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United States
Securities and Exchange Commission Washington, D.C. 20549
 Form 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended
    
    March 31, 2004Commission file number
    
    0-18046
 First Federal Capital Corp  Wisconsin
    
    39-1651288(State or other jurisdiction of
    
    (IRS employerincorporation or organization)
    
    identification)605 State StreetLa Crosse, Wisconsin
    
    54601(Address of principal executive office)
    
    (Zip code)
 Registrants telephone number, including area code:   (608) 784-8000 Not applicable
(Former name, former address, and former fiscal year,
if changed since last report) 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 the Registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2).   Yes [X]   No [  ] Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Class: Common Stock$.10 Par Value. Outstanding as of May 6, 2004:
22,487,868 (excludes 3,552 shares held as treasury stock).




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Form 10-Q Table of Contents Part IFinancial Information
    
    PageItem 1Financial Statements
    
    
    2Item 2Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    10Item 3Quantitative and Qualitative Disclosures about Market Risk
    
    
    21Item 4Controls and Procedures
    
    
    22Part IIOther InformationItem 1Legal Proceedings
    
    
    23Item 2Changes in Securities
    
    
    23Item 3Defaults Upon Senior Securities
    
    
    23Item 4Submission of Matters to Vote of Security Holders
    
    
    23Item 5Other Information
    
    
    23Item 6Exhibits and Reports on Form 8-K
    
    
    23Signatures
    
    
    25Certifications
    
    
    26Certification of President and CEOCertification of VP and CFOCertification of VP and ControllerCertification of President and CEOCertification of Senior VP and CFOCertification of VP and Controller
 1




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Part IFinancial Information 
 Item 1Financial Statements Consolidated Statements of Financial Condition
March 31, 2004, and December 31, 2003 March 31
    
    December 312004
    
    2003ASSETS
    
    (Unaudited)Cash and due from banks
    
    $
    85,782,964
    
    
    $
    94,535,753Interest-bearing deposits with banks
    
    
    8,014,625
    
    
    
    6,444,374Mortgage-backed and related securities:Available for sale, at fair value
    
    
    448,839,953
    
    
    
    386,862,372Held for investment, at cost (fair value of $299,715,577 and $610,294, respectively)
    
    
    296,946,310
    
    
    
    613,076Loans held for sale
    
    
    37,795,579
    
    
    
    16,113,217Loans held for investment (net of allowance of $13,900,850 and $13,882,350, respectively)
    
    
    2,572,865,312
    
    
    
    2,518,683,388Federal Home Loan Bank stock
    
    
    60,596,000
    
    
    
    59,634,800Accrued interest receivable, net
    
    
    17,327,935
    
    
    
    15,802,753Office properties and equipment
    
    
    54,222,170
    
    
    
    53,020,583Mortgage servicing rights, net
    
    
    37,944,402
    
    
    
    36,340,856Goodwill
    
    
    78,063,720
    
    
    
    78,168,866Other intangible assets
    
    
    12,836,291
    
    
    
    13,358,976Other assets
    
    
    31,861,953
    
    
    
    28,745,265Total assets
    
    $
    3,743,097,213
    
    
    $
    3,308,324,280LIABILITIES AND STOCKHOLDERS EQUITYDeposit liabilities
    
    $
    2,672,071,943
    
    
    $
    2,552,837,027Federal Funds purchased
    
    
    46,200,000
    
    
    
    24,500,000Federal Home Loan Bank advances
    
    
    650,200,000
    
    
    
    373,075,000Other borrowings
    
    
    36,861,913
    
    
    
    43,624,308Advance payments by borrowers for taxes and insurance
    
    
    4,944,540
    
    
    
    1,484,734Accrued interest payable
    
    
    2,676,798
    
    
    
    2,234,905Other liabilities
    
    
    46,045,110
    
    
    
    33,979,161Total liabilities
    
    
    3,459,000,304
    
    
    
    3,031,735,135Preferred stock, $.10 par value (5,000,000 shares authorized, none outstanding)
    
    
    
    
    
    
    Common stock, $.10 par value (100,000,000 shares authorized, 22,438,666 and 22,394,773 shares
issued, respectively)
    
    
    2,243,867
    
    
    
    2,239,477Additional paid-in capital
    
    
    87,901,722
    
    
    
    87,323,995Retained earnings
    
    
    193,508,742
    
    
    
    188,319,179Treasury stock, at cost (3,552 and 0 shares, respectively)
    
    
    (80,400
    )
    
    
    Accumulated non-owner adjustments to equity, net
    
    
    522,978
    
    
    
    (1,293,508
    )Total stockholders equity
    
    
    284,096,909
    
    
    
    276,589,144Total liabilities and stockholders equity
    
    $
    3,743,097,213
    
    
    $
    3,308,324,280
 Refer to accompanying Notes to Consolidated Financial Statements. 2




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Consolidated Statements of Operations
Three months ended March 31, 2004 and 2003 Three Months Ended March 312004
    
    2003(Unaudited)
    
    (Unaudited)Interest on loans
    
    $
    35,547,046
    
    
    $
    32,425,980Interest on mortgage-backed and related securities
    
    
    4,920,593
    
    
    
    3,478,656Interest and dividends on investments
    
    
    993,297
    
    
    
    1,253,409Total interest income
    
    
    41,460,936
    
    
    
    37,158,044Interest on deposit liabilities
    
    
    10,370,866
    
    
    
    13,656,615Interest on FHLB advances and other borrowings
    
    
    3,338,557
    
    
    
    5,220,231Total interest expense
    
    
    13,709,423
    
    
    
    18,876,846Net interest income
    
    
    27,751,513
    
    
    
    18,281,198Provision for loan losses
    
    
    1,606,343
    
    
    
    378,898Net interest income after provision for loan losses
    
    
    26,145,170
    
    
    
    17,902,300Community banking revenue
    
    
    10,313,271
    
    
    
    8,827,729Mortgage banking revenue
    
    
    4,674,380
    
    
    
    8,512,326Other income
    
    
    638,252
    
    
    
    600,924Total non-interest income
    
    
    15,625,903
    
    
    
    17,940,980Compensation and employee benefits
    
    
    18,554,058
    
    
    
    13,995,764Occupancy and equipment
    
    
    3,578,401
    
    
    
    3,125,081Communications, postage, and office supplies
    
    
    1,754,012
    
    
    
    1,848,478ATM and debit card transaction costs
    
    
    1,349,060
    
    
    
    1,089,626Advertising and marketing
    
    
    780,196
    
    
    
    679,721Amortization of intangibles
    
    
    522,686
    
    
    
    182,106Other expenses
    
    
    2,740,424
    
    
    
    2,204,473Total non-interest expense
    
    
    29,278,837
    
    
    
    23,125,249Income before income taxes
    
    
    12,492,236
    
    
    
    12,718,032Income tax expense
    
    
    4,451,020
    
    
    
    4,703,563Net income
    
    $
    8,041,216
    
    
    $
    8,014,469Per share informationDiluted earnings per share
    
    $
    0.36
    
    
    $
    0.40Basic earnings per share
    
    
    0.36
    
    
    
    0.41Dividends paid per share
    
    
    0.14
    
    
    
    0.13
 Refer to accompanying Notes to Consolidated Financial Statements. 3




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Consolidated Statements of Stockholders Equity
Three months ended March 31, 2004 and 2003 CommonStock and
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    Unearned
    
    Non-OwnerPaid-In
    
    Retained
    
    Treasury
    
    Restricted
    
    AdjustmentsUnaudited
    
    Capital
    
    Earnings
    
    Stock
    
    Stock
    
    to Equity
    
    TotalBalance at December 31, 2002
    
    $
    48,599,024
    
    
    $
    165,628,148
    
    
    
    ($10,178,374
    )
    
    
    ($32,083
    )
    
    $
    1,435,289
    
    
    $
    205,452,003Net income
    
    
    
    
    
    
    8,014,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,014,469Securities valuation adjustment,
net of income taxes of $252,191
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    468,355
    
    
    
    468,355Net income and non-owner
adjustments to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,482,824Dividends paid
    
    
    
    
    
    
    (2,561,925
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,561,925
    )Exercise of stock options
    
    
    
    
    
    
    (144,050
    )
    
    
    541,055
    
    
    
    
    
    
    
    
    
    
    
    397,005Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (474,112
    )
    
    
    
    
    
    
    
    
    
    
    (474,112
    )Amortization of restricted stock
    
    
    
    
    
    
    189,804
    
    
    
    
    
    
    
    13,750
    
    
    
    
    
    
    
    203,554Other activity
    
    
    
    
    
    
    (169,919
    )
    
    
    (69,080
    )
    
    
    
    
    
    
    
    
    
    
    (238,999
    )Balance at March 31, 2003
    
    $
    48,599,024
    
    
    $
    170,956,527
    
    
    
