##### Table of Contents



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
    
    September 30, 2003Commission file number
    
    0-18046


FIRST FEDERAL CAPITAL CORP
(Exact name of Registrant as specified in its charter)

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 November 12, 2003:
22,386,773.





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TABLE OF CONTENTS



|                                           |                                                                                              |  |  |  |  |  |  | 
|------------------------------------------ | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART IFINANCIAL INFORMATION              
|                                           | Item 1Financial Statements                                                                 
|                                           | Item 2Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                           | Item 3Quantitative and Qualitative Disclosures About Market Risk                           
|                                           | Item 4Controls and Procedures                                                              
|PART IIOTHER INFORMATION                 
|                                           | Item 1Legal Proceedings                                                                    
|                                           | Item 2Changes in Securities                                                                
|                                           | Item 3Defaults Upon Senior Securities                                                      
|                                           | Item 4Submission of Matters to Vote of Security Holders                                    
|                                           | Item 5Other Information                                                                    
|                                           | Item 6Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                
|EX-31.1 Certification of President and CEO
|EX-31.2 Certification of Senior VP and CFO
|EX-31.3 Certification of Controller       
|EX-32.1 Certification of President and CEO
|EX-32.2 Certification of Senior VP and CFO
|EX-32.3 Certification of Controller       



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##### Table of Contents



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
    
    
    13Item 3Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4Controls and Procedures
    
    
    28PART
IIOTHER INFORMATIONItem 1Legal Proceedings
    
    
    29Item 2Changes in Securities
    
    
    29Item 3Defaults Upon Senior Securities
    
    
    29Item 4Submission of Matters to Vote of Security Holders
    
    
    29Item 5Other Information
    
    
    29Item 6Exhibits and Reports on Form 8-K
    
    
    29SIGNATURES
    
    
    31CERTIFICATIONS
    
    
    32


1



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##### Table of Contents






PART IFINANCIAL INFORMATION




ITEM 1FINANCIAL STATEMENTS

Consolidated Statements of Financial Condition
September 30, 2003, and December 31, 2002

September 30
    
    
    December 312003
    
    
    2002(Unaudited)ASSETSCash and due from banks
    
    $
    78,254,812
    
    
    $
    84,482,722Interest-bearing deposits with banks
    
    
    16,986,017
    
    
    
    179,755,367Mortgage-backed and related securities:Available for sale, at fair value
    
    
    466,179,367
    
    
    
    366,075,106Held for investment, at cost (fair value of $1,615,146 and $30,192,176, respectively)
    
    
    1,617,449
    
    
    
    30,029,690Loans held for sale
    
    
    18,032,856
    
    
    
    50,237,199Loans held for investment (net of allowance for loan losses of $11,008,462 and $11,658,086,
respectively)
    
    
    2,192,519,017
    
    
    
    2,100,641,557Federal Home Loan Bank stock
    
    
    58,142,400
    
    
    
    55,634,400Accrued interest receivable, net
    
    
    15,637,062
    
    
    
    17,522,581Office properties and equipment
    
    
    39,757,347
    
    
    
    35,647,335Mortgage servicing rights, net
    
    
    36,798,777
    
    
    
    30,171,341Intangible assets
    
    
    43,230,718
    
    
    
    43,818,386Other assets
    
    
    23,500,425
    
    
    
    31,608,545Total assets
    
    $
    2,990,656,248
    
    
    $
    3,025,624,228LIABILITIES AND STOCKHOLDERS EQUITYDeposit liabilities
    
    $
    2,262,131,340
    
    
    $
    2,355,148,292Federal Home Loan Bank advances
    
    
    453,600,000
    
    
    
    400,600,000Other borrowings
    
    
    14,276,650
    
    
    
    17,012,682Advance payments by borrowers for taxes and insurance
    
    
    10,055,343
    
    
    
    11,906,038Accrued interest payable
    
    
    1,908,259
    
    
    
    3,119,227Other liabilities
    
    
    22,985,073
    
    
    
    32,385,986Total liabilities
    
    
    2,764,956,665
    
    
    
    2,820,172,225Preferred stock, $.10 par value (5,000,000 shares authorized, none outstanding)
    
