Anchor Bancorp - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - Anchor Bancorp	ancb10-q2016331exhibit32.htm
EX-31.2 - EXHIBIT 31.2 - Anchor Bancorp	ancb10-q2016331exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Anchor Bancorp	ancb10-q2016331exhibit311.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended March 31, 2016



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

For the transition period from _____ to _____

Commission File Number: 001-34965

ANCHOR BANCORP

(Exact name of registrant as specified in its charter)



Washington	26-3356075
(State or other jurisdiction of incorporation	(I.R.S. Employer
or organization)	I.D. Number)

601 Woodland Square Loop SE, Lacey, Washington	98503
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:	(360) 491-2250

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See 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	[X]

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

Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of May 2, 2016, there were 2,454,486 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents

ANCHOR BANCORP

FORM 10-Q

TABLE OF CONTENTS



PART 1 - FINANCIAL INFORMATION
	Page
Item 1 - Financial Statements	1

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3 - Quantitative and Qualitative Disclosures About Market Risk	49

Item 4 - Controls and Procedures	51

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings	51

Item 1A - Risk Factors	51

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3 – Defaults Upon Senior Securities	52

Item 4 – Mine Safety Disclosures	52

Item 5 - Other Information	52

Item 6 - Exhibits	53

SIGNATURES	54

As used in this report, the terms, “we,” “our,” and “us,” and “Company” refer to Anchor Bancorp and its consolidated subsidiary, unless the context indicates otherwise. When we refer to “Anchor Bank” or the “Bank” in this report, we are referring to Anchor Bank, the wholly owned subsidiary of Anchor Bancorp.

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements



ANCHOR BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands, except share data) (Unaudited)	March 31, 2016			June 30, 2015
ASSETS
Cash and cash equivalents	$	17,641		$	14,450
Securities available-for-sale, at fair value, amortized cost of $24,862 and $29,696	24,899			29,565
Securities held-to-maturity, at amortized cost, fair value of $6,644 and $7,692	6,523			7,617
Loans held for sale	885			505
Loans receivable, net of allowance for loan losses of $3,974 and $3,721	326,562			283,444
Bank owned life insurance investment, net of surrender charges	19,389			19,001
Accrued interest receivable	1,080			1,069
Real estate owned, net ("REO")	468			797
Federal Home Loan Bank ("FHLB") stock, at cost	2,299			853
Property, premises, and equipment, at cost, less accumulated depreciation of $11,422 and $13,482	10,058			10,370
Deferred tax asset, net	8,889			8,867
Prepaid expenses and other assets	1,309			2,692
Total assets	$	420,002		$	379,230
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits:
Noninterest-bearing	$	51,970		$	44,719
Interest-bearing	251,186			255,093
Total deposits	303,156			299,812

FHLB advances	45,500			10,000
Advance payments by borrowers for taxes and insurance	1,029			1,002
Supplemental Executive Retirement Plan liability	1,180			1,814
Accounts payable and other liabilities	5,036			2,879
Total liabilities	355,901			315,507
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value per share authorized 5,000,000 shares; no shares issued or outstanding	—			—
Common stock, $0.01 par value per share, authorized 45,000,000 shares; 2,593,303 issued and 2,458,486 outstanding at March 31, 2016 and 2,550,000 issued and 2,480,865 outstanding at June 30, 2015, respectively	26			25
Additional paid-in capital	23,460			23,404
Retained earnings	41,899			41,741
Unearned Employee Stock Ownership Plan ("ESOP") shares	(684		)	(736		)
Accumulated other comprehensive loss, net of tax	(600		)	(711		)
Total stockholders’ equity	64,101			63,723
Total liabilities and stockholders’ equity	$	420,002		$	379,230

See accompanying notes to condensed consolidated financial statements (unaudited).

Table of Contents



ANCHOR BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except share data) (Unaudited)	Three Months Ended March 31,						Nine Months Ended March 31,
	Three Months Ended March 31,						Nine Months Ended March 31,
	2016			2015			2016			2015
Interest income:
Loans receivable, including fees	$	4,231		$	3,914		$	12,273		$	12,019
Securities	15			13			52			42
Mortgage-backed securities	174			202			520			628
Total interest income	4,420			4,129			12,845			12,689
Interest expense:
Deposits	627			666			1,969			2,053
FHLB advances	66			25			128			317
Total interest expense	693			691			2,097			2,370
Net interest income before provision for loan losses	3,727			3,438			10,748			10,319
Provision for loan losses	75			—			165			—
Net interest income after provision for loan losses	3,652			3,438			10,583			10,319
Noninterest income:
Deposit service fees	315			315			1,018			1,045
Other deposit fees	172			188			530			552
Gain on sale of investments	—			—			—			47
Other loan fees	189			138			517			426
(Loss) gain on sale of loans	(1		)	(10		)	127			(20		)
Bank owned life insurance investment	124			134			413			407
Other income	149			74			550			391
Total noninterest income	948			839			3,155			2,848
Noninterest expense:
Compensation and benefits	2,483			2,009			7,318			5,977
General and administrative expenses	735			662			2,463			2,031
Real estate owned impairment	9			20			51			150
Real estate owned holding costs	20			31			43			247
Federal Deposit Insurance Corporation ("FDIC") insurance premiums	66			65			198			311
Information technology	435			434			1,292			1,302
Occupancy and equipment	455			486			1,394			1,431
Deposit services	99			89			334			471
Marketing	234			146			490			456
Loss on sale of property, premises and equipment	2			63			6			62
Gain on sale of real estate owned	(61		)	(161		)	(57		)	(269		)
Total noninterest expense	4,477			3,844			13,532			12,169
Income before provision for income taxes	123			433			206			998
Provision (benefit) for income taxes	22			128			46			(8,205		)
Net income	$	101		$	305		$	160		$	9,203
Basic earnings per share	$	0.04		$	0.12		$	0.07		$	3.72
Diluted earnings per share	$	0.04		$	0.12		$	0.07		$	3.72
Weighted average number of basic shares outstanding	2,456,784			2,478,283			2,455,274			2,476,562
Weighted average number of diluted shares outstanding	2,468,471			2,478,283			2,457,169			2,476,562

See accompanying notes to condensed consolidated financial statements (unaudited).

Table of Contents



ANCHOR BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (Unaudited)	Three Months Ended March 31,				Nine Months Ended March 31,
	Three Months Ended March 31,				Nine Months Ended March 31,
	2016		2015		2016		2015
NET INCOME	$	101	$	305	$	160	$	9,203
OTHER COMPREHENSIVE INCOME, net of income tax
Unrealized holding gain on available-for-sale securities during the period, net of income tax expense of $92, $64, $57 and $64 respectively,	270		124		168		202
Adjustment for realized gains included in net income	—		—		—		(47		)
Other comprehensive income, net of income tax	270		124		168		155
COMPREHENSIVE INCOME	$	371	$	429	$	328	$	9,358

See accompanying notes to condensed consolidated financial statements (unaudited).

Table of Contents



ANCHOR BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands, except share data) (Unaudited)	Nine Months Ended March 31,
	Nine Months Ended March 31,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	160		$	9,203
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization	479			502
Net amortization of premiums on securities	316			467
Provision for loan losses	165			—
ESOP expense	121			135
Real estate owned impairment	51			150
Deferred federal income taxes	46			(8,205		)
Stock compensation expense	1,296			—
Increase in cash surrender value of life insurance investment	(388		)	(407		)
(Gain) loss on sale of loans	(127		)	20
Gain on sale of investments	—			(47		)
Originations of loans held for sale	(6,453		)	(20		)
Proceeds from sale of loans held for sale	6,142			—
Loss on sale of property, premises, and equipment	6			62
Gain on sale of real estate owned	(57		)	(269		)
Change in operating assets and liabilities:
Accrued interest receivable	(11		)	191
Prepaid expenses and other assets	1,383			290
Deferred income tax asset	(68		)	—
Supplemental Executive Retirement Plan	(634		)	(11		)
Accounts payable and other liabilities	2,157			(703		)
Net cash provided by operating activities	4,584			1,358
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales, maturities and calls of available-for-sale securities	250			2,335
Principal repayments on available-for-sale securities	4,312			5,027
Principal repayments on held-to-maturity securities	1,052			859
Loan originations, net of undisbursed loan proceeds and principal repayments	(43,733		)	2,087
Proceeds from sale of real estate owned	785			6,569
Capital improvements on real estate owned	—			(28		)
Purchase of fixed assets, net	(173		)	(463		)
Purchase of FHLB stock	(1,446		)	—
Net cash provided by investing activities	(38,953		)	16,386
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits	3,344			(12,809		)
Net change in advance payments by borrowers for taxes and insurance	27			692
Proceeds from FHLB advances	54,000			35,100
Repayment of FHLB advances	(18,500		)	(42,600		)
Repurchase and retirement of common stock	(1,095		)	—
Stock award net settlement	(216		)	—
Net cash used in financing activities	$	37,560		$	(19,617	)

Table of Contents



ANCHOR BANCORP AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Dollars in thousands, except share data) (Unaudited)	Nine Months Ended March 31,
	Nine Months Ended March 31,
	2016		2015
NET CHANGE IN CASH AND CASH EQUIVALENTS	$	3,191	$	(1,873	)
Beginning of period	14,450		14,758
End of period	$	17,641	$	12,885
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash investing activities:
Net loans transferred to real estate owned	$	450	$	2,031
Unrealized holding gain on available-for-sale securities	$	168	$	202
Cash paid during the period for interest	$	2,086	$	2,412

See accompanying notes to condensed consolidated financial statements (unaudited).

Table of Contents

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Nature of Business

Anchor Bancorp (the “Company”), a Washington corporation, was formed in connection with the conversion of Anchor Mutual Savings Bank (the “Bank”) from the mutual to the stock form of organization. On January 25, 2011, the Bank completed its conversion from mutual to stock form, changed its name to “Anchor Bank” and became the wholly-owned subsidiary of the Company.

Anchor Bank is a community-based savings bank primarily serving Western Washington through its 10 full-service bank offices (including one Wal-Mart in-store location) within Grays Harbor, Thurston, Lewis, Pierce, and Mason counties, Washington. Anchor Bank’s business consists of attracting deposits from the public and utilizing those deposits to originate loans.

Note 2 - Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. It is recommended that these unaudited interim consolidated financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended June 30, 2015 (“2015 Form 10-K”). The results of operations for the three and nine months ended March 31, 2016 are not necessarily indicative of results that may be expected for the entire fiscal year ending June 30, 2016. Certain prior year amounts have been reclassified to conform to current fiscal year presentation. The reclassifications had no impact on previously reported consolidated net income or equity. The Company has evaluated events and transactions subsequent to March 31, 2016 for potential recognition or disclosure.

Note 3 - Recently Issued Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. The amendments in this ASU provide guidance to customers in cloud computing arrangements about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments are effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. ASU 2015-05 did not have a material impact on the Company's consolidated financial statements.

In June 2015, the FASB issued ASU No. 2015-10, Technical Corrections and Improvements. On November 10, 2010 FASB added a standing project that will facilitate the FASB Accounting Standards Codification ("Codification") updates for technical corrections, clarifications, and improvements. These amendments are referred to as Technical Corrections and Improvements. Maintenance updates include non-substantive corrections to the Codification, such as editorial corrections, various link-related changes, and changes to source fragment information. This ASU contains amendments that will affect a wide variety of Topics in the Codification. The amendments in this ASU will apply to all reporting entities within the scope of the affected accounting guidance and generally fall into one of four categories: amendments related to differences between original guidance and the Codification, guidance clarification and reference corrections, simplification, and minor improvements. In summary, the amendments in this ASU represent changes to clarify the Codification, correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice. Transition guidance varies based on the amendments in this ASU. The amendments in this ASU that require transition guidance are effective for fiscal years and interim reporting periods after December 15, 2015. Early adoption is permitted including adoption in an interim period. All other amendments are effective upon the issuance of this ASU. ASU 2015-10 did not have a material impact on the Company's consolidated financial statements.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers, deferring the effective date of the new revenue standard by one year. The standard also allows entities to choose to adopt the standard as of the original effective date. The FASB decided, based on its outreach to various stakeholders and the forthcoming amendments to the new revenue standard, that a deferral is necessary to provide adequate time to effectively implement the new revenue standard. The adoption of ASU No. 2015-14 is not expected to have a material impact on the Company's consolidated financial statements.