    ($10,180,511
    )
    
    
    ($18,333
    )
    
    $
    1,903,644
    
    
    $
    211,260,351UnauditedBalance at December 31, 2003
    
    $
    89,563,472
    
    
    $
    188,319,179
    
    
    
    
    
    
    
    
    
    
    
    ($1,293,508
    )
    
    $
    276,589,144Net income
    
    
    
    
    
    
    8,041,216
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,041,216Securities valuation adjustment,
net of income taxes of $978,108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,816,486
    
    
    
    1,816,486Net income and non-owner
adjustments to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,857,702Dividends paid
    
    
    
    
    
    
    (3,134,252
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,134,252
    )Exercise of stock options
    
    
    582,117
    
    
    
    37,418
    
    
    
    263,966
    
    
    
    
    
    
    
    
    
    
    
    883,501Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (322,866
    )
    
    
    
    
    
    
    
    
    
    
    (322,866
    )Amortization of restricted stock
    
    
    
    
    
    
    245,180
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245,180Other activity
    
    
    
    
    
    
    
    
    
    
    (21,500
    )
    
    
    
    
    
    
    
    
    
    
    (21,500
    )Balance at March 31, 2004
    
    $
    90,145,589
    
    
    $
    193,508,742
    
    
    
    ($80,400
    )
    
    
    
    
    
    $
    522,978
    
    
    $
    284,096,909
 Refer to accompanying Notes to Consolidated Financial Statements. 4




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Consolidated Statements of Cash Flows
Three months ended March 31, 2004 and 2003 Three Months March 312004
    
    2003(Unaudited)
    
    (Unaudited)Cash flows from operating activities:Net income
    
    $
    8,041,216
    
    
    $
    8,014,469Adjustments to reconcile net income to net cash provided (used) by operations:Provision for loan and real estate losses
    
    
    1,795,915
    
    
    
    223,940Increase in mortgage servicing rights valuation allowance
    
    
    631,000
    
    
    
    1,800,000Net loan costs deferred
    
    
    (219,825
    )
    
    
    (1,178,823
    )Amortization of mortgage servicing rights
    
    
    1,789,715
    
    
    
    8,694,869Other amortization
    
    
    2,117,527
    
    
    
    3,667,438Depreciation
    
    
    1,182,729
    
    
    
    964,909Gains on sales of mortgage loans
    
    
    (3,759,077
    )
    
    
    (16,110,274
    )Decrease (increase) in accrued interest receivable
    
    
    (1,525,182
    )
    
    
    714,821Increase (decrease) in accrued interest payable
    
    
    441,893
    
    
    
    (300,944
    )Increase in current and deferred income taxes
    
    
    4,260,335
    
    
    
    4,425,055Other accruals and prepaids, net
    
    
    (3,925,539
    )
    
    
    (1,012,137
    )Net cash provided by operations before loan originations and sales
    
    
    10,830,707
    
    
    
    9,903,323Loans originated for sale
    
    
    (209,062,344
    )
    
    
    (633,625,302
    )Sales of loans originated for sale or transferred from held for investment
    
    
    206,362,539
    
    
    
    675,241,033Net cash provided by operations
    
    
    8,130,902
    
    
    
    51,519,054Cash flows from investing activities:Decrease (increase) in interest-bearing deposits with banks
    
    
    (1,570,251
    )
    
    
    69,136,235Purchases of mortgage-backed and related securities available for sale
    
    
    (101,835,468
    )
    
    
    (327,039,765
    )Principal repayments on mortgage-backed and related securities available for sale
    
    
    42,101,383
    
    
    
    111,887,038Purchases of mortgage-backed and related securities held for investment
    
    
    (303,767,334
    )
    
    
    Principal repayments of mortgage-backed and related securities held for investment
    
    
    7,161,667
    
    
    
    20,391,922Loans originated for investment
    
    
    (261,328,589
    )
    
    
    (266,474,402
    )Loans purchased for investment
    
    
    (1,287,667
    )
    
    
    Loan principal repayments
    
    
    186,973,340
    
    
    
    280,702,404Additions to office properties and equipment
    
    
    (2,389,286
    )
    
    
    (2,321,935
    )Purchases of mortgage servicing rights
    
    
    (1,348,797
    )
    
    
    Other, net
    
    
    (1,164,428
    )
    
    
    12,271,969Net cash used by investing activities
    
    
    (438,455,430
    )
    
    
    (101,446,534
    )Cash flows from financing activities:Increase in deposit liabilities
    
    
    119,234,916
    
    
    
    84,732,397Long-term advances from Federal Home Loan Bank
    
    
    311,050,000
    
    
    
    Repayment of long-term Federal Home Loan Bank advances
    
    
    
    
    
    
    (24,350,000
    )Decrease in short-term Federal Home Loan Bank borrowings
    
    
    (33,925,000
    )
    
    
    Increase in Federal Funds purchased
    
    
    21,700,000
    
    
    
    Decrease in other borrowings
    
    
    (6,762,395
    )
    
    
    (3,491,502
    )Increase (decrease) in advance payments by borrowers for taxes and insurance
    
    
    3,459,806
    
    
    
    (7,470,507
    )Purchase of treasury stock
    
    
    (322,866
    )
    
    
    (474,112
    )Dividends paid
    
    
    (3,134,252
    )
    
    
    (2,561,925
    )Other, net
    
    
    10,271,530
    
    
    
    7,197,411Net cash provided by financing activities
    
    
    421,571,739
    
    
    
    53,581,762Net increase (decrease) in cash and due from banks
    
    
    (8,752,789
    )
    
    
    3,654,282Cash and due from banks at beginning of period
    
    
    94,535,753
    
    
    
    84,482,722Cash and due from banks at end of period
    
    $
    85,782,964
    
    
    $
    88,137,004Supplemental disclosures of cash flow information:Interest and dividends received on loans and investments
    
    $
    39,935,754
    
    
    $
    37,872,865Interest paid on deposits and borrowings
    
    
    13,267,530
    
    
    
    19,177,790Income taxes paid
    
    
    187,000
    
    
    
    279,400Income taxes refunded
    
    
    2,916
    
    
    
    Transfer of loans from held for investment to held for sale
    
    
    17,657,889
    
    
    
    31,315,451
 Refer to accompanying Notes to Consolidated Financial Statements. 5




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Notes to Consolidated Financial Statements Note 1Principles of Consolidation The consolidated financial statements include the accounts and balances of
First Federal Capital Corp (the Corporation), First Federal Capital Bank (the
Bank), and the Banks wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation. Note 2Basis of Presentation The accompanying interim consolidated financial statements are unaudited
and do not include information or footnotes necessary for a complete
presentation of financial condition, results of operations, or cash flows in
accordance with generally accepted accounting principles (GAAP). However, in
the opinion of management, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the consolidated financial
statements have been included. Operating results for the three month period
March 31, 2004, may not necessarily be indicative of the results that may be
expected for the entire year ending December 31, 2004. Certain 2003 balances have been reclassified to conform to the 2004
presentation. Note 3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 Corporations stock
incentive plans. 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 three month periods ended March 31, 2004 and 2003,
is as follows: Three Months Ended March 312004
    
    2003Diluted
    
    Basic
    
    Diluted
    
    BasicNet income
    
    $
    8,041,216
    
    
    $
    8,041,216
    
    
    $
    8,014,469
    
    
    $
    8,014,469Average common shares issued, net of actual treasury shares
    
    
    22,393,370
    
    
    
    22,393,370
    
    
    
    19,698,621
    
    
    
    19,698,621Potential common shares issued under stock options (treasury stock method)
    
    
    233,960
    
    
    
    
    
    
    
    259,791
    
    
    
    Average common shares and potential common shares
    
    
    22,627,330
    
    
    
    22,393,370
    
    
    
    19,958,412
    
    
    
    19,698,621Earnings per share
    
    $
    0.36
    
    
    $
    0.36
    
    
    $
    0.40
    
    
    $
    0.41
 Note 4Contingencies The Corporation and its subsidiaries are engaged in various routine legal
proceedings occurring in the ordinary course of business, which considered
together are believed by management to be immaterial to the consolidated
financial condition and operations of the Corporation. First Cap Holdings, Inc. (FCHI), a Nevada company and wholly-owned
subsidiary of the Bank, has not been subject to taxation in Wisconsin since
FCHIs formation in 1993. 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) has
increased its examinations of banking entities in the state and is proposing
whether to allocate income 6




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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 three months ended March 31, 2004, the Corporations income tax
expense would have been approximately $370,000 higher than reported. This
would have reduced diluted and basic earnings per share by approximately $0.02
per share. Furthermore, if the WDR determines that the earnings of FCHI in
open tax years prior to 2004 should have been subject to tax in Wisconsin,
management estimates that the Bank may be subject to a tax obligation of up to
$16.0 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 any assessment related to this issue. Note 5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 7




