Oct. 6--Anchor BanCorp Wisconsin, parent company of AnchorBank, is seeking permission to sell up to $200 million in stock and other securities to raise capital to counter bad commercial loans and help finance its earlier purchase of a New Richmond bank.

The Madison-based bank holding company recently renegotiated a $120 million credit line with U.S. Bank, due on Sept. 30, extending the term until next year. Under the extension, Anchor BanCorp, which owes $116 million, must pay off $56 million by the end of this year.

"Clearly, they need to raise capital right now," said industry analyst Jason Werner, vice president of Howe Barnes Hoefer & Arnett of Chicago. "From a credit quality standpoint, they're facing a lot of challenges. They needed to build reserves."

With $4.89 billion in assets as of June 30, AnchorBank has 988 full-time employees and 76 offices in 62 Wisconsin communities. The company's stock closed Monday at $6.93 a share on the Nasdaq exchange, down 38 cents, or 5.2 percent. The stock has traded in a 52-week range of $5.50 to $28.36.

A registration statement filed Monday with the U.S. Securities and Exchange Commission said Anchor BanCorp plans to sell debt securities, stock, depository shares or other securities in a series of issues. The plan requires SEC approval.

Douglas Timmerman, president of Anchor BanCorp, said he expects the $200 million in added capital will be sufficient to allow the bank to deal with current economic conditions and continue growth.

Mark Timmerman, AnchorBank president and Douglas Timmerman's son, said part of the U.S. Bank debt is related to Anchor's $104 million purchase, finalized early this year, of New Richmond-based S&C Bank, which added 13 northwest Wisconsin locations to Anchor. About half of the acquisition was financed with the credit line.

Anchor's problems are different than those of the large national investment banks that have failed recently. Timmerman said the bank wasn't involved in subprime mortgages and didn't invest in risky mortgage securities, but faces bad loans on commercial real estate projects.

Werner said selling the securities will improve Anchor's financial position.

"If they can raise the capital, they will come out OK," he said. "Overall, they're still an earnings engine there and they're making money."

But Werner said Anchor's problems are unusual among Wisconsin banks.

"There are a lot of banks that have challenges," he said. "I don't think most Wisconsin banks are in the situation that Anchor is in."

With net income of $5.5 million, down from $9.9 million last year, AnchorBank was Wisconsin's third most profitable bank for the quarter ending June 30.

The bank has been hit with bad commercial loans, including First Place on the River, a 152-unit Milwaukee condominium project where a consortium of banks is trying to complete the project so they can recover $56 million in loan principal and interest.

AnchorBank's exposure on the project is about $9 million plus additional funds needed to finish construction, which Timmerman said will be done over time, depending on market conditions.

When financial results are released for the quarter ending Sept. 30, he said the bank's allowance for loan losses will be about $60 million, about 1.5 percent of the bank's loans, up from about $40 million for the previous quarter.

Besides the Milwaukee project, Timmerman said much of the bank's losses involve smaller commercial loans.

"There are pockets and projects of stress throughout our footprint," he said. "I can't say it's all concentrated in one area."

Russell Kashian, an economics professor at UW-Whitewater, said Anchor's equity-asset ratios appear strong, but asset quality is a concern.

"There has been a slow deterioration of asset quality at Anchor," he said. "While we need to recognize that with delinquent loans, not all of the balance is going to be lost, the effort to recapitalize the bank is warranted."

-----

To see more of The Wisconsin State Journal, or to subscribe to the newspaper, go to http://www.wisconsinstatejournal.com.

Copyright (c) 2008, The Wisconsin State Journal

Distributed by McClatchy-Tribune Information Services.

For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

NASDAQ-NMS:ABCW,