meet and maintain both a core capital ratio equal to or greater than eight percent and a total risk-based capital ratio equal to or greater than twelve percent. At March 31, 2012, the Bank and Corporation had complied with all aspects of the Cease and Desist Orders, except that the Bank, based upon presently available unaudited financial

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information, had tier 1 leverage (core) capital and total risk-based capital ratios of 4.51 percent and 8.42 percent, respectively, each below the required capital ratios set in the Cease and Desist Orders. Without a waiver by the OCC or an amendment or modification of the Orders, the Bank could be subject to further regulatory action.

All customer deposits remain fully insured to the highest limits set by the FDIC.

If the Bank is placed in conservatorship or receivership, it is highly likely that such action would lead to a complete loss of all value of the Company’s ownership interest in the Bank. In addition, further restrictions could be placed on the Bank if it were determined that the Bank was significantly undercapitalized, or critically undercapitalized, with increasingly greater restrictions being imposed as any level of undercapitalization increased.

Although the Bank is considered “adequately capitalized” under PCA guidelines for regulatory purposes, we will incur increased premiums for deposit insurance and will trigger acceleration of certain of our brokered deposits if we fall below the “adequately capitalized” threshold.

In April 2011, the FDIC issued new base assessment rates dependent upon the risk category assigned to an institution. These rates range between twelve and 45 basis points. The revised assessment criteria is a risk-based determination, rather than solely based on capital levels. Higher insurance premiums may be assessed to institutions that fall in the higher risk categories, which would impact earnings.

Future Federal Deposit Insurance Corporation assessments will hurt our earnings.

In November 2009, the FDIC issued a rule that required all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. Any additional emergency special assessment imposed by the FDIC will likely negatively impact the Company’s earnings.

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

Our level of non-performing loans decreased significantly in the fiscal year ended March 31, 2012, relative to the preceding year. Our provision for credit losses decreased by $17.6 million to $33.6 million for the fiscal year ended March 31, 2012 from $51.2 million for the fiscal year ended March 31, 2011. Our allowance for loan losses decreased by $38.9 million to $111.2 million, or 5.1% of total loans, at March 31, 2012 from $150.1 million, or 5.6% of total loans at March 31, 2011. Our allowance for loan and foreclosure losses was 42.6% at March 31, 2012, 45.6% at March 31, 2011 and 43.1% at March 31, 2010, respectively, of non-performing assets. There can be no assurance that any future declines in real estate market conditions and values, general economic conditions or changes in regulatory policies will not require us to increase our allowance for loan and lease losses, which would adversely affect our results of operations.

If our investment in the common stock of the Federal Home Loan Bank of Chicago is other than temporarily impaired, our financial condition and results of operations could be materially impaired.

The Bank owns common stock of the Federal Home Loan Bank of Chicago (“FHLBC”). The common stock is held to qualify for membership in the Federal Home Loan Bank System and to be eligible to borrow funds under the FHLBC’s advance program. The aggregate cost and fair value of our FHLBC common stock as of March 31, 2012 was $35.8 million, based on its par value. There is no market for the FHLBC common stock and while redemptions may be requested they are at the discretion of the FHLBC.

The Bank evaluates the FHLBC stock for impairment on a regular basis. The determination of whether FHLB stock is impaired depends on a number of factors and is based on an assessment of the ultimate recoverability of cost rather than changes in the book value of the shares. If our investment in the common stock of the Federal Home Loan Bank of Chicago were to become other than temporarily impaired, our financial condition and results of operations could be materially affected.

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

We historically paid cash dividends before suspending dividend payments on our common stock. The Federal Reserve, as a matter of policy, has indicated that bank holding companies should not pay dividends using funds from TARP CPP. There is no assurance that we will resume paying cash dividends. Even if we resume paying dividends, future payment of cash dividends on our common stock, if any, will be subject to the prior payment of all unpaid dividends and deferred distributions on our Series B Preferred Stock held by the U.S. Treasury. All dividends are declared and paid at the discretion of our board of directors and are dependent upon our liquidity, financial condition, results of operations, capital requirements and such other factors as our board of directors may deem relevant.

Further, dividend payments on our Series B Preferred Stock are cumulative and therefore unpaid dividends and distributions will accrue and compound on each subsequent dividend payment date. In the event of any liquidation, dissolution or winding up of the affairs of our company, holders of the Series B Preferred Stock shall be entitled to receive for each share of Series B Preferred Stock the liquidation amount plus the amount of any accrued and unpaid dividends. Upon deferring six quarterly dividend payments, whether or not consecutive, the Treasury obtained the right to appoint two directors to our board of directors until all accrued but unpaid dividends have been paid. We have deferred twelve dividend payments on the Series B Preferred Stock held by the Treasury as of March 31, 2012. On September 30, 2011, the Treasury exercised its right to appoint two directors to the Board of Directors of the Corporation. Treasury is the sole stockholder of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, series B and as such has the right to appoint two directors.

Maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services.

Our success depends, in part, on the ability to adapt products and services to evolving industry standards. There is increasing pressure to provide products and services at lower prices. This can reduce net interest income and noninterest income from fee-based products and services. In addition, the widespread adoption of new technologies could require us to make substantial capital expenditures to modify or adapt existing products and services or develop new products and services. We may not be successful in introducing new products and services in response to industry trends or development in technology or those new products may not achieve market acceptance. As a result, we could lose business, be forced to price products and services on less advantageous terms to retain or attract clients, or be subject to cost increases.

Continued deterioration in the real estate markets or other segments of our loan portfolio could lead to additional losses, which could have a material negative effect on our financial condition and results of operations.

The commercial real estate market continues to experience a variety of difficulties. As a result of increased levels of commercial and consumer delinquencies and declining real estate values, which reduce the customer’s borrowing power and the value of the collateral securing the loan, we have experienced increasing levels of charge-offs and provisions for credit losses. Continued increases in delinquency levels or continued declines in real estate values, which cause our borrowers’ loan-to-value ratios to increase, could result in additional charge-offs and provisions for credit losses. This could have a material negative effect on our business and results of operations.

Significant legal actions could subject us to substantial uninsured liabilities.

We are from time to time subject to claims related to our operations. These claims and legal actions, including supervisory actions by our regulators, could involve large monetary claims and significant defense costs. Substantial legal liability or significant regulatory action against us could have material adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business prospects. We may be exposed to substantial uninsured liabilities, which could adversely affect our results of operations and financial condition.

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While we attempt to manage the risk from changes in market interest rates, interest rate risk management techniques are not exact. In addition, we may not be able to economically hedge our interest rate risk. A rapid or substantial increase or decrease in interest rates could adversely affect our net interest income and results of operations.

Our net income depends primarily upon our net interest income. Net interest income is income that remains after deducting, from total income generated by earning assets, the interest expense attributable to the acquisition of the funds required to support earning assets. Income from earning assets includes income from loans, investment securities and short-term investments. The amount of interest income is dependent on many factors, including the volume of earning assets, the general level of interest rates, the dynamics of changes in interest rates and the level of nonperforming loans. The cost of funds varies with the amount of funds required to support earning assets, the rates paid to attract and hold deposits, rates paid on borrowed funds and the levels of non-interest-bearing demand deposits and equity capital.

Different types of assets and liabilities may react differently, and at different times, to changes in market interest rates. We expect that we will periodically experience “gaps” in the interest rate sensitivities of our assets and liabilities. That means either our interest-bearing liabilities will be more sensitive to changes in market interest rates than our interest earning assets, or vice versa. When interest-bearing liabilities mature or reprice more quickly than interest earning assets, an increase in market rates of interest could reduce our net interest income. Likewise, when interest-earning assets mature or reprice more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income. We are unable to predict changes in market interest rates which are affected by many factors beyond our control including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets. Based on our net interest income simulation model, if market interest rates were to increase immediately by 100 or 200 basis points (a parallel and immediate shift of the yield curve) net interest income would be expected to increase by 6.4% and 13.2%, respectively, from what it would be if rates were to remain at March 31, 2012 levels. The actual amount of any increase or decrease may be higher or lower than that predicted by our simulation model. The amounts and assumptions used in the simulation model should not be viewed as indicative of expected actual results. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies. Net interest income is not only affected by the level and direction of interest rates, but also by the shape of the yield curve, credit spreads, relationships between interest sensitive instruments and key driver rates, balance sheet growth, client loan and deposit preferences and the timing of changes in these variables.

An interruption in or breach in security of our information systems may result in a loss of customer business.

We rely heavily on communications and information systems to conduct our business. Any failure or interruptions or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposits, servicing, or loan origination systems. The occurrence of any failures, interruptions or security breaches of information systems used to process customer transactions could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition, results of operations and cash flows.

Additionally, we outsource portions of our data processing to third parties. If our third party provider encounters difficulties or if we have difficulty in communicating with such third party, it will significantly affect our ability to adequately process and account for customer transactions, which would significantly affect our business operations. Furthermore, breaches of such third party’s technology may also cause reimbursable loss to our consumer and business customers, through no fault of our own.

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with

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regulations related to controls and procedures could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Severe weather, natural disasters, acts of war or terrorism and other external events could significantly impact our business.

Severe weather, natural disasters, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base; impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. Although management has established disaster recovery policies and procedures and is insured for these situations, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition, results of operations and cash flows.

The Corporation is exposed to risk of environmental liabilities with respect to properties to which it takes title.

In the course of our business, we may own or foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition, cash flows, liquidity and results of operations could be materially and adversely affected.

Our regional concentration makes us particularly at risk for changes in economic conditions in our primary market.

Our business is primary located in Wisconsin. Thus, we are particularly vulnerable to adverse changes in economic conditions in Wisconsin and the Midwest more generally.

Our asset valuations include observable inputs and may include methodologies, estimations and assumptions that are subject to differing interpretations and could result in changes to asset valuations that may materially adversely affect our results of operations or financial condition.

We must use estimates, assumptions and judgments when financial assets and liabilities are measured and reported at fair value. Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Fair values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices and/or other observable inputs provided by independent third-party sources, when available. When such third-party information is not available, we estimate fair value primarily by using cash flows and other financial modeling techniques utilizing assumptions such as credit quality, liquidity, interest rates and other relevant inputs. Changes in underlying inputs, factors, assumptions or estimates in any of the areas underlying our estimates could materially impact our future financial condition and results of operations.

During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be more difficult to value certain of our assets if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the current financial environment. In such cases, certain asset valuations may require more subjectivity and management judgment. As such, valuations may include inputs and assumptions that are less observable or require greater estimation. Further, rapidly changing and unprecedented credit and equity market conditions and interest rates could materially impact the valuation of assets as reported within our consolidated financial statements, and the period-to-period changes in value could vary significantly.

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Lenders may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, borrower fraud, or certain borrower defaults, which could harm our liquidity, results of operations and financial condition.

When we sell mortgage loans, whether as whole loans or pursuant to a securitization, we are required to make customary representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated. Our whole loan sale agreements require us to repurchase or substitute mortgage loans in the event we breach any of these representations or warranties. In addition, we may be required to repurchase mortgage loans as a result of borrower fraud. Likewise, we are required to repurchase or substitute mortgage loans if we breach a representation or warranty in connection with our securitizations. While we have taken steps to enhance our underwriting policies and procedures, there can be no assurance that these steps will be effective or reduce risk associated with loans sold in the past. Historically, the volume of repurchases has been insignificant. If the level of repurchase and indemnity activity becomes material, our liquidity, results of operations and financial condition will be adversely affected.

Our Shareholder Rights Plan limits our likelihood of being acquired in a manner not approved by our Board.

On November 5, 2010 we entered into a shareholder rights plan designed to reduce the likelihood that we will experience an “ownership change” under U.S. federal income tax laws. The existence of the rights plan may make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control that is not approved by our Board, which in turn could prevent our shareholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

Risks Related to Our Credit Agreement

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

We are party to a credit agreement, dated as of June 9, 2008, by and among the Corporation, the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders, as amended (the “Credit Agreement”). The most recent amendment, Amendment No. 8 to the Amended and Restated Credit Agreement is dated November 29, 2011. The Credit Agreement requires us to comply with affirmative and negative covenants customary for restricted indebtedness. These covenants limit our ability to, among other things:

• incur additional indebtedness or issue certain preferred shares;

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

• make certain investments;

• sell certain assets; and

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

The Credit Agreement provides that the Bank must attain and maintain certain capital ratios and requires us to retain a financial consultant, as well as other customary representations, warranties, conditions and events of default for agreements of such type. The Agent and the lenders have certain rights, including the right to accelerate the maturity of the borrowings if all covenants are not complied with. Further, the Agent or the lenders have agreed to forbear from exercising their rights and remedies until the earlier of (i) the occurrence of an event of default, as that term is defined in the Amendment, other than failure to make principal payments, or (ii) November 30, 2012.

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.

Accordingly, this creates significant uncertainty related to the Corporation’s operations.

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We must pay in full the outstanding balance under the Credit Agreement by the earlier of November 30, 2012 or the receipt of net proceeds of a financing transaction from the sale of equity securities.

As of March 31, 2012, the total revolving loan commitment under the Credit Agreement was $116.3 million and aggregate borrowings under the Credit Agreement were $116.3 million. We must pay in full the outstanding balance under the Credit Agreement by the earlier of November 30, 2012 or the receipt of net proceeds of a financing transaction from the sale of equity securities of not less than $116.3 million. If the net proceeds are received from the U.S. Department of the Treasury and the terms of such investment prohibit the use of the investment proceeds to repay senior debt, then no payment is required from the Treasury investment. As of the date of this filing, we do not have sufficient cash on hand to reduce our outstanding borrowings to zero. There can be no assurance that we will be able to raise sufficient capital or have sufficient cash on hand to reduce our outstanding borrowings to zero by November 30, 2012, which may limit our ability to fund ongoing operations.

Unless the maturity date is extended, our outstanding borrowings under our Credit Agreement are due on November 30, 2012. The Credit Agreement does not include a commitment to refinance the remaining outstanding balance of the loans when they mature and there is no guarantee that our lenders will renew their loans at that time. Refusal to provide us with renewals or refinancing opportunities would cause our indebtedness to become immediately due and payable upon the contractual maturity of such indebtedness, which could result in our insolvency if we are unable to repay the debt.

If the Agent or the lenders decided not to refinance the remaining outstanding balance of the loans then at the earlier of (i) the occurrence of an event of default under the Amendment (other than a failure to make principal payments), or (ii) November 30 2012, the agent, on behalf of the lenders may, among other remedies, seize the outstanding shares of the Bank’s capital stock held by the Corporation or other securities or assets of the Corporation’s subsidiaries which have been pledged as collateral for borrowings under the Credit Agreement. If the Agent were to take one or more of these actions, it could have a material adverse affect on our reputation, operations and ability to continue as a going concern, and the common shareholders could lose all of their investment.

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

Risks Related to Recent Market, Legislative and Regulatory Events

We are highly dependent upon programs administered by Fannie Mae, Freddie Mac and Ginnie Mae. Changes in existing U.S. government-sponsored mortgage programs or servicing eligibility standards could materially and adversely affect our business, financial position, results of operations or cash flows.

Our ability to generate revenues through mortgage loan sales to institutional investors in the form of mortgage-backed securities depends to a significant degree on programs administered by Fannie Mae, Freddie Mac, Ginnie Mae and others that facilitate the issuance of mortgage-backed securities in the secondary market. These entities play a powerful role in the residential mortgage industry, and we have significant business relationships with them. Our status as a Fannie Mae and Freddie Mac approved seller/servicer is subject to compliance with each entity’s respective selling and servicing guides.

During 2012, 94% of our mortgage loan sales were sold to, or were sold pursuant to programs sponsored by, Fannie Mae or Freddie Mac. We also derive other material financial benefits from our relationships with Fannie Mae and Freddie Mac, including the assumption of credit risk by these entities on loans included in mortgage-backed securities in exchange for our payment of guarantee fees and the ability to avoid certain loan

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inventory finance costs through streamlined loan funding and sale procedures. Any discontinuation of, or significant reduction or material change in, the operation of these entities or any significant adverse change in the level of activity in the secondary mortgage market or the underwriting criteria of these entities would likely prevent us from originating and selling most, if not all, of our mortgage loan originations.

In addition, we service loans on behalf of Fannie Mae and Freddie Mac, as well as loans that have been securitized pursuant to securitization programs sponsored by Fannie Mae and Freddie Mac in connection with the issuance of agency guaranteed mortgage-backed securities and a majority of our mortgage servicing rights relate to these servicing activities. These entities establish the base service fee in which to compensate us for servicing loans. In January 2011, the Federal Housing Finance Agency directed Fannie Mae and Freddie Mac to develop a joint initiative to consider alternatives for future mortgage servicing structures and compensation. Under this proposal, the GSEs are considering potential structures in which the minimum service fee would be reduced or eliminated altogether. The GSEs are also considering different pricing options for non-performing loans to better align servicer incentives with MBS investors and provide the loan guarantor the ability to transfer non-performing servicing. These proposals, if adopted, could cause significant changes that impact the entire mortgage industry. The lower capital requirements could increase competition by lowering barriers to entry on mortgage originations and could increase the concentration of performing loans with larger servicers that have a cost-advantage through economies of scale that would no longer be limited by capital constraints.

In February 2011, the Obama administration issued a report to Congress, outlining various options for long-term reform of Fannie Mae and Freddie Mac. These options involve reducing the role of Fannie Mae and Freddie Mac in the mortgage market and to ultimately wind down both institutions such that the private sector provides the majority of mortgage credit. The report states that any potential reform efforts will make credit less easily available and that any such changes should occur at a measured pace that supports the nation’s economic recovery. Any of these options are likely to result in higher mortgage rates in the future, which could have a negative impact on our Mortgage production business. Additionally, it is unclear what impact these changes will have on the secondary mortgage markets, mortgage-backed securities pricing, and competition in the industry.

The potential changes to the government-sponsored mortgage programs, and related servicing compensation structures, could require us to fundamentally change our business model in order to effectively compete in the market. Our inability to make the necessary changes to respond to these changing market conditions or loss of our approved seller/servicer status with any of these entities, would have a material adverse effect on our overall business and our consolidated financial position, results of operations and cash flows.

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

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

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

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

• prohibiting golden parachute payments to senior executives; and

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

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

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ARRA imposed further limitations on compensation during the TARP assistance period including:

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

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

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

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

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

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

TARP lending goals may not be attainable.

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

The Company and the Bank are subject to extensive regulation, supervision and examination by federal banking authorities.

Changes in applicable regulations or legislation could have a substantial impact on our operations. Additional legislation and regulations that could significantly affect our powers, authority and operations may be enacted or adopted in the future, which could have a material adverse effect on our financial condition and results of operations. In that regard, proposals for legislation restructuring the regulation of the financial services industry are currently under consideration. Adoption of such proposals could, among other things, increase the overall costs of regulatory compliance. Further, regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws or regulations by financial institutions and holding companies in the performance of their supervisory and enforcement duties. These powers recently have been utilized more frequently due to the serious national, regional and local economic conditions that we and other financial institutions are facing. The exercise of regulatory authority may have a negative impact on our financial

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condition and results of operations. We cannot predict the actual effects of various governmental, regulatory, monetary and fiscal initiatives, which have been and may be enacted on the financial markets. The terms and costs of these activities, or the failure of these actions to help stabilize the financial markets, asset prices, market liquidity, and a continuation or worsening of current financial market and economic conditions could materially and adversely affect our business, financial condition, results of operations, and the trading price of our common stock. In addition, failure or the inability to comply with these various requirements can lead to diminished reputation and investor confidence, reduced franchise value, loss of business, curtailment of expansion opportunities, fines and penalties, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems.

There can be no assurance that enacted legislation or any proposed federal programs will stabilize the U.S. financial system and such legislation and programs may adversely affect us.

There has been much legislative and regulatory action in response to the financial crises affecting the banking system and financial markets and threats to investment banks and other financial institutions.There can be no assurance, however, as to the actual impact that the legislation and its implementing regulations or any other governmental program will have on the financial markets. The failure of the actions by the legislators, the regulatory bodies or the U.S. government to stabilize the financial markets and a continuation or worsening of current financial market conditions could materially and adversely affect our business, financial condition, results of operations, and access to credit or the trading price of our common shares.

Contemplated and proposed legislation, state and federal programs, and increased government control or influence may adversely affect us by increasing the uncertainty in our lending operations and expose us to increased losses, including legislation that would allow bankruptcy courts to permit modifications to mortgage loans on a debtor’s primary residence, moratoriums on a mortgagor’s right to foreclose on property, and requirements that fees be paid to register other real estate owned property. Statutes and regulations may be altered that may potentially increase our costs to service and underwrite mortgage loans. Additionally, federal intervention and operation of formerly private institutions may adversely affect our rights under contracts with such institutions and the way in which we conduct business in certain markets.

The fiscal and monetary policies of the federal government and its agencies could have a material adverse effect on our earnings.

The Board of Governors of the Federal Reserve System regulates the supply of money and credit in the United States. Its policies determine in large part the cost of funds for lending and investing and the return earned on those loans and investments, both of which affect the net interest margin. The resultant changes in interest rates can also materially decrease the value of certain financial assets we hold, such as debt securities. Its policies can also adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans. Changes in Federal Reserve Board policies are beyond our control and difficult to predict; consequently, the impact of these changes on our activities and results of operations is difficult to predict.

The recent ratings downgrade of the United States Government may adversely affect us.

In July 2011, certain rating agencies placed the United States government’s long-term sovereign debt rating on their equivalent of negative watch and announced the possibility of a credit rating downgrade. On August 5, 2011, Standard & Poor’s downgraded the United States long-term debt rating from its AAA rating to AA+. On August 8, 2011, Standard & Poor’s downgraded the credit ratings of certain long-term debt instruments issued by Fannie Mae and Freddie Mac and other U.S. government agencies linked to long-term U.S. debt. Instruments of this nature are key assets on the balance sheets of financial institutions, including the Bank. These downgrades could adversely affect the market value of such instruments, and could adversely impact our ability to obtain funding that is collateralized by affected instruments, as well as affecting the pricing of that funding when it is available. We cannot predict if, when or how these changes to the credit ratings will affect economic conditions, the Bank’s operations or our financial results. These ratings downgrades could result in a significant adverse impact to us, and could exacerbate the other risks to which we are subject, including those described above.

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Management’s ability to retain key officers and employees may change.

Our future operating results depend substantially upon the continued service of its executive officers and key personnel. Our future operating results also depend in significant part upon its ability to attract and retain qualified management, financial, technical, marketing, sales and support personnel. Competition for qualified personnel is intense, and we cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number of persons with the requisite skills to serve in these positions, and it may be increasingly difficult for us to hire personnel over time.

Our ability to retain key officers and employees may be further impacted by legislation and regulation affecting the financial services industry. For example, Section 7001 of the ARRA which amended Section 111 of the EESA in its entirety, as well as the final interim regulations issued by the U.S. Treasury, significantly expanded the executive compensation restrictions. Such restrictions applied to us as a participant in the TARP CPP and generally continued to apply for as long as any Treasury owned shares were outstanding. These ARRA restrictions shall not apply to us during such time when the federal government only holds warrants to purchase common shares. Such restrictions and standards may further impact management’s ability to compete with financial institutions that are not subject to the ARRA limitations on executive compensation.

Our business, financial condition, or results of operations could be materially adversely affected by the loss of any of its key employees, or our inability to attract and retain skilled employees.

We are subject to various reporting requirements that increase compliance costs, and failure to comply timely could adversely affect our reputation and the value of our common stock.

We are required to comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the Securities and Exchange Commission, the Public Corporation Accounting Oversight Board and Nasdaq. In particular, we are required to include management and independent auditor reports on internal controls as part of our Annual Report on Form 10-K pursuant to Section 404 of the Sarbanes-Oxley Act. We expect to continue to spend significant amounts of time and money on compliance with these rules. In addition, pursuant to our Cease and Desist Order with OTS (now administered by the OCC), we must prepare and submit various reports and may face further reporting obligations in the future depending upon our financial condition. Compliance with various regulatory reporting requires significant commitments of time from management and our directors, which reduces the time available for the performance of their other responsibilities. Our failure to track and comply with the various rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, lead to additional regulatory enforcement actions, and could adversely affect the value of our common stock.

Non-compliance with USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions, and curtail expansion opportunities

Financial institutions are required under the USA PATRIOT and Bank Secrecy Acts to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. Financial institutions are also obligated to file suspicious activity reports with the U.S. Treasury’s office of Financial Crimes Enforcement Network if such activities are detected. These rules also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure or the inability to comply with these regulations could result in fines or penalties, curtailment of expansion opportunities, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems. During the last few years, several banking institutions have received large fines for non-compliance with these laws and regulations. We have developed policies and continues to augment procedures and systems designed to assist in compliance with these laws and regulations.

The impact of the Dodd-Frank Act is still uncertain, but it may increase our costs of doing business and could result in restrictions on certain products and services we offer.

Regulation of the financial services industry is undergoing major changes. The Dodd-Frank Act significantly revises and expands the rulemaking, supervisory and enforcement authority of federal bank

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regulators. Although the statute will have a greater impact on larger institutions than regional bank holding companies such as the Bank, many of its provisions will apply to us. Among other things, the Dodd-Frank Act:

• dissolved the Office of Thrift Supervision, transferring regulation of the Bank to the Office of the Comptroller of Currency and of the Corporation to the Federal Reserve effective July 21, 2011;

• is changing the capital requirements for bank holding companies and would require less favorable capital treatment for future issuances of trust preferred (although our existing trust preferred are grandfathered and therefore not subject to the new rules);

• raises prudential standards by requiring, for instance, annual internal stress testing and establishment of independent risk committees for banks with $10 billion or more in assets;

• grants the FDIC back-up supervisory authority with respect to depository institution holding companies that engage in conduct that poses a foreseeable and material risk to the Deposit Insurance Fund, and heightens the Federal Reserve’s authority to examine, prescribe regulations and take action with respect to all subsidiaries of a bank holding company;

• prohibits insured state-chartered banks from engaging in derivatives transactions unless the chartering state’s lending limit laws take into consideration credit exposure to derivative transactions;

• specifies that a bank holding company may acquire control of an out-of-state bank only if it is well-capitalized and well-managed, and does not allow interstate merger transactions unless the resulting bank would be well-capitalized and well-managed after the transaction;

• changes how the FDIC calculates deposit insurance assessments and effectively requires increases in deposit insurance fees that will be borne primarily by institutions with assets of greater than $10 billion;

• subjects both large and small financial institutions to data and information gathering by a newly created Office of Financial Research;

• requires retention of 5% of the credit risk in assets transferred, sold or conveyed through issuances of asset-backed securities, with the risk-retention obligation spread between securitizers and originators;

• creates a new Consumer Bureau given rulemaking, examination and enforcement authority over consumer protection matters, imposes limits on debit card interchange fees that may be charged by card issuers with $10 billion or more in assets and contains provisions on mortgage-related matters such as steering incentives, determinations as to a borrowers’ ability to repay and prepayment penalties; and

• mandates and allows certain changes regarding corporate governance and executive compensation such as shareholder proxy access for publicly traded banks’ director nominations, clawback of incentive-based compensation from executive officers and increased disclosure on compensation arrangements.

Some of these changes are effective immediately, though most will be phased in gradually. In addition, the statute in many instances calls for future rulemaking to implement its provisions, so the precise contours of the law and its effects on us cannot yet be fully understood. The provisions of the Dodd-Frank Act and the subsequent exercise by regulators of their revised and expanded powers thereunder could materially impact the profitability of our business, the value of assets we hold or the collateral available for our loans, require changes to business practices or force us to discontinue businesses and expose us to additional costs, taxes, liabilities, enforcement actions and reputational risk. Legislators and regulators are also considering a wide range of proposals beyond the Dodd-Frank Act that, if enacted, could result in major changes to the way banking operations are regulated.

We may be subject to more stringent capital requirements.

As discussed above, the Dodd-Frank Act would require the federal banking agencies to establish stricter risk-based capital requirements and leverage limits to apply to banks and bank holding companies. In addition, the “Basel III” standards recently announced by the Basel Committee on Banking Supervision (the “Basel Committee”), if adopted, could lead to significantly higher capital requirements, higher capital charges and more

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restrictive leverage and liquidity ratios. The standards would, among other things, impose more restrictive eligibility requirements for Tier 1 and Tier 2 capital; increase the minimum Tier 1 common equity ratio to 4.5%, net of regulatory deductions, and introduce a capital conservation buffer of an additional 2.5% of common equity to risk-weighted assets, raising the target minimum common equity ratio to 7%; increase the minimum Tier 1 capital ratio to 8.5% inclusive of the capital conservation buffer; increase the minimum total capital ratio to 10.5% inclusive of the capital buffer; and introduce a countercyclical capital buffer of up to 2.5% of common equity or other fully loss absorbing capital for periods of excess credit growth. Basel III also introduces a non-risk adjusted Tier 1 leverage ratio of 3%, based on a measure of total exposure rather than total assets, and new liquidity standards.

The new Basel III capital standards will be phased in from January 1, 2013 until January 1, 2019, and it is not yet known how these standards will be implemented by U.S. regulators generally or how they will be applied to financial institutions of our size. Implementation of these standards, or any other new regulations, may adversely affect our ability to pay dividends, or require us to restrict growth or raise capital, including in ways that may adversely affect our results of operations or financial condition.

Item 1B.    Unresolved Staff Comments.

None

Item 2.    Properties

At March 31, 2012, the Corporation conducts business from its main office headquarters at 25 West Main Street, Madison, Wisconsin and 55 other full-service offices and one loan origination office. The Bank owns 36 of its full-service offices, leases the land on which four such offices are located, and leases the remaining 17 full-service offices. The Bank also owns its headquarters building which hosts a support center as well as two land sites for future development. In addition, the Bank leases one loan-origination facility. The leases expire between 2012 and 2030. The aggregate net book value at March 31, 2012 of the properties owned or leased, including headquarters, properties and leasehold improvements, was $20.0 million. See Note 9 to the Corporation’s Consolidated Financial Statements included in Item 8, for information regarding premises and equipment. We believe that our current facilities are adequate to meet present needs.

Item 3.    Legal Proceedings

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

Item 4.    Mine Safety Disclosures

Not applicable.

PART II

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

Common Stock

The Corporation’s common stock is traded in the OTC Market under the symbol “ABCW.PK”. At May 31, 2012, there were approximately 2,600 stockholders of record. That number does not include stockholders holding their stock in street or nominee name.

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Quarterly Stock Price and Dividend Information

The table below presents the reported high and low sale prices of common stock and cash dividends paid per share of common stock during the periods indicated in fiscal 2012 and 2011.

Quarter Ended	High		Low		Cash Dividend
March 31, 2012	$	1.000	$	0.220	$	—
December 31, 2011		0.530		0.160		—
September 30, 2011		0.730		0.490		—
June 30, 2011		0.990		0.610		—
March 31, 2011	$	1.900	$	0.950	$	—
December 31, 2010		1.500		0.520		—
September 30, 2010		0.750		0.450		—
June 30, 2010		1.550		0.400		—

For information regarding restrictions on the payments of dividends by the Bank to the Corporation, see “Item 1. Business — Regulation and Supervision — The Bank — Restrictions on Capital Distributions,” “Item 1A. Risk Factors — Risks Related to Our Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” of this Form 10-K.

Repurchases of Common Stock

As of March 31, 2012, the Corporation does not have a stock repurchase plan in place.

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Performance Graph

The following graph compares the yearly cumulative total return on the Corporation’s common stock over a five-year measurement period since March 31, 2007 with (i) the yearly cumulative total return on the stocks included in the Nasdaq Stock Market Index (for United States companies) and (ii) the yearly cumulative total return on the stocks included in the Morningstar, Inc. index (formally known as the Hemscott Group) Index. All of these cumulative returns are computed assuming the reinvestment of dividends at the frequency with which dividends were paid during the applicable years.

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Item 6.    Selected Financial Data

The following information at and for the years ended March 31, 2012, 2011, 2010, 2009 and 2008 has been derived primarily from the Corporation’s historical audited consolidated financial statements for those years.

	At or For Year Ended March 31,
	2012			2011			2010			2009			2008(4)
	(Dollars in thousands, except per share data)
Operations Data:
Interest income	$	127,251		$	166,463		$	217,082		$	260,262		$	296,675
Interest expense		55,329			81,383			132,123			135,472			167,670
Net interest income		71,922			85,080			84,959			124,790			129,005
Provision for credit losses		33,578			51,198			161,926			205,719			22,551
Real estate investment partnership revenue		—			—			—			2,130			8,399
Other non-interest income		49,356			59,503			57,385			44,331			42,892
Real estate investment partnership cost of sales		—			—			—			1,736			8,489
Other non-interest expense		124,428			134,399			158,832			224,709			98,876
Income (loss) before income taxes		(36,728	)		(41,014	)		(178,414	)		(260,913	)		50,380
Income taxes		10			164			(1,500	)		(30,098	)		19,650
Net income (loss)		(36,738	)		(41,178	)		(176,914	)		(230,815	)		30,730
Income attributable to non-controlling interest in real estate partnerships		—			—			—			(148	)		(402	)
Preferred stock dividends in arrears		(6,278	)		(5,934	)		(5,648	)		(925	)		—
Preferred stock discount accretion		(7,413	)		(7,412	)		(7,411	)		(1,247	)		—
Net income (loss) available to common equity of Anchor BanCorp		(50,429	)		(54,524	)		(189,973	)		(232,839	)		31,132
Earnings (loss) per common share:
Basic		(2.37	)		(2.57	)		(8.97	)		(11.05	)		1.48
Diluted		(2.37	)		(2.57	)		(8.97	)		(11.05	)		1.48
Balance Sheet Data:
Total assets	$	2,789,452		$	3,394,825		$	4,416,265		$	5,272,110		$	5,149,557
Investment securities available for sale		242,299			523,289			416,203			484,985			356,406
Investment securities held to maturity		20			27			39			50			59
Loans receivable held for investment, net		2,058,008			2,520,367			3,229,580			3,896,439			4,202,833
Deposits		2,264,915			2,699,433			3,536,696			3,898,795			3,503,536
Other borrowed funds		476,103			659,005			796,832			1,088,063			1,221,707
Stockholders’ equity (deficit)		(29,550	)		(13,171	)		42,214			217,770			350,363
Common shares outstanding		21,247,725			21,247,725			21,256,056			21,139,916			20,929,985
Other Financial Data:
Book value per common share at end of period	$	(6.57	)	$	(5.80	)	$	(3.19	)	$	5.10		$	16.74
Dividends paid per share		—			—			—			0.29			0.71
Dividend payout ratio		—	%		—	%		—	%		(2.62	)%		47.97	%
Yield on earning assets		4.34			4.59			4.74			5.63			6.25
Cost of funds		1.79			2.16			2.83			2.95			3.65
Interest rate spread		2.55			2.43			1.91			2.68			2.60
Net interest margin(1)		2.45			2.35			1.86			2.70			2.72
Return on average assets(2)		(1.17	)		(1.07	)		(3.66	)		(4.65	)		0.63
Return on average equity(3)		(237.54	)		(164.38	)		(146.56	)		(75.67	)		9.03
Average equity to average assets		(0.49	)		0.65			2.50			6.15			6.93

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

(2) Return on average assets represents net income (loss) including income attributable to non-controlling interests as a percentage of average total assets.

