##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT Of 1934 For the fiscal year ended December 31, 2003 Commission file number
    
    0-18046
 FIRST FEDERAL CAPITAL CORP  Wisconsin
    
    39-1651288(State or other jurisdiction of
    
    (IRS employerincorporation or organization)
    
    identification no.)
 605 State StreetLa Crosse, Wisconsin
    
    
    
    54601(Address of principal executive office)
    
    (Zip code)
 Registrants telephone number, including area code: (608) 784-8000 Securities registered pursuant to Section 12(b) of the Act: Not Applicable Securities registered pursuant to Section 12(g) of the Act:Common Stock, par value $.10 per share
Preferred Stock Purchase Rights
(Title of Class) 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 such shorter period as the Registrant
has been subject to such requirements), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [  ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X] The aggregate value of the common stock of the Registrant that was held by
non-affiliates as of most recently completed second fiscal quarter (June 30,
2003), was approximately $337.0 million. This amount was based on the closing
price of $19.78 per share of the Registrants common stock as of the same date. Indicate by check mark if the Registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2). Yes [X] No [  ] The number of shares of common stock of the Registrant outstanding as of March
3, 2004, was 22,393,714 shares. Documents Incorporated by Reference Portions of the Proxy Statement for the 2004 Annual Meeting of Stockholders are
incorporated into Part III, Items 10 through 13 of this Form 10-K.    1




---



TABLE OF CONTENTS  ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAAUDITED CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTSITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-KSignaturesConsent of Deloitte & Touche LLPConsent of Ernst & Young LLPCertification of CEOCertification of Acting CFOCertification of VP and ControllerCertification of President and CEOCertification of Acting CFOCertification of Controller    Table of Contents  First Federal Capital Corp. is amending Item 8 and the Exhibit Index of its
Annual Report on Form 10-K for the year ended December 31, 2003 to add to the
Independent Auditors report of Ernst & Young LLP for the two years ended
December 31, 2002, the signature of the independent auditors, and to add
Exhibit 23.2 (consent of Ernst & Young LLP), which were inadvertently omitted
from its previous filing of the Form 10-K. 2




---



##### Table of Contents



ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 
 AUDITED CONSOLIDATED FINANCIAL STATEMENTS 
 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION  2003
    
    2002ASSETSCash and due from banks
    
    $
    94,535,753
    
    
    $
    84,482,722Interest-bearing deposits with banks
    
    
    6,444,374
    
    
    
    179,755,367Mortgage-backed and related securities:Available for sale, at fair value
    
    
    386,862,372
    
    
    
    366,075,106Held for investment, at cost (fair value of $610,294 and $30,192,176, respectively)
    
    
    613,076
    
    
    
    30,029,690Loans held for sale
    
    
    16,113,217
    
    
    
    50,237,199Loans held for investment, net of allowance of $13,882,350 and $11,658,086, respectively
    
    
    2,518,683,388
    
    
    
    2,100,641,557Federal Home Loan Bank stock
    
    
    59,634,800
    
    
    
    55,634,400Accrued interest receivable, net
    
    
    15,802,753
    
    
    
    17,522,581Office properties and equipment
    
    
    53,020,583
    
    
    
    35,647,335Mortgage servicing rights, net
    
    
    36,340,856
    
    
    
    30,171,341Goodwill
    
    
    78,168,866
    
    
    
    38,546,439Other intangible assets
    
    
    13,358,976
    
    
    
    5,271,947Other assets
    
    
    28,745,265
    
    
    
    31,608,545Total assets
    
    $
    3,308,324,280
    
    
    $
    3,025,624,228LIABILITIES AND STOCKHOLDERS EQUITYDeposit liabilities
    
    $
    2,552,837,027
    
    
    $
    2,355,148,292Federal funds purchased
    
    
    24,500,000
    
    
    
    Federal Home Loan Bank advances
    
    
    373,075,000
    
    
    
    400,600,000Other borrowings
    
    
    43,624,308
    
    
    
    17,012,682Advance payments by borrowers for taxes and insurance
    
    
    1,484,734
    
    
    
    11,906,038Accrued interest payable
    
    
    2,234,905
    
    
    
    3,119,227Other liabilities
    
    
    33,979,161
    
    
    
    32,385,986Total liabilities
    
    
    3,031,735,135
    
    
    
    2,820,172,225Preferred stock, $0.10 par value (5,000,000 shares authorized, none outstanding)
    
    
    
    
    
    
    Common stock, $0.10 par value (100,000,000 shares authorized, 22,394,773 and 20,215,933
shares issued, respectively)
    
    
    2,239,477
    
    
    
    2,021,593Additional paid-in capital
    
    
    87,323,995
    
    
    
    46,577,431Retained earnings
    
    
    188,319,179
    
    
    
    165,628,148Treasury stock, at cost (0 and 511,497 shares, respectively)
    
    
    
    
    
    
    (10,178,374
    )Unearned restricted stock
    
    
    
    
    
    
    (32,083
    )Accumulated non-owner adjustments to equity, net
    
    
    (1,293,508
    )
    
    
    1,435,289Total stockholders equity
    
    
    276,589,144
    
    
    
    205,452,003Total liabilities and stockholders equity
    
    $
    3,308,324,280
    
    
    $
    3,025,624,228
 Refer to accompanying Notes to Consolidated Financial Statements. 3




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2003, 2002, and 2001 2003
    
    2002
    
    2001Interest on loans
    
    $
    127,898,681
    
    
    $
    137,611,379
    
    
    $
    144,007,080Interest on mortgage-backed and related securities
    
    
    15,384,721
    
    
    
    18,470,156
    
    
    
    24,060,467Interest and dividends on other investments
    
    
    4,634,973
    
    
    
    5,168,808
    
    
    
    3,465,094Total interest income
    
    
    147,918,375
    
    
    
    161,250,343
    
    
    
    171,532,641Interest on deposit liabilities
    
    
    49,408,153
    
    
    
    57,082,939
    
    
    
    83,584,616Interest on FHLB advances and other borrowings
    
    
    16,717,204
    
    
    
    22,642,672
    
    
    
    24,745,757Total interest expense
    
    
    66,125,357
    
    
    
    79,725,611
    
    
    
    108,330,373Net interest income
    
    
    81,793,018
    
    
    
    81,524,732
    
    
    
    63,202,268Provision for loan losses
    
    
    1,455,835
    
    
    
    3,468,063
    
    
    
    1,763,391Net interest income after provision for loan losses
    
    
    80,337,183
    
    
    
    78,056,669
    
    
    
    61,438,877Community banking revenue
    
    
    39,720,029
    
    
    
    33,598,092
    
    
    
    29,010,521Mortgage banking revenue
    
    
    44,044,272
    
    
    
    27,474,147
    
    
    
    18,264,355Gain (loss) on sale of investments and other assets
    
    
    
    
    
    
    (166,264
    )
    
    
    63,190Other income
    
    
    2,781,668
    
    
    
    2,729,075
    
    
    
    2,189,240Total non-interest income
    
    
    86,545,969
    
    
    
    63,635,051
    
    
    
    49,527,306Compensation and employee benefits
    
    
    62,199,472
    
    
    
    52,985,416
    
    
    
    40,152,644Occupancy and equipment
    
    
    13,305,277
    
    
    
    10,717,300
    
    
    
    8,721,140Communications, postage, and office supplies
    
    
    7,137,846
    
    
    
    6,407,854
    
    
    
    5,256,205ATM and debit card transaction costs
    
    
    4,818,698
    
    
    
    4,005,468
    
    
    
    3,241,996Advertising and marketing
    
    
    3,553,136
    
    
    
    3,298,384
    
    
    
    2,588,745Amortization of intangibles
    
    
    1,002,971
    
    
    
    698,411
    
    
    
    1,084,974FHLB prepayment penalty
    
    
    7,388,300
    
    
    
    
    
    
    
    Other expenses
    
    
    12,311,532
    
    
    
    9,265,480
    
    
    
    6,073,769Total non-interest expense
    
    
    111,717,231
    
    
    
    87,378,312
    
    
    
    67,119,473Income before income taxes
    
    
    55,165,921
    
    
    
    54,313,408
    
    
    
    43,846,710Income tax expense
    
    
    20,439,376
    
    
    
    19,397,866
    
    
    
    15,398,485Net income
    
    $
    34,726,545
    
    
    $
    34,915,542
    
    
    $
    28,448,225
 PER SHARE INFORMATION
    
    2003
    
    2002
    
    2001Diluted earnings per share
    
    $
    1.69
    
    
    $
    1.73
    
    
    $
    1.51Basic earnings per share
    
    
    1.71
    
    
    
    1.76
    
    
    
    1.52Dividends paid per share
    
    
    0.55
    
    
    
    0.51
    
    
    
    0.47
 Refer to accompanying Notes to Audited Consolidated Financial Statements. 4




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2003, 2002, and 2001 COMMONSTOCK AND
    
    
    
    
    
    
    
    
    
    
    
    
    
    ACCUMULATEDADDITIONAL
    
    
    
    
    
    
    
    
    
    UNEARNED
    
    NON-OWNERPAID-IN
    
    RETAINED
    
    TREASURY
    
    RESTRICTED
    
    ADJUSTMENTSCAPITAL
    
    EARNINGS
    
    STOCK
    
    STOCK
    
    TO EQUITY
    
    TOTALBalance at December 31, 2000
    
    $
    36,534,227
    
    
    $
    122,921,606
    
    
    ($
    15,127,142
    )
    
    ($
    142,083
    )
    
    $
    2,362,887
    
    
    $
    146,549,495Net income
    
    
    
    
    
    
    28,448,225
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,448,225Securities valuation adjustment,
net of income taxes of ($115,521)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (214,539
    )
    
    
    (214,539
    )Reclassification adjustment for
gain on securities included in
income, net of income taxes of ($4,619)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,579
    )
    
    
    (8,579
    )Net income and non-owner
adjustments to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,225,107Common stock issued for
acquisition
    
    
    12,085,017
    
    
    
    
    
    
    
    16,518,776
    
    
    
    
    
    
    
    
    
    
    
    28,603,793Dividends paid
    
    
    
    
    
    
    (8,866,148
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,866,148
    )Exercise of stock options
    
    
    8,684
    
    
    
    (1,508,794
    )
    
    
    1,821,742
    
    
    
    
    
    
    
    
    
    
    
    321,632Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (3,213,376
    )
    
    
    
    
    
    
    
    
    
    
    (3,213,376
    )Amortization of restricted stock
    
    
    
    
    
    
    722,200
    
    
    
    
    
    
    
    55,000
    
    
    
    
    
    
    
    777,200Balance at December 31, 2001
    
    
    48,627,928
    
    
    
    141,717,089
    
    
    
    
    
    
    
    (87,083
    )
    
    
    2,139,769
    
    
    
    192,397,703Net income
    
    
    
    
    
    
    34,915,542
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,915,542Securities valuation adjustment,
net of income taxes of $42,698
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79,296
    
    
    
    79,296Reclassification adjustment for
loss on securities included in
income, net of income taxes of $58,192
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,072
    
    
    
    108,072Additional minimum pension liability,
net of income taxes of ($594,566)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (891,848
    )
    
    
    (891,848
    )Net income and non-owner
adjustments to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,211,062Dividends paid
    
    
    
    
    
    
    (10,145,762
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,145,762
    )Exercise of stock options
    
    
    (28,904
    )
    
    
    (1,746,936
    )
    
    
    3,591,732
    
    
    
    
    
    
    
    
    
    
    
    1,815,892Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (13,770,106
    )
    
    
    
    
    
    
    
    
    
    
    (13,770,106
    )Amortization of restricted stock
    
    
    
    
    
    
    888,214
    
    
    
    
    
    
    
    55,000
    
    
    
    
    
    
    
    943,214Balance at December 31, 2002
    
    
    48,599,024
    
    
    
    165,628,148
    
    
    
    (10,178,374
    )
    
    
    (32,083
    )
    
    
    1,435,289
    
    
    
    205,452,003Net income
    
    
    
    
    
    
    34,726,545
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,726,545Securities valuation adjustment,
net of income taxes of ($978,842)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,817,850
    )
    
    
    (1,817,850
    )Additional minimum pension liability,
net of income taxes of ($607,298)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (910,947
    )
    
    
    (910,947
    )Net income and non-owner
adjustments to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,997,748Common stock issued for
acquisition
    
    
    40,824,948
    
    
    
    
    
    
    
    8,463,937
    
    
    
    
    
    
    
    
    
    
    
    49,288,885Dividends paid
    
    
    
    
    
    
    (11,236,323
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,236,323
    )Exercise of stock options
    
    
    118,000
    
    
    
    (1,468,503
    )
    
    
    2,291,336
    
    
    
    
    
    
    
    
    
    
    
    940,833Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (507,819
    )
    
    
    
    
    
    
    
    
    
    
    (507,819
    )Amortization of restricted stock
    
    
    
    
    
    
    839,232
    
    
    
    
    
    
    
    32,083
    
    
    
    
    
    
    
    871,315Other activity
    
    
    21,500
    
    
    
    (169,920
    )
    
    
    (69,080
    )
    
    
    
    
    
    
    
    
    
    
    (217,500
    )Balance at December 31, 2003
    
    $
    89,563,472
    
    
    $
    188,319,179
    
    
    
    
    
    
    
    
    
    
    ($
    1,293,508
    )
    
    $
    276,589,144
 Refer to accompanying Notes to Audited Consolidated Financial Statements. 5




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003, 2002, and 2001 2003
    
    2002
    
    2001Cash flows from operating activities:Net income
    
    $
    34,726,545
    
    
    $
    34,915,542
    
    
    $
    28,448,225Adjustments to reconcile net income to net cash provided (used) by
operations:Provision for loan and real estate losses
    
    
    1,897,668
    
    
    
    3,415,158
    
    
    
    1,807,782Increase (decrease) in mortgage servicing rights valuation allowance
    
    
    (3,350,000
    )
    
    
    750,000
    
    
    
    (66,643
    )Net loan costs deferred
    
    
    (4,474,060
    )
    
    
    (3,932,341
    )
    
    
    (2,740,892
    )Amortization of mortgage servicing rights
    
    
    28,728,884
    
    
    
    25,273,796
    
    
    
    15,970,764Other amortization
    
    
    14,026,798
    
    
    
    6,887,848
    
    
    
    2,891,259Depreciation
    
    
    4,076,566
    
    
    
    3,319,594
    
    
    
    2,586,951Gains on sales of mortgage loans
    
    
    (56,989,114
    )
    
    
    (42,208,187
    )
    
    
    (24,372,880
    )Loss (gain) on sales of investments and other assets
    
    
    
    
    
    
    166,264
    
    
    
    (63,190
    )Decrease in accrued interest receivable
    
    
    3,599,538
    
    
    
    1,901,575
    
    
    
    1,610,828Decrease in accrued interest payable
    
    
    (1,600,344
    )
    
    
    (1,465,034
    )
    
    
    (1,449,262
    )Increase in current and deferred income taxes
    
    
    2,709,917
    
    
    
    1,473,902
    
    
    
    3,990,480Other accruals and prepaids, net
    
    
    (29,738
    )
    
    
    (4,666,092
    )
    
    
    (1,236,099
    )Net cash provided by operations before loan originations and sales
    
    
    23,322,660
    
    
    
    25,832,025
    
    
    
    27,377,323Loans originated for sale
    
    
    (2,229,806,539
    )
    
    
    (1,713,628,833
    )
    
    
    (1,252,070,158
    )Sales of loans originated for sale or transferred from held for investment
    
    
    2,386,958,243
    
    
    
    1,858,340,739
    
    
    
    1,390,901,215Net cash provided by operations
    
    
    180,474,364
    
    
    
    170,543,931
    
    
    
    166,208,380Cash flows from investing activities:Decrease (increase) in interest-bearing deposits with banks
    
    
    173,337,538
    
    
    
    (81,522,207
    )
    
    
    (75,614,559
    )Purchases of investment securities available for sale
    
    
    
    
    
    
    
    
    
    
    (35,553,880
    )Maturities of investment securities available for sale
    
    
    
    
    
    
    
    
    
    
    100,000Sales of investment securities available for sale
    
    
    96,548,375
    
    
    
    35,098,150
    
    
    
    21,823,808Purchases of mortgage-backed and related securities available for sale
    
    
    (578,202,342
    )
    
    
    (363,914,125
    )
    
    
    (167,327,646
    )Principal repayments on mortgage-backed and related securities available
for sale
    
    
    548,329,346
    
    
    
    302,304,690
    
    
    
    193,046,784Sales of mortgage-backed and related securities available for sale
    
    
    
    
    
    
    
    
    
    
    7,408,541Purchases of mortgage-backed and related securities held for investment
    
    
    
    
    
    
    
    
    
    
    (100,780,023
    )Principal repayments on mortgage-backed and related securities held for
investment
    
    
    29,208,525
    
    
    
    102,986,604
    
    
    
    43,826,047Loans originated for investment
    
    
    (1,151,453,870
    )
    
    
    (1,056,138,397
    )
    
    
    (701,594,833
    )Loans purchased for investment
    
    
    (195,153,361
    )
    
    
    (302,834,697
    )
    
    
    (178,103,908
    )Loan principal repayments
    
    
    1,109,569,097
    
    
    
    1,102,340,559
    
    
    
    742,073,665Purchases of Federal Home Loan Bank stock
    
    
    
    
    
    
    (25,000,000
    )
    
    
    Additions to office properties and equipment
    
    
    (15,850,869
    )
    
    
    (7,524,801
    )
    
    
    (6,388,322
    )Net cash acquired in acquisitions of other financial institutions
    
    
    10,491,047
    
    
    
    
    
    
    
    2,979,813Purchase of net assets of other financial institutions
    
    
    
    
    
    
    (7,914,840
    )
    
    
    Purchase of bank-owned life insurance
    
    
    
    
    
    
    
    
    
    
    (15,000,000
    )Other, net
    
    
    17,958,439
    
    
    
    1,746,398
    
    
    
    (10,144,757
    )Net cash used by investing activities
    
    
    44,781,925
    
    
    
    (300,372,666
    )
    
    
    (279,249,270
    )Cash flows from financing activities:Increase (decrease) in deposit liabilities
    
    
    (204,509,646
    )
    
    
    172,343,825
    
    
    
    202,008,108Purchased deposit liabilities
    
    
    
    
    
    
    25,290,037
    
    
    
    Long-term advances from Federal Home Loan Bank
    
    
    
    
    
    
    
    
    