In August 2015, the FASB issued ASU No. 2015-15, Interest-Imputation of Interest (Subtopic 835-30), Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. The ASU provides guidance not previously included in ASU 2015-03 regarding debt issuance related to line-of-credit arrangements. The amendment allows an entity to present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs over the term of the line-of-credit arrangement, regardless if there are any outstanding borrowings on the line-of-credit arrangement. The amendment is effective for fiscal years beginning after December 15, 2015. The adoption of ASU No. 2015-15 did not have a material impact on the Company's consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805). The ASU simplifies the accounting for measurement period adjustments. The amendments require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period when the adjustment amounts are determined. The acquirer is required to record in the same period's financial statements the effect on earnings from changes in depreciation, amortization, or other income effects resulting from the change to provisional amounts, calculated as if the accounting had been completed at the acquisition date. The acquirer must present separately on the income statement, or disclose in the notes, the amount recorded in current-period earnings that would have been recorded in previous reporting periods if the provisional amount had been recognized at the acquisition date. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The adoption of ASU No. 2015-16 did not have a material impact on the Company's consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The ASU is part of the FASB simplification initiative aimed at reducing complexity in accounting standards. the new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. Importantly, the guidance does not change the existing requirement that only permits offsetting within a jurisdiction - that is, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. This ASU is effective for annual periods beginning after December 31, 2016 and interim periods within those annual periods. The adoption of ASU No. 2015-17 is not expected to have a material impact on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets. The new standard significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured as fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of ASU No. 2016-01 is being reviewed for any material impact there may be on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The amendments in this ASU require lessees to recognize the following for all leases (with the exception of short-term) at the commencement date; a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The amendments in this ASU leave lessor accounting largely unchanged, although certain targeted improvements were made to align lessor accounting with the lessee accounting model. This ASU simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently evaluating the provisions of ASU No. 2016-02 to determine any material impact the new standard will have on the Company's consolidated financial statements.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

In March 2016, FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The amendments in this ASU require entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the provisions of ASU No. 2016-08 to determine any material impact there may be on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation - Stock Compensation. The ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The ASU is effective for annual and interim periods beginning after December 15, 2016. The adoption of ASU 2016-09 is being reviewed for any material impact there may be on the Company's consolidated financial statements.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4 - Earnings Per Share ("EPS")

Basic earnings per common share is the amount of earnings available to each share of common stock outstanding during the reporting period and is equal to net income divided by the weighted average number of shares outstanding during the period, without considering any dilutive items. Unvested share-based awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method described in ASC 260-10-45-60B. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the period adjusted to include the effect of potentially dilutive common shares that may be issued upon the vesting of restricted stock awards. Therefore, under the two-class method, the difference in EPS is not significant since the Company did not pay dividends for these participating securities. The following table details the calculation of basic and diluted earnings per share:



	For the Three Months Ended March 31,				For the Nine Months Ended March 31,
	2016		2015		2016		2015
	(Dollars in thousands, except share data)
Net income	$	101	$	305	$	160	$	9,203
Less: Earnings allocated to participating securities	—		—		—		—
Earnings allocated to common shareholders	$	101	$	305	$	160	$	9,203

Basic weighted-average common shares outstanding	2,456,784		2,478,283		2,455,274		2,476,562
Potentially dilutive incremental shares	11,687		—		1,895		—
Diluted weighted-average common shares outstanding	2,468,471		2,478,283		2,457,169		2,476,562

Basic earnings per share	$	0.04	$	0.12	$	0.07	$	3.72
Diluted earnings per share	$	0.04	$	0.12	$	0.07	$	3.72

Shares owned by the Company's ESOP that have not been allocated are not considered be outstanding for the purpose of computing basic and diluted EPS. As of March 31, 2016 and June 30, 2015 there were 63,974 and 69,135 shares, respectively, which had not been allocated under the Company's ESOP.

Potential dilutive shares are excluded from the computation of earnings per share if their effect is anti-dilutive. For the three and nine months ended March 31, 2016, 70,844 shares were not included in the computation of diluted earnings per share because the incremental shares under the treasury stock method of calculation resulted in them being anti-dilutive.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 5 - Investments

The amortized cost and estimated fair market values of investment securities as of March 31, 2016 and June 30, 2015, were as follows:



March 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Securities available-for-sale
Municipal bonds	$	177	$	—	$	—		$	177
Mortgage-backed securities:
FHLMC ⁽¹⁾	9,948		149		(60		)	10,037
FNMA ⁽²⁾	13,953		55		(98		)	13,910
GNMA ⁽³⁾	784		—		(9		)	775
	$	24,862	$	204	$	(167	)	$	24,899
Securities held-to-maturity
Mortgage-backed securities:
FHLMC	$	2,932	$	75	$	(30	)	$	2,977
FNMA	1,593		107		(8		)	1,692
GNMA	1,998		4		(27		)	1,975
	$	6,523	$	186	$	(65	)	$	6,644

⁽¹⁾Federal Home Loan Mortgage Corporation ("Freddie Mac")

⁽²⁾Federal National Mortgage Association ("Fannie Mae")

⁽³⁾Government National Mortgage Association ("Ginnie Mae")



June 30, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
Securities available-for-sale
Municipal bonds	$	434	$	1	$	—		$	435
Mortgage-backed securities:
FHLMC⁽¹⁾	11,780		134		(123		)	11,791
FNMA ⁽²⁾	16,534		70		(196		)	16,408
GNMA⁽³⁾	948		—		(17		)	931
	$	29,696	$	205	$	(336	)	$	29,565
Securities held-to-maturity
Municipal bonds	$	119	$	—	$	—		$	119
Mortgage-backed securities:
FHLMC	3,367		95		(56		)	3,406
FNMA	1,858		124		(22		)	1,960
GNMA	2,273		—		(66		)	2,207
	$	7,617	$	219	$	(144	)	$	7,692

⁽¹⁾Federal Home Loan Mortgage Corporation ("Freddie Mac")

⁽²⁾Federal National Mortgage Association ("Fannie Mae")

⁽³⁾Government National Mortgage Association ("Ginnie Mae")

There were 29 and 30 securities in an unrealized loss position at March 31, 2016 and June 30, 2015, respectively. The unrealized losses on investments in mortgage-backed securities relate principally to the general change in interest rates and illiquidity, and not credit quality, that has occurred since the securities' purchase dates, and such unrecognized losses or gains

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

will continue to vary with general interest rate level fluctuations in the future. We do not intend to sell the temporarily impaired securities and it is not likely that we will be required to sell the securities prior to their maturity. We do expect to recover the entire amortized cost basis of the securities. The fair value of temporarily impaired securities, the amount of unrealized losses, and the length of time these unrealized losses existed as of March 31, 2016 and June 30, 2015, were as follows:



	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2016	(In thousands)
Securities available-for-sale
Mortgage-backed securities:
FHLMC	$	770	$	(1	)	$	4,230	$	(59	)	$	5,000	$	(60	)
FNMA	1,436		(4		)	7,342		(94		)	8,778		(98		)
GNMA	—		—			775		(9		)	775		(9		)
	$	2,206	$	(5	)	$	12,347	$	(162	)	$	14,553	$	(167	)



	Less Than 12 Months				12 Months or Longer					Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
March 31, 2016	(In thousands)
Securities held-to-maturity
Mortgage-backed securities:
FHLMC	$	—	$	—	$	2,061	$	(30	)	$	2,061	$	(30	)
FNMA	—		—		706		(8		)	706		(8		)
GNMA	—		—		992		(27		)	992		(27		)
	$	—	$	—	$	3,759	$	(65	)	$	3,759	$	(65	)



	Less Than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2015	(In thousands)
Securities available-for-sale
Mortgage-backed securities:
FHLMC	$	747	$	(1	)	$	5,404	$	(122	)	$	6,151	$	(123	)
FNMA	3,105		(45		)	6,898		(151		)	10,003		(196		)
GNMA	—		—			931		(17		)	931		(17		)
	$	3,852	$	(46	)	$	13,233	$	(290	)	$	17,085	$	(336	)



	Less Than 12 Months				12 Months or Longer					Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
June 30, 2015	(In thousands)
Securities held-to-maturity
Mortgage-backed securities:
FHLMC	$	—	$	—	$	2,299	$	(56	)	$	2,299	$	(56	)
FNMA	—		—		772		(22		)	772		(22		)
GNMA	—		—		2,207		(66		)	2,207		(66		)
	$	—	$	—	$	5,278	$	(144	)	$	5,278	$	(144	)

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Contractual maturities of securities at March 31, 2016 are listed below. Expected maturities of mortgage-backed securities may differ from contractual maturities because borrowers may have the right to call or prepay the obligations; therefore, these securities are classified separately with no specific maturity date.



March 31, 2016	Amortized Cost		Fair Value
	(In thousands)
Securities available-for-sale
Municipal bonds:
Due after ten years	$	177	$	177
Mortgage-backed securities:
FHLMC	9,948		10,037
FNMA	13,953		13,910
GNMA	784		775
	$	24,862	$	24,899



Securities held-to-maturity
Municipal bonds:	$	—	$	—
Mortgage-backed securities:
FHLMC	2,932		2,977
FNMA	1,593		1,692
GNMA	1,998		1,975
	$	6,523	$	6,644

Sales of securities available-for-sale for the dates indicated are summarized as follows:



	Three Months Ended March 31,				Nine Months Ended March 31,
	2016		2015		2016		2015
	(In thousands)
Proceeds from sales	$	—	$	—	$	—	$	2,335
Proceeds from maturities and calls	—		—		250		—
Gross realized gains	—		—		—		65
Gross realized losses	—		—		—		(18		)

Pledged securities at the dates indicated are summarized as follows:



	March 31, 2016				June 30, 2015
Pledged to secure:	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Public deposits	$	11,817	$	11,935	$	12,184	$	12,189
FHLB borrowings	1,403		1,465		1,727		1,788
Federal Reserve borrowing line	979		983		1,001		990

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 6 - Loans Receivable, net

Loans receivable consisted of the following at the dates indicated:



	March 31, 2016		June 30, 2015
	(In thousands)
Real estate:
One-to-four family	$	62,716	$	57,944
Multi-family	57,169		43,249
Commercial	139,462		128,306
Construction	14,870		11,731
Land	6,086		4,069
Total real estate	280,303		245,299
Consumer:
Home equity	16,469		17,604
Credit cards	2,976		3,289
Automobile	538		686
Other consumer	2,109		2,347
Total consumer	22,092		23,926

Commercial business	29,460		18,987
Total loans	331,855		288,212
Less:
Deferred loan fees	1,319		1,047
Allowance for loan losses	3,974		3,721
Loans receivable, net	$	326,562	$	283,444

Allowance for Loan Losses. The allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. The assessment includes analysis of several different factors, including delinquency, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions such as unemployment rates, bankruptcies and vacancy rates of business and residential properties.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2016:



	One-to- four family			Multi- family		Commercial real estate		Construction			Land		Consumer (1)			Commercial business			Unallocated		Three months ended 3/31/16
	(In thousands)
Allowance for loan losses:
Beginning balance	$	1,068		$	511	$	1,252	$	106		$	51	$	429		$	462		$	—	$	3,879
Provision (benefit) for loan losses	9			29		321		(143		)	9		(30		)	(120		)	—		75
Charge-offs	(95		)	—		—		—			—		(75		)	(34		)	—		(204		)
Recoveries	11			—		—		181			—		30			2			—		224
Ending balance	$	993		$	540	$	1,573	$	144		$	60	$	354		$	310		$	—	$	3,974


⁽¹⁾	Consumer loans include home equity, credit cards, automobile, and other consumer loans. The only consumer loans with impairment are home equity loans.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2016:



	One-to- four family			Multi- family		Commercial real estate		Construction			Land			Consumer (1)			Commercial business			Unallocated			Nine months ended 3/31/16
	(In thousands)
Allowance for loan losses:
Beginning balance	$	1,113		$	95	$	262	$	247		$	75		$	445		$	1,405		$	79		$	3,721
Provision (benefit) for loan losses	(45		)	444		1,311		(374		)	(15		)	(62		)	(1,015		)	(79		)	165
Charge-offs	(258		)	—		—		—			—			(127		)	(84		)	—			(469		)
Recoveries	183			1		—		271			—			98			4			—			557
Ending balance	$	993		$	540	$	1,573	$	144		$	60		$	354		$	310		$	—		$	3,974

⁽¹⁾Consumer loans include home equity, credit cards, automobile, and other consumer loans. The only consumer loans with impairment are home equity loans.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended March 31, 2015:



	One-to- four family			Multi- family			Commercial real estate			Construction			Land			Consumer (1)			Commercial business			Unallocated			Three months ended 3/31/15
	(In thousands)
Allowance for loan losses:
Beginning balance	$	1,288		$	64		$	344		$	421		$	94		$	533		$	1,191		$	65		$	4,000
Provision (benefit) for loan losses	108			(3		)	(21		)	(121		)	(28		)	83			(12		)	(6		)	—
Charge-offs	(175		)	—			—			—			—			(157		)	—			—			(332		)
Recoveries	38			—			—			93			—			18			1			—			150
Ending balance	$	1,259		$	61		$	323		$	393		$	66		$	477		$	1,180		$	59		$	3,818

⁽¹⁾Consumer loans include home equity, credit cards, automobile, and other consumer loans. The only consumer loans with impairment are home equity loans.

The following table presents the activity in the allowance for loan losses by portfolio segment for the nine months ended March 31, 2015:



	One-to- four family			Multi- family			Commercial real estate			Construction			Land			Consumer (1)			Commercial business			Unallocated			Nine months ended 3/31/15
	(In thousands)
Allowance for loan losses:
Beginning balance	$	1,550		$	229		$	682		$	190		$	74		$	587		$	1,231		$	81		$	4,624
Provision (benefit) for loan losses	35			(8		)	(19		)	(9		)	(8		)	90			(59		)	(22		)	—
Charge-offs	(390		)	(160		)	(340		)	—			—			(299		)	(86		)	—			(1,275		)
Recoveries	64			—			—			212			—			99			94			—			469
Ending balance	$	1,259		$	61		$	323		$	393		$	66		$	477		$	1,180		$	59		$	3,818

⁽¹⁾Consumer loans include home equity, credit cards, automobile, and other consumer loans. The only consumer loans with impairment are home equity loans.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A loan is considered impaired when the Company has determined that it may be unable to collect payments of principal or interest when due under the terms of the loan. In the process of identifying loans as impaired, management takes into consideration factors which include payment history and status, collateral value, financial condition of the borrower, and the probability of collecting scheduled payments in the future. Minor payment delays and insignificant payment shortfalls typically do not result in a loan being classified as impaired. The significance of payment delays and shortfalls is considered by management on a case by case basis, after taking into consideration the totality of circumstances surrounding the loans and the borrowers, including payment history and amounts of any payment shortfall, length and reason for delay, and likelihood of return to stable performance. Impairment is measured on a loan by loan basis for all loans in the portfolio except for the smaller groups of homogeneous consumer loans in the portfolio.