(3) Return on average equity represents net income (loss) including income attributable to non-controlling interests as a percentage of average total stockholders’ equity.

(4) During the fourth quarter of the year ended March 31, 2008, the Corporation acquired S&C Bank, which consisted of total assets of $381.1 million, total deposits of $305.5 million and total loans of $280.8 million.

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The following table sets forth selected quarterly financial data:

	Mar 31, 2012			Dec 31, 2011			Sep 30, 2011			Jun 30, 2011			Mar 31, 2011			Dec 31, 2010			Sep 30, 2010			Jun 30, 2010
	(In thousands, except per share data)
Interest income:
Loans	$	26,559		$	28,324		$	29,937		$	32,109		$	33,231		$	36,631		$	40,149		$	40,681
Investment securities and Federal Home Loan Bank stock		1,427			1,395			2,960			3,956			3,943			4,442			3,421			3,445
Interest-bearing deposits		177			257			98			52			66			78			126			250
Total interest income		28,163			29,976			32,995			36,117			37,240			41,151			43,696			44,376
Interest expense:
Deposits		4,870			6,047			6,727			7,319			8,607			10,985			13,231			15,803
Other borrowed funds		7,405			7,915			7,768			7,278			7,173			7,852			8,047			9,685
Total interest expense		12,275			13,962			14,495			14,597			15,780			18,837			21,278			25,488
Net interest income		15,888			16,014			18,500			21,520			21,460			22,314			22,418			18,888
Provision for credit losses		4,601			8,380			17,115			3,482			10,178			21,412			10,674			8,934
Net interest income after provision for credit losses		11,287			7,634			1,385			18,038			11,282			902			11,744			9,954
Net impairment losses recognized in earnings		(231	)		(155	)		(123	)		(59	)		(78	)		(163	)		(113	)		(86	)
Loan servicing income (loss), net of amortization		(507	)		(1,571	)		478			768			516			(416	)		339			1,153
Credit enhancement income on mortgage loans sold		4			5			16			46			43			116			236			253
Service charges on deposits		2,672			2,926			2,947			2,794			2,544			2,855			3,165			3,753
Investment and insurance commissions		944			910			917			1,037			752			971			769			956
Net gain on sale of loans		6,406			6,018			3,994			1,173			1,600			5,601			9,216			1,347
Net gain on sale of investment securities		217			20			5,206			1,136			709			1,187			6,653			112
Net gain on sale of OREO		1,942			1,272			1,659			1,245			315			1,291			872			1,162
Net gain on sale of branches		—			—			—			—			2			100			2,318			4,930
Other revenue from real estate partnership operations		64			107			13			38			(295	)		—			1			386
Other		1,469			1,234			1,331			994			997			1,435			1,136			863
Total non-interest income		12,980			10,766			16,438			9,172			7,105			12,977			24,592			14,829
Compensation and benefits		10,878			10,806			9,863			10,194			10,203			10,396			9,578			11,825
Occupancy		1,971			2,070			1,925			1,980			2,236			1,921			2,017			2,367
Furniture and equipment		1,358			1,476			1,611			1,544			1,536			1,520			1,741			1,762
Federal deposit insurance premium		1,654			1,828			1,774			1,933			2,283			1,423			3,621			4,075
Data processing		1,603			1,665			1,608			1,383			1,559			1,627			1,782			1,572
Marketing		582			147			427			305			514			248			410			307
Expenses from real estate partnership operations		121			41			677			42			115			32			13			502
OREO expense, net		6,633			7,451			5,823			8,870			12,093			4,598			7,656			6,818
Mortgage servicing rights impairment (recovery)		(1,895	)		(985	)		5,069			221			52			(1,611	)		1,272			190
Legal services		1,315			1,376			1,267			934			1,333			1,866			2,680			2,099
Other professional fees		844			1,051			756			1,018			1,387			969			654			2,284
Other		3,156			3,343			3,184			3,531			3,309			2,949			3,560			3,056
Total non-interest expense		28,220			30,269			33,984			31,955			36,620			25,938			34,984			36,857
Income (loss) before income taxes		(3,953	)		(11,869	)		(16,161	)		(4,745	)		(18,233	)		(12,059	)		1,352			(12,074	)
Income tax expense		—			—			—			10			150			—			14			—
Net income (loss)		(3,953	)		(11,869	)		(16,161	)		(4,755	)		(18,383	)		(12,059	)		1,338			(12,074	)
Preferred stock dividends in arrears		(1,591	)		(1,572	)		(1,579	)		(1,536	)		(1,503	)		(1,494	)		(1,352	)		(1,585	)
Preferred stock discount accretion		(1,844	)		(1,853	)		(1,853	)		(1,863	)		(1,843	)		(1,853	)		(1,853	)		(1,863	)
Net loss available to common equity	$	(7,388	)	$	(15,294	)	$	(19,593	)	$	(8,154	)	$	(21,729	)	$	(15,406	)	$	(1,867	)	$	(15,522	)
Loss per common share:
Basic	$	(0.35	)	$	(0.72	)	$	(0.92	)	$	(0.38	)	$	(1.02	)	$	(0.72	)	$	(0.09	)	$	(0.73	)
Diluted		(0.35	)		(0.72	)		(0.92	)		(0.38	)		(1.02	)		(0.72	)		(0.09	)		(0.73	)

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Fourth Quarter Results

Net loss for the quarter ending March 31, 2012 was $4.0 million, compared to net loss of $18.4 million for the quarter ending March 31, 2011. Net loss available to common shareholders for the quarter ending March 31, 2012 was $7.4 million compared to $21.7 million for the prior year quarter. Diluted loss per common share decreased to $(0.35) for the quarter ended March 31, 2012 compared to $(1.02) per share for the prior year quarter.

Net interest income was $15.9 million for the three months ended March 31, 2012, a decrease of $5.6 million from $21.5 million for the comparable period in 2011. The net interest margin was 2.35% for the quarter ending March 31, 2012 and 2.63% for the quarter ending March 31, 2011. The decline in net interest results was primarily due to lower mortgage interest income as borrower’s renewed or refinanced their loans at reduced rates, and a decrease in the rate earned on the investment securities portfolio as a result of sales of higher yielding bonds in 2011 for interest rate risk and capital management purposes. The maturity of above market rate certificates of deposit provided a partial offset.

Provision for credit losses was $4.6 million in the quarter ending March 31, 2012 compared to $10.2 million in the quarter ending March 31, 2011. Net charge-offs were $24.3 million in the quarter ended March 31, 2012 compared to $17.4 million in the quarter ended March 31, 2011. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Asset Quality” below for further analysis of the allowance for loan losses. Through significant efforts in the credit area to gain a thorough understanding of the risk within the portfolio, management evaluates a variety of qualitative and quantitative factors when determining the adequacy of the allowance for loan losses. The provisions were based on management’s ongoing evaluation of asset quality and pursuant to a policy to maintain an allowance for loan losses at a level which management believes is adequate to absorb probable and inherent losses on loans as of the balance sheet date.

Non-interest income was $13.0 million for the quarter ended March 31, 2012; an increase of $5.9 million compared to $7.1 million for the quarter ended March 31, 2011. The majority of the increase was attributable to a $4.8 million increase in net gain on sale of residential mortgage loans due to significantly higher loan origination volume in the current quarter compared to a year ago. In addition, net gain on sale of OREO increased $1.6 million due to moderately better market conditions in 2012.

Non-interest expense decreased $8.4 million to $28.2 million for the quarter ended March 31, 2012 from $36.6 million for the quarter ended March 31, 2011 due to a $5.5 million decrease in net expense from OREO operations attributable to cost containment initiatives, and a $1.9 million decrease in mortgage servicing rights impairment due to a current period recovery of previously recorded MSR impairment.

The Corporation had an income tax expense of zero for the three months ended March 31, 2012 compared to income tax expense of $150,000 for the three months ended March 31, 2011. The effective tax rate (benefit) was 0% and 0.82% for the quarter ended March 31, 2012 and March 31, 2011, respectively.

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

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

Critical Accounting Estimates and Judgments

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

Fair Value Measurements

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

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

Available-for-Sale Securities

Declines in the fair value of available-for-sale securities below their amortized cost that are deemed to be other-than-temporary are reflected in earnings as unrealized losses. In estimating other-than-temporary impairment losses on debt securities, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Corporation will recognize an other-than-temporary impairment loss in earnings equal to the difference between the fair value of the security and its amortized cost. If neither of the conditions is met, the

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Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected, discounted at the purchase yield or current accounting yield of the security, and the amortized cost basis is the credit loss. The credit loss is the amount of impairment deemed other-than-temporary and recognized in earnings and is a reduction to the cost basis of the security. The amount of impairment related to all other factors (i.e. non-credit) is included in accumulated other comprehensive income (loss).

Allowances for Loan Losses

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

In determining the general allowance, management has segregated the loan portfolio by purpose and collateral type. By doing so we are better able to identify trends in borrower behavior and loss severity. For each class of loan, we compute a historical loss factor. In determining the appropriate period of activity to use in computing the historical loss factor we look at trends in quarterly net charge-off ratios. It is management’s intention to utilize a period of activity that is most reflective of current experience. Changes in the historical period are made when there is a distinct change in the trend of net charge-off experience. Given the changes in the credit market that have occurred since 2008, management reviewed each class’ historical losses by quarter for any trends that would indicate a different look back period would be more representative of current experience.

Management adjusts historical loss factors based on the following qualitative factors: changes in lending policies, procedures and practices; economic and industry trends and conditions; trends in terms and the volume of loans; experience, ability and depth of lending management; level of and trends in past dues and delinquent loans; changes in the quality of the loan review system; changes in the value of the underlying collateral for collateral dependent loans; changes in credit concentrations, other external factors such as legal and regulatory requirements; and changes in size of the portfolio. In determining the impact, if any, of an individual qualitative factor, management compares the current underlying facts and circumstances surrounding a particular factor with those in the historical periods, adjusting the historical loss factor based on changes in the qualitative factor. Management will continue to analyze the qualitative factors on a quarterly basis, adjusting the historical loss factor as necessary, to a factor believed to be appropriate for the probable and inherent risk of loss in the portfolio.

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

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

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The determination of value on an individually reviewed loan is estimated using an appraisal discounted by 15%, 25% or 35% depending on whether the appraisal is a) current, b) improved land or commercial real estate (CRE) greater than a year old, or c) unimproved land greater than a year old, respectively. The 15% discount represents an estimate of selling costs and potential taxes and other expenses the Bank may need to incur to move the property. The additional discounts on appraisals greater than a year old of 10% and 20% on improved land/CRE and unimproved land, respectively reflect the decrease in collateral values during fiscal years 2010, 2011 and 2012. These percentages are supported by the Bank’s analysis of appraisal activity over the past 12 months.

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

Management considers the ALLL at March 31, 2012 to be at an acceptable level, although changes may be necessary if future economic and other conditions differ substantially from the current environment. Although the best information available is used, the level of the ALLL remains an estimate that is subject to significant judgment and short-term change. To the extent actual outcomes differ from our estimates, additional provision for credit losses may be required that would reduce future earnings.

Foreclosure

Real estate acquired by foreclosure or by deed in lieu of foreclosure and other repossessed assets are held for sale and are initially recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. If the fair value exceeds the net carrying value of the loans, recoveries to the allowance for loan losses are recorded to the extent of previous charge-offs, with any excess, which is infrequent, recognized as a gain in non-interest income. Subsequent to foreclosure, updated appraisals are generally obtained on an annual basis and the assets are adjusted to the lower of cost or fair value, less 15% for estimated selling expenses. An additional 10% discount is generally applied to all asset values that are based on appraisals greater than one year old. At the date of foreclosure any write down to fair value less estimated selling costs is charged to the allowance for loan losses. Costs relating to the development and improvement of the property are capitalized; holding period costs and subsequent changes to the valuation allowance are charged to non-interest expense.

Mortgage Servicing Rights

Mortgage servicing rights (MSR) are recorded as an asset when loans are sold to third parties with servicing rights retained at fair value. MSR assets are amortized in proportion to, and over the period of, estimated net servicing revenues. The carrying value of these assets is periodically reviewed for impairment using a lower of amortized cost or fair value methodology. The fair value of the servicing rights is determined by estimating the present value of future net cash flows, taking into consideration market loan prepayment speeds, discount rates, servicing costs and other economic factors. For purposes of measuring impairment, the rights are stratified based on predominant risk characteristics of the underlying loans which include product type (i.e., fixed or adjustable) and interest rate bands. If the aggregate carrying value of the capitalized mortgage servicing rights for a strata exceeds its fair value, a mortgage servicing right impairment is recognized in earnings for the difference. 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 or defaults exceed 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 amortized cost or fair value.

The interest rate bands used to stratify the serviced loans were changed in the quarter ending December 31, 2011 in response to the significantly lower interest rate environment over the past several years and the resultant “bunching’ of a substantial portion of serviced loans into two of the nine historical strata. The restratification of

48

serviced loans did not have a material impact on the impairment measurement of the mortgage servicing right asset during the year ending March 31, 2012.

Income Taxes

The Corporation’s provision for federal income taxes has resulted in the recognition of a deferred tax liability or deferred tax asset computed by applying the current statutory tax rates to net taxable or deductible differences between the tax basis of an asset or liability and its reported amount in the consolidated financial statements that will produce taxable or deductible amounts in future periods. The Corporation regularly reviews the carrying amount of its deferred tax assets to determine if the establishment of a valuation allowance is necessary. If based on the available evidence, it is more likely than not that all or a portion of the Corporation’s deferred tax assets will not be realized in future periods, a deferred tax valuation allowance would be established. Consideration is given to various positive and negative factors that could affect the realization of the deferred tax assets.

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

As a result of its evaluation, the Corporation has recorded a full valuation allowance on its net deferred tax asset.

Revenue Recognition

The Corporation derives net interest and non-interest income from various sources, including:

• Lending,

• Securities portfolio,

• Customer deposits,

• Loan servicing, and

• Sale of loans and securities.

The Corporation also earns fees and commissions from issuing loan commitments, standby letters of credit and financial guarantees and selling various insurance products. Revenue earned on interest-earning assets including the accretion of fair value adjustments on discounts for purchased loans is recognized based on the effective yield of the financial instrument.

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

Segment Review

The Corporation’s primary reportable segment is community banking. Community banking consists of lending and deposit gathering (as well as other banking-related products and services) to businesses, governments and consumers and the support to deliver, fund and manage such banking services. The Corporation previously identified a real estate investment operating segment, its non-banking subsidiary IDI, which invested in real estate developments. During the quarter ended September 30, 2009, IDI sold its interest in several limited partnerships as well as substantially all of its remaining assets. The assets that remain at IDI include an equity interest in one commercial real estate property and one residential real estate development along with various notes receivable. See Note 20 to the Consolidated Financial Statements included in Item 8.

EXECUTIVE OVERVIEW

On June 26, 2009, the Corporation and the Bank each consented to the issuance of an Order to Cease and Desist by the Office of Thrift Supervision. The Cease and Desist Order required, that, no later than December 31,

49

2009, the Bank meet and maintain both a tier 1 (core) capital ratio equal to or greater than 8 percent and a total risk-based capital ratio equal to or greater than 12 percent.

The Cease and Desist Order also required that the Bank submit a Capital Restoration Plan along with a revised business plan to the OTS. The Bank complied with that directive on July 23, 2010 with the submission of its Revised Capital Restoration Plan (the “Plan”). On August 31, 2010, the OTS approved the Plan submitted by the Bank, although the approval included a Prompt and Corrective Action Directive (PCA).

At March 31, 2012, the Bank and the Corporation had complied with all aspects of the Cease and Desist and the Prompt and Corrective Action Directive, except the Bank had a tier 1 leverage ratio and a total risk-based capital ratio of 4.51 percent and 8.42 percent, respectively, each below the required capital ratios set forth above.

The Corporation remains diligent in its efforts to raise outside capital to bring it in compliance with the Cease and Desist Order. The Corporation continues to make strides to improve the financial performance and efficiency of the Bank to increase the likelihood that it will be able to attract outside capital.

But the organization continues to face significant challenges. The Corporation, as the holding company of the Bank, continues to be burdened with significant senior debt and preferred stock obligations. The Corporation currently owes $116.3 million to various lenders led by U.S. Bank under the Credit Agreement that matures November 30, 2012. The Corporation also has accrued but unpaid interest and fees totaling $41.0 million associated with this obligation that is due and payable at maturity.

In addition, the Corporation issued $110 million in preferred stock in January 2009 to the United States Treasury pursuant to the Treasury’s Capital Purchase Program (“CPP”). While the Bank has substantial liquidity, it is currently precluded by its regulators from paying dividends to the Corporation. As a result, and as permitted under the CPP program, the Corporation has deferred twelve quarterly preferred stock dividend payments to the Treasury totaling $18.8 million, including interest. As a result of those deferrals, Treasury had the right to appoint two additional persons to the Corporation’s Board of Directors and as announced on September 30, 2011, appointed Messrs. Duane Morse and Leonard Rush to the Corporation’s Board.

The Corporation has engaged and continues to work with Sandler O’Neill & Partners, L.P. as its financial advisor to assist in capital raising efforts to address its capital needs.

Credit Highlights

The Corporation has continued to see improvement in early stage and overall delinquencies during the past year. This, coupled with the Bank’s ongoing efforts to aggressively work out of troubled credits, has led to a decline in the level of non-performing loans. At March 31, 2012, non-performing loans (consisting of loans past due more than 90 days, loans less than 90 days delinquent but placed on non-accrual status due to anticipated probable loss and non-accrual troubled debt restructurings) were $224.9 million, $57.7 million below the $282.6 million in this category at March 31, 2011. In addition, the Bank experienced a moderate decrease in the level of foreclosed properties on the consolidated balance sheet. At March 31, 2012, foreclosed properties and repossessed assets were $88.8 million, compared to $90.7 million at March 31, 2011, a 2.1 percent decrease. As a result, the decline in the levels of non-performing assets was just slightly greater than the decline in non-performing loans. An elevated level of non-performing assets has had and will continue to have a negative impact on net interest income and expenses related to managing the troubled loan portfolio.

The allowance for loan losses declined to $111.2 million at March 31, 2012 from $150.1 million at March 31, 2011, a 25.9 percent decrease. Net charge-offs during the year ended March 31, 2012 were $73.0 million compared to $79.8 million for the same period in 2011. The provision for credit losses was $33.6 million for the year ended March 31, 2012, compared to $51.2 million for the year ended March 31, 2011. While the balance in the allowance for loan losses declined 25.9 percent during fiscal 2012, the allowance compared to total gross loans and to total non-performing loans of 5.08 percent and 49.45 percent at March 31, 2012, respectively decreased considerably less from the 5.60 percent and 53.11 percent, respectively at March 31, 2011.

Recent Market and Industry Developments

The economic turmoil that began in the middle of 2007 and continued through 2008 and 2010 has appeared to have settled into a slow economic recovery in 2010, 2011 and 2012. At this time the recovery has somewhat

50

uncertain prospects. This has been accompanied by dramatic changes in the competitive landscape of the financial services industry and a wholesale reformation of the legislative and regulatory landscape with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which was signed into law by President Obama on July 21, 2010.

Dodd-Frank is extensive, complex and comprehensive legislation that impacts many aspects of banking organizations. Dodd-Frank is likely to negatively impact the Corporation’s revenue and increase both the direct and indirect costs of doing business, as it includes provisions that could increase regulatory fees and deposit insurance assessments and impose heightened capital standards, while at the same time impacting the nature and costs of the Corporation’s businesses. As a result of Dodd-Frank, the OTS ceased to be our primary regulator with the OCC now regulating the Bank and the Federal Reserve regulating the Corporation. It is unclear at this time what effect this change will have on our results of operations.

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

Financial Results

Results through March 31, 2012 include:

• Diluted loss per common share decreased to $(0.35) for the quarter ended March 31, 2012 compared to $(1.02) per share for the quarter ended March 31, 2011, primarily due to a $5.6 million decrease in the provision for credit losses;

• The net interest margin decreased to 2.35% for the quarter ended March 31, 2012 compared to 2.63% for the quarter ended March 31, 2011 due to lower rates of return on mortgage loans and investment securities, partially offset by the runoff and repricing of higher rate certificates of deposit;

• Loans held for sale increased $31.8 million , or 421.8% since March 31, 2011 primarily due to significantly higher residential mortgage origination volume triggered by the notably low interest rate environment in the fiscal year ended March 31, 2012;

• Loans held for investment (net of the allowance for loan losses) decreased $462.4 million, or 18.3%, since March 31, 2011 primarily due to scheduled pay-offs and amortization as well as the transfer of $76.7 million to foreclosed properties;

• Deposits decreased $434.5 million, or 16.1%, since March 31, 2011 primarily due to runoff of time deposits;

• Book value per common share was $(6.57) at March 31, 2012 compared to $(5.80) at March 31, 2011;

• Total assets decreased $605.4 million, or 17.8%, since March 31, 2011;

• Delinquencies (loans past due 30 days or more) decreased $93.8 million or 29.8%, to $221.2 million at March 31, 2012 from $315.0 million at March 31, 2011;

• Total non-performing loans (consisting of loans past due more than 90 days, loans less than 90 days delinquent but placed on non-accrual status due to anticipated probable loss and non-accrual troubled debt restructurings) decreased $57.7 million, or 20.4% to $224.9 million at March 31, 2012 from $282.6 million at March 31, 2011;

• Total non-performing assets (total non-performing loans and foreclosed properties and repossessed assets) decreased $59.6 million, or 16.0%, to $313.8 million at March 31, 2012 from $373.4 million at March 31, 2011;

• Foreclosed properties and repossessed assets decreased $1.9 million, or 2.1%, to $88.8 million at March 31, 2012 from $90.7 million at March 31, 2011; and

• Provision for credit losses decreased $17.6 million, or 34.4%, to $33.6 million for the year ended March 31, 2012 from $51.2 million for the year ended March 31, 2011 due to the Corporation’s ongoing enhancements to risk management practices, stabilizing economic conditions and continued resolution of problem assets.

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Net Interest Income Information

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

Average Balance Sheets

	Year Ended March 31,
	2012								2011								2010
	Average Balance			Interest		Average Yield/Cost			Average Balance			Interest		Average Yield/Cost			Average Balance			Interest		Average Yield/Cost
	(Dollars in thousands)
Interest-earning assets
Mortgage loans	$	1,739,928		$	86,920		5.00	%	$	2,165,122		$	112,390		5.19	%	$	2,685,764		$	146,190		5.44	%
Consumer loans		531,526			26,611		5.01			625,449			31,805		5.09			764,352			38,611		5.05
Commercial business loans		45,480			3,398		7.47			102,034			6,497		6.37			173,151			10,793		6.23
Total loans receivable(1)(2)		2,316,934			116,929		5.05			2,892,605			150,692		5.21			3,623,267			195,594		5.40
Investment securities(3)		330,903			9,683		2.93			465,863			15,237		3.27			474,808			20,443		4.31
Interest-bearing deposits		230,704			584		0.25			211,997			520		0.25			426,377			1,045		0.25
Federal Home Loan Bank stock		52,437			55		0.10			54,829			14		0.03			54,829			—		0.00
Total interest-earning assets		2,930,978			127,251		4.34			3,625,294			166,463		4.59			4,579,281			217,082		4.74
Non-interest-earning assets		214,465								217,911								248,172
Total assets	$	3,145,443							$	3,843,205							$	4,827,453
Interest-bearing liabilities
Demand deposits	$	936,421			2,073		0.22		$	900,768			3,063		0.34		$	930,235			5,090		0.55
Regular savings		254,646			376		0.15			241,446			509		0.21			244,558			694		0.28
Certificates of deposit		1,354,303			22,514		1.66			1,930,987			45,054		2.33			2,586,956			81,467		3.15
Total deposits		2,545,370			24,963		0.98			3,073,201			48,626		1.58			3,761,749			87,251		2.32
Other borrowed funds		548,148			30,366		5.54			699,404			32,757		4.68			907,257			44,872		4.95
Total interest-bearing liabilities		3,093,518			55,329		1.79			3,772,605			81,383		2.16			4,669,006			132,123		2.83
Non-interest-bearing liabilities		67,391								45,549								37,739
Total liabilities		3,160,909								3,818,154								4,706,745
Stockholders’ equity		(15,466	)							25,051								120,708
Total liabilities and stockholders’ equity	$	3,145,443							$	3,843,205							$	4,827,453
Net interest income/interest rate spread(4)				$	71,922		2.55	%				$	85,080		2.43	%				$	84,959		1.91	%
Net interest-earning assets	$	(162,540	)						$	(147,311	)						$	(89,725	)
Net interest margin(5)							2.45	%							2.35	%							1.86	%
Ratio of average interest-earning assets to average interest-bearing liabilities		0.95								0.96								0.98

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

(2) Interest earned on loans includes loan fees (which are not material in amount) and interest income which has been received from borrowers whose loans were removed from non-accrual status during the period indicated.

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

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

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

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Rate/Volume Analysis

The most significant impact on the Corporation’s net interest income between periods is derived from the interaction of changes in the volume of and rates earned or paid on interest-earning assets and interest-bearing liabilities. The volume of investments in loans and securities, compared to the volume of interest-bearing liabilities represented by deposits and borrowings, combined with the spread, produces the changes in net interest income between periods. The following table shows the relative contribution of the changes in average volume and average interest rates on changes in net interest income for the periods indicated. Information is provided with respect to the effects on net interest income attributable to (i) changes in rate (changes in rate multiplied by prior volume) and (ii) changes in volume (changes in volume multiplied by prior rate). The change in interest income (tax equivalent) due to both rate and volume have been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each.

	Increase (Decrease) for the Year Ended March 31,
	2012 Compared To 2011									2011 Compared To 2010
	Rate			Volume			Net			Rate			Volume			Net
	(In thousands)
Interest-earning assets
Mortgage loans	$	(4,095	)	$	(21,375	)	$	(25,470	)	$	(6,521	)	$	(27,279	)	$	(33,800	)
Consumer loans		(485	)		(4,709	)		(5,194	)		255			(7,061	)		(6,806	)
Commercial business loans		977			(4,076	)		(3,099	)		227			(4,523	)		(4,296	)
Total loans receivable(1)(2)		(3,603	)		(30,160	)		(33,763	)		(6,039	)		(38,863	)		(44,902	)
Investment securities(3)		(1,481	)		(4,073	)		(5,554	)		(4,828	)		(378	)		(5,206	)
Interest-bearing deposits		17			47			64			1			(526	)		(525	)
Federal Home Loan Bank stock		42			(1	)		41			14			—			14
Total increase (decrease) in interest income		(5,025	)		(34,187	)		(39,212	)		(10,852	)		(39,767	)		(50,619	)
Interest-bearing liabilities
Demand deposits		(1,107	)		117			(990	)		(1,871	)		(156	)		(2,027	)
Regular savings		(160	)		27			(133	)		(176	)		(9	)		(185	)
Certificates of deposit		(11,056	)		(11,484	)		(22,540	)		(18,403	)		(18,010	)		(36,413	)
Total deposits		(12,323	)		(11,340	)		(23,663	)		(20,450	)		(18,175	)		(38,625	)
Other borrowed funds		5,395			(7,786	)		(2,391	)		(2,278	)		(9,837	)		(12,115	)
Total increase (decrease) in interest expense		(6,928	)		(19,126	)		(26,054	)		(22,728	)		(28,012	)		(50,740	)
Total increase (decrease) in net interest income	$	1,903		$	(15,061	)	$	(13,158	)	$	11,876		$	(11,755	)	$	121

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

(2) Interest earned on loans includes loan fees (which are not material in amount) and interest income which has been received from borrowers whose loans were removed from non-accrual status during the period indicated.

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

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Results of Operations

The following annual results should be read in conjunction with the Consolidated Financial Statements presented in Note 23 to the Consolidated Financial Statements included in Item 8.

Comparison of Years Ended March 31, 2012 and 2011

General.    Operating results improved $4.5 million to a net loss of $36.7 million in fiscal 2012 from net loss of $41.2 million in fiscal 2011. The primary drivers of this improvement in results were a $17.6 million decrease in the provision for credit losses and a decrease in non-interest expense of $10.0 million. These favorable variances were partially offset by decreases in net interest income of $13.2 million and in non-interest income of $10.1 million.

Net Interest Income.    Net interest income totaled $71.9 million in fiscal 2012, a decrease of $13.2 million from $85.1 million in fiscal 2011. The decline in net interest income was primarily due to lower earning rates on mortgage loans as customers renewed and refinanced loans in a lower rate environment during fiscal 2012 and on investment securities attributable to sales of higher yielding positions in fiscal 2012 for capital management purposes. These unfavorable variances were partially offset by the positive impact of maturing above market rate certificates of deposit.

Provision for Credit Losses.    The provision for credit losses decreased $17.6 million from $51.2 million in fiscal 2011 to $33.6 million in fiscal 2012. The decrease in provision and specific and general reserves was in response to the following trends identified in the portfolio: (i) a proactive method of identification of criticized assets and (ii) continued analysis of the commercial real estate, construction and land portfolios. These decreases resulted in the Corporation’s allowance for loan losses decreasing $38.9 million from $150.1 million at March 31, 2011 to $111.2 million at March 31, 2012. The allowance for loan losses represented 5.08% of total loans at March 31, 2012, compared to 5.60% of total loans at March 31, 2011. For further discussion of the allowance for loan losses, see “Financial Condition — Allowance for Loan and Foreclosure Losses.”

Future provisions for credit losses will continue to be based upon management’s assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current economic conditions and other relevant factors in order to maintain the allowance for loan losses at adequate levels to provide for probable and estimable future losses. The establishment of the amount of the loan loss allowance inherently involves judgments by management as to the adequacy of the allowance, which ultimately may change. Higher rates of loan defaults than anticipated would likely result in a need to increase provisions in future years.

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

	Year Ended March 31,						Increase (Decrease)
	2012			2011			Amount			Percent
	(Dollars in thousands)
Net impairment losses recognized in earnings	$	(568	)	$	(440	)	$	(128	)		(29.1	)%
Loan servicing income (loss), net of amortization		(832	)		1,592			(2,424	)		(152.3	)
Credit enhancement income on mortgage loans sold		71			648			(577	)		(89.0	)
Service charges on deposits		11,339			12,317			(978	)		(7.9	)
Investment and insurance commissions		3,808			3,448			360			10.4
Net gain on sale of loans		17,591			17,764			(173	)		(1.0	)
Net gain on sale of investment securities		6,579			8,661			(2,082	)		(24.0	)
Net gain on sale of OREO		6,118			3,640			2,478			68.1
Net gain on sale of branches		—			7,350			(7,350	)		(100.0	)
Revenue from real estate partnership operations		222			92			130			—
Other		5,028			4,431			597			13.5
Total non-interest income	$	49,356		$	59,503		$	(10,147	)		(17.1	)%

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Non-interest income totaled $49.4 million for fiscal 2012, a decrease of $10.1 million compared to $59.5 million for fiscal 2011. The decrease was largely due to a $7.4 million non-recurring gain on sale of branches in fiscal 2011 and lower loan servicing income reflecting an increase in the amortization rate of the mortgage servicing asset caused by the historically low interest rate environment during much of fiscal 2012 and the resultant mortgage refinance activity.

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

	Year Ended March 31,					Increase (Decrease)
	2012		2011			Amount			Percent
	(Dollars in thousands)
Compensation and benefits	$	41,741	$	42,002		$	(261	)		(0.6	)%
Occupancy		7,946		8,541			(595	)		(7.0	)
Furniture and equipment		5,989		6,559	��		(570	)		(8.7	)
Federal deposit insurance premiums		7,189		11,402			(4,213	)		(36.9	)
Data processing		6,259		6,540			(281	)		(4.3	)
Marketing		1,461		1,479			(18	)		(1.2	)
Expenses from real estate partnership operations		881		662			219			33.1
OREO operations — net expense		28,777		31,165			(2,388	)		(7.7	)
Mortgage servicing rights impairment (recovery)		2,410		(97	)		2,507			2,584.5
Legal services		4,892		7,978			(3,086	)		(38.7	)
Other professional fees		3,669		5,294			(1,625	)		(30.7	)
Other		13,214		12,874			340			2.6
Total non-interest expense	$	124,428	$	134,399		$	(9,971	)		(7.4	)%

Non-interest expense decreased $10.0 million to $124.4 million for fiscal 2012 compared to $134.4 million for fiscal 2011. The decrease was primarily due to a $4.2 million decrease in federal deposit insurance premiums attributable to a favorable change in the method of calculating deposit insurance premiums mandated by section 331 of the Dodd-Frank Act that became effective April 1, 2011. In addition, legal services decreased $3.1 million largely due to a diminished need for outside legal services in support of corporate programs and initiatives. These decreases were partially offset by an increase in the impairment of mortgage servicing rights of $2.5 million resulting from higher levels of refinance activity caused by the low interest rate environment in fiscal 2012.

Real Estate Segment.    Net loss in the real estate segment (IDI, the Corporation’s wholly-owned, non-banking subsidiary) decreased $564,000 for fiscal 2012 to a net loss of $569,000 from a net loss of $1.1 million in fiscal 2011. During the quarter ended September 30, 2009, IDI sold its interest in several limited partnerships as well as substantially all of its remaining assets, which included some developed residential lots. The assets that remain at IDI include an equity interest in one commercial real estate property and one real estate development along with various notes receivable.

Income Taxes.    Income tax expense decreased $154,000 for fiscal 2012 as compared to fiscal 2011. The effective tax rate for fiscal 2012 was (0.03)% as compared to (0.46)% for fiscal 2011. An additional allowance of $14.7 million was placed on the deferred tax asset during the year ended March 31, 2012 reflecting current year activity. A full valuation allowance has been in place on the net deferred tax asset since June 30, 2009 due to the uncertainty of the Corporation’s ability to create sufficient taxable income in the near future to fully utilize it.

Comparison of Years Ended March 31, 2011 and 2010

General.    Results of operations improved $135.7 million to a net loss of $41.2 million in fiscal 2011 from net loss of $176.9 million in fiscal 2010. The primary components of this improvement in results for fiscal 2011, as compared to fiscal 2010, were a $110.7 million decrease in the provision for credit losses, a decrease in non-interest expense of $27.4 million and an increase in net interest income of $121,000. These increases to net income were partially offset by a decrease in income tax benefit of $1.7 million and a decrease in non-interest

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income of $890,000. An allowance of $16.7 million was placed on the deferred tax asset during the year ended March 31, 2011. A full valuation allowance has been recorded on the net deferred tax asset due to the uncertainty of the Corporation to create sufficient taxable income in the near future to fully utilize it. The returns on average assets and average stockholders’ equity for fiscal 2011 were (1.07)% and (168.38)%, respectively, as compared to (3.66)% and (146.56)%, respectively, for fiscal 2010.