    
    
    
    
    
    Common stock, $.10 par value (100,000,000 shares authorized, 20,215,933 outstanding)
    
    
    2,021,593
    
    
    
    2,021,593Additional paid-in capital
    
    
    46,577,431
    
    
    
    46,577,431Retained earnings
    
    
    183,259,814
    
    
    
    165,628,148Treasury stock, at cost (426,635 and 511,497 shares, respectively)
    
    
    (8,463,937
    )
    
    
    (10,178,374
    )Unearned restricted stock
    
    
    
    
    
    
    (32,083
    )Accumulated non-owner adjustments to equity, net
    
    
    2,304,681
    
    
    
    1,435,289Total stockholders equity
    
    
    225,699,582
    
    
    
    205,452,003Total liabilities and stockholders equity
    
    $
    2,990,656,248
    
    
    $
    3,025,624,228


Refer to accompanying Notes to Consolidated Financial Statements.

2



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##### Table of Contents



Consolidated Statements of Operations
Three months ended September 30, 2003 and 2002

Three Months Ended September 302003
    
    
    2002(Unaudited)
    
    
    (Unaudited)Interest on loans
    
    $
    30,233,799
    
    
    $
    35,204,713Interest on mortgage-backed and related securities
    
    
    3,603,322
    
    
    
    4,558,678Interest and dividends on investments
    
    
    1,111,267
    
    
    
    1,319,105Total interest income
    
    
    34,948,388
    
    
    
    41,082,496Interest on deposit liabilities
    
    
    11,729,806
    
    
    
    14,190,609Interest on FHLB advances and other borrowings
    
    
    4,148,739
    
    
    
    5,652,305Total interest expense
    
    
    15,878,545
    
    
    
    19,842,914Net interest income
    
    
    19,069,843
    
    
    
    21,239,582Provision for loan losses
    
    
    367,780
    
    
    
    715,977Net interest income after provision for loan losses
    
    
    18,702,063
    
    
    
    20,523,605Community banking revenue
    
    
    10,428,611
    
    
    
    8,877,364Mortgage banking revenue
    
    
    22,116,740
    
    
    
    7,159,836Other income
    
    
    567,138
    
    
    
    680,256Total non-interest income
    
    
    33,112,490
    
    
    
    16,717,457Compensation and employee benefits
    
    
    16,078,668
    
    
    
    13,848,432Occupancy and equipment
    
    
    3,546,913
    
    
    
    2,792,370Communications, postage, and office supplies
    
    
    1,871,133
    
    
    
    1,622,065ATM and debit card transaction costs
    
    
    1,204,579
    
    
    
    1,047,163Advertising and marketing
    
    
    953,975
    
    
    
    961,066Amortization of intangibles
    
    
    202,781
    
    
    
    202,647FHLB prepayment penalty
    
    
    7,388,300
    
    
    
    Other expenses
    
    
    4,226,871
    
    
    
    2,418,134Total non-interest expense
    
    
    35,473,220
    
    
    
    22,891,877Income before income taxes
    
    
    16,341,332
    
    
    
    14,349,186Income tax expense
    
    
    6,175,800
    
    
    
    5,293,060Net income
    
    $
    10,165,532
    
    
    $
    9,056,126Per share informationDiluted earnings per share
    
    $
    0.51
    
    
    $
    0.45Basic earnings per share
    
    
    0.51
    
    
    
    0.46Dividends paid per share
    
    
    0.14
    
    
    
    0.13


Refer to accompanying Notes to Consolidated Financial Statements.

3



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##### Table of Contents



Consolidated Statements of Operations
Nine months ended September 30, 2003 and 2002

Nine Months Ended September 302003
    
    
    2002(Unaudited)
    
    
    (Unaudited)Interest on loans
    
    $
    93,451,280
    
    
    $
    102,359,381Interest on mortgage-backed and related securities
    
    
    11,701,157
    
    
    
    15,680,678Interest and dividends on investments
    
    
    3,566,493
    
    
    
    3,487,737Total interest income
    
    
    108,718,929
    
    
    
    121,527,796Interest on deposit liabilities
    
    
    38,363,745
    
    
    