    
    162,500,000Repayment of long-term Federal Home Loan Bank advances
    
    
    (298,100,000
    )
    
    
    (54,315,000
    )
    
    
    (53,245,000
    )Increase (decrease) in short-term Federal Home Loan Bank borrowings
    
    
    270,575,000
    
    
    
    (12,500,000
    )
    
    
    (23,045,000
    )Decrease in securities sold under agreements to repurchase
    
    
    
    
    
    
    
    
    
    
    (100,000,000
    )Increase (decrease) in federal funds purchased
    
    
    24,500,000
    
    
    
    
    
    
    
    (20,000,000
    )Increase (decrease) in other borrowings
    
    
    26,361,626
    
    
    
    16,980,371
    
    
    
    (2,609,059
    )Increase (decrease) in advance payments by borrowers for taxes and
insurance
    
    
    (10,434,690
    )
    
    
    10,236,607
    
    
    
    529,901Purchase of treasury stock
    
    
    (507,819
    )
    
    
    (13,770,106
    )
    
    
    (3,213,376
    )Dividends paid
    
    
    (11,236,323
    )
    
    
    (10,145,762
    )
    
    
    (8,866,148
    )Other, net
    
    
    (11,851,406
    )
    
    
    9,434,780
    
    
    
    4,292,350Net cash provided (used) by financing activities
    
    
    (215,203,258
    )
    
    
    143,554,752
    
    
    
    158,351,776Net increase in cash and due from banks
    
    
    10,053,031
    
    
    
    13,726,017
    
    
    
    45,310,886Cash and due from banks at beginning of period
    
    
    84,482,722
    
    
    
    70,756,705
    
    
    
    25,445,819Cash and due from banks at end of period
    
    $
    94,535,753
    
    
    $
    84,482,722
    
    
    $
    70,756,705Supplemental disclosures of cash flow information:Interest and dividends received on loans and investments
    
    $
    151,517,914
    
    
    $
    163,151,918
    
    
    $
    173,143,469Interest paid on deposits and borrowings
    
    
    67,725,701
    
    
    
    81,190,645
    
    
    
    109,779,635Income taxes paid
    
    
    18,507,445
    
    
    
    18,534,887
    
    
    
    11,408,441Income taxes refunded
    
    
    1,769,576
    
    
    
    616,089
    
    
    
    1,454Transfer of loans from held for investment to held for sale
    
    
    93,970,482
    
    
    
    119,630,789
    
    
    
    165,583,373Common stock issued in acquisition of other financial institutions
    
    
    49,288,885
    
    
    
    
    
    
    
    28,603,793Net increase in assets from the acquisition of other financial
institutions, excluding cash and cash equivalents
    
    
    38,797,838
    
    
    
    
    
    
    
    25,623,980
 Refer to accompanying Notes to Audited Consolidated Financial Statements. 6




---



##### Table of Contents



NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS The Corporation provides a wide range of financial services to
individuals and businesses in Wisconsin, south-eastern Minnesota, and northern
Illinois through its wholly-owned subsidiary bank. The Corporation is subject to
competition from other financial institutions and markets. The Corporation, the
Bank, and the Banks subsidiaries are also subject to the regulations of certain
governmental agencies and undergo periodic examinations by those regulatory
authorities. BASIS OF FINANCIAL STATEMENT PRESENTATION The accounting and reporting
policies of the Corporation, the Bank, and the Banks subsidiaries conform to
GAAP and to general practices within the financial services industry. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ from
those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements
include the accounts and balances of the Corporation, the Bank, and the Banks
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. INVESTMENT SECURITIES, MORTGAGE-BACKED AND RELATED SECURITIES, AND
STOCK HELD FOR REGULATORY PURPOSES Investment securities and mortgage-backed and
related securities, are classified in one of two categories and accounted for as
follows: (1) securities that the Corporation has the positive intent and ability
to hold to maturity are classified as held for investment and reported at
amortized cost; (2) securities not classified as held for investment are
classified as available for sale and reported at fair value, with unrealized
gains and losses excluded from earnings and reported as non-owner adjustments to
equity, net of estimated income taxes. Management determines the appropriate
classification for its securities at the time of purchase. The specific
identification method is used to determine the cost of securities sold. The
Corporation does not maintain a trading account for investment securities or
mortgage-backed and related securities. Stock of the FHLB is primarily owned due
to regulatory requirements and is carried at cost. INTEREST ON LOANS Interest income is accrued on loan balances
outstanding. Accrued interest on impaired loans is reversed when management
determines that the collection of interest or principal is considered unlikely.
In general, this occurs when a loan is 90 days past due. Interest income is
subsequently recognized only to the extent cash payments are received. Loans are
restored to accrual status when the obligation is brought current and the
ultimate collectibility of the total contractual principal and interest is no
longer in doubt. DISCOUNTS, PREMIUMS, AND DEFERRED LOAN FEES AND COSTS Discounts and
premiums on loans are amortized over the life of the related loans using a
method that approximates the level-yield method. Loan origination fees and
certain direct loan origination costs are deferred and amortized over the life
of the related loans as an adjustment of yield. Such fees and costs are
amortized using a method that approximates the level-yield method. LOANS HELD FOR SALE, DERIVATIVE INSTRUMENTS, AND HEDGING ACTIVITIES The
Corporation does not use derivative instruments such as futures, swaps, caps,
floors, options, interest- or principal-only strips, or similar financial
instruments to manage its operations. However, the Corporation does use forward
sales of MBSs and other commitments of a similar nature to manage exposure to
market risk in its pipeline of single-family residential loans intended for
sale. Forward sales are derivative instruments and are subject to the rules
established by Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities (SFAS 133). In addition,
commitments to extend credit that relate to loans the Corporation intends to
sell (interest rate commitments) are also considered to be derivative
instruments under SFAS 133 and Statement of Financial Accounting Standards No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). The Corporations policy is to offset substantially
all of its exposure to market risk in its pipeline of loans intended for sale
against forward sales. Single-family residential loans held for sale that are matched against
a forward sale are accounted for using the fair value hedge method.
Accordingly, the loans and the forward sales are valued on a quarterly basis and
net unrealized gains or losses are recorded in the current periods earnings.
Loans held for sale that are not matched against forward sales are carried at
the lower of aggregate cost or market. Net unrealized losses on these loans, if
any, are recorded in the current periods earnings. In general, the Corporation
does not maintain a material amount of loans held for sale that are not matched
against forward sales. 7




---



##### Table of Contents



Interest rate commitments on loans the Corporation intends to sell,
forward sales matched against such commitments, and forward sales that are not
matched against a loan or interest rate commitment are valued on a quarterly
basis. Net unrealized gains or losses associated with such derivative
instruments are recorded in the current periods earnings. Net unrealized gains or losses associated with the Corporations
pipeline are included in gain on sale of mortgage loans, which is a component of
mortgage banking revenue. Net unrealized gains and/or losses on the
Corporations pipeline were not material during any of the periods presented in
the Corporations Statements of Operations. SECURITIZATIONS AND SALES OF MORTGAGE LOANS The Corporation sells
substantially all of the fixed-rate single-family mortgage loans it originates,
including adjustable-rate loans that convert to fixed-rate loans. These sales
are accomplished through cash sales to Freddie Mac, Fannie Mae, the FHLB, and
other third-party investors, as well as through securitizations with Freddie Mac
and Fannie Mae. In general, MBSs received from Freddie Mac or Fannie Mae in
exchange for fixed-rate mortgage loans are sold immediately in the securities
market. The gain or loss associated with sales of single-family mortgage loans
is recorded as a component of mortgage banking revenue. Originations and sales of single-family mortgage loans will vary
significantly from period to period depending on customer preferences for
fixed-rate mortgage loans, customer refinance activity, and/or customer
conversions of adjustable-rate loans into fixed-rate loans. Accordingly, the
gain or loss associated with sales of single-family mortgage loans may vary
substantially from period to period. In general, however, fluctuations in gains
or losses on sales of single-family mortgage loans are offset to some degree by
opposite changes in the amortization of mortgage servicing rights, which is also
recorded as a component of mortgage banking revenue (refer to Mortgage
Servicing Rights, below). From time-to-time the Corporation also exchanges adjustable-rate
mortgage loans held for investment for Freddie Mac or Fannie Mae MBSs backed by
the same loans. The resulting MBSs are classified in the Corporations Statement
of Financial Condition as mortgage-backed and related securities available for
sale. The Corporation continues to service the loans underlying these
securities after they are exchanged. Sales or securitizations of mortgage loans through Freddie Mac and
Fannie Mae are generally done under terms that do not provide for recourse to
the Corporation by the investor. However, in the case of sales to the FHLB, the
Corporation retains the credit risk on the underlying loans in exchange for a
credit enhancement fee. Furthermore, the Corporation sometimes retains an
exposure to credit risk on loans it securitizes into MBSs through Freddie Mac or
Fannie Mae. In these instances, the Corporation records a recourse liability to
provide for potential credit losses. Because the loans involved in these
transactions are similar to those in the Corporations loans held for
investment, the review of the adequacy of the recourse liability is similar to
the review of the adequacy of the allowance for loan losses (refer to Allowance
for Loan Losses, below). MORTGAGE SERVICING RIGHTS The Corporation continues to service most
single-family mortgage loans it sells to third parties. Servicing mortgage loans
includes such functions as collecting monthly payments of principal and interest
from borrowers, passing such payments through to third-party investors,
maintaining escrow accounts for taxes and insurance, and making such payments
when they are due. When necessary, servicing mortgage loans also includes
functions related to the collection of delinquent principal and interest
payments, loan foreclosure proceedings, and disposition of foreclosed real
estate. The Corporation generally earns a servicing fee of 25 basis points or
more on the outstanding loan balance for performing these services as well as
fees and interest income from ancillary sources such as delinquency charges and
float. Servicing fee income is recorded as a component of mortgage banking
revenue, net of the amortization and charges described in the following
paragraphs. The Corporation records originated mortgage servicing rights (OMSR)
as a component of gain on sale of mortgage loans when the obligation to service
such loans has been retained by the Corporation. The initial value recorded for
OMSR is based on the relative values of the servicing rights and the underlying
loans without the servicing rights. This value approximates the present value of
the servicing fee adjusted for expected future costs to service the loans, as
well as income and fees expected to be received from ancillary sources, as
previously described. The carrying value of OMSR is amortized over the life of
and in proportion to net servicing fee income. Expected prepayments may vary
considerably from period to period. As a result, there may be considerable
variation in amortization of OMSRs from period to period depending on prepayment
expectations. In general, however, variations in the amortization of OMSRs will
offset to some degree opposite changes in gains or losses on sales of
single-family mortgage loans, as previously described (refer to Securitizations
and Sales of Mortgage Loans, above). 8




---



##### Table of Contents



From time-to-time the Corporation also purchases mortgage servicing
rights (PMSR) from third-parties. Similar to originated servicing, the
Corporation generally earns a fee of 25 basis points or more for performing
duties similar to those described for its own originations. PMSR is recorded at
cost and is amortized in a manner similar to that described for OMSR. The
Corporation purchases or originates mortgage servicing rights on single-family
residential mortgage loans only. The carrying value of OMSR and PMSR as recorded in the Corporations
Consolidated Statements of Financial Condition (collectively mortgage servicing
rights or MSRs) is subject to impairment because of changes in loan
prepayment expectations and in market discount rates used to value the future
cash flows associated with such assets. In valuing MSRs, the Corporation
stratifies the loans by investor and by the type of remittance program sponsored
by the investor, if applicable. If, based on a periodic evaluation, the
estimated fair value of the MSRs related to a particular stratum is determined
to be less than its carrying value, a valuation allowance is recorded against
such stratum and against the Corporations loan servicing fee income, which is
included as a component of mortgage banking revenue. A valuation allowance is
not recorded if the estimated fair value of a stratum exceeds its carrying
value. Because of this treatment, the Corporation may be required to maintain a
valuation allowance against MSRs even though the estimated fair value of the
Corporations total MSR portfolio exceeds its carrying value in total. In
addition, the Corporation may be required to maintain a valuation allowance even
though it is unlikely to actually incur an economic loss in future periods
because valuation allowances resulting from increases in prepayment expectations
are likely to be offset by additional OMSR gains in future periods. The
valuation allowance is calculated using the current outstanding principal
balance of the related loans, long-term prepayment assumptions as provided by
independent sources, a market-based discount rate, and other management
assumptions related to future costs to service the loans, as well as ancillary
sources of income. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is composed of
specific allowances for loans that are individually reviewed for impairment and
general valuation allowances for homogenous loans, which are evaluated on a
collective basis. The Corporation establishes specific valuation allowances on
loans it considers to be impaired and if loss is considered probable. A loan is
considered impaired when the carrying amount of the loan exceeds the present
value of the expected future cash flows, discounted at the loans original
effective interest rate, or the fair value of the underlying collateral. A
specific valuation allowance is established for an amount equal to the
impairment. General valuation allowances are based on an evaluation of the
various risk components that are inherent in the credit portfolio. The risk
components that are evaluated include past loan loss experience; the level of
non-performing and classified assets; current economic conditions; volume,
growth, and composition of the loan portfolio; adverse situations that may
affect borrowers ability to repay; the estimated value of any underlying
collateral; peer group comparisons; regulatory guidance; and other relevant
factors. The allowance is increased by provisions charged to earnings and
reduced by charge-offs, net of recoveries. The Corporations Board of Directors
reviews the adequacy of the allowance for loan losses on a quarterly basis. The
allowance reflects managements best estimate of the amount necessary to provide
for the impairment of loans. The allowance is based on a risk model developed
and implemented by management and approved by the Corporations Board of
Directors. REAL ESTATE Real estate acquired through foreclosure or deed in lieu of
foreclosure and real estate subject to redemption are recorded at the lower of
cost or estimated fair value, less estimated costs to sell. Costs relating to
the development and improvement of the property are capitalized. Income and
expenses incurred in connection with holding and operating the property are
included in the Corporations Consolidated Statements of Operations. OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment are
recorded at cost less accumulated depreciation, which is provided over the
estimated useful lives (five to forty years) of the respective assets on a
straight-line basis. The cost of leasehold improvements is being amortized on
the straight-line basis over the lesser of the term of the respective lease or
the estimated economic life. When properties are retired or otherwise disposed
of, the related cost and accumulated depreciation are removed from the
respective accounts and the resulting gain or loss is recorded in income. GOODWILL AND INTANGIBLE ASSETS From time-to-time the Corporation has
acquired all or a portion of the assets and liabilities of other financial
institutions and has paid or received amounts for such assets and liabilities
that are not equal to their identifiable fair value. Prior to 2002, a portion of
the resulting difference (deposit-based intangible) was amortized to earnings
over the estimated remaining lives of the deposit liabilities acquired in these
transactions. The remaining amount (goodwill) was amortized over 20 years. On
January 1, 2002, the Corporation adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). Under
SFAS 142, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized but are subject to annual impairment tests in accordance with
the new statements. Other identifiable intangible assets continue to be
amortized over their useful lives, which include deposit-based intangibles. 9




---



##### Table of Contents



In October 2002, the FASB issued Statement of Accounting Standards No.
147, Acquisitions of Certain Financial Institutions (SFAS 147). Although the
Corporation adopted this statement, such had no impact on its financial
condition or results of operations. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The Corporation
occasionally enters into sales of securities under agreements to repurchase with
third-party broker-dealers (commonly referred to as reverse-repurchase
agreements). These arrangements are treated as a financing, and the obligations
to repurchase securities sold are reflected as a liability in the Corporations
Consolidated Statements of Financial Condition. The securities underlying the
agreements remain in the asset accounts. There were no securities sold under
agreements to repurchase as of December 31, 2003, and December 31, 2002. Securities sold under reverse repurchase agreements are physically
delivered to the broker-dealers that arranged the transactions. The
broker-dealers may have sold, loaned, or otherwise disposed of such securities
to other parties in the normal course of their operations. The Corporation is
exposed to risk in these types of transactions in that changes in market prices,
economic losses, or other factors could prevent or delay the counter-party in
the transaction from returning the securities at the maturity of the agreement.
The Corporation limits its exposure to such risk by utilizing standard industry
agreements, limiting counter-parties to large, reputable broker-dealers,
limiting the amount that can be borrowed from an individual counter-party, and
limiting the duration of such agreements (typically one to six months). INCOME TAXES The Corporation, the Bank, and all but one of the Banks
subsidiaries file a consolidated federal income tax return and separate or
combined state income tax returns, depending on the state. Income taxes are
accounted for 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 bases of existing assets and liabilities are expected
to be reported in the Corporations income tax returns. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date of the change. A valuation allowance is provided for
any deferred tax asset for which it is more likely than not that the asset will
not be realized. Changes in valuation allowances are recorded as a component of
income. PENSION COSTS AND OTHER POSTRETIREMENT BENEFITS The Corporations net
periodic pension cost consists of the expected cost of benefits earned by
employees during the current period and an interest cost on the projected
benefit obligation, reduced by the earnings on assets held by the retirement
plan, and by amortization of any actuarial gains and losses over the estimated
future service period of existing plan participants. The projected unit credit
actuarial cost method is used to determine expected pension costs. The
Corporations funding policy is to contribute amounts deductible for federal
income tax purposes. The Corporations cost of postretirement benefits, which consists of
medical reimbursements for retirees, is recognized during the years that the
employees render the necessary service, adjusted for interest costs on the
projected benefit obligation and for the amortization of a transitional
obligation over 20 years (beginning in 1993). The projected unit credit
actuarial cost method is used to determine expected postretirement benefit
costs. The Corporations postretirement benefit plan is not currently funded. FAIR VALUES OF FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS The following methods and assumptions were used by the Corporation
in estimating the fair value of financial instruments disclosed elsewhere in
this report. CASH AND DUE FROM BANKS AND INTEREST-BEARING DEPOSITS WITH
BANKS The face amounts presented in the Corporations Consolidated Statements of
Financial Condition for cash and interest-bearing deposits approximates fair
value for such assets. INVESTMENT SECURITIES AND MORTGAGE-BACKED AND RELATED
SECURITIES Fair values for this group of financial instruments are based on
average quoted market prices obtained from independent pricing sources. If
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments. LOANS HELD FOR SALE OR FOR INVESTMENT The estimated fair
values of loans held for sale is based on what secondary markets are currently
offering for portfolios with similar characteristics. The estimated fair values
of loans held for investment is determined using discounted cash flow
techniques. Scheduled principal and interest payments are adjusted for estimated
future prepayments as provided by third-party market sources or as estimated by
management using historical prepayment experience. Discount rates used in the
fair value computations are generally based on interest rates 10