Net Interest Income.    Net interest income increased by $121,000 during fiscal 2011 due to the decreased cost of interest bearing liabilities partially offset by a decline in yield on interest earning assets. The primary factor that contributed to the modest increase in net interest income was the fact that loans held for investment decreased $709.2 million since March 31, 2010. The average balances of interest-earning assets decreased to $3.63 billion and the average balance of interest-bearing liabilities decreased to $3.78 billion in fiscal 2011, from $4.58 billion and $4.68 billion, respectively, in fiscal 2010. The ratio of average interest-earning assets to average interest-bearing liabilities decreased to 0.96 in fiscal 2011 from 0.98 in fiscal 2010. The average yield on interest-earning assets (4.59% in fiscal 2011 versus 4.74% in fiscal 2010) decreased, as did the average cost on interest-bearing liabilities (2.15% in fiscal 2011 versus 2.82% in fiscal 2010). The net interest margin increased to 2.35% in fiscal 2011 from 1.86% in fiscal 2010 and the interest rate spread increased to 2.44% from 1.92% in fiscal 2011 and 2010, respectively. The increase in interest rate spread was reflective of a decrease in the cost of funds, which was slightly offset by a smaller decrease in the yields on loans as interest rates decreased. These factors are reflected in the analysis of changes in net interest income arising from changes in the volume of interest-earning assets, interest-bearing liabilities and the rates earned and paid on such assets and liabilities as set forth under “Rate/Volume Analysis” below.

Provision for Credit Losses.    The provision for credit losses decreased $110.7 million from $161.9 million in fiscal 2010 to $51.2 million in fiscal 2011. The decrease in provision and specific and general reserves was in response to the following trends identified in the portfolio: (i) a proactive method of identification of criticized assets and (ii) continued analysis of the commercial real estate, construction and land portfolios. These decreases resulted in the Corporation’s allowance for loan losses decreasing $29.5 million from $179.6 million at March 31, 2010 to $150.1 million at March 31, 2011. The allowance for loan losses represented 5.60% of total loans at March 31, 2011, compared to 5.22% of total loans at March 31, 2010. For further discussion of the allowance for loan losses, see “Financial Condition — Allowance for Loan and Foreclosure Losses.”

Future provisions for credit losses will continue to be based upon management’s assessment of the overall loan portfolio and the underlying collateral, trends in non-performing loans, current economic conditions and other relevant factors in order to maintain the allowance for loan losses at adequate levels to provide for probable and estimable future losses. The establishment of the amount of the loan loss allowance inherently involves judgments by management as to the adequacy of the allowance, which ultimately may change. Higher rates of loan defaults than anticipated would likely result in a need to increase provisions in future years.

Non-interest Income.    Non-interest income of $55.9 million for fiscal 2011 was comparable to $56.8 million for fiscal 2010. Service charges on deposits decreased $3.1 million for fiscal 2011 as the result of the sale of 15 branches and new legislation governing deposit service charges. In addition, net gain on sale of investment securities decreased $2.4 million.

Non-interest Expense.    Non-interest expense decreased $27.4 million to $130.8 million for fiscal 2011 compared to $158.2 million for fiscal 2010 primarily due to an $11.0 million decrease in compensation and a $7.2 million decrease in federal deposit insurance premiums. In addition, foreclosure cost advance impairment decreased $4.7 million, other non-interest expense decreased $2.4 million, occupancy expense decreased $1.7 million and furniture and equipment expense decreased $1.4 million. These decreases were partially offset by an increase in legal expense of $2.8 million, an increase in OREO expense, net of $2.1 million and an increase in the impairment of mortgage servicing rights of $1.8 million.

Real Estate Segment.    Net income generated by the real estate segment (IDI, the Corporation’s wholly-owned, non-banking subsidiary) increased $1.7 million for fiscal 2011 to a net loss of $1.1 million from a net loss of $2.8 million in fiscal 2010. During the quarter ended September 30, 2009, IDI sold its interest in several limited partnerships as well as substantially all of its remaining assets, which included some developed

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residential lots. The assets that remain at IDI include an equity interest in one commercial real estate property and one real estate development along with various notes receivable.

Income Taxes.    Income tax benefit decreased $1.7 million for fiscal 2011 as compared to fiscal 2010. The effective tax rate for fiscal 2011 was (0.46)% as compared to (0.84)% for fiscal 2010. The decline in the effective tax rate was primarily due to the valuation allowance of $16.7 million placed on the deferred tax asset during the year ended March 31, 2011. A full valuation allowance has been recorded on the net deferred tax asset due to the uncertainty of the Corporation to create sufficient taxable income in the near future to fully utilize it. See Note 14 to the Consolidated Financial Statements included in Item 8.

Financial Condition

General.    Total assets of the Corporation decreased $605.4 million, or 17.8%, from $3.39 billion at March 31, 2011 to $2.79 billion at March 31, 2012. This decrease was primarily attributable to a decrease in loans receivable as well as a decrease in investment securities.

Investment Securities.    Investment securities (both available-for-sale and held-to-maturity) decreased $281.0 million during the year primarily due to principal repayments, sales and fair value adjustments of $351.8 million and $0.6 million of other-than-temporary impairment losses that were recognized in earnings. These decreases were partially offset by purchases of $71.4 million. See Notes 1 and 5 to the Consolidated Financial Statements included in Item 8.

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

Loans Receivable.    Total net loans held for investment decreased $462.4 million during fiscal 2012 from $2.53 billion at March 31, 2011 to $2.06 billion at March 31, 2012. The activity included principal repayments and other adjustments (the majority of which are undisbursed loan proceeds) of $601.0 million and transfers to other real estate owned of $76.7 million, partially offset by originations and refinances of $215.3 million.

During 2012, the Corporation originated $215.3 million of loans for investment, as compared to $113.9 million and $631.1 million during fiscal 2011 and 2010, respectively.

Residential loans originated for sale amounted to $961.9 million in fiscal 2012, as compared to $804.5 million and $887.5 million in fiscal 2011 and fiscal 2010, respectively. At March 31, 2012, loans held for sale, which consisted solely of single-family residential loans, amounted to $39.3 million, as compared to $7.5 million at March 31, 2011. Loans held for sale are recorded at the lower of cost or fair value.

Other Real Estate Owned.    Other real estate owned decreased $1.9 million to $88.8 million at March 31, 2012 from $90.7 million at March 31, 2011 due to sales of $64.4 million and additional write downs of various properties of $15.3 million. These decreases were partially offset by transfers in from the loan portfolio and premises and equipment of $76.7 million and $1.1 million, respectively.

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Accrued Interest Receivable.    Accrued interest receivable decreased $4.3 million to $12.1 million at March 31, 2012 from $16.4 million at March 31, 2011 commensurate with the decrease in the securities and loan portfolios.

Deposits.    Deposits decreased $434.5 million during fiscal 2012 to $2.26 billion, due largely to a $607.2 million decline in certificates of deposit. A significant portion of the decreases were due to planned reductions in deposits from single service special rate households. Deposits obtained from brokerage firms which solicit deposits from their customers amounted to $274,000 at March 31, 2012, as compared to $48.1 million at March 31, 2011. The weighted average cost of deposits decreased to 0.98% in fiscal 2012 compared to 1.58% in fiscal 2011.

Borrowings.    FHLB advances decreased $121.0 million during fiscal 2012. At March 31, 2012, advances totaled $357.5 million and had a weighted average interest rate of 2.49% compared to advances of $478.5 million with a weighted average interest rate of 2.57% at March 31, 2011. Other borrowed funds as of March 31, 2012 consist of short-term line of credit borrowings of the Corporation of $116.3 million and retail repurchase agreements of $2.3 million. Other borrowed funds as of March 31, 2011 consist of short-term line of credit borrowings of the Corporation of $116.3 million, $60.0 million outstanding as part of the Temporary Liquidity Guarantee Program and retail repurchase agreements of $7.1 million. For additional information, see Note 11 to the Consolidated Financial Statements included in Item 8.

Accrued Interest and Fees Payable.    Accrued interest and fees payable increased $15.0 million to $43.3 million at March 31, 2012 from $28.3 million at March 31, 2011. The increase was mainly due to an increase in accrued interest and fees on short-term line of credit borrowings as the Corporation discontinued payments on this line on March 2, 2009 which is currently in default. For additional information, see Note 11 to the Consolidated Financial Statements included in Item 8.

Other Liabilities.    Other liabilities increased $13.7 million during fiscal 2012 to $28.3 million at March 31, 2012 from $14.6 million at March 31, 2011 primarily due to a larger disbursement obligation on loans closed but not yet funded that are in a three-day rescission period during which borrowers have the option to rescind the loan transaction.

Stockholders’ Equity (Deficit).    Stockholders’ equity (deficit) at March 31, 2012 was ($29.6) million, or (1.06)% of total assets, compared to ($13.2) million, or (0.39%) of total assets at March 31, 2011. Stockholders’ equity decreased during the year primarily as a result of comprehensive loss of $16.7 million, which includes net loss of $36.7 million and an increase in net unrealized gains on available-for-sale securities included as a part of accumulated other comprehensive income of $20.1 million.

RISK MANAGEMENT

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

Risk Management Philosophy

The Bank’s risk management philosophy is to manage to an overall level of risk while still allowing it to capture opportunities and optimize shareholder value. However, due to the general state of the economy and the elevated risk in the loan portfolio, the Bank’s risk profile does not currently meet our desired risk level. The Bank is working toward reducing the overall risk level to a more desired risk profile.

Risk Management Principles

Risk management is not about eliminating risks, but about identifying and accepting risks and then working to effectively manage them so as to optimize shareholder value. It includes, but is not limited to the following:

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

• Ensuring strong underwriting and credit risk management practices,

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• Practicing disciplined capital and liquidity management,

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

• Avoiding excessive concentrations, and

• Helping support external stakeholder confidence.

Although the Board of Directors is primarily responsible for oversight of risk management, committees of the Board may provide oversight to specific areas of risk with respect to the level of risk and risk management structure. The Bank uses management level risk committees to help ensure that business decisions are executed within our desired risk profile. Management provides oversight for the establishment and implementation of new risk management initiatives, review risk profiles and discuss key risk issues. In 2009, the Bank hired a new Chief Risk Officer in charge of overseeing credit risk management. Our internal audit department performs an independent assessment of the internal control environment and plays a critical role in risk management, testing the operation of the internal control system and reporting findings to management and to the Audit Committee of the Board.

CREDIT RISK MANAGEMENT

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

In addition to credit policies and procedures and setting portfolio objectives for the level of credit risk, the Bank has established guidelines for problem loans, acceptable levels of total borrower exposure and other credit measures. During fiscal 2012, management has continued to focus on loss mitigation and maximization of recoveries in the Bank’s non-performing assets portfolios. Over time, the Bank intends to return to management of portfolio returns through discrete portfolio investments within approved risk tolerances.

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

The Risk Management group is responsible for monitoring credit risk. Internal Audit also provides an independent assessment of the effectiveness of the credit risk management process. The Bank also manages credit risk in accordance with regulatory guidance.

Non-Performing Loans

The composition of non-performing loans is summarized as follows for the dates indicated:

	March 31, 2012								March 31, 2011
	Non-Performing Loans		Percent of Non-Performing Loans			Percent of Total Gross Loans(1)			Non-Performing Loans		Percent of Non-Performing Loans			Percent of Total Gross Loans(1)
	(Dollars in thousands)
Residential	$	44,550		19.8	%		2.04	%	$	63,746		22.6	%		2.38	%
Commercial and industrial		8,217		3.7			0.38			18,241		6.5			0.68
Land and construction		64,229		28.6			2.94			67,472		23.9			2.51
Multi-family		37,762		16.8			1.73			39,412		13.9			1.47
Retail/office		33,817		15.0			1.55			54,256		19.2			2.02
Other commercial real estate		27,963		12.4			1.28			31,488		11.1			1.17
Education(2)		762		0.3			0.03			731		0.3			0.03
Other consumer		7,624		3.4			0.35			7,299		2.6			0.27
Total non-performing loans	$	224,924		100.0	%		10.28	%	$	282,645		100.0	%		10.54	%

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

(2) Excludes the guaranteed portion of education loans 90+ days past due with an unpaid principal balance totaling $24,641 and $23,629 at March 31, 2012 and 2011, respectively, that are not considered impaired based on a guarantee provided by government agencies.

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The following is a summary of non-performing loan activity for the year ended March 31, 2012:

Loan Class	Non-Performing Loan Balance April 1, 2011		Additions		Transferred to Accrual Status			Transferred to OREO			Paid Down			Charged Off			Non-Performing Loan Balance March 31, 2012		Remaining Balance of Loans		Associated ALLL
	(In thousands)
Residential	$	63,746	$	17,992	$	(5,728	)	$	(19,724	)	$	(6,669	)	$	(5,067	)	$	44,550	$	520,141	$	13,027
Commercial and industrial		18,241		9,638		(980	)		(2,898	)		(3,991	)		(11,793	)		8,217		30,760		10,568
Land and construction		67,472		45,427		(4,330	)		(14,450	)		(9,716	)		(20,174	)		64,229		121,819		31,809
Multi-family		39,412		22,750		(8,017	)		(7,837	)		(5,929	)		(2,617	)		37,762		304,454		15,714
Retail/office		54,256		34,468		(367	)		(20,553	)		(17,309	)		(16,678	)		33,817		264,460		22,416
Other commercial real estate		31,488		19,508		(1,249	)		(9,924	)		(2,322	)		(9,538	)		27,963		220,312		15,214
Education		731		139		—			—			(108	)		—			762		239,569		350
Other consumer		7,299		6,231		(2,896	)		(305	)		(955	)		(1,750	)		7,624		261,908		2,117
Total	$	282,645	$	156,153	$	(23,567	)	$	(75,691	)	$	(46,999	)	$	(67,617	)	$	224,924	$	1,963,423	$	111,215

Non-performing loans (consisting of loans past due more than 90 days, loans less than 90 days delinquent but placed on non-accrual status due to anticipated probable loss and non-accrual troubled debt restructurings) decreased $57.7 million during the year ended March 31, 2012. The loan categories with the largest decline in non-performing loans during fiscal 2012 were retail/office loans of $20.4 million, residential loans of $19.2 million and commercial and industrial loans of $10.0 million.

The interest income that would have been recorded during the year ended March 31, 2012 if the Bank’s non-performing loans at the end of the period had been current in accordance with their terms during the period was $4.1 million.

Non-Performing Assets

The composition of non-performing assets and related credit metrics are summarized as follows for the dates indicated:

	At March 31,			At March 31,
	2012			2011
	(Dollars in thousands)
Non-accrual loans — excluding troubled debt restructurings	$	148,546		$	265,383
Troubled debt restructurings — non-accrual(1)		76,378			17,262
Other real estate owned (OREO)		88,841			90,707
Total non-performing assets	$	313,765		$	373,352
Total non-performing loans to total gross loans(2)		10.28	%		10.54	%
Total non-performing assets to total assets		11.25			11.00
Allowance for loan losses to total gross loans(2)		5.08			5.60
Allowance for loan losses to total non-performing loans		49.45			53.11
Allowance for loan losses plus OREO valuation allowance to total non-performing assets		42.62			45.56

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

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

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

The increase in loans considered troubled debt restructurings — non-accrual of $59.1 million to $76.4 million at March 31, 2012 from $17.3 million at March 31, 2011 is primarily the result of one significant troubled debt restructured loan relationship whose payment history required a move into non-accrual status. As time passes and borrowers continue to perform in accordance with the restructured loan terms, a portion of the troubled debt restructurings — non-accrual balance may be returned to accrual status.

The following is a summary of non-performing asset activity for the year ended March 31, 2012:

	Total  Non- Performing Loans(1)			Other Real Estate Owned (OREO)			Total  Non- Performing Assets
	(In thousands)
Balance at April 1, 2011	$	282,645		$	90,707		$	373,352
Additions		156,153			2,144			158,297
Transfers:
Nonaccrual to OREO		(75,691	)		75,691			—
Returned to accrual status		(23,567	)		—			(23,567	)
Sales		—			(64,363	)		(64,363	)
Loan charge-offs/OREO losses on sale or net additional write-down		(67,617	)		(15,338	)		(82,955	)
Payments		(46,999	)		—			(46,999	)
Balance at March 31, 2012	$	224,924		$	88,841		$	313,765

(1) Total non-performing loans exclude $23,629 and $24,641 of education loans that are 90 days and more past due but still accruing interest at April 1, 2011 and March 31, 2012, respectively.

Loan Delinquencies 30 Days and Over

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

	March 31,
	2012					2011					2010					2009					2008
Days Past Due	Balance		% of Total Gross Loans			Balance		% of Total Gross Loans			Balance		% of Total Gross Loans			Balance		% of Total Gross Loans			Balance		% of Total Gross Loans
	(Dollars in thousands)
30 to 59 days	$	18,332		0.84	%	$	46,244		1.72	%	$	53,105		1.54	%	$	64,862		1.58	%	$	66,617		1.52	%
60 to 89 days		12,230		0.56			30,479		1.14			53,864		1.56			29,858		0.73			12,928		0.29
90 days and over		190,663		8.71			238,256		8.88			217,393		6.31			146,151		3.56			101,241		2.31
Total	$	221,225		10.11	%	$	314,979		11.74	%	$	324,362		9.42	%	$	240,871		5.86	%	$	180,786		4.12	%

Loans delinquent 30 to 89 days decreased $46.1 million to $30.6 million at March 31, 2012 from $76.7 million at March 31, 2011 as a result of increased monitoring and loss mitigation efforts.

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Impaired Loans

At March 31, 2012, the Corporation has identified $297.6 million of loans as impaired which includes $72.6 million of performing troubled debt restructurings. At March 31, 2011, impaired loans were $372.1 million including $89.4 million of performing troubled debt restructurings. A loan is identified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement and thus are placed on non-accrual status.

During the quarter ended September 30, 2011, the Corporation adopted Accounting Standards Update No. 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” This ASU clarifies the guidance on how creditors evaluate whether a restructuring of debt qualifies as a Troubled Debt Restructuring. The adoption of ASU 2011-02 increased the Corporation’s impaired loans by approximately $258,000.

The following is additional information regarding impaired loans.

	At March 31,
	2012			2011
	(In thousands)
Unpaid principal balance of impaired loans:
With specific reserve required(1)	$	173,596		$	208,457
Without a specific reserve		123,976			163,605
Total impaired loans		297,572			372,062
Less:
Specific valuation allowance for impaired loans		(44,150	)		(54,193	)
Carrying amount of impaired loans	$	253,422		$	317,869
Average carrying amount of impaired loans(1)	$	304,060		$	414,924
Loans and troubled debt restructurings on non-accrual status		224,924			282,645
Troubled debt restructurings — accrual		72,648			89,417
Troubled debt restructurings — non-accrual(2)		76,378			17,262
Loans past due ninety days or more and still accruing(3)		30,697			23,629

(1) Excludes the guaranteed portion of education loans 90+ days past due with unpaid principal balances and average carrying amounts totaling $24,641 and $25,520 at March 31, 2012 and $23,629 and $25,628 at March 31, 2011, respectively, that are not considered impaired based on a guarantee provided by government agencies.

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

(3) Includes the guaranteed portion of education loans of $24,641 and $23,629 at March 31, 2012 and 2011, respectively, that were 90+ days past due which continue to accrue interest due to a guarantee provided by government agencies covering a minimum of 97% of the outstanding balance.

	For the Year Ended March 31,
	2012		2011		2010
	(In thousands)
Interest income recognized on impaired loans on a cash basis	$	7,231	$	9,818	$	11,939

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Allowance for Loan Losses

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

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

The allowance consists of specific and general components even though the entire allowance is available to cover losses on any loan. The specific allowance relates to impaired loans. For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan are lower than the carrying value of that loan. The general allowance covers non-impaired loans and is based on historical loss experience adjusted for the various qualitative and quantitative factors listed above. Loans graded substandard and below are individually examined closely to determine the appropriate loan loss reserve. The Bank also maintains a reserve for unfunded commitments which is classified in other liabilities.

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

Quantitative factors include:

• loan volume and terms

• delinquency and charge-off trends

• collateral values

• credit concentrations

• external factors such as competition and legal and regulatory requirements,

• portfolio size

Qualitative factors include:

• lending policies, procedures and practices

• national and local economic conditions

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

• loan review system

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During the quarter ending December 31, 2011, the values assigned to quantitative factors regarding loan volume and terms, delinquency and charge-off trends, and collateral values; and the qualitative factor regarding economic conditions, were adjusted lower to reflect the results of an analysis based on various publications, market research, economic reports, Corporation portfolio credit metrics, management’s expertise and knowledge of the immediate lending market, as well as analysis of peer institutions and similar markets. The factor value changes resulted in a lower required allowance for loan losses as of December 31, 2011 totaling $6.1 million. The lower required allowances by portfolio segment were $2.4 million for the residential segment, $0.1 million for the commercial and industrial segment, and $3.6 million for the commercial real estate segment.

During the quarter ending March 31, 2012, a new special mention loan category was created in response to a recommendation by bank examiners to expand the Corporation’s loan rating system to be more closely aligned with best practices for OCC regulated banks. The recast population of watch rated loans are now grouped with pass rated loans for purposes of calculating the general reserve component of the allowance for loan losses. The new special mention rated loans are treated like the watch loans had been in previous allowance for loan loss calculations in that an incremental risk factor value is added to the historical charge-off rate which is then applied to this group of loans. The impact of this change, on a pro forma basis assuming the watch rated loans at March 31, 2012 were included in the special mention category, would be an increase to the provision for loan losses of $1.3 million. In other words, the actual provision for credit losses for the quarter and year ending March 31, 2012 was lower by $1.3 million due to this change.

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

	At March 31,
	2012		2011
	(In thousands)
General component	$	37,085	$	44,940
Substandard loan component		29,980		50,989
Specific component		44,150		54,193
Total allowance for loan losses	$	111,215	$	150,122

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

	At March 31,
	2012		2011
	(In thousands)
Pass	$	1,624,889	$	1,864,763
Watch		115,917		237,837
Special mention		56,762		—
Total pass, watch and special mention rated loans		1,797,568		2,102,600
Total substandard, excluding TDR accrual		93,207		208,184
TDR accrual		72,648		89,417
Non-accrual		224,924		282,645
Total impaired loans		297,572		372,062
Total unpaid principal balance	$	2,188,347	$	2,682,846

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

	At March 31,
	2012			2011
	(Dollars in thousands)
General ALLL/pass, watch and special mention loans		2.1	%		2.1	%
Substandard ALLL/substandard, excluding TDR accrual		32.2	%		24.5	%
Specific ALLL/impaired loans		14.8	%		14.6	%
Loans 30 to 89 days past due	$	30,562		$	76,723

The ratio of the general allowance for loan losses to pass and watch rated loans has remained steady at 2.1% at March 31, 2012 and 2011 reflecting comparable charge-offs year-over-year and the slight adjustments to quantitative and qualitative factors discussed above. The ratios associated with substandard and impaired loans have both increased from March 31, 2011 to March 31, 2012 reflecting a continued weakness in collateral values associated with these higher risk credits.

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

	Year Ended March 31,
	2012			2011			2010			2009			2008
	(Dollars in thousands)
Allowance at beginning of year	$	150,122		$	179,644		$	137,165		$	38,285		$	20,517
Purchase of S&C Bank		—			—			—			—			2,795
Charge-offs:
Single-family residential		(6,625	)		(17,563	)		(5,505	)		(11,226	)		(670	)
Multi-family residential		(4,247	)		(14,497	)		(12,729	)		(10,093	)		(700	)
Commercial real estate		(32,009	)		(21,986	)		(32,580	)		(33,315	)		(3,551	)
Construction and land		(21,429	)		(12,554	)		(44,107	)		(24,978	)		—
Consumer		(3,259	)		(3,302	)		(4,322	)		(2,310	)		(862	)
Commercial business		(14,993	)		(18,984	)		(23,040	)		(27,002	)		(2,130	)
Total charge-offs		(82,562	)		(88,886	)		(122,283	)		(108,924	)		(7,913	)
Recoveries:
Single-family residential		1,711			1,522			580			118			—
Multi-family residential		1,425			653			—			6			65
Commercial real estate		2,670			2,331			632			941			28
Construction and land		1,429			1,166			119			141			—
Consumer		693			299			46			73			48
Commercial business		1,840			3,068			1,459			806			194
Total recoveries		9,768			9,039			2,836			2,085			335
Net charge-offs		(72,794	)		(79,847	)		(119,447	)		(106,839	)		(7,578	)
Provision		33,887			50,325			161,926			205,719			22,551
Allowance at end of year	$	111,215		$	150,122		$	179,644		$	137,165		$	38,285
Net charge-offs to average loans held for sale and for investment		(3.14	)%		(2.76	)%		(3.30	)%		(2.60	)%		(0.18	)%

Total loan charge-offs were $82.6 million and $88.9 million for the fiscal years ending March 31, 2012 and 2011, respectively. Total loan charge-offs for the years ended March 31, 2012 and 2011 decreased $6.3 million and $33.4 million respectively, from the prior fiscal years. Recoveries increased $729,000 during the fiscal year

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ended March 31, 2012. Recoveries increased $6.2 million from $2.8 million in fiscal 2010 to $9.0 million in fiscal 2011.

The provision for credit losses decreased $16.4 million to $33.9 million for the fiscal year ending March 31, 2012 compared to $50.3 million for the year ended March 31, 2011. The decrease in the provision for credit losses is the result of management’s ongoing evaluation of the loan portfolio. Management considered the decrease in non-accrual loans to total loans to 10.28% at March 31, 2012 from 10.54% at March 31, 2011 as well as an increase in total non-performing assets to 11.25% at March 31, 2012 from 11.00% at March 31, 2011 to be factors that warranted the decrease in provision for credit losses. Although these ratios have increased, these increases are primarily a result of a decrease in the loan portfolio and not an increase in the amount of non-performing loans. The aggregate balance of non-performing loans has decreased in the current fiscal year.

The allowance process is analyzed regularly, with modifications made if needed, and those results are reported four times per year to the Bank’s Board of Directors. Although management believes that the March 31, 2012 allowance for loan losses is adequate based upon the current evaluation of loan delinquencies, non-performing assets, charge-off trends, economic conditions and other factors, there can be no assurance that future adjustments to the allowance will not be necessary. Management also continues to pursue all practical and legal methods of collection, repossession and disposal, and adheres to high underwriting standards in the origination process in order to continue to improve asset quality. Determination as to the classification of assets and the amount of valuation allowances is subject to review by the bank regulatory agencies which can recommend the establishment of additional general or specific loss allowances.

The following table presents the allocation of the allowance for loan losses in the loan categories previously presented.

	As of March 31,
	2012		% of Loan Type to Total Loans			2011		% of Loan Type to Total Loans			2010		% of Loan Type to Total Loans			2009		% of Loan Type to Total Loans			2008		% of Loan Type to Total Loans
	(Dollars in thousands)
Single-family residential	$	13,027		26.0	%	$	20,487		24.3	%	$	20,960		22.3	%	$	11,154		20.5	%	$	5,175		20.4	%
Multi-family residential		15,714		19.4			22,358		18.6			26,471		17.9			19,202		16.1			2,736		15.8
Commercial real estate		37,629		21.8			61,837		24.1			75,379		24.5			50,218		24.9			13,493		24.8
Construction and land		31,810		7.9			22,251		8.4			23,908		9.9			30,526		13.0			7,522		16.1
Consumer		2,467		23.3			3,649		21.0			2,650		20.6			3,703		19.7			1,468		16.6
Commercial business		10,568		1.6			19,540		3.6			30,276		4.8			22,362		5.8			7,891		6.3
Total allowance for loan losses	$	111,215		100.0	%	$	150,122		100.0	%	$	179,644		100.0	%	$	137,165		100.0	%	$	38,285		100.0	%

The following table presents the associated allowance for loan losses as a percent of the total allowance for loan losses in the loan categories previously reported:

	As of March 31,
	2012			2011			2010			2009			2008
Single-family residential		11.7	%		13.6	%		11.7	%		8.1	%		13.5	%
Multi-family residential		14.1			14.9			14.7			14.0			7.1
Commercial real estate		33.8			41.2			42.0			36.6			35.2
Construction and land		28.6			14.8			13.3			22.3			19.6
Consumer		2.2			2.4			1.5			2.7			3.8
Commercial business		9.5			13.0			16.9			16.3			20.6
Total allowance for loan losses		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

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Other Real Estate Owned

Other real estate owned (OREO) decreased $1.9 million during the year ended March 31, 2012.Individual properties included in OREO at March 31, 2012 with a recorded balance in excess of $1 million are listed below:

		Carrying
Description	Location	Value
		(In thousands)
Condo units with additional land	Central Wisconsin	$	5,726
Retail/office building	Central Wisconsin		2,567
Vacant land	Northeast Wisconsin		1,181
Multi-family and vacant land	Northwest Wisconsin		1,578
Vacant land	Northwest Wisconsin		1,190
Retail/office building	South Central Wisconsin		2,762
Commercial warehouse	South Central Wisconsin		2,730
Single family and vacant land	South Central Wisconsin		1,950
Commercial building	South Central Wisconsin		1,450
Vacant land	South Central Wisconsin		1,445
Retail/office building	South Central Wisconsin		1,076
Vacant land	Southeast Wisconsin		5,100
Vacant land	Southeast Wisconsin		2,100
Commercial building and vacant land	Southeast Wisconsin		1,581
Vacant land	Southeast Wisconsin		1,190
Office/warehouse building	Southeast Wisconsin		1,190
Vacant land	Southeast Wisconsin		1,162
Other properties individually less than $1 million			52,863
		$	88,841

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

LIQUIDITY RISK MANAGEMENT

Liquidity risk is the risk of potential loss if the Corporation were unable to meet its funding requirements at a reasonable cost. The Corporation manages liquidity risk at the bank and holding company to help ensure that it can obtain cost-effective funding to meet current and future obligations.

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

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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. As a condition of the Cease and Desist Order with the OTS (now administered by the OCC), the Bank is currently prohibited from paying dividends to the Corporation. Due to a lack of liquidity and resultant failure to make a principal payment on March 2, 2009, the Corporation continued to be unable to meet its obligations under the credit agreement during the year ended March 31, 2012.

The Bank’s primary sources of funds are payments on loans and securities, deposits from retail and wholesale sources, FHLB advances and other borrowings. The Bank is currently prohibited from obtaining new brokered deposits due to its current capital levels. As of March 31, 2012, the Corporation had outstanding borrowings from the FHLB of $357.5 million. The total maximum borrowing capacity at the FHLB based on the existing stock holding as of March 31, 2012 was $715.8 million, subject to collateral availability. Total borrowing capacity based on the value of the existing collateral pledged was $514.2 million.

Capital Purchase Program

On January 30, 2009, as part of Treasury’s CPP, the Corporation entered into a Letter Agreement with Treasury. Pursuant to the Securities Purchase Agreement — Standard Terms (the “Securities Purchase Agreement”) the Corporation issued the UST 110,000 shares of the Corporation’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Preferred Stock”), having a liquidation amount per share of $1,000, for a total purchase price of $110,000,000. The Preferred Stock will pay cumulative compounding dividends at a rate of 5% per year for the first five years following issuance and 9% per year thereafter. The Securities Purchase Agreement provides for redemption of shares of the Preferred Stock for the per share liquidation amount of $1,000 plus any accrued and unpaid dividends. The Corporation has deferred the payment of dividends during each of the twelve quarters ended March 31, 2012 due to a lack of liquidity. As a result of such deferrals, on September 30, 2011, the Treasury exercised its right to appoint two directors to the Board of Directors of the Corporation.

As long as any Preferred Stock is outstanding, the Corporation may not pay dividends on its Common Stock, $.10 par value per share, and redeem or repurchase its Common Stock, unless all accrued and unpaid dividends for all past dividend periods on the Preferred Stock are fully paid. The Preferred Stock is non-voting except for class voting rights on matters that would adversely affect the rights of the holders of the Preferred Stock.

As a condition to participating in the CPP, the Corporation issued and sold to the Treasury a warrant (the “Warrant”) to purchase up to 7,399,103 shares of the Corporation’s Common Stock, at an initial per share exercise price of $2.23, for an aggregate purchase price of approximately $16.5 million. The term of the Warrant is ten years. Issuance of the Warrant was subject to the receipt by the Corporation of shareholder approval which was received at the 2009 annual meeting of shareholders. The Warrant provides for the adjustment of the exercise price should the Corporation not have received shareholder approval, as well as customary anti-dilution provisions. Pursuant to the Securities Purchase Agreement, the Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the Warrant.

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

Loan Commitments

At March 31, 2012, the Bank had outstanding commitments to originate loans of $15.0 million and commitments to extend funds to, or on behalf of, customers pursuant to lines and letters of credit of $171.2 million. Scheduled maturities of certificates of deposit for the Bank during the twelve months following March 31, 2012 amounted to $758.8 million. Scheduled maturities of borrowings during the same period totaled $12.3 million for the Bank and $116.3 million for the Corporation. Management believes adequate resources are available to fund all Bank commitments to the extent required. For more information regarding the Corporation’s borrowings, see “Credit Agreement” section below.

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Other

The Corporation previously participated in the Mortgage Partnership Finance Program of the FHLB of Chicago (“MPF Program”). Pursuant to the credit enhancement feature of the MPF Program, the Corporation has retained a secondary credit loss exposure in the amount of $20.4 million at March 31, 2012 related to approximately $394.0 million of residential mortgage loans that the Corporation has originated as agent for the FHLB. Under the credit enhancement, the FHLB is liable for losses on loans up to one percent of the original delivered loan balances in each pool. The Corporation is then liable for losses over and above the first position up to a contractually agreed-upon maximum amount in each pool that was delivered to the Program. The Corporation receives a monthly fee for this credit enhancement obligation based on the outstanding loan balances. The monthly fee received is net of losses under the MPF Program. The MPF Program was discontinued in 2008 in its present format and the Corporation no longer funds loans through the MPF Program.

The Bank has entered into agreements with certain brokers that will provide deposits obtained from their customers at specified interest rates for an identified fee, or so called “brokered deposits.” At March 31, 2012, the Bank had $2.1 million of brokered deposits. At March 31, 2012, the Bank was under a Cease and Desist Order with the OCC which limits the Bank’s ability to accept, renew or roll over brokered deposits without prior approval of the OCC.