    42,993,392Interest on FHLB advances and other borrowings
    
    
    14,505,204
    
    
    
    17,147,319Total interest expense
    
    
    52,868,948
    
    
    
    60,140,711Net interest income
    
    
    55,849,981
    
    
    
    61,387,085Provision for loan losses
    
    
    885,809
    
    
    
    2,134,326Net interest income after provision for loan losses
    
    
    54,964,172
    
    
    
    59,252,760Community banking revenue
    
    
    29,304,564
    
    
    
    24,436,525Mortgage banking revenue
    
    
    40,496,469
    
    
    
    16,229,189Loss on sale of investments
    
    
    
    
    
    
    (166,264
    )Other income
    
    
    1,722,835
    
    
    
    2,108,551Total non-interest income
    
    
    71,523,868
    
    
    
    42,608,001Compensation and employee benefits
    
    
    44,833,814
    
    
    
    38,904,875Occupancy and equipment
    
    
    9,971,947
    
    
    
    7,849,837Communications, postage, and office supplies
    
    
    5,395,009
    
    
    
    4,632,131ATM and debit card transaction costs
    
    
    3,469,723
    
    
    
    2,924,376Advertising and marketing
    
    
    2,631,671
    
    
    
    2,459,152Amortization of intangibles
    
    
    587,668
    
    
    
    510,490FHLB prepayment penalty
    
    
    7,388,300
    
    
    
    Other expenses
    
    
    9,170,144
    
    
    
    6,000,946Total non-interest expense
    
    
    83,448,275
    
    
    
    63,281,806Income before income taxes
    
    
    43,039,765
    
    
    
    38,578,955Income tax expense
    
    
    16,089,137
    
    
    
    13,666,441Net income
    
    $
    26,950,629
    
    
    $
    24,912,514Per share informationDiluted earnings per share
    
    $
    1.35
    
    
    $
    1.23Basic earnings per share
    
    
    1.36
    
    
    
    1.25Dividends paid per share
    
    
    0.41
    
    
    
    0.38


Refer to accompanying Notes to Consolidated Financial Statements.

4



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##### Table of Contents



Consolidated Statements of Stockholders Equity
Three months ended September 30, 2003 and 2002

CommonStock and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    Non-OwnerPaid-In
    
    
    Retained
    
    
    Treasury
    
    
    Restricted
    
    
    AdjustmentsUnaudited
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Stock
    
    
    to Equity
    
    
    TotalBalance at June 30, 2002
    
    $
    48,599,024
    
    
    $
    151,829,842
    
    
    
    ($6,663,293
    )
    
    
    ($59,583
    )
    
    $
    3,851,952
    
    
    $
    197,557,941Net income
    
    
    
    
    
    
    9,056,126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,056,126Securities valuation adjustment,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (798,871
    )
    
    
    (798,871
    )Net income and non-owner
adjustments to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,257,254Dividends paid
    
    
    
    
    
    
    (2,564,575
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,564,575
    )Exercise of stock options
    
    
    
    
    
    
    (481,083
    )
    
    
    1,334,202
    
    
    
    
    
    
    
    
    
    
    
    853,119Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (5,103,990
    )
    
    
    
    
    
    
    
    
    
    
    (5,103,990
    )Amortization of restricted stock
    
    
    
    
    
    
    162,035
    
    
    
    
    
    
    
    13,750
    
    
    
    
    
    
    
    175,785Balance at September 30, 2002
    
    $
    48,599,024
    
    
    $
    158,002,343
    
    
    
    ($10,433,081
    )
    
    
    ($45,833
    )
    
    $
    3,053,081
    
    
    $
    199,175,533UnauditedBalance at June 30, 2003
    
    $
    48,599,024
    
    
    $
    175,709,179
    
    
    
    ($8,510,179
    )
    
    
    ($4,583
    )
    
    $
    4,340,940
    
    
    $
    220,134,381Net income
    
    
    
    
    
    
    10,165,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,165,532Securities valuation adjustment,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,036,259
    )
    
    
    (2,036,259
    )Net income and non-owner
adjustments to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,129,273Dividends paid
    
    
    
    
    
    
    (2,770,502
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,770,502
    )Exercise of stock options
    