The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2016:



	Recorded Investments		Unpaid Principal Balance		Related Allowance
	(In thousands)
With no allowance recorded
One-to-four family	$	1,894	$	2,243	$	—
Land	177		190		—
Home equity	61		63		—
Commercial business	64		126		—
With an allowance recorded
One-to-four family	$	7,548	$	7,617	$	395
Commercial real estate	543		547		225
Land	319		319		1
Home equity	377		377		115
Other consumer	29		33		7
Commercial business	126		139		25
Total
One-to-four family	$	9,442	$	9,860	$	395
Commercial real estate	543		547		225
Land	496		509		1
Home equity	438		440		115
Other consumer	29		33		7
Commercial business	190		265		25
Total	$	11,138	$	11,654	$	768

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2015:



	Recorded Investments		Unpaid Principal Balance		Related Allowance
	(In thousands)
With no allowance recorded
One-to-four family	$	1,557	$	1,860	$	—
Land	231		245		—
Home equity	64		65		—
Other consumer	31		32		—
Commercial business	64		126		—
With an allowance recorded
One-to-four family	$	7,716	$	7,743	$	500
Land	408		408		3
Home equity	212		212		26
Commercial business	868		868		211
Total
One-to-four family	$	9,273	$	9,603	$	500
Land	639		653		3
Home equity	276		277		26
Other consumer	31		32		—
Commercial business	932		994		211
Total	$	11,151	$	11,559	$	740

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three and nine months ended March 31, 2016:



	Three Months Ended March 31, 2016				Nine Months Ended March 31, 2016
	Three Months Ended March 31, 2016				Nine Months Ended March 31, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
With no allowance recorded
One-to-four family	$	2,014	$	13	$	1,900	$	39
Land	184		3		211		8
Home equity	71		1		64		2
Other consumer	—		—		16		—
Commercial business	103		2		95		7
With an allowance recorded
One-to-four family	$	7,689	$	77	$	7,667	$	230
Commercial real estate	274		5		274		15
Land	320		7		364		17
Home equity	377		5		295		14
Other consumer	31		—		17		—
Commercial business	418		—		504		1
Total
One-to-four family	$	9,703	$	90	$	9,567	$	269
Commercial real estate	274		5		274		15
Land	504		10		575		25
Home equity	448		5		359		16
Other consumer	31		—		33		—
Commercial business	521		3		599		8
Total	$	11,481	$	113	$	11,407	$	333

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the average recorded investment in loans individually evaluated for impairment and the interest income recognized for the three and nine months ended March 31, 2015:



	Three Months Ended March 31, 2015				Nine Months Ended March 31, 2015
	Three Months Ended March 31, 2015				Nine Months Ended March 31, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
With no allowance recorded
One-to-four family	$	2,666	$	22	$	2,482	$	66
Multi-family	371		2		368		5
Commercial real estate	—		—		110		—
Land	240		3		277		10
Home equity	66		1		106		3
Commercial business	217		3		156		8
With an allowance recorded
One-to-four family	$	8,424	$	88	$	8,511	$	264
Multi-family	—		—		79		—
Commercial real estate	—		—		925		—
Land	448		7		460		19
Home equity	254		3		219		8
Commercial business	157		2		275		6
Total
One-to-four family	$	11,090	$	110	$	10,993	$	330
Multi-family	371		2		447		5
Commercial real estate	—		—		1,035		—
Land	687		10		737		29
Home equity	321		4		325		11
Commercial business	374		5		431		14
Total	$	12,843	$	131	$	13,968	$	389

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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, 2016:



	One-to-four family		Multi- family		Commercial real estate		Construction		Land		Consumer(1)		Commercial business		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Ending balance	$	993	$	540	$	1,573	$	144	$	60	$	354	$	310	$	—	$	3,974
Ending balance: individually evaluated for impairment	395		—		225		—		1		122		25		—		768
Ending balance: collectively evaluated for impairment	$	598	$	540	$	1,348	$	144	$	59	$	232	$	285	$	—	$	3,206

Loans receivable:
Ending balance	$	62,716	$	57,169	$	139,462	$	14,870	$	6,086	$	22,092	$	29,460	$	—	$	331,855
Ending balance: individually evaluated for impairment	9,442		—		543		—		496		467		190		—		11,138
Ending balance: collectively evaluated for impairment	$	53,274	$	57,169	$	138,919	$	14,870	$	5,590	$	21,625	$	29,270	$	—	$	320,717


⁽¹⁾	Consumer loans include home equity, credit cards, auto and other consumer loans.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 June 30, 2015:



	One-to-four family		Multi- family		Commercial real estate		Construction		Land		Consumer(1)		Commercial business		Unallocated		Total
	(In thousands)
Allowance for loan losses:
Ending balance	$	1,113	$	95	$	262	$	247	$	75	$	445	$	1,405	$	79	$	3,721
Ending balance: individually evaluated for impairment	500		—		—		—		3		26		211		—		740
Ending balance: collectively evaluated for impairment	$	613	$	95	$	262	$	247	$	72	$	419	$	1,194	$	79	$	2,981

Loans receivable:
Ending balance	$	57,944	$	43,249	$	128,306	$	11,731	$	4,069	$	23,926	$	18,987	$	—	$	288,212
Ending balance: individually evaluated for impairment	9,273		—		—		—		639		307		932		—		11,151
Ending balance: collectively evaluated for impairment	$	48,671	$	43,249	$	128,306	$	11,731	$	3,430	$	23,619	$	18,055	$	—	$	277,061


⁽¹⁾	Consumer loans include home equity, credit cards, auto, and other consumer loans.

Nonaccrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual when, in management's opinion, the borrower may be unable to meet payment of obligations as they become due, as well as when required by regulatory provisions.

The following table presents the recorded investment in nonaccrual and loans past due 90 days still accruing interest by type of loans as of the dates indicated:



	March 31, 2016		June 30, 2015
	(In thousands)
One-to-four family	$	1,903	$	1,263
Commercial	543		—
Home equity	16		—
Credit cards	15		6
Other consumer	29		31
Commercial business	99		711
Total	$	2,605	$	2,011

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents past due loans, net of partial loan charge-offs, by class, as of March 31, 2016:



	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due ⁽¹⁾		Total Past Due		Current		Total Loans
	(In thousands)
One-to-four family	$	1,161	$	199	$	1,903	$	3,263	$	59,453	$	62,716
Multi-family	—		—		—		—		57,169		57,169
Commercial real estate	—		—		543		543		138,919		139,462
Construction	—		—		—		—		14,870		14,870
Land	37		—		—		37		6,049		6,086
Home equity	8		73		16		97		16,372		16,469
Credit cards	34		28		15		77		2,899		2,976
Automobile	—		—		—		—		538		538
Other consumer	23		1		29		53		2,056		2,109
Commercial business	1		—		99		100		29,360		29,460
Total	$	1,264	$	301	$	2,605	$	4,170	$	327,685	$	331,855


	⁽¹⁾ Includes loans on nonaccrual status.

The following table presents past due loans, net of partial loan charge-offs, by class as of June 30, 2015:



	30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due ⁽¹⁾		Total Past Due		Current		Total Loans
	(In thousands)
One-to-four family	$	616	$	552	$	1,263	$	2,431	$	55,513	$	57,944
Multi-family	—		—		—		—		43,249		43,249
Commercial real estate	—		—		—		—		128,306		128,306
Construction	—		—		—		—		11,731		11,731
Land	—		—		—		—		4,069		4,069
Home equity	15		16		—		31		17,573		17,604
Credit cards	8		26		6		40		3,249		3,289
Automobile	9		—		—		9		677		686
Other consumer	16		—		31		47		2,300		2,347
Commercial business	64		273		711		1,048		17,939		18,987
Total	$	728	$	867	$	2,011	$	3,606	$	284,606	$	288,212

⁽¹⁾ Includes loans on nonaccrual status.

Credit Quality Indicators. We utilize a ten-point risk rating system and assign a risk rating for all credit exposures. The risk rating system is designed to define the basic characteristics and identify risk elements of each credit extension.

Credits risk rated 1 through 7 are considered to be “pass” credits. Pass credits can be assets where there is virtually no credit risk, such as cash secured loans with funds on deposit with the Bank. Pass credits also include credits that are on our watch and special mention lists, where the borrower exhibits potential weaknesses, which may, if not checked or corrected, negatively affect the borrower's financial capacity and threaten their ability to fulfill debt obligations in the future. A seasoned loan with a Debt Service Coverage Ratio ("DSCR") of greater than 1.00 is the minimum acceptable level for a " Pass Credit". Particular attention is paid to the coverage trend analysis as any loan with a declining DSCR trend may warrant a higher risk grade even if the current coverage is at or above the 1.00 threshold.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Credits classified as Watch are risk rated 6 and possess weaknesses that deserve management's close attention. These assets do not expose the Bank to sufficient risk to warrant adverse classification in the substandard, doubtful or loss categories. We use this rating when a material documentation deficiency exists but correction is anticipated within an acceptable time frame.

A loan classified as Watch may have the following characteristics:


•	Acceptable asset quality, but requiring increased monitoring. Strained liquidity and less than anticipated performance. The loan may be fully leveraged.


•	Apparent management weakness, perhaps demonstrated by an irregular flow of adequate and/or timely performance information required to support the credit.


•	The borrower has a plausible plan to correct problem(s) in the near future that is devoid of material uncertainties.


•	Lacks reserve capacity, so the risk rating will improve or decline in relatively short time (results of corrective actions should be apparent within six months or less).

Credits classified as Special Mention are risk rated 7. These credits have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset. Special Mention assets are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

A loan classified as Special Mention may have the following characteristics:


•	Performance is poor or significantly less than expected. A debt service deficiency either exists or cannot be ruled out.

•

Generally an undesirable business credit. Assets in this category are protected, but are potentially weak. These assets constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of Substandard. Special Mention assets have potential weaknesses which may, if not checked or corrected, weaken the asset or inadequately protect the Bank's credit position at some future date.


•	Assets which might be detailed in this category include credits that the lending officer may be unable to supervise properly because of lack of expertise, an inadequate loan agreement, the condition of and control over collateral, failure to obtain proper documentation, or any other deviations from prudent lending practices.


•	An adverse trend in the borrower's operations or an imbalanced position in the balance sheet which does not jeopardize liquidation may best be handled by this classification.


•	A Special Mention classification should not be used as a compromise between a pass and substandard rating. Assets in which actual, not potential, weaknesses are evident and significant, and should be considered for more serious criticism.

A loan classified as Substandard is risk rated 8. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. An asset is considered Substandard if it is inadequately protected by the current net worth and payment capacity of the borrower or of any collateral pledged.

A loan classified as Substandard may have the following characteristics:


•	Unacceptable business credit. The asset is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well defined weakness or weaknesses that jeopardize the liquidation of the debt.


•	Though no loss is envisioned, the outlook is sufficiently uncertain to preclude ruling out the possibility. Some liquidation of assets will likely be necessary as a corrective measure.


•	Assets in this category may demonstrate performance problems such as debt servicing deficiencies with no immediate relief, including having a DSCR of less than 1.00. Borrowers have an inability to adjust to prolonged and unfavorable industry or economic trends. Management's character and/or effectiveness have become suspect.

A loan classified as Doubtful is risk rated 9 and has all the inherent weaknesses as those classified 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 is improbable.

A loan classified as Doubtful is risk rated 9 and has the following characteristics:


•	The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


•	Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.

A loan risk rated 10 is a loan for which a total loss is expected.

A loan classified as a Loss has the following characteristics:


•	An uncollectible asset or one of such little value that it does not warrant classification as an active, earning asset. Such an asset may, however, have recovery or salvageable value, but not to the point of deferring full write off, even though some recovery may occur in the future.


•	The Bank will charge off such assets as a loss during the accounting period in which they were identified.


•	Loan to be eliminated from the active loan reporting system via charge off.

The following table presents the internally assigned grade as of March 31, 2016, by class of loans:



	One-to- four family		Multi- family		Commercial real estate		Construction		Land		Home equity		Credit cards		Automobile		Other consumer		Commercial business		Total
	(In thousands)
Grade:
Pass	$	53,979	$	56,424	$	137,367	$	14,870	$	5,590	$	15,151	$	2,899	$	481	$	1,984	$	27,729	$	316,474
Watch	4,967		745		900		—		319		855		62		57		95		1,028		9,028
Special Mention	1,503		—		652		—		177		287		—		—		1		540		3,160
Substandard	2,267		—		543		—		—		176		15		—		29		163		3,193
Doubtful	—		—		—		—		—		—		—		—		—		—		—
Total	$	62,716	$	57,169	$	139,462	$	14,870	$	6,086	$	16,469	$	2,976	$	538	$	2,109	$	29,460	$	331,855

The following table presents the internally assigned grade as of June 30, 2015, by class of loans:



	One-to- four family		Multi-family		Commercial real estate		Construction		Land		Home equity		Credit cards		Automobile		Other consumer		Commercial business		Total
	(In thousands)
Grade:
Pass	$	49,119	$	42,884	$	125,586	$	11,731	$	3,430	$	16,585	$	3,249	$	615	$	2,214	$	16,981	$	272,394
Watch	2,151		—		2,044		—		—		697		34		71		102		915		6,014
Special Mention	4,755		—		676		—		231		301		—		—		—		159		6,122
Substandard	1,919		365		—		—		408		21		6		—		31		932		3,682
Doubtful	—		—		—		—		—		—		—		—		—		—		—
Total	$	57,944	$	43,249	$	128,306	$	11,731	$	4,069	$	17,604	$	3,289	$	686	$	2,347	$	18,987	$	288,212