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##### Table of Contents



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. 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. Segment Profit (Loss) Statements and Other Information The following
table summarizes the profit (loss) and average assets of each of the
Corporations reportable segments for the three month period
ended March
31, 2004 and 2003. 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, which consists principally of the net costs to
operate the Corporations branch network, as previously described. The net
cost to acquire and maintain deposit liabilities was 1.47% and 1.39% of average
deposit liabilities outstanding during the three months ended March 31, 2004
and 2003, respectively. Three Months Ended March 312004
    
    2003Profit Center
    
    Profit (Loss)
    
    Average Assets
    
    Profit (Loss)
    
    Average AssetsMortgage banking
    
    $
    1,639,137
    
    
    $
    81,573,154
    
    
    $
    4,466,575
    
    
    $
    93,235,287Residential loans
    
    
    2,371,183
    
    
    
    886,409,469
    
    
    
    1,083,888
    
    
    
    845,473,213Commercial real estate lending
    
    
    1,960,745
    
    
    
    561,268,122
    
    
    
    2,644,055
    
    
    
    515,584,896Consumer lending
    
    
    1,841,877
    
    
    
    530,574,032
    
    
    
    1,407,445
    
    
    
    472,438,347Education lending
    
    
    58,119
    
    
    
    214,448,344
    
    
    
    289,105
    
    
    
    212,870,628Business banking
    
    
    335,115
    
    
    
    516,916,354
    
    
    
    (157,218
    )
    
    
    187,401,920Investment and mortgage-related securities
    
    
    1,361,770
    
    
    
    649,591,929
    
    
    
    (771,615
    )
    
    
    674,765,496Other segments
    
    
    (207,022
    )
    
    
    1,888,528
    
    
    
    (131,390
    )
    
    
    1,260,728Subtotal
    
    
    9,360,924
    
    
    
    3,442,669,932
    
    
    
    8,830,845
    
    
    
    3,003,030,515Non-GAAP adjustments
    
    
    (1,319,708
    )
    
    
    26,023,721
    
    
    
    (816,376
    )
    
    
    25,676,188Net income/total average assets
    
    $
    8,041,216
    
    
    $
    3,468,693,653
    
    
    $
    8,014,469
    
    
    $
    3,028,706,703
 8




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##### Table of Contents



Note 6Stock-Based Compensation As permitted by GAAP, the Corporation has not adopted the fair value
method of expense recognition for stock-based compensation awards. Rather,
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.
The following table provides pro forma disclosure of the effects of the
Corporations stock incentive plans using the fair value method. Three Months Ended March 312004
    
    2003Net income as reported
    
    $
    8,041,216
    
    
    $
    8,014,469Stock-based compensation, net of tax
    
    
    (32,392
    )
    
    
    (146,219
    )Pro forma net income
    
    $
    8,008,824
    
    
    $
    7,868,250Diluted earnings per share as reported
    
    $
    0.36
    
    
    $
    0.40Pro forma diluted earnings per share
    
    $
    0.36
    
    
    $
    0.39Basic earnings per share as reported
    
    $
    0.36
    
    
    $
    0.41Pro forma basic earnings per share
    
    $
    0.36
    
    
    $
    0.40
 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. Note 7Subsequent Event On April 27, 2004, the Corporation entered into a definitive agreement to
be acquired by Associated Banc-Corp (Associated), headquartered in Green Bay,
Wisconsin. The stock and cash transaction is valued at $613 million, including
stock options, based on the closing Associated share price on April 27, 2004.
According to the terms of the agreement, the Corporation will merge into
Associated, with the Corporations shareholders exchanging each share of their
common stock for 0.635 shares of Associateds common stock, an equivalent
amount of cash, or a combination thereof. In the aggregate, Associated will
allocate 10% cash and 90% stock. The transaction is tax-free for those
shareholders receiving Associated stock. The acquisition has been approved by the boards of directors of each
company and is expected to close during the fourth quarter of 2004, subject to
shareholder approval, regulatory approvals, and various other conditions of
closing. 9




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##### Table of Contents



Item 2Managements Discussion and Analysis of Financial Condition and Results
of Operations Forward-Looking Statements This report includes certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such statements
include words and phrases such as will likely result, are expected to,
will continue, is anticipated, is estimated, is projected, intends
to, or similar expressions. Forward-looking statements are based on
managements current expectations. Examples of factors which could cause
future results to differ from managements expectations include, but are not
limited to, the following: general economic and competitive conditions;
legislative and regulatory initiatives; monetary and fiscal policies of the
federal government; general market rates of interest; interest rates on
competing investments; interest rates on funding sources; consumer and business
demand for deposit and loan products and services; consumer and business demand
for other financial services; changes in accounting policies or guidelines; and
changes in the quality or composition of the Corporations loan and investment
portfolios. Readers are cautioned that forward-looking statements are not
guarantees of future performance and that actual results may differ materially
from managements current expectations. Furthermore, management of the
Corporation does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements. Application of Critical Accounting Policies Critical Judgments and Estimates For a summary of the Corporations
significant accounting policies, refer to Note 1 of the Corporations Audited
Consolidated Financial Statements included in Part II, Item 8, of its 2003 Form
10-K. Particular attention should be paid to two accounting areas that in
managements judgment, require significant judgments and/or estimates on the
part of management because of the inherent uncertainties surrounding these
areas and/or the subjective nature of the areas. These areas are itemized and
referenced as follows. Mortgage Servicing Rights For a detailed discussion of the judgments and
estimates relating to the initial recording of and ongoing accounting for
mortgage servicing rights (MSRs), refer to the appropriate section in Note 1
of the Corporations Audited Consolidated Financial Statements, included in
Part II, Item 8, of its 2003 Form 10-K. Additional discussion is also
available in the 2003 Form 10-K Residential Lending section of Part I, Item
1, BusinessLending Activities. Finally, information on the impact mortgage
servicing rights have had on the Corporations financial condition and results
of operations for the three month periods ended March 31, 2004 and 2003, can be
found below, in the sections entitled Financial ConditionMortgage Servicing
Rights and Results of OperationsNon-Interest IncomeMortgage Banking
Revenue. Allowance for Losses on Loans and Real Estate For a detailed discussion
of the judgments and estimates relating to allowances for losses on loans and
real estate, refer to the appropriate section in Note 1 of the Corporations
Audited Consolidated Financial Statements, included in Part II, Item 8, of its
2003 Form 10-K. Additional discussion is also available in the 2003 Form 10-K
Non-Performing and Other Classified Assets section and the Allowances for
Losses on Loans and Real Estate section of Part I, Item 1, BusinessLending
Activities. Finally, information on the impact loss allowances have had on
the Corporations financial condition and results of operations for the three
month periods ended March 31, 2004 and 2003, can be found below, in the
sections entitled Financial ConditionNon-Performing Assets and Results of
OperationsProvisions for Loan Losses. New Accounting Standards and Policies During the three months ended March
31, 2004 and 2003, the Corporation adopted no new accounting standards or
policies that, in managements judgment, had a material impact on its financial
condition or results of operations. However, one new accounting standard
issued during the quarter, but with an adoption date of April 1, 2004, was
significant to the financial services industry as a whole. This standard is
itemized in the paragraph that follows. 10