---



##### Table of Contents



offered by the Corporation on similar loans as of the end of the period,
adjusted for managements estimate of differences in liquidity, credit risk,
remaining term to maturity, etc. The estimated fair value of loans held for sale also includes
an adjustment for the estimated fair value of unfunded interest rate commitments
on loans the Corporation intends to sell, as well as forward commitments to sell
loans. The methods used to value these commitments are described under Forward
Commitments to Sell Loans, below. FEDERAL HOME LOAN BANK STOCK FHLB stock held in excess of
minimum requirements can be returned to the FHLB for face value. Accordingly,
the fair value of all FHLB stock is estimated to be equal to the face amount
presented in the Corporations Consolidated Statements of Financial Condition. ACCRUED INTEREST RECEIVABLE AND PAYABLE The fair value of
accrued interest is equal to the face amount presented in the Corporations
Consolidated Statements of Financial Condition. MORTGAGE SERVICING RIGHTS The fair value of MSRs is estimated
using a discounted cash flow calculation that applies discount rates considered
reasonable by management to a schedule of both contractual and estimated cash
flows. Such cash flows are adjusted for loan prepayment rates determined by
independent industry sources. DEPOSIT LIABILITIES The fair values of demand deposit accounts
(i.e., interest-bearing and non-interest-bearing checking accounts and money
market and regular savings accounts) are equal to their face amount. The fair
value of fixed-rate time deposits is estimated using a discounted cash flow
calculation that applies interest rates offered by the Corporation as of the
measurement date to a schedule of aggregate contractual maturities of such
deposits as of the same dates. FEDERAL HOME LOAN BANK ADVANCES The fair value of FHLB
advances is estimated using a discounted cash flow calculation that applies
interest rates quoted by the FHLB as of the measurement date to a schedule of
aggregate contractual maturities of such liabilities as of the same date. The
fair value of FHLB advances excludes the effect of any prepayment penalties that
may be incurred if the Corporation were to prepay any of its term advances. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, FEDERAL FUNDS
PURCHASED, AND OTHER BORROWINGS These funding sources consist principally of
short-term or variable rate borrowings. As such, the Corporation has estimated
the fair value of these funding sources to approximate carrying value. ADVANCE PAYMENTS BY BORROWERS FOR TAXES AND INSURANCE The fair
value of advance payments by borrowers for taxes and insurance is equal to the
face amount presented in the Corporations Consolidated Statements of Financial
Condition. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS The Corporation has
become a party to financial instruments with off-balance sheet risk in the
normal course of its business in order to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
standby letters of credit, lines of credit, and financial guarantees. Off-balance sheet financial instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the Statement of Financial Condition. In the event of
non-performance by the other party to a financial instrument, the Corporations
exposure to credit loss is represented by the contractual amount of the
instrument. The Corporation uses the same credit policies in granting
commitments, letters and lines of credit, and financial guarantees as it does
for on-balance-sheet financial instruments. The fair values of commitments to extend credit are determined
based on what secondary markets are currently offering for portfolios with
similar characteristics, similar to that which is used for loans held for sale,
as previously described. Other than credit enhancements on loans sold to the FHLB, the
Corporation does not issue material amounts of financial guarantees or stand-by
letters of credit. Management believes that the Corporations exposure to loss
on such instruments is insignificant, including its credit enhancements with the
FHLB. Accordingly, management believes the fair value of such financial
instruments approximates zero. FORWARD COMMITMENTS TO SELL LOANS The fair values of forward
commitments to sell loans are based on average quoted market prices obtained
from independent pricing sources. 11




---



##### Table of Contents



STOCK-BASED COMPENSATION The Corporation records expense relative to
stock-based compensation using the intrinsic value method. Since the intrinsic
value of the Corporations stock options is generally zero at the time of the
award, no expense is recorded. With respect to restricted stock awards, the
intrinsic value is generally equal to the fair value of the Corporations common
stock on the date of the initial contingent award, adjusted retroactively for
any changes in the value of the stock between the initial award date and the
final measurement date. Such value is amortized as expense over the measurement
period of the award. EARNINGS PER SHARE Basic and diluted earnings per share data are based
on the weighted-average number of common shares outstanding during each period.
Diluted earnings per share is further adjusted for potential common shares that
were dilutive and outstanding during the period. Potential common shares
generally consist of stock options outstanding under the incentive plans
described elsewhere in this report. The dilutive effect of potential common
shares is computed using the treasury stock method. All stock options are
assumed to be 100% vested for purposes of the earnings per share computations.
The computation of earnings per share for the years ended December 31, 2003,
2002, and 2001, is as follows: 2003
    
    2002
    
    2001DILUTED
    
    BASIC
    
    DILUTED
    
    BASIC
    
    DILUTED
    
    BASICNet income
    
    $
    34,726,545
    
    
    $
    34,726,545
    
    
    $
    34,915,542
    
    
    $
    34,915,542
    
    
    $
    28,448,225
    
    
    $
    28,448,225Average common shares issued, net
of actual treasury shares
    
    
    20,352,640
    
    
    
    20,352,640
    
    
    
    19,892,179
    
    
    
    19,892,179
    
    
    
    18,682,407
    
    
    
    18,682,407Potential common shares issued under
stock options (treasury stock method)
    
    
    245,035
    
    
    
    
    
    
    
    271,658
    
    
    
    
    
    
    
    188,582
    
    
    
    Average common shares and
potential common shares
    
    
    20,597,675
    
    
    
    20,352,640
    
    
    
    20,163,837
    
    
    
    19,892,179
    
    
    
    18,870,989
    
    
    
    18,682,407Earnings per share
    
    $
    1.69
    
    
    $
    1.71
    
    
    $
    1.73
    
    
    $
    1.76
    
    
    $
    1.51
    
    
    $
    1.52
 CASH AND CASH EQUIVALENTS For purposes of the Corporations
Consolidated Statements of Cash Flows, cash and cash equivalents consists solely
of cash on hand and non-interest-bearing deposits in banks (cash and due from
banks). The Corporation is required to maintain a certain amount of cash on
hand and non-interest-bearing account balances at the Federal Reserve Bank of
Minneapolis to meet specific reserve requirements. These requirements
approximated $53.3 million at December 31, 2003, and $49.6 million at December
31, 2002. RECLASSIFICATION Certain 2002 and 2001 balances have been reclassified
to conform with the 2003 presentation. NOTE 2INVESTMENT SECURITIES AND MORTGAGE-BACKED AND RELATED SECURITIES Mortgage-backed and related securities at December 31, 2003 and 2002,
are summarized as follows: 2003AMORTIZED
    
    UNREALIZED
    
    UNREALIZED
    
    FAIRCOST
    
    GAINS
    
    LOSSES
    
    VALUEAvailable for sale:Collateralized mortgage obligations
    
    $
    362,605,326
    
    
    $
    1,435,341
    
    
    
    ($2,003,474
    )
    
    $
    362,037,193Mortgage-backed securities
    
    
    23,473,526
    
    
    
    1,351,652
    
    
    
    
    
    
    
    24,825,178Total available for sale
    
    
    386,078,852
    
    
    
    2,786,993
    
    
    
    (2,003,474
    )
    
    
    386,862,372Held for investment:Mortgage-backed securities
    
    
    613,076
    
    
    
    5,557
    
    
    
    (8,339
    )
    
    
    610,294Total held for investment
    
    
    613,076
    
    
    
    5,557
    
    
    
    (8,339
    )
    
    
    610,294Total mortgage-related securities
    
    $
    386,691,928
    
    
    $
    2,792,550
    
    
    
    ($2,011,813
    )
    
    $
    387,472,666
 2002AMORTIZED
    
    UNREALIZED
    
    UNREALIZED
    
    FAIRCOST
    
    GAINS
    
    LOSSES
    
    VALUEAvailable for sale:Collateralized mortgage obligations
    
    $
    321,054,160
    
    
    $
    1,109,312
    
    
    
    ($298,506
    )
    
    $
    321,864,966Mortgage-backed securities
    
    
    41,440,735
    
    
    
    2,769,405
    
    
    
    
    
    
    
    44,210,140Total available for sale
    
    
    362,494,895
    
    
    
    3,878,717
    
    
    
    (298,506
    )
    
    
    366,075,106Held for investment:Collateralized mortgage obligations
    
    
    29,129,314
    
    
    
    188,596
    
    
    
    (27,917
    )
    
    
    29,289,994Mortgage-backed securities
    
    
    900,376
    
    
    
    12,952
    
    
    
    (11,146
    )
    
    
    902,182Total held for investment
    
    
    30,029,690
    
    
    
    201,548
    
    
    
    (39,063
    )
    
    
    30,192,176Total mortgage-related securities
    
    $
    392,524,585
    
    
    $
    4,080,265
    
    
    
    ($337,569
    )
    
    $
    396,267,282
 12




---



##### Table of Contents



Accrued interest receivable on mortgage-backed and related securities
was $1,524,381 and $2,085,348 at December 31, 2003 and 2002, respectively. MBSs consist of Freddie Mac and Fannie Mae securities. As of December
31, 2003, the Corporation had retained the credit risk on $16.4 million in
Freddie Mac MBSs. CMOs consist of securities backed by the aforementioned
agency-backed securities or by whole-loans. As of December 31, 2003,
approximately 21% of the Corporations CMO portfolio consisted of securities
backed by whole loansall of which were rated triple-A or its equivalent by the
major credit-rating agencies. Approximately 31% of the Corporations whole-loan
CMOs consisted of loans on properties located in the state of California. No
other geographical location had a material concentration. As of December 31,
2003, MBSs with a book value of $185,000 were pledged as collateral on a
treasury tax and loan deposit; CMOs with a book value of $97.4 million were
pledged to secure FHLB advances. As of December 31, 2003 and 2002 there were no securities outstanding
other than MBSs and CMOs. There were no realized gains or losses on sales of
investment securities in 2003. Realized losses on sales of investment securities
were $166,264 in 2002. There were no realized gains or losses on sales of
mortgage-backed and related securities during 2003, 2002, and 2001. NOTE 3LOANS HELD FOR INVESTMENT Loans held for investment at December 31 are summarized as follows: 2003
    
    2002First mortgage loans:Single-family real estate
    
    $
    759,489,982
    
    
    $
    734,407,400Non-residential real estate
    
    
    426,644,196
    
    
    
    250,223,910Multi-family real estate
    
    
    284,991,259
    
    
    
    254,294,478Construction
    
    
    119,195,922
    
    
    
    97,263,177Consumer loans:Second mortgage and home equity
    
    
    396,581,425
    
    
    
    345,810,380Automobile
    
    
    146,676,852
    
    
    
    126,454,963Other consumer
    
    
    36,400,783
    
    
    
    28,613,347Education loans
    
    
    195,052,225
    
    
    
    194,597,010Commercial business loans
    
    
    158,760,854
    
    
    
    71,904,398Subtotal
    
    
    2,523,793,498
    
    
    
    2,103,569,063Unearned discount, premiums, and net deferred loan fees and costs
    
    
    8,772,240
    
    
    
    8,730,580Allowance for loan losses
    
    
    (13,882,350
    )
    
    
    (11,658,086
    )Total
    
    $
    2,518,683,388
    
    
    $
    2,100,641,557
 Accrued interest receivable on loans was $14,260,711 and $15,305,012 at
December 31, 2003 and 2002, respectively. At December 31, 2003, substantially all of the Corporations
single-family mortgage loans were pledged to secure FHLB advances. At December 31, 2003 and 2002, loans on non-accrual status were $9.6
million and $5.4 million, respectively. The Corporation has no loans
contractually past due ninety or more days for which interest is being accrued. With respect to single-family mortgage loans, it is the Corporations
general policy to restrict lending to its primary market areas in Wisconsin,
Minnesota, and Illinois, as well as contiguous counties in Iowa, though from
time-to-time the Corporation will purchase single-family loans originated
outside of its primary market area. It is also the Corporations general policy
to limit individual single-family mortgage loans to 80% of the appraised value
of the property securing the loan. The Corporation will occasionally lend more
than 80% of the appraised value of the property, but generally will require the
borrower to obtain private mortgage insurance on the portion of the loan amount
that exceeds 80% of the collateral. Single-family mortgage loans originated or
purchased outside of the Corporations primary market area were $239 million and
$307 million at December 31, 2003 and 2002, respectively. With respect to multi-family and non-residential real estate loans, it
is the Corporations policy to restrict its lending area to loans secured by
property located within a 300-mile radius of La Crosse, to include all or a
portion of the states of Wisconsin, Nebraska, Illinois, Iowa, and Minnesota,
although in the past the Corporation originated multi-family and non-residential
real estate loans outside of this area. It is also the Corporations general
policy to limit loans on multi-family residential complexes, retail shopping
centers, office buildings, and multi-tenant industrial buildings to 80% of the 13




---



##### Table of Contents



appraised value of the property securing the loan. Loans on other types of
commercial properties, such as nursing homes, hotels/motels, churches, and
single-tenant industrial buildings are limited to 75% or less of the appraised
value of the property securing the loan. Multi-family and non-residential real
estate loans originated or purchased outside of the Corporations market area
were $20.6 million and $19.9 million, at December 31, 2003 and 2002,
respectively. With respect to consumer loans, it is the Corporations policy that
such loans be supported primarily by the borrowers ability to repay the loan
and secondarily by the value of the collateral securing the loan, if any.
Furthermore, in the case of second mortgages and home equity loans, the
Corporation does not generally allow the sum of the first and second mortgage
amounts to exceed 100% of the appraised value of the property securing the loan.
Education loans are substantially guaranteed by an agency of the U.S.
government. With respect to commercial business loans, it is the Corporations
policy that such loans be supported primarily by the borrowers ability to repay
the loan and/or alternative sources of repayment (generally in the form of
collateral or outside guarantee), and secondarily by the value of the collateral
securing the loan, if any. Applications for commercial business loans are
accepted at the Corporations offices in La Crosse, Wausau, and Oskhosh,
Wisconsin, as well as Rochester and St. Paul, Minnesota. It is the Corporations
general policy to restrict its commercial business lending to a market area
defined as within a 150-mile radius of any office location where business
banking products and services are sold. A summary of the activity in the allowance for loan losses is as
follows: 2003
    
    2002
    
    2001Balance at beginning of period
    
    $
    11,658,086
    
    
    $
    9,961,577
    
    
    $
    8,027,526Provision charged to expense
    
    
    1,455,835
    
    
    
    3,468,063
    
    
    
    1,763,391Loans charged-off
    
    
    (2,205,996
    )
    
    
    (1,844,943
    )
    
    
    (1,189,383
    )Recoveries
    
    
    100,537
    
    
    
    73,389
    
    
    
    98,026Charge-offs, net
    
    
    (2,105,459
    )
    
    
    (1,771,554
    )
    
    
    (1,091,357
    )Allowance on loans acquired in acquisition
    
    
    2,873,889
    
    
    
    
    
    
    
    1,262,017Balance at end of period
    
    $
    13,882,350
    
    
    $
    11,658,086
    
    
    $
    9,961,577
 NOTE 4MORTGAGE SERVICING RIGHTS A summary of the activity in mortgage servicing rights is as follows: PURCHASED
    
    ORIGINATED
    
    VALUATIONMSR
    
    MSR
    
    ALLOWANCE
    
    TOTALBalance at December 31, 2000
    
    $
    3,656,097
    
    
    $
    22,291,018
    
    
    
    ($2,666,643
    )
    
    $
    23,280,472Purchased servicing
    
    
    1,100,197
    
    
    
    
    
    
    
    
    
    
    
    1,100,197Originated servicing
    
    
    
    
    
    
    20,183,936
    
    
    
    
    
    
    
    20,183,936Originated servicing obtained through acquisition
    
    
    
    
    
    
    1,248,285
    
    
    
    
    
    
    
    1,248,285Amortization charged to earnings
    
    
    (1,669,661
    )
    
    
    (14,301,103
    )
    
    
    
    
    
    
    (15,970,764
    )Valuation adjustments charged to earnings
    
    
    
    
    
    
    
    
    
    
    66,643
    
    
    
    66,643Balance at December 31, 2001
    
    
    3,086,633
    
    
    
    29,422,136
    
    
    
    (2,600,000
    )
    
    
    29,908,769Originated servicing
    
    
    
    
    
    
    26,286,368
    
    
    
    
    
    
    
    26,286,368Amortization charged to earnings
    
    
    (1,754,025
    )
    
    
    (23,519,771
    )
    
    
    
    
    
    
    (25,273,796
    )Valuation adjustments charged to earnings
    
    
    
    
    
    
    
    
    
    
    (750,000
    )
    
    
    (750,000
    )Balance at December 31, 2002
    
    
    1,332,608
    
    
    
    32,188,733
    
    
    
    (3,350,000
    )
    
    
    30,171,341Originated servicing
    
    
    
    
    
    
    31,548,399
    
    
    
    
    
    
    
    31,548,399Amortization charged to earnings
    
    
    (1,019,702
    )
    
    
    (27,709,182
    )
    
    
    
    
    
    
    (28,728,884
    )Valuation adjustments charged to earnings
    
    
    
    
    
    
    
    
    
    
    3,350,000
    
    
    
    3,350,000Balance at December 31, 2003
    
    $
    312,906
    
    
    $
    36,027,950
    
    
    
    
    
    
    $
    36,340,856
 Loans serviced for investors were $3.3 billion, $3.0 billion, and $2.7
billion at December 31, 2003, 2002, and 2001, respectively. These loans are not
reflected in the Corporations Consolidated Statements of Financial Condition.
At December 31, 2003, the Corporation had retained the credit risk related to
$2.4 billion in single-family residential loans sold to the FHLB in exchange for
a monthly credit enhancement fee. As more fully described in Note 1, originated servicing is recorded as
a component of gain on sale of mortgage loans, which is included as a component
of mortgage banking revenue. In addition, amortization and valuation adjustments
charged to earnings are recorded as an offset to servicing fee income, which is
also recorded as a component of mortgage banking revenue. 14