In January 2012, the Bank exchanged four of its Federal Home Loan Bank advances totaling $150.0 million for an equal number and principal amount of advances with extended maturity dates and different interest rate terms to reduce interest rate risk and lower the current cost of funds. The advances exchanged carried fixed rates of interest ranging from 2.53% to 3.25% and maturity dates from January through March 2013. The new advances all mature in January 2015 and require monthly interest payments based on 3 month LIBOR plus a spread ranging from 0.98% to 1.15%. Prepayment fees due upon exchange of the instruments totaling $4.3 million were embedded in the spread over LIBOR on the new advances. No gain or loss was recorded for these transactions as the criteria in Accounting Standards Codification 470-50, “Debt — Modifications and Extinguishments” requiring accounting as an extinguishment of debt were not met.

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

The Cease and Desist Orders also required that by no later than December 31, 2009, the Bank meet and maintain both a tier 1 leverage (core) ratio equal to or greater than 8% and a total risk-based capital ratio equal to or greater than 12%. The Bank was required to submit to the OTS, and has submitted, a written capital contingency plan, a problem asset plan, a revised business plan, and an implementation plan resulting from a review of commercial lending practices.

At March 31, 2012, the Bank had a tier 1 leverage ratio of 4.51% and a total risk-based capital ratio of 8.42%, each below the required capital ratios set forth above. As a result, the OCC may take additional significant regulatory action against the Bank and Corporation which could, among other things, materially adversely affect the Corporation’s shareholders. All customer deposits remain fully insured to the highest limits set by the FDIC. The OCC may grant extensions to the timelines established by the Orders.

Our ability to meet 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.

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The following summarizes the Bank’s capital levels and ratios and the levels and ratios required by its federal regulators to be considered well capitalized at March 31, 2012 and 2011 under standard PCA guidelines:

						Minimum Required
	Actual					To be Adequately Capitalized					To be Well Capitalized					Under Order to Cease and Desist
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
At March 31, 2012
Tier 1 leverage (core)	$	125,894		4.51	%	$	111,685		4.00	%	$	139,606		5.00	%	$	223,370		8.00	%
Total risk-based capital		149,141		8.42			141,701		8.00			177,126		10.00			212,551		12.00
At March 31, 2011
Tier 1 core capital
(to adjusted tangible assets)	$	145,807		4.26	%	$	136,892		4.00	%	$	205,338		6.00	%	$	273,784		8.00	%
Total risk-based capital
(to risk-weighted assets)		174,453		8.04			173,616		8.00			217,020		10.00			260,424		12.00

Although very similar, capital levels and ratios at March 31, 2012 were determined following OCC guidelines, and at March 31, 2011 based on OTS rules.

The following table reconciles the Bank’s stockholders’ equity to regulatory capital at March 31, 2012 and 2011:

	March 31,
	2012			2011
	(In thousands)
Stockholders’ equity of the Bank	$	128,071		$	126,916
Less: Disallowed servicing assets		(2,045	)		(1,061	)
Accumulated other comprehensive (income) loss		(132	)		19,952
Tier 1 capital		125,894			145,807
Plus: Allowable general valuation allowances		23,247			28,646
Total risk-based capital	$	149,141		$	174,453

The Corporation is a separate and distinct legal entity from our subsidiaries, including the Bank. As a holding company without independent operations, the Corporation’s liquidity (on an unconsolidated basis) is primarily dependent upon the Corporation’s ability to raise debt or equity capital from third parties and the receipt of dividends from the Bank and its other non-bank subsidiaries. We receive substantially all of our revenue from dividends from the Bank. These dividends are the principal source of funds to pay dividends on our preferred and common stock, and interest and principal on our debt. The Corporation is currently in default under its Amended and Restated Credit Agreement with its primary lender, and has deferred dividend payments on the Series B Preferred Stock held by Treasury. Various federal and/or state laws and regulations limit the amount of dividends that the Bank may pay us. Additionally, if the Bank’s earnings are not sufficient to make dividend payments to the Corporation while maintaining adequate capital levels, our ability to make dividend payments to our preferred and common shareholders will be negatively impacted. As a result of recent regulatory actions, the Corporation’s principal operating subsidiary, the Bank, is prohibited from paying any dividends or making any loans to the Corporation, despite the existence of excess liquidity at the Bank. At March 31, 2012, the Corporation’s cash and cash equivalents, on an unconsolidated basis amounted to $2.6 million. Presently, the Corporation (on an unconsolidated basis) does not have sufficient liquidity to meet its short-term obligations, which include the approximately $157.3 million in outstanding debt, interest and fees that our lender could accelerate and demand payment for upon the expiration of Amendment No. 8 to the Amended and Restated Credit Agreement on November 30, 2012, and $128.8 million of Series B Preferred Stock and dividends and interest payable to the U.S. Treasury.

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Credit Agreement

On November 29, 2011, the Corporation entered into Amendment No. 8 (the “Amendment”) to the Amended and Restated Credit Agreement, dated as of June 9, 2008, the “Credit Agreement,” among the Corporation, the lenders from time to time a party thereto, and U.S. Bank National Association, as administrative agent for such lenders, or the “Agent.” The Corporation owes $116.3 million of principal to various lenders led by U.S. Bank under the Credit Agreement.

Under the Amendment, the Agent and the lenders agree to forbear from exercising their rights and remedies against the Corporation until the earliest to occur of the following: (i) the occurrence of any event of default (other than a failure to make principal payments on the outstanding balance under the Credit Agreement or other existing defaults); or (ii) November 30, 2012. Notwithstanding the agreement to forbear, the Agent may at any time, in its sole discretion, take any action reasonably necessary to preserve or protect its interest in the stock of the Bank, Investment Directions, Inc. or any other collateral securing any of the obligations against the actions of the Corporation or any third party without notice to or the consent of any party.

The Amendment also provides that the outstanding balance under the Credit Agreement shall bear interest at a rate equal to 15% per annum. Interest accruing on the Loan is due on the earlier of (i) the date the Loans are paid in full or (ii) November 30, 2012. At March 31, 2012, the Corporation had accrued interest payable related to the Credit Agreement of $35.8 million and an accrued amendment fee of $5.2 million.

The Amendment requires the Bank to maintain the following financial covenants:

• A Tier 1 leverage ratio of not less than 3.70% at all times.

• A total risk based capital ratio of not less than 7.50% at all times.

• The ratio of non-performing loans to gross loans shall not exceed 15.00% at any time.

The total outstanding principal balance under the Credit Agreement as of March 31, 2012 was $116.3 million. These borrowings are shown in the Corporation’s consolidated financial statements as other borrowed funds. The Amendment provides that the Corporation must pay in full the outstanding balance under the Credit Agreement on the earlier of the Corporation’s receipt of net proceeds of a financing transaction from the sale of equity securities in an amount not less than $116.3 million or November 30, 2012. For additional information about the Credit Agreement, see Part II, Item 1A — Risk Factors — Risks Related to Our Credit Agreement.

The Credit Agreement and the Amendment also contain customary representations, warranties, conditions and events of default for agreements of such type. At March 31, 2012, the Corporation was in compliance with all covenants contained in the Credit Agreement, as amended on November 30, 2011. Under the terms of the amended Credit Agreement, the Agent and the Lenders have certain rights, including the right to accelerate the maturity of the borrowings if all covenants are not complied with. Currently, no such action has been taken by the Agent or the Lenders. However, the default creates significant uncertainty related to the Corporation’s operations.

Contractual Obligations and Commitments

At March 31, 2012, on a consolidated basis the Corporation had outstanding commitments to originate $15.0 million of loans and commitments to extend credit to or on behalf of customers pursuant to lines and letters of credit of $171.2 million. See Note 16 to the Consolidated Financial Statements included in Item 8. Commitments to extend credit typically have a term of less than one year. Management believes adequate capital and borrowings are available from various sources to fund all commitments to the extent required.

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The following table summarizes our contractual principal cash obligations and other commitments at March 31, 2012:

	Payment Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
	(In thousands)
FHLB advances	$	357,500	$	10,000	$	161,500	$	—	$	186,000
Short term line of credit		116,300		116,300		—		—		—
Repurchase agreements		2,303		2,303		—		—		—
Total other borrowed funds		476,103		128,603		161,500		—		186,000
Certificates of deposit		969,907		758,831		168,578		42,498		—
Other deposits		1,295,008		1,295,008		—		—		—
Operating lease obligations		14,592		1,595		2,993		2,429		7,575
Total contractual obligations	$	2,755,610	$	2,184,037	$	333,071	$	44,927	$	193,575

In May 2009, the Corporation began deferring payments of dividends on its preferred stock. The dividends on the preferred stock are recorded only when declared. At March 31, 2012, the cumulative amount of dividends in arrears not declared, along with accrued interest at 5% per annum on the unpaid dividends was $18.8 million.

At March 31, 2012, the Bank’s capital was below all capital requirements of the OCC as mandated by the Order to Cease and Desist. See Note 12 to the Consolidated Financial Statements included in Item 8.

Orders to Cease and Desist

On June 26, 2009, Anchor Bancorp Wisconsin Inc. (the “Company”) and its wholly-owned subsidiary, Anchor Bank (the “Bank”) each consented to the issuance of an Order to Cease and Desist (the “Company Order” and the “Bank Order,” respectively, and together, the “Orders”) by the Office of Thrift Supervision (the “OTS”). As of July 21, 2011, the Cease and Desist Order is now administered by the OCC with respect to the Bank and the Federal Reserve with respect to the Corporation.

The Corporation Order requires that the Corporation notify, and in certain cases receive the permission of, the OCC prior to: (i) declaring, making or paying any dividends or other capital distributions on its capital stock, including the repurchase or redemption of its capital stock; (ii) incurring, issuing, renewing or rolling over any debt, increasing any current lines of credit or guaranteeing the debt of any entity; (iiv) making certain changes to its directors or senior executive officers; (iv) entering into, renewing, extending or revising any contractual arrangement related to compensation or benefits with any of its directors or senior executive officers; and (v) making any golden parachute payments or prohibited indemnification payments. Further, the Corporation’s board was required to develop and submit to the OTS a three-year cash flow plan, which must be reviewed at least quarterly by the Company’s management and board for material deviations between the cash flow plan’s projections and actual results (the “Variance Analysis Report”). Within thirty days following the end of each quarter, the Corporation is required to provide the OCC its Variance Analysis Report for that quarter. The Corporation has complied with each of these requirements as of March 31, 2012.

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

The Orders also require that no later than December 31, 2009, the Bank was to meet and maintain both a core capital ratio equal to or greater than eight percent and a total risk-based capital ratio equal to or greater than twelve percent. The Bank also submitted, to the OTS, within the prescribed time periods, a written capital

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

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

At March 31, 2012 and 2011, the Bank had a tier 1 leverage (core) capital ratio of 4.51% and 4.26% and a total risk-based capital ratio of 8.42% and 8.04%, respectively, each below the required capital ratios set forth above. Without a waiver by the OCC or amendment or modification of the Orders, the Bank could be subject to further regulatory action. All customer deposits remain fully insured to the highest limits set by the FDIC.

The Corporation is actively working with its advisors to explore possible alternatives to raise additional equity capital. If completed, any such transaction would likely result in significant dilution for the current common shareholders.

MARKET RISK MANAGEMENT OVERVIEW

Market risk is the risk of a loss in earnings or economic value due to adverse movements in market factors such as interest rates, credit spreads, foreign exchange rates, and equity prices. We are exposed to market risk primarily by our involvement in, among others, traditional banking activities of taking deposits and extending loans. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk — Asset and Liability Management.

COMPLIANCE RISK MANAGEMENT

Compliance risk represents the risk of regulatory sanctions, reputational impact or financial loss resulting from the Corporation’s failure to comply with regulations and standards of good banking practice. Activities which may expose the Corporation to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges and employment and tax matters.

STRATEGICAND/OR REPUTATION RISK MANAGEMENT

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Asset and Liability Management.    The business of the Corporation and the composition of its consolidated balance sheet consist of investments in interest-earning assets (primarily loans, mortgage-backed securities, and other securities) that are largely funded by interest-bearing liabilities (deposits and borrowings). All of the financial instruments of the Corporation as of March 31, 2012 were held for other-than-trading purposes. Such financial instruments have varying levels of sensitivity to changes in market rates of interest. The Corporation’s net interest income is dependent on the amounts of and yields on its interest-earning assets as compared to the amounts of and rates on its interest-bearing liabilities. Net interest income is therefore sensitive to changes in market rates of interest.

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

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

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

The Corporation performs a net interest income analysis as part of its asset/liability management processes. Net interest income analysis measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of change in net interest income in the event of sudden and sustained 100 and 200 basis point increases in market interest rates. The tables below present the Corporation’s projected changes in net interest income for the various rate shock levels at March 31, 2012 and March 31, 2011, respectively. As a result of current market conditions, 100 and 200 basis point decreases in market interest rates are not applicable for 2012 and 2011 as those decreases would result in some deposit interest rate assumptions falling below zero. Nonetheless, the Corporation’s net interest income could decline in those scenarios as yields on earning assets could continue to adjust downward.

	200 Basis Point Rate Increase			100 Basis Point Rate Increase
March 31, 2012		13.2	%		6.4	%
March 31, 2011		8.8	%		5.0	%

As shown above, at March 31, 2012, the effect of an immediate 200 basis point increase in interest rates would increase the Corporation’s net interest income by 13.2%. Overall net interest income sensitivity remains within the Corporation’s and recommended regulatory guidelines.

The changes in the Corporation’s net interest income sensitivity were due, in large part, to the optionality on both sides of the balance sheet. The changes in net interest income over the one year horizon for March 31, 2012 under the 1.0% and 2.0% increases in market interest rates scenarios are reflective of this optionality. In general,

74

in a rising rate environment, yields on floating rate loans and investment securities are expected to re-price upwards more quickly than the cost of funds.

“Gap” analysis is used to determine the repricing characteristics of the Corporation’s assets and liabilities. The following table sets forth the interest rate sensitivity of the Corporation’s assets and liabilities as of March 31, 2012, and provides the expected repricing dates of the Corporation’s interest-earning assets and interest-bearing liabilities as of that date, as well as the Corporation’s interest rate sensitivity gap percentages for the periods presented.

	Interest Rate Sensitivity for the periods ended
	03/31/13			03/31/14			03/31/15			03/31/16			03/31/17			Thereafter			Total(4)			Fair Value 03/31/12
	(Dollars in thousands)
Rate sensitive assets:
Mortgage loans — Fixed(1)	$	804,006		$	128,616		$	44,566		$	25,016		$	18,306		$	50,996			943,242		$	926,467
Average interest rate		5.63	%		5.62	%		5.37	%		5.30	%		5.28	%		5.17	%		5.58	%
Mortgage loans — Variable(1)		608,160			82,185			8,295			1,122			225			32			616,224			595,173
Average interest rate		4.63	%		4.96	%		4.75	%		4.78	%		4.46	%		4.42	%		4.67	%
Consumer loans(1)		199,336			58,500			42,411			34,784			31,123			144,346			449,391			438,880
Average interest rate		5.48	%		5.14	%		4.74	%		4.53	%		4.40	%		4.27	%		4.91	%
Commercial business loans(1)		41,990			8,159			1,783			1,011			857			2,035			49,151			47,758
Average interest rate		6.11	%		6.22	%		5.37	%		5.28	%		4.55	%		2.82	%		5.95	%
Investment securities(2)		261,077			37,046			27,511			21,506			19,398			102,968			469,506			469,506
Average interest rate		0.92	%		2.83	%		2.79	%		2.83	%		3.21	%		2.06	%		1.61	%
Total rate sensitive loans(3)		1,653,492			277,460			97,055			61,933			50,511			197,409			2,058,008			2,008,278
Total rate sensitive assets		1,914,569			314,506			124,566			83,439			69,909			300,377			2,527,514			2,477,783
Rate sensitive liabilities:
Transaction accounts(4)		193,847			175,464			149,980			128,605			108,484			532,496			1,288,875			1,252,928
Average interest rate		0.15	%		0.16	%		0.16	%		0.16	%		0.16	%		0.13	%		0.15	%
Time deposits(4)		758,831			148,797			19,781			10,739			31,758			0			969,907			973,629
Average interest rate		1.24	%		1.37	%		1.85	%		1.92	%		1.63	%		0.00	%		1.29	%
Borrowings		278,603			11,500			0			0			0			186,000			476,103			502,846
Average interest rate		7.30	%		1.96	%		0.00	%		0.00	%		0.00	%		3.25	%		5.59	%
Total rate sensitive liabilities		1,231,281			335,761			169,761			139,344			140,242			718,496			2,734,885			2,729,403
Interest sensitivity gap	$	683,288		$	(21,255	)	$	(45,195	)	$	(55,905	)	$	(70,333	)	$	(418,119	)	$	(207,371	)
Cumulative interest sensitivity gap	$	683,288		$	662,033		$	616,838		$	560,933		$	490,600		$	72,481
Cumulative interest sensitivity gap as a percent of total assets		24.50	%		23.73	%		22.11	%		20.11	%		17.59	%		2.60	%

(1) Loan Balances for the periods are shown before adjustments for non-interest bearing items totaling $279.9 million.

(2) Includes $242.1 million of securities available for sale, $191.4 million of interest bearing deposits, $35.8 million of FHLB Stock and held $20 thousand of securities to maturity spread throughout the periods.

(3) Loan Total and Fair Value amounts are shown net of respective amounts of $279.9 million and $353.7 million in deferred fees and loss reserves.

(4) Does not include $6.1 million of net escrow accounts because they are non-rate sensitive.

Projected decay rates for non-maturity deposits are selected by management from external sources combined with internal deposit behavior analysis.

The chart above shows the Corporation was asset sensitive or had a positive Gap of 24.5% in Year 1, meaning a greater amount of interest-earning assets are repricing or maturing than the amount of interest-bearing liabilities during the same time period. A positive gap generally indicates the Corporation is positioned to benefit from a rising interest rate environment. The Gap position does not necessarily indicate the level of the Corporation’s interest rate sensitivity or the impact to net interest income because the interest-earning assets and interest-bearing liabilities are repricing off of different indices.

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

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

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Item 8.     Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ANCHOR BANCORP WISCONSIN INC.

	Page
Consolidated Financial Statements
Consolidated Balance Sheets		79
Consolidated Statements of Operations and Comprehensive Loss		80
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)		82
Consolidated Statements of Cash Flows		84
Notes to Consolidated Financial Statements		85
Report of Independent Registered Public Accounting Firm		140

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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	March 31,
	2012			2011
	(In thousands, except share data)
ASSETS
Cash and due from banks	$	51,584		$	34,596
Interest-bearing deposits		191,396			72,419
Cash and cash equivalents		242,980			107,015
Investment securities available for sale		242,299			523,289
Investment securities held to maturity (fair value of $20 and $28, respectively)		20			27
Loans
Held for sale		39,332			7,538
Held for investment, less allowance for loan losses of $111,215 at March 31, 2012 and $150,122 at March 31, 2011		2,058,008			2,520,367
Other real estate owned, net		88,841			90,707
Real estate held for development and sale		457			717
Premises and equipment, net		25,453			29,127
Federal Home Loan Bank stock — at cost		35,792			54,829
Mortgage servicing rights, net		22,156			24,961
Accrued interest receivable		12,075			16,353
Other assets		22,039			19,895
Total assets	$	2,789,452		$	3,394,825
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Deposits
Non-interest bearing	$	264,751		$	240,671
Interest bearing		2,000,164			2,458,762
Total deposits		2,264,915			2,699,433
Other borrowed funds		476,103			659,005
Accrued interest and fees payable		43,320			28,319
Accrued taxes, insurance and employee related expenses		6,385			6,609
Other liabilities		28,279			14,630
Total liabilities		2,819,002			3,407,996
Commitments and contingent liabilities (Note 16)
Preferred stock, $0.10 par value, 5,000,000 shares authorized, 110,000 shares issued and outstanding; dividends in arrears of $18,785 at March 31, 2012 and $12,507 at March 31, 2011		96,421			89,008
Common stock, $0.10 par value, 100,000,000 shares authorized, 25,363,339 shares issued, 21,247,725 shares outstanding		2,536			2,536
Additional paid-in capital		110,402			111,513
Retained deficit		(147,513	)		(103,362	)
Accumulated other comprehensive income (loss) related to AFS securities		3,628			(16,397	)
Accumulated other comprehensive loss related to OTTI securities — non credit factors		(3,496	)		(3,555	)
Total accumulated other comprehensive income (loss)		132			(19,952	)
Treasury stock (4,115,614 shares at March 31, 2012 and March 31, 2011), at cost		(90,259	)		(90,534	)
Deferred compensation obligation		(1,269	)		(2,380	)
Total stockholders’ deficit		(29,550	)		(13,171	)
Total liabilities and stockholders’ deficit	$	2,789,452		$	3,394,825

See accompanying Notes to Consolidated Financial Statements.

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ANCHOR BANCORP WISCONSIN INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Loss

	Year Ended March 31,
	2012			2011			2010
	(In thousands, except per share data)
Interest income
Loans	$	116,929		$	150,692		$	195,594
Investment securities and Federal Home Loan Bank stock		9,738			15,251			20,443
Interest-bearing deposits		584			520			1,045
Total interest income		127,251			166,463			217,082
Interest expense
Deposits		24,963			48,626			87,251
Other borrowed funds		30,366			32,757			44,872
Total interest expense		55,329			81,383			132,123
Net interest income		71,922			85,080			84,959
Provision for credit losses		33,578			51,198			161,926
Net interest income (loss) after provision for credit losses		38,344			33,882			(76,967	)
Non-interest income
Impairment on new OTTI securities		(10	)		(8	)		(2,337	)
Non-credit related impairment on new OTTI securities recognized in other comprehensive income		—			—			2,100
Reclassification of credit related other-than-temporary impairment from other comprehensive income		(558	)		(432	)		(847	)
Net impairment losses recognized in earnings		(568	)		(440	)		(1,084	)
Loan servicing income (loss), net of amortization		(832	)		1,592			2,570
Credit enhancement income on mortgage loans sold		71			648			1,259
Service charges on deposits		11,339			12,317			15,433
Investment and insurance commissions		3,808			3,448			3,451
Net gain on sale of loans		17,591			17,764			18,584
Net gain on sale of investment securities		6,579			8,661			11,095
Net gain on sale of OREO		6,118			3,640			632
Net gain on sale of branches		—			7,350			—
Other revenue from real estate partnership operations		222			92			1,684
Other		5,028			4,431			3,761
Total non-interest income		49,356			59,503			57,385

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Consolidated Statements of Operations and Comprehensive Loss — (Continued)

Consolidated Statements of Operations and Comprehensive Loss

	Year Ended March 31,
	2012			2011			2010
	(In thousands, except per share data)
Non-interest expense
Compensation and benefits	$	41,741		$	42,002		$	53,042
Occupancy		7,946			8,541			10,256
Furniture and equipment		5,989			6,559			7,950
Federal deposit insurance premiums		7,189			11,402			18,630
Data processing		6,259			6,540			7,178
Marketing		1,461			1,479			2,282
Expenses from real estate partnership operations		881			662			4,959
OREO expense, net		28,777			31,165			26,082
Foreclosure cost advance impairment		—			—			4,677
Mortgage servicing rights impairment (recovery)		2,410			(97	)		(1,905	)
Legal services		4,892			7,978			5,137
Other professional fees		3,669			5,294			4,995
Other		13,214			12,874			15,549
Total non-interest expense		124,428			134,399			158,832
Loss before income taxes		(36,728	)		(41,014	)		(178,414	)
Income tax expense (benefit)		10			164			(1,500	)
Net loss		(36,738	)		(41,178	)		(176,914	)
Preferred stock dividends in arrears		(6,278	)		(5,934	)		(5,648	)
Preferred stock discount accretion		(7,413	)		(7,412	)		(7,411	)
Net loss available to common equity	$	(50,429	)	$	(54,524	)	$	(189,973	)
Net loss	$	(36,738	)	$	(41,178	)	$	(176,914	)
Reclassification adjustment for realized net gains recognized in income		(6,579	)		(8,661	)		(11,095	)
Non-credit related other-than-temporary impairments		—			—			(2,100	)
Reclassification adjustment for unrealized credit related other-than-temporary impairment losses recognized in income		194			432			847
Reclassification adjustment for realized credit losses recognized in income		364			—			—
Change in net unrealized gains (losses) on available-for-sale securities		26,105			(6,324	)		13,286
Comprehensive loss	$	(16,654	)	$	(55,731	)	$	(175,976	)
Loss per common share:
Basic	$	(2.37	)	$	(2.57	)	$	(8.97	)
Diluted		(2.37	)		(2.57	)		(8.97	)
Dividends declared per common share		—			—			—

See accompanying Notes to Consolidated Financial Statements.

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Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

	Non- Controlling Interest			Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings (Deficit)			Treasury Stock			Deferred Compensation Obligation			Accumulated Other Comprehensive Income (Loss)			Total
	(In thousands)
Balance at April 1, 2009	$	411		$	74,185	$	2,536	$	114,807		$	132,803		$	(94,744	)	$	(5,480	)	$	(6,337	)	$	218,181
Net loss		—			—		—		—			(176,914	)		—			—			—			(176,914	)
Non-credit related unrealized other-than-temporary impairments recognized in income:
Available-for-sale securities		—			—		—		—			—			—			—			(2,100	)		(2,100	)
Reclassification adjustment for realized net gains recognized in income		—			—		—		—			—			—			—			(11,095	)		(11,095	)
Reclassification adjustment for unrealized credit related other-than-temporary impairment losses recognized in income		—			—		—		—			—			—			—			847			847
Change in net unrealized gains (losses) on available-for-sale securities		—			—		—		—			—			—			—			13,286			13,286
Change in non-controlling interest		(411	)		—		—		—			—			—			—			—			(411	)
Issuance of restricted stock for executive compensation and retirement plans		—			—		—		—			(3,275	)		3,390			—			—			115
Vesting of restricted stock		—			—		—		—			—			499			—			—			499
Cancellation of unvested restricted stock		—			—		—		—			120			(120	)		—			—			—
Tax benefit from stock-based compensation		—			—		—		(194	)		—			—			—			—			(194	)
Change in stock-based deferred compensation obligation		—			—		—		49			—			—			(49	)		—			—
Accretion of preferred stock discount		—			7,411		—		—			(7,411	)		—			—			—			—
Balance at March 31, 2010	$	—		$	81,596	$	2,536	$	114,662		$	(54,677	)	$	(90,975	)	$	(5,529	)	$	(5,399	)	$	42,214
Net loss		—			—		—		—			(41,178	)		—			—			—			(41,178	)
Non-credit related unrealized other-than-temporary impairments recognized in income:
Available-for-sale securities		—			—		—		—			—			—			—			—			—
Reclassification adjustment for realized net gains recognized in income		—			—		—		—			—			—			—	��		(8,661	)		(8,661	)
Reclassification adjustment for unrealized credit related other-than-temporary impairment losses recognized in income		—			—		—		—			—			—			—			432			432
Change in net unrealized gains (losses) on available-for-sale securities		—			—		—		—			—			—			—			(6,324	)		(6,324	)
Issuance of restricted stock for executive compensation and retirement plans		—			—		—		—			(164	)		162			—			—			(2	)
Vesting of restricted stock		—			—		—		—			—			348			—			—			348
Cancellation of unvested restricted stock		—			—		—		—			69			(69	)		—			—			—
Change in stock-based deferred compensation obligation		—			—		—		(3,149	)		—			—			3,149			—			—
Accretion of preferred stock discount		—			7,412		—		—			(7,412	)		—			—			—			—
Balance at March 31, 2011	$	—		$	89,008	$	2,536	$	111,513		$	(103,362	)	$	(90,534	)	$	(2,380	)	$	(19,952	)	$	(13,171	)

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Consolidated Statements of Changes in Stockholders’ Equity (Deficit) — (Continued)

Consolidated Statements of Changes in Stockholders' Equity (Deficit)

	Non- Controlling Interest		Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings (Deficit)			Treasury Stock			Deferred Compensation Obligation			Accu- mulated Other Compre- hensive Income (Loss)			Total
	(In thousands)
Balance at April 1, 2011	$	—	$	89,008	$	2,536	$	111,513		$	(103,362	)	$	(90,534	)	$	(2,380	)	$	(19,952	)	$	(13,171	)
Net loss		—		—		—		—			(36,738	)		—			—			—			(36,738	)
Reclassification adjustment for realized net gains recognized in income		—		—		—		—			—			—			—			(6,579	)		(6,579	)
Reclassification adjustment for unrealized credit related other-than-temporary impairment losses recognized in income		—		—		—		—			—			—			—			194			194
Reclassification adjustment for realized credit losses recognized in income		—		—		—		—			—			—			—			364			364
Change in net unrealized gains (losses) on available-for-sale securities		—		—		—		—			—			—			—			26,105			26,105
Vesting of restricted stock		—		—		—		—			—			275			—			—			275
Change in stock-based deferred compensation obligation		—		—		—		(1,111	)		—			—			1,111			—			—
Accretion of preferred stock discount		—		7,413		—		—			(7,413	)		—			—			—			—
Balance at March 31, 2012	$	—	$	96,421	$	2,536	$	110,402		$	(147,513	)	$	(90,259	)	$	(1,269	)	$	132		$	(29,550	)

See accompanying Notes to Consolidated Financial Statements

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Consolidated Statements of Cash Flows

	Year Ended March 31,
	2012			2011			2010
	(In thousands)
Operating Activities
Net loss	$	(36,738	)	$	(41,178	)	$	(176,914	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Provision for credit losses		33,578			51,198			161,926
Provision for OREO losses		15,338			15,125			19,775
Depreciation and amortization		3,451			4,104			4,951
Amortization and accretion of investment securities premium/discount, net		1,083			2,814			2,980
Real estate held for development and sale impairment		87			—			—
Mortgage servicing rights impairment (recovery)		2,410			(97	)		(1,905	)
Foreclosure cost advance impairment		—			—			4,677
Decrease in non-controlling interest in real estate partnerships		—			—			(411	)
Cash paid to originate loans held for sale		(961,947	)		(804,538	)		(1,518,569	)
Cash received on sale of loans held for sale		947,744			834,248			1,133,344
Net gain on sales of loans		(17,591	)		(17,764	)		(18,584	)
Net gain on sale of investment securities		(6,579	)		(8,661	)		(11,095	)
Net gain on sale of OREO		(6,118	)		(3,640	)		(632	)
Net gain on sale of branches		—			(7,350	)		—
Net loss on disposal of premises and equipment		720			—			—
Net impairment losses recognized in earnings		568			440			1,084
Deferred income taxes		—			—			16,202
Stock-based compensation expense		256			310			503
Decrease in accrued interest receivable		4,278			3,805			5,217
(Increase) decrease prepaid expense and other assets		(1,749	)		26,103			15,350
Increase (decrease) in accrued interest and fees payable		15,001			8,198			(5,473	)
Increase (decrease) in other liabilities		13,444			872			(20,233	)
Net cash provided (used) by operating activities		7,236			63,989			(387,807	)
Investing Activities
Proceeds from sale of investment securities		338,224			385,924			468,020
Proceeds from maturity of investment securities		—			69,526			50,936
Purchase of investment securities		(71,441	)		(631,640	)		(497,659	)
Principal collected on investment securities		39,226			59,971			104,343
FHLB stock redemption		19,037			—			—
Net decrease in loans held for investment		352,039			483,152			942,743
Purchases of premises and equipment		(1,590	)		(1,394	)		(2,180	)
Proceeds from sale of premises and equipment		—			1,633			468
Capitalized improvements of OREO		—			(946	)		—
Proceeds from sale of foreclosed properties		70,481			42,359			39,073
Sale of real estate held for development and sale		173			587			14,654
Branch sale — Royal Credit Union net of cash and cash equivalents		—			(99,897	)		—
Branch sale — Nicolet net of cash and cash equivalents		—			(80,256	)		—
Net cash provided by investing activities		746,149			229,019			1,120,398
Financing Activities
Net decrease in deposits		(434,612	)		(562,660	)		(364,783	)
Increase (decrease) in advance payments by borrowers for taxes and insurance		94			(545	)		(809	)
Proceeds from borrowed funds		1,656,057			2,275,515			56,357
Repayment of borrowed funds		(1,838,959	)		(2,410,465	)		(345,020	)
Net cash used in financing activities		(617,420	)		(698,155	)		(654,255	)
Net increase (decrease) in cash and cash equivalents		135,965			(405,147	)		78,336
Cash and cash equivalents at beginning of year		107,015			512,162			433,826
Cash and cash equivalents at end of year	$	242,980		$	107,015		$	512,162
Supplementary cash flow information:
Cash paid (received) or credited to accounts:
Interest on deposits and borrowings	$	40,328		$	73,619		$	133,489
Income taxes		10			(17,732	)		(29,376	)
Non-cash investing and financing transactions:
Transfer of loans to foreclosed properties		76,742			88,169			59,601
Transfer of fixed asset to foreclosed properties		1,093			—			1,488
Securitization of mortgage loans held for sale to mortgage-backed securities		—			—			48,878

See accompanying Notes to Consolidated Financial Statements

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Summary of Significant Accounting Policies

Business.    Anchor BanCorp Wisconsin Inc. (the “Corporation”) is a Wisconsin corporation incorporated in 1992 for the purpose of becoming a savings and loan holding company for AnchorBank, fsb (the “Bank”), a wholly-owned subsidiary. The Bank provides a full range of financial services to individual customers through its branch locations in Wisconsin. The Bank is subject to competition from other financial institutions and other financial service providers. The Corporation and its subsidiary also are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory authorities. The Corporation also has a non-banking subsidiary, Investment Directions, Inc. (“IDI”), which historically invested in real estate held for development and sale. During 2010, IDI sold substantially all of its assets and its investment activities have been significantly curtailed.

Basis of Financial Statement Presentation.    The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts and operations of the Corporation and its wholly owned subsidiaries, the Bank and IDI, and their wholly owned subsidiaries. The Bank has one subsidiary at March 31, 2012: ADPC Corporation. Significant intercompany accounts and transactions have been eliminated.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the 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 the fair value of financial instruments.

We have evaluated all subsequent events through the date of this filing.

Going Concern.    The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Significant operating losses in fiscal 2009, 2010, 2011 and 2012, significant levels of criticized assets at the Bank and negative equity raise substantial doubt about the Corporation’s ability to continue as a going concern. The consolidated financial statements do not include any adjustment that might be necessary if the Corporation is unable to continue as a going concern. See Note 2 “Significant Risks and Uncertainties” for further discussion.

Cash and Cash Equivalents.    The Corporation considers interest-bearing deposits that have an original maturity of three months or less to be cash equivalents.

Investment Securities Held-to-Maturity and Available-For-Sale.    Debt securities that the Corporation has the intent and ability to hold to maturity are classified as held-to-maturity and are stated at amortized cost as adjusted for the amortization of premiums and accretion of discounts. Securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses, reported as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Securities are classified as trading when the Corporation intends to actively buy and sell securities in order to make a profit. Trading securities are carried at fair value, with unrealized holding gains and losses included in earnings. There were no securities designated as trading during the three years ended March 31, 2012.