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##### Table of Contents



Staff Accounting Bulletin (SAB) 105, Loan Commitments Accounted for as
Derivative Instruments (SAB 105) During the first quarter of 2004, the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
105, Loan Commitments Accounted for as Derivative Instruments. This SAB
addresses the accounting for loan commitments entered into after March 31,
2004, and certain disclosure requirements relevant in the context of mortgage
banking activities. The effects of SAB 105 are not expected to be material to
the operations of the Corporations operations or financial position. Other Matters On April 27, 2004, the Corporation entered into a definitive agreement to
be acquired by Associated Banc-Corp (Associated), headquartered in Green Bay,
Wisconsin. According to the terms of the agreement, the Corporation will merge
into Associated, with the Corporations shareholders exchanging each share of
their common stock for 0.635 shares of Associateds common stock, an equivalent
amount of cash, or a combination thereof. In the aggregate, Associated will
allocate 10% cash and 90% stock. The transaction is tax-free for those
shareholders receiving Associated stock. The acquisition has been approved by the boards of directors of each
company and is expected to close during the fourth quarter of 2004, subject to
shareholder approval, regulatory approvals, and various other conditions of
closing. Results of Operations Quarter Overview The Corporations net income for the three months ended
March 31, 2004, was $8.04 million or $0.36 per diluted share compared to $8.01
million or $0.40 in the same period last year. These amounts represented a
return on average assets of 0.93% and 1.06%, respectively, and a return on
average equity of 11.47% and 15.37%, respectively. The increase in net income from 2003 to 2004 was primarily attributable to
a $9.5 million increase in net interest income, a $1.5 million increase in
community banking revenue, and a $253,000 decrease in income tax expense.
These developments were offset almost entirely by a $6.2 million increase in
non-interest expense, a $3.8 million decrease in mortgage banking revenue, and
a $1.2 million increase in provision for loan losses. The following paragraphs discuss the aforementioned changes in more detail
along with other changes in the components of net income during the three month
periods ended March 31, 2004 and 2003. Net Interest Income Net interest income increased by $9.5 million or
nearly 52% during the three month period ended March 31, 2004, as compared to
the same period in the previous year. The improvement was due in part to a
$366 million or 13.1% increase in the Corporations average earning assets
between these periods. The principal source of this growth occurred in the
Corporations commercial real estate loans, mortgage-related securities,
commercial business loans, and consumer loans. This growth was largely funded
by increases in money market deposit accounts, Federal Home Loan Bank (FHLB)
term advances, and non-interest-bearing deposit liabilitiesprincipally
custodial accounts. The Corporation maintains borrowers principal and
interest payments in such accounts on a temporary basis pending their
remittance to the third-party owners of the loans. Balances in these accounts
increased at March 31, 2004 due to an increase in loan prepayment activity that
began late in the first quarter. During the first quarter of 2004 the Corporation purchased $305 million in
medium-term collateralized mortgage obligations (CMOs) with a weighted
average life of 3.0 years. Such purchases were funded using term FHLB advances
with a weighted average life of 2.4 years. The pre-tax spread on these
transactions was over 200 basis points and is expected to contribute over $5.0
million to net interest income in 2004, although there can be no assurances.
These purchases were made to maintain growth in the Corporations earning
assets in the near term, as 11




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##### Table of Contents



well as maintain its capital at a level deemed appropriate by management.
Additional leveraged purchases of CMOs are not expected in the immediate
future, although there can be no assurances. In addition to the aforementioned CMO purchases, the Corporation acquired
$102 million in shorter-term CMOs in the first quarter. These securities were
funded out of the general liquidity and had a weighted average life of 2.1
years and a yield of approximately 3.5%. Also contributing to the increase in net interest income in the most
recent quarter was a significant improvement in interest rate spread. The
Corporations interest rate spread improved from 2.17% during the three months
ended March 31, 2003, to 3.26% during the same period in 2004. This
improvement was caused primarily by the maturity of high-cost certificates of
deposit during the last half of 2003, as well as the prepayment of high-cost
FHLB advances late in the third quarter of 2003. Management expects market interest rates to trend higher in 2004 as
economic conditions improve. However, management does not expect this movement
to be dramatic. As a result, management believes the Corporation will be able
to maintain its interest rate spread at or near the level experienced in the
most recent quarter. However, there can be no assurances. The following tables set forth information regarding the average balances
of the Corporations assets, liabilities, and equity, as well as the interest
earned or paid and the average yield or cost of each. The information is based
on daily average balances during the three month periods ended March 31, 2004
and 2003. Dollars in thousands
    
    Three Months Ended March 31, 2004
    
    Three Months Ended March 31, 2003Average
    
    
    
    Yield/
    
    Average
    
    
    
    Yield/Balance
    
    Interest
    
    Cost
    
    Balance
    
    Interest
    
    CostInterest-earning assets:Single-family mortgage loans
    
    $
    844,862
    
    
    $
    11,201
    
    
    
    5.30
    %
    
    $
    816,928
    
    
    $
    10,654
    
    
    
    5.22
    %Commercial real estate loans
    
    
    773,464
    
    
    
    11,568
    
    
    
    5.98
    
    
    
    527,982
    
    
    
    10,176
    
    
    
    7.71Consumer loans
    
    
    585,854
    
    
    
    9,083
    
    
    
    6.20
    
    
    
    505,004
    
    
    
    8,661
    
    
    
    6.86Education loans
    
    
    205,439
    
    
    
    1,646
    
    
    
    3.21
    
    
    
    202,859
    
    
    
    1,986
    
    
    
    3.92Commercial business loans
    
    
    162,771
    
    
    
    2,049
    
    
    
    5.04
    
    
    
    74,584
    
    
    
    948
    
    
    
    5.09Total loans
    
    
    2,572,390
    
    
    
    35,547
    
    
    
    5.53
    
    
    
    2,127,357
    
    
    
    32,426
    
    
    
    6.10Mortgage-backed and related securities
    
    
    524,450
    
    
    
    4,921
    
    
    
    3.75
    
    
    
    425,786
    
    
    
    3,479
    
    
    
    3.27Interest-bearing deposits with banks
    
    
    9,982
    
    
    
    32
    
    
    
    1.29
    
    
    
    193,105
    
    
    
    563
    
    
    
    1.17Other earning assets
    
    
    61,711
    
    
    
    961
    
    
    
    6.23
    
    
    
    55,887
    
    
    
    691
    
    
    
    4.94Total interest-earning assets
    
    
    3,168,534
    
    
    
    41,461
    
    
    
    5.23
    
    
    
    2,802,135
    
    
    
    37,158
    
    
    
    5.30Non-interest-earning assets:Office properties and equipment
    
    
    56,409
    
    
    
    
    
    
    
    
    
    
    
    36,681Other assets
    
    
    243,750
    
    
    
    
    
    
    
    
    
    
    
    189,890Total assets
    
    $
    3,468,694
    
    
    
    
    
    
    
    
    
    
    $
    3,028,707Interest-bearing liabilities:Regular savings accounts
    
    $
    248,438
    
    
    $
    154
    
    
    
    0.25
    %
    
    $
    165,836
    
    
    $
    102
    
    
    
    0.25
    %Checking accounts
    
    
    182,295
    
    
    
    214
    
    
    
    0.47
    
    
    
    133,220
    
    
    
    83
    
    
    
    0.25Money market accounts
    
    
    488,737
    
    
    
    1,482
    
    
    
    1.21
    
    
    
    238,755
    
    
    
    520
    
    
    
    0.87Certificates of deposit
    
    
    1,293,148
    
    
    
    8,520
    
    
    
    2.64
    
    
    
    1,463,777
    
    
    
    12,951
    
    
    
    3.54Total interest-bearing deposits
    
    
    2,212,618
    
    
    
    10,371
    
    
    
    1.87
    
    
    
    2,001,588
    
    
    
    13,657
    
    
    
    2.73FHLB advances
    
    
    502,100
    
    
    
    3,072
    
    
    
    2.45
    
    
    
    388,750
    
    
    
    5,128
    
    
    
    5.28Other borrowings
    
    
    68,583
    
    
    
    267
    
    
    
    1.56
    
    
    
    17,626
    
    
    
    91
    
    
    
    2.06Total interest-bearing liabilities
    
    
    2,783,300
    
    
    
    13,709
    
    
    
    1.97
    
    
    
    2,407,964
    
    
    
    18,877
    
    
    
    3.14Non-interest-bearing liabilities:Non-interest-bearing deposits
    
    
    367,453
    
    
    
    
    
    
    
    
    
    
    
    364,196Other liabilities
    
    
    37,510
    
    
    
    
    
    
    
    
    
    
    
    47,930Total liabilities
    
    
    3,188,264
    
    
    
    
    
    
    
    
    
    
    
    2,820,091Stockholders equity
    
    
    280,430
    
    
    
    
    
    
    
    
    
    
    
    208,615Total liabilities and stockholders equity
    
    $
    3,468,694
    
    
    
    
    
    
    
    
    
    
    $
    3,028,707Net interest income
    
    
    
    
    
    $
    27,752
    
    
    
    
    
    
    
    
    
    
    $
    18,281Interest rate spread
    
    
    
    
    
    
    
    
    
    
    3.26
    %
    
    
    
    
    
    
    
    
    
    
    2.17
    %Net interest income as a percent of average
earning assets
    
    
    
    
    
    
    
    
    
    
    3.50
    %
    
    
    
    
    
    
    
    
    
    
    2.61
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    113.84
    %
    
    
    
    
    
    
    
    
    