---



##### Table of Contents



As noted in the table, above, amortization of MSRs varies considerably
from period to period. The amortization of MSRs is significantly influenced by
the interest rate environment and the impact such has on borrower behavior and
the broader markets expectations for future loan prepayment activity. If the
interest rate environment at December 31, 2003, remains unchanged for the next
five years and/or the markets expectations for future loan prepayment activity
does not change over the same period, management estimates amortization of MSRs
will be $7.3 million, $6.2 million, $5.0 million, $3.9 million, and $3.1 million
during the years 2004 to 2008, respectively. Management cautions the reader that
the only thing known for certain with respect to this estimate is that it is a
virtual certainty that it will not transpire because it is a virtual certainty
that interest rates will fluctuate, borrower behavior will change, and market
expectations for future prepayments will vary, making any estimate of future
amortization subject to significant uncertainty in the near term. The reader is
also cautioned that the disclosure does not include an estimate of amortization
for MSRs originated or purchased after December 31, 2003. As a result of these
shortcomings, management cautions the reader that this disclosure may be of very
limited value. NOTE 5OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment at December 31 are summarized as
follows: 2003
    
    2002Office buildings and improvements
    
    $
    27,714,291
    
    
    $
    22,699,575Furniture and equipment
    
    
    29,972,259
    
    
    
    26,338,144Leasehold improvements
    
    
    9,105,056
    
    
    
    8,235,992Land and improvements
    
    
    7,027,059
    
    
    
    4,616,028Property acquired for expansion
    
    
    7,728,871
    
    
    
    712,330Construction in progress
    
    
    4,470,003
    
    
    
    2,262,012Subtotal
    
    
    86,017,539
    
    
    
    64,864,081Accumulated depreciation and amortization
    
    
    (32,996,956
    )
    
    
    (29,216,746
    )Total
    
    $
    53,020,583
    
    
    $
    35,647,335
 The Corporation rents office space and land under operating leases at
certain of its locations. These leases have terms expiring between 2004 and 2033
and provide for renewals subject to escalation clauses. Rental expense was
$3,210,117, $2,655,420, and $2,217,502 for the years ended December 31, 2003,
2002, and 2001, respectively. Management estimates lease payments will be
$2.8 million each year during the years 2004 to 2008. NOTE 6GOODWILL AND OTHER INTANGIBLE ASSETS The Corporation adopted SFAS 142 on January 1, 2002. Under SFAS 142,
goodwill and intangible assets deemed to have indefinite lives are no longer
amortized but are subject to annual impairment tests. Other identifiable
intangible assets continue to be amortized over their useful lives, which
include deposit-based intangibles. If SFAS 142 had been in effect during the
twelve months ended December 31, 2001, the Corporations net income in such
period would have been higher by approximately $662,000 or $0.03 per diluted
share. The following table provides a summary of the Corporations goodwill
and other intangible assets as of December 31: 2003
    
    2002Goodwill:Not deductible for tax purposes
    
    $
    55,229,555
    
    
    $
    15,607,128Deductible for tax purposes
    
    
    22,939,311
    
    
    
    22,939,311Total goodwill
    
    
    78,168,866
    
    
    
    38,546,439Other intangible assets:Deposit-based intangibles not deductible for tax purposes
    
    
    10,076,213
    
    
    
    1,465,617Deposit-based intangibles deductible for tax purposes
    
    
    2,442,771
    
    
    
    2,876,753Other intangibles, deductible for tax purposes
    
    
    839,992
    
    
    
    929,577Total other intangibles
    
    
    13,358,976
    
    
    
    5,271,947Total
    
    $
    91,527,842
    
    
    $
    43,818,386
 As of December 31, 2003, the weighted-average remaining amortization
period for deposit-based intangibles deductible for tax purposes was
approximately 20 years. It was approximately 16 years for non-deductible
deposit-based intangibles. Amortization for all deposit-based intangibles is
expected to be $1.9 million in 2004, $1.7 million in 2005, $1.6 million in 2006,
$1.5 million in 2007, and $1.4 million in 2008. As of December 31, 2002, the
weighted-average 15




---



##### Table of Contents



remaining amortization period for other intangibles was approximately 8 years.
Amortization for other intangibles is expected to be approximately $127,000 per
year in the years 2004 through 2006, $123,000 in 2007, and $85,000 in 2008. As described in Note 14, the Corporation disregards the impact of
goodwill and other intangible assets in evaluating the performance of its
reportable segments. Consequently, no effort has been made to allocate such
assets to the Corporations reportable segments. As described in Note 14, the
Corporation accounts for its operations along product lines. However, management
of the Corporation believes it is more appropriate in the banking industry for
goodwill and other intangible assets to continue to be associated with the
specific customer base or market from which such assets arose, as opposed to
particular product lines. Accordingly, the Corporation maintains its accounting
records for goodwill and other intangible assets by market, rather than by
product line. Management of the Corporation believes this approach to be
appropriate, because its annual impairment evaluation for goodwill and other
intangible assets begins with an analysis of its customer, loan, and deposit
bases in a particular market, as well as the wealth of public information that
is available in the banking industry on the value of such franchises. The
following table summarizes the Corporations goodwill and other intangible
assets by market as of December 31: 2003
    
    2002DEPOSIT-BASED
    
    
    
    
    
    
    
    
    
    DEPOSIT-BASEDMARKET
    
    GOODWILL
    
    INTANGIBLES
    
    OTHER
    
    GOODWILL
    
    INTANGIBLES
    
    OTHERSt. Paul, Minnesota
    
    $
    39,622,427
    
    
    $
    8,841,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rochester, Minnesota
    
    
    16,662,680
    
    
    
    2,292,153
    
    
    
    
    
    
    $
    16,662,680
    
    
    $
    2,692,857
    
    
    
    Wausau, Wisconsin
    
    
    12,513,602
    
    
    
    1,235,200
    
    
    
    
    
    
    
    12,513,602
    
    
    
    1,465,617
    
    
    
    Rockford, Illinois
    
    
    6,276,631
    
    
    
    
    
    
    
    
    
    
    
    6,276,631
    
    
    
    
    
    
    
    Beloit/Janesville, Wisconsin
    
    
    3,093,526
    
    
    
    10,151
    
    
    
    
    
    
    
    3,093,526
    
    
    
    20,327
    
    
    
    All other markets
    
    
    
    
    
    
    140,466
    
    
    
    839,992
    
    
    
    
    
    
    
    163,569
    
    
    
    929,577Total
    
    $
    78,168,866
    
    
    $
    12,518,983
    
    
    $
    839,992
    
    
    $
    38,546,439
    
    
    $
    4,342,370
    
    
    $
    929,577
 Management evaluated the Corporations intangible assets as of June 30,
2003, in accordance with SFAS 142 and determined that such assets were not
impaired at that time. Management of the Corporation is not aware of any events
or circumstances that would change this assessment as of December 31, 2003. NOTE 7DEPOSIT LIABILITIES Deposit liabilities at December 31 are summarized as follows: 2003
    
    2002Checking accounts:Non-interest-bearing
    
    $
    345,698,378
    
    
    $
    356,357,052Interest-bearing
    
    
    187,367,730
    
    
    
    138,650,072Money market accounts
    
    
    464,779,883
    
    
    
    241,113,975Regular savings accounts
    
    
    260,975,248
    
    
    
    163,844,384Total demand deposits
    
    
    1,258,821,239
    
    
    
    899,965,483Time deposits maturing withinThree months
    
    
    139,322,313
    
    
    
    220,091,094Four to six months
    
    
    104,895,917
    
    
    
    217,916,156Seven to twelve months
    
    
    321,522,681
    
    
    
    653,508,965Thirteen to twenty-four months
    
    
    504,235,492
    
    
    
    157,528,782Twenty-five to thirty-six months
    
    
    92,988,451
    
    
    
    121,376,825Thirty-seven to forty-eight months
    
    
    90,854,429
    
    
    
    14,508,390Forty-nine to sixty months
    
    
    40,196,503
    
    
    
    70,252,597Total time deposits
    
    
    1,294,015,786
    
    
    
    1,455,182,809Total
    
    $
    2,552,837,027
    
    
    $
    2,355,148,292
 Accrued interest payable on deposit liabilities was $1,533,598 and
$1,295,729 at December 31, 2003 and 2002, respectively. Time deposits include
$191 million and $195 million of certificates in denominations of $100,000 or
more at December 31, 2003 and 2002, respectively. Time deposits also include
$9.0 million and $5.3 million in deposits obtained through third-party brokers
at December 31, 2003 and 2002, respectively. Included in non-interest-bearing checking accounts at December 31, 2003
and 2002, were $43 million and $139 million, respectively, which represented
amounts held in custody for third-party investors in loans serviced by the
Corporation. 16




---



##### Table of Contents



Interest expense on deposit liabilities for the year ended December 31
is summarized as follows: 2003
    
    2002
    
    2001Checking accounts
    
    $
    594,560
    
    
    $
    475,103
    
    
    $
    573,484Money market savings accounts
    
    
    3,324,235
    
    
    
    3,239,148
    
    
    
    5,538,599Regular savings
    
    
    492,047
    
    
    
    1,150,568
    
    
    
    1,528,534Time deposits
    
    
    44,997,311
    
    
    
    52,218,120
    
    
    
    75,943,999Total
    
    $
    49,408,153
    
    
    $
    57,082,939
    
    
    $
    83,584,616
 NOTE 8FEDERAL HOME LOAN BANK ADVANCES AND ALL OTHER BORROWINGS FHLB advances and all other borrowings at December 31 are summarized as
follows: 2003
    
    2002WEIGHTED
    
    
    
    
    
    WEIGHTEDBALANCE
    
    AVERAGE RATE
    
    BALANCE
    
    AVERAGE RATEFederal Home Loan Bank advances maturing in2003
    
    
    
    
    
    
    
    
    
    $
    170,600,000
    
    
    
    5.32
    %2004
    
    $
    50,000,000
    
    
    
    4.33
    %
    
    
    125,000,000
    
    
    
    5.092005
    
    
    25,000,000
    
    
    
    4.32
    
    
    
    77,500,000
    
    
    
    5.582008
    
    
    27,500,000
    
    
    
    4.96
    
    
    
    27,500,000
    
    
    
    4.96Open line of credit
    
    
    270,575,000
    
    
    
    1.27
    
    
    
    
    
    
    
    Total FHLB advances
    
    
    373,075,000
    
    
    
    2.16
    
    
    
    400,600,000
    
    
    
    5.27Federal funds purchased
    
    
    24,500,000
    
    
    
    1.26
    
    
    
    
    
    
    
    Other borrowings
    
    
    43,624,308
    
    
    
    2.29
    
    
    
    17,012,682
    
    
    
    2.47Total
    
    $
    441,199,308
    
    
    
    2.12
    %
    
    $
    417,612,682
    
    
    
    5.16
    %
 Accrued interest payable on FHLB advances and all other borrowings was
$639,075 and $1,823,680 at December 31, 2003 and 2002, respectively. The Corporations borrowings at the FHLB are limited to the lesser of
35% of total assets or 60% of the book value of certain single-family
residential mortgage loans and 85% to 90% of the market value of certain
mortgage-related securities. As of December 31, 2003, substantially all of the
Corporations single-family mortgage loans and $97.4 million in CMOs were
pledged to secure FHLB advances. As of that date, the Corporation was in an
over-pledged condition with the FHLB to facilitate possible future borrowings.
As of December 31, 2003, the Corporation had approximately $463 million of
unused borrowing capacity at the FHLB. Interest on the Corporations open line
of credit with the FHLB is paid monthly at approximately 25 basis points above
the federal funds rate. There were no borrowings outstanding under this line of
credit at December 31, 2002. As of December 31, 2003, $27.5 million of the FHLB
advances maturing in 2008 consist of borrowings that are redeemable quarterly at
the option of the FHLB. The Corporation has unsecured lines of credit with three financial
institutions. These lines, which amount to $60.0 million in the aggregate,
permit the overnight purchase of federal funds. As of December 31, 2003, there
was $24.5 million outstanding under these lines of credit. The Corporation also
has an additional unsecured line of credit with one of these institutions in the
amount of $60 million. As of December 31, 2003, there was $41.1 million
outstanding under this unsecured line of credit. NOTE 9INCOME TAXES Federal and state income tax expense for the years ended December 31 is
summarized as follows: 2003
    
    2002
    
    2001Current:Federal
    
    $
    13,772,660
    
    
    $
    16,147,140
    
    
    $
    12,819,735State
    
    
    356,780
    
    
    
    197,726
    
    
    
    128,750Total current
    
    
    14,129,440
    
    
    
    16,344,866
    
    
    
    12,948,485Deferred:Federal
    
    
    4,080,000
    
    
    
    1,901,000
    
    
    
    2,427,000State
    
    
    2,229,936
    
    
    
    1,152,000
    
    
    
    23,000Total deferred
    
    
    6,309,936
    
    
    
    3,053,000
    
    
    
    2,450,000Total
    
    $
    20,439,376
    
    
    $
    19,397,866
    
    
    $
    15,398,485
 17




---



##### Table of Contents



The income tax provision differs from the provision computed at the
federal statutory corporate tax rate for the years ended December 31 as follows: 2003
    
    2002
    
    2001Income taxes at federal statutory of 35%
    
    $
    19,308,072
    
    
    $
    19,009,693
    
    
    $
    15,346,348State income tax net of federal income tax effect
    
    
    1,674,738
    
    
    
    877,322
    
    
    
    98,637Other
    
    
    (543,434
    )
    
    
    (489,149
    )
    
    
    (46,500
    )Income tax provision
    
    $
    20,439,376
    
    
    $
    19,397,866
    
    
    $
    15,398,485
 The significant components of the Corporations deferred tax assets and
liabilities as of December 31, are summarized as follows: 2003
    
    2002Deferred tax assets:Loan and real estate loss allowances
    
    $
    5,420,783
    
    
    $
    4,623,320Deferred compensation
    
    
    3,610,743
    
    
    
    3,362,802State tax loss carryforwards, net
    
    
    864,062
    
    
    
    1,291,698Additional minimum pension liability
    
    
    1,201,864
    
    
    
    594,566Other
    
    
    308,024
    
    
    
    326,220Total deferred tax assets
    
    
    11,405,476
    
    
    
    10,198,606Valuation allowance
    
    
    (347,494
    )
    
    
    (458,920
    )Adjusted deferred tax assets
    
    
    11,057,982
    
    
    
    9,739,686Deferred tax liabilities:Mortgage servicing rights
    
    
    13,333,709
    
    
    
    10,228,587Securities valuation allowance
    
    
    274,232
    
    
    
    1,253,074Office properties and equipment depreciation
    
    
    1,111,661
    
    
    
    627,397Deferred loan fees
    
    
    1,339,221
    
    
    
    1,177,780FHLB stock dividends
    
    
    4,141,182
    
    
    
    2,720,607Purchase acquisition adjustments
    
    
    4,314,259
    
    
    
    1,218,408Other
    
    
    621,973
    
    
    
    513,133Total deferred tax liabilities
    
    
    25,136,237
    
    
    
    17,738,986Net deferred tax liabilities
    
    ($
    14,078,255
    )
    
    ($
    7,999,300
    )
 The Bank qualifies under provisions of the IRC that prior to 1996
permitted it to deduct from taxable income an allowance for bad debts that
generally exceeded losses charged to income for financial reporting purposes.
Accordingly, no provision for income taxes has been made for $21.1 million of
retained income at December 31, 2003. If in the future the Bank no longer
qualifies as a bank for tax purposes, income taxes may be imposed at the
then-applicable rates. If income taxes had been provided, the tax liability
would have been approximately $8.5 million. At December 31, 2003, the
Corporation had $16.9 million in state net operating loss carryforwards for tax
purposes that expire between 2004 and 2018. The Corporation carries a valuation
allowance against certain state net operating loss carryforwards. As of December
31, 2003, management believes it is more likely than not that the benefit of
these loss carryforwards will not be realized. NOTE 10EMPLOYEE BENEFIT PLANS PENSION PLAN The Corporation has established a pension plan for the
benefit of full-time employees that have at least one year of service and have
attained the age of 20. However, the Corporation implemented a plan change as of
December 31, 2003, which froze plan benefits for participants that did not meet
certain age and service requirements on January 1, 2003. New employees after
December 31, 2003, will not accrue any benefits under the pension plan. For
participants that met the age and service requirements, there was no change in
the pension plan. For participants whose benefits were not frozen, benefits
under the plan are based on the employees years of service and compensation
during the years immediately preceding retirement. 18




---



##### Table of Contents



The following table summarizes the components of pension benefit
obligation and plan assets, the funded status of the plan, the amount recognized
in the Corporations consolidated financial statements, and the weighted-average
assumptions for the years ended December 31, 2003 and 2002. 2003
    
    2002Reconciliation of benefit obligation:Benefit obligation at beginning of year
    
    $
    15,306,228
    
    
    $
    12,337,045Service costs
    
    
    1,359,608
    
    
    
    852,988Interest costs
    
    
    1,246,652
    
    
    
    910,252Actuarial loss
    
    
    4,421,890
    
    
    
    1,587,379Benefit payments
    
    
    (408,049
    )
    
    
    (344,131
    )Plan amendment
    
    
    
    
    
    
    (37,305
    )Curtailments
    
    
    (1,834,375
    )
    
    
    Benefit obligation assumed in merger
    
    
    3,174,399
    
    
    
    Benefit obligation at end of year
    
    $
    23,266,353
    
    
    $
    15,306,228Reconciliation of fair value of plan assets:Fair value of plan assets at beginning of year:
    
    $
    8,915,403
    
    
    $
    10,038,249Actual return on plan assets
    
    
    2,243,140
    
    
    
    (1,216,526
    )Employer contributions
    
    
    1,806,000
    
    
    
    437,811Benefit payments
    
    
    (408,049
    )
    
    
    (344,131
    )Fair value of plan assets assumed in merger
    
    
    2,507,438
    
    
    
    Fair value of plan assets at end of year
    
    $
    15,063,932
    
    
    $
    8,915,403Funded status:Funding shortfall at end of year
    
    $
    8,202,421
    
    
    $
    6,390,825Additional minimum pension liability
    
    
    3,004,659
    
    
    
    1,486,414Unrecognized prior service cost
    
    
    (5,654
    )
    
    
    7,475Unrecognized net loss
    
    
    (6,635,696
    )
    
    
    (5,233,056
    )Accrued pension expense
    
    $
    4,565,730
    
    
    $
    2,651,658Components of net periodic benefit cost:Service costs
    
    $
    1,359,608
    
    
    $
    852,988Interest costs
    
    
    1,246,652
    
    
    
    910,252Expected return on plan assets
    
    
    (1,117,018
    )
    
    
    (1,006,928
    )Amortization of prior service costs
    
    
    (27,809
    )
    