Troubled Debt Restructures. A troubled debt restructure ("TDR") is a loan where the Company, for economic or legal reasons related to the borrower's financial condition, has granted a concession to the borrower that it would otherwise not consider so that the borrower can continue to make payments while minimizing the Company's potential loss. The modifications have included items such as lowering the interest rate on the loan for a period of time and extending the maturity date of the loan. These modifications are made only when there is a reasonable and attainable workout plan that has been agreed to by the borrower and is in the Bank's best interest. At March 31, 2016, there were no commitments to lend additional funds to borrowers whose loans have been modified in a TDR.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents TDRs by accrual versus nonaccrual status and by loan class as of March 31, 2016:



	March 31, 2016
	Accrual Status		Nonaccrual Status		Total Modifications
	(In thousands)
One-to-four family	$	7,540	$	640	$	8,180
Land	495		—		495
Home equity	264		—		264
Commercial business	92		—		92
Total	$	8,391	$	640	$	9,031

The following table presents TDRs by accrual versus nonaccrual status and by loan class as of June 30, 2015:



	June 30, 2015
	Accrual Status		Nonaccrual Status		Total Modifications
	(In thousands)
One-to-four family	$	8,010	$	681	$	8,691
Land	639		—		639
Home equity	276		—		276
Commercial business	221		—		221
Total	$	9,146	$	681	$	9,827

The following tables present TDRs and their recorded investment prior to the modification and after the modification for TDR transactions that originated during the three and nine months ended March 31, 2016 and 2015:



	Three Months Ended March 31, 2016					Nine Months Ended March 31, 2016
	Number of Contracts	Pre-TDR Recorded Investment		Post-TDR Recorded Investment		Number of Contracts	Pre-TDR Recorded Investment		Post-TDR Recorded Investment
	(Dollars in thousands)
One-to-four family	—	$	—	$	—	1	$	273	$	243
Total	—	$	—	$	—	1	$	273	$	243



	Three Months Ended March 31, 2015					Nine Months Ended March 31, 2015
	Number of Contracts	Pre-TDR Recorded Investment		Post-TDR Recorded Investment		Number of Contracts	Pre-TDR Recorded Investment		Post-TDR Recorded Investment
	(Dollars in thousands)
One-to-four family	—	$	—	$	—	1	$	197	$	195
Total	—	$	—	$	—	1	$	197	$	195

For both the three and nine months ended March 31, 2016 and 2015, there were no TDRs for which there was a payment default within 12 months of their restructure.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 7 - Real Estate Owned, net

The following table is a summary of REO activity for the three and nine months ended March 31, 2016 and 2015:



	Three Months Ended March 31,						Nine Months Ended March 31,
	Three Months Ended March 31,						Nine Months Ended March 31,
	2016			2015			2016			2015
	(In thousands)
Balance at the beginning of the period	$	662		$	600		$	797		$	5,067
Net loans transferred to real estate owned	58			207			450			2,031
Capitalized improvements	—			—			—			28
Sales	(243		)	(111		)	(728		)	(6,300		)
Impairments	(9		)	(20		)	(51		)	(150		)
Balance at the end of the period	$	468		$	676		$	468		$	676

Note 8 - Employee Benefit Plans

On January 25, 2011, the Company established an ESOP for the benefit of substantially all employees. The ESOP borrowed $1.0 million from the Company and used those funds to acquire 102,000 shares of the Company's common stock at the time of the initial public offering at a price of $10.00 per share.

Shares purchased by the ESOP with the loan proceeds are held in a suspense account and allocated to ESOP participants on a pro rata basis as principal and interest payments are made by the ESOP to the Company. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Company's discretionary contributions to the ESOP and earnings on the ESOP assets. Payments of principal and interest are due annually on June 30, the Company's fiscal year end.

As shares are committed to be released from collateral, the Company reports compensation expense equal to the daily average market prices of the shares and the shares become outstanding for EPS computations. The compensation expense is accrued throughout the year.

Compensation expense related to the ESOP for the three months ended March 31, 2016 and 2015 was $41,000 and $37,000, respectively. For the nine months ended March 31, 2016 and 2015 compensation expense related to the ESOP was $121,000 and $135,000, respectively.

Shares held by the ESOP as of the dates indicated are as follows:



	March 31, 2016		June 30, 2015
	(Dollars in thousands)
Allocated shares	38,026		32,865
Unallocated shares	63,974		69,135
Total ESOP shares	102,000		102,000
Fair value of unallocated shares	$	1,553	$	1,555

Note 9 - Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be fair valued on a recurring basis if fair value is measured regularly. The following definitions describe the levels of inputs that may be used to measure fair value:

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Level 2: Significant observable inputs other than quoted prices included within Level 1, such as quoted prices in markets that are not active, and inputs other than quoted prices that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company's own assumptions about the assumptions market participants would use in pricing an asset or liability based on the best information available in the circumstances.

There were no transfers between Level 1, Level 2, or Level 3 during the nine months ended March 31, 2016. The following tables show the Company's assets and liabilities at the dates indicated measured at fair value on a recurring basis:



	March 31, 2016
	Level 1		Level 2		Level 3		Total
	(In thousands)
Municipal bonds	$	—	$	177	$	—	$	177
Mortgage-backed securities:
FHLMC	—		10,037		—		10,037
FNMA	—		13,910		—		13,910
GNMA	—		775		—		775



	June 30, 2015
	Level 1		Level 2		Level 3		Total
	(In thousands)
Municipal bonds	$	—	$	435	$	—	$	435
Mortgage-backed securities:
FHLMC	—		11,791		—		11,791
FNMA	—		16,408		—		16,408
GNMA	—		931		—		931

Assets and liabilities measured at fair value on a nonrecurring basis - Assets and liabilities are considered to be reflected at fair value on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. Generally, a nonrecurring valuation is the result of the application of other accounting pronouncements that require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the balances of assets measured at fair value on a nonrecurring basis at March 31, 2016:



	March 31, 2016
	Level 1		Level 2		Level 3		Total
	(In thousands)
Impaired loans:
Mortgage loans
One-to-four family	$	—	$	—	$	8,195	$	8,195
Commercial	—		—		543		543
Construction	—		—		29		29
Land	—		—		319		319
Home equity	—		—		377		377
Commercial business	—		—		126		126
Total impaired loans	—		—		9,589		9,589

Real estate owned:
One-to-four family	$	—	$	—	$	144	$	144
Land	—		—		19		19
Total real estate owned	—		—		163		163

Total	$	—	$	—	$	9,752	$	9,752

The following table presents the balances of assets measured at fair value on a nonrecurring basis at June 30, 2015:



	June 30, 2015
	Level 1		Level 2		Level 3		Total
	(In thousands)
Impaired loans:
Mortgage loans
One-to-four family	$	—	$	—	$	4,172	$	4,172
Commercial	—		—		408		408
Land	—		—		212		212
Commercial business	—		—		868		868
Total impaired loans	—		—		5,660		5,660

Real estate owned:
One-to-four family	$	—	$	—	$	188	$	188
Land	—		—		418		418
Total real estate owned	—		—		606		606

Total	$	—	$	—	$	6,266	$	6,266

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The fair values of impaired loans and real estate owned properties are generally based on third party appraisal of the properties, resulting in Level 3 classification.

The following tables present quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis at March 31, 2016 and June 30, 2015:



	March 31, 2016
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Average Discount)
	(Dollars in thousands)
Impaired loans	$	9,589	Fair value of underlying collateral	Discount applied to the obtained appraisal	0% - 100% (4%)
Real estate owned	$	163	Fair value of underlying collateral	Discount applied to the obtained appraisal	0% - 100% (9%)



	June 30, 2015
	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Average Discount)
	(Dollars in thousands)
Impaired loans	$	5,660	Fair value of underlying collateral	Discount applied to the obtained appraisal	0% - 100% (4%)
Real estate owned	$	606	Fair value of underlying collateral	Discount applied to the obtained appraisal	0% - 100% (1%)

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of the Company's financial instruments as of March 31, 2016 and June 30, 2015:



	March 31, 2016
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Financial Instruments-Assets
Cash and cash equivalents	$	17,641	$	17,641	$	17,641	$	—	$	—
Securities available-for-sale	24,899		24,899		—		24,899		—
Securities held-to-maturity	6,523		6,644		—		6,644		—
FHLB stock	2,299		2,299		—		2,299		—
Loans held for sale	885		885		—		—		—
Loans receivable	330,536		327,922		—		—		327,922
Bank owned life insurance investment, net of surrender charges	19,389		19,389		—		19,389		—
Accrued interest receivable	1,080		1,080		—		1,080		—

Financial Instruments-Liabilities
Demand deposits, savings and money market	$	183,334	$	183,334	$	183,334	$	—	$	—
Certificates of deposit	119,822		119,464		—		119,464		—
FHLB advances	45,500		45,493		—		45,493		—
Advance payments by borrowers for taxes and insurance	1,029		1,029		1,029		—		—

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



	June 30, 2015
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Financial Instruments-Assets
Cash and cash equivalents	$	14,450	$	14,450	$	14,450	$	—	$	—
Securities available-for-sale	29,565		29,565		—		29,565		—
Securities held-to-maturity	7,617		7,692		—		7,692		—
FHLB stock	853		853		—		853		—
Loans held for sale	505		505		—		—		—
Loans receivable	287,165		288,424		—		—		288,424
Bank owned life insurance investment, net of surrender charges	19,001		19,001		—		19,001		—
Accrued interest receivable	1,069		1,069		—		1,069		—

Financial Instruments-Liabilities
Demand deposits, savings and money market	$	173,482	$	173,482	$	173,482	$	—	$	—
Certificates of deposit	126,330		125,942		—		125,942		—
FHLB advances	10,000		9,882		—		9,882		—
Advance payments by borrowers for taxes and insurance	1,002		1,002		1,002		—		—

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

Cash and cash equivalents, accrued interest receivable and advance payments by borrowers for taxes and insurance -The carrying amount is a reasonable estimate of fair value.

Securities - The estimated fair values of securities are based on quoted market prices of similar securities.

FHLB stock - FHLB stock is carried at par and does not have a readily determinable fair value. Ownership of FHLB stock is restricted to the member institutions, and can only be purchased and redeemed at par.

Loans held for sale - The fair value of loans held-for-sale is based on quoted market prices from FHLMC. FHLMC quotes are updated daily and represent prices at which loans are exchanged in high volumes and in a liquid market.

Loans receivable - For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value of fixed-rate loans is estimated using discounted cash flow analysis, utilizing interest rates that would be offered for loans with similar terms to borrowers of similar credit quality. As a result of current market conditions, cash flow estimates have been further discounted to include a credit factor. The fair value of nonperforming loans is estimated using the fair value of the underlying collateral.

Bank owned life insurance investment, net of surrender charges - The carrying amount is a reasonable estimate of its fair value.

Demand deposits, savings, money market, and certificates of deposit - The fair value of the Bank's demand deposits, savings, and money market accounts is the amount payable on demand. The fair value of fixed-maturity certificates is estimated using a discounted cash flow analysis using current rates offered for deposits of similar remaining maturities.

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

FHLB advances - The fair value of the Bank's FHLB advances was calculated using the discounted cash flow method. The discount rate was equal to the current rate offered by the FHLB for advances of similar remaining maturities.

Commitments to extend credit represent the principal categories of off-balance-sheet financial instruments - The fair values of these commitments are not material since they are for a short period of time and are subject to customary credit terms.

Note 10 - Stock-Based Compensation

On October 21, 2015, the Company’s stockholders approved the Anchor Bancorp 2015 Equity Incentive Plan ("Plan"), which provides for awards of restricted stock, restricted stock units, and stock options to directors, advisory directors, directors emeriti, officers and employees. The cost of awards under the Plan generally is based on the fair value of the awards on their grant date. The maximum number of shares that may be utilized for awards under the Plan is 193,800. Shares of common stock issued under the Plan may be authorized but unissued shares or repurchased shares.

As of March 31, 2016, awards for restricted stock totaling 106,228 were outstanding and no stock options were granted. Awarded shares of restricted stock typically vest over various periods as long as the director, advisory director, directors emeriti, officer or employee remains in service to the Company. The Company recognizes compensation expense for the restricted stock awards based on the fair value of the shares at the award date.

For both the three and nine months ended March 31, 2016 total compensation expense for the Plan was $496,000 and $1.3 million, respectively, and the related income tax benefit was $149,000 and $390,000, respectively.

The following tables provide a summary of changes in non-vested restricted stock awards for the three and nine months ended March 31, 2016:



	For the Three Months Ended March 31, 2016
	For the Three Months Ended March 31, 2016
		Weighted-Average Grant Date Fair Value
	Shares	Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2016	83,444	$	25.75
Granted	1,450	22.70
Vested	9,450	25.75
Forfeited	4,600	25.75
Non-vested at March 31, 2016	70,844	25.69



	For the Nine Months Ended March 31, 2016
	For the Nine Months Ended March 31, 2016
		Weighted-Average Grant Date Fair Value
	Shares	Weighted-Average Grant Date Fair Value
Non-vested at July 1, 2015	—	$	—
Granted	106,228	25.75
Vested	30,784	25.71
Forfeited	4,600	25.75
Non-vested at March 31, 2016	70,844	25.69

ANCHOR BANCORP AND SUBSIDIARY

SELECTED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

As of March 31, 2016, there was $1.3 million of total unrecognized compensation costs related to non-vested shares granted as restricted stock awards. The cost is expected to be recognized over the remaining weighted-average vesting period of approximately two years.

Note 11 - Federal Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. These calculations are based on many complex factors including estimates of the timing of reversals of temporary differences, the interpretation of federal income tax laws, and a determination of the differences between the tax and the financial reporting basis of assets and liabilities. Actual results could differ significantly from the estimates and interpretations used in determining the current and deferred income tax assets and liabilities.

As of March 31, 2016, the Condensed Consolidated Statement of Financial Condition included a net deferred tax asset of $8.9 million. The Company's primary deferred tax assets relate to the allowance for loan losses. The Company has prepared federal tax returns through December 31, 2015, at which time the net operating loss carryforward was $14.6 million which will begin to expire in 2031.