    
    116.37
    %
 12




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##### Table of Contents



Provision for Loan Losses Provision for loan losses was $1.6 million and
$379,000 during the three months ended March 31, 2004 and 2003, respectively.
During the first quarter of 2004, the Corporation charged-off $642,000 related
to a $2.6 million loan on a hotel property located in the Twin Cities. The
hotel is currently in bankruptcy and is in process of foreclosure. Although
the Corporation does not expect to incur an additional loss on this loan, there
can be no assurances. In addition, during the first quarter of 2004 the
Corporation charged-off a $385,000 loan to another financial institution which
was deemed insolvent during the period. On an annualized basis, net
charge-offs were 0.25% and 0.10% of average loans outstanding during the three
month periods ended March 31, 2004 and 2003, respectively. As of March 31, 2004 and December 31, 2003, the Corporations allowance
for loan losses was $13.9 million and $13.9 million, respectively, or 0.54% and
0.55% of loans held for investment, respectively. The allowance for loan
losses was 146% and 145% of non-accrual loans as of the same dates,
respectively. Although management believes that the Corporations present
level of allowance for loan losses is adequate, there can be no assurance that
future adjustments to the allowance will not be necessary, which could
adversely affect the Corporations results of operations. For additional
discussion, refer to Financial ConditionNon-Performing Assets. Non-Interest Income Non-interest income for the three month period ended
March 31, 2004 and 2003, was $15.6 million and $17.9 million, respectively.
These amounts represented 36% and 50% of the Corporations total revenue during
such periods. The following paragraphs discuss the principal components of
non-interest income and the primary reasons for their changes from 2003 to
2004. Community Banking Revenue Community banking revenue increased by $1.5
million or 16.8% during the three months ended March 31, 2004, as compared to
the same periods in the previous year. The following table shows the
Corporations community banking revenue for the three month periods ended March
31, 2004 and 2003. Three Months Ended March 31Dollars in thousands
    
    2004
    
    2003Overdraft fees
    
    $
    5,117
    
    
    $
    4,383ATM and debit card fees
    
    
    3,026
    
    
    
    2,547Account service charges
    
    
    732
    
    
    
    621Other fee income
    
    
    437
    
    
    
    408Total deposit account revenue
    
    
    9,312
    
    
    
    7,959Consumer loan insurance premiums and commissions
    
    
    144
    
    
    
    170Other consumer loan fees
    
    
    99
    
    
    
    106Total consumer loan revenue
    
    
    243
    
    
    
    276Tax-deferred annuity commissions
    
    
    267
    
    
    
    341Retail brokerage commissions
    
    
    491
    
    
    
    252Total investment services revenue
    
    
    758
    
    
    
    593Total community banking revenue
    
    $
    10,313
    
    
    $
    8,828
 Deposit account revenue increased by $1.4 million or 17.0% during the
three months ended March 31, 2004, as compared to the same period in the
previous year. This increase was due mostly to a $734,000 or 16.7% increase in
overdraft fees, a $479,000 or 18.8% increase in ATM and debit card fees, and an
$111,000 or 17.9% increase in account service charges. These increases were
due in part to 11.1% growth in the number of checking accounts serviced by the
Corporation. Also contributing was an increase in per-item charges, as well as
changes in charging routines for certain services. Consumer loan revenue declined by $33,000 or 12.0% during the three months
ended March 31, 2004, as compared to the same period in the previous year. The
Corporations principal sources of consumer loan revenue consist of sales of
credit life and disability insurance policies to consumer loan customers. The
decline in consumer loan revenue during the three months ended March 31, 2004,
was primarily attributable to a decrease in premium and commission revenue
associated with a reduction in consumer loan originations as compared to the
same period in the previous year. 13




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##### Table of Contents



Investment services revenue increased by $165,000 or nearly 30% during the
three months ended March 31, 2004, as compared to the same period in the
previous year. The Corporations principal sources of investment services
revenue consist of commissions from sales of tax-deferred annuities, mutual
funds, and other debt and equity securities. The increase in investment
services revenue was due primarily to higher commissions from sales of mutual
funds and other equity investments caused in part by an increase in the number
of registered representatives in the Corporations offices. Also contributing
was an improved equity market in 2003 and 2004. The combination of these
events contributed to an increase in investor confidence and in their
preference for these product offerings. This development was partially offset
by a decline in commissions from sales of tax-deferred annuities, caused
primarily by a general decline in market interest rates that made tax-deferred
annuities less attractive to the Corporations customers. Mortgage Banking Revenue Mortgage banking revenue decreased by $3.8
million or approximately 45% during the three months ended March 31, 2004, as
compared to the same period in the previous year. The following table shows
the Corporations mortgage banking revenue for the three month periods ended
March 31, 2004 and 2003. Three Months Ended March 31Dollars in thousands
    
    2004
    
    2003Gross servicing fees
    
    $
    2,905
    
    
    $
    2,524Mortgage servicing rights amortization
    
    
    (1,790
    )
    
    
    (8,695
    )Mortgage servicing rights valuation (loss) recovery
    
    
    (631
    )
    
    
    (1,800
    )Total loan servicing fees, net
    
    
    484
    
    
    
    (7,971
    )Gains on sales of mortgage loans
    
    
    3,759
    
    
    
    16,110Other mortgage-related income
    
    
    431
    
    
    
    373Total mortgage banking revenue
    
    $
    4,674
    
    
    $
    8,512
 Gross servicing fees increased by $381,000 or 15.1% during the three
months ended March 31, 2004, as compared to the same period in the previous
year. This increase was due primarily to $393 million or 13.0% growth in
average loans serviced for others, compared to the year-ago period. This
growth was caused in part by an increase in the origination and sale of
fixed-rate mortgage loan. Also contributing were increased conversions by
borrowers of adjustable-rate mortgage loans into fixed-rate loans. Upon
conversion, such loans are generally sold in the secondary market and the
Corporation retains the servicing. Finally, during the first quarter of 2004,
the Corporation purchased mortgage servicing rights (MSRs) related to $150
million in mortgage loans. Such loans consisted principally of fixed-rate,
residential mortgage loans on properties located in Iowa. Amortization of mortgage servicing rights was $1.8 million and $8.7
million during the three months ended March 31, 2004 and 2003, respectively.
The decline in the most recent period was attributed principally to a decrease
in prepayment activity that coincided with a decline in loan refinance activity
relative to the same period in the previous year. Furthermore, with market
interest rates at historically low levels in 2003, loan prepayment activity was
dramatically higher during the three months ended March 31, 2003, as borrowers
refinanced older, higher-rate residential mortgage loans, into lower-rate
loans. If interest rates remain where they are or rise, the Corporation will
most likely continue to experience lower levels of amortization on its MSRs as
a result of reduced levels of loan prepayment activity. Such amortization,
however, will most likely be offset by lower levels of gains on sales of
mortgage loans, as described in a subsequent paragraph. During the three months ended March 31, 2004, the Corporation established
a $631,000 valuation allowance for mortgage servicing rights. This compared to
a $5.2 million valuation allowance at March 31, 2003. These allowances were
principally the result of declining mortgage rates during the respective
periods. If market interest rates decline in the future the Corporation may
be exposed to further unfavorable valuation adjustments against its portfolio
of MSRsprimarily because of likely increases in market expectations for
future prepayments. Although management believes that most of the
Corporations loans that prepay are replaced by a new loan to the same customer
or even a different customer (thus preserving the future servicing cash flow),
GAAP requires allowances for impairment based on fair value which reflects
losses resulting from increases in market expectations for future prepayments
to be recorded in the current period. However, the offsetting gain on the sale
of the new loan, if any, cannot be recorded until the customer actually prepays
the old loan and the new loan is sold in the secondary market. 14




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At March 31, 2004 and 2003, loans serviced for others were $3.4 billion
and $3.1 billion, respectively. As of the same dates, mortgage servicing
rights were $37.9 million and $27.8 million, net of the valuation allowance, if
any. Gains on sales of mortgage loans decreased by $12.4 million from $16.1
million during the three months ended March 31, 2003, to $3.8 million during
the same period in 2004. This decrease was principally the result of a decline
in loan originations and sales in the most recent quarter, due to a more
favorable interest rate environment for loan refinance activity in the first
quarter of 2003. Loan sales declined from $675 million in the first quarter of
2003 to $206 million in the first quarter of 2004. In addition, the average
gain on sales of loans was 2.39% during the first quarter of 2003 as compared
to 1.82% in the most recent quarter. This decline was caused principally by a
narrower spread between the primary and secondary market for mortgage loans. Market interest rates have increased in recent months. If this trend
continues, management expects the Corporations gains on sales of mortgage
loans to be substantially lower in the near future than they were in the
year-ago periods. The decline in gains, however, may be offset to some degree
by decreased amortization of MSRs, as more fully described in a previous
paragraph. Other mortgage-related income increased by $58,000 or 15.5% during the
three months ended March 31, 2004, as compared to the same period in the
previous year. This increase was due principally to timing of payments to
third-party vendors for loan-closing services. Other Non-Interest Income Other non-interest income increased by $37,000
or 6.2% during the three month period ended March 31, 2004, as compared to the
same period in the previous year. The increase in the most recent quarterly
period was primarily due to an increase in earnings on the Corporations
bank-owned life insurance policies. Non-Interest ExpenseNon-interest expense for the three months ended
March 31, 2004 and 2003, was $29.3 million and $23.1 million, respectively,
which was 3.35% and 3.07% of average assets during such periods, respectively.
The following paragraphs discuss the principal components of non-interest
expense and the primary reasons for their changes from 2003 to 2004. Compensation and Employee Benefits Compensation and employee
benefits increased by $4.6 million or nearly 33% during the three months ended March 31, 2004, as compared
to the same period in the previous year. In general, the increase was due to
normal annual merit increases, as well as growth in the number of banking
facilities operated by the Corporation and the resulting increase in the number
of employees. Furthermore, 85 full-time equivalent employees were added during
the fourth quarter of 2003 with the completion of the acquisition of Liberty
Bancshares, Inc. (LBI). Since December 31, 2002, the Corporation has
increased the number of its banking facilities from 89 to 95. As of March 31,
2004, the Corporation had 1,396 full-time equivalent employees. This compared
to 1,362 and 1,240 as of December 31, 2003, and March 31, 2003, respectively. Also contributing to the increase in compensation and employee
benefits in 2004 were increased
salaries to employees hired over the past year to support the implementation of
the Corporations business banking product line. During the first quarter of
2003, the Corporation began offering business banking products in its Oshkosh,
Wisconsin, market. In addition, the Corporation began offering business
banking products in the Appleton, Wisconsin, market in the most recent quarter
and intends to expand its offering of business banking products in Madison,
Wisconsin and additional markets in 2004, although there can be no assurances. Also contributing was an increase in employee stock ownership plan
(ESOP) costs, primarily attributable to a change in the Corporations
contribution amount under this benefit from 1% of pay to 2.5% of pay for
certain employees which went into effect January 1, 2004. In addition,
expenditures for employee health care, restricted stock, and the Corporations
401(k) savings plan increased $1.2 million in the aggregate during the three
months ended March 31, 2004, as compared to the same period in the previous
year. The reasons for these increases are similar to those described in
earlier paragraphs. 15