    
    (22,174
    )Recognized actuarial (gain) loss
    
    
    296,739
    
    
    
    Curtailment (gain) loss
    
    
    (223,306
    )
    
    
    Net periodic benefit cost
    
    $
    1,534,866
    
    
    $
    734,138Weighted-average assumptions:Discount ratebenefit obligation
    
    
    6.25
    %
    
    
    6.75
    %Discount ratenet periodic benefit cost
    
    
    6.75
    %
    
    
    7.25
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    9.00
    %Rate of compensation increase
    
    
    5.50
    %
    
    
    5.50
    %Measurement date
    
    
    12/31/2003
    
    
    
    12/31/2002Census date
    
    
    1/1/2003
    
    
    
    1/1/2002
 The additional minimum pension liability of $3.0 million was recorded
through accumulated non-owner adjustments to equity, net of estimated income
taxes of $1.2 million. As of December 31, 2003 and 2002, the accumulated benefit
obligation was $16.7 million and $11.6 million, respectively. The Corporation develops the expected return on plan assets using
capital asset modeling data provided by external consultants. The expected
return and risk components of the various asset classes in the portfolio are
reviewed and, based on the asset allocations, the Corporation then determines a
composite expected return assumption. The Corporation believes this assumption
is reasonable over a long-term period that is consistent with the estimated
duration of the plans liabilities. The Corporations investment strategy with respect to the pension is to
invest in equity securities, fixed income securities, and other securities to
cover cash flow requirements of the plan and minimize long-term costs. The
Corporation periodically reviews the risk in various asset classes relative to
the liabilities to determine the appropriate asset allocations. As of December
31, 2003, 57.5% of the fair value of the pensions plan assets were invested in
equity securities, 24.5% in debt securities, and 18.0% in all other assets. In 2004, the Corporation expects to make contributions of $1.9 million
to the pension plan. Due to the acquisition of LBI in the fourth quarter of
2003, the Corporation recorded a purchase accounting adjustment of $666,961 for
the immediate recognition of unrecognized amounts in the LBI pension plan. POSTRETIREMENT EMPLOYEE BENEFITS The Corporation provides certain
health care benefits to retired employees. Substantially all of the employees of
the Corporation may become eligible for these benefits if they retire from the 19




---



##### Table of Contents



Corporation after satisfying specified age and service criteria. The health care
coverage provided to these active employees will be available when they retire
after age 55 with at least 20 years of service or after age 60 with at least 10
years of service. The same coverage could continue until the employee and spouse
(if also covered) reach age 65 provided they pay the required premiums. The
retiree medical plan was changed for employees that did not meet certain age and
service requirements as of January 1, 2003. The Corporation will no longer
contribute toward the cost of this benefit for these employees. For employees
that did meet the age and service requirements on January 1, 2003, there was no
change in the retiree health care benefit. The following table summarizes the components of postretirement benefit
obligation and funded status, as well as the amounts recognized in the
Corporations consolidated financial statements for the years ended December 31,
2003 and 2002. 2003
    
    2002Reconciliation of benefit obligation:Benefit obligation at beginning of year
    
    $
    3,158,703
    
    
    $
    3,013,756Service costs
    
    
    85,753
    
    
    
    106,399Interest costs
    
    
    261,442
    
    
    
    202,940Actuarial (gain) loss
    
    
    211,483
    
    
    
    (83,163
    )Benefit payments
    
    
    (131,584
    )
    
    
    (81,229
    )Benefit obligation at end of year
    
    $
    3,585,797
    
    
    $
    3,158,703Funded status:Funding shortfall at end of year
    
    $
    3,585,797
    
    
    $
    3,158,703Unrecognized transition asset
    
    
    (18,458
    )
    
    
    (342,299
    )Unrecognized net loss
    
    
    (1,231,831
    )
    
    
    (820,449
    )Accrued post-retirement benefit expense
    
    $
    2,335,508
    
    
    $
    1,995,955Components of net periodic benefit cost:Service costs
    
    $
    85,753
    
    
    $
    106,399Interest costs
    
    
    261,442
    
    
    
    202,940Amortization of transition obligation
    
    
    2,051
    
    
    
    34,230Recognized actuarial loss
    
    
    121,891
    
    
    
    19,456Net periodic benefit cost
    
    $
    471,137
    
    
    $
    363,025Weighted-average assumptions:Discount ratebenefit obligation
    
    
    6.25
    %
    
    
    6.75
    %Discount ratenet periodic benefit cost
    
    
    6.75
    %
    
    
    7.25
    %Rate of compensation increase
    
    
    5.00
    %
    
    
    5.50
    %Measurement date
    
    
    12/31/2003
    
    
    
    12/31/2002Census date
    
    
    1/1/2003
    
    
    
    1/1/2002
 The assumed rate of increase in the per capita cost of covered benefits
was approximately 10% for 2003, declining to approximately 5% in 2008 and
thereafter. This assumption has a significant effect on the amounts reported in
the Corporations consolidated financial statements. For example, a one
percentage point increase in the assumed trend rate would increase the
accumulated postretirement benefit obligation as of December 31, 2003, by
approximately $278,000 and the aggregate service and interest cost components of
postretirement benefit expense for 2003 by approximately $26,000. A one
percentage point decline would decrease these amounts by approximately $239,000,
and $23,000, respectively. On December 8, 2003, Congress expanded Medicare to include, for the
first time, coverage for prescription drugs. The Corporation expects that this
legislation could eventually reduce the costs associated with the postretirement
benefits it provides to employees. At present, no analysis of the potential
reduction in the Corporations costs or obligations has been performed. Because
of the various uncertainties around the legislation and accounting methodology,
the Corporation has elected to defer financial recognition of this legislation
until the Financial Accounting Standards Board issues final accounting guidance. SAVINGS PLANS The Corporation maintains a 401(k) savings plan for the
benefit of substantially all of its employees. Employees may contribute up to a
certain percentage of their compensation to the plan and the Corporation will
match their contributions within certain limits. In addition, the employee may
also receive discretionary profit sharing contributions from the Corporation. On
January 1, 2003, the Corporation changed the savings plan for employees that met
certain age and service requirements on that date. The Corporation will provide
additional matching contributions up to specified limits for these participants.
During the years ended December 31, 2003, 2002, and 2001, the Corporation made
matching and discretionary contributions to the savings plan of approximately
$1.3 million, $968,000, and $790,000, respectively. EMPLOYEE STOCK OWNERSHIP PLAN The Corporation makes annual
discretionary contributions to an Employee Stock Ownership Program (ESOP) for
the benefit of substantially all of its employees. As of January 1, 2003, the
Corporation changed the ESOP for employees that met certain age and service
requirements as of that date. The 20




---



##### Table of Contents



Corporation may provide additional contributions for these participants. All
contributions are recorded as compensation expense on the books of the
Corporation at the time they are made. The Corporation recorded approximately
$776,000, $657,000, and $482,000 in ESOP-related compensation expense during the
years ended December 31, 2003, 2002, and 2001, respectively. SUPPLEMENTAL PENSION PLAN The Corporation makes annual contributions to
a supplemental pension plan for certain members of management. All contributions
are recorded as compensation expense on the books of the Corporation at the time
they are made. The Corporation recorded approximately $317,000, $347,000, and
$285,000 in such expense during the years ended December 31, 2003, 2002, and
2001, respectively. STOCK INCENTIVE PLANS The Corporation has adopted a stock incentive
plan designed to attract and retain qualified personnel in key management
positions. The plan provides for the grant of stock options, restricted stock,
and stock appreciation rights. In general, stock options granted under the plan
are exercisable at a price equal to the fair value of the stock on the date of
the grant. Furthermore, the options are subject to three- to five-year graded
vesting requirements and a maximum exercise period of ten years. The plan
currently authorizes the issuance of approximately 1.5 million shares, of which
585,300 shares were unallocated as of December 31, 2003. Activity in these stock
incentive plans for each of the three years ended December 31, 2003, 2002, and
2001, is summarized as follows: 2003
    
    2002
    
    2001WEIGHTED
    
    
    
    
    
    WEIGHTED
    
    
    
    
    
    WEIGHTEDAVERAGE
    
    
    
    
    
    AVERAGE
    
    
    
    
    
    AVERAGENUMBER
    
    PRICE
    
    NUMBER
    
    PRICE
    
    NUMBER
    
    PRICEStock options outstanding at beginning of period
    
    
    901,288
    
    
    $
    13.84
    
    
    
    996,802
    
    
    $
    12.39
    
    
    
    741,770
    
    
    $
    10.24Stock options granted
    
    
    25,168
    
    
    
    20.26
    
    
    
    68,582
    
    
    
    19.59
    
    
    
    380,550
    
    
    
    14.17Stock options exercised
    
    
    (143,132
    )
    
    
    13.68
    
    
    
    (153,596
    )
    
    
    6.89
    
    
    
    (107,638
    )
    
    
    3.61Stock options forfeited
    
    
    (30,200
    )
    
    
    13.55
    
    
    
    (10,500
    )
    
    
    15.36
    
    
    
    (17,880
    )
    
    
    13.80Stock options outstanding at end of period
    
    
    753,124
    
    
    $
    14.15
    
    
    
    901,288
    
    
    $
    13.84
    
    
    
    996,802
    
    
    $
    12.39Fully-vested options outstanding at end of period
    
    
    578,119
    
    
    $
    13.46
    
    
    
    565,915
    
    
    $
    13.18
    
    
    
    498,420
    
    
    $
    11.03
 The following table presents the stock options outstanding as of
December 31, 2003, by range of exercise prices: WEIGHTED AVG
    
    WEIGHTED AVGSTOCK OPTIONS
    
    REMAINING
    
    EXERCISERANGE OF EXERCISE PRICES
    
    OUTSTANDING
    
    TERM
    
    PRICE$   0.00
- $  5.00
    
    
    474
    
    
    
    0.8 years
    
    
    $
    3.905.01
-   10.00
    
    
    41,500
    
    
    
    1.5 years
    
    
    
    5.3510.01 -
  15.00
    
    
    596,900
    
    
    
    6.1 years
    
    
    
    13.8415.01 -
  20.00
    
    
    55,251
    
    
    
    8.2 years
    
    
    
    17.3220.01 -
  25.00
    
    
    58,999
    
    
    
    8.7 years
    
    
    
    20.60Total Options Outstanding
    
    
    753,124
    
    
    
    6.2 years
    
    
    $
    14.15
 During the years ended December 31, 2003, 2002, and 2001, 38,200,
46,000, and 68,000 shares of restricted stock were granted at weighted-average
fair values of $20.35, $18.88 and $14.50, respectively. The Corporation has also adopted a stock incentive plan designed to
attract and retain qualified non-employee directors for the Corporation and its
subsidiaries. Under the plan each director receives options to purchase 8,800
shares upon election or re-election to the Board of Directors. In general, the
stock options are exercisable at a price at least equal to the fair value of the
stock on the date of grant and are fully-vested on the date of the grant. These
plans have authorized the issuance of 398,000 shares, of which 354,000 shares
were unallocated as of December 31, 2003. Activity in these stock incentive
plans for each of the three years ended December 31, 2003, 2002, and 2001, is
summarized as follows: 2003
    
    2002
    
    2001WEIGHTED
    
    
    
    
    
    WEIGHTED
    
    
    
    
    
    WEIGHTEDAVERAGE
    
    
    
    
    
    AVERAGE
    
    
    
    
    
    AVERAGENUMBER
    
    PRICE
    
    NUMBER
    
    PRICE
    
    NUMBER
    
    PRICEStock options outstanding at beginning of period
    
    
    136,596
    
    
    $
    12.17
    
    
    
    156,396
    
    
    $
    11.67
    
    
    
    138,796
    
    
    $
    10.42Stock options granted
    
    
    26,400
    
    
    
    19.06
    
    
    
    17,600
    
    
    
    19.33
    
    
    
    26,400
    
    
    
    14.79Stock options exercised
    
    
    (28,600
    )
    
    
    9.15
    
    
    
    (37,400
    )
    
    
    13.46
    
    
    
    (8,800
    )
    
    
    1.36Stock options outstanding at end of period
    
    
    134,396
    
    
    $
    14.16
    
    
    
    136,596
    
    
    $
    12.17
    
    
    
    156,396
    
    
    $
    11.67
 21




---



##### Table of Contents



The following table presents the stock options outstanding as of
December 31, 2003, by range of exercise prices: WEIGHTED AVG
    
    WEIGHTED AVGSTOCK OPTIONS
    
    REMAINING
    
    EXERCISERANGE OF EXERCISE PRICES
    
    OUTSTANDING
    
    TERM
    
    PRICE$   0.00
-  $  5.00
    
    
    8,796
    
    
    
    0.3 years
    
    
    $
    4.705.01
-   10.00
    
    
    20,000
    
    
    
    2.9 years
    
    
    
    8.1710.01
-   15.00
    
    
    52,800
    
    
    
    6.6 years
    
    
    
    13.2715.01
-   20.00
    
    
    52,800
    
    
    
    8.1 years
    
    
    
    18.91Total Options Outstanding
    
    
    134,396
    
    
    
    6.2 years
    
    
    $
    14.16
 As described in Note 1, the Corporation has elected to provide pro
forma disclosure of the effects of its stock incentive plans. The following
table provides information on the Corporations stock incentive plans had it
accounted for them using the fair value method: Dollars in thousand, except per share data
    
    2003
    
    2002
    
    2001Net income, as reported
    
    $
    34,727
    
    
    $
    34,916
    
    
    $
    28,448Assumed compensation cost, net of tax
    
    
    (483
    )
    
    
    (846
    )
    
    
    (934
    )Pro forma net income
    
    $
    34,244
    
    
    $
    34,070
    
    
    $
    27,514Diluted earnings per share:As reported
    
    $
    1.69
    
    
    $
    1.73
    
    
    $
    1.51Pro forma
    
    $
    1.66
    
    
    $
    1.69
    
    
    $
    1.46Basic earnings per share:As reported
    
    $
    1.71
    
    
    $
    1.76
    
    
    $
    1.52Pro forma
    
    $
    1.68
    
    
    $
    1.71
    
    
    $
    1.47
 The weighted-average fair value of the options granted in 2003, 2002,
and 2001, were $4.72, $5.86, and $4.26, respectively. The fair values of these
options were estimated as of the dates they were granted using a Black-Scholes
option-pricing model. Weighted-average assumptions for 2003 were 3.5% risk-free
interest rate, 2.6% dividend yield, 24% volatility, and a seven-year expected
life. Weighted-average assumptions for 2002 were 3.4% risk-free interest rate,
2.7% dividend yield, 30% volatility, and a seven-year expected life.
Weighted-average assumptions for 2001 were 4.6% risk-free interest rate, 3.2%
dividend yield, 30% volatility, and a seven-year expected life. NOTE 11COMMITMENTS, CONTINGENCIES, AND GUARANTEES INCOME TAXES FCHI is incorporated in the State of Nevada, which does
not currently impose a corporate income tax. Although the earnings of FCHI are
not currently subject to taxation in the State of Wisconsin, from time-to-time
legislation is proposed which, if adopted, would require combined income tax
returns for entities headquartered in the state and result in taxation of FCHIs
earnings. To date, none of these legislative proposals have been adopted. In
addition, the Wisconsin Department of Revenue (WDR) recently increased its
examinations of banking entities in the state and is investigating whether to
allocate income of out-of-state investment subsidiaries like FCHI to their
parent banks. Indeed, in 2003 the WDR began examinations of a number of
financial institutions, including the Bank, specifically aimed at their
relationships with their investment subsidiaries. Management believes the WDR
may take the position that some or all of the income of FCHI is allocable to the
Bank and taxable in Wisconsin. Management believes the Bank, as well as FCHI,
have complied with the tax rules relating to the income of out-of-state
subsidiaries, and with the private rulings the WDR issued to the Bank in 1993
and 1997 in connection with its formation and operation of FCHI. The WDR has
indicated that it may repudiate these rulings and management is uncertain at
this time whether the WDR exam will result in an assessment. The Bank will
oppose an assessment, if any. If the WDR is successful in allocating FCHIs income to the Bank, or if
legislation referred to in the previous paragraph were to become law, such could
result in the earnings of FCHI being subject to taxation in the State of
Wisconsin. If the Corporation had been required to pay Wisconsin tax on FCHIs
income for the year ended December 31, 2003, the Corporations income tax
expense would have been approximately $1.2 million higher than reported. This
would have reduced diluted and basic earnings per share by approximately $0.06
per share. Furthermore, if the WDR determines that the earnings of FCHI in open
tax years prior to 2003 should have been subject to tax in Wisconsin, management
estimates that the Bank may be subject to a tax obligation of up to $14.5
million, net of federal and state tax benefit. This amount includes an estimate
for interest, but excludes any penalties that may be assessed by the WDR, which
could be as high as 25% of the gross assessment. As previously mentioned,
however, the Bank will oppose an assessment related to this issue. 22




