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 FDIC, 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 the Bank's regulatory capital position or affect our ability to borrow funds or maintain or increase deposits, which could adversely affect our liquidity and earnings;

• the Bank's compliance with the Order or other regulatory enforcement actions and the possibility that the Bank will be unable to fully comply with the Order which could result in the imposition of additional requirements or restrictions;

• legislative or regulatory changes that adversely affect our business including the effect of the Dodd-Frank Act, changes in regulatory policies and principles, or the interpretation of regulatory capital or other rules;

• the Bank's ability to attract and retain deposits;

• further increases in premiums for deposit insurance;

• 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 the Bank's 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 the Bank's senior management team;

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

• increased competitive pressures among financial services companies;

• changes in consumer spending, borrowing and savings habits;

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

• 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

Some of these and other factors are discussed in our 2011 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 2012 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 and operating and stock price performance.

Background and Overview

Anchor Bancorp, a Washington corporation, was formed for the purpose of becoming the bank holding company for Anchor Bank in connection with the Bank's conversion from mutual to stock form, which was completed on January 25, 2011. At March 31, 2012, we had total assets of $488.0 million, total deposits of $351.6 million and total stockholders' equity of $54.4 million. Anchor Bancorp's business activities generally are limited to passive investment activities and oversight of its investment in Anchor Bank. Accordingly, the information set forth in this report, including consolidated financial statements and related data, relates primarily to Anchor Bank.

Anchor Bank is a Washington chartered savings bank that was organized in 1907 as a Washington state chartered savings and loan association, converted to a federal mutual savings and loan association in 1935, converted to a Washington state chartered mutual savings bank in 1990 and converted to stock form in 2011. Anchor Bank is a community-based savings bank primarily serving Western Washington through 13 full-service banking offices (including three Wal-Mart store locations) located 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; however, most of our loans are collateralized by real estate. Historically, lending activities have been primarily directed toward the origination of one- to four-family residential construction, commercial real estate and consumer loans. Since 1990, we have also offered commercial real estate loans and multi-family loans primarily in Western Washington. To an increasing extent in recent years, lending activities have also included the origination of residential construction loans through brokers, in particular within the Portland, Oregon metropolitan area and increased reliance on non-core deposit sources of funds.

On August 12, 2009, Anchor Bank became subject to the Order, issued with its consent, by the FDIC and DFI. The Order is a formal corrective action pursuant to which Anchor Bank has agreed to take certain measures in the areas of capital, loan loss allowance determination, risk management, liquidity management, board oversight and monitoring of compliance, and imposes certain operating restrictions on Anchor Bank. Management and the Bank's Board of Directors have been taking action and implementing programs to comply with the requirements of the Order. Information regarding Anchor Bank's compliance with the Order is included in Note 5 to the Selected Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q and Item 1A. "Risk Factors - Cease and Desist Order" in the 2011 Form10-K.

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. Our Board of Directors and management assesses the allowance for loan losses on a quarterly basis. 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.

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. Realization of the deferred tax asset is dependent on whether there will be sufficient future taxable income of the appropriate character in the period during which deductible temporary differences reverse or within the carryback and carryforward periods available under tax law. Based upon the available evidence, we recorded a valuation allowance of $7.7 million at March 31, 2012. The deferred tax provision for the period is equal to the net change in the net deferred tax asset from the beginning to the end of the period, less amounts applicable to the change in value related to securities available for sale. The effect on deferred taxes of a change in tax rates is recognized as income in the period that includes the enactment date. The primary differences between financial statement income and taxable income result from deferred loan fees and costs, mortgage servicing rights, loan loss reserves and dividends received from the FHLB of Seattle. Deferred income

Real Estate Owned. Real estate acquired through foreclosure is transferred to the real estate owned asset classification at fair value and subsequently carried at lower cost of market. Costs associated with real estate owned for maintenance, repair, property tax, etc., are expensed during the period incurred. Assets held in real estate owned are reviewed monthly 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, 2012 and June 30, 2011

General. Total assets decreased by $890,000, or 0.2%, to $488.0 million at March 31, 2012, from $488.9 million at June 30, 2011. We increased our liquidity during this period as cash and due from banks increased $19.7 million, or 30.9%, loans receivable decreased $29.8 million, or 9.1%, and securities available for sale (which includes mortgage-backed securities) increased, $14.2 million, or 37.2%.