Discounts and premiums on investment securities are accreted and amortized into interest income in a manner that approximates the effective yield method over the estimated remaining life of the assets.

Realized gains and losses are included in net gain (loss) on sale of investment securities in the consolidated statements of operations as a component of non-interest income. The cost of securities sold is based on the specific identification method. When the Corporation sells held-to-maturity securities, it is in accordance with accounting standards as the securities have substantially matured.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Declines in the fair value of held-to-maturity and available-for-sale securities below their amortized cost basis that are deemed to be other-than-temporary are reflected as impairment losses. To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions is met, the Corporation will recognize an other-than-temporary impairment in earnings equal to the difference between the fair value of the security and its amortized cost basis. If neither of the conditions is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected discounted at the purchase yield or current accounting yield and the amortized cost basis is the credit loss. The amount of the credit loss is included in the consolidated statements of operations as an other-than-temporary impairment on securities and is a reduction in the cost basis of the security. The portion of the total impairment that is related to all other factors is included in other comprehensive income (loss).

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

Interest Rate Lock Commitments for Mortgage Loans Held for Sale.    Interest rate lock commitments for mortgage loans originated for sale meet the definition of derivatives. These instruments are carried at fair value and included in other assets and other liabilities in the consolidated balance sheets.

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

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

Loans Held for Investment.    Loans held for investment are stated at the amount of the unpaid principal, reduced by unearned net loan fees and an allowance for loan losses. Interest on loans is accrued on the unpaid principal balances as earned. Loans are placed on non-accrual status when they become 90 days past due or, when in the judgment of management, the probability of collection of principal and interest is deemed to be insufficient to warrant further accrual. Past due status is based on contractual terms of the loan. Factors that management considers when assessing that principal and interest will not be collected in full include early stage delinquencies and financial difficulties of the borrower. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income. Payments received on non-accrual loans are generally credited to the loan receivable balance and no interest income is recognized on those loans until the principal balance is current. In cases in which the net carrying value of the loan is deemed to be fully collectible, payments received may be recognized in income on a cash basis. Loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time, and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Loans held for investment can be summarized into four different segments: residential loans, commercial and industrial loans, commercial real estate loans and consumer loans.

Residential Loans

Residential loans, substantially all of which are 1-to-4 family dwellings, are generally smaller in size and considered homogeneous as they exhibit similar product and risk characteristics. Loans in this category are placed on non-accrual status when they become 90 days past due and remain on non-accrual status until sufficient payments are received to bring the loan to current status. Residential loans are charged off at the time of either an approved short sale and funds are received; information is received indicating an insufficient value and the borrower has not made a payment in six months; or a foreclosure sale is complete and the loan is being moved to other real estate owned.

Commercial and Industrial Loans

Commercial and industrial loans are loans for commercial, corporate and business purposes, including issuing letters of credit. The Corporation’s commercial business loan portfolio is comprised of loans for a variety of purposes and are generally secured by equipment, machinery and other business assets. Commercial business loans typically have terms of five years or less and interest rates that float in accordance with a designated published index. Substantially all of such loans are secured and backed by the personal guarantees of the owners of the business. Loans in this category are placed on non-accrual status when they become 90 days past due or in the judgment of management the probability of collection of principal and interest is deemed to be insufficient to warrant further accrual. If a loan goes 90 days delinquent, the loan will remain on non-accrual status until the loan is brought current and there is evidence that the borrower has sufficient cash flow, income or liquidity to repay the loan in full. Commercial and industrial loans are charged off when available information confirms that any portion of the recorded investment in a collateral dependent loan in excess of the fair value of the collateral is deemed a confirmed loss.

Commercial Real Estate Loans

Commercial real estate loans are primarily secured by apartment buildings, office and industrial buildings, land, warehouses, small retail shopping centers and various special purpose properties, including hotels and nursing homes. Although terms vary, commercial real estate loans generally have amortization periods of 15 to 25 years, as well as balloon payments of two to five years, and terms which provide that the interest rates thereon may be adjusted annually at the Bank’s discretion, based on a designated index. Loans in this category are placed on non-accrual status when they become 90 days past due or in the judgment of management the probability of collection of principal and interest is deemed to be insufficient to warrant further accrual. If a loan goes 90 days delinquent, the loan will remain on non-accrual status until the loan is brought current and there is evidence that the borrower has sufficient cash flow, income or liquidity to repay the loan in full. Commercial real estate loans are charged off when available information confirms that any portion of the recorded investment in a collateral dependent loan in excess of the fair value of the collateral is deemed a confirmed loss.

Consumer Loans

Consumer loans generally have higher interest rates than mortgage loans. The risk involved in consumer loans is based on the type and nature of the collateral and, in certain cases, the absence of collateral. Consumer loans include second mortgage and home equity loans, education loans, vehicle loans and other secured and unsecured loans that have been made for a variety of consumer purposes. Loans in this category are placed on non-accrual status when they become 90 days past due and remain on non-accrual status until sufficient payments are received to bring the loan to current status. Consumer loans are charged off when a recent valuation shows no surplus for the Corporation, upon repossession or sale of the collateral and deficiency is realized, or upon reaching 150 days past due if unsecured.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Allowance for Loan Losses.    The allowance for loan losses is maintained at a level believed adequate by management to absorb probable and estimable losses inherent in the loan portfolio and is based on the size and current risk characteristics of the loan portfolio; an assessment of individual problem loans; actual and anticipated loss experience; and current economic events in specific industries and geographical areas. These economic events include unemployment levels, regulatory guidance, and general economic conditions. Determination of the allowance is inherently subjective as it requires significant estimates, including the amounts and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends, all of which may be susceptible to significant change. Loan losses are charged off against the allowance, while recoveries of amounts previously charged off are credited to the allowance. A provision for credit losses is charged to net interest income based on management’s periodic evaluation of the factors previously mentioned as well as other pertinent factors. In addition, regulatory agencies periodically review the allowance for loan losses. These agencies may require the Corporation to make additions to the allowance for loan losses based on their judgments of collectability using information available to them at the time of their examination.

The allowance for loan losses consists of general and specific components. In determining the general allowance, the Corporation has defined the following segments within its loan portfolio: residential, commercial and industrial, commercial real estate and consumer. The Corporation has disaggregated those segments into the following classes based on risk characteristics: residential, commercial and industrial, land and construction, multi-family, retail/office and other commercial real estate within the commercial real estate segment and education and other consumer within the consumer segment. This allows management to identify trends in borrower behavior and loss severity. A historical loss factor is computed for each class of loan and used as the major determinate of the general allowance for loan losses. In determining the appropriate period of activity to use in computing the historical loss factor management considers trends in quarterly net charge-off ratios. It is management’s intention to utilize a period of activity that it believes to be most reflective of current experience. Changes in the historical period are made when there is a distinct change in the trend of net charge-off experience. Management reviews each class’ historical losses by quarter for any trends that indicate the most representative look back period. The Corporation currently uses a six quarter historical loss look-back period.

Management adjusts historical loss factors based on the following qualitative factors: changes in lending policies, procedures and practices; economic and industry trends and conditions; trends in terms and the volume of loans; experience, ability and depth of lending management; level of and trends in past dues and delinquent loans; changes in the quality of the loan review system; changes in the value of the underlying collateral for collateral dependent loans; changes in credit concentrations, other external factors such as legal and regulatory requirements; and changes in size of the portfolio. In determining the impact, if any, of an individual qualitative factor, management compares the current underlying facts and circumstances surrounding a particular factor with those in the historical periods, adjusting the historical loss factor based on changes in the qualitative factor. Management will continue to analyze the qualitative factors on a quarterly basis, adjusting the historical loss factor as necessary, to a factor believed to be appropriate for the probable and inherent risk of loss in the portfolio.

Specific allowance allocations are established for probable losses resulting from analysis of impaired loans. A loan is considered impaired when it is probable that the Corporation will be unable to collect all contractual principal and interest due according to the terms of the loan agreement. Impaired loans include non-accrual and performing troubled debt restructurings. Troubled debt restructurings are loans that have been modified, due to financial difficulties of the borrower, where the terms of the modified loan are more favorable for the borrower than what the Corporation would normally accept. The fair value of impaired loans is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

underlying collateral less costs to sell, if the loan is collateral dependent. Cash collections on impaired loans are generally credited to the loan receivable balance and no interest income is recognized on those loans until the principal balance is current.

Reserve for Unfunded Commitments.    A reserve for unfunded commitments is determined by applying the general reserve loss factor used in the determination of the allowance for loan losses of the associated loan class to unfunded commitments of each class of performing loans. A provision for unfunded commitments is charged to the provision for credit losses based on management’s periodic evaluation of the factors previously mentioned as well as other pertinent factors. The reserve for unfunded commitments is included in other liabilities on the consolidated balance sheet.

Other Real Estate Owned.    Real estate acquired by foreclosure or by deed in lieu of foreclosure and other repossessed assets are held for sale and are initially recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. If the fair value exceeds the net carrying value of the loans, recoveries to the allowance for loan losses are recorded to the extent of previous charge-offs, with any excess, which is infrequent, recognized as a gain in non-interest income. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at fair value, less estimated selling expenses. At the date of foreclosure any write down to fair value less estimated selling costs is charged to the allowance for loan losses. Costs relating to the development and improvement of the property are capitalized; holding period costs and subsequent changes to the valuation allowance are charged to non-interest expense.

Real Estate Held for Development and Sale.    Real estate held for development and sale includes investments in land and partnerships that hold land or other property. These investments are carried at estimated fair value.

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

The assets in real estate held for development and sale and results of operations of the real estate investment segment are summarized in Note 20, “Segment Information.”

Premises and Equipment.    Premises and equipment are recorded at cost and include expenditures for new facilities and items that substantially increase the estimated useful lives (3 years to 39 years) of existing buildings and equipment. Expenditures for normal repairs and maintenance are charged to operations as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the resulting gain or loss is recorded in income. The cost of office properties and equipment is being depreciated principally by the straight-line method over the estimated useful lives (3 years to 39 years) of the assets. The cost of capitalized leasehold improvements is amortized on the straight-line method over the lesser of the term of the respective lease or estimated economic life.

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

The investment in the stock of the FHLB Chicago is considered a long term investment. Accordingly, when evaluating for impairment, the value of the FHLB stock is determined based on the ultimate recovery of the par value rather than recognizing temporary declines in value. The decision of whether impairment exists is a matter of judgment that reflects factors such as its operating performance, the severity and duration of the declines in the market value of its net assets relative to its capital levels, its commitment to make payments in relation to its operating performance, the impact of legislative and regulation changes on the FHLB Chicago and accordingly, on the members of FHLB Chicago, and its liquidity and funding position. Although the FHLB Chicago

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

suspended dividends in 2007, the FHLB Chicago continues issuing new capital stock at par value, reported earnings in 2010, 2011 and the first quarter of 2012, and reported that it is in compliance with regulatory capital requirements. FHLB restored paying a dividend in February 2011 and repurchased $19.0 million par value of stock from the Bank in February 2012. The Bank has concluded that its investment in the stock of FHLB Chicago was not impaired at March 31, 2012.

Deferred Stock Issuance Cost.    Stock issuance cost includes incremental direct costs incurred with third parties that are directly attributable to equity financing transactions. Those costs include legal and accounting fees and underwriters’ fees and expenses. Since certain of those costs are incurred in advance of receiving the proceeds from a planned equity financing transaction, they are deferred pending completion of the offering.

As further discussed in Note 2 in August 2010, the OTS granted conditional approval of the Bank’s Capital Restoration Plan which included two sets of assumptions for continuing to improve the Bank’s capital levels, one based on obtaining capital from an outside source and one which reflects the results of the Bank’s ongoing initiatives in the absence of an external capital infusion. In connection with obtaining capital from an outside source, the Corporation is pursuing an equity offering in the form of the proposed issuance of additional common stock and a new class of preferred stock. At March 31, 2012, approximately $3.3 million of direct, incremental costs incurred have been capitalized and included in other assets in the consolidated balance sheet.

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

The Corporation is subject to the income tax laws of the U.S., its states and municipalities. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. Accounting guidance related to uncertainty in income taxes provides a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under the guidance, tax positions shall initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. The guidance also revises disclosure requirements to include an annual tabular roll forward of unrecognized tax benefits. In establishing a provision for income tax expense, the Corporation must make judgments and interpretations about the application of these inherently complex tax laws within the framework of existing U.S. Generally Accepted Accounting Principles. The Corporation recognizes interest and penalties related to uncertain tax positions in other non-interest expense.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Comprehensive Income (Loss).    Comprehensive income or loss is the total of reported net income or loss and all other revenues, expenses, gains and losses that under generally accepted accounting principles are not reported as net income (loss). As such, the Corporation includes unrealized gains or losses on securities available for sale in other comprehensive income (loss).

Deferred Compensation Obligations.    Deferred compensation obligations are the cost of stock associated with selected employee benefit plans. Such plans include a deferred compensation agreement with a previous executive established in 1986 and an Excess Benefit Plan to provide deferred compensation to certain members of management. No contributions were made to these plans during the years ended March 31, 2012 and 2011. Contributions for the year ended March 31, 2010 were $5,600.

The cost basis of undistributed shares related to the deferred compensation obligations are recorded in a separate category of stockholders’ deficit titled accordingly and the liability is included in additional paid in capital in stockholders’ deficit in the consolidated balance sheets. See Note 13 for further discussion of the plans.

Stock-Based Compensation Plan.    The Corporation periodically grants stock-based compensation to employees and directors under various plans discussed in Note 13. The grants are generally in the forms of restricted stock and stock options. Compensation expense recognized related to stock-based compensation was $256,000, $310,000 and $503,000 for the fiscal years ended March 31, 2012, 2011 and 2010, respectively.

New Accounting Pronouncements.

ASU No. 2010-20, “Receivables (Topic 310) — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is primarily a disaggregation of portfolio segment. The required disclosures include, among other things, a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 was effective for the Corporation’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period were required for the Corporation’s financial statements that include periods beginning on or after January 1, 2011. These disclosures are provided in Note 5.

ASU No. 2011-02, “Receivables (Topic 310) — A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 states that in evaluating whether a restructuring constitutes a troubled debt restructuring (TDR), a creditor must separately conclude that both of the following exist: (i) the restructuring constitutes a concession and (ii) the debtor is experiencing financial difficulties. In addition, the amendments to Topic 310 clarify that a creditor is precluded from using the effective interest rate test in the debtor’s guidance on restructuring of payables when evaluating whether a restructuring constitutes a troubled debt restructuring. The amendments to Topic 310 also required new disclosures regarding currently outstanding TDRs and TDR activity during the period. ASU 2011-02 is effective for interim and annual periods beginning on or after June 15, 2011. The Corporation adopted ASU 2011-02 in its second fiscal quarter.

As a result of adopting the amendments in ASU 2011-02, the Corporation reassessed all restructurings that occurred on or after April 1, 2011, the beginning of the current fiscal year, for identification as TDRs. The Corporation identified as TDRs certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology. Upon identifying those receivables as TDRs, the Corporation identified them as impaired under the guidance in ASC 310-10-35. The amendments in ASU 2011-02 require prospective application of impairment measured in accordance with the guidance of ASC 310-10-35 for the receivables that are newly identified as impaired. The adoption of the ASU resulted in an increase in the number of loans within its commercial real estate portfolios that are considered TDRs but did not

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

have a substantially material impact on the Company’s financial statements for the periods ended September 30, 2011. At September 30, 2011, the period of adoption, the recorded investment in receivables for which the allowance for credit losses was previously measured under a general allowance for credit losses methodology and are now impaired under ASC 310-10-35 was $258,000, and the resulting allowance for credit losses associated with those receivables, on the basis of a current evaluation of loss, was zero.

ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.”    In May 2011, the FASB issued ASU No. 2011-04. ASU No. 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The changes to U.S. GAAP as a result of ASU No. 2011-04 are as follows: (1) The concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities); (2) U.S. GAAP currently prohibits application of a blockage factor in valuing financial instruments with quoted prices in active markets. ASU No. 2011-04 extends that prohibition to all fair value measurements; (3) An exception is provided to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity’s net exposure to either of those risks. This exception allows the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) Aligns the fair value measurement of instruments classified within an entity’s shareholders’ equity with the guidance for liabilities; and (5) Disclosure requirements have been enhanced for recurring Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to describe the sensitivity of fair value measurements to changes in unobservable inputs and interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The provisions of ASU No. 2011-04 are effective for the Corporation’s interim reporting period beginning on or after December 15, 2011. The adoption of ASU No. 2011-04 did not have a material impact on the Corporation’s financial statements.

ASU No. 2011-05, “Presentation of Comprehensive Income.”    In June 2011, the FASB issued ASU No. 2011-05. The provisions of ASU No. 2011-05 allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The statement(s) are required to be presented with equal prominence as the other primary financial statements. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity (deficit) but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The provisions of ASU No. 2011-05 were effective for the Corporation’s interim reporting period beginning on or after December 15, 2011, with retrospective application required and early adoption permitted. The Corporation adopted ASU No. 2011-05 as of September 30, 2011. The adoption resulted in presentation changes to the Corporation’s statements of operations with the addition of a statement of comprehensive loss. The adoption of ASU No. 2011-05 had no material impact on the Corporation’s financial statements.

Reclassifications.    Certain 2011 and 2010 accounts have been reclassified to conform to the 2012 presentations. There was no impact on earnings or stockholders’ equity (deficit) as a result of the reclassifications.

92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 2 — Significant Risks and Uncertainties

Regulatory Agreements

On June 26, 2009, the Corporation and the Bank each consented to the issuance of an Order to Cease and Desist (the “Corporation Order” and the “Bank Order,” respectively, and together, the “Orders”) by the Office of Thrift Supervision (the “OTS”). As of July 21, 2011, regulation of the Bank was assumed by the Office of the Comptroller of the Currency (“OCC”), and the Federal Reserve became the primary regulator for the Corporation.

The Corporation Order requires the Corporation to notify, and in certain cases to obtain the permission of, the Federal Reserve prior to: (i) declaring, making or paying any dividends or other capital distributions on its capital stock, including the repurchase or redemption of its capital stock; (ii) incurring, issuing, renewing or rolling over any debt, increasing any current lines of credit or guaranteeing the debt of any entity; (iii) making certain changes to its directors or senior executive officers; (iv) entering into, renewing, extending or revising any contractual arrangement related to compensation or benefits with any of its directors or senior executive officers; and (v) making any golden parachute payments or prohibited indemnification payments. The Corporation developed and submitted to the OTS a three-year cash flow plan, which must be reviewed at least quarterly by the Corporation’s management and board for material deviations between the cash flow plan’s projections and actual results (the “Variance Analysis Report”). Within 45 days following the end of each quarter, the Corporation is required to provide the Federal Reserve its Variance Analysis Report for that quarter.

The Bank Order requires the Bank to notify, or in certain cases obtain the permission of, the OCC prior to (i) increasing its total assets in any quarter in excess of an amount equal to net interest credited on deposit liabilities during the quarter; (ii) accepting, rolling over or renewing any brokered deposits; (iii) making certain changes to its directors or senior executive officers; (iv) entering into, renewing, extending or revising any contractual arrangement related to compensation or benefits with any of its directors or senior executive officers; (v) making any golden parachute or prohibited indemnification payments; (vi) paying dividends or making other capital distributions on its capital stock; (vii) entering into certain transactions with affiliates; and (viii) entering into third-party contracts outside the normal course of business. The Bank also developed and submitted within the prescribed time periods, a written capital restoration plan, a problem asset plan, a revised business plan, and an implementation plan resulting from a review of commercial lending practices. The Orders also require the Bank to regularly review its current liquidity management policy and the adequacy of its allowance for loan and lease losses.

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

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

At March 31, 2012, the Bank had a tier 1 leverage ratio of 4.51%, a tier 1 risk-based ratio of 7.11% and a total risk-based capital ratio of 8.42%, each below the required capital ratios set forth above. Without a waiver, amendment or modification of the Orders, the Bank could be subject to further regulatory action. All customer deposits remain fully insured to the limits set by the FDIC.

As referenced above, on July 21, 2011, the OTS, which was our primary regulator, ceased operations pursuant to the provisions of the Dodd-Frank Act. As of July 21, 2011, regulation of the Bank was assumed by the OCC, and the Federal Reserve became the primary regulator for the Corporation. The Federal Reserve and the OCC are now responsible for the administration of the Cease and Desist Order.

93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Going Concern

The Corporation and the Bank continue to diligently work with their financial and professional advisors in seeking qualified sources of outside capital, and in achieving compliance with the requirements of the Orders. The Corporation and the Bank consult with the Federal Reserve, the OCC and FDIC on a regular basis concerning the Corporation’s and Bank’s proposals to obtain outside capital and to develop action plans that will be acceptable to federal regulatory authorities, but there can be no assurance that these actions will be successful, or that even if one or more of the Corporation’s and Bank’s proposals are accepted by the Federal regulators, that these proposals will be successfully implemented. While the Corporation’s management continues to exert maximum effort to attract new capital, significant operating losses in fiscal 2009, 2010, 2011 and 2012, significant levels of criticized assets at the Bank and negative equity raise substantial doubt as to the Corporation’s ability to continue as a going concern. If the Corporation and Bank are unable to achieve compliance with the requirements of the Orders, or implement an acceptable capital restoration plan, and if the Corporation and Bank cannot otherwise comply with such commitments and regulations, the OCC or FDIC could force a sale, liquidation or federal conservatorship or receivership of the Bank.

As discussed in greater detail in the previous section, the Corporation and the Bank have submitted a capital restoration plan stating that the Corporation intends to restore the capital position of the Bank. On August 31, 2010, the OTS accepted this plan. The OCC and Federal Reserve now have oversight authority of this plan.

Further, the Corporation entered into an amendment dated November 29, 2011 (“Amendment No. 8”) to the Amended and Restated Credit Agreement (“Credit Agreement”) with U.S. Bank NA, as described in Note 13, in which existing interest rate remained the same and the financial covenants related to capital ratios and non-performing loans were moderately relaxed. Under the terms of the Credit Agreement, the Agent and the lenders have certain rights, including the right to accelerate the maturity of the borrowings if all covenants are not complied with. As of March 31, 2012, the Corporation was in compliance with the financial and non-financial covenants contained in the Credit Agreement, as amended, although there is no guarantee that the Corporation will remain in compliance with the covenants. As of the date of this filing, the Corporation does not have sufficient cash on hand to reduce the outstanding borrowings to zero. There can be no assurance that the Corporation will be able to raise sufficient capital or have sufficient cash on hand to reduce the outstanding borrowings to zero by November 30, 2012, which may, if unable to secure an extension at that time, limit the Corporation’s ability to fund ongoing operations.

Credit Risks

While the Corporation has devoted and will continue to devote substantial management resources toward the resolution of all delinquent, impaired and non-accrual loans, no assurance can be made that management’s efforts will be successful. These conditions create an uncertainty about material adverse consequences that may occur in the near term. The continuing recession and the decrease in valuations of real estate have had a significant adverse impact on the Corporation’s consolidated financial condition and results of operations. As reported in the accompanying consolidated financial statements, the Corporation has incurred a net loss of $36.7 million for the fiscal year ended March 31, 2012. Stockholders’ equity decreased from a deficit of $13.2 million or (0.39)% of total assets at March 31, 2011 to a deficit of $29.6 million or (1.06)% of total assets at March 31, 2012. At March 31, 2012, the Bank’s risk-based capital is considered adequately capitalized for regulatory purposes. Under OCC requirements, a bank must have a total risk-based capital ratio of 8.0 percent or greater to be considered “adequately capitalized.” The Bank continues to work toward the requirements of the previously issued Cease and Desist Order which requires a total risk-based capital ratio of 12.0 percent, which exceeds traditional capital levels for a bank. The provision for credit losses was $33.6 million for the year ended March 31, 2012, which has reduced the Corporation’s net interest income. The Corporation’s net interest income will continue to be impacted by the level of non-performing assets and the Corporation expects additional losses in the future.

94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 3 — Restrictions on Cash and Due From Bank Accounts

AnchorBank fsb (Bank) is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank based on a percentage of deposits. The average amount of reserve balances for the years ended March 31, 2012 and 2011 was approximately $18.2 million and $24.1 million, respectively although at March 31, 2012 the Bank met the required reserves with cash balances in the branch system.

The Bank is required to maintain an account with its official check service provider equal to one day’s average remittance. The balance in this restricted account was $4.5 million at both March 31, 2012 and 2011.

Investment Directions Inc. (IDI), a subsidiary of the Corporation, has a security interest in an interest reserve escrow account in conjunction with a lending arrangement resulting from the sale in 2009 of its investment in a real estate development company. At March 31, 2012 and 2011, the interest reserve escrow was $228,000 and $282,000, respectively.

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

Note 4 — Investment Securities

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

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
			(In thousands)
At March 31, 2012
Available-for-sale:
U.S. government sponsored and federal agency obligations	$	3,556	$	—	$	(25	)	$	3,531
Corporate stock and bonds		652		50		(41	)		661
Non-agency CMOs(1)		25,067		163		(3,638	)		21,592
Government sponsored agency mortgage-backed securities(1)		3,944		251		—			4,195
GNMA mortgage-backed securities(1)		208,948		3,597		(225	)		212,320
	$	242,167	$	4,061	$	(3,929	)	$	242,299
Held-to-maturity:
Government sponsored agency mortgage-backed securities(1)	$	20	$	—	$	—		$	20

(1) Primarily collateralized by residential mortgages.

95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
			(In thousands)
At March 31, 2011
Available-for-sale:
U.S. government sponsored and federal agency obligations	$	4,037	$	89	$	—		$	4,126
Corporate stock and bonds		1,151		87		(19	)		1,219
Non-agency CMOs(1)		49,921		371		(3,655	)		46,637
Government sponsored agency mortgage-backed securities(1)		6,473		298		(24	)		6,747
GNMA mortgage-backed securities(1)		481,659		1,158		(18,257	)		464,560
	$	543,241	$	2,003	$	(21,955	)	$	523,289
Held-to-maturity:
Government sponsored agency mortgage-backed securities(1)	$	27	$	1	$	—		$	28

(1) Primarily collateralized by residential mortgages.

The table below presents the gross unrealized losses and fair value of investments, aggregated by investment category and length of time that individual investments have been in a continuous unrealized loss position at March 31, 2012 and 2011.

	At March 31, 2012
	Unrealized Loss Position Less than 12 Months					Unrealized Loss Position 12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
						(In thousands)
U.S. government sponsored and federal agency obligations	$	3,531	$	(25	)	$	—	$	—		$	3,531	$	(25	)
Corporate stock and bonds		111		(41	)		—		—			111		(41	)
Non-agency CMOs		77		—			18,109		(3,638	)		18,186		(3,638	)
GNMA mortgage-backed securities		37,631		(225	)		—		—			37,631		(225	)
	$	41,350	$	(291	)	$	18,109	$	(3,638	)	$	59,459	$	(3,929	)

	At March 31, 2011
	Unrealized Loss Position Less than 12 Months					Unrealized Loss Position 12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
						(In thousands)
Corporate stock and bonds	$	—	$	—		$	68	$	(19	)	$	68	$	(19	)
Non-agency CMOs		4,020		(22	)		22,382		(3,633	)		26,402		(3,655	)
Government sponsored agency mortgage-backed securities		948		(24	)		—		—			948		(24	)
GNMA mortgage-backed securities		390,689		(18,257	)		—		—			390,689		(18,257	)
	$	395,657	$	(18,303	)	$	22,450	$	(3,652	)	$	418,107	$	(21,955	)

96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The tables above represent 20 investment securities at March 31, 2012 compared to 46 at March 31, 2011 that, due to the current interest rate environment and other factors, have declined in value but do not presently represent other-than-temporary impairment. Management evaluates securities for other-than-temporary impairment on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. In estimating other-than-temporary impairment losses on investment securities, management considers many factors which include: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Corporation to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

To determine if an other-than-temporary impairment exists on a debt security, the Corporation first determines if (a) it intends to sell the security or (b) it is more likely than not that it will be required to sell the security before its anticipated recovery. If either of the conditions are met, the Corporation will recognize an other-than-temporary impairment loss in earnings equal to the difference between the security’s fair value and its amortized cost basis. If neither condition is met, the Corporation determines (a) the amount of the impairment related to credit loss and (b) the amount of the impairment due to all other factors. The difference between the present values of the cash flows expected to be collected, discounted at the purchase yield or current accounting yield of the security, and the amortized cost basis is the credit loss. The credit loss is the portion of the impairment that is recognized in earnings and is a reduction in the cost basis of the security. The portion of impairment related to all other factors is included in other comprehensive income (loss).

All of the Corporation’s other-than-temporarily impaired debt securities are non-agency CMOs. On a cumulative basis, other-than-temporary impairment losses recognized in earnings by year of vintage were $1.6 million for 2007, $323,000 for 2006, $469,000 for 2005 and $25,000 prior to 2005.

The Corporation utilizes an independent pricing service to run a discounted cash flow model in the calculation of other-than-temporary impairment losses on non-agency CMOs. This model is used to determine the portion of the impairment that is other-than-temporary due to credit losses, and the portion that is temporary due to all other factors.

To estimate fair value of non-agency CMOs, the Corporation discounted estimated expected cash flows after credit losses at rates ranging from 4% to 12%. The rates utilized are based on the risk free rate equivalent to the remaining average life of the security, plus a spread for normal liquidity and a spread to reflect the uncertainty of the cash flow estimates. The pricing service benchmarks its fair value results to other pricing services and monitors the market for actual trades. The cash flow model includes these inputs in its derivation of the discount rates used to estimate fair value. There are no payments in kind allowed on these non-agency CMOs.

The significant inputs used for calculating the credit loss portion of securities with other-than-temporary impairment (“OTTI”) include prepayment assumptions, loss severities, original FICO scores, historical rates of delinquency, percentage of loans with limited underwriting, historical rates of default, original loan-to-value ratio, aggregate property location by metropolitan statistical area, original credit support, current credit support, and weighted-average maturity. The discount rates used to establish the net present value of expected cash flows for purposes of determining OTTI ranged from 5.0% to 7.5%. These rates equate to the effective yield implicit in the security at the date of acquisition for the bonds for which the Corporation has not in the past incurred OTTI. For the bonds for which the Corporation has previously recorded OTTI, the discount rate used equates to the accounting yield on the security as of the valuation date. Default rates were calculated separately for each category of underlying borrower based on delinquency status (i.e. current, 30 to 59 days delinquent, 60 to 89 days delinquent, 90+ days delinquent, and foreclosure balances) of the loans as of March 1, 2012. This data is entered into a loss migration model to calculate projected default rates, which are benchmarked against results that have recently been experienced by other major servicers of non-agency CMOs with similar attributes. The month 1 to month 24 constant default rate in the model ranged from 5.08% to 11.32%.

At March 31, 2012, the Corporation had 14 non-agency CMOs with a fair value of $19.6 million and an adjusted cost basis of $23.1 million that were other-than-temporarily impaired. At March 31, 2011, the

97

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Corporation had 21 non-agency CMOs with a fair value of $28.2 million and an adjusted cost basis of $31.8 million that were other-than-temporarily impaired. An increase in other-than-temporary impairment due to credit losses of $0.6 million was included in earnings for the fiscal year ended March 31, 2012. For the fiscal year ended March 31, 2012, the Corporation recognized actual realized losses of $364,000 related to credit issues (i.e. — principal reduced without a receipt of cash) that were previously recognized in earnings as unrealized other-than-temporary impairment.

The Corporation has $291,000 in unrealized losses on U.S. government sponsored and federal agency obligations, corporate stocks and bonds and Ginnie Mae (“GNMA”) mortagage-backed securities as of March 31, 2012 due to changes in interest rates and other non-credit related factors. The Corporation has reviewed this portfolio for other-than-temporary impairment. Management has concluded that no OTTI exists and that the unrealized losses are properly classified in accumulated other comprehensive income.

The following table is a rollforward of the amount of other-than-temporary impairment related to credit losses that have been recognized in earnings for which a portion of an other-than-temporary impairment was recognized in other comprehensive income for the years ended March 31, 2012 and 2011:

	Year Ended March 31,
	2012			2011
	(In thousands)
Beginning balance of unrealized OTTI related to credit losses	$	2,197		$	1,889
Additional unrealized OTTI related to credit losses for which OTTI was previously recognized		558			432
Credit related OTTI previously recognized for securities sold during the period		—			(124	)
Decrease for realized amount of credit losses for which unrealized credit related OTTI was previously recognized		(364	)		—
Ending balance of unrealized OTTI related to credit losses	$	2,391		$	2,197

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

	Year Ended March 31,
	2012			2011		2010
	(In thousands)
Proceeds from sales	$	338,224		$	385,924	$	468,020
Gross gains on sales		6,618			8,661		11,116
Gross losses on sales		(39	)		—		21
Net gain (loss) on sales	$	6,579		$	8,661	$	11,095

At March 31, 2012 and 2011, investment securities available-for-sale with a fair value of approximately $216.3 million and $420.8 million, respectively, were pledged to secure deposits, borrowings and for other purposes as permitted or required by law.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The fair values of investment securities by contractual maturity at March 31, 2012 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations with or without call or prepayment penalties.

	Within 1 Year		After 1 Year through 5 Years		After 5 Years through 10 Years		Over Ten Years		Total
	(In thousands)
Available-for-sale, at fair value:
U.S. government sponsored and federal agency obligations	$	—	$	3,531	$	—	$	—	$	3,531
Corporate stock and bonds		—		—		—		661		661
Non-agency CMOs		—		—		884		20,708		21,592
Government sponsored agency mortgage-backed securities		21		32		929		3,213		4,195
GNMA mortgage-backed securities		—		—		459		211,861		212,320
Total	$	21	$	3,563	$	2,272	$	236,443	$	242,299
Held-to-maturity, at fair value:
Government sponsored agency mortgage-backed securities	$	—	$	—	$	20	$	—	$	20
Total	$	—	$	—	$	20	$	—	$	20
	$	21	$	3,563	$	2,292	$	236,443	$	242,319
Held-to-maturity, at cost:
Government sponsored agency mortgage-backed securities	$	—	$	—	$	20	$	—	$	20

Note 5 — Loans Receivable

Loans receivable held for investment consist of the following:

	March 31,
	2012			2011
	(In thousands)
Residential	$	564,691		$	648,514
Commercial and industrial		38,977			99,689
Commercial real estate:
Land and construction		186,048			251,043
Multi-family		342,216			423,587
Retail/office		298,277			419,439
Other commercial real estate		248,275			276,688
Consumer:
Education		240,331			276,735
Other consumer		269,532			287,151
Total unpaid principal balance		2,188,347			2,682,846
Allowance for loan losses		(111,215	)		(150,122	)
Undisbursed loan proceeds(1)		(16,034	)		(8,761	)
Unearned loan fees, net		(3,086	)		(3,476	)
Unearned interest		(4	)		(115	)
Net discount on loans purchased		—			(5	)
Total contras to loans		(130,339	)		(162,479	)
Loans held for investment	$	2,058,008		$	2,520,367

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

99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Residential Loans

At March 31, 2012, $564.7 million, or 25.8%, of the Corporation’s total loans unpaid principal balance receivable consisted of residential loans, substantially all of which were 1 to 4 family dwellings. Residential loans consist of both adjustable and fixed-rate loans. The adjustable-rate loans currently in the Corporation’s portfolio have up to 30-year maturities and terms which permit the Corporation to annually increase or decrease the rate on the loans, based on a designated index. These rate changes are generally subject to a limit of 2% per adjustment and an aggregate 6% adjustment over the life of the loan. These loans are documented according to standard industry practices. The Corporation makes a limited number of interest-only loans which tend to have a shorter term to maturity and does not originate negative amortization and option payment adjustable rate mortgages.