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Occupancy and Equipment Occupancy and equipment expense increased by
$453,000 or 14.5% during the three months ended March 31, 2004, as compared to
the same period in the previous year. This increase was primarily attributable
to growth in the number of banking facilities operated by the Corporation, as
well as increases in the number of full-time equivalent employees and in the
number of customers served by the Corporation. Communications, Postage, and Office Supplies Communications, postage,
and office supplies expense decreased by $94,000 or 5.1% during the three
months ended March 31, 2004, as compared to the same period in the previous
year. This decrease was caused principally by a decline in a variety of
expenditures such as postage costs, office supplies, and customer forms. ATM and Debit Card Transaction Costs ATM and debit card transaction costs
increased by $259,000 or 23.8% during the three months ended March 31, 2004, as
compared to the same period in the previous year. This increase can be
attributed to increased use by the Corporations customers of ATM and debit
card networks, as well as an increase in the number of ATMs operated by the
Corporation. The Corporation currently operates over 140 ATMs in communities
located throughout Wisconsin, northern Illinois, and Minnesota. Advertising and Marketing Advertising and marketing costs increased
$100,000 or 14.8% during the three months ended March 31, 2004, as compared to
the same period in the previous year. This increase can be attributed to
growth in the number of banking facilities operated by the Corporation, as
previously described, as well as an increase in the number of market areas
served by the Corporation. Amortization of Intangibles Amortization of intangible assets, which
consists primarily of deposit-based intangibles, increased by $341,000 or over
185% during the three months ended March 31, 2004, as compared to the same
period in the previous year. This increase was attributed to increased
amortization of the deposit-based intangibles recorded in connection with the
Corporations acquisition of LBI in the fourth quarter of 2003. Other Non-Interest Expense Other non-interest expense increased by
$536,000 or 24.3% during the three months ended March 31, 2004, as compared to
the same period in the previous year. This increase was caused by a variety of
factors, the most significant of which was increased costs related to the
disposition of various residential and consumer properties, an increase in
provision for customer losses, and an increase in bank insurance costs. The
increase in the aforementioned items was partially offset by a decline in costs
related to servicing of loans for Fannie Mae and FHLB, which declined by
$679,000 million almost 75% in 2004. Under the terms of its servicing
agreements with these investors, the Corporation is required to forward a full
months interest to the investors when certain loans are repaid, regardless of
the actual date of the loan payoff. A historically low interest rate
environment during the first quarter of 2003 increased prepayment activity in
2003 and resulted in higher prepayment and refinance activity. This resulted
in the amount of loan pay-off interest remitted to Fannie Mae and FHLB during
the first quarter of 2003 to be higher than the first quarter of 2004. Income Tax Expense Income tax expense for the three months ended March
31, 2004 and 2003, was $4.5 million and $4.7 million, respectively, or 35.6%
and 37.0% of pretax income, respectively. The Corporations effective tax rate
has decreased in recent periods due principally to a reduced mix of taxable
earnings in the States of Wisconsin, Minnesota, and Illinois, relative to the
State of Nevada, where the Corporation has established a wholly-owned
investment subsidiary, FCHI, and which has no corporate state income tax.
Refer to Note 4 of the Corporations Unaudited Consolidated Financial
Statements, included herein under Part I, Item I, Financial Statements, for
additional discussion relating to the Corporations tax situation. Segment Information The following paragraphs contain a discussion of the
financial performance of each of the Corporations reportable segments
(hereafter referred to as profit centers) for the three month periods ended
March 31, 2004 and 2003. Refer to the table in Note 5 of the Corporations
Unaudited Consolidated Financial Statements, included herein under Part I, Item
I, Financial Statements, for a summary of the after-tax profit (loss) of each
of the Corporations profit centers. 16




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Mortgage Banking Profits from the Corporations mortgage banking
activities were $1.6 million for the three month period ended March 31, 2004,
compared to $4.5 million in the same period last year. Loan origination
volumes and loan servicing fees are the principal drivers of performance in
this profit center. In the first quarter of 2004, the Corporations mortgage
banking operation originated $307 million in single-family residential loans
compared to $728 million in the same period of the previous year. This decline
was partially offset by a decrease in the amortization of MSRs due primarily
to a decline in prepayments in the loan servicing portfolio. As noted in
Non-GAAP Adjustments below, MSR valuation losses or recoveries are ignored
for segment reporting purposes. Refer to Results of OperationsNon-Interest
Income for additional discussion. Residential Loans Profits from the Corporations residential loan
portfolio were $2.4 million in the first quarter of 2004 compared to $1.1
million in the same period in the previous year. The increase in this profit
centers earnings was primarily due to an increase in interest rate spread.
This profit center is funded by a mix of deposit liabilities and wholesale
borrowings. The Corporations average cost of interest-bearing liabilities
declined by 117 basis points between the first quarter 2003 and the same period
in 2004. Also, the yield on this profit centers single-family residential
loans increased by 8 basis points between the same periods due in part to a
decrease in purchased loan premium amortization. Commercial Real Estate Lending Profits from commercial real estate
lending declined by $683,000 or 25.8% during the three month period ended March
31, 2004, as compared to the same period in 2003. This decrease was largely
due to an increase in net charge-offs of $642,000 as discussed elsewhere in
this report. A decline in the profit centers interest rate spread in 2004
compared to 2003 also contributed to the decrease in profits. This profit
center is primarily funded by deposit liabilities and, to a lesser extent, by
wholesale borrowings. The Corporations average cost of interest-bearing
liabilities declined by 117 basis points in 2004 compared to 2003. However,
the yield on commercial real estate loans decreased by 173 basis points between
these same periods. A decline in prepayment fees contributed 79 basis points
to the decrease in yield. Average assets assigned to the profit center
increased by $46 million or 8.9% in 2004 compared to the same period in 2003. Consumer Lending Profits from the Corporations consumer lending
activities increased by $434,000 or 30.9% during the three month period ended
March 31, 2004, as compared to the same period in the previous year. This
increase was primarily attributable to an increase in the profit centers
interest rate spread in the most recent quarter, compared to the same timeframe
in 2003. This profit center is principally funded by deposit liabilities and,
to a lesser extent, by wholesale borrowings. The yield on consumer loans
declined by 66 basis points between the first three months of 2004 and the same
period in the previous year. The Corporations average cost of
interest-bearing liabilities, however, declined by 117 basis points between
these same periods. Average assets assigned to the profit center increased by
$58 million or 12.3% in 2004 compared to 2003. Education Lending Profits from education lending declined by $231,000 or
80% during the three month period ended March 31, 2004, as compared to the same
period in the previous year. This decrease was primarily due to a decrease in
the profit centers interest rate spread in 2004 compared to 2003. The average
yield on education loans declined by 71 basis points in the current period
compared to the same period in the previous year. This profit center is
principally funded by money market demand accounts. The average cost of money
market demand accounts increased by 34 basis points in the current year
compared to the previous year due to the Corporations decision to shift the
mix of interest-bearing deposits from certificates of deposit toward money
market demand accounts. During the three months ended March 31, 2004, the
average assets assigned to this profit center were $214 million, an increase of
$1.6 million or 0.7% from the same period last year. Business Banking Profits from the Corporations business banking
operations were $335,000 for the three month period ended March 31, 2004,
compared to a loss of $158,000 for the same period in the previous year. The
results of this profit center include costs associated with the development of
business banking services and the expansion of business banking into additional
geographic markets. The increase in profits was largely due to an increase in
average assets. Average assets for the period were $517 million in 2004,
compared to $187 million for the same period in 2003. The increase in average
assets was primarily due to the acquisition of Liberty Bancshares, Inc. An
increase in interest rate spread in 2004 compared to 2003 also contributed to
the increase in profits. 17