Under GAAP, a valuation allowance is required to be recognized if it is “more likely than not” that a portion of the deferred tax asset will not be realized. Our policy is to evaluate our deferred tax assets on a quarterly basis and record a valuation allowance for our deferred tax asset if we do not have sufficient positive evidence indicating that it is more likely than not that some or all of the deferred tax asset will be realized. Each quarter, we consider positive evidence, which may include taxes paid in carryback years, reversing timing differences, available tax planning strategies, and projected taxable income and weigh it against negative evidence, which may include cumulative losses in the most recent three year period and uncertainty regarding short-term future earnings, among other items. At March 31, 2016, management determined that no valuation allowance on the deferred tax asset was required. This determination was based on sufficient positive evidence associated with our return to profitability, demonstrated through cumulative earnings over the recent three year period, strong quarterly income, and our projections for future taxable income.

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements and “Safe Harbor” statement under the Private Securities Litigation Reform Act of 1995

This report contains forward-looking statements, which are not statements of historical fact and often include the words “believes,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “plans,” “targets,” “potentially,” “probably,” “projects,” “outlook” or similar expressions or future or conditional verbs such as “may,” “will,” “should,” “would” and “could.” Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, assumptions and statements about future performance. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated, including, but not limited to:


•	the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write offs and changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and commercial real estate markets;


•	changes in general economic conditions, either nationally or in our market areas;


•	changes in the levels of general interest rates, and the relative differences between short and long term interest rates, deposit interest rates, our net interest margin and funding sources;


•	fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate values in our market area;


•	secondary market conditions for loans and our ability to sell loans in the secondary market;

•

results of examinations of us by the Federal Deposit Insurance Corporation ("FDIC"), the Washington Department of Financial Institutions, Division of Banks ("DFI") or other regulatory authorities, including the possibility that any such regulatory authority may, among other things, require us to increase our reserve for loan losses, write-down assets, change our regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;


•	our ability to attract and retain deposits;


•	increases in premiums for deposit insurance;


•	management's assumptions in determining the adequacy of the allowance for loan losses;


•	our ability to control operating costs and expenses;


•	the use of estimates in determining fair value of certain of our assets, which estimates may prove to be incorrect and result in significant declines in valuation;


•	difficulties in reducing risks associated with the loans on our balance sheet;


•	staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our workforce and potential associated charges;


•	computer systems on which we depend could fail or experience a security breach;


•	our ability to retain key members of our senior management team;


•	costs and effects of litigation, including settlements and judgments;


•	our ability to manage loan delinquency rates;


•	increased competitive pressures among financial services companies;


•	changes in consumer spending, borrowing and savings habits;


•	legislative or regulatory changes that adversely affect our business including the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules, including as a result of Basel III;


•	the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;


•	our ability to pay dividends on our common stock;


•	adverse changes in the securities markets;


•	inability of key third-party providers to perform their obligations to us;


•	changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies, or the Financial Accounting Standards Board, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods including relating to fair value accounting and loan loss reserve requirements; and


•	other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described elsewhere in our filings with the Securities and Exchange Commission, including this Form 10-Q.

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Some of these and other factors are discussed in our 2015 Form10-K under Item 1A. “Risk Factors.” Such developments could have an adverse impact on our financial position and results of operations.

Any of the forward-looking statements that we make in this quarterly report and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements and you should not rely on such statements. We undertake no obligation to publicly update or revise any forward-looking statements included or incorporated by reference in this document or to update the reasons why actual results could differ from those contained in such statements, whether as a result of new information, future events or otherwise. Because of these and other uncertainties, our actual results for fiscal year 2016 and beyond may differ materially from those expressed in any forward-looking statements by or on behalf of us, and could negatively affect our financial condition, liquidity, operating results and stock price performance.

Background and Overview

Anchor Bancorp is a bank holding company which primarily engages in the business activity of its subsidiary, Anchor Bank. Anchor Bank is a community-based savings bank primarily serving Western Washington through our 10 full-service banking offices (including one Wal-Mart in-store location) within Grays Harbor, Thurston, Lewis, Pierce, and Mason counties, Washington. We are in the business of attracting deposits from the public and utilizing those deposits to originate loans. We offer a wide range of loan products to meet the demands of our customers. Historically, our principal lending activity has consisted of the origination of loans secured by first mortgages on owner-occupied, one-to-four family residences and loans for the construction of one-to-four family residences, as well as consumer loans, with an emphasis on home equity loans and lines of credit. Since 1990, we have been aggressively offering commercial real estate loans and multi-family loans primarily in Western Washington.

Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates also affect our net interest income. Additionally, to offset the impact of the current low interest rate environment, we are seeking other means of increasing interest income while controlling expenses. We intend to enhance the mix of our assets by further increasing our commercial business relationships which have higher risk-adjusted returns. These commercial business relationships also typically help us generate lower cost deposits. A secondary source of income is noninterest income, which includes gains on sales of assets, and revenue we receive from providing products and services. In recent years, our noninterest expense has exceeded our net interest income after provision for loan losses and we have relied primarily on fee income to supplement our net interest income.

Our operating expenses consist primarily of compensation and benefits, general and administrative, real estate owned expenses, FDIC insurance premiums, information technology, occupancy and equipment, deposit services and marketing expenses. Compensation and benefits expense consist primarily of the salaries and wages paid to our employees, payroll taxes, expenses for retirement and other employee benefits. Occupancy and equipment expenses, which are the fixed and variable costs of building and equipment, consist primarily of lease payments, taxes, depreciation charges, maintenance and costs of utilities.

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Critical Accounting Estimates and Related Accounting Policies

We use estimates and assumptions in our consolidated financial statements in accordance with generally accepted accounting principles. Management has identified several accounting policies that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of our consolidated financial statements. These policies relate to the determination of the allowance for loan losses and the associated provision for loan losses, deferred income taxes and the associated income tax expense, as well as valuation of real estate owned. Management reviews the allowance for loan losses for adequacy on a monthly basis and establishes a provision for loan losses that it believes is sufficient for the loan portfolio growth expected and the loan quality of the existing portfolio. The carrying value of real estate owned is assessed on a quarterly basis. Income tax expense and deferred income taxes are calculated using an estimated tax rate and are based on management's understanding of our effective tax rate and the tax code.

Allowance for Loan Losses. Management recognizes that loan losses may occur over the life of a loan and that the allowance for loan losses must be maintained at a level necessary to absorb specific losses on impaired loans and probable losses inherent in the loan portfolio. The Executive Loan Committee analyzes several different factors including delinquency rates, charge-off rates and the changing risk profile of our loan portfolio, as well as local economic conditions such as unemployment rates, the bankruptcies and vacancy rates of business and residential properties. These factors are used by the Chief Credit Officer who assesses the allowance for loan and lease losses on a monthly basis and reports to the Board of Directors no less than quarterly.

We believe that the accounting estimate related to the allowance for loan losses is a critical accounting estimate because it is highly susceptible to change from period to period, requiring management to make assumptions about future losses on loans. The impact of a sudden large loss could deplete the allowance and require increased provisions to replenish the allowance, which would negatively affect earnings.

Our methodology for analyzing the allowance for loan losses consists of specific allocations on significant individual credits that meet the definition of impaired and a general allowance amount. The specific allowance component is determined when management believes that the collectability of a specifically identified large loan has been impaired and a loss is probable. The general allowance component relates to assets with no well-defined deficiency or weakness and takes into consideration loss that is inherent within the portfolio but has not been realized. The general allowance is determined by applying an expected loss percentage to various classes of loans with similar characteristics and classified loans that are not analyzed specifically for impairment. Because of the imprecision in calculating inherent and potential losses, the national and local economic conditions are also assessed to determine if the general allowance is adequate to cover losses. The allowance is increased by the provision for loan losses, which is charged against current period operating results and decreased by the amount of actual loan charge-offs, net of recoveries.

Deferred Income Taxes. Deferred income taxes are reported for temporary differences between items of income or expense reported in the financial statements and those reported for income tax purposes. Deferred taxes are computed using the asset and liability method. Under this method, a deferred tax asset or liability is determined based on the enacted tax rates that will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in an institution's income tax returns. Deferred tax assets are deferred tax consequences attributable to deductible temporary differences and carryforwards. After the deferred tax asset has been measured using the applicable enacted tax rate and provisions of the enacted tax law, it is then necessary to assess the need for a valuation allowance. A valuation allowance is needed when, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. As required by GAAP, available evidence is weighted heavily on cumulative losses with less weight placed on future projected profitability.

During the quarter ended December 31, 2014, management determined based on the available evidence that a valuation allowance was no longer appropriate and reversed the full deferred tax asset ("DTA") valuation allowance of $8.3 million. This determination was based on sufficient positive evidence associated with our return to profitability, demonstrated through cumulative earnings over the recent three year period, strong quarterly income, and our projections for future taxable income. The ultimate utilization of deferred tax assets, however, is dependent upon the existence, or generation of taxable income in the periods when those temporary differences and net operating loss and credit carryforwards are deductible.

Deferred income taxes do not include a liability for pre-1988 bad debt deductions allowed to thrift institutions that may be recaptured if the institution fails to qualify as a bank for income tax purposes in the future.

Real Estate Owned. Real estate acquired through foreclosure is transferred to the real estate owned asset classification at fair value and subsequently carried at the lower of cost or market. Costs associated with real estate owned for maintenance, repair,

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property tax, etc., are expensed during the period incurred. Assets held in real estate owned are reviewed quarterly for potential impairment. When impairment is indicated the impairment is charged against current period operating results and netted against the real estate owned to reflect a net book value. At disposition any residual difference is either charged to current period earnings as a loss on sale or reflected as income in a gain on sale.

Comparison of Financial Condition at March 31, 2016 and June 30, 2015

General. Total assets increased by $40.8 million, or 10.8%, to $420.0 million at March 31, 2016 from $379.2 million at June 30, 2015. The increase in assets during this period was primarily a result of a $43.1 million, or 15.2% increase in loans receivable, net, to $326.6 million at March 31, 2016 from $283.4 million at June 30, 2015. Partially offsetting this increase was a $4.7 million, or 15.8%, decline in securities available-for-sale comprised almost entirely of mortgage-backed securities, and a $1.4 million, or 51.4%, decline in prepaid expenses and other assets at March 31, 2016 as compared to June 30, 2015. Total liabilities increased $40.4 million, or 12.8%, to $355.9 million at March 31, 2016 compared to $315.5 million at June 30, 2015, primarily due to a $35.5 million increase in Federal Home Loan Bank advances. Total deposits increased $3.3 million, or 1.1%, to $303.2 million at March 31, 2016 compared to June 30, 2015 primarily as a result of a $7.3 million, or 16.2% increase in noninterest bearing deposits to $52.0 million at March 31, 2016 from June 30, 2015, partially offset by a $6.5 million, or 5.2%, decrease in certificates of deposit to $119.8 million at March 31, 2016 from $126.3 million at June 30, 2016.

Assets. The following table details the increases and decreases in the composition of the Company's assets from June 30, 2015 to March 31, 2016:



	Balance at March 31, 2016		Balance at June 30, 2015		Increase/(Decrease)
	Balance at March 31, 2016		Balance at June 30, 2015		Amount			Percent
	(Dollars in thousands)
Cash and cash equivalents	$	17,641	$	14,450	$	3,191		22.1	%
Mortgage-backed securities, available-for-sale	24,722		29,130		(4,408		)	(15.1	)
Mortgage-backed securities, held-to-maturity	6,523		7,498		(975		)	(13.0	)
Loans receivable, net of allowance for loan losses	326,562		283,444		43,118			15.2
Real estate owned, net	468		797		(329		)	(41.3	)

Mortgage-backed securities available-for-sale decreased $4.4 million, or 15.1%, to $24.7 million at March 31, 2016 from $29.1 million at June 30, 2015. Mortgage-backed securities held-to-maturity decreased $975,000, or 13.0%, to $6.5 million at March 31, 2016 from $7.5 million at June 30, 2015. The decreases in these portfolios were primarily the result of contractual principal repayments.

Loans receivable, net, increased $43.1 million or 15.2% to $326.6 million at March 31, 2016 from $283.4 million at June 30, 2015 as a result of new loan production exceeding principal reductions. Multi-family loans increased $13.9 million or 32.2% to $57.1 million at March 31, 2016 from $43.2 million at June 30, 2015, primarily due to the purchase of $22.8 million in multi-family loans, partially offset by the reclassification of $14.4 million of multi-family loans to the one-to-four family loan portfolio. The loan purchase consisted of 12 multi-family projects in King and Pierce Counties. All properties met our underwriting standards and each property was independently visited and re-underwritten. Commercial real estate loans increased $11.2 million or 8.7% to $139.5 million from $128.3 million. Commercial business loans increased $10.5 million or 55.2% to $29.5 million from $19.0 million at June 30, 2015. The increase in commercial business was primarily due to a $8.5 million loan participation with a Washington Regional Bank. This participation is a short-term, one-year or less, secured operating line of credit. One-to-four family loans increased $4.8 million or 8.2% to $62.7 million from $57.9 million at June 30, 2015, due primarily to the reclassification discussed above. Construction loans increased $3.1 million or 26.8% to $14.8 million at March 31, 2016 from $11.7 million at June 30, 2015. Land loans increased $2.0 million or 49.6% to $6.0 million from $4.0 million at June 30, 2015. Consumer loans decreased $1.8 million or 7.7% to $22.1 million at March 31, 2016 from $23.9 million at June 30, 2015.