Adjustable-rate loans decrease the Corporation’s risks associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. The Corporation believes that these risks, which have not had a material adverse effect on the Corporation to date, generally are less than the risks associated with holding fixed-rate loans in an increasing interest rate environment. Also, as interest rates decline, borrowers may refinance their mortgages into fixed-rate loans thereby prepaying the balance of the loan prior to maturity. At March 31, 2012, approximately $387.7 million, or 68.7%, of the Corporation’s held for investment residential loans unpaid principal balance consisted of loans with adjustable interest rates.

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

At March 31, 2012, approximately $177.0 million, or 31.3%, of the Corporation’s held for investment residential loans unpaid principal balance consisted of loans with fixed rates of interest. Although these loans generally provide for repayments of principal over a fixed period of 10 to 30 years, it is the Corporation’s experience that, because of prepayments and due-on-sale clauses, such loans generally remain outstanding for a substantially shorter period of time.

Commercial and Industrial Loans

The Corporation originates loans for commercial, corporate and business purposes, including issuing letters of credit. At March 31, 2012, the unpaid principal balance receivable of commercial and industrial loans amounted to $39.0 million, or 1.8%, of the Corporation’s total loans unpaid principal balance receivable. The Corporation’s commercial and industrial loan portfolio is comprised of loans for a variety of business purposes and generally is secured by equipment, machinery and other corporate assets. These loans generally have terms of five years or less and interest rates that float in accordance with a designated published index. Substantially all of such loans are secured and backed by the personal guarantees of the owners of the business.

Commercial Real Estate Loans

The Corporation originates commercial real estate loans that it typically holds in its loan portfolio which includes land and construction, multi-family, retail/office and other commercial real estate. Such loans generally have adjustable rates and shorter terms than single-family residential loans, thus increasing the earnings sensitivity of the loan portfolio to changes in interest rates, as well as providing higher fees and rates than residential loans. At March 31, 2012, the Corporation had $1.07 billion of loans unpaid principal balance receivable secured by commercial real estate, which represented 49.1% of the total loans unpaid principal balance receivable. The Corporation generally limits the origination of such loans to its primary market area.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Corporation’s commercial real estate loans are primarily secured by apartment buildings, office and industrial buildings, land, warehouses, small retail shopping centers and various special purpose properties, including hotels, and nursing homes.

Although terms vary, commercial real estate loans generally have amortization periods of 15 to 25 years, as well as balloon payments of two to five years, and terms which provide that the interest rates thereon may be adjusted annually based on a designated index.

Consumer Loans

The Corporation offers consumer loans in order to provide a wider range of financial services to its customers. At March 31, 2012, $509.9 million, or 23.3%, of the Corporation’s total loans unpaid principal balance receivable consisted of consumer loans. Consumer loans typically have higher interest rates than mortgage loans but generally involve more risk than mortgage loans because of the type and nature of the collateral and, in certain cases, the absence of collateral.

Approximately $240.3 million, or 11.0%, of the Corporation’s total loans unpaid principal balance receivable at March 31, 2012 consisted of education loans. These loans are generally made for a maximum of $3,500 per year for undergraduate studies and $8,500 per year for graduate studies and are placed in repayment status on an installment basis within six months of graduation. Education loans generally have interest rates that adjust annually in accordance with a designated index. Both the principal amount of an education loan and interest thereon are generally guaranteed by the Great Lakes Higher Education Corporation up to 97% of the balance of the loan, which typically obtains reinsurance of its obligations from the U.S. Department of Education. During the quarter ended September 30, 2010, the Corporation discontinued the origination of student loans. Education loans may be sold to the U.S. Department of Education or to other investors. The Corporation received $24.3 million and $84.8 million from the sale of education loans in fiscal 2011 and 2010, respectively. The Corporation did not sell any education loans during fiscal 2012.

The largest component of the other consumer loan portfolio is second mortgage and home equity loans. The primary home equity loan product has an adjustable interest rate that is linked to the prime interest rate and is secured by a mortgage, either a primary or a junior lien, on the borrower’s residence. New home equity lines do not exceed 85% of appraised value of the property at the loan origination date. A fixed-rate home equity second mortgage term product is also offered.

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

Allowances for Loan Losses

The allowance for loan losses consists of specific and general components even though the entire allowance is available to cover losses on any loan. The specific allowance component relates to impaired and other substandard rated loans. For such loans, an allowance is established when the discounted cash flows (or collateral value if repayment relies solely on the operation or sale of the collateral) of the impaired loan are lower than the carrying value of that loan. The general allowance component covers pass and watch rated loans and is based on historical loss experience adjusted for the various qualitative and quantitative factors listed below. Loans graded substandard and below are individually examined closely to determine the appropriate loan loss reserve. The Corporation also maintains a reserve for unfunded commitments and letters of credit which is classified in other liabilities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	At March 31,
	2012		2011
	(In thousands)
General component	$	37,085	$	44,940
Substandard loan component		29,980		50,989
Specific component		44,150		54,193
Total allowance for loan losses	$	111,215	$	150,122

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

	At March 31,
	2012		2011
	(In thousands)
Pass	$	1,624,889	$	1,864,763
Watch		115,917		237,837
Special mention		56,762		—
Total pass, watch and special mention rated loans		1,797,568		2,102,600
Total substandard, excluding TDR accrual		93,207		208,184
TDR accrual		72,648		89,417
Non-accrual		224,924		282,645
Total impaired loans		297,572		372,062
Total unpaid principal balance	$	2,188,347	$	2,682,846

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

	Year Ended March 31,
	2012			2011			2010
	(In thousands)
Allowance at beginning of year	$	150,122		$	179,644		$	137,165
Provision		33,887			50,325			161,926
Charge-offs		(82,562	)		(88,886	)		(122,283	)
Recoveries		9,768			9,039			2,836
Allowance at end of year	$	111,215		$	150,122		$	179,644

The following table presents activity in the allowance for loan losses by portfolio segment for the years ended March 31, 2012 and 2011:

	Residential			Commercial and Industrial			Commercial Real Estate			Consumer			Total
	(In thousands)
For the Year Ended March 31, 2012
Beginning balance	$	20,487		$	19,541		$	106,445		$	3,649		$	150,122
Provision		(2,546	)		4,180			30,869			1,384			33,887
Charge-offs		(6,625	)		(14,993	)		(57,685	)		(3,259	)		(82,562	)
Recoveries		1,711			1,840			5,524			693			9,768
Ending balance	$	13,027		$	10,568		$	85,153		$	2,467		$	111,215

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Residential			Commercial and Industrial			Commercial Real Estate			Consumer			Total
	(In thousands)
For the Year Ended March 31, 2011
Beginning balance	$	20,658		$	29,783		$	126,553		$	2,650		$	179,644
Provisions		13,346			(3,644	)		36,621			4,002			50,325
Charge-offs		(15,005	)		(8,021	)		(62,558	)		(3,302	)		(88,886	)
Recoveries		1,488			1,423			5,829			299			9,039
Ending balance	$	20,487		$	19,541		$	106,445		$	3,649		$	150,122

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2012 and 2011:

	Residential		Commercial and Industrial		Commercial Real Estate		Consumer		Total
	(In thousands)
At March 31, 2012:
Allowance for loan losses:
Individually evaluated for impairment	$	5,080	$	5,548	$	33,137	$	385	$	44,150
Collectively evaluated for impairment		7,947		5,020		52,016		2,082		67,065
Total	$	13,027	$	10,568	$	85,153	$	2,467	$	111,215
Loans:
Loans individually evaluated	$	49,411	$	10,774	$	228,873	$	8,514	$	297,572
Loans collectively evaluated		515,280		28,203		845,943		501,349		1,890,775
Total	$	564,691	$	38,977	$	1,074,816	$	509,863	$	2,188,347
At March 31, 2011:
Allowance for loan losses:
Individually evaluated for impairment	$	5,084	$	9,523	$	39,072	$	514	$	54,193
Collectively evaluated for impairment		15,403		10,018		67,373		3,135		95,929
Total	$	20,487	$	19,541	$	106,445	$	3,649	$	150,122
Loans:
Loans individually evaluated	$	68,058	$	21,189	$	274,718	$	8,097	$	372,062
Loans collectively evaluated		580,456		78,500		1,096,039		555,789		2,310,784
Total	$	648,514	$	99,689	$	1,370,757	$	563,886	$	2,682,846

The provision for credit losses reflected on the consolidated statements of operations includes the provision for loan losses and the provision for unfunded commitment losses as follows:

	For the Year Ended March 31,
	2012			2011		2010
	(In thousands)
Provision for loan losses	$	33,887		$	50,325	$	161,926
Provision for unfunded commitment losses		(309	)		873		—
Provision for credit losses	$	33,578		$	51,198	$	161,926

At March 31, 2012, the Corporation has identified $297.6 million unpaid principal balance of loans as impaired which includes performing troubled debt restructurings. At March 31, 2011, impaired loans were $372.1 million. A loan is identified as impaired when, based on current information and events, it is probable that

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement and thus are placed on non-accrual status. Interest income on certain impaired loans is recognized on a cash basis. The carrying amount of impaired loans represents the unpaid principal balance less the associated allowance.

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

The following table presents impaired loans segregated by loans with no specific allowance and loans with an allowance, by class of loans, as of March 31, 2012:

	Carrying Amount		Unpaid Principal Balance		Associated Allowance		Average Carrying Amount		Fiscal Year to Date Interest Income Recognized
	(In thousands)
With no specific allowance recorded:
Residential	$	19,845	$	19,845		N/A	$	22,224	$	208
Commercial and industrial		3,389		3,389		N/A		6,771		61
Land and construction		34,446		34,446		N/A		39,601		581
Multi-family		19,822		19,822		N/A		21,624		264
Retail/office		21,787		21,787		N/A		23,577		816
Other commercial real estate		24,213		24,213		N/A		23,812		571
Education		—		—		N/A		—		—
Other consumer		474		474		N/A		507		62
Subtotal		123,976		123,976		—		138,116		2,563
With an allowance recorded(1):
Residential		24,486		29,566		5,080		28,070		520
Commercial and industrial		1,837		7,385		5,548		6,285		260
Land and construction		33,002		47,545		14,543		47,499		886
Multi-family		19,411		27,307		7,896		25,803		927
Retail/office		22,282		28,954		6,672		27,417		858
Other commercial real estate		20,773		24,799		4,026		22,891		737
Education(2)		761		762		1		789		—
Other consumer		6,894		7,278		384		7,190		480
Subtotal		129,446		173,596		44,150		165,944		4,668
Total
Residential		44,331		49,411		5,080		50,294		728
Commercial and industrial		5,226		10,774		5,548		13,056		321
Land and construction		67,448		81,991		14,543		87,100		1,467
Multi-family		39,233		47,129		7,896		47,427		1,191
Retail/office		44,069		50,741		6,672		50,994		1,674
Other commercial real estate		44,986		49,012		4,026		46,703		1,308
Education(2)		761		762		1		789		—
Other consumer		7,368		7,752		384		7,697		542
	$	253,422	$	297,572	$	44,150	$	304,060	$	7,231

(1) Includes ratio-based allowance for loan losses of $2.8 million associated with loans totaling $24.6 million for which individual reviews have not been completed but an allowance established based on the ratio of allowance for loan losses to unpaid principal balance for the loans individually reviewed, by class of loan.

(2) Excludes the guaranteed portion of education loans 90+ days past due with unpaid principal balance and average carrying amounts totaling $24,641 and $25,520 that are not considered impaired based on a guarantee provided by government agencies.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The carrying amounts above and below represent the unpaid principal balance less the associated allowance. The average carrying amount is a trailing twelve month average calculated based on the ending quarterly balances. The interest income recognized is the fiscal year to date interest income recognized on a cash basis.

The following table presents impaired loans segregated by loans with no specific allowance and loans with an allowance by class of loans as of March 31, 2011:

	Carrying Amount		Unpaid Principal Balance		Associated Allowance		Average Carrying Amount		Fiscal Year to Date Interest Income Recognized
	(In thousands)
With no specific allowance recorded:
Residential	$	32,673	$	32,673	$	N/A	$	41,103	$	543
Commercial and industrial		5,351		5,351		N/A		9,360		223
Land and construction		42,290		42,290		N/A		48,887		484
Multi-family		27,331		27,331		N/A		35,474		275
Retail/office		25,791		25,791		N/A		31,675		457
Other commercial real estate		29,940		29,940		N/A		34,223		879
Education		—		—		N/A		—		—
Other consumer		229		229		N/A		722		63
Subtotal		163,605		163,605		—		201,444		2,924
With an allowance recorded(1):
Residential		30,301		35,385		5,084		35,308		850
Commercial and industrial		6,315		15,838		9,523		17,056		601
Land and construction		24,195		34,155		9,960		35,102		737
Multi-family		19,230		23,895		4,665		25,092		938
Retail/office		38,643		55,333		16,690		56,450		2,249
Other commercial real estate		28,226		35,983		7,757		36,548		1,344
Education(2)		703		731		28		660		—
Other consumer		6,651		7,137		486		7,264		175
Subtotal		154,264		208,457		54,193		213,480		6,894
Total
Residential		62,974		68,058		5,084		76,411		1,393
Commercial and industrial		11,666		21,189		9,523		26,416		824
Land and construction		66,485		76,445		9,960		83,989		1,221
Multi-family		46,561		51,226		4,665		60,566		1,213
Retail/office		64,434		81,124		16,690		88,125		2,706
Other commercial real estate		58,166		65,923		7,757		70,771		2,223
Education(2)		703		731		28		660		—
Other consumer		6,880		7,366		486		7,986		238
	$	317,869	$	372,062	$	54,193	$	414,924	$	9,818

(1) Includes ratio-based allowance for loan losses of $3.9 million associated with loans totaling $59.8 million for which individual reviews have not been completed but an allowance established based on the ratio of allowance for loan losses to unpaid principal balance for the loans individually reviewed, by class of loan.

(2) Excludes the guaranteed portion of education loans 90+ days past due with unpaid principal balance and average carrying amounts totaling $23,629 and $25,628 that are not considered impaired based on a guarantee provided by government agencies.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following is additional information regarding impaired loans:

	At March 31,
	2012			2011
	(In thousands)
Unpaid principal balance of impaired loans:
With specific reserve required(1)	$	173,596		$	208,457
Without a specific reserve		123,976			163,605
Total impaired loans		297,572			372,062
Less:
Specific valuation allowance for impaired loans		(44,150	)		(54,193	)
Carrying amount of impaired loans	$	253,422		$	317,869
Average carrying amount of impaired loans(1)	$	304,060		$	414,924
Loans and troubled debt restructurings on non-accrual status		224,924			282,645
Troubled debt restructurings — accrual		72,648			89,417
Troubled debt restructurings — non-accrual(2)		76,378			17,262
Loans past due ninety days or more and still accruing(3)		30,697			23,629

(1) Excludes the guaranteed portion of education loans 90+ days past due with unpaid principal balances and average carrying amounts totaling $24,641 and $25,520 at March 31, 2012 and $23,629 and $25,628 at March 31, 2011, respectively, that are not considered impaired based on a guarantee provided by government agencies.

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

(3) Includes the guaranteed portion of education loans of $24,641 and $23,629 at March 31, 2012 and 2011, respectively, that were 90+ days past due which continue to accrue interest due to a guarantee provided by government agencies covering a minimum of 97% of the outstanding balance.

	For the Year Ended March 31,
	2012		2011		2010
	(In thousands)
Interest income recognized on impaired loans on a cash basis	$	7,231	$	9,818	$	11,939

All TDRs are classified as impaired loans, subject to performance conditions noted below. TDRs may be on either accrual or non-accrual status based upon the repayment performance of the borrower and management’s assessment of collectability. Loans deemed non-accrual may return to accrual status after six consecutive months of performance in accordance with the terms of the restructuring. Additionally, they may be considered not a TDR after twelve consecutive months of performance in accordance with the terms of the restructuring agreement, if the interest rate was a market rate at the date of restructuring.

The Corporation is currently committed to lend approximately $2.2 million in additional funds on impaired loans in accordance with the original terms of these loans; however, the Corporation is not legally obligated to, and will not, disburse additional funds on any loans while in nonaccrual status or if the borrower is in default.

The Corporation experienced declines in the current valuations for real estate collateral supporting portions of its loan portfolio throughout fiscal years 2010, 2011 and 2012, as reflected in recently received appraisals. Currently, $421.3 million or approximately 80% of the owned outstanding balance of classified loans (i.e. loans risk rated as substandard or loss) have recent appraisals (i.e. within one year) or have been determined to not need an appraisal. Loans that do not require an appraisal under Corporation policy — totaling $272.0 million include when the loan (i) is fully reserved; (ii) has a small balance (less than $250,000) and rather than being individually evaluated for impairment, is included in a homogenous pool of loans; (iii) uses a net present value of

106

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

future cash flows to measure impairment; or (iv) is not secured by real estate. Appraised values greater than one year old are discounted by an additional 10 to 20% for improved land or commercial real estate and unimproved land, respectively, in determination of the allowance for loan losses.

While Corporation policy may not require updated appraisals for these loans, updated appraisals may still be obtained. For example, $134.4 million or 53% of the loans which do not require an updated appraisal do have either an updated appraisal within the last year or an appraisal on order. If real estate values continue to decline, the Corporation may have to increase its allowance for loan losses as updated appraisals or other indications of a decline in the value of collateral are received.

The following table presents the aging of the recorded investment in past due loans as of March 31, 2012 by class of loans:

	Days Past Due						Total Past Due
	30-59		60-89		90 or More
			(In thousands)
Residential	$	2,414	$	1,071	$	37,791	$	41,276
Commercial and industrial		976		539		3,183		4,698
Land and construction		37		—		60,680		60,717
Multi-family		360		541		26,371		27,272
Retail/office		2,627		2,634		14,033		19,294
Other commercial real estate		1,884		191		16,323		18,398
Education		8,370		6,562		25,403		40,335
Other consumer		1,664		692		6,879		9,235
	$	18,332	$	12,230	$	190,663	$	221,225

The following table presents the aging of the recorded investment in past due loans as of March 31, 2011 by class of loans:

	Days Past Due						Total Past Due
	30-59		60-89		90 or More
			(In thousands)
Residential	$	6,289	$	4,577	$	52,640	$	63,506
Commercial and industrial		8,156		142		9,646		17,944
Land and construction		5,139		7,572		49,027		61,738
Multi-family		62		4,291		33,500		37,853
Retail/office		10,285		4,484		40,468		55,237
Other commercial real estate		4,717		266		21,725		26,708
Education		9,703		8,414		24,360		42,477
Other consumer		1,893		733		6,890		9,516
	$	46,244	$	30,479	$	238,256	$	314,979

Total delinquencies (loans past due 30 days or more) at March 31, 2012 were $221.2 million. The Corporation has experienced a reduction in delinquencies since March 31, 2011 due to improving credit conditions and loans moving to OREO. The Corporation has $24.6 million of education loans past due 90 days or more that are still accruing interest due to the approximate 97% guarantee provided by governmental agencies. Loans less than 90 days delinquent may be placed on non-accrual status when the probability of collection of principal and interest is deemed to be insufficient to warrant further accrual.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Credit Quality Indicators:

The Corporation groups certain loans (see description of population below) into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. For all loans other than consumer and residential, the Corporation analyzes loans individually by classifying the loans as to credit risk and assesses the probability of collection for each type of class. This analysis includes loans with an outstanding balance greater than $500,000 and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is updated on a monthly basis. The Corporation uses the following definitions for risk ratings:

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

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

Special Mention.     Loans classified as special mention exhibit material negative financial trends due to company specific or industry conditions which, if not corrected or mitigated, threaten their capacity to meet their current or continuing debt obligations. These borrowers still demonstrate the financial flexibility to address and cure the root cause of these adverse financial trends without significant deviations from their current business plan. Their potential weakness deserves close attention and warrant enhanced monitoring on the part of management. The expectation is these borrowers will return to a pass rating given reasonable time; or will be further downgraded.

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

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

108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of March 31, 2012, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass			Watch			Special Mention			Substandard			Non-Accrual			Total Unpaid Principal Balance
	(In thousands)
Commercial and industrial	$	15,187		$	5,506		$	255		$	9,812		$	8,217		$	38,977
Commercial real estate:
Land and construction		63,643			4,532			6,344			47,300			64,229			186,048
Multi-family		252,107			26,829			2,728			22,790			37,762			342,216
Retail/office		149,907			58,252			13,080			43,221			33,817			298,277
Other		122,427			20,798			34,355			42,732			27,963			248,275
	$	603,271		$	115,917		$	56,762		$	165,855		$	171,988		$	1,113,793
Percent of total unpaid principal balance		54.2	%		10.4	%		5.1	%		14.9	%		15.4	%		100.0	%

As of March 31, 2011, and based on the then most recent analysis performed, the risk category of loans by class of loans is as follows:

	Pass			Watch			Substandard			Non-Accrual			Total Unpaid Principal Balance
	(In thousands)
Commercial and industrial	$	39,361		$	21,256		$	20,831		$	18,241		$	99,689
Commercial real estate:
Land and construction		72,988			37,793			72,790			67,472			251,043
Multi-family		285,874			49,572			48,729			39,412			423,587
Retail/office		211,321			61,089			92,773			54,256			419,439
Other		114,595			68,127			62,478			31,488			276,688
	$	724,139		$	237,837		$	297,601		$	210,869		$	1,470,446
Percent of total unpaid principal balance		49.2	%		16.2	%		20.2	%		14.3	%		100.0	%

Residential and consumer loans are managed on a pool basis due to their homogeneous nature. Loans that are delinquent 90 days or more are considered non-accrual. The following table presents the recorded investment in residential and consumer loans based on accrual status as of March 31, 2012 and 2011:

	Accrual		Non-Accrual		Total  Unpaid Principal Balance
	(In thousands)
At March 31, 2012
Residential	$	520,141	$	44,550	$	564,691
Consumer:
Education(1)		239,569		762		240,331
Other consumer		261,908		7,624		269,532
	$	1,021,618	$	52,936	$	1,074,554

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Accrual		Non-Accrual		Total Unpaid Principal Balance
	(In thousands)
At March 31, 2011
Residential:	$	584,768	$	63,746	$	648,514
Consumer
Education(1)		276,004		731		276,735
Other consumer		279,852		7,299		287,151
	$	1,140,624	$	71,776	$	1,212,400

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

Troubled Debt Restructurings

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

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

During the quarter ended September 30, 2011, the Corporation adopted ASU 2011-02, as more fully described in Note 1 of the consolidated financial statements. As a result of adopting the amendments in ASU 2011-02, the Corporation reassessed all restructurings that occurred on or after April 1, 2011, for identification as TDRs. The Corporation identified as troubled debt restructurings (TDRs) certain receivables for which the allowance for credit losses had previously been measured under a general allowance for credit losses methodology. Upon identifying those receivables as TDRs, the Corporation classified them as impaired under the guidance in ASC 310-10-35. The amendments in ASU 2011-02 require prospective application of impairment measured in accordance with the guidance of ASC 310-10-35 for the receivables that are newly identified as impaired. The adoption of the ASU resulted in an increase in the number of loans within its commercial real estate portfolios that are considered TDRs for the periods ended September 30, 2011. See table that follows for new TDRs by class and type of modification during the year ending March 31, 2012.

110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents information related to loans modified in a troubled debt restructuring, by class, during the twelve months ended March 31, 2012:

	Twelve Months Ended March 31, 2012
			Unpaid Principal Balance(2) (at period end)		Balance in the ALLL(3)
Troubled Debt Restructurings(1)	Number of Modifications				Prior to Modification		At Period End
	(Dollars in thousands)
Residential		40	$	5,964	$	318	$	477
Commercial and industrial		14		6,439		2,841		3,007
Land and construction		16		50,820		4,553		16,259
Multi-family		10		9,891		2,725		4,477
Retail/office		14		9,433		1,006		1,541
Other commercial real estate		13		12,927		2,334		4,422
Education		0		—		—		—
Other consumer		6		304		—		—
		113	$	95,778	$	13,777	$	30,183

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

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

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

The following table presents loans modified in a troubled debt restructuring from April 1, 2011 to March 31, 2012, by class, that subsequently defaulted (i.e., 90 days or more past due following a modification) during the twelve months ended March 31, 2012:

	Twelve Months Ended March 31, 2012
Troubled Debt Restructurings(1)	Number of Modified Loans		Unpaid Principal Balance(2) (at period end)
	(Dollars in thousands)
Residential		11	$	1,830
Commercial and industrial		7		1,083
Land and construction		4		36,100
Multi-family		6		8,747
Retail/office		9		9,233
Other commercial real estate		4		1,543
Education		0		—
Other consumer		4		304
		45	$	58,840

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

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

111

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents the unpaid principal balance of loans modified in a TDR during the year ended March 31, 2012, by class and by type of modification:

	Principal and Interest to Interest Only		Interest Rate Reduction
Troubled Debt Restructurings (1)(2)			To Below Market Rate		To Interest Only(3)		Below Market Rate(4)		Other(5)		Total
	(In thousands)
Residential	$	1,400	$	1,952	$	942	$	611	$	1,059	$	5,964
Commercial and industrial		170		1,771		—		923		3,575		6,439
Land and construction		367		29,461		—		15,735		5,257		50,820
Multi-family		2,497		—		—		5,819		1,575		9,891
Retail/office		613		2,297		2,311		1,219		2,993		9,433
Other commercial real estate		1,324		5,315		—		268		6,020		12,927
Education		—		—		—		—		—		—
Other consumer		—		285		—		—		19		304
	$	6,371	$	41,081	$	3,253	$	24,575	$	20,498	$	95,778

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

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

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

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

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

Loans considered troubled debt restructurings–non-accrual increased $59.1 million to $76.4 million at March 31, 2012 from $17.3 million at March 31, 2011. This increase is largely the result of one significant loan relationship whose payment history required a move into non-accrual status from TDR-accrual. As time passes and borrowers continue to perform in accordance with the restructured loan terms, a portion of the troubled debt restructurings — non-accrual balance may be returned to accrual status.

Pledged Loans

At March 31, 2012, residential, multi-family, education and other consumer loans receivable with unpaid principal of approximately $792.7 million were pledged to secure borrowings and for other purposes as permitted or required by law. Certain mortgage loans are pledged as collateral for FHLB borrowings. See Note 11.

In the ordinary course of business, the Bank has granted loans to principal officers and directors and their affiliates amounting to $515,000 and $928,000 at March 31, 2012 and 2011, respectively. During the year ended March 31, 2012, there were principal additions of $97,000 and principal payments totaled $510,000.

Note 6 — Other Real Estate Owned

Real estate acquired by foreclosure, real estate acquired by deed in lieu of foreclosure and other repossessed assets (OREO) are held for sale and are initially recorded at fair value less estimated selling expenses at the date of foreclosure. At the date of foreclosure, any write down to fair value less estimated selling costs is charged to the allowance for loan losses. Any increases in fair value over the net carrying value of the loans are recorded as

112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recoveries to the allowance for loan losses to the extent of previous charge-offs, with any excess, which is infrequent, recognized as a gain. Subsequent to foreclosure, valuations are periodically performed and a valuation allowance is established if fair value less estimated selling costs exceeds the carrying value. Costs relating to the development and improvement of the property may be capitalized; holding period costs and subsequent changes to the valuation allowance are charged to expense.

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

	For the Year Ended March 31,
	2012			2011
	(In thousands)
Balance at beginning of period	$	90,707		$	55,436
Additions		77,835			88,169
Capitalized improvements		—			946
Valuations/write-offs		(15,338	)		(15,125	)
Sales		(64,363	)		(38,719	)
Balance at end of period	$	88,841		$	90,707

The balances at end of period above are net of a valuation allowance of $22.5 million and $20.0 million at March 31, 2012 and 2011, respectively, recognized during the holding period for declines in fair value subsequent to the foreclosure or acceptance of deed in lieu of foreclosure. A summary of the activity in the OREO valuation allowance is as follows:

	For the Year Ended March 31,
	2012			2011			2010
	(In thousands)
Balance at beginning of period	$	19,975		$	16,630		$	8,856
Provision		15,338			15,125			19,775
Sales		(12,792	)		(11,780	)		(12,001	)
Balance at end of period	$	22,521		$	19,975		$	16,630

During the year ended March 31, 2012, OREO expense, net was $28.8 million, consisting of $15.3 million of valuation adjustments, $4.4 million of foreclosure cost expense and $9.1 million of net expenses from operations.

Note 7 — Other Intangibles

The Corporation had other intangible assets consisting of core deposit premium. This intangible asset had a carrying amount net of accumulated amortization of zero at March 31, 2012 and 2011. During the year ended March 31, 2011, the Corporation wrote off $3.9 million of core deposit intangible as part of a branch sale, which was netted against the gain on sale. See Note 22.

The following tables present the change in the carrying amount of core deposit intangibles, which was written off as of March 31, 2011.

	March 31, 2011
	(In thousands)
Balance at beginning of period	$	4,092
Amortization expense		(158	)
Write-off		(3,934	)
Balance at end of period	$	—

113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	March 31, 2011
	(In thousands)
Gross carrying amount	$	5,517
Accumulated amortization		(1,583	)
Write-off		(3,934	)
Net book value	$	—

Note 8 — Mortgage Servicing Rights

The Corporation records mortgage servicing rights (MSRs) 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 calculated using a discounted cash flow model based on market assumptions at the time of origination. Subsequently, the MSR asset is carried at the lower of amortized cost or fair value. The Corporation assesses MSRs for impairment using a discounted cash flow model provided by a third party that is based on current market assumptions at each reporting period. For purposes of measuring fair value, the servicing rights are stratified into pools based on homogeneous characteristics such as product type and interest rate. Impairment is recognized, if necessary, at the pool level rather than for each individual servicing right.

The interest rate bands used to stratify the serviced loans were changed in the quarter ending December 31, 2011 in response to the significantly lower interest rate environment over the past several years and the resultant “bunching’ of a substantial portion of serviced loans into two of the nine historical strata. The restratification of serviced loans did not have a material impact on the fair value and impairment measurement of the mortgage servicing right asset during the quarter ending December 31, 2011 based on an analysis of proforma results using the historical strata compared to the actual restratified loan impairment during the quarter.

The Corporation has chosen to use the amortization method to measure 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 the capitalization of new servicing assets is reported as net gain on sale of loans and the amortization of servicing assets is reported as a reduction to loan servicing income in the Corporation’s consolidated statements of operations. Ancillary income is recorded in other non-interest income.

Information regarding the Corporation’s mortgage servicing rights for the years ended March 31, 2012 and 2011 is as follows:

	Year Ended March 31,
	2012			2011
	(In thousands)
Balance at beginning of year	$	25,366		$	24,379
Additions		8,608			7,942
Amortization		(9,004	)		(6,955	)
Mortgage servicing rights before valuation allowance at end of period		24,970			25,366
Valuation allowance		(2,814	)		(405	)
Balance at end of year	$	22,156		$	24,961
Fair value at the end of the period	$	22,346		$	26,554
Key assumptions:
Weighted average discount rate		11.06	%		10.85	%
Weighted average prepayment speed		15.18	%		8.05	%

114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The projections of amortization expense for mortgage servicing rights set forth below are based on asset balances as of March 31, 2012 and an assumed amortization rate of 20% per year. Future amortization expense may be significantly different depending upon changes in the mortgage servicing portfolio, mortgage interest rates and market conditions.

	MSR Amortization
	(In thousands)
Year ended March 31, 2012	$	9,004
Estimate for the year ended March 31,
2013	$	4,994
2014		3,995
2015		3,196
2016		2,557
2017		2,046
Thereafter		8,182
	$	24,970

Mortgage loans serviced for others are not included in the consolidated balance sheets. The unpaid principal balance of mortgage loans serviced was approximately $3.1 billion and $3.4 billion at March 31, 2012 and 2011, respectively.

Note 9 — Premises and Equipment

Premises and equipment are summarized as follows:

	March 31,
	2012		2011
	(In thousands)
Land and land improvements	$	7,080	$	7,128
Office buildings		40,707		42,729
Furniture and equipment		45,758		46,579
Leasehold improvements		4,501		4,434
		98,046		100,870
Less accumulated depreciation and amortization		72,593		71,743
	$	25,453	$	29,127

During the years ending March 31, 2012, 2011 and 2010, building depreciation expense was $1.5 million, $1.7 million and $2.0 million, respectively. The furniture and fixture depreciation expense during the years ended March 31, 2012, 2011, and 2010 was $2.0 million, $2.4 million and $2.9 million, respectively.

115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Corporation leases various branch offices, office facilities and equipment under noncancelable operating leases which expire on various dates through 2030. Future minimum payments under noncancelable operating leases with initial or remaining terms of one year or more at March 31, 2012 are as follows:

Year	Amount of Future Minimum Payments
	(In thousands)
2013	$	1,595
2014		1,527
2015		1,466
2016		1,256
2017		1,173
Thereafter		7,575
Total	$	14,592

For the years ended March 31, 2012, 2011 and 2010, lease rental expense was $2.2 million, $2.4 million and $3.0 million, respectively.