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Investment and Mortgage-Related Securities Profits from the Corporations
investment securities portfolio was $1.4 million in the three month period
ended March 31, 2004, compared to a loss of $772,000 in the same period in
2003. These increases were primarily due to an increase in the profit centers
interest rate spread in 2004 compared to 2003. This profit center is
principally funded by deposit liabilities and, to a lesser extent, by wholesale
borrowings. The Corporations average cost of interest-bearing liabilities
declined by 117 basis points between the first three months of 2004 and the
same period in the previous year. Additionally, the yield on the investment
securities portfolio increased by 116 basis points between these same periods
due to largely to a decline in premium amortization on collateralized mortgage
obligations and a reduction in overnight investments. During the three months
ended March 31, 2004, the average assets assigned to this profit center were
$650 million, a $25 million or 3.7% decrease from the same period last year. Other Segments This segment consists of the parent holding company and
certain of the Banks wholly-owned subsidiaries. The increase in losses from
this segment was principally the result of an increase in interest expense in
the holding company. This increase was the result of a higher level of
borrowings, the proceeds of which were largely used to fund the Liberty
Bancshares, Inc. acquisition. Non-GAAP Adjustments Non-GAAP adjustments declined by $495,000 during the
three month period ended March 31, 2004, as compared to the same period in the
previous year. This decline was largely due to a decline in loan production,
which decreased the internally generated origination fees recorded in the
mortgage banking profit center. This more than offset a decrease in MSR loss
provision that was recorded under GAAP, but ignored in the product
profitability model. Net Cost to Acquire and Maintain Deposit Liabilities In addition to the
after-tax performance of the aforementioned profit centers, management of the
Corporation closely monitors the net cost to acquire and maintain deposit
liabilities. The Corporations profit centers are allocated a share of the net
cost to acquire and maintain deposit liabilities according to their
proportionate use of such deposits as a funding source. As such, changes in
the net cost to acquire and maintain deposit liabilities will impact most of
the Corporations profit centers. The net cost to acquire and maintain deposit liabilities was 1.47% and
1.39% of average deposit liabilities outstanding during the three months ended
March 31, 2004 and 2003, respectively. The increase in net cost between these
periods was the result of the increase in the Corporations net costs of
operating its branch network was greater than the increase in average deposit
liabilities. Financial Condition Overview The Corporations total assets increased by $435 million or
13.1% during the three months ended March 31, 2004. This increase was due
primarily to increases in mortgage-related securities, loans held for
investment, and loans held for sale. These increases were primarily funded by
increases in FHLB advances. Mortgage-Backed and Related Securities The Corporations aggregate
investment in its mortgage-backed and related securities portfolios increased
by $358 million or over 90% during the three months ended March 31, 2004.
During this period, the Corporation purchased $305 million in medium-term
collateralized mortgage obligations (CMOs), and $102 million in shorter-term
CMOs. This development was offset in part by the repayment of $49.3 million in
mortgage-backed and related securities. Loans Held for Sale The Corporations loans held for sale increased by
$21.7 million or 135% during the three months ended March 31, 2004. Declining
interest rates and high levels of refinance activity during the first quarter
of 2004 resulted in a higher level of loans held for sale from December 31,
2003. Loans Held for Investment The Corporations loans held for investment
increased by $54.2 million or 2.2% during the three months ended March 31,
2004. During the three months ended March 31, 2004, the Corporation originated
$88.7 million in adjustable-rate single-family mortgage loans, $83.2 million in
consumer 18




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loans (consisting mostly of second mortgages), $39.8 million in commercial
real estate loans, $24.7 million in business loans, and $23.1 million in
education loans. During the same period, the Corporation experienced higher
refinance activity than it had in prior months, due to a decline in interest
rates. As a result of these factors, the Corporation has experienced growth in
its loans held for investment during the first quarter of 2004. Mortgage Servicing Rights The Corporations mortgage servicing rights,
net of valuation allowances (if any), were $37.9 million and $36.3 million as
of March 31, 2004, and December 31, 2003, respectively. These amounts were
1.10% of the outstanding principal of loans serviced for others for both
periods, respectively, which amounted to $3.4 billion and $3.3 billion at March
31, 2004, and December 31, 2003, respectively. The valuation allowance for MSR
losses was $631,000 at March 31, 2004, and zero at December 31, 2003. Deposit Liabilities The Corporations deposit liabilities increased by
$119 million or 4.7% during the three months ended March 31, 2004. This growth
was due in part to a $52.6 million increase in the Corporations money market
accounts. During late 2003 the Corporation introduced a new money market
product with a guaranteed rate of 2% through the end of the year. Effective
January 1, 2004, these accounts were converted to a money market product with a
minimum rate indexed to money fund performance. The rate paid on these
accounts at conversion was 1.50%. Customer balances in money market accounts
was $522 million and $469 million at March 31, 2004, and December 31, 2003,
respectively. The Corporations deposit liabilities were also impacted by a $56.3
million or over 130% increase in custodial deposit accounts during the three
months ended March 31, 2004. The Corporation maintains borrowers principal
and interest payments in such accounts on a temporary basis pending their
remittance to the third-party owners of the loans. Balances in these accounts
increased at March 31, 2004 due to an increase in loan prepayment activity that
began late in the quarter. FHLB Advances The Corporations FHLB advances increased by $277 million
or almost 75% during the
three months ended March 31, 2004. Additional FHLB advances were drawn during
the first quarter of 2004 to fund the purchase of $407 million in CMOs, as
previously described. Non-Performing Assets The Corporations non-performing assets (consisting
of non-accrual loans, real estate acquired through foreclosure or deed-in-lieu
thereof, and real estate in judgment) amounted to $13.1 million or 0.35% of
total assets at March 31, 2004, compared to $13.6 million or 0.41% of total
assets at December 31, 2003. The Corporations allowance for loan and real
estate losses was 107% and 103% of total non-performing assets as of the same
dates, respectively. In addition to non-performing assets, at March 31, 2004, management was
closely monitoring $24.0 million in assets, which it had classified as doubtful
or substandard, but which were performing in accordance with their terms. This
compares to $22.6 million in such assets at December 31, 2003. The increase
from 2003 was due primarily to the classification of a $1.2 million commercial
real estate loan as substandard. Although the loans classified at March 31,
2004 were performing in accordance with their terms, management of the
Corporation deemed their classification prudent after consideration of factors
such as declines in the valuation of associated collateral, reductions in
occupancy rates, and economic conditions. Management is closely monitoring a
$2.7 million loan secured by an apartment complex located in Indiana. Although
the borrower is performing in accordance with the loans original terms, the
property has suffered from low occupancy for an extended period of time.
Although management believes it is possible the Corporation may incur a loss on
the future resolution of this problem loan, such loss is not yet probable nor
is it estimable at this time. Liquidity and Capital Resources The Corporations primary sources of funds are deposits obtained through
its branch office network, borrowings from the FHLB and other sources,
amortization, maturity, and prepayment of outstanding loans and investments,
and sales of loans and other assets. During the first quarter of 2004, the
Corporation used these sources of funds to fund loan commitments, purchase
mortgage-related securities, cover maturing liabilities and deposit 19