Mortgage-backed securities available for sale increased $17.6 million, or 53.9%, to $50.3 million at March 31, 2012 from $32.7 million at June 30, 2011. The increase in this portfolio was primarily the result of purchases of 36 FHLMC mortgage- backed securities totaling $48.0 million, sales of 40 FHLMC mortgage-backed securities totaling $24.1 million, and contractual payments of $6.3 million. The sales were due to rebalancing the investment portfolio to shorten the duration of the portfolio from 30 year to 15 year mortgage-backed securities.

Loans receivable, net, decreased $29.8 million or 9.1% to $295.7 million at March 31, 2012 from $325.5 million at June 30, 2011. The decline in the loan portfolio was the result of the current economic conditions and weak loan demand from creditworthy borrowers, charge-offs, and transfers of non-performing loans to real estate owned, as well as pay downs due to normal borrower activity. The total construction and land loan portfolios decreased $4.8 million to $13.6 million at March 31, 2012 from $18.4 million at June 30, 2011 as a result of loan repayments.

Assets. Total assets decreased $890,000 at March 31, 2012 from June 30, 2011. The following table details the increases and decreases in the composition of the Bank's assets from June 30, 2011 to March 31, 2012:

                                                                                  Increase/(Decrease)

                                            Balance at       Balance at
                                            March 31,         June 30,
                                               2012             2011             Amount         Percent
                                                               (Dollars in thousands)

Cash and due from banks                    $     83,434     $      63,757     $     19,677           30.9 %
Mortgage-backed securities,
available-for- sale                              50,348            32,718           17,630           53.9
Mortgage-backed securities, held to
maturity                                          7,502             7,438               64            0.9
Loans receivable, net of allowance for
loan losses                                     295,703           325,464          (29,761 )         (9.1 )
Real estate owned , net                           8,402            12,597          ( 4,195 )        (33.3 )

Cash and due from banks increased $19.7 million or 30.9% at March 31, 2012 from June 30, 2011 as weak loan demand combined with our continued focus on reducing non-performing assets resulted in loan originations of $32.7 million during the nine months ended March 31, 2012 as compared to $25.9 million in the same period last year. We are also maintaining a higher liquidity position as compared to historical levels for regulatory and asset-liability purposes.

Deposits. Deposits increased $12.1 million, or 3.6%, to $351.6 million at March 31, 2012 from $339.5 million at June 30, 2011. The increase in deposits was due in part to our ongoing marketing strategy to focus on core deposits.

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

                                                                                Increase/(Decrease)

                                            Balance at        Balance
                                             March 31,      at June 30,
                                               2012            2011            Amount          Percent
                                                              (Dollars in thousands)

Noninterest-bearing demand deposits        $     33,939     $    30,288     $       3,651           12.1 %
Interest-bearing demand deposits                 19,980          17,387             2,593           14.9
Money market accounts                            83,364          78,017             5,347            6.9
Savings deposits                                 36,889          32,263             4,626           14.3
Certificates of deposit
  Retail certificates                           177,384         181,519            (4,135 )         (2.3 )
  Brokered certificates                               -               -                 -              -
Total deposit accounts                     $    351,556     $   339,474     $    $ 12,082            3.6 %

Borrowings. FHLB advances decreased $11.0 million, or 12.8%, to $74.9 million at March 31, 2012 from $85.9 million at June 30, 2011. The decrease reflected our continued focus on reducing wholesale funds.

Stockholders' Equity. Total stockholders' equity decreased $3.1 million, or 5.4%, to $54.4 million at March 31, 2012 from $57.5 million at June 30, 2011. The decrease was primarily due to the $1.4 million loss during the nine months ended March 31, 2012. Other comprehensive income decreased $1.7 million to $31,000 at March 31, 2012, which was a result of sales of investments during the period.