---



##### Table of Contents



LEGAL PROCEEDINGS The Corporation and its subsidiaries are engaged in
various routine legal proceedings occurring in the ordinary course of business,
which in the aggregate are believed by management to be immaterial to the
consolidated financial condition of the Corporation. OTHER COMMITMENTS AND CONTINGENCIES At December 31, 2003, the
Corporation had commitments to originate single-family mortgage loans at market
terms aggregating approximately $28.8 million, which expire on various dates in
2004. At December 31, 2003, the Corporation also had commitments to fund $82.6
million in additional proceeds on construction loans. As of the same date the
Corporation had approximately $4.9 million in commitments outstanding under
standby letters of credit, $21.1 million in unused credit card lines, $107.0
million in commitments outstanding under unused home equity lines of credit, and
$95.4 million under commercial business lines of credit. Furthermore, the
Corporation had commitments to sell approximately $38.6 million in mortgage
loans to Freddie Mac, Fannie Mae, and the FHLB at various dates in 2004. Since
many of these commitments are expected to expire without being drawn upon the
total commitments do not necessarily represent future cash requirements.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates and may require payment of a fee. Since
many of these commitments are expected to expire without being drawn upon the
total commitments do not necessarily represent future cash requirements. At December 31, 2003, the Corporation had retained the credit risk
related to $2.4 billion in single-family residential loans sold to the FHLB in
exchange for a monthly credit enhancement fee. NOTE 12STOCKHOLDERS EQUITY PREFERRED STOCK The Corporation is authorized to issue up to 5,000,000
shares of preferred stock, $.10 par value per share, although no such stock was
outstanding at December 31, 2003. The Board of Directors of the Corporation is
authorized to establish the voting powers, designations, preferences, or other
special rights of such shares and the qualifications, limitations, and
restrictions thereof. The preferred stock may be issued in distinctly designated
series, may be convertible to common stock, and may rank prior to the common
stock in dividend rights, liquidation preferences, or both. SHAREHOLDERS RIGHTS PLAN The Corporations Board of Directors has
adopted a shareholders rights plan (the Rights Plan). Under the terms of the
Rights Plan, the Board of Directors declared a dividend of one preferred share
purchase right on each outstanding share of common stock of the Corporation.
However, the rights can only be exercised if a person or group acquires 20% or
more of the common stock or announces a tender or exchange offer that would
result in a 20% or greater position in the stock. Initially, each right will
entitle shareholders to buy one one-hundredth share of the Corporations
preferred stock at a price of $50.00, subject to adjustment. Under certain
circumstances, including the acquisition of beneficial ownership of 25% or more
of the Corporations common stock, holders of the Corporations common stock,
other than the acquirer, will be entitled to exercise the rights to purchase
common stock from the Corporation having a value equal to two times the exercise
price of the right. If the Corporation is acquired in a merger, share exchange,
or other business combination in which the Corporation is not the survivor,
after a person or groups acquisition of beneficial ownership of 20% or more of
the common stock, rights holders will be entitled to purchase the acquirers
shares at a similar discount. Issuance of the rights has no dilutive effect,
will not affect reported earnings per share, is not taxable to the Corporation
or its shareholders, and will not change the way in which the Corporations
shares are traded. The rights expire in 2005. STOCK REPURCHASE PLANS AND TREASURY STOCK In 2002, 2000, and 1999 the
Corporations Board of Directors authorized the repurchase of up to 1,001,678,
913,554, and 905,248 shares of the Corporations outstanding common stock,
respectively. Under the plans, repurchases may be made from time-to-time in the
open market during the ensuing twelve months as, in the opinion of management,
market conditions warrant. Typically, all plans are extended each year for an
additional twelve months until such time as all shares have been issued under
the plans. Repurchased shares are held as treasury stock and are available for
general corporate purposes. During 2003, 2002, and 2001, the Corporation repurchased 26,198,
713,144, and 228,800 shares under the 2002, 2000, and 1999 Plans at an average
cost of $19.38, $19.31, and $14.04 per share, respectively. As of December 31,
2003, no shares remained to be purchased under the 1999 Plan, and 1,001,678
shares and 164,918 shares remained under the 2002 and 2000 Plans, respectively. During 2003, 2002, and 2001 the Corporation reissued 542,095, 201,647,
and 1,825,132 shares of common stock out of treasury stock, respectively. These
shares had an average cost basis of $19.84, $17.81, and $10.05 per share, 23




---



##### Table of Contents



respectively. During 2003, 426,635 of these shares were issued in connection
with the acquisition of LBI. In addition, during 2001, 1,685,126 of these
shares, plus 250,178 previously unissued shares, were issued in connection with
the acquisition of ACB. In general, these shares were otherwise issued upon the
exercise of stock options by, or the issuance of restricted stock to, employees
and directors of the Corporation. DIVIDEND RESTRICTIONS The ability of the Corporation to pay dividends
will depend primarily upon the receipt of dividends from the Bank. The Bank may
not declare or pay a cash dividend without regulatory approval if such dividend
would cause undercapitalization following the distribution or if the proposed
dividend exceeds the year-to-date net income of that year, combined with the net
income of the preceding two years, as reduced by any dividends paid during such
years. REGULATORY CAPITAL REQUIREMENTS Financial institutions such as the Bank
are subject to minimum regulatory capital requirements as specified in federal
banking law and supporting regulations. Failure of a financial institution to
meet such requirements may subject the institution to certain mandatoryand
possibly discretionaryactions on the part of its regulators (referred to as
prompt corrective actions). Such actions, if undertaken, could severely
restrict the activities of the institution. During each of the years ended
December 31, 2003 and 2002, the Banks regulatory capital was sufficient under
the prompt corrective action provisions of the federal banking law and
supporting regulations. Accordingly, the Bank is not subject to prompt
corrective actions by its regulators. In addition, the Corporation is not aware
of any events or circumstances that would subject it to prompt corrective by its
regulators. The following table summarizes the Banks current regulatory capital in
both percentage and dollar terms as of December 31, 2003 and 2002. It also
summarizes the minimum capital levels that must be maintained by the Bank for it
to be classified as adequately capitalized and well capitalized under the
prompt corrective action provisions of federal banking law and supporting
regulations. As indicated in the table, the Bank is well capitalized for
regulatory capital purposes. MINIMUM REQUIREMENTSTO BE CLASSIFIED AS...ADEQUATELY
    
    WELLCAPITALIZED
    
    CAPITALIZED
    
    ACTUALDECEMBER 31, 2003Tier 1 leverage ratio
    
    
    4.0
    %
    
    
    5.0
    %
    
    
    6.80
    %Tier 1 risk-based capital ratio
    
    
    4.0
    %
    
    
    6.0
    %
    
    
    10.95
    %Total risk-based capital ratio
    
    
    8.0
    %
    
    
    10.0
    %
    
    
    11.64
    %Tier 1 leverage ratio capital
    
    $
    129,282,000
    
    
    $
    161,602,000
    
    
    $
    219,706,000Tier 1 risk-based capital
    
    
    80,266,000
    
    
    
    120,398,000
    
    
    
    219,706,000Total risk-based capital
    
    
    160,531,000
    
    
    
    200,664,000
    
    
    
    233,498,000DECEMBER 31, 2002Tier 1 leverage ratio
    
    
    4.0
    %
    
    
    5.0
    %
    
    
    5.63
    %Tier 1 risk-based capital ratio
    
    
    4.0
    %
    
    
    6.0
    %
    
    
    10.22
    %Total risk-based capital ratio
    
    
    8.0
    %
    
    
    10.0
    %
    
    
    10.88
    %Tier 1 leverage ratio capital
    
    $
    119,667,000
    
    
    $
    149,584,000
    
    
    $
    168,476,000Tier 1 risk-based capital
    
    
    65,908,000
    
    
    
    98,862,000
    
    
    
    168,476,000Total risk-based capital
    
    
    131,816,000
    
    
    
    164,770,000
    
    
    
    179,254,000
 24




---



##### Table of Contents



NOTE 13FAIR VALUES OF FINANCIAL INSTRUMENTS Fair values of financial instruments as of December 31 are as follows: 2003
    
    2002CARRYING VALUE
    
    FAIR VALUE
    
    CARRYING VALUE
    
    FAIR VALUECash and due from banks
    
    $
    94,535,753
    
    
    $
    94,535,753
    
    
    $
    84,482,722
    
    
    $
    84,482,722Interest-bearing deposits with banks
    
    
    6,444,374
    
    
    
    6,444,374
    
    
    
    179,755,367
    
    
    
    179,755,367Mortgage-backed and related securities:Available for sale
    
    
    386,862,372
    
    
    
    386,862,372
    
    
    
    366,075,106
    
    
    
    366,075,106Held for investment
    
    
    613,076
    
    
    
    610,294
    
    
    
    30,029,690
    
    
    
    30,192,176Loans held for sale
    
    
    16,113,217
    
    
    
    16,200,000
    
    
    
    50,237,199
    
    
    
    50,300,000Loans held for investment, gross
    
    
    2,532,565,738
    
    
    
    2,560,400,000
    
    
    
    2,112,299,643
    
    
    
    2,134,400,000Federal Home Loan Bank stock
    
    
    59,634,800
    
    
    
    59,634,800
    
    
    
    55,634,400
    
    
    
    55,634,400Accrued interest receivable
    
    
    15,802,753
    
    
    
    15,802,753
    
    
    
    17,522,581
    
    
    
    17,522,581Mortgage servicing rights
    
    
    36,340,856
    
    
    
    40,570,000
    
    
    
    30,171,341
    
    
    
    31,500,000Financial liabilities:Deposit liabilities
    
    $
    2,552,837,027
    
    
    $
    2,577,800,000
    
    
    $
    2,355,148,292
    
    
    $
    2,381,500,000Federal Home Loan Bank advances and all other
borrowings
    
    
    441,199,308
    
    
    
    445,900,000
    
    
    
    417,612,682
    
    
    
    439,400,000Advance payments by borrowers for taxes and insurance
    
    
    1,484,734
    
    
    
    1,484,734
    
    
    
    11,906,038
    
    
    
    11,906,038Accrued interest payable
    
    
    2,234,905
    
    
    
    2,234,905
    
    
    
    3,119,227
    
    
    
    3,119,227
 Refer to Note 1 for the methods and assumptions used by the Corporation
in estimating the fair value of financial instruments. The carrying value shown
for loans held for investment excludes the impact of the Corporations allowance
for loan losses NOTE 14SEGMENT INFORMATION REPORTABLE SEGMENTS The Corporation tracks profitability in six major
areas: (i) residential lending, (ii) commercial real estate lending, (iii)
consumer lending, (iv) education lending, (v) business banking, and (vi)
investment and mortgage-related securities. Residential lending is divided into
two profit centers for segment reporting purposes: (i) a mortgage banking profit
center that is responsible for loan origination, sales of loans in the secondary
market, and servicing of residential loans, and (ii) a residential loan
portfolio that consists of loans held by the Corporation for investment purposes
(loans held for sale are included in the mortgage banking profit center). This
profit center also includes mortgage-backed securities that are collateralized
by loans that were originated by the Corporation. Commercial real estate lending
consists of the Corporations portfolio of multi-family and non-residential
mortgage loans, excluding loans assigned to the business banking profit center,
as well as functions related to the origination and servicing of such loans.
Consumer lending consists of the Corporations second mortgage, automobile, and
other consumer installment loans, excluding loans assigned to the business
banking profit center, as well as functions related to the origination and
servicing of such loans. Education lending consists of the Corporations
portfolio of education loans, as well as functions related to the origination
and servicing of such loans. Business banking consists of the Corporations
portfolio of commercial business loans, including certain commercial real estate
and consumer loans assigned to the business banking profit center, as well as
functions related to the origination and servicing of such loans. Finally, the
Corporations investment and mortgage-related securities portfolio is considered
a profit center for segment reporting purposes. As previously noted, however,
mortgage-backed securities collateralized by loans originated by the Corporation
are included in the residential loan profit center, rather than the investment
and mortgage-related securities portfolio. The Corporations extensive branch network, which delivers checking,
savings, certificates of deposit and other financial products and services to
customers, is considered a support department for segment reporting purposes, as
more fully described in a subsequent paragraph. MEASUREMENT OF SEGMENT PROFIT (LOSS) Management evaluates the after-tax
performance of the Corporations profit centers as if each center were a
separate entityeach with its own earning assets, actual and/or allocated
non-earning assets, and allocated funding resources. Each profit center has its
own interest income, non-interest income, and non-interest expense as captured
by the Corporations accounting systems. Interest expense is allocated to each
profit center according to its use of the Corporations funding sources, which
consist primarily of deposit liabilities, wholesale borrowings, and equity. In
general, all funding sources are allocated proportionately to each profit
center. However, in certain instances specific funding sources may be matched
against specific assets of profit centers. For example, deposits from business
customers are matched against the assets of the business banking profit center.
In addition, wholesale borrowings drawn to originate or purchase specific assets
are matched against the appropriate profit center. 25




---



##### Table of Contents



The net cost of operating the Corporations support departments is
allocated to the Corporations profit centers and to the branch network using a
variety of methods deemed appropriate by management. In general, these net costs
are included in the non-interest expense of each profit center. In addition,
certain allocations of revenues and expenses are made between profit centers
when they perform services for each other. Such amounts, however, are not
generally material in nature. The Corporations branch network is considered a support department
center for segment reporting purposes. Community banking fees and revenues are
deducted from the non-interest expense of operating the network (to include an
allocation of net costs from the Corporations other support departments) to
arrive at net costs for the branch network. This net cost is then allocated to
each profit center based on its use of deposit liabilities to fund its
operations. This amount is reported as net cost to acquire and maintain deposit
liabilities and is included as an adjustment to the net interest income of each
profit center. NON-GAAP ADJUSTMENTS For segment reporting purposes, management makes
certain non-GAAP adjustments and reclassifications to the results of operations
and financial condition of the Corporation that, in managements judgment, more
fairly reflect the performance and/or financial condition of certain of the
Corporations profit centers. Following is a description of the more significant
adjustments: INTEREST INCOME AND EXPENSE Interest income is credited to the
mortgage banking profit center for implied earnings on non-interest-bearing
liabilities such as custodial and escrow accounts. The offsetting interest
expense is charged to each profit center according to their use of these funding
sources, as previously described. Fee income from customers that make their
monthly loan payments late (late charges) is reclassified from interest income
to non-interest income in the mortgage banking profit center. Income from bank
owned life insurance is reclassified from non-interest income to interest income
in the investment and mortgage-related security profit center. LOAN ORIGINATION FEES AND COSTS In accordance with GAAP,
origination fees earned on residential loans held for investment are deferred
and amortized over the expected life of the loans, as are the direct costs to
originate the loans. In general, these deferrals and their subsequent
amortization are disregarded for segment reporting purposes. As a result, the
mortgage banking profit center receives revenue for loans that it originates for
the portfolio of residential loans held for investment, as well as a full charge
for the costs to originate the loans. These fees and costs are in addition to
the fees it receives and the costs it incurs on loans originated for sale in the
secondary market, which are included in current earnings under GAAP. MORTGAGE SERVICING RIGHTS In accordance with GAAP, mortgage
servicing rights are not recorded on residential loans held for investment.
However, for segment reporting purposes, the mortgage banking profit center
receives an income allocation for the origination of such loans, which
represents the estimated value of the mortgage servicing rights. This allocation
is in addition to the gain from mortgage servicing rights that is recorded on
loans sold in the secondary market, as permitted under GAAP. The amortization of
the mortgage servicing rights created by this allocation is charged-back to the
mortgage banking profit center over the estimated life of the loans. LOAN SERVICING FEES In accordance with GAAP, loan servicing
fee income is not recorded on loans held for investment. However, for segment
reporting purposes, the mortgage banking profit center receives an income
allocation for the services it performs for the Corporations residential,
commercial real estate, and consumer loan portfolios. This allocation is in
addition to the service fee income that the profit center receives on loans
serviced for third parties, as recorded in the Corporations Consolidated
Statement of Operations. The aforementioned loan portfolios are charged with the
offsetting servicing cost. PROVISION FOR LOAN AND REAL ESTATE LOSSES For segment
reporting purposes, the Corporation disregards provisions for loan and real
estate losses recorded under GAAP. Rather, actual charge-off (recovery) activity
is charged (credited) to each profit center in the period it occurs. FHLB PREPAYMENT PENALTIES For segment reporting purposes, the
Corporation ignores FHLB prepayment penalties recorded under GAAP. INTANGIBLE ASSETS The amortization of goodwill and other
intangible assets is disregarded for segment reporting purposes. 26




---



##### Table of Contents



INCOME TAXES In general, a standard income tax rate of
approximately 40% is used for segment reporting purposes. However, the income
tax benefit associated with assets held in Nevada by FCHI, the Banks
wholly-owned investment subsidiary, is allocated to the profit centers that own
such assets. This results in a lower effective income tax rate, or even a
negative rate, for such profit centers. NON-GAAP ADJUSTMENTS TO FINANCIAL CONDITION Allowances for
losses on loans and real estate, intangible assets, purchase adjustments, and
security valuation allowances are added to and/or excluded from assets of the
profit centers. In addition, an estimated value for mortgage servicing rights
not recorded under GAAP is estimated and added to the assets of the mortgage
banking profit center. For each of these adjustments, a corresponding amount is
added to or excluded from equity prior to the proportionate allocation of equity
to the profit centers, as previously described. The amount added to or excluded
from equity is net of the estimated income tax effect. SEGMENT PROFIT (LOSS) STATEMENTS AND OTHER INFORMATION The tables on
the following pages contain profit (loss) statements for each of the
Corporations reportable segments for the years ended December 31, 2003, 2002,
and 2001, (2002 is presented on both pages to facilitate its comparison with
2003 and 2001). The financial results for the business banking profit center
have not been reported separately for 2002 and 2001 due to efforts in those
periods to design these products on the Corporations systems as well as efforts
to develop departmental allocations of costs and revenues necessary to fairly
present the operating results of this line of business. In addition to the after-tax performance of profit centers, management
of the Corporation closely monitors the net cost to acquire and maintain deposit
liabilities (as defined elsewhere in this footnote). The net cost to acquire and
maintain deposit liabilities was 1.36%, 1.33%, and 1.20% of average deposit
liabilities outstanding during the years ended December 31, 2003, 2002, and
2001, respectively. 27




---



##### Table of Contents



COMMERCIALSEGMENT PROFIT (LOSS) STATEMENTS
    
    MORTGAGE
    
    RESIDENTIAL
    
    REAL ESTATE
    
    CONSUMER
    
    EDUCATION
    
    BUSINESSYEAR ENDED DECEMBER 31, 2003
    
    BANKING
    
    LOANS
    
    LENDING
    
    LENDING
    
    LENDING
    
    BANKINGInterest income
    
    $
    2,817,182
    
    
    $
    39,592,941
    
    
    $
    34,765,237
    
    
    $
    30,822,355
    
    
    $
    7,253,464
    
    
    $
    14,295,307Interest expense
    
    
    2,124,769
    
    
    
    20,742,503
    
    
    
    12,438,533
    
    
    
    11,419,649
    
    
    
    2,495,935
    
    
    
    5,079,948Net cost to acquire and maintain
deposit liabilities
    
    
    787,254
    
    
    
    7,392,745
    
    
    
    5,599,386
    
    
    
    5,154,316
    
    
    
    2,200,093
    
    
    
    2,890,798Net interest income (expense)
before charge-offs
    
    
    (94,841
    )
    
    
    11,457,693
    
    
    
    16,727,318
    
    
    
    14,248,390
    
    
    
    2,557,436
    
    
    
    6,324,561Net loan charge-offs (recoveries)
    
    
    
    
    
    
    401,250
    
    
    
    
    
    
    
    1,839,883
    
    
    
    45,134
    
    
    
    261,025Net interest income (expense)
    
    
    (94,841
    )
    
    
    11,056,443
    
    
    
    16,727,318
    
    
    
    12,408,507
    
    
    
    2,512,302
    
    
    