Note 10 — Deposits

Deposits are summarized as follows:

	March 31,
	2012		Weighted Average  Rate			2011		Weighted Average Rate
	(Dollars in thousands)
Non-interest-bearing checking	$	264,751		0.00	%	$	236,445		0.00	%
Interest-bearing checking
Fixed rate		235,459		0.07	%		218,158		0.20	%
Variable rate		30,639		0.10	%		28,951		0.25	%
Total checking accounts		530,849		0.04	%		483,554		0.11	%
Money market accounts		492,787		0.28	%		395,092		0.43	%
Regular savings		265,238		0.10	%		237,679		0.16	%
Advance payments by borrowers for taxes and insurance		6,134		0.10	%		6,041		0.25	%
Certificates of deposit:
0.00% to 2.99%		906,320		1.10	%		1,360,145		1.47	%
3.00% to 4.99%		63,323		4.12	%		214,270		3.70	%
5.00% to 6.99%		264		5.06	%		2,652		5.13	%
Total certificates of deposit		969,907		1.30	%		1,577,067		1.78	%
Total deposits	$	2,264,915		0.64	%	$	2,699,433		1.14	%

116

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Annual maturities of certificates of deposit outstanding at March 31, 2012 are summarized as follows:

Matures During Year Ended March 31,	Amount
	(In thousands)
2013	$	758,831
2014		148,797
2015		19,781
2016		10,739
2017		31,759
Thereafter		—
	$	969,907

At March 31, 2012 and 2011, certificates of deposit with balances greater than or equal to $100,000 amounted to $195.2 million and $406.5 million, respectively.

The Bank has entered into agreements with certain brokers that will provide deposits obtained from their customers at specified interest rates for an identified fee, or so called “brokered deposits.” At March 31, 2012 and 2011, the Bank had $2.1 million and $48.1 million in brokered deposits. Due to existing capital levels, the Bank is currently prohibited from obtaining or renewing any brokered deposits. The Bank has $24.9 million in out of network certificates of deposit. These deposits, which are not considered broker deposits, are opened via internet listing services and are kept within FDIC insured balance limits.

Note 11 — Other Borrowed Funds

Other borrowed funds consist of the following:

	Matures During Year Ended March 31,		March 31, 2012					March 31, 2011
			Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
FHLB advances:		2012	$	—		0.00	%	$	120,979		1.22	%
		2013		10,000		4.12			160,000		3.00
		2014		11,500		1.93			11,500		1.93
		2015		150,000		1.62			—		0.00
		2018		100,000		3.36			100,000		3.36
		2019		86,000		2.87			86,000		2.87
Total FHLB advances				357,500					478,479
Other borrowed funds				118,603		14.71			180,526		8.66
			$	476,103		5.53	%	$	659,005		4.01	%

The Bank selects loans that meet underwriting criteria established by the FHLB as collateral for outstanding advances. FHLB advances are limited to 65% of single-family loans, 60% of multi-family loans and 20% of eligible home equity and home equity line of credit loans meeting such criteria. FHLB borrowings of $191.0 million have call features that may be exercised quarterly by the FHLB, and borrowings of $191.0 million are subject to a one time call that may be exercised by the FHLB in 2012. The FHLB borrowings are also collateralized by mortgage-related securities with a fair value of $184.6 million and $384.1 million at March 31, 2012 and 2011, respectively.

Other borrowed funds consist of $116.3 million drawn on a short term line of credit at a weighted average interest rate of 15.0% and borrowings of $2.3 million on repurchase agreements at a weighted average interest rate of 0.2%.

117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Credit Agreement

As of March 31, 2012 and 2011, the Corporation had drawn a total of $116.3 million at a weighted average interest rate of 15.00% and 12.00%, respectively, on a short term line of credit to various lenders led by U.S. Bank (“Credit Agreement”). The total line of credit available is $116.3 million. At March 31, 2012, the base rate was 0.00% and the deferred rate was 15.00% for a weighted average interest rate of 15.00%.

The Corporation is currently in default on the Credit Agreement as a result of failure to make a principal payment on March 2, 2009. On November 29, 2011, the Corporation entered into Amendment No. 8 (the “Amendment”) to the Amended and Restated Credit Agreement, dated as of June 9, 2008, the Credit Agreement, among the Corporation, the lenders from time to time a party thereto, and U.S. Bank National Association, as administrative agent for such lenders, or the “Agent.” Under the Amendment, the Agent and the Lenders agree to forbear from exercising their rights and remedies against the Corporation until the earliest to occur of the following: (i) the occurrence of any Event of Default (other than a failure to make principal payments on the outstanding balance under the Credit Agreement or other Existing Defaults); or (ii) November 30, 2012. Notwithstanding the agreement to forbear, the Agent may at any time, in its sole discretion, take any action reasonably necessary to preserve or protect its interest in the stock of the Bank, Investment Directions, Inc. or any other collateral securing any of the obligations against the actions of the Corporation or any third party without notice to or the consent of any party.

The Amendment also provides that the outstanding balance under the Credit Agreement shall bear interest at a rate equal to 15% per annum. Interest accruing under the Credit Agreement is due on the earlier of (i) the date the Credit Agreement is paid in full or (ii) November 30, 2012. At March 31, 2012, the Corporation had accrued interest and amendment fees payable related to the Credit Agreement of $35.8 million and $5.2 million, respectively.

Within two business days after the Corporation has knowledge of an “event,” the CFO shall submit a statement of the event together with a statement of the actions which the Corporation proposes to take to the Agent. An event may include: (i) any event which, either of itself or with the lapse of time or the giving of notice or both, would constitute a Default under the Credit Agreement; (ii) a default or an event of default under any other material agreement to which the Corporation or Bank is a party; or (iii) any pending or threatened litigation or certain administrative proceedings.

The Amendment requires the Bank to maintain the following financial covenants:

• a Tier 1 leverage ratio of not less than 3.70% at all times.

• a Total risk based capital ratio of not less than 7.50% at all times.

• the ratio of non-performing loans to gross loans shall not exceed 15.00% at any time.

The Credit Agreement and the Amendment also contain customary representations, warranties, conditions and events of default for agreements of such type. At March 31, 2012, the Corporation was in compliance with all covenants contained in the Credit Agreement and the Amendment. Under the terms of the amended Credit Agreement, the Agent and the lenders have certain rights, including the right to accelerate the maturity of the borrowings if the Corporation is not in compliance with all covenants. Currently, no such action has been taken by the Agent or the Lenders. However, the default creates significant uncertainty related to the Corporation’s operations.

Temporary Liquidity Guarantee Program

In October 2008, the Secretary of the United States Department of the Treasury invoked the systemic risk exception of the FDIC Improvement Act of 1991 and the FDIC announced the Temporary Liquidity Guarantee Program (the “TLGP”). The TLGP provides a guarantee, through the earlier of maturity or June 30, 2012, of certain senior unsecured debt issued by participating Eligible Entities (including the Corporation) between October 14, 2008 and June 30, 2009. The Bank signed a master agreement with the FDIC on December 5, 2008

118

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

for issuance of bonds under the program. As of March 31, 2011, the Bank had $60.0 million of bonds issued under the program out of the $88.0 million that the Bank was eligible to issue bearing interest at a fixed rate of 2.74%. The bonds, matured on February 11, 2012.

Note 12 — Stockholders’ Equity

The Board of Directors of the Corporation is authorized to issue preferred stock in series and to establish the voting powers, other special rights of the shares of each such series and the qualifications and restrictions thereof. Preferred stock may rank prior to the common stock as to dividend rights, liquidation preferences or both, and may have full or limited voting rights. Under Wisconsin state law, preferred stockholders would be entitled to vote as a separate class or series in certain circumstances, including any amendment which would adversely change the specific terms of such series of stock or which would create or enlarge any class or series ranking prior thereto in rights and preferences. The Corporation has deferred 12 dividend payments on the Series B Preferred Stock held by the Treasury.

Preferred Equity

The Corporation’s Articles of Incorporation, as amended, authorize the issuance of 5,000,000 shares of preferred stock at a par value of $0.10 per share. In January, 2009, as part of the U.S. Department of Treasury’s (“UST”) Capital Purchase Program (“CPP”), the Corporation issued 110,000 shares of senior preferred stock (with a par value of $0.10 per share and a liquidation preference of $1,000 per share) and a 10-year warrant to purchase approximately 7.4 million shares of common stock (see section “Common Stock Warrants” below for additional information), for aggregate proceeds of $110 million. The proceeds received were allocated between the Senior Preferred Stock and the Common Stock Warrants based upon their relative fair values, which resulted in the recording of a discount on the Senior Preferred Stock upon issuance that reflects the value allocated to the Common Stock Warrants. The discount is accreted using a level-yield basis over five years. The allocated carrying value of the Senior Preferred Stock and Common Stock Warrants on the date of issuance (based on their relative fair values) were $72.9 million and $37.1 million, respectively. Cumulative dividends on the Senior Preferred Stock are payable at 5% per annum for the first five years and at a rate of 9% per annum thereafter on the liquidation preference of $1,000 per share. The Corporation is prohibited from paying any dividend with respect to shares of common stock unless all accrued and unpaid dividends are paid in full on the Senior Preferred Stock for all past dividend periods. The Senior Preferred Stock is non-voting, other than class voting rights on matters that could adversely affect the Senior Preferred Stock. The Corporation may redeem the Senior Preferred Stock at a redemption price equal to the sum of the liquidation preference of $1,000 per share and any accrued and unpaid dividends. The UST may also transfer the Senior Preferred Stock to a third party at any time. At March 31, 2012 and 2011, the cumulative amount of dividends in arrears not declared, along with accrued interest at 5% per annum on the unpaid dividends was $18.8 million and $12.5 million, respectively.

Common Stock Warrants

The Common Stock Warrants have a term of 10 years and are exercisable at any time, in whole or in part, at an exercise price of $2.23 per share (subject to certain anti-dilution adjustments).

The following assumptions were used in estimating the fair value for the Common Stock Warrants at the date of issuance: a weighted average expected life of 10 years, a risk-free interest rate of 3.35%, an expected volatility of 50.12%, and a dividend yield of 1.55%. Based on these assumptions, the estimated fair value of the Common Stock Warrants was $37.1 million. The weighted average expected life of the Common Stock Warrants represents the period of time that common stock warrants are expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the historical volatility of the Corporation’s stock.

Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional

119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Qualitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of core, tangible, and risk-based capital. Management believes, as of March 31, 2012, that the Bank was adequately capitalized under PCA guidelines. Under these OCC requirements, a bank must have a total risk-based capital ratio of 8.0 percent or greater to be considered “adequately capitalized.” The Bank continues to work toward the requirements of the previously issued Cease and Desist Order which requires a total risk-based capital ratio of 12.0 percent, which exceeds traditional capital levels for a bank. The Bank does not currently meet these elevated capital levels. See Note 2.

The following table summarizes the Bank’s capital ratios and the ratios required by its federal regulators to be considered adequately or well-capitalized under standard PCA guidelines at March 31, 2012 and 2011:

						Minimum Required
	Actual					To be Adequately Capitalized					To be Well Capitalized					Under Order to Cease and Desist
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
At March 31, 2012
Tier 1 leverage (core)	$	125,894		4.51	%	$	111,685		4.00	%	$	139,606		5.00	%	$	223,370		8.00	%
Total risk-based capital		149,141		8.42			141,701		8.00			177,126		10.00			212,551		12.00
At March 31, 2011
Tier 1 core capital (to adjusted tangible assets)	$	145,807		4.26	%	$	136,892		4.00	%	$	205,338		6.00	%	$	273,784		8.00	%
Total risk-based capital (to risk-weighted assets)		174,453		8.04			173,616		8.00			217,020		10.00			260,424		12.00

The following table reconciles stockholders’ equity to federal regulatory capital at March 31, 2012 and 2011:

	March 31,
	2012			2011
	(In thousands)
Stockholders’ equity of the Bank	$	128,071		$	126,916
Less: Disallowed servicing assets		(2,045	)		(1,061	)
Accumulated other comprehensive (income) loss		(132	)		19,952
Tier 1 capital		125,894			145,807
Plus: Allowable general valuation allowances		23,247			28,646
Total risk-based capital	$	149,141		$	174,453

The Bank may not declare or pay a cash dividend if such declaration and payment would violate regulatory requirements. As part of the Cease and Desist Agreement, the Corporation must receive the permission of the Federal Reserve prior to declaring, making or paying any dividends or other capital distributions on its capital stock as further described in Note 2.

Shareholders’ Rights Plan

On November 5, 2010 we entered into a shareholder rights plan designed to reduce the likelihood that we will experience an “ownership change” under U.S. federal income tax laws. This rights plan is similar to rights

120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

plans adopted by other public companies with significant tax attributes. The purpose of the rights plan is to protect our ability to use our tax assets, such as net operating loss carryforwards and built-in losses, to offset future taxable income, which would be substantially limited if we experienced an “ownership change” as defined under Section 382 of the Internal Revenue Code and related Internal Revenue Service pronouncements. In general, an ownership change would occur if our “5-percent shareholders,” as defined under Section 382, collectively increase their ownership by more than 50 percentage points over a rolling three-year period. As part of the rights plan, the Board declared a dividend of one preferred share purchase right for each outstanding share of its common stock. The rights will be distributable to shareholders of record as of November 22, 2010, as well as to holders of shares of our common stock issued after that date, but would only be activated if triggered by the rights plan.

Note 13 — Employee Benefit Plans

Defined Contribution Plans

The Corporation maintains a defined contribution plan under Sections 401(a) and 401(k) of the Internal Revenue Code, the AnchorBank, fsb Retirement Plan, in which all employees are eligible to participate. Employees become eligible on the first of the month following 60 days of employment. Participating employees may contribute up to 50% of their base compensation. The Corporation previously matched 100% of the amounts contributed by each participating employee up to 2% of the employee’s compensation, 50% of the employee’s contribution up to the next 2% of compensation, and 25% of each employee’s contributions up to the next 4% of compensation. In October 2009, the Corporation suspended the matching contribution. The Corporation may also contribute additional amounts at its discretion. The Corporation made no contributions to this plan for the years ended March 31, 2012 and 2011, and contributed $567,000 for the year ended March 31, 2010.

ESOP

The Corporation previously sponsored an Employee Stock Ownership Plan (“ESOP”) which was available to all employees with more than one year of employment, who were at least 21 years of age and who work more than 1,000 hours in a plan year. On December 1, 2010, the Corporation announced that it received preliminary approval from the Internal Revenue Service to terminate the ESOP and the plan was terminated as of January 31, 2011. Participants of the ESOP were notified that they had several options for distributing their shares and cash from the ESOP including in-kind distribution to a qualified retirement plan, in-kind distribution to them personally, cash distribution to a qualified retirement plan, and a lump sum cash distribution to them personally. The termination of the ESOP caused no recourse to the Corporation. There were no ESOP contributions for fiscal years 2012, 2011 and 2010.

The activity in the ESOP plan is as follows:

	Year Ended March 31,
	2011			2010
Shares at beginning of year		1,334,140			1,195,831
Additional shares purchased		—			191,110
Shares distributed for terminations		(1,328,430	)		(52,801	)
Sale of shares for cash distributions		(5,710	)		—
Balance at end of year		—			1,334,140
Allocated shares included above		—			1,334,140
Unallocated shares		—			—

At March 31, 2012 and 2011, there were no shares remaining in the ESOP due to the termination of the plan. At March 31, 2010, the ESOP held 1,334,140 shares, all of which were allocated to ESOP participants. The fair market value of those shares totaled $1.5 million as of March 31, 2010. During the year ended March 31, 2010, the fair market value of the stock purchased by the Company from ESOP participants totaled $222,000.

121

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

MRP

The Corporation maintains a Management Recognition Plan (“MRP”), under which the Corporation acquired and has reserved for issuance under the MRP a total of 4% of the shares of the Corporation’s common stock. The Bank previously contributed $2,000,000 to the MRP with which the MRP trustee acquired a total of 1,000,000 shares of the Corporation’s common stock. In 2001, the Corporation amended and restated the MRP to extend the term. There were no shares granted, no compensation expense and no shares vested related to the MRP during the years ended March 31, 2012, 2011 and 2010.

The number and cost of unallocated MRP shares totaled 429,869 shares and $927,000 at March 31, 2012, 2011 and 2010 and is included in treasury stock in the consolidated balance sheets.

Stock Compensation Plans

The Corporation has several stock-based compensation plans (“Plan(s)”) including the 2004 Equity Incentive Plan 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 purpose of the Plans was to promote the interests of the Corporation and its stockholders by (i) attracting and retaining exceptional executive personnel and other key employees of the Corporation and its Affiliates; (ii) motivating such employees by means of performance-related incentives to achieve long-range performance goals; and (iii) enabling such employees to participate in the long-term growth and financial success of the Corporation. Under the current Plan, up to 921,990 shares of Common Stock were authorized and available for issuance. Of the 921,990 shares available, up to 300,000 shares may be awarded in the form of restricted stock or restricted stock units which are not subject to the achievement of a performance target or targets. The date the options are first exercisable is determined by a committee of the Board of Directors of the Corporation. The options expire no later than ten years from the grant date.

Stock Options

A summary of stock options activity for all periods follows:

	Year Ended March 31,
	2012					2011					2010
	Options			Weighted Average Price		Options			Weighted Average Price		Options			Weighted Average Price
Outstanding at beginning of year		408,850		$	22.34		474,670		$	21.61		515,670		$	21.60
Granted		—			—		—			—		—			—
Exercised		—			—		—			—		—			—
Forfeited		(219,505	)		19.89		(65,820	)		17.08		(41,000	)		20.75
Outstanding at end of year		189,345		$	25.19		408,850		$	22.34		474,670		$	21.61
Options vested and exercisable at year-end		189,345		$	25.19		408,850		$	22.34		474,670		$	21.61
Intrinsic value of options exercised	$	—				$	—				$	—

The aggregate intrinsic value of options outstanding and exercisable at March 31, 2012 was zero. At March 31, 2012, 810,445 shares were available for future grants. There was no compensation expense related to stock options for the fiscal years ended March 31, 2012, 2011 and 2010.

122

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table represents outstanding stock options and exercisable stock options at their respective ranges of exercise prices at March 31, 2012:

	Options Outstanding						Exercisable Options
Range of Exercise Prices	Shares		Weighted- Average Remaining Contractual Life (Years)		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
$22.07 – $22.07		45,000		0.19	$	22.07		45,000	$	22.07
$23.77 – $23.77		94,800		1.19		23.77		94,800		23.77
$28.50 – $31.95		49,545		3.08		30.72		49,545		30.72
		189,345		1.45	$	25.19		189,345	$	25.19

Restricted Stock

Restricted stock grants primarily vest over a period of three to five years and are included in outstanding shares at the time of grant. The fair value of restricted stock equals the average of the high and low market value on the date of grant and that amount is amortized on a straight-line basis to compensation and benefits expense over the vesting period. There were no shares granted under the plan for the years ended March 31, 2012, 2011 and 2010. The restricted stock grant plan expense was $256,000, $305,000 and $501,000 for the fiscal years ended March 31, 2012, 2011 and 2010, respectively.

The activity in restricted stock is summarized as follows:

	Year Ended March 31,
	2012					2011					2010
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Balance at beginning of year		30,000		$	23.24		52,450		$	22.98		76,000		$	22.62
Granted		—			—		—			—		—			—
Vested		(11,500	)		23.87		(15,650	)		22.24		(21,550	)		23.16
Forfeited		—			—		(6,800	)		23.51		(2,000	)		7.32
Balance at end of year		18,500		$	22.85		30,000		$	23.24		52,450		$	22.98

As of March 31, 2012, there was approximately $55,000 of total unrecognized compensation cost related to nonvested restricted stock grants. The fair value of restricted stock that vested during the year ended March 31, 2012 was $5,000.

Deferred Compensation Plans

Deferred compensation plans include an agreement with a previous executive established in 1986 to provide recognition of services performed and additional compensation for services to be performed. The Bank established a grantor trust in 1992 and fully funded the vehicle to facilitate distribution obligations under the agreement, and the trust subsequently purchased shares as all benefits payable under the agreement are payable in the Corporation’s stock. The benefits are 100% vested and distributions are made in ten annual installments following the termination of employment. The first distribution was made on December 3, 2010 and the remaining balance payable is 190,263 shares.

The Corporation also established an Excess Benefit Plan to provide deferred compensation to certain members of management. As contributions were made to a participant’s account, funds were deposited into a

123

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

trust account for the participant and in turn shares of ABCW stock were purchased. No contributions were made during the years ended March 31, 2012 and 2011. Contributions for the year ended March 31, 2010 were $5,600. Distributions are made to remaining participants six months following termination and there are 67,078 shares remaining for distribution.

An obligation totaling $1.3 million at March 31, 2012, representing the cost basis of undistributed shares, is included in the deferred compensation obligation component of stockholders’ deficit. This amount is offset by the cost basis of undistributed shares purchased included in the additional paid in capital component of stockholders’ deficit. No compensation expense was recognized for these plans in the three years ending March 31, 2012, 2011 and 2010.

Note 14 — Income Taxes

The Corporation and its subsidiaries file a consolidated federal income tax return and separate state income tax returns.

The provision for income taxes consists of the following:

	Year Ended March 31,
	2012		2011		2010
	(In thousands)
Current:
Federal	$	—	$	150	$	(18,360	)
State		10		14		(519	)
		10		164		(18,879	)
Deferred:
Federal		—		—		17,360
State		—		—		19
		—		—		17,379
Total income tax expense (benefit)	$	10	$	164	$	(1,500	)

At March 31, 2012, 2011 and 2010, the affiliated group had a federal net operating loss carryover of $232.4 million, $168.7 million and $103.4 million, respectively, and at March 31, 2012, 2011 and 2010, certain subsidiaries had state net operating loss carryovers of $350.4 million, $288.2 million and $223.1 million, respectively. These carryovers expire in varying amounts in 2012 through 2027.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The provision for income taxes differs from that computed at the federal statutory corporate tax rate as follows:

	Year Ended March 31,
	2012						2011						2010
	Amount			% of Pretax Income			Amount			% of Pretax Income			Amount			% of Pretax Income
	(Dollars in thousands)
Income (loss) before income taxes	$	(36,728	)		100.0	%	$	(41,014	)		100.0	%	$	(178,414	)		100.0	%
Income tax expense (benefit) at federal statutory rate of 35%	$	(12,855	)		35.0	%	$	(14,355	)		35.0	%	$	(62,445	)		35.0	%
State income taxes, net of federal income tax benefits		(1,874	)		5.1			(2,126	)		5.1			(8,630	)		4.8
Increase (reduction) in tax exposure reserve		—			—			150			(0.4	)		(1,500	)		0.8
Increase in valuation allowance		14,666			(39.9	)		16,656			(40.6	)		71,273			(39.9	)
Other		73			(0.2	)		(161	)		0.4			(198	)		0.1
Income tax provision	$	10			0.0	%	$	164			(0.4	)%	$	(1,500	)		0.8	%

Deferred income tax assets and liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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

	At March 31,
	2012			2011			2010
	(In thousands)
Deferred tax assets:
Allowances for loan losses	$	54,063		$	68,286		$	79,035
Other loss reserves		2,635			2,723			2,182
Federal NOL carryforwards		82,885			61,433			35,102
State NOL carryforwards		18,178			14,906			10,794
Unrealized gains/(losses)		—			7,984			2,131
Purchase accounting		216			—			—
Other		3,635			4,310			6,947
Total deferred tax assets		161,612			159,642			136,191
Valuation allowance		(149,831	)		(143,505	)		(118,600	)
Adjusted deferred tax assets		11,781			16,137			17,591
Deferred tax liabilities:
FHLB stock dividends		(2,636	)		(3,962	)		(3,976	)
Mortgage servicing rights		(8,825	)		(9,884	)		(9,312	)
Purchase accounting		—			—			(2,933	)
Unrealized gains/(losses)		(53	)		—			—
Other		(267	)		(2,291	)		(1,370	)
Total deferred tax liabilities		(11,781	)		(16,137	)		(17,591	)
Net deferred tax assets	$	—		$	—		$	—

125

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Corporation accounts for income taxes on the asset and liability method. Deferred tax assets and liabilities are recorded based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, computed using enacted tax rates. Significant net deferred tax assets have been created for deductible temporary differences, the largest of which relates to our allowance for loan losses. For income tax return purposes, only net charge-offs on uncollectible loan balances are deductible, not the provision for credit losses. Under generally accepted accounting principles, a valuation allowance is required to be recognized if it is “more likely than not” that a deferred tax asset will not be realized. The determination of the realizability of the deferred tax assets is highly subjective and dependent upon judgment concerning management’s evaluation of both positive and negative evidence, the forecasts of future income, applicable tax planning strategies, and assessments of the current and future economic and business conditions. The Corporation considers both positive and negative evidence regarding the ultimate realizability of deferred tax assets. Positive evidence includes the existence of taxes paid in available carryback years as well as the probability that taxable income will be generated in future periods while negative evidence includes significant losses in the current year or cumulative losses in the current and prior two years as well as general business and economic trends.

At March 31, 2012 and 2011, the Corporation determined that a valuation allowance relating to the deferred tax asset was necessary. This determination was based largely on the negative evidence represented by the losses in the current and prior fiscal years caused by the significant loan loss provisions associated with the loan portfolio. In addition, general uncertainty surrounding future economic and business conditions have increased the potential volatility and uncertainty of projected earnings. Therefore, a valuation allowance of $149.8 million and $143.5 million at March 31, 2012 and 2011, respectively, was recorded to offset net deferred tax assets that exceed the Corporation’s carryback potential.

Accounting for Uncertainty in Income Taxes:    The Corporation is subject to U.S. federal income tax as well as income tax of various state jurisdictions. The tax years 2009-2011 remain open to examination by the Internal Revenue Service and certain state jurisdictions while the years 2008-2011 remain open to examination by certain other state jurisdictions.

The Corporation recognizes interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2012 and 2011, the Corporation has not recognized any accrued interest and penalties related to uncertain tax positions.

Note 15 — Guarantees

The Corporation’s real estate investment subsidiary, IDI, was required to guaranty the partnership loans of its consolidated subsidiaries for the development of homes for sale. In 2009, IDI sold its interest in the majority of the real estate segment. As part of the transaction, IDI was released from its guarantees. The table below summarizes the individual consolidated subsidiaries and their respective guarantees and outstanding loan balances:

Partnership Entity	March 31, 2012				March 31, 2011
	Guarantee		Outstanding		Guarantee		Outstanding
	(In thousands)
Canterbury Inn Shakopee, LLC	$	—	$	—	$	4,750	$	4,292
Total	$	—	$	—	$	4,750	$	4,292

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 16 — Commitments and Contingent Liabilities

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

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

	March 31,
	2012		2011
	(In thousands)
Commitments to extend credit:
Fixed rate	$	12,742	$	5,406
Adjustable rate		2,280		853
Unused lines of credit:
Home equity		112,760		120,194
Credit cards		31,658		34,435
Commercial		9,446		17,413
Letters of credit		17,349		19,432
Credit enhancement under the Federal
Home Loan Bank of Chicago Mortgage
Partnership Finance Program		20,442		21,602
IDI borrowing guarantees-unfunded		—		458

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, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. With the exception of credit card lines of credit, the Corporation generally extends credit only on a secured basis. Collateral obtained varies, but consists primarily of single-family residences and income-producing commercial properties. Fixed-rate loan commitments expose the Corporation to a certain amount of interest rate risk if market rates of interest substantially increase during the commitment period. Similar risks exist relative to loans classified as held for sale, which totaled $39.3 million and $7.5 million at March 31, 2012 and 2011, respectively. This exposure, however, is mitigated by the existence of forward contracts to sell the majority of the fixed-rate loans. Forward contracts to sell mortgage loans within 60 days at March 31, 2012 and 2011 amounted to $155.0 million and $29.0 million, respectively.

The Bank previously participated in the Mortgage Partnership Finance (MPF) Program of the Federal Home Loan Bank of Chicago (FHLB). The program was intended to provide member institutions with an alternative to holding fixed-rate mortgages in their loan portfolios or selling them in the secondary market. An institution participates in the MPF Program by either originating individual loans on a “flow” basis as agent for the FHLB pursuant to the “MPF 100 Program” or by selling, as principal, closed loans owned by an institution to the FHLB pursuant to one of the FHLB’s closed-loan programs. The program was discontinued in 2008 in its present format and the Bank no longer funds loans through the MPF program. The Bank does, however, continue to

127

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

service the loans funded under the program and maintains the credit exposure and credit enhancement fees. Under the MPF Program, credit risk is shared by the participating institution and the FHLB by structuring the loss exposure in several layers, with the participating institution being liable for losses after application of an initial layer of losses (after any private mortgage insurance) is absorbed by the FHLB, subject to an agreed-upon maximum amount of such secondary credit enhancement which is intended to be in an amount equivalent to a “AA” credit risk rating by a rating agency. The participating institution receives credit enhancement fees from the FHLB for providing this credit enhancement and continuing to manage the credit risk of the MPF Program loans. Participating institutions are also paid specified servicing fees for servicing the loans.

Pursuant to the credit enhancement feature of the MPF program, the Corporation has retained secondary credit loss exposure in the amount of $20.4 million at March 31, 2012 related to approximately $394.0 million of residential mortgage loans that the Bank has originated as agent for the FHLB. Under the credit enhancement, the FHLB is liable for losses on loans up to one percent of the original delivered loan balances in each pool. The Bank is then liable for losses over and above the first position up to a contractually agreed-upon maximum amount in each pool that was delivered to the Program. The Corporation receives a monthly fee for this credit enhancement obligation based on the outstanding loan balances. The Corporation has recorded net credit enhancement fee income from this program totaling $71,000, $648,000 and $1.3 million for the years ending March 31, 2012, 2011 and 2010, respectively. Based on historical experience, the Corporation does not anticipate that any credit losses will be incurred under the credit enhancement obligation.

Loans sold to investors with recourse to the Corporation met the underwriting standards of the investor and the Corporation at the time of origination. In the event of default by the borrower, the investor may resell the loans to the Corporation at par value. As the Corporation expects relatively few such loans to become delinquent, the total amount of loans sold with recourse does not necessarily represent future cash requirements. Collateral obtained on such loans consists primarily of single-family residences. The unpaid principal balance of loans repurchased from investors totaled $1.7 million, $2.1 million and $0.2 million for the years ending March 31, 2012, 2011 and 2010, respectively.

At March 31, 2012, the Corporation has $564,000 of reserves on unfunded commitments, unused lines of credit and letters of credit classified in other liabilities. The Corporation intends to fund commitments through current liquidity.

The IDI borrowing guarantees-unfunded represent the Corporation’s commitment through its IDI subsidiary to guarantee the borrowings of the related real estate investment partnerships, which are included in the consolidated financial statements. The IDI borrowing guarantees were terminated during the quarter ended September 30, 2011 and no further guarantees are expected to be issued.

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

One pending lawsuit against the Corporation currently in the discovery stage involves a Bank-issued letter of credit in support of a residential real estate development. Although no specific reserve for loss has been established at March 31, 2012, possible losses due to an unfavorable outcome have been estimated in the range of zero to $2.4 million due to a shortfall in collateral value.

Note 17 — Derivative Financial Instruments

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Derivative financial instruments are summarized as follows:

		At March 31, 2012				At March 31, 2011
	Balance Sheet Location	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
		(In thousands)
Derivative assets:
Interest rate lock commitments(1)	Other assets		115,032		943		15,564		117
Forward contracts to sell mortgage loans(2)	Other assets		—		—		—		—
Derivative liabilities:
Interest rate lock commitments(1)	Other liabilities		27,689		72		10,053		41
Forward contracts to sell mortgage loans(2)	Other liabilities		155,000		459		29,000		148

(1) Interest rate lock commitments include $118.3 million and $16.3 million of commitments not yet approved in the credit underwriting process, yet represent potential interest rate risk exposure to the extent of those mortgage loan applications eventually approved for funding.

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

Net gains (losses) included in the consolidated statements of operations related to derivative financial instruments during the years ended March 31, 2012, 2011 and 2010 were $0.5 million, ($0.4) million and $1.7 million, respectively, recognized in net gain on sale of loans.

Note 18 — Fair Value of Financial Instruments

ASC Topic 820 establishes a framework for measuring fair value and disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

In determining fair value, the Corporation uses various valuation methods including market, income and cost approaches. Based on these approaches, the Corporation utilizes assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable inputs. The Corporation uses valuation methodologies that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on observability of the inputs used in the valuation methodologies, financial assets and liabilities measured at fair value on a recurring and nonrecurring basis are categorized according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities that are adjusted to fair value are classified in one of the following three categories:

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value on a Recurring Basis

The table below presents the financial instruments carried at fair value as of March 31, 2012 and 2011, by the valuation hierarchy (as described above):

	Total March 31, 2012		Level 1		Level 2		Level 3
	(In thousands)
Financial assets
Investment securities availble for sale:
U.S. government sponsored and federal agency obligations	$	3,531	$	—	$	3,531	$	—
Corporate stock and bonds		661		661		—		—
Non-agency CMOs		21,592		—		—		21,592
Government sponsored agency mortgage-backed securities		4,195		—		4,195		—
GNMA mortgage-backed securities		212,320		—		212,320		—
Other assets:
Interest rate lock commitments		943		—		943		—
Total	$	243,242	$	661	$	220,989	$	21,592
Financial liabilities
Other liabilities:
Interest rate lock commitments	$	72	$	—	$	72	$	—
Forward contracts to sell mortgage loans		459		—		459		—
Total	$	531	$	—	$	531	$	—

	Total March 31, 2011		Level 1		Level 2		Level 3
			(In thousands)
Financial assets
Investment securities availble for sale:
U.S. government sponsored and federal agency obligations	$	4,126	$	—	$	4,126	$	—
Corporate stock and bonds		1,219		719		500		—
Non-agency CMOs		46,637		—		—		46,637
Government sponsored agency mortgage-backed securities		6,747		—		6,747		—
GNMA mortgage-backed securities		464,560		—		464,560		—
Other assets:
Interest rate lock commitments		117		—		117		—
Total	$	523,406	$	719	$	476,050	$	46,637
Financial liabilities
Other liabilities:
Interest rate lock commitments	$	41	$	—	$	41	$	—
Forward contracts to sell mortgage loans		148		—		148		—
Total	$	189	$	—	$	189	$	—

130

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

An independent service is used to price available-for-sale U.S. government sponsored and federal agency obligations, corporate bonds, government sponsored agency mortgage-backed securities, and GNMA mortgage- backed securities using a market data model under Level 2. The significant inputs used at March 31, 2012 and 2011 to price Ginnie Mae securities are as follows:

	March 31,
	2012						2011
	From			To			From			To
Coupon rate		1.6	%		5.5	%		2.0	%		5.5	%
Duration (in years)		0.1			6.1			0.3			8.2
PSA prepayment speed		201			495			196			494

The Corporation had 99.7% of its non-agency CMOs valued by another independent pricing service that used a discounted cash flow model that incorporates inputs considered Level 3 by the accounting guidance. The significant inputs used by the model at March 31, 2012 and 2011 include observable and unobservable inputs as follows:

	March 31,
	2012						2011
	From			To			From			To
Observable inputs:
30 to 59 day delinquency rate		1.2	%		4.8	%		—	%		5.0	%
60 to 89 day delinquency rate		0.6			2.5			—			3.3
90 plus day delinquency rate		1.1			6.0			—			9.1
Loss severity		39.5			71.7			24.2			61.1
Coupon rate		5.0			7.5			4.0			7.5
Current credit support		—			25.3			1.2			23.9
Unobservable inputs:
Month 1 to month 24 constant default rate		3.4			11.3			0.3			15.5
Discount rate		4.0			12.0			4.0			12.0

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

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

131

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	Year Ended March 31,
	2012			2011
	Non-agency CMOs			Non-agency CMOs			Government Sponsored Agency Mortgage-backed Securities			GNMA Mortgage- backed Securities
	(In thousands)
Balance at beginning of period	$	46,637		$	85,367		$	16,853		$	261,754
Total gains (losses) included in:
Net loss		334			2,754			(5	)		(1,327	)
Other comprehensive loss		(192	)		1,447			497			6,232
Included in net loss as other-than- temporary impairment		(195	)		(440	)		—			—
Purchases		—			—			17,058			92,879
Principal repayments		(8,596	)		(19,918	)		(2,058	)		(7,168	)
Sales		(16,396	)		(22,573	)		—			—
Transfers out of level 3 to level 2		—			—			(32,345	)		(352,370	)
Balance at end of period	$	21,592		$	46,637		$	—		$	—

There were no transfers in or out of Levels 1, 2 or 3 during the year ended March 31, 2012. The Corporation transferred its mortgage related securities to Level 3 in the past due to the fact that they were traded in an illiquid market. Transfers between levels are reflected as of the end of the quarter. During the year ended March 31, 2011, the Corporation transferred $756,000 of agency CMOs and REMICs, $31.6 million of residential agency mortgage-backed securities, and $352.4 million of Ginnie Mae securities from Level 3 to Level 2 due to the receipt of additional observable information about the inputs used to value securities previously classified as Level 3. All non-agency CMO’s remained in Level 3 as of March 31, 2012.