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withdrawals, and pay shareholder dividends. Management believes that the
Corporation has adequate resources to fund all of its obligations or
commitments, that all of its obligations or commitments will be funded by the
required date, and that the Corporation can adjust the rates it offers on
certificates of deposit to retain such deposits in changing interest rate
environments. The Corporations stockholders equity ratio as of March 31, 2004, was
7.59% of total assets. The Corporations long-term goal is to maintain its
stockholders equity ratio at approximately 7.0%, which is consistent with the
Corporations long-term objectives for return on equity of at least 15% per
year and return on assets of at least 1% per year. The Corporations tangible
stockholders equity ratio was 5.29% as of March 31, 2004. The Bank is also required to maintain specified amounts of capital
pursuant to regulations promulgated by the OTS and the FDIC. The Banks
objective is to maintain its regulatory capital in an amount sufficient to be
classified in the highest regulatory capital category (i.e., as a well
capitalized institution). At March 31, 2004, the Banks regulatory capital
exceeded all regulatory minimum requirements as well as the amount required to
be classified as a well capitalized institution. The Corporation paid cash dividends of $3.1 million and $2.6 million
during the three months ended            March 31, 2004 and 2003, respectively.
These amounts equated to dividend payout ratios of 39.0% and 32.0% of the net
income in such periods, respectively. It is the Corporations objective to
maintain its dividend payout ratio in a range of 25% to 35% of net income,
which is consistent with the Corporations long-term earnings and asset growth
rate objectives of 10% per year and a return on equity objective of 15% per
year. However, the Corporations dividend policy and/or dividend payout ratio
will be impacted by considerations such as the level of stockholders equity in
relation to the Corporations stated goal, as previously described, regulatory
capital requirements for the Bank, as previously described, and certain
dividend restrictions in effect for the Bank. Furthermore, unanticipated or
non-recurring fluctuations in earnings may impact the Corporations ability to
pay dividends and/or maintain a given dividend payout ratio. On April 21, 2004, the Corporations Board of Directors declared a regular
quarterly dividend of $0.15 per share payable on June 3, 2004, to shareholders
of record on May 13, 2004. During the three months ended March 31, 2004, the Corporation repurchased
14,352 shares under its 2000 stock repurchase plan (the 2000 Plan) at a cost
of approximately $323,000. As of March 31, 2004, 150,566 shares were still
eligible for repurchase under the 2000 plan. In April 2002, the Corporations
Board of Directors adopted another stock repurchase plan (the 2002 Plan) that
authorizes the repurchase of additional shares of the Corporations outstanding
common stock. In April 2004, the Corporations Board of Directors extended the
2000 and 2002 Plans for another twelve months. Both the 2000 and 2002 Plans
authorize the Corporation to repurchase shares from time-to-time in open-market
transactions as, in the opinion of management, market conditions warrant. The
repurchased shares will be held as treasury stock and will be available for
general corporate purposes. During the three month period ended March 31, 2004, the Corporation
reissued 11,800 shares of common stock out of its inventory of treasury stock
with a cost basis of approximately $264,000. 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. 20




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Item 3Quantitative and Qualitative Disclosures about Market Risk The Corporation manages the exposure of its operations to changes in
interest rates (interest rate risk or market risk) by monitoring its ratios
of interest-earning assets to interest-bearing liabilities within one- and
three-year maturities and/or repricing dates (i.e., its one- and three-year
gaps). Management has sought to control the Corporations one- and
three-year gaps, thereby limiting the affects of changes in interest rates on
its future earnings, by selling substantially all of its long-term, fixed-rate,
single-family mortgage loan production, investing in adjustable-rate
single-family mortgage loans, investing in consumer, education, and commercial
business loans, which generally have shorter terms to maturity and/or floating
rates of interest, and investing in commercial real estate loans, which also
tend to have shorter terms to maturity and/or floating rates of interest. The
Corporation also invests from time-to-time in adjustable-rate and short- and
medium-term fixed-rate CMOs and MBSs. As a result of this strategy, the
Corporations exposure to interest rate risk is significantly impacted by its
funding of the aforementioned asset groups with deposit liabilities and FHLB
advances that tend to have average terms to maturity of less than one year or
carry floating rates of interest. In general, it is managements long-term goal to maintain the
Corporations one-year gap in a range of +/- 30% and its three-year gap in a
range of +/- 10%, although typically the Corporations one- and three-year gaps
will be negative. Management believes this strategy takes advantage of the
fact that market yield curves tend to be upward sloping, which increases the
spread between the Corporations earning assets and interest-bearing
liabilities. Furthermore, management of the Corporation does not believe that
this strategy exposes the Corporation to unacceptable levels of interest rate
risk as evidenced by the fact that the Corporations three-year gap is
generally maintained in a narrow band around zero, which implies that the
Corporation is exposed to little interest rate risk over a three-year horizon.
In addition, it should be noted that for purposes of its gap analysis, the
Corporation classifies its interest-bearing checking, savings, and money market
deposits in the shortest category, due to their potential to reprice. However,
it is the Corporations experience that these deposits do not reprice as
quickly or to the same extent as other financial instruments, especially in a
rising rate environment. In addition, the Corporation classifies certain FHLB
advances that are redeemable prior to maturity (at the option of the FHLB)
according to their redemption dates, which are earlier than their maturity
dates. Although management believes that its asset/liability management
strategies reduce the potential effects of changes in interest rates on the
Corporations operations, material and prolonged increases in interest rates
may adversely affect the Corporations operations because the Corporations
interest-bearing liabilities which mature or reprice within one year are
greater than the Corporations interest-earning assets which mature or reprice
within the same period. Alternatively, material and prolonged decreases in
interest rates may benefit the Corporations operations. The Corporation is also required by the OTS to estimate the sensitivity of
its net portfolio value of equity (NPV) to immediate and sustained changes in
interest rates and to measure such sensitivity on at least a quarterly basis.
NPV is defined as the estimated net present value of an institutions existing
assets, liabilities, and off-balance sheet instruments at a given level of
market interest rates. In general, it is managements goal to limit estimated
changes in the Corporations NPV under specified interest rate scenarios such
that the Corporation will continue to be classified by the OTS as an
institution with minimal exposure to interest rate risk. As of March 31, 2004, the Corporation was in compliance with its
management polices with respect to exposure to interest rate risk.
Furthermore, there was no material change in its interest rate risk exposure
since December 31, 2003. 21




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##### Table of Contents



Item 4Controls and Procedures An evaluation of the Corporations disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934 (the Act) was carried out under the supervision and with the
participation of the Corporations Chief Executive Officer, Chief Financial
Officer, Controller, and several other members of the Corporations senior
management within the 40-day period preceding the filing date of this quarterly
report. The Corporations Chief Executive Officer, Chief Financial Officer,
and Controller concluded that the Corporations disclosure controls and
procedures as currently in effect are effective in ensuring that the
information required to be disclosed by the Corporation in the reports it files
or submits under the Act is (i) accumulated and communicated to the
Corporations management (including the Chief Executive Officer, Chief
Financial Officer, and Controller) in a timely manner, and (ii) recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms. In the quarter ended March 31, 2004, the Corporation
did not make any significant changes in, nor take any corrective actions
regarding, its internal controls or other factors that could significantly
affect these controls. 22




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##### Table of Contents



Part IIOther Information 
 Item 1Legal Proceedings Refer to Note 4 of the Corporations Consolidated Financial Statements. 
 Item 2Changes in Securities None. 
 Item 3Defaults Upon Senior Securities Not applicable. 
 Item 4Submission of Matters to Vote of Security Holders The Corporation held its Annual Meeting of Shareholders on April 21, 2004.
The following matters were voted upon at that meeting: 1. The election of one nominee for the Board of Directors, who will serve
for a three-year term, was voted upon by the Corporations shareholders. The
nominee, whom was elected, is set forth in the table below. The Inspector of
Election certified the following vote tabulations: Nominee
    
    Votes For
    
    Votes WithheldJack C. Rusch
    
    
    20,533,522
    
    
    
    422,046
 2. Approval of the Corporations 2004 Equity Incentive Plan: Votes For
    
    Votes Against
    
    Abstain
    
    Broker Non-Votes13,110,035
    
    
    1,654,650
    
    
    
    554,570
    
    
    
    5,636,313
 
 Item 5Other Information None. 
 Item 6Exhibits and Reports on Form 8-K  a)
    
    Exhibits. Exhibit Number
    
    Description32.1
    
    Certification of President
and Chief Executive Officer of First Federal Capital Corp32.2
    
    Certification of Senior Vice
President and Chief Financial Officer of First Federal Capital Corp32.3
    
    Certification of Vice
President and Controller of First Federal Capital Corp
 23




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##### Table of Contents



34.1
    
    Section 1350 Certification signed by President and Chief Executive
Officer of First Federal Capital Corp34.2
    
    Section 1350 Certification signed by Senior Vice President and Chief
Financial Officer of First Federal Capital Corp34.3
    
    Section 1350 Certification signed by Vice President and Controller of
First Federal Capital Corp
  b)
    
    Reports on Form 8-K.During the period covered by this report, the Corporation filed the
following report on Form 8-K:Report filed January 22, 2004. The report included a press release
announcing earnings for First Federal Capital Corp for the three and
twelve months ended December 31, 2003 24




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##### Table of Contents



Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. FIRST FEDERAL CAPITAL CORP/s/ Jack C. Rusch
Jack C. Rusch
President and Chief Executive Officer
(duly authorized officer)
    
    May 7, 2004/s/ Michael W. Dosland
Michael W. Dosland
Senior Vice President and
Chief Financial Officer
    
    May 7, 2004/s/ Kenneth C. Osowski
Kenneth C. Osowski
Vice President and Controller
    
    May 7, 2004
 25