Total delinquent loans (past due 30 days or more), increased $600,000 to $4.2 million at March 31, 2016 from $3.6 million at June 30, 2015 primarily due to one commercial real estate loan of $543,000 that became nonperforming during the quarter ended March 31, 2016. Nonperforming loans, those loans which were accruing loans 90 days or more past due or on nonaccrual status, totaled $2.6 million at March 31, 2016 as compared to $2.0 million at June 30, 2015. Total classified loans decreased

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$489,000, or 13.3%, to $3.2 million at March 31, 2016 from $3.7 million at June 30, 2015. As of March 31, 2016, the Company had six real estate owned ("REO") properties with an aggregate book value of $468,000 compared to eight properties with an aggregate book value of $797,000 at June 30, 2015, and 10 properties with an aggregate book value of $676,000 at March 31, 2015. The decrease in the aggregate book value of REO properties during the quarter ended March 31, 2016 from the prior quarter was primarily attributable to sales of two one-to-four family homes for a total of $334,000 resulting in a gain on sale of $61,000 and transferred into REO one one-to-four family home at $45,000 and one lot at $13,000. During the nine months ended March 31, 2016, we transferred five properties into REO totaling $450,000 and sold seven properties for $728,000, generating a net gain on sale of $57,000. At March 31, 2016, the largest REO property was a one-to-four family home in Grays Harbor County, Washington with a carrying value of $157,000.

Liabilities. Total liabilities increased $40.4 million between June 30, 2015 and March 31, 2016, primarily as a result of a $35.5 million increase in FHLB advances. In addition, deposits increased $3.3 million, or 1.1%, to $303.2 million at March 31, 2016 from $299.8 million at June 30, 2015. Our core deposits, which consist of all deposits other than certificates of deposit, increased by $9.8 million, or 5.6%, to $183.3 million at March 31, 2016 from $173.5 million at June 30, 2015. Certificates of deposit decreased $6.5 million, or 5.2%, to $119.8 million at March 31, 2016 from $126.3 million at June 30, 2015. The decrease in certificates of deposit was offset by a $7.3 million, or 16.2%, increase in noninterest-bearing demand deposits to $52.0 million at March 31, 2016 from $44.7 million at June 30, 2015.

The following table details the changes in deposit accounts at the dates indicated:



	Balance at March 31, 2016		Balance at June 30, 2015		Increase/(Decrease)
	Balance at March 31, 2016		Balance at June 30, 2015		Amount			Percent
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	51,970	$	44,719	$	7,251		16.2	%
Interest-bearing demand deposits	26,138		22,448		3,690			16.4
Money market accounts	59,759		63,916		(4,157		)	(6.5	)
Savings deposits	45,467		42,399		3,068			7.2
Certificates of deposit	119,822		126,330		(6,508		)	(5.2	)
Total deposit accounts	$	303,156	$	299,812	$	3,344		1.1	%

Stockholders' Equity. Total stockholders' equity increased $378,000 or 0.59% to $64.1 million at March 31, 2016 from $63.7 million at June 30, 2015. The increase was primarily a result of $1.1 million of stock-based compensation under the Anchor Bancorp 2015 Equity Incentive Plan approved by shareholders on October 21, 2015 (the "Plan") and net income of $160,000. This increase was partially offset by the $1.1 million used to repurchase 50,000 shares of our common stock during the nine month period ended March 31, 2016 under our 2015 share repurchase plan, at an average price of $21.89 per share. On March 11, 2016, the Company announced that its board of directors authorized its 2016 share repurchase plan for the repurchase of 77,500 shares of the Company's common stock, none of which had been repurchased as of March 31, 2016. Accumulated other comprehensive loss decreased $111,000 to $600,000 as a result of unrealized valuation changes on investments available-for-sale.

Comparison of Operating Results for the Three and Nine Months Ended March 31, 2016 and 2015

General. Net income for the three months ended March 31, 2016 was $101,000 or $0.04 per diluted share compared to net income of $305,000 or $0.12 per diluted share for the three months ended March 31, 2015. For the nine months ended March 31, 2016 the net income was $160,000 or $0.07 per diluted share compared to net income of $9.2 million or $3.72 per diluted share for the nine months ended March 31, 2015, which included an $8.3 million tax benefit related to the reversal of the valuation allowance on deferred tax assets ("DTA").

Net Interest Income. Net interest income before the provision for loan losses increased $289,000, or 8.4%, to $3.7 million for the quarter ended March 31, 2016 compared to the same period last year primarily as a result of the $317,000, or 8.1% increase in loan interest income, including fees, partially offset by an increase of $41,000 or 164.0% to $66,000 from $25,000 for the cost of FHLB advances. For the nine months ended March 31, 2016 net interest income before the provision for loan losses increased $429,000, or 4.2%, to $10.7 million from $10.3 million for the same period in 2015 primarily as a result of the $254,000, or 2.1% increase in loan interest income.

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The Company's net interest margin increased three basis points to 4.10% for the quarter ended March 31, 2016 from 4.07% for the comparable period in 2015 despite a three basis point decrease in the average yield on interest-earning assets to 4.86% for the quarter ended March 31, 2016 compared to 4.89% for the same period in 2015. The improvement in our net interest margin compared to the same quarter last year primarily reflects the increase in the average balance of loans receivable, net. The weighted average cost of interest-bearing liabilities decreased eight basis points to 0.96% for the quarter ended March 31, 2016 compared to 1.04% for the same period in the prior year.

The following table sets forth the changes to our net interest income for the three months ended March 31, 2016 compared to the same period in 2015. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The changes attributable to both rate and volume, which cannot be segregated, are allocated proportionately to the changes in rate and volume.



	Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015
	Increase (Decrease) Due to
	Rate			Volume			Total
	(In thousands)
Interest-earning assets:
Loans receivable, including fees	$	(242	)	$	558		$	316
Mortgage-backed securities	12			(40		)	(28		)
Investment securities, FHLB stock and cash and cash equivalents	8			(5		)	3
Total net change in income on interest-earning assets	$	(222	)	$	513		$	291
Interest-bearing liabilities:
Savings deposits	$	(1	)	$	2		$	1
Interest-bearing demand deposits	—			1			1
Money market accounts	5			(2		)	3
Certificates of deposit	(10		)	(34		)	(44		)
FHLB advances	(20		)	61			41
Total net change in expense on interest-bearing liabilities	(26		)	28			2
Net change in net interest income	$	(196	)	$	485		$	289

For the nine months ended March 31, 2016, the Company's net interest margin increased nine basis points to 4.11% compared to 4.02% for the same period in 2015, primarily reflecting the increase in the average balance of loans receivable, net and decline in our average cost of interest-bearing liabilities, in particular, FHLB advances. The average yield on interest-bearing assets decreased four basis points to 4.91% for the nine months ended March 31, 2016 compared to 4.95% for the same period in the prior year. The decrease in the average yield on interest earning assets was primarily the result of the yield on loans receivable, net, decreasing 22 basis points to 5.46% during the nine months ended March 31, 2016 compared to 5.68% for the same period in the prior year. The average cost of interest-bearing liabilities decreased 13 basis points to 1.02% for the nine months ended March 31, 2015 compared to 1.15% for the same period of the prior year as the cost of our interest-bearing liabilities continue to decline, due to the reduction in the average balances of certificates of deposit and a 207 basis point decline in the average rate paid on FHLB advances.

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The following table sets forth the changes to our net interest income for the nine months ended March 31, 2016 compared to the same period in 2015:



	Nine Months Ended March 31, 2016 Compared to Nine Months Ended March 31, 2015
	Increase (Decrease) Due to
	Rate			Volume			Total
	(In thousands)
Interest-earning assets:
Loans receivable, including fees	$	(493	)	$	747		$	254
Mortgage-backed securities	22			(130		)	(108		)
Investment securities, FHLB stock and cash and cash equivalents	14			(4		)	10
Total net change in income on interest-earning assets	$	(457	)	$	613		156
Interest-bearing liabilities:
Savings deposits	$	1		$	3		$	4
Interest-bearing demand deposits	(1		)	2			1
Money market accounts	15			(7		)	8
Certificates of deposit	23			(120		)	(97		)
FHLB advances	(282		)	93			(189		)
Total net change in expense on interest-bearing liabilities	(244		)	(29		)	(273		)
Net change in net interest income	$	(213	)	$	642		$	429

Interest Income. Total interest income for the three months ended March 31, 2016 increased $291,000, or 7.0%, to $4.4 million from $4.1 million for the three months ended March 31, 2015. The increase during the period was primarily attributable to the increase in the average balance on loans receivable, net. Average loans receivable, net, increased $40.3 million during the quarter ended March 31, 2016 compared to the same quarter last year. The average yield on loans receivable, net, decreased 30 basis points to 5.24% during the three months ended March 31, 2016 compared to 5.54% for the same period in the prior year. Average mortgage-backed securities declined $7.8 million during the three months ended March 31, 2016 compared to the same period in the prior year. The average yield on mortgage-backed securities increased 15 basis points to 2.18% for the three months ended March 31, 2016 compared to 2.03% for the same period in the prior year. Average interest-earning assets increased $26.2 million, or 7.7%, to $363.9 million for the three months ended March 31, 2016 compared to $337.7 million for the same period in 2015.

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The following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the three months ended March 31, 2016 and 2015:



	Three Months Ended March 31,
	2016				2015				Increase/(Decrease) in Interest and Dividend Income from 2015
	Average Balance		Yield		Average Balance		Yield
	(Dollars in thousands)
Loans receivable, net ⁽¹⁾	$	322,634	5.24	%	$	282,347	5.54	%	$	316
Mortgage-backed securities	31,928		2.18		39,721		2.03		(28		)
Investment securities	178		6.74		560		5.00		(4		)
FHLB stock	1,774		1.13		5,906		0.14		3
Cash and cash equivalents	7,441		0.43		9,220		0.17		4
Total interest-earning assets	$	363,955	4.86	%	$	337,754	4.89	%	$	291


⁽¹⁾	Nonaccruing loans have been included in the table as loans carrying a zero yield for the period that they have been on nonaccrual, calculated net of deferred loan fees and loans in process.

For the nine months ended March 31, 2016, total interest income increased $156,000, or 1.2%, to $12.8 million from $12.7 million for the nine months ended March 31, 2015. The increase during the period was primarily attributable to the increase in the average balance of loans receivable, net. Average loans receivable, net, increased $17.5 million during the nine months ended March 31, 2016 compared to the same period in the prior year. The average yield on loans receivable, net, decreased 22 basis points to 5.46% for the nine months ended March 31, 2016 compared to 5.68% for the same period in the prior year. Average interest-earning assets increased $6.9 million, or 2.0%, to $348.8 million for the nine months ended March 31, 2016 compared to $341.9 million for the same period in 2015.

The following table compares average interest-earning asset balances, associated yields, and resulting changes in interest income for the nine months ended March 31, 2016 and 2015:



	Nine Months Ended March 31,
	2016				2015				Increase/(Decrease) in Interest and Dividend Income from 2015
	Average Balance		Yield		Average Balance		Yield
	(Dollars in thousands)
Loans receivable, net ⁽¹⁾	$	299,886	5.46	%	$	282,338	5.68	%	$	254
Mortgage-backed securities	33,854		2.05		42,702		1.96		(108		)
Investment securities	365		5.11		565		4.96		(7		)
FHLB stock	1,178		1.13		5,969		0.11		5
Cash and cash equivalents	13,565		0.28		10,383		0.21		12
Total interest-earning assets	$	348,848	4.91	%	$	341,957	4.95	%	$	156


⁽¹⁾	Nonaccruing loans have been included in the table as loans carrying a zero yield for the period that they have been on nonaccrual, calculated net of deferred loan fees and loans in process.

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Interest Expense. Interest expense remained virtually unchanged at $693,000 for the three months ended March 31, 2016 as compared to $691,000 for the three months ended March 31, 2015. The average balance of certificates of deposit declined $7.1 million, or 5.6%, to $120.9 million for the quarter ended March 31, 2016 compared to $128.0 million for the same period of the prior year. The average balance of FHLB advances increased $23.4 million, or 242.2%, to $33.0 million during the quarter ended March 31, 2016 compared to $9.6 million for the same quarter last year. The average cost of FHLB advances decreased 24 basis points to 0.80% for the three months ended March 31, 2016 compared to 1.04% for the same period of the prior year. Average interest-bearing liabilities increased $22.2 million, or 8.4%, to $288.2 million for the three months ended March 31, 2016 compared to $266.0 million for the same period in 2015.

The following table details average balances, cost of funds and the change in interest expense for the three months ended March 31, 2016 and 2015:



	Three Months Ended March 31,
	2016				2015				Increase/(Decrease) in Interest Expense from 2015
	Average Balance		Cost		Average Balance		Cost		Increase/(Decrease) in Interest Expense from 2015
	(Dollars in thousands)
Savings deposits	$	45,521	0.15	%	$	41,596	0.15	%	$	1
Interest-bearing demand deposits	27,247		0.04		20,101		0.04		1
Money market deposits	61,473		0.18		66,627		0.14		3
Certificates of deposit	120,932		1.92		127,987		1.95		(44		)
FHLB advances	32,995		0.80		9,642		1.04		41
Total interest-bearing liabilities	$	288,168	0.96	%	$	265,953	1.04	%	$	2

For the nine months ended March 31, 2016 interest expense decreased $273,000, or 11.5%, to $2.1 million from $2.4 million for the nine months ended March 31, 2015. The decrease during the period was primarily attributable to reductions in the average cost of FHLB advances and in the average balance of certificates of deposit. The average cost of FHLB advances decreased 207 basis points to 0.94% for the nine months ended March 31, 2016 compared to 3.01% for the same period of the prior year. The average balance of FHLB advances increased $4.1 million, or 29.2% to $18.2 million for the nine months ended March 31, 2016 compared to $14.1 million for the same period last year. The average cost of certificates of deposit increased two basis points to 1.97% for the nine months ended March 31, 2016 compared to 1.95% for the same period of the prior year. The average balance of certificates of deposit declined $8.2 million, or 6.2%, to $123.6 million for the nine months ended March 31, 2016 compared to $131.8 million for the same period last year. Average interest-bearing liabilities decreased $1.0 million, or 0.3%, to $274.4 million for the nine months ended March 31, 2016 compared to $275.4 million for the same period in 2015.