Fair Value on a Nonrecurring Basis

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Loans held for sale and mortgage servicing rights includes only those items that were adjusted to fair value as of the dates indicated. The following table presents such assets carried on the consolidated balance sheet by caption and by level within the fair value hierarchy as of March 31, 2012 and 2011:

	Total March 31, 2012		Level 1		Level 2		Level 3
			(In thousands)
Impaired loans, with an allowance recorded, net	$	129,446	$	—	$	—	$	129,446
Loans held for sale		145		—		145		—
Mortgage servicing rights		20,671		—		—		20,671
Other real estate owned		88,841		—		—		88,841
Total assets at fair value	$	239,103	$	—	$	145	$	238,958

132

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Total March 31, 2011		Level 1		Level 2		Level 3
	(In thousands)
Impaired loans, with an allowance recorded, net	$	154,264	$	—	$	—	$	154,264
Loans held for sale		278		—		278		—
Mortgage servicing rights		6,251		—		—		6,251
Other real estate owned		90,707		—		—		90,707
Total assets at fair value	$	251,500	$	—	$	278	$	251,222

The Corporation does not adjust impaired loans to fair value on a recurring basis. However, some loans are considered impaired and an allowance for loan losses is established. The specific reserves for collateral dependent impaired loans are based on the fair value of the underlying collateral less estimated costs to sell. The fair value of collateral is usually determined based on appraisals. In some cases, adjustments 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.

Loans held for sale primarily consist of the current origination of certain fixed- and adjustable-rate residential mortgage loans and are carried at lower of cost or fair value, determined on a loan level basis. These loans are valued individually based upon quoted market prices and the amount of any gross loss is recorded as a valuation allowance in loans held for sale. Fees received from the borrower and direct costs to originate the loan are deferred and recorded as an adjustment to the loan carrying value.

Mortgage servicing rights are recorded as an asset when loans are sold to third parties with servicing rights retained. The cost allocated to the mortgage servicing rights retained has been recognized as a separate asset and is initially recorded at fair value and subsequently amortized in proportion to, and over the period of, estimated net servicing revenues. The carrying value of these assets is reviewed for impairment on a monthly basis using a lower of carrying value or fair value methodology. The fair value of the servicing rights is determined by estimating the present value of future net cash flows using a discounted cash flow model, taking into consideration market loan prepayment speeds, discount rates, servicing costs and other economic factors. For purposes of measuring impairment, the rights are stratified based on predominant risk characteristics of the underlying loans which include product type (i.e., fixed or adjustable) and interest rate bands. If the aggregate carrying value of the capitalized mortgage servicing rights for a strata exceeds its fair value, the difference is recognized in earnings as an impairment loss.

Critical assumptions used in the discounted cash flow model include mortgage prepayment speeds, discount rates, costs to service, ancillary and late fee income. Variations in the assumptions could materially affect the estimated fair values. Changes to the assumptions are made when market data indicate that new trends have developed. Current market participant assumptions based on loan product types – fixed rate, adjustable rate and balloon loans—include discount rates in the range of 10.0 to 23.5 percent as well as total portfolio lifetime weighted average prepayment speeds of 14.4 to 15.9 percent annual CPR. 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 changes in home prices, 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 to more favorable interest rate terms. As prepayment speeds increase, anticipated cash flows will generally decline resulting in a potential reduction, or impairment, of the fair value of the capitalized MSRs. Alternatively, an increase in market interest rates may cause a decrease in prepayment speeds and therefore an increase in fair value of MSRs. Annually, external data is obtained to test the values and assumptions that are used for the initial valuations in the discounted cash flow model.

133

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other real estate owned (OREO), upon initial recognition, are measured and reported at fair value less estimated costs to sell through a charge-off to the allowance for loan losses based upon the fair value of the foreclosed asset. The initial fair value of OREO is estimated using Level 3 inputs based on fair value less estimated costs to sell which creates a new cost basis. OREO is re-measured at the lower of cost or fair value after initial recognition and reported using a valuation allowance on foreclosed assets. Fair value is generally based on third party appraisals and is therefore considered a Level 3 measurement.

ASC Topic 825 requires disclosure of fair value information about financial instruments, for which it is practicable to estimate that value, whether or not recognized in the consolidated balance sheets, including those financial assets and liabilities that are not measured and reported at fair value on a recurring or nonrecurring basis. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments with a fair value that is not practicable to estimate and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not necessarily represent the underlying value of the Corporation.

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

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

Loans receivable:    The fair value of residential mortgage loans held for investment, commercial real estate loans, commercial and industrial loans, and consumer and other loans held for investment are estimated using observable inputs including estimated cash flows, and discount rates based on interest rates currently being offered for loans with similar terms, to borrowers of similar credit quality. In accordance with ASC Topic 820, loans held for investment have been categorized as a Level 2 fair value measurement.

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

Deposits:    The fair value of checking, savings and money market accounts are estimated using a discounted cash flow analysis, with run-off rate based on published bank regulatory decay rate tables. The fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates being offered on certificates of deposit to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit. In accordance with ASC Topic 820, deposits have been categorized as a Level 2 fair value measurement.

Other borrowed funds:    The fair value of other borrowed funds are estimated using discounted cash flow analysis, based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements. In accordance with ASC Topic 820, other borrowed funds have been categorized as a Level 2 fair value measurement.

Off-balance-sheet instruments:    The fair value of off-balance-sheet instruments (held for investment lending commitments and unused lines of credit) are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the counterparties’ credit standing and discounted cash flow analyses. The fair value of these off-balance-sheet items approximates the recorded amounts of the related fees and is not material at March 31, 2012 and 2011.

134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	March 31,
	2012				2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Financial assets:
Cash and cash equivalents	$	242,980	$	242,980	$	107,015	$	107,015
Investment securities available for sale		242,229		242,299		523,289		523,289
Investment securities held to maturity		20		20		27		28
Loans held for sale		39,332		39,742		7,538		7,633
Loans held for investment		2,058,008		2,008,278		2,520,367		2,430,117
Mortgage servicing rights		22,156		22,346		24,961		26,554
Federal Home Loan Bank stock		35,792		35,792		54,829		54,829
Accrued interest receivable		12,075		12,075		16,353		16,353
Interest rate lock commitments		943		943		117		117
Financial liabilities:
Deposits		2,264,915		2,232,691		2,699,433		2,649,499
Other borrowed funds		476,103		502,846		659,005		681,140
Accrued interest payable — borrowings		36,568		36,568		20,166		20,166
Accrued interest payable — deposits		1,513		1,513		3,501		3,501
Interest rate lock commitments		72		72		41		41
Forward contracts to sell mortgage		459		459		148		148

Note 19 — Condensed Parent Only Financial Information

The following represents the parent company only financial information of the Corporation:

Condensed Balance Sheets

	March 31,
	2012			2011
	(In thousands)
ASSETS
Cash and cash equivalents	$	2,584		$	2,619
Investment in subsidiaries		127,690			127,104
Loans receivable from non-bank subsidiaries		4,225			4,225
Other		632			633
Total assets	$	135,131		$	134,581
LIABILITIES
Loans payable	$	116,300		$	116,300
Accrued interest and fees payable		41,042			23,544
Other liabilities		7,339			7,908
Total liabilities		164,681			147,752
STOCKHOLDERS’ DEFICIT
Total stockholders’ deficit		(29,550	)		(13,171	)
Total liabilities and stockholders’ deficit	$	135,131		$	134,581

135

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Statements of Operations

	Year Ended March 31,
	2012			2011			2010
	(In thousands)
Interest income	$	7		$	10		$	166
Interest expense		17,498			14,983			16,820
Net interest expense		(17,491	)		(14,973	)		(16,654	)
Equity in net loss from subsidiaries		(19,498	)		(26,707	)		(158,709	)
Non-interest income		413			—			102
Loss from operations		(36,576	)		(41,680	)		(175,261	)
Non-interest expense		1,287			935			2,191
Loss before income taxes		(37,863	)		(42,615	)		(177,452	)
Income tax benefit		(1,125	)		(1,437	)		(538	)
Net loss		(36,738	)		(41,178	)		(176,914	)
Preferred stock dividends in arrears		(6,278	)		(5,934	)		(5,648	)
Preferred stock discount accretion		(7,413	)		(7,412	)		(7,411	)
Net loss available to common equity	$	(50,429	)	$	(54,524	)	$	(189,973	)

Condensed Statements of Cash Flows

	Year Ended March 31,
	2012			2011			2010
	(In thousands)
Operating Activities
Net loss	$	(36,738	)	$	(41,178	)	$	(176,914	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Equity in net loss of subsidiaries		19,498			26,707			158,709
Other		17,205			17,589			(4,095	)
Net cash provided (used) by operating activities		(35	)		3,118			(22,300	)
Investing Activities
Proceeds from sales of investment securities available for sale		—			—			119
Net decrease in loans receivable from non-bank subsidiaries		—			375			15,842
Capital contribution to Bank subsidiary		—			(2,000	)		—
Capital contribution to non-Bank subsidiary		—			—			(5	)
Net cash provided (used) by investing activities		—			(1,625	)		15,956
Financing Activities
Issuance of treasury stock related to equity compensation plans		—			6			115
Purchase of remaining ESOP shares		—			(8	)		—
Net cash provided by financing activities		—			(2	)		115
Increase (decrease) in cash and cash equivalents		(35	)		1,491			(6,229	)
Cash and cash equivalents at beginning of year		2,619			1,128			7,357
Cash and cash equivalents at end of year	$	2,584		$	2,619		$	1,128

136

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 20 — Segment Information

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

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

Real Estate Investments:    The Corporation’s non-banking subsidiary, IDI, invested in limited partnerships in real estate developments. Such developments included recreational residential developments. In 2009, IDI sold its interest in several limited partnerships as well as substantially all of its remaining assets, which included some developed lots. The assets that remain at IDI include an equity interest in one commercial real estate property and one residential real estate development along with various notes receivable.

The Real Estate Investment segment borrows funds from the Corporation to meet its operating needs. Such intercompany borrowings are eliminated in consolidation. The interest income and interest expense associated with such borrowings are also eliminated in consolidation.

The following represents reconciliations of reportable segment revenues, profit or loss, and assets to the Corporation’s consolidated totals for the years ended March 31, 2012, 2011 and 2010, respectively.

	Year Ended March 31, 2012
	Real Estate Investments			Community Banking			Intersegment Eliminations			Consolidated Financial Statements
				(In thousands)
Interest income	$	54		$	127,197		$	—		$	127,251
Interest expense		—			55,329			—			55,329
Net interest income		54			71,868			—			71,922
Provision for loan losses		—			33,578			—			33,578
Net interest income after provision for loan losses		54			38,290			—			38,344
Other revenue from real estate operations		222			—			—			222
Other income		—			49,139			(5	)		49,134
Other expense from real estate partnership operations		(886	)		—			5			(881	)
Other expense		—			(123,547	)		—			(123,547	)
Income (loss) before income taxes		(610	)		(36,118	)		—			(36,728	)
Income tax expense (benefit)		(41	)		51			—			10
Net loss	$	(569	)	$	(36,169	)	$	—		$	(36,738	)
Total assets at end of period	$	550		$	2,788,902		$	—		$	2,789,452

137

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Year Ended March 31, 2011
	Real Estate Investments			Community Banking			Intersegment Eliminations			Consolidated Financial Statements
				(In thousands)
Interest income	$	83		$	166,380		$	—		$	166,463
Interest expense		—			81,383			—			81,383
Net interest income		83			84,997			—			85,080
Provision for loan losses		—			51,198			—			51,198
Net interest income after provision for loan losses		83			33,799			—			33,882
Other revenue from real estate operations		92			—			—			92
Other income		—			59,416			(5	)		59,411
Other expense from real estate partnership operations		(667	)		—			5			(662	)
Other expense		—			(133,737	)		—			(133,737	)
Income (loss) before income taxes		(492	)		(40,522	)		—			(41,014	)
Income tax expense (benefit)		641			(477	)		—			164
Net loss	$	(1,133	)	$	(40,045	)	$	—		$	(41,178	)
Total assets at end of period	$	518		$	3,394,307		$	—		$	3,394,825

	Year Ended March 31, 2010
	Real Estate Investments			Community Banking			Intersegment Eliminations			Consolidated Financial Statements
	(In thousands)
Interest income	$	95		$	217,144		$	(157	)	$	217,082
Interest expense		128			132,152			(157	)		132,123
Net interest income (loss)		(33	)		84,992			—			84,959
Provision for loan losses		—			161,926			—			161,926
Net interest loss after provision for loan losses		(33	)		(76,934	)		—			(76,967	)
Other revenue from real estate operations		1,684			—			—			1,684
Other income		—			55,725			(24	)		55,701
Other expense from real estate partnership operations		(4,983	)		—			24			(4,959	)
Other expense		—			(153,873	)		—			(153,873	)
Loss before income taxes		(3,332	)		(175,082	)		—			(178,414	)
Income tax (benefit)		(488	)		(1,012	)		—			(1,500	)
Net loss	$	(2,844	)	$	(174,070	)	$	—		$	(176,914	)
Total assets at end of period	$	5,945		$	4,410,320		$	—		$	4,416,265

138

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 21 — Earnings per Share

The computation of earnings per share for fiscal years 2012, 2011 and 2010 is as follows:

	Year Ended March 31,
	2012			2011			2010
	(In thousands, except share and per share data)
Numerator:
Numerator for basic and diluted earnings per share — loss available to common stockholders	$	(50,429	)	$	(54,524	)	$	(189,973	)
Denominator:
Denominator for basic earnings per share — weighted-average shares		21,248			21,252			21,189
Effect of dilutive securities:
Employee stock options		—			—			—
Denominator for diluted earnings per share — adjusted weighted-average shares and assumed conversions		21,248			21,252			21,189
Basic loss per common share	$	(2.37	)	$	(2.57	)	$	(8.97	)
Diluted loss per common share	$	(2.37	)	$	(2.57	)	$	(8.97	)

At March 31, 2012, approximately 189,000 stock options were excluded from the calculation of diluted earnings per share because they were anti-dilutive. The U.S. Treasury’s warrants to purchase 7.4 million shares of common stock at an exercise price of $2.23 were also not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of common stock and was, therefore, anti-dilutive. Because of their anti-dilutive effect, the shares that would be issued if the warrants were converted are not included in the computation of diluted earnings per share for the years ended March 31, 2012, 2011 and 2010.

Note 22 — Branch Sales

On June 25, 2010, the Corporation completed the sale of eleven branches located in Northwest Wisconsin to Royal Credit Union headquartered in Eau Claire, Wisconsin. Royal Credit Union assumed approximately $171.2 million in deposits and acquired $61.8 million in loans and $9.8 million in office properties and equipment. The net gain on the sale was $5.0 million. The net gain included a write off of the $3.9 million core deposit intangible that was required when designated core deposits were sold in this transaction.

On July 23, 2010, the Corporation completed the sale of four branches located in Green Bay, Wisconsin and surrounding communities to Nicolet National Bank headquartered in Green Bay, Wisconsin. Nicolet National Bank assumed $105.1 million in deposits and acquired $24.8 million in loans and $0.4 million in office properties and equipment. The net gain on the sale was $2.3 million.

These transactions were not considered to be discontinued operations.

139

McGladrey LLP

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Anchor BanCorp Wisconsin Inc.

We have audited the accompanying consolidated balance sheets of Anchor BanCorp Wisconsin Inc. and Subsidiaries (the Corporation) as of March 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the three years in the period ended March 31, 2012. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation as of March 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2012, in conformity with U.S generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Corporation will continue as a going concern. As discussed in Note 12 to the consolidated financial statements, at March 31, 2012, all of the subsidiary bank’s regulatory capital amounts and ratios are below the capital levels required by the cease and desist order. The subsidiary bank has also suffered recurring losses from operations. Failure to meet the capital requirements exposes the Corporation to regulatory sanctions that may include restrictions on operations and growth, mandatory asset dispositions, and seizure of the subsidiary bank. In addition, as discussed in Note 11, the Corporation’s outstanding balance under the Amended and Restated Credit Agreement is currently in default. These matters raise substantial doubt about the ability of the Corporation to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Corporation’s internal control over financial reporting as of March 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated June 5, 2012 expressed an unqualified opinion on the effectiveness of internal control over financial reporting.

/s/     McGladrey LLP

Madison, Wisconsin

June 5, 2012

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Anchor BanCorp Wisconsin Inc.

We have audited Anchor BanCorp Wisconsin Inc. and Subsidiaries’ (the Corporation’s) internal control over financial reporting as of March 31, 2012, based on criteria established inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanyingManagement’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A corporation’s internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the corporation; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the corporation are being made only in accordance with authorizations of management and directors of the corporation; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the corporation’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion the Corporation maintained in all material respects effective internal control over financial reporting as of March 31, 2012, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of for the year ended March 31, 2012 of Anchor BanCorp Wisconsin Inc. and our report dated June 5, 2012 expressed an unqualified opinion with an emphasis paragraph regarding the Corporation’s ability to continue as a going concern.

/s/     McGladrey LLP

Madison, Wisconsin

June 5, 2012

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Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

Disclosure Controls and Procedures.    The Corporation maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. The design of any system of disclosure controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any disclosure controls and procedures will succeed in achieving their stated goals under all potential future conditions.

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of our disclosure and control procedures as of March 31, 2012.

As of March 31, 2012, the CEO and CFO have concluded that the disclosure and control procedures were effective for providing reliability in financial reporting and the preparation of financial statements.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

• Pertain to the maintenance of reports that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Corporation;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Corporation are being made in accordance with authorizations of management and directors of the Corporation; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Corporation assets.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of the changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Corporation’s internal control over financial reporting as of March 31, 2012. In making its assessment, management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control — Integrated Framework. These criteria include the control environment, risk assessment, control activities, information and communication and monitoring of each of the above criteria. Based on management’s assessment, it determined that the Corporation internal control over financial reporting was effective as of March 31, 2012.

Internal Control over Financial Reporting

During the year ended March 31, 2012, the Corporation’s principal executive officer and principal financial officer concluded that the Corporation maintained effective entity level controls over financial reporting to ensure that the Corporation’s financial statements are prepared in accordance with generally accepted accounting principles.

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Changes in Internal Control over Financial Reporting

There has been no change in the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the year ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Item 9B.     Other Information

None.

PART III

Item 10.    Directors , Executive Officers and Corporate Governance

The information related to Directors and Executive Officers is incorporated herein by reference to “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Corporation’s Proxy Statement for the Annual Meeting of Stockholders to be held on July 31, 2012.

The Corporation has adopted a code of business conduct and ethics for the CEO and CFO which is available on the Corporation’s website atwww.anchorbank.com.

Item 11.    Executive Compensation

The information relating to executive compensation is incorporated herein by reference to “Compensation of Directors” and “Executive Compensation” in the Corporation’s Proxy Statement for the Annual Meeting of Stockholders to be held on July 31, 2012.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information relating to security ownership of certain beneficial owners and management is incorporated herein by reference to “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management” in the Corporation’s Proxy Statement for the Annual Meeting of Stockholders to be held on July 31, 2012.

Equity Compensation Plan Information

	Number of Securities to be Issued Upon Exercise of  Outstanding Options, Warrants and Rights			Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column)
Plan Category
Equity compensation plans approved by security holders		189,345	(1)	$	25.19		1,240,314	(2)
Equity compensation plans not approved by security holders		—			—		—
Total		189,345		$	25.19		1,240,314

(1) Excludes purchase rights accruing under our 1999 Employee Stock Purchase Plan (“ESPP”), which has a stockholder-approved reserve of 300,000 shares of Common Stock. Under the ESPP, each eligible employee may purchase shares of Common Stock at semi-annual intervals each year at a purchase price determined by the Compensation Committee, which shall not be less than 95% of the fair market value of a share of Common Stock on the last business day of such annual offering period. In no event may the amount of Common Stock purchased by a participant in the ESPP in a calendar year exceed $25,000, measured as of the time an option under the ESPP is granted.

(2) Includes 810,445 shares of stock options available for future grants and 429,869 shares of Common Stock which may be awarded under the Company’s Amended and Restated Management Recognition Plan, which provides for the grant of restricted Common Stock to employees of the Company.

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Item 13. Certain Relationships and Related Transactions, and Director Independence

The information relating to certain relationships and related transactions is incorporated herein by reference to “Election of Directors” in the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on July 31, 2012.

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated herein by reference to “Relationship with Independent Registered Public Accounting Firm” in the Corporation’s Proxy Statement for the Annual Meeting of Stockholders to be held on July 31, 2012.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) (1) Financial Statements

The following consolidated financial statements of the Corporation and its subsidiaries, together with the related reports of McGladrey LLP, dated June 5, 2012, are incorporated herein by reference to Item 8 of this Annual Report on Form 10-K:

Consolidated Balance Sheets at March 31, 2012 and 2011.

Consolidated Statements of Operations and Comprehensive Loss for each year in the three-year period ended March 31, 2012.

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for each year in the three-year period ended March 31, 2012.

Consolidated Statements of Cash Flows for each year in the three-year period ended March 31, 2012.

Notes to Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.

(a) (2)Financial Statement Schedules

All schedules are omitted because they are not required or are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

(a) (3) Exhibits

The following exhibits are either filed as part of this Annual Report on Form 10-K or are incorporated herein by reference:

Exhibit No. 3.		Certificate of Incorporation and Bylaws:
	3.1	Articles of Incorporation of Anchor BanCorp Wisconsin Inc., as amended, including Articles of Amendment with respect to series A Preferred Stock (incorporated by reference to Exhibit 3.1 of Registrant’s Form 10-K for the year ended March 31, 2001 filed on June 11, 2001, File No. 000-20006, Film No. 01657997) and Articles of Amendment with respect to Fixed Rate Cumulative Perpetual Preferred Stock, Series B dated January 30, 2009 (incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form 8-K filed February 3, 2009, File No. 000-20006, Film No. 09565443).
	3.2	Bylaws of Anchor BanCorp Wisconsin Inc. (incorporated by reference to Exhibit 3.2 of Registrant’s Form S-1 Registration Statement filed on March 19, 1992) and Amendment to the Bylaws of Anchor BanCorp Wisconsin, Inc. dated June 2, 2009 (incorporated by reference to Exhibit 3.2 of Registrant’s Annual Report on Form 10-K for the year ended March 31, 2009 filed on June 29, 2009, File No. 000-20006, Film No. 09915927).

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Exhibit No. 4.	Instruments Defining the Rights of Security Holders:
4.1	Form of Common Stock Certificate (incorporated by reference to Exhibit 4 of Registrant’s Form S-1 Registration Statement filed on March 19, 1992).
4.2	Warrant to Purchase Shares of Anchor BanCorp Wisconsin, Inc. Common Stock dated January 30, 2009 issued to the United States Department of the Treasury (incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed February 3, 2009, File No. 000-20006, Film No. 09565443).
4.3	Rights Agreement dated as of November 5, 2010 between Anchor BanCorp Wisconsin, Inc. and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.3 of Registrant’s Current Report on Form 8-K filed November 5, 2010, File No. 101169696).
Exhibit No. 10.	Material Contracts:
10.1	Anchor BanCorp Wisconsin Inc. Retirement Plan (incorporated by reference to Exhibit 10.1 of Registrant’s Form S-1 Registration Statement filed on March 19, 1992).
10.2	Anchor BanCorp Wisconsin Inc. Amended and Restated Management Recognition Plan (incorporated by reference to Annex B of Registrant’s proxy statement filed on June 11, 2001, File No. 000-20006, Film No. 01657999).
10.3	Employment Agreement between the Bank and Scott McBrair effective January 31, 2012 (filed herewith).
10.4	1995 Stock Option Plan for Non-Employee Directors (incorporated by reference to Registrant’s proxy statement filed on June 16, 1995, File No. 000-20006).
10.5	1995 Stock Incentive Plan (incorporated by reference to Registrant’s proxy statement filed on June 16, 1995, File No. 000-20006).
10.6	Anchor BanCorp Wisconsin Inc. Directors’ Deferred Compensation Plan (incorporated by reference to Exhibit 10.9 of Registrant’s Form S-1 Registration Statement filed on March 19, 1992).
10.7	Anchor BanCorp Wisconsin Inc. Annual Incentive Bonus Plan (incorporated by reference to Exhibit 10.10 of Registrant’s Form S-1 Registration Statement filed on March 19, 1992).
10.8	AnchorBank, fsb Excess Benefit Plan (incorporated by reference to Exhibit 10.12 of Registrant’s Annual Report on Form 10-K for the year ended March 31, 1994 filed on June 29, 1994, File No. 000-2006).
10.9	2001 Stock Option Plan for Non-Employee Directors (incorporated by reference to Annex C of Registrant’s proxy statement filed on June 11, 2001, File No. 000-20006, Film No. 01657999).
10.10	2004 Equity Incentive Plan (incorporated by reference to Appendix B of Registrant’s proxy statement filed June 10, 2004, File No. 000-20006, Film No. 04857422).
10.11	Employment Agreement between the Bank and Chris Bauer effective June 23, 2011 (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed June 30, 2011, File No. 001-34955, Film No. 11940130).
10.12	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 (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed August 11, 2008, File No. 000-20006, Film No. 081006528).
10.13	Pledge 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 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed August 11, 2008, File No. 000-20006, Film No. 081006528).

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10.14	Amendment No. 1 to Amended and Restated Credit Agreement, dated as of September 30, 2008, among Anchor Bancorp Wisconsin, Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed September 30, 2008, File No. 000-20006, Film No. 081098069).
10.15	Amendment No. 2 to Amended and Restated Credit Agreement, dated as of December 22, 2008, among Anchor Bancorp Wisconsin, Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed December 31, 2008, File No. 000-20006, Film No. 081279327).
10.16	Letter Agreement including the Securities Purchase Agreement—Standard Terms, between Anchor BanCorp Wisconsin, Inc. and the United States Department of the Treasury, dated January 30, 2009 (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed February 3, 2009, File No. 000-20006, Film No. 09565443).
10.17	Amendment No. 3 to Amended and Restated Credit Agreement, dated as of March 2, 2009, among Anchor Bancorp Wisconsin, Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed March 4, 2009, File No. 000-20006, Film No. 09654044).
10.18	Amendment No. 4 to Amended and Restated Credit Agreement, dated as of May 29, 2009, among Anchor Bancorp Wisconsin, Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed June 2, 2009, File No. 000-20006, Film No. 09867558).
10.19	Order to Cease and Desist between Anchor BanCorp Wisconsin, Inc. and the Office of Thrift Supervision dated June 26, 2009 (incorporated by reference to Exhibit 10.28 of Registrant’s Annual Report on Form 10-K for the year ended March 31, 2009 filed on June 29, 2009, File No. 000-20006, Film No. 09915927).
10.20	Stipulation and Consent to Issuance of Order to Cease and Desist between Anchor BanCorp Wisconsin, Inc. and the Office of Thrift Supervision dated June 26, 2009 (incorporated by reference to Exhibit 10.29 of Registrant’s Annual Report on Form 10-K for the year ended March 31, 2009 filed on June 29, 2009, File No. 000-20006, Film No. 09915927).
10.21	Order to Cease and Desist between AnchorBank, fsb and the Office of Thrift Supervision dated June 26, 2009 (incorporated by reference to Exhibit 10.30 of Registrant’s Annual Report on Form 10-K for the year ended March 31, 2009 filed on June 29, 2009, File No. 000-20006, Film No. 09915927).
10.22	Stipulation and Consent to Issuance of Order to Cease and Desist between AnchorBank, fsb and the Office of Thrift Supervision dated June 26, 2009 (incorporated by reference to Exhibit 10.31 of Registrant’s Annual Report on Form 10-K for the year ended March 31, 2009 filed on June 29, 2009, File No. 000-20006, Film No. 09915927).
10.23	Employment Agreement between the Bank and Martha M. Hayes effective August 1, 2011 (incorporated by reference to Exhibit 10.31 of Registrant’s Quarterly Report on Form 10-Q filed November 7, 2011, File No. 001-34955, Film No. 111185277).
10.24	Amendment No. 5 to Amended and Restated Credit Agreement, dated as of December 22, 2009, among Anchor Bancorp Wisconsin Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed December 23, 2009, File No. 000-20006, Film No. 091258727).

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10.25	Amendment No. 6 to Amended and Restated Credit Agreement, dated as of April 29, 2010, among Anchor Bancorp Wisconsin Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed May 6, 2010, File No. 000-20006, Film No. 10808918).
10.26	Amendment No. 7 to Amended and Restated Credit Agreement, dated as of May 25, 2011, among Anchor Bancorp Wisconsin Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed June 1, 2011, File No. 001-34955, Film No. 11883616).
10.27	Prompt Corrective Action Directive between AnchorBank, fsb and the Office of Thrift Supervision (incorporated by reference to Exhibit 99.1 of Registrant’s Current Report on Form 8-K filed September 8, 2010, File No. 000-20006, Film No. 101061856).
10.28	Branch Sale Agreement between AnchorBank, fsb and Nicolet National Bank dated May 5, 2010 (incorporated by reference to Exhibit 10.35 of Registrant’s Annual Report on Form 10-K filed June 29, 2010, File No. 000-20006, Film No. 10924914).
10.29	Branch Sale Agreement between AnchorBank, fsb and Royal Credit Union dated November 13, 2009 (incorporated by reference to Exhibit 10.36 of Registrant’s Annual Report on Form 10-K filed June 29, 2010, File No. 000-20006, Film No. 10924914).
10.30	Severance Agreement between the Bank and Donald Bertucci effective January 1, 2011 (incorporated by reference to Exhibit 10.30 of Registrant’s Quarterly Report on Form 10-Q filed November 7, 2011, File No. 001-34955, Film No. 111185277).
10.31	Amendment No. 8 to Amended and Restated Credit Agreement, dated as of November 29, 2011, among Anchor Bancorp Wisconsin Inc., the financial institutions from time to time party to the agreement and U.S. Bank National Association, as administrative agent for the lenders (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed November 30, 2011, File No. 001-34955, Film No. 111234622).

The Corporation’s management contracts or compensatory plans or arrangements consist of

Exhibits 10.1-10.31 above.

Exhibit No. 11. Computation of Earnings per Share:

Refer to Note 21 to the Consolidated Financial Statements in Item 8.

Exhibit No. 21. Subsidiaries of the Registrant:

Subsidiary information is incorporated by reference to “Part I, Item 1, Business-General” and“Part I, Item 1, Business-Subsidiaries.”

Exhibit No. 23.1 Consent of McGladrey LLP:

The consent of McGladrey LLP is included herein as an exhibit to this Report.

Exhibit No. 31.1

Certification of Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 is included herein as an exhibit to this Report.

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Exhibit No. 31.2

Certification of Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934 and Section 302 of the Sarbanes-Oxley Act of 2002 is included herein as an exhibit to this Report.

Exhibit No. 32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an exhibit to this report.

Exhibit No. 32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) is included herein as an exhibit to this report.

Exhibit No. 99.1

Section III Certification of Chief Executive Officer is included herein as an exhibit to this report.

Exhibit No. 99.2

Section III Certification of Chief Financial Officer is included herein as an exhibit to this report.

(b) Exhibits

Exhibits to the Form 10-K required by Item 601 of Regulation S-K are attached or incorporated herein by reference as stated in (a)(3) and the Index to Exhibits.

(c)Financial Statements excluded from Annual Report to Shareholders pursuant to Rule 14a-3(b)

Not applicable

Exhibit No. 101

The following financial statements from the Anchor Bancorp Wisconsin, Inc. Annual Report on Form 10-K for the year ended March 31, 2012, formatted in Extensive Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Loss, (iii) Consolidated Statements of Changes in Stockholders’ Equity (Deficit), (iv) Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements are included herein as an exhibit to this report.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ANCHOR BANCORP WISCONSIN INC.
By:	/s/     Chris Bauer
	Chris Bauer President and Chief Executive Officer

Date: June 5, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

By:	/s/     Chris Bauer	By:	/s/     Thomas G. Dolan
	Chris Bauer President and Chief Executive Officer (principal executive officer) Date: June 5, 2012		Thomas G. Dolan Executive Vice President, Treasurer and Chief Financial Officer (principal financial and accounting officer) Date: June 5, 2012

By:	/s/     Donald D. Kropidlowski	By:	/s/     Greg M. Larson
	Donald D. Kropidlowski Director Date: June 5, 2012		Greg M. Larson Director Date: June 5, 2012

By:	/s/     Richard A. Bergstrom	By:	/s/     Pat Richter
	Richard A. Bergstrom Director Date: June 5, 2012		Pat Richter Director Date: June 5, 2012

By:	/s/     James D. Smessaert	By:	/s/     Holly Cremer Berkenstadt
	James D. Smessaert Director Date: June 5, 2012		Holly Cremer Berkenstadt Director Date: June 5, 2012

By:	/s/     Donald D. Parker	By:	/s/     David L. Omachinski
	Donald D. Parker Director Date: June 5, 2012		David L. Omachinski Director Date: June 5, 2012
By:	/s/     Duane Morse	By:	/s/     Leonard Rush
	Duane Morse Director Date: June 5, 2012		Leonard Rush Director Date: June 5, 2012

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