Anchor BanCorp Wisconsin Inc. painted a grim picture of its finances this week.

The $4.4 billion-asset company in Madison said Tuesday that it was considered undercapitalized by regulatory standards as of March 31. Anchor's recapitalization efforts fell through in April, and its auditors have expressed substantial doubt about its ability to continue as a going concern.

Though the company narrowed its loss in its fourth quarter, which ended March 31, its nonperforming assets increased 51.4%. It had a loss of $29.8 million in the quarter, compared with $47.7 million a year earlier. For the 12 months that ended March 31, it had a loss of $177 million, compared with $232.8 million the previous year.

Chris Bauer, Anchor's chief executive, said in a press release that the loss for the fiscal year was driven by the need to provide for potential loan losses. The provision totaled $169.1 million last year, compared with $205.7 million the previous year, and $20.1 million in the fourth quarter, compared with $56.3 million a year earlier.

Anchor still faces troubles with its commercial real estate and construction and land development loans. Despite charging off $73.5 million last year, nonperforming assets rose by $144.5 million to $424.5 million as of March 31, or 9.6% of total assets, compared with 5.3% of total assets a year earlier.

In its annual report, Anchor said it expected by June 30 to enter into a memorandum of understanding with the Office of Thrift Supervision to address "several compliance issues." Anchor is operating under a cease-and-desist order that requires it to maintain a leverage ratio of 8% and a total risk-based capital ratio of 12%. Yet as of March 31, the bank had not reached those ratios, and had a leverage ratio of 3.73% and a total risk-based capital ratio of 7.32%.

Anchor continues to seek capital after its $400 million deal with Badger Anchor Holdings LLC was terminated in April. At least one analyst said Anchor still has the potential to attract investors, despite its problem assets.

Michael Iannaccone, president of MDI Investments Inc. in Chicago, said Anchor has a good management team and a strong deposit franchise. "The earnings can come, but in order for the earnings to come, they're really going to have to change the mix of the bank to get the net interest margin up, and that's a longer-term play," he said. "I think they can make a great case to investors to bring that money."

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