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The following table details average balances, cost of funds and the change in interest expense for the nine months ended March 31, 2016 and 2015:



	Nine Months Ended March 31,
	2016				2015				Increase/(Decrease) in Interest Expense from 2015
	Average Balance		Cost		Average Balance		Cost		Increase/(Decrease) in Interest Expense from 2015
	(Dollars in thousands)
Savings deposits	$	43,800	0.15	%	$	40,761	0.15	%	$	4
Interest-bearing demand deposits	26,297		0.04		19,899		0.05		1
Money market deposits	62,529		0.17		68,908		0.14		8
Certificates of deposit	123,617		1.97		131,799		1.95		(97		)
FHLB advances	18,171		0.94		14,059		3.01		(189		)
Total interest-bearing liabilities	$	274,414	1.02	%	$	275,426	1.15	%	$	(273	)

Provision for Loan Losses. In connection with its analysis of the loan portfolio, management determined that a $75,000 provision for loan losses was required for the three months ended March 31, 2016 compared to no provision for the three months ended March 31, 2015, primarily reflecting loan growth. Nonperforming loans remained unchanged at $2.6 million for both March 31, 2016 and 2015. The ratio of nonperforming loans to total loans was 0.8% at March 31, 2016 compared to 0.9% at March 31, 2015. Total classified loans decreased $1.9 million, or 37.3%, to $3.2 million at March 31, 2016 from $5.1 million at March 31, 2015.

Management considers the allowance for loan losses at March 31, 2016 to be adequate to cover probable losses inherent in the loan portfolio based on the assessment of the above-mentioned factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect in the future, or that the actual amount of future provisions will not exceed the amount of past provisions or that any increased provisions that may be required will not adversely impact our financial condition and results of operations. In addition, the determination of the amount of our allowance for loan losses is subject to review by our regulators, as part of the routine examination process, which may result in the establishment of additional reserves based upon their judgment of information available to them at the time of their examination.

The following table details activity and information related to the allowance for loan losses at and for the three months ended March 31, 2016 and 2015:



	At or For the Three Months Ended March 31,
	At or For the Three Months Ended March 31,
	2016			2015
	(Dollars in thousands)
Provision for loan losses	$	75		$	—
Net (recoveries) charge-offs	(20		)	182
Allowance for loan losses	3,974			3,818
Allowance for loan losses as a percentage of gross loans receivable at the end of the period	1.2		%	1.4		%
Nonaccrual and 90 days or more past due and still accruing interest	$	2,605		$	2,614
Allowance for loan losses as a percentage of nonperforming loans at the end of the period	152.6		%	146.1		%
Nonaccrual and 90 days or more past due loans still accruing interest as a percentage of loans receivable at the end of the period	0.8		%	0.9		%
Total loans	$	331,885		$	282,472

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The following table details activity and information related to the allowance for loan losses at and for the nine months ended March 31, 2016 and 2015:



	At or For the Nine Months Ended March 31,
	At or For the Nine Months Ended March 31,
	2016			2015
	(Dollars in thousands)
Provision for loan losses	$	165		$	—
Net (recoveries) charge-offs	(88		)	806
Allowance for loan losses	3,974			3,818
Allowance for loan losses as a percentage of gross loans receivable at the end of the period	102		%	1.4		%
Nonaccrual and 90 days or more past due and still accruing interest	$	2,605		$	2,614
Allowance for loan losses as a percentage of nonperforming loans at the end of the period	152.6		%	146.1		%
Nonaccrual and 90 days or more past due loans still accruing interest as a percentage of loans receivable at the end of the period	0.8		%	0.9		%
Total loans	$	331,885		$	282,472

We continue to restructure our delinquent loans, when appropriate, so our borrowers can continue to make payments while minimizing the Company's potential loss. As of March 31, 2016 and March 31, 2015 there were 38 and 42 loans, respectively, with aggregate net principal balances of $9.0 million and $10.6 million, respectively, that we have identified as TDRs. At March 31, 2016 and March 31, 2015 there were $980,000 and $1.2 million, respectively, of TDRs included in nonperforming loans.

Noninterest Income. Noninterest income increased $109,000, or 13.0%, to $948,000 for the quarter ended March 31, 2016 compared to $839,000 for the same quarter a year ago. The following table provides a detailed analysis of the changes in the components of noninterest income for the three months ended March 31, 2016 compared to the same period in 2015:



	Three Months Ended March 31,						Increase (decrease)
	Three Months Ended March 31,						Increase (decrease)
	2016			2015			Amount			Percent
	(Dollars in thousands)
Deposit services fees	$	315		$	315		$	—		—	%
Other deposit fees	172			188			(16		)	(8.5	)
Other loan fees	189			138			51			37.0
Gain (loss) on sale of loans	(1		)	(10		)	9			90.0
Bank owned life insurance investment	124			134			(10		)	(7.5	)
Other income	149			74			75			101.4
Total noninterest income	$	948		$	839		$	109		13.0	%

The increase in noninterest income for the quarter ended March 31, 2016 was primarily due to other loan fees increasing $51,000 from increased loan production and other income increasing $75,000 primarily due to higher paper statement charges.

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The following table provides a detailed analysis of the changes in the components of noninterest income for the nine months ended March 31, 2016 compared to the same period in 2015:



	Nine Months Ended March 31,					Increase (decrease)
	Nine Months Ended March 31,					Increase (decrease)
	2016		2015			Amount			Percent
	(Dollars in thousands)
Deposit services fees	$	1,018	$	1,045		$	(27	)	(2.6	)%
Other deposit fees	530		552			(22		)	(4.0	)
Gain on sale of investments	—		47			(47		)	(100.0	)
Other loan fees	517		426			91			21.4
Gain (loss) on sale of loans	127		(20		)	147			735.0
Bank owned life insurance investment	413		407			6			1.5
Other income	550		391			159			40.7
Total noninterest income	$	3,155	$	2,848		$	307		10.8	%

Noninterest income increased $307,000, or 10.8%, to $3.2 million during the nine months ended March 31, 2016 compared to $2.8 million for the same period in 2015 primarily due to other income increasing $159,000, or 40.7% to $550,000 compared to $391,000 for the same period in 2015 primarily due to higher paper statement charges. Also contributing to the increase during the nine months ended March 31, 2016 was gain on sale of loans increasing $147,000 to $127,000 compared to a loss of $20,000 for the same period in 2015. During the nine months ended March 31, 2016 originations of loans held for sale were $6.5 million as compared to $20,000 for the same period last year primarily due to increased production.

Noninterest Expense. For the three months ended March 31, 2016, noninterest expense increased $633,000, or 16.5%, to $4.5 million from $3.8 million for the three months ended March 31, 2015. The following table provides an analysis of the changes in the components of noninterest expense for the three months ended March 31, 2016 and 2015:



	Three Months Ended March 31,						Increase (decrease)
	Three Months Ended March 31,						Increase (decrease)
	2016			2015			Amount			Percent
	(Dollars in thousands)
Compensation and benefits	$	2,483		$	2,009		$	474		23.6	%
General and administrative expenses	735			662			73			11.0
Real estate owned impairment	9			20			(11		)	(55.0	)
Real estate holding costs	20			31			(11		)	(35.5	)
FDIC insurance premiums	66			65			1			1.5
Information technology	435			434			1			0.2
Occupancy and equipment	455			486			(31		)	(6.4	)
Deposit services	99			89			10			11.2
Marketing	234			146			88			60.3
Loss on sale of property, premises and equipment	2			63			(61		)	—
Gain on sale of real estate owned	(61		)	(161		)	100			(62.1	)
Total noninterest expense	$	4,477		$	3,844		$	633		16.5	%

The increase in noninterest expense was primarily due to a $474,000 increase in compensation benefits primarily due to $496,000 of stock-based compensation awarded under the Plan during the quarter ended March 31, 2016. Gain on sale of REO decreased $100,000, or 62.1% to $61,000 from $161,000 for the same quarter last year. Marketing expenses increased $88,000 to $234,000 for the three months ended March 31, 2016 compared to $146,000 for the same quarter last year primarily due to our new checking account and home equity loan campaigns.

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The following table provides an analysis of the changes in the components of noninterest expense for the nine months ended March 31, 2016 and 2015:



	Nine Months Ended March 31,						Increase (decrease)
	Nine Months Ended March 31,						Increase (decrease)
	2016			2015			Amount			Percent
	(Dollars in thousands)
Compensation and benefits	$	7,318		$	5,977		$	1,341		22.4	%
General and administrative expenses	2,463			2,031			432			21.3
Real estate owned impairment	51			150			(99		)	(66.0	)
Real estate holding costs	43			247			(204		)	(82.6	)
FDIC insurance premiums	198			311			(113		)	(36.3	)
Information technology	1,292			1,302			(10		)	(0.8	)
Occupancy and equipment	1,394			1,431			(37		)	(2.6	)
Deposit services	334			471			(137		)	(29.1	)
Marketing	490			456			34			7.5
Loss (gain) on sale of property, premises and equipment	6			62			(56		)	(90.3	)
Loss (gain) on sale of real estate owned	(57		)	(269		)	212			(78.8	)
Total noninterest expense	$	13,532		$	12,169		$	1,363		11.2	%

Noninterest expense increased $1.4 million, or 11.2%, to $13.5 million in the nine months ended March 31, 2016 compared to $12.2 million for the nine months ended March 31, 2015. The increase was primarily due to a $1.3 million increase in compensation and benefits primarily due to $1.3 million of stock-based compensation awarded under the Plan during the nine months ended March 31, 2016. General and administrative expenses increased $432,000 to $2.5 million for the nine months ended March 31, 2016 compared to $2.0 million for the nine months ended March 31, 2015 primarily due to $217,000 in proxy contest expenses and $174,000 in miscellaneous legal expense primarily related to the proxy contest.

Liquidity, Commitments and Capital Resources

Liquidity. We are required to have enough cash flow in order to maintain sufficient liquidity to ensure a safe and sound operation. Historically, we have maintained cash flow above the minimum level believed to be adequate to meet the requirements of normal operations, including potential deposit outflows. On a monthly basis, we review and update cash flow projections to ensure that adequate liquidity is maintained.

Our primary sources of funds are from customer deposits, loan repayments, loan sales, investment payments, maturing investment securities and advances from the FHLB of Des Moines. These funds, together with retained earnings and equity, are used to make loans, acquire investment securities and other assets, and fund continuing operations. While maturities and the scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by the level of interest rates, economic conditions and competition.

We believe that our current liquidity position is sufficient to fund all of our existing commitments. At March 31, 2016, the total approved loan origination commitments outstanding were $2.8 million. At the same date, unused lines of credit were $61.7 million.

For purposes of determining our liquidity position, we use the liquidity ratio, a regulatory measure of liquidity calculated as the total of net cash, short-term, and marketable assets divided by net deposits and short-term liabilities. Our Board of Directors has established a liquidity ratio target of 10%. For the three months ended March 31, 2016, our average liquidity ratio was 10.06%, which indicates we are slightly above the liquidity standard set by our Board. Management believes the Bank's current liquidity position is adequate to meet foreseeable short and long term liquidity requirements.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits or mortgage-backed securities. On a longer-term basis, we maintain a strategy of investing in various lending products. We use our sources of funds primarily to meet ongoing commitments, to pay

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maturing certificates of deposit and savings withdrawals, to fund loan commitments and to maintain our portfolio of mortgage-backed securities and investment securities.

Certificates of deposit scheduled to mature in one year or less at March 31, 2016 totaled $41.7 million. We had no brokered deposits at March 31, 2016. Management's policy is to generally maintain deposit rates at levels that are competitive with other local financial institutions. Based on historical experience, we believe that a significant portion of maturing deposits will remain with us. In addition, we had the ability to borrow an additional $94.1 million from the FHLB of Des Moines. We also have a line of credit with the Federal Reserve Bank of San Francisco for $1.0 million which is collateralized with securities and a line of credit for $5.0 million with Pacific Coast Bankers' Bank.

We measure our liquidity based on our ability to fund assets and to meet liability obligations when they come due. Liquidity (and funding) risk occurs when funds cannot be raised at reasonable prices, or in a reasonable time frame, to meet our normal or unanticipated obligations. We regularly monitor the mix between our assets and liabilities to manage effectively our liquidity and funding requirements.

Our primary source of funds is the Bank's deposits. When deposits are not available to provide the funds for our assets, we use alternative funding sources. These sources include, but are not limited to: cash management from the FHLB of Des Moines, wholesale funding, brokered deposits, federal funds purchased and dealer repurchase agreements, as well as other short-term alternatives. Alternatively, we may also liquidate assets to meet our funding needs. On a monthly basis, we estimate our liquidity sources and needs for the coming three-month, nine-month, and one-year time periods. Also, we determine funding concentrations and our need for sources of funds other than deposits. This information is used by our Asset Liability Management Committee in forecasting funding needs and investing opportunities.

The Company is a separate legal entity from the Bank and provides for its own liquidity to pay its operating expenses and other financial obligations. The Company's primary sources of income are dividends from the Bank, ESOP loan payments and ESOP loan interest income. During the nine month period ended March 31, 2016, the Bank paid a $557,000 dividend to the Company. The payment is being used for the Company's general corporate purposes, including supporting the Company's ongoing operations and stock repurchases. At March 31, 2016, the Company (on an unconsolidated basis) had liquid assets of $4.1 million.