Comparison of Operating Results for the Three and Nine Months ended March 31, 2012 and 2011

General. Net income for the three months ended March 31, 2012 was $223,000 compared to a net loss of $3.4 million for the three months ended March 31, 2011. For the nine months ended March 31, 2012 the net loss was $1.4 million compared to net loss of $4.1 million for the comparable period in 2011.

Net Interest Income. Net interest income before the provision for loan losses decreased $588,000, or 13.0%, to $3.9 million for the quarter ended March 31, 2012 from $4.5 million for the quarter ended March 31, 2011. For the nine months ended March 31, 2012 net interest income before the provision for loan losses, decreased $1.3 million, or 9.4%, to $12.3 million from $13.5 million for the nine months ended March 31, 2011.

The Company's net interest margin decreased 40 basis points to 3.47% for the three months ended March 31, 2012, from 3.87% for the comparable period in 2011. The decrease was primarily due to the decline in the yield on loans and investments. Our yield on interest-earning assets decreased to 4.79% for the quarter ended March 31, 2012 from 5.32% for the same period last year.

The following table sets forth the results of balance sheet changes in interest rates to the Bank's net interest income for the three months ended March 31, 2012 compared to the same period in 2011. 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). 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, 2012
                                                Compared to Three Months Ended
                                                         March 31, 2011
                                          Increase (Decrease) Due to
                                            Rate               Volume           Total
                                                         (In thousands)
 Interest-earning assets:
 Loans receivable, including fees       $          (3 )      $     (772 )     $     (775 )
 Mortgage-backed securities                      (104 )             110                6
 Investment securities, FHLB stock
   and cash and due from banks                    (56 )              37              (19 )
 Total net change in income on
 interest-earning assets                $         163        $     (625 )     $     (788 )
 Interest-bearing liabilities:
 Savings deposits                       $         (18 )      $        8       $      (10 )
 Interest-bearing demand deposits                  (2 )               0               (2 )
 Money market accounts                            (62 )              17              (45 )
 Certificates of deposit                          (59 )             (31 )            (90 )
 FHLB advances                                     43               (96 )            (53 )

 Total net change in expense on
 interest-bearing liabilities                     (98 )            (102 )           (200 )
  Total increase (decrease) in net
 interest income                        $         (65 )      $     (523 )     $     (588 )

For the nine months ended March 31, 2012, our net interest margin decreased 16 basis points to 3.61% compared to 3.77% for the same period in 2011. The average cost of interest-bearing liabilities decreased 36 basis points to 1.60% for the nine months ended March 31, 2012 compared to 1.96% for the same period of the prior year. This decrease is primarily a result of a 32 basis point decrease in the average cost of FHLB borrowings due to the elimination of higher priced borrowings through payoff at normal maturity dates and a 36 basis point decrease in the average cost of certificates of deposits during the nine months ended March 31, 2012.

                                                  Nine Months Ended March 31, 2012
                                                   Compared to Nine Months Ended
                                                           March 31, 2011
                                              Increase (Decrease) Due to
                                               Rate               Volume          Total
                                                           (In thousands)
 Interest-earning assets:
 Loans receivable, net                      $       (16 )      $     (2,682 )   $  (2,698 )
 Mortgage-backed securities                        (129 )               (71 )        (200 )
 Investment securities, FHLB stock
   and cash and due from banks                     (178 )               164           (14 )
 Total net change in income on
 interest-earning assets                    $      (323 )      $     (2,589 )   $  (2,912 )

 Interest-bearing liabilities:
 Savings deposits                           $       (36 )      $         22     $     (14 )
 Interest-bearing demand deposits                    (7 )                (4 )         (11 )
 Money market accounts                             (172 )                54          (118 )
 Certificates of deposit                           (490 )              (281 )        (771 )
 FHLB advances                                     (186 )              (536 )        (722 )
 Total net change in expense on
. . .