    6,063,536Non-interest income
    
    
    59,538,142
    
    
    
    
    
    
    
    40,191
    
    
    
    1,821,670
    
    
    
    2,516
    
    
    
    149,143Non-interest expense
    
    
    30,718,260
    
    
    
    4,001,190
    
    
    
    1,682,285
    
    
    
    3,752,598
    
    
    
    1,357,591
    
    
    
    5,323,606Profit (loss) before taxes
    
    
    28,725,041
    
    
    
    7,055,253
    
    
    
    15,085,224
    
    
    
    10,477,579
    
    
    
    1,157,227
    
    
    
    889,073Income tax expense (benefit)
    
    
    11,645,127
    
    
    
    2,344,417
    
    
    
    6,115,550
    
    
    
    4,247,611
    
    
    
    469,141
    
    
    
    360,430Segment profit (loss)
    
    $
    17,079,914
    
    
    $
    4,710,836
    
    
    $
    8,969,674
    
    
    $
    6,229,968
    
    
    $
    688,086
    
    
    $
    528,643BALANCE SHEET INFORMATION
Dollars in thousandsAverage assets
    
    $
    97,405
    
    
    $
    816,963
    
    
    $
    533,961
    
    
    $
    489,729
    
    
    $
    209,201
    
    
    $
    268,986Total assets at end of period
    
    $
    70,595
    
    
    $
    901,241
    
    
    $
    537,163
    
    
    $
    520,134
    
    
    $
    207,173
    
    
    $
    539,936
   [Continued from above table, first column(s) repeated] INVESTMENT
    
    
    
    
    
    SUPPORTSEGMENT PROFIT (LOSS) STATEMENTS
    
    & MORTGAGE
    
    OTHER
    
    DEPARTMENT
    
    NON-GAAPYEAR ENDED DECEMBER 31, 2003
    
    SECURITIES
    
    SEGMENTS
    
    ADJUSTMENTS
    
    ALLOCATIONS
    
    CONSOLIDATEDInterest income
    
    $
    19,029,544
    
    
    $
    2,616
    
    
    
    
    
    
    $
    (660,271
    ) (1)
    
    $
    147,918,375Interest expense
    
    
    13,992,355
    
    
    
    490,781
    
    
    
    
    
    
    
    (2,659,116
    ) (1)
    
    
    66,125,357Net cost to acquire and maintain
deposit liabilities
    
    
    6,966,709
    
    
    
    15,333
    
    
    
    (31,006,633
    )
    
    
    
    
    
    
    Net interest income (expense)
before charge-offs
    
    
    (1,929,520
    )
    
    
    (503,498
    )
    
    
    31,006,633
    
    
    
    1,998,845
    
    
    
    81,793,018Net loan charge-offs (recoveries)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,091,457
    ) (2)
    
    
    1,455,835Net interest income (expense)
    
    
    (1,929,520
    )
    
    
    (503,498
    )
    
    
    31,006,633
    
    
    
    3,090,302
    
    
    
    80,337,183Non-interest income
    
    
    
    
    
    
    472,854
    
    
    
    37,419,497
    
    
    
    (12,898,044
    ) (3)
    
    
    86,545,969Non-interest expense
    
    
    301,779
    
    
    
    3,333,115
    
    
    
    68,426,130
    
    
    
    (7,179,323
    ) (3)
    
    
    111,717,231Profit (loss) before taxes
    
    
    (2,231,299
    )
    
    
    (3,363,758
    )
    
    
    
    
    
    
    (2,628,419
    )
    
    
    55,165,921Income tax expense (benefit)
    
    
    (2,055,637
    )
    
    
    (2,873,988
    )
    
    
    
    
    
    
    186,725
    
    
    
    20,439,376Segment profit (loss)
    
    $
    (175,662
    )
    
    $
    (489,770
    )
    
    
    
    
    
    $
    (2,815,145
    )
    
    $
    34,726,545BALANCE SHEET INFORMATION
Dollars in thousandsAverage assets
    
    $
    672,213
    
    
    $
    1,454
    
    
    
    
    
    
    $
    30,346
    (4)
    
    $
    3,120,256Total assets at end of period
    
    $
    499,402
    
    
    $
    1,758
    
    
    
    
    
    
    $
    30,923
    (4)
    
    $
    3,308,324
 COMMERCIALSEGMENT PROFIT (LOSS) STATEMENTS
    
    MORTGAGE
    
    RESIDENTIAL
    
    REAL ESTATE
    
    CONSUMER
    
    EDUCATION
    
    BUSINESSYEAR ENDED DECEMBER 31, 2002
    
    BANKING
    
    LOANS
    
    LENDING
    
    LENDING
    
    LENDING
    
    BANKINGInterest income
    
    $
    2,368,108
    
    
    $
    50,578,320
    
    
    $
    40,980,844
    
    
    $
    32,759,292
    
    
    $
    10,168,607
    
    
    
    Interest expense
    
    
    2,374,432
    
    
    
    27,039,946
    
    
    
    17,000,886
    
    
    
    13,860,620
    
    
    
    3,320,310
    
    
    
    Net cost to acquire and maintain
deposit liabilities
    
    
    758,172
    
    
    
    7,341,730
    
    
    
    5,980,527
    
    
    
    4,926,204
    
    
    
    2,228,580
    
    
    
    Net interest income (expense)
before charge-offs
    
    
    (764,496
    )
    
    
    16,196,644
    
    
    
    17,999,431
    
    
    
    13,972,468
    
    
    
    4,619,718
    
    
    
    Net loan charge-offs (recoveries)
    
    
    
    
    
    
    19,734
    
    
    
    
    
    
    
    1,702,923
    
    
    
    31,096
    
    
    
    Net interest income (expense)
    
    
    (764,496
    )
    
    
    16,176,910
    
    
    
    17,999,431
    
    
    
    12,269,545
    
    
    
    4,588,622
    
    
    
    Non-interest income
    
    
    45,648,631
    
    
    
    
    
    
    
    28,464
    
    
    
    1,746,340
    
    
    
    1,892
    
    
    
    Non-interest expense
    
    
    25,241,523
    
    
    
    4,619,974
    
    
    
    1,480,542
    
    
    
    3,314,528
    
    
    
    1,074,992
    
    
    
    Profit (loss) before taxes
    
    
    19,642,612
    
    
    
    11,556,936
    
    
    
    16,547,353
    
    
    
    10,701,357
    
    
    
    3,515,522
    
    
    
    Income tax expense (benefit)
    
    
    7,963,119
    
    
    
    3,798,984
    
    
    
    6,708,346
    
    
    
    4,338,365
    
    
    
    1,425,202
    
    
    
    Segment profit (loss)
    
    $
    11,679,493
    
    
    $
    7,757,952
    
    
    $
    9,839,007
    
    
    $
    6,362,992
    
    
    $
    2,090,320
    
    
    
    BALANCE SHEET INFORMATION
Dollars in thousandsAverage assets
    
    $
    80,216
    
    
    $
    845,983
    
    
    $
    562,691
    
    
    $
    462,223
    
    
    $
    210,234
    
    
    
    Total assets at end of period
    
    $
    95,703
    
    
    $
    883,605
    
    
    $
    529,820
    
    
    $
    520,134
    
    
    $
    204,623
    
    
    
    
   [Continued from above table, first column(s) repeated] INVESTMENT
    
    
    
    
    
    SUPPORTSEGMENT PROFIT (LOSS) STATEMENTS
    
    & MORTGAGE
    
    OTHER
    
    DEPARTMENT
    
    NON-GAAPYEAR ENDED DECEMBER 31, 2002
    
    SECURITIES
    
    SEGMENTS
    
    ADJUSTMENTS
    
    ALLOCATIONS
    
    CONSOLIDATEDInterest income
    
    $
    20,680,787
    
    
    $
    3,757,135
    
    
    
    
    
    
    $
    (42,753
    ) (1)
    
    $
    161,250,343Interest expense
    
    
    16,598,524
    
    
    
    1,527,630
    
    
    
    
    
    
    
    (1,996,738
    ) (1)
    
    
    79,725,611Net cost to acquire and maintain
deposit liabilities
    
    
    5,240,318
    
    
    
    773,478
    
    
    
    (27,249,008
    )
    
    
    
    
    
    
    Net interest income (expense)
before charge-offs
    
    
    (1,158,054
    )
    
    
    1,456,028
    
    
    
    27,249,008
    
    
    
    1,953,985
    
    
    
    81,524,732Net loan charge-offs (recoveries)
    
    
    
    
    
    
    6,270
    
    
    
    
    
    
    
    1,708,038
    (2)
    
    
    3,468,063Net interest income (expense)
    
    
    (1,158,054
    )
    
    
    1,449,758
    
    
    
    27,249,008
    
    
    
    245,947
    
    
    
    78,056,669Non-interest income
    
    
    (166,264
    )
    
    
    536,506
    
    
    
    31,631,274
    
    
    
    (15,791,792
    ) (3)
    
    
    63,635,051Non-interest expense
    
    
    136,264
    
    
    
    2,734,783
    
    
    
    58,880,282
    
    
    
    (10,104,575
    ) (3)
    
    
    87,378,312Profit (loss) before taxes
    
    
    (1,460,583
    )
    
    
    (748,519
    )
    
    
    
    
    
    
    (5,441,270
    )
    
    
    54,313,408Income tax expense (benefit)
    
    
    (1,850,645
    )
    
    
    (161,461
    )
    
    
    
    
    
    
    (2,824,046
    )
    
    
    19,397,866Segment profit (loss)
    
    $
    390,063
    
    
    $
    (587,058
    )
    
    
    
    
    
    $
    (2,617,224
    )
    
    $
    34,915,542BALANCE SHEET INFORMATION
Dollars in thousandsAverage assets
    
    $
    584,878
    
    
    $
    62,977
    
    
    
    
    
    
    $
    29,766
    (4)
    
    $
    2,838,968Total assets at end of period
    
    $
    627,487
    
    
    $
    128,322
    
    
    
    
    
    
    $
    35,930
    (4)
    
    $
    3,025,624
  (1)
    
    Consists principally of interest income and expense adjustments related
to late charges, implied earnings on custodial and escrow accounts, and
earnings on bank owned life insurance.(2)
    
    In general, the Corporation records actual loan and real estate
charge-off (recovery) activity against each profit center for segment
reporting purposes.(3)
    
    Consists principally of non-GAAP adjustments related to loan
origination fees and costs, mortgage servicing rights, loan servicing
fees, and FHLB prepayment penalties. The offsets for the adjustments
described in (1), above, are also included in non-interest income.(4)
    
    Consists of allowances for loss on loans and real estate, intangible
assets, purchase adjustments, and security valuation allowances that
are disregarded for segment reporting purposes. Also includes mortgage
servicing rights that are not recorded under GAAP, but are recorded for
segment reporting purposes. 28




---



##### Table of Contents



COMMERCIALSEGMENT PROFIT (LOSS) STATEMENTS
    
    MORTGAGE
    
    RESIDENTIAL
    
    REAL ESTATE
    
    CONSUMER
    
    EDUCATION
    
    BUSINESSYEAR ENDED DECEMBER 31, 2002
    
    BANKING
    
    LOANS
    
    LENDING
    
    LENDING
    
    LENDING
    
    BANKINGInterest income
    
    $
    2,368,108
    
    
    $
    50,578,320
    
    
    $
    40,980,844
    
    
    $
    32,759,292
    
    
    $
    10,168,607
    
    
    
    Interest expense
    
    
    2,374,432
    
    
    
    27,039,946
    
    
    
    17,000,886
    
    
    
    13,860,620
    
    
    
    3,320,310
    
    
    
    Net cost to acquire and maintain
deposit liabilities
    
    
    758,172
    
    
    
    7,341,730
    
    
    
    5,980,527
    
    
    
    4,926,204
    
    
    
    2,228,580
    
    
    
    Net interest income (expense)
before charge-offs
    
    
    (764,496
    )
    
    
    16,196,644
    
    
    
    17,999,431
    
    
    
    13,972,468
    
    
    
    4,619,718
    
    
    
    Net loan charge-offs (recoveries)
    
    
    
    
    
    
    19,734
    
    
    
    
    
    
    
    1,702,923
    
    
    
    31,096
    
    
    
    Net interest income (expense)
    
    
    (764,496
    )
    
    
    16,176,910
    
    
    
    17,999,431
    
    
    
    12,269,545
    
    
    
    4,588,622
    
    
    
    Non-interest income
    
    
    45,648,631
    
    
    
    
    
    
    
    28,464
    
    
    
    1,746,340
    
    
    
    1,892
    
    
    
    Non-interest expense
    
    
    25,241,523
    
    
    
    4,619,974
    
    
    
    1,480,542
    
    
    
    3,314,528
    
    
    
    1,074,992
    
    
    
    Profit (loss) before taxes
    
    
    19,642,612
    
    
    
    11,556,936
    
    
    
    16,547,353
    
    
    
    10,701,357
    
    
    
    3,515,522
    
    
    
    Income tax expense (benefit)
    
    
    7,963,119
    
    
    
    3,798,984
    
    
    
    6,708,346
    
    
    
    4,338,365
    
    
    
    1,425,202
    
    
    
    Segment profit (loss)
    
    $
    11,679,493
    
    
    $
    7,757,952
    
    
    $
    9,839,007
    
    
    $
    6,362,992
    
    
    $
    2,090,320
    
    
    
    BALANCE SHEET INFORMATION
Dollars in thousandsAverage assets
    
    $
    80,216
    
    
    $
    845,983
    
    
    $
    562,691
    
    
    $
    462,223
    
    
    $
    210,234
    
    
    
    Total assets at end of period
    
    $
    95,703
    
    
    $
    883,605
    
    
    $
    529,820
    
    
    $
    520,134
    
    
    $
    204,623
    
    
    
    
   [Continued from above table, first column(s) repeated] INVESTMENT
    
    
    
    
    
    SUPPORTSEGMENT PROFIT (LOSS) STATEMENTS
    
    & MORTGAGE
    
    OTHER
    
    DEPARTMENT
    
    NON-GAAPYEAR ENDED DECEMBER 31, 2002
    
    SECURITIES
    
    SEGMENTS
    
    ADJUSTMENTS
    
    ALLOCATIONS
    
    CONSOLIDATEDInterest income
    
    $
    20,680,787
    
    
    $
    3,757,135
    
    
    
    
    
    
    
    ($42,753
    ) (1)
    
    $
    161,250,343Interest expense
    
    
    16,598,524
    
    
    
    1,527,630
    
    
    
    
    
    
    
    (1,996,738
    ) (1)
    
    
    79,725,611Net cost to acquire and maintain
deposit liabilities
    
    
    5,240,318
    
    
    
    773,478
    
    
    
    (27,249,008
    )
    
    
    
    
    
    
    Net interest income (expense)
before charge-offs
    
    
    (1,158,054
    )
    
    
    1,456,028
    
    
    
    27,249,008
    
    
    
    1,953,985
    
    
    
    81,524,732Net loan charge-offs (recoveries)
    
    
    
    
    
    
    6,270
    
    
    
    
    
    
    
    1,708,038
    (2)
    
    
    3,468,063Net interest income (expense)
    
    
    (1,158,054
    )
    
    
    1,449,758
    
    
    
    27,249,008
    
    
    
    245,947
    
    
    
    78,056,669Non-interest income
    
    
    (166,264
    )
    
    
    536,506
    
    
    
    31,631,274
    
    
    
    (15,791,792
    ) (3)
    
    
    63,635,051Non-interest expense
    
    
    136,264
    
    
    
    2,734,783
    
    
    
    58,880,282
    
    
    
    (10,104,575
    ) (3)
    
    
    87,378,312Profit (loss) before taxes
    
    
    (1,460,583
    )
    
    
    (748,519
    )
    
    
    
    
    
    
    (5,441,270
    )
    
    
    54,313,408Income tax expense (benefit)
    
    
    (1,850,645
    )
    
    
    (161,461
    )
    
    
    
    
    
    
    (2,824,046
    )
    
    
    19,397,866Segment profit (loss)
    
    $
    390,063
    
    
    
    ($587,058
    )
    
    
    
    
    
    
    ($2,617,224
    )
    
    $
    34,915,542BALANCE SHEET INFORMATION
Dollars in thousandsAverage assets
    
    $
    584,878
    
    
    $
    62,977
    
    
    
    
    
    
    $
    29,766
    (4)
    
    $
    2,838,968Total assets at end of period
    
    $
    627,487
    
    
    $
    128,322
    
    
    
    
    
    
    $
    35,930
    (4)
    
    $
    3,025,624
 COMMERCIALSEGMENT PROFIT (LOSS) STATEMENTS
    
    MORTGAGE
    
    RESIDENTIAL
    
    REAL ESTATE
    
    CONSUMER
    
    EDUCATION
    
    BUSINESSYEAR ENDED DECEMBER 31, 2001
    
    BANKING
    
    LOANS
    
    LENDING
    
    LENDING
    
    LENDING
    
    BANKINGInterest income
    
    $
    3,257,387
    
    
    $
    65,810,100
    
    
    $
    39,962,209
    
    
    $
    30,359,780
    
    
    $
    14,300,051
    
    
    
    Interest expense
    
    
    3,823,851
    
    
    
    44,705,517
    
    
    
    24,188,333
    
    
    
    17,475,196
    
    
    
    6,153,219
    
    
    
    Net cost to acquire and maintain
deposit liabilities
    
    
    503,629
    
    
    
    6,336,321
    
    
    
    5,495,949
    
    
    
    3,981,966
    
    
    
    2,241,482
    
    
    
    Net interest income (expense)
before charge-offs
    
    
    (1,070,093
    )
    
    
    14,768,262
    
    
    
    10,277,927
    
    
    
    8,902,618
    
    
    
    5,905,350
    
    
    
    Net loan charge-offs (recoveries)
    
    
    
    
    
    
    (7,563
    )
    
    
    
    
    
    
    1,094,829
    
    
    
    36,463
    
    
    
    Net interest income (expense)
    
    
    (1,070,093
    )
    
    
    14,775,825
    
    
    
    10,277,927
    
    
    
    7,807,789
    
    
    
    5,868,887
    
    
    
    Non-interest income
    
    
    26,888,068
    
    
    
    
    
    
    
    38,548
    
    
    
    1,689,466
    
    
    
    52,590
    
    
    
    Non-interest expense
    
    
    17,085,283
    
    
    
    5,405,384
    
    
    
    1,328,210
    
    
    
    2,703,827
    
    
    
    911,555
    
    
    