Commitments and Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the financing needs of our customers. These financial instruments generally include commitments to originate mortgage, commercial and consumer loans, and involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the consolidated balance sheets. Our maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount of those instruments. Because some commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit policies in making commitments as we do for on-balance sheet instruments. Collateral is not required to support commitments.

Undisbursed balances of loans closed include funds not disbursed but committed for construction projects. Unused lines of credit include funds not disbursed, but committed for, home equity, commercial and consumer lines of credit.

Commercial letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Those guarantees are primarily used to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

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The following is a summary of commitments and contingent liabilities with off-balance sheet risks as of March 31, 2016:



	Amount of Commitment Expiration Per Period
	Total Amounts Committed ⁽²⁾		Due in One Year
	(In thousands)
Commitments to originate loans ⁽¹⁾	$	2,845	$	2,845

Lines of credit
Fixed rate ⁽³⁾	2,203		408
Adjustable rate	59,505		15,498
Undisbursed balance of lines of credit	$	61,708	$	15,906


⁽¹⁾	Interest rates on fixed rate loans are 2.63% to 17.99%.


⁽²⁾	At March 31, 2016 there were no reserves for unfunded commitments.


⁽³⁾	Includes standby letters of credit.

Operating lease commitment - The Bank leases space for branches and operations located in Shelton and Puyallup, Washington. These leases run for periods ranging from three to five years. All leases require the Bank to pay all taxes, maintenance, and utility costs, as well as maintain certain types of insurance. The annual lease commitments for the next five years are as follows:



Year Ended June 30,
Year Ended June 30,		Amount
		(In thousands)
2016		$27
2017		$117
2018		$124
2019		$84
2020		$37

Capital. Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a “well capitalized” institution in accordance with regulatory standards. As of March 31, 2016, the Bank exceeded all regulatory capital requirements with, Tier 1 Leverage-Based Capital, Common Equity Tier 1 Capital (CET1), Tier 1 Risk-Based Capital, and Total Risk-Based Capital ratios of 13.8%, 15.4%, 15.4%, and 16.5%, respectively. As of June 30, 2015 these ratios were 14.3%, 16.2%, 16.2%, and 17.4%, respectively. At March 31, 2016, the Bank met the requirements to be deemed "well-capitalized" under applicable regulatory guidelines.

In addition to the minimum CET1, Tier 1 and total capital ratios, the Bank will have to maintain a capital conservation buffer consisting of additional CET1 capital equal to 2.5% of risk-weighted assets above the required minimum levels in order to avoid limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses based on percentages of eligible retained income that could be utilized for such actions. This new capital conservation buffer requirement is to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented in January 2019.

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Anchor Bancorp exceeded all regulatory capital requirements with Tier 1 Leverage-Based Capital, CET1, Tier 1 Risk- Based Capital and Total Risk-Based Capital ratios of 15.2%, 17.0%, 17.0%, and 18.1%, respectively, as of March 31, 2016. As of June 30, 2015, these ratios were 16.6%, 19.0%, 19.0% and 20.1%, respectively.

The Bank's actual capital amounts and ratios at March 31, 2016 are presented in the following table:



Anchor Bank									Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
					Minimum Capital Requirement
	Actual				Minimum Capital Requirement
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
March 31, 2016
Total capital (to risk-weighted assets)	$	59,013	16.5	%	$	28,540	8.0	%	$	35,676	10.0	%
Tier I capital (to risk-weighted assets)	$	55,039	15.4	%	$	21,405	6.0	%	$	28,540	8.0	%
Common equity tier 1 capital (to risk-weighted assets)	$	55,039	15.4	%	$	16,054	4.5	%	$	23,189	6.5	%
Tier I leverage capital (to average assets)	$	55,039	13.8	%	$	15,923	4.0	%	$	19,903	5.0	%

The actual regulatory capital amounts and ratios calculated for Anchor Bancorp as of March 31, 2016, were as follows:



Anchor Bancorp	Actual
	Amount		Ratio
	(Dollars in thousands)
March 31, 2016
Total capital (to risk-weighted assets)	$	64,628	18.1	%
Tier I capital (to risk-weighted assets)	$	60,654	17.0	%
Common equity tier 1 capital (to risk-weighted assets)	$	60,654	17.0	%
Tier I leverage capital (to average assets)	$	60,654	15.2	%

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Asset and Liability Management and Market Risk

General. Our Board of Directors has established an asset and liability management policy to guide management in maximizing net interest rate spread by managing the differences in terms between interest-earning assets and interest-bearing liabilities while maintaining acceptable levels of liquidity, capital adequacy, interest rate sensitivity, changes in net interest income, credit risk and profitability. The policy includes the use of an Asset Liability Management Committee whose members include certain members of senior management. The Committee’s purpose is to communicate, coordinate and manage our asset/liability positions consistent with our business plan and Board-approved policies. The Asset Liability Management Committee meets monthly to review various areas including:


•	economic conditions;


•	interest rate outlook;


•	asset/liability mix;


•	interest rate risk sensitivity;


•	change in net interest income;


•	current market opportunities to promote specific products;


•	historical financial results;


•	projected financial results; and


•	capital position.

The Committee also reviews current and projected liquidity needs monthly. As part of its procedures, the Asset Liability Management Committee regularly reviews interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution’s existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential change in market value of portfolio equity that is authorized by the Board of Directors.

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Our loans generally have longer maturities than our deposits. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

In recent years, we primarily have utilized the following strategies in our efforts to manage interest rate risk:


•	increased our originations of shorter term loans and particularly, home equity loans (limited recent originations) and commercial business loans;


•	structured certain borrowings with maturities that match fund our loan portfolios; and


•	sold our fixed rate single family loans to generate noninterest income as well as managing interest rate risk.

How We Measure the Risk of Interest Rate Changes. We measure our interest rate sensitivity on a quarterly basis utilizing an internal model. Management uses various assumptions to evaluate the sensitivity of our operations to changes in interest rates. Although management believes these assumptions are reasonable, the interest rate sensitivity of our assets and liabilities on net interest income and the market value of portfolio equity could vary substantially if different assumptions were used or actual experience differs from such assumptions. The assumptions we use are based upon proprietary and market data and reflect historical results and current market conditions. These assumptions relate to interest rates, prepayments, deposit decay rates and the market value of certain assets under the various interest rate scenarios. An independent service was used to provide market rates of interest and certain interest rate assumptions to determine prepayments and maturities of loans, investments and borrowings and decay rates on deposits. Time deposits are modeled to reprice to market rates upon their stated maturities. We assumed that non-maturity deposits can be maintained with rate adjustments not directly proportionate to the change in market interest rates.

In the past, we have demonstrated that the tiering structure of our deposit accounts during changing rate environments results in relatively low volatility and less than market rate changes in our interest expense for deposits. Our deposit accounts are tiered by balance and rate, whereby higher balances within an account earn higher rates of interest. Therefore, deposits that are not very rate sensitive (generally, lower balance tiers) are separated from deposits that are rate sensitive (generally, higher balance tiers).

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We generally have found that a number of our deposit accounts are less rate sensitive than others. Thus, when interest rates increase, the interest rates paid on these deposit accounts do not require a proportionate increase in order for us to retain them. These assumptions are based upon an analysis of our customer base, competitive factors and historical experience. The following table shows the change in our net portfolio value at March 31, 2016 that would occur upon an immediate change in interest rates based on our assumptions, but without giving effect to any steps that we might take to counteract that change. The net portfolio value is calculated based upon the present value of the discounted cash flows from assets and liabilities. The difference between the present value of assets and liabilities is the net portfolio value and represents the market value of equity for the given interest rate scenario. Net portfolio value is useful for determining, on a market value basis, how much equity changes in response to various interest rate scenarios. Large changes in net portfolio value reflect increased interest rate sensitivity and generally more volatile earnings streams.



	Net Portfolio Value						Net Portfolio as % of Portfolio Value of Assets
Basis Point Change in Rates	Net Portfolio Value						Net Portfolio as % of Portfolio Value of Assets				Market Value of Assets⁽⁴⁾
Basis Point Change in Rates	Amount		$ Change ⁽¹⁾		% Change		NPV Ratio ⁽²⁾		% Change ⁽³⁾		Market Value of Assets⁽⁴⁾
	(Dollars in thousands)
300	$	60,689	$	673	1.12	%	15.77	%	1.01	%	$	384,719
200	61,053		1,037		1.73		15.56		0.8		392,282
100	60,807		791		1.32		15.22		0.46		399,571
Base	60,016		—		—		14.76		—		406,668
(100)	63,873		3,857		6.43		15.41		0.65		414,369

___________



⁽¹⁾	Represents the increase (decrease) in the estimated net portfolio value at the indicated change in interest rates compared to the net portfolio value assuming no change in interest rates.
⁽²⁾	Calculated as the net portfolio value divided by the market value of assets (“net portfolio value ratio”).
⁽³⁾	Calculated as the increase (decrease) in the net portfolio value ratio assuming the indicated change in interest rates over the estimated net portfolio value ratio assuming no change in interest rates.
⁽⁴⁾	Calculated based on the present value of the discounted cash flows from assets. The market value of assets represents the value of assets under the various interest rate scenarios and reflects the sensitivity of those assets to interest rate changes.

The following table illustrates the change in net interest income that would occur in the event of an immediate change in interest rates at March 31, 2016, but without giving effect to any steps that might be taken to counter the effect of that change in interest rates.



Basis Point Change in Rates	Net Interest Income
Basis Point Change in Rates	Amount		$ Change ⁽¹⁾			% Change
	(Dollars in thousands)
300	$	17,673	$	1,717		10.8	%
200	17,152		1,196			7.5
100	16,574		618			3.9
Base	15,956		—			—
(100)	14,971		(985		)	(6.2	)

⁽¹⁾Represents the increase (decrease) of the estimated net interest income at the indicated change in interest rates compared to net interest income assuming no change in interest rates.

We use certain assumptions in assessing our interest rate risk. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others.

As with any method of measuring interest rate risk, shortcomings are inherent in the method of analysis presented in the foregoing tables. For example, although assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in the market interest rates. Also, the interest rates on certain types of assets and liabilities may

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fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer, and other members of the Company's management team as of the end of the period covered by this quarterly report. The Company's Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2016, the Company's disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.

(b) Changes in Internal Controls.

There have been no changes in the Company's internal control over financial reporting (as defined in 13a-15(f) of the Exchange Act) that occurred during the quarter ended March 31, 2016, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company also continued to implement suggestions from its internal auditor and independent auditors to strengthen existing controls.

The Company intends to continually review and evaluate the design and effectiveness of its disclosure controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company's business. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company to modify its disclosure controls and procedures. The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent every error or instance of fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns in controls or procedures can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company is engaged in legal proceedings in the ordinary course of business, none of which are currently considered to have a material impact on the Company’s financial position or results of operations.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Part I. Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2015.

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

(a) Not applicable

(b) Not applicable

(c) In July 2015, the Board of Directors of Anchor Bancorp approved the repurchase of up to 127,500 shares of the Company's common stock, or five percent of the Company's outstanding shares. The plan expired on February 1, 2016, at which time 50,000 shares had been repurchased at an average price per share of $21.89. On March 11, 2016, the Board of Directors authorized the repurchase of up to 77,500 of the Company's outstanding shares. There were no repurchases during the quarter ended March 31, 2016.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable.

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Item 6. Exhibits



3.1	Articles of Incorporation of the Registrant (1)
3.2	Amended and Restated Bylaws of the Registrant (2)
10.1	Form of Anchor Bank Employee Severance Compensation Plan (1)
10.2	Anchor Mutual Savings Bank Phantom Stock Plan (1)
10.3	Form of 401(k) Retirement Plan (1)
10.4	Form of Employment Agreement between Anchor Bank and Jerald L. Shaw and Terri L. Degner (3)
10.5	Form of Severance Agreement and Release (4)
10.6	Agreement in Connection with Anchor Annual Meeting between Anchor Bancorp and Joel S. Lawson IV dated October 21, 2015 (5)
10.7	Standstill Agreement and Non-Disclosure Agreement by and among Anchor Bancorp, Joel S. Lawson IV and Varonica S. Ragan dated December 8, 2015 (6)
10.8	Form of restricted stock award agreement (7)
10.9	Forms of incentive and non-qualified stock option award agreements (7)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
101	The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in Extensible Business Reporting Language (XBRL): (1) Condensed Consolidated Statements of Financial Condition; (2) Condensed Consolidated Statements of Income; (3) Condensed Consolidated Statements of Comprehensive Income; (4) Condensed Consolidated Statements of Cash Flows; and (5) Selected Notes to Condensed Consolidated Financial Statements


(1)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (333-154734)


(2)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the SEC on December 10, 2015.


(3)	Filed as an exhibit to the Company's Current Report on Form 8-K filed May 22, 2014.


(4)	Filed as an exhibit to the Company's Current Report on Form 8-K filed January 22, 2015.


(5)	Filed as an exhibit to the Company's Current Report on Form 8-K filed October 23, 2015.


(6)	Filed as an exhibit to the Company's Current Report on Form 8-K dated December 10, 2015.


(7)	Filed as an exhibit to the Company's Registration Statement on Form S-8 dated December 8, 2015.

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SIGNATURES

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



	ANCHOR BANCORP

Date: May 2, 2016	/s/Jerald L. Shaw
	Jerald L. Shaw
	President and Chief Executive Officer
	(Principal Executive Officer)


Date: May 2, 2016	/s/Terri L. Degner
	Terri L. Degner
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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EXHIBIT INDEX



31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
32	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
101	The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, formatted in Extensible Business Reporting Language (XBRL): (1) Condensed Consolidated Statements of Financial Condition; (2) Condensed Consolidated Statements of Income; (3) Condensed Consolidated Statements of Comprehensive Income; (4) Condensed Consolidated Statements of Cash Flows; and (5) Selected Notes to Condensed Consolidated Financial Statements

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