    Profit (loss) before taxes
    
    
    8,732,692
    
    
    
    9,370,441
    
    
    
    8,988,265
    
    
    
    6,793,428
    
    
    
    5,009,922
    
    
    
    Income tax expense (benefit)
    
    
    3,540,234
    
    
    
    2,416,789
    
    
    
    3,643,842
    
    
    
    2,754,056
    
    
    
    2,031,023
    
    
    
    Segment profit (loss)
    
    $
    5,192,458
    
    
    $
    6,953,652
    
    
    $
    5,344,423
    
    
    $
    4,039,371
    
    
    $
    2,978,899
    
    
    
    BALANCE SHEET INFORMATION
Dollars in thousandsAverage assets
    
    $
    84,862
    
    
    $
    953,105
    
    
    $
    521,658
    
    
    $
    376,020
    
    
    $
    212,453
    
    
    
    Total assets at end of period
    
    $
    100,470
    
    
    $
    848,751
    
    
    $
    566,560
    
    
    $
    379,174
    
    
    $
    211,642
    
    
    
    
   [Continued from above table, first column(s) repeated] INVESTMENT
    
    
    
    
    
    SUPPORTSEGMENT PROFIT (LOSS) STATEMENTS
    
    & MORTGAGE
    
    OTHER
    
    DEPARTMENT
    
    NON-GAAPYEAR ENDED DECEMBER 31, 2001
    
    SECURITIES
    
    SEGMENTS
    
    ADJUSTMENTS
    
    ALLOCATIONS
    
    CONSOLIDATEDInterest income
    
    $
    17,106,976
    
    
    $
    408,163
    
    
    
    
    
    
    $
    327,975
    (1)
    
    $
    171,532,641Interest expense
    
    
    14,274,353
    
    
    
    249,806
    
    
    
    
    
    
    
    (2,539,902
    ) (1)
    
    
    108,330,373Net cost to acquire and maintain
deposit liabilities
    
    
    2,450,646
    
    
    
    81,359
    
    
    
    (21,091,352
    )
    
    
    
    
    
    
    Net interest income (expense)
before charge-offs
    
    
    381,977
    
    
    
    76,998
    
    
    
    21,091,352
    
    
    
    2,867,877
    
    
    
    63,202,268Net loan charge-offs (recoveries)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    639,662
    (2)
    
    
    1,763,391Net interest income (expense)
    
    
    381,977
    
    
    
    76,998
    
    
    
    21,091,352
    
    
    
    2,228,215
    
    
    
    61,438,877Non-interest income
    
    
    
    
    
    
    285,599
    
    
    
    26,748,850
    
    
    
    (6,175,815
    ) (3)
    
    
    49,527,306Non-interest expense
    
    
    101,294
    
    
    
    512,254
    
    
    
    47,840,202
    
    
    
    (8,768,536
    ) (3)
    
    
    67,119,473Profit (loss) before taxes
    
    
    280,683
    
    
    
    (149,657
    )
    
    
    
    
    
    
    4,820,936
    
    
    
    43,846,710Income tax expense (benefit)
    
    
    (857,751
    )
    
    
    (4,515
    )
    
    
    
    
    
    
    1,874,807
    
    
    
    15,398,485Segment profit (loss)
    
    $
    1,138,434
    
    
    
    ($145,142
    )
    
    
    
    
    
    $
    2,946,129
    
    
    $
    28,448,225BALANCE SHEET INFORMATION
Dollars in thousandsAverage assets
    
    $
    325,934
    
    
    $
    7,514
    
    
    
    
    
    
    $
    7,338
    (4)
    
    $
    2,488,884Total assets at end of period
    
    $
    550,770
    
    
    $
    42,379
    
    
    
    
    
    
    $
    17,964
    (4)
    
    $
    2,717,710
  (1)
    
    Consists principally of interest income and expense adjustments related
to late charges, implied earnings on custodial and escrow accounts, and
earnings on bank owned life insurance.(2)
    
    In general, the Corporation records actual loan and real estate
charge-off (recovery) activity against each profit center for segment
reporting purposes.(3)
    
    Consists principally of non-GAAP adjustments related to loan
origination fees and costs, mortgage servicing rights and loan
servicing fees. The offsets for the adjustments described in (1) above,
are also included in non-interest income.(4)
    
    Consists of allowances for loss on loans and real estate, intangible
assets, purchase adjustments, and security valuation allowances that
are disregarded for segment reporting purposes. Also includes mortgage
servicing rights that are not recorded under GAAP, but are recorded for
segment reporting purposes. 29




---



##### Table of Contents



NOTE 15ACQUISITION On October 10, 2003, the Corporation completed the acquisition of
Liberty Bancshares, Inc., (LBI) the parent company of Liberty State Bank,
headquartered in St. Paul, Minnesota. As of that date, LBI ceased to exist as a
separate entity and its results of operations were included in the Corporations
consolidated results. This acquisition was made to expand the Corporations
presence into a major metropolitan market and further the Corporations
diversification strategy of acquiring successful commercial banks with
established business banking personnel and prospects. As a result of the
acquisition, LBI was merged into the Corporation, with LBI shareholders
receiving a combination of $30.3 million in cash and 2.6 million shares of the
Corporations stock valued at $49.3 million. The amount of goodwill recorded in
connection with this transaction was $39.6 million, subject to final valuation.
In addition, the Corporation recorded a deposit-based intangible of $9.1 million
in connection with the transaction. LBIs consolidated net income during the
nine-month period ending September 30, 2003, was $3.6 million, and was $5.0
million and $4.0 million during the twelve-month periods ending December 31,
2002 and 2001, respectively. Following is a summary of the assets acquired and liabilities assumed
in the acquisition. The table excludes cash and cash equivalents acquired of
$41.2 million. ASSETS ACQUIRED AND LIABILITIES ASSUMED
    
    AMOUNTInterest-bearing deposits with banks
    
    $
    26,545Investment securities available for sale
    
    
    96,548,375Loans held for investment, net
    
    
    286,713,925Federal Home Loan Bank stock
    
    
    474,500Accrued interest receivable, net
    
    
    1,879,710Office properties and equipment
    
    
    6,449,363Goodwill
    
    
    39,622,427Other intangible assets
    
    
    9,055,000Other assets
    
    
    10,564,726Total assets
    
    
    451,334,571Deposit liabilities
    
    
    407,034,985Other borrowings
    
    
    250,000Advance payments by borrowers for taxes and insurance
    
    
    13,386Accrued interest payable
    
    
    716,022Other liabilities
    
    
    4,522,340Total liabilities
    
    
    412,536,733Net assets acquired and liabilities assumed
    
    $
    38,797,838
 30




---



##### Table of Contents



NOTE 16PARENT COMPANY ONLY FINANCIAL INFORMATION DECEMBER 31CONDENSED STATEMENTS OF FINANCIAL CONDITION:
    
    2003
    
    2002Cash in bank
    
    $
    35,038
    
    
    $
    27,870Interest-bearing deposits with subsidiary bank
    
    
    10,474,011
    
    
    
    3,519,050Investment in subsidiary
    
    
    309,589,026
    
    
    
    218,696,628Other assets
    
    
    171,338
    
    
    
    197,768Total assets
    
    $
    320,269,413
    
    
    $
    222,441,316Other borrowings
    
    $
    43,610,000
    
    
    $
    16,989,313Other liabilities
    
    
    70,270
    
    
    
    Total liabilities
    
    
    43,680,270
    
    
    
    16,989,313Common stock
    
    
    2,239,477
    
    
    
    2,021,593Additional paid-in capital
    
    
    87,323,995
    
    
    
    46,577,431Retained earnings
    
    
    188,319,179
    
    
    
    165,628,148Treasury stock, at cost
    
    
    
    
    
    
    (10,178,374
    )Unearned restricted stock
    
    
    
    
    
    
    (32,083
    )Non-owner adjustments to equity, net
    
    
    (1,293,508
    )
    
    
    1,435,289Total stockholders equity
    
    
    276,589,144
    
    
    
    205,452,003Total liabilities and stockholders equity
    
    $
    320,269,413
    
    
    $
    222,441,316
 YEAR ENDED DECEMBER 31CONDENSED STATEMENTS OF OPERATIONS:
    
    2003
    
    2002
    
    2001Other income
    
    $
    7,808
    
    
    $
    5,738
    
    
    $
    38,989Other expense
    
    
    889,097
    
    
    
    623,876
    
    
    
    379,623Loss before income taxes and equity in earnings of subsidiary
    
    
    (881,289
    )
    
    
    (618,138
    )
    
    
    (340,634
    )Income tax benefit
    
    
    308,451
    
    
    
    216,348
    
    
    
    119,222Loss before equity in earnings of subsidiary
    
    
    (572,838
    )
    
    
    (401,790
    )
    
    
    (221,412
    )Equity in earnings of subsidiary
    
    
    35,299,383
    
    
    
    35,317,332
    
    
    
    28,669,637Net income
    
    $
    34,726,545
    
    
    $
    34,915,542
    
    
    $
    28,448,225
 YEAR ENDED DECEMBER 31CONDENSED STATEMENTS OF CASH FLOWS:
    
    2003
    
    2002
    
    2001Net income
    
    $
    34,726,545
    
    
    $
    34,915,542
    
    
    $
    28,448,225Equity in earnings of subsidiary
    
    
    (35,299,383
    )
    
    
    (35,317,332
    )
    
    
    (28,669,637
    )Change in income taxes and other accruals and prepaid
    
    
    (49,594
    )
    
    
    (115,892
    )
    
    
    113,110Net cash used by operations
    
    
    (622,432
    )
    
    
    (517,682
    )
    
    
    (108,302
    )Decrease (increase) in interest-bearing deposits with subsidiary bank
    
    
    (6,954,961
    )
    
    
    (2,945,617
    )
    
    
    3,782,086Dividends received from subsidiary
    
    
    22,000,000
    
    
    
    15,750,000
    
    
    
    9,900,000Capital contributions to subsidiary
    
    
    (28,144,289
    )
    
    
    (7,500,000
    )
    
    
    (1,234,706
    )Net cash acquired in acquisitions of other financial institutions
    
    
    336,445
    
    
    
    
    
    
    
    1,234,540Net cash (used) provided by investing activities
    
    
    (12,762,805
    )
    
    
    5,304,383
    
    
    
    13,681,920Increase (decrease) in other borrowings
    
    
    23,870,687
    
    
    
    16,989,313
    
    
    
    (2,601,542
    )Dividends paid to shareholders
    
    
    (11,236,323
    )
    
    
    (10,145,762
    )
    
    
    (8,866,148
    )Purchases of treasury stock
    
    
    (507,819
    )
    
    
    (13,770,106
    )
    
    
    (3,213,376
    )Other, net
    
    
    1,265,860
    
    
    
    2,150,599
    
    
    
    1,071,630Net cash provided (used) by financing activities
    
    
    13,392,405
    
    
    
    (4,775,956
    )
    
    
    (13,609,436
    )Net increase (decrease) in cash in bank
    
    
    7,168
    
    
    
    10,745
    
    
    
    (35,818
    )Cash at beginning of period
    
    
    27,870
    
    
    
    17,125
    
    
    
    52,943Cash in bank at end of period
    
    $
    35,038
    
    
    $
    27,870
    
    
    $
    17,125
 31




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of  First
Federal Capital Corp:

We have audited the accompanying consolidated statement of financial condition
of First Federal Capital Corp and subsidiaries as of December 31, 2003, and the
related consolidated statements of operations, stockholders equity, and cash
flows for the year then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies at December 31,
2003, and the results of their operations and their cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

/s/ Deloitte & Touche LLP

February 23, 2004
Milwaukee, Wisconsin





---



##### Table of Contents



Report of Independent Registered Public Accounting Firm Board of Directors
First Federal Capital Corp and Subsidiaries We have audited the accompanying consolidated statements of financial condition
of First Federal Capital Corp as of December 31, 2002, and the related
consolidated statements of operations, stockholders equity, and cash flows for
each of the two years in the period ended December 31, 2002. These financial
statements are the responsibility of the corporations management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test a basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of First Federal
Capital Corp at December 31, 2002, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2002, in conformity with U.S. generally accepted accounting
principles. As discussed in Note 1, in 2002 First Federal Capital Corp changed its
methodology for accounting for goodwill. /s/ Ernst & Young LLP Milwaukee, Wisconsin
January 23, 2003




---



##### Table of Contents



SUPPLEMENTARY DATA Quarterly Financial Information (Unaudited) DEC.
    
    SEPT.
    
    JUNE
    
    MARCH
    
    DEC.
    
    SEPT.
    
    JUNE
    
    MARCHDollars in thousands, except for per share amounts
    
    2003
    
    2003
    
    2003
    
    2003
    
    2002
    
    2002
    
    2002
    
    2002Interest on loans
    
    $
    34,447
    
    
    $
    30,234
    
    
    $
    30,792
    
    
    $
    32,426
    
    
    $
    35,252
    
    
    $
    35,205
    
    
    $
    34,098
    
    
    $
    33,057Interest on mortgage-backed and related securities
    
    
    3,684
    
    
    
    3,603
    
    
    
    4,619
    
    
    
    3,479
    
    
    
    2,789
    
    
    
    4,559
    
    
    
    5,707
    
    
    
    5,415Interest and dividends on investments
    
    
    1,068
    
    
    
    1,111
    
    
    
    1,202
    
    
    
    1,253
    
    
    
    1,681
    
    
    
    1,319
    
    
    
    1,208
    
    
    
    961Total interest income
    
    
    39,199
    
    
    
    34,948
    
    
    
    36,612
    
    
    
    37,158
    
    
    
    39,723
    
    
    
    41,082
    
    
    
    41,013
    
    
    
    39,433Interest on deposits
    
    
    11,044
    
    
    
    11,730
    
    
    
    12,977
    
    
    
    13,657
    
    
    
    14,090
    
    
    
    14,191
    
    
    
    13,789
    
    
    
    15,014Interest on FHLB advances and other borrowings
    
    
    2,212
    
    
    
    4,149
    
    
    
    5,136
    
    
    
    5,220
    
    
    
    5,495
    
    
    
    5,652
    
    
    
    5,706
    
    
    
    5,789Total interest expense
    
    
    13,256
    
    
    
    15,879
    
    
    
    18,114
    
    
    
    18,877
    
    
    
    19,585
    
    
    
    19,843
    
    
    
    19,495
    
    
    
    20,803Net interest income
    
    
    25,943
    
    
    
    19,070
    
    
    
    18,499
    
    
    
    18,281
    
    
    
    20,138
    
    
    
    21,240
    
    
    
    21,518
    
    
    
    18,630Provision for loan losses
    
    
    570
    
    
    
    368
    
    
    
    139
    
    
    
    379
    
    
    
    1,334
    
    
    
    716
    
    
    
    771
    
    
    
    647Net interest income after provision for loan losses
    
    
    25,373
    
    
    
    18,702
    
    
    
    18,360
    
    
    
    17,902
    
    
    
    18,804
    
    
    
    20,524
    
    
    
    20,747
    
    
    
    17,982Gain (loss) on sale of investments and other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (166
    )Other non-interest income
    
    
    15,022
    
    
    
    33,112
    
    
    
    20,470
    
    
    
    17,941
    
    
    
    21,027
    
    
    
    16,717
    
    
    
    12,977
    
    
    
    13,080Total non-interest income
    
    
    15,022
    
    
    
    33,112
    
    
    
    20,470
    
    
    
    17,941
    
    
    
    21,027
    
    
    
    16,717
    
    
    
    12,977
    
    
    
    12,913Total non-interest expense
    
    
    28,269
    
    
    
    35,473
    
    
    
    24,850
    
    
    
    23,125
    
    
    
    24,097
    
    
    
    22,892
    
    
    
    21,257
    
    
    
    19,133Income before income taxes
    
    
    12,126
    
    
    
    16,341
    
    
    
    13,980
    
    
    
    12,718
    
    
    
    15,734
    
    
    
    14,349
    
    
    
    12,467
    
    
    
    11,763Income tax expense
    
    
    4,350
    
    
    
    6,176
    
    
    
    5,210
    
    
    
    4,704
    
    
    
    5,731
    
    
    
    5,293
    
    
    
    4,278
    
    
    
    4,095Net Income
    
    $
    7,776
    
    
    $
    10,166
    
    
    $
    8,771
    
    
    $
    8,014
    
    
    $
    10,003
    
    
    $
    9,056
    
    
    $
    8,189
    
    
    $
    7,667Diluted earnings per share
    
    $
    0.35
    
    
    $
    0.51
    
    
    $
    0.44
    
    
    $
    0.40
    
    
    $
    0.50
    
    
    $
    0.45
    
    
    $
    0.40
    
    
    $
    0.38Dividends paid per share
    
    $
    0.14
    
    
    $
    0.14
    
    
    $
    0.14
    
    
    $
    0.13
    
    
    $
    0.13
    
    
    $
    0.13
    
    
    $
    0.13
    
    
    $
    0.12Stock price at end of period
    
    $
    22.56
    
    
    $
    20.55
    
    
    $
    19.85
    
    
    $
    20.41
    
    
    $
    19.31
    
    
    $
    19.43
    
    
    $
    22.10
    
    
    $
    18.85High stock price during period
    
    $
    24.00
    
    
    $
    21.46
    
    
    $
    20.57
    
    
    $
    21.08
    
    
    $
    19.50
    
    
    $
    21.60
    
    
    $
    22.47
    
    
    $
    18.85Low stock price during period
    
    $
    20.55
    
    
    $
    19.83
    
    
    $
    18.50
    
    
    $
    19.13
    
    
    $
    16.88
    
    
    $
    17.55
    
    
    $
    18.50
    
    
    $
    14.68
 Note: Quarterly earnings per share amounts may not equal annual earnings per
share amounts due to rounding. 33




---



##### Table of Contents






ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(C) Exhibits




No.
    
    Exhibit Description23.1
    
    Consent of Deloitte & Touche LLP23.2
    
    Consent of Ernst & Young LLP31.4
    
    Certification of Chief Executive Officer31.5
    
    Certification of Acting Chief Financial Officer31.6
    
    Certification of Vice President and Controller32.4
    
    Section 1350 Certification of President and Chief Executive Officer32.5
    
    Certification of Acting Chief Financial Officer32.6
    
    Certification of Controller




---



##### Table of Contents



Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized. FIRST FEDERAL CAPITAL CORPJuly 8, 2004
    
    By: /s/ Jack C. Rusch
President and Chief Executive Officer