    
    
    
    
    
    (48,530
    )
    
    
    80,006
    
    
    
    
    
    
    
    
    
    
    
    31,476Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (33,764
    )
    
    
    
    
    
    
    
    
    
    
    (33,764
    )Amortization of restricted stock
    
    
    
    
    
    
    204,135
    
    
    
    
    
    
    
    4,583
    
    
    
    
    
    
    
    208,718Balance at September 30, 2003
    
    $
    48,599,024
    
    
    $
    183,259,814
    
    
    
    ($8,463,937
    )
    
    
    
    
    
    $
    2,304,681
    
    
    $
    225,699,582


Refer to accompanying Notes to Consolidated Financial Statements.

5



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##### Table of Contents



Consolidated Statements of Stockholders Equity
Nine months ended September 30, 2003 and 2002

CommonStock and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Unearned
    
    
    Non-OwnerPaid-In
    
    
    Retained
    
    
    Treasury
    
    
    Restricted
    
    
    AdjustmentsUnaudited
    
    Capital
    
    
    Earnings
    
    
    Stock
    
    
    Stock
    
    
    to Equity
    
    
    TotalBalance at December 31, 2001
    
    $
    48,627,928
    
    
    $
    141,717,089
    
    
    
    
    
    
    
    ($87,083
    )
    
    $
    2,139,769
    
    
    $
    192,397,703Net income
    
    
    
    
    
    
    24,912,514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,912,514Securities valuation adjustment,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    805,240
    
    
    
    805,240Reclassification adjustment for
loss on securities included in
income, net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    108,072
    
    
    
    108,072Net income and non-owner
adjustments to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,825,826Dividends paid
    
    
    
    
    
    
    (7,585,459
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,585,459
    )Exercise of stock options
    
    
    (28,904
    )
    
    
    (1,712,136
    )
    
    
    3,337,025
    
    
    
    
    
    
    
    
    
    
    
    1,595,985Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (13,770,106
    )
    
    
    
    
    
    
    
    
    
    
    (13,770,106
    )Amortization of restricted stock
    
    
    
    
    
    
    670,335
    
    
    
    
    
    
    
    41,250
    
    
    
    
    
    
    
    711,585Balance at September 30, 2002
    
    $
    48,599,024
    
    
    $
    158,002,343
    
    
    
    ($10,433,081
    )
    
    
    ($45,833
    )
    
    $
    3,053,081
    
    
    $
    199,175,533UnauditedBalance at December 31, 2002
    
    $
    48,599,024
    
    
    $
    165,628,148
    
    
    
    ($10,178,374
    )
    
    
    ($32,083
    )
    
    $
    1,435,289
    
    
    $
    205,452,003Net income
    
    
    
    
    
    
    26,950,629
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,950,629Securities valuation adjustment,
net of income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    869,392
    
    
    
    869,392Net income and non-owner
adjustments to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,820,021Dividends paid
    
    
    
    
    
    
    (8,101,475
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,101,475
    )Exercise of stock options
    
    
    
    
    
    
    (1,620,913
    )
    
    
    2,291,393
    
    
    
    
    
    
    
    
    
    
    
    670,480Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (507,876
    )
    
    
    
    
    
    
    
    
    
    
    (507,876
    )Amortization of restricted stock
    
    
    
    
    
    
    573,345
    
    
    
    
    
    
    
    32,083
    
    
    
    
    
    
    
    605,428Other activity
    
    
    
    
    
    
    (169,920
    )
    
    
    (69,080
    )
    
    
    
    
    
    
    
    
    
    
    (239,000
    )Balance at September 30, 2003
    
    $
    48,599,024
    
    
    $
    183,259,814
    
    
    
    ($8,463,937
    )
    
    
    
    
    
    $
    2,304,681
    
    
    $
    225,699,582


Refer to accompanying Notes to Consolidated Financial Statements.

6



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##### Table of Contents



Consolidated Statements of Cash Flows
Three months ended September 30, 2003 and 2002

Three Months September 302003
    
    
    2002(Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Net income
    
    $
    10,165,532
    
    
    $
    9,056,126Adjustments to reconcile net income to net cash provided (used) by operations:Provision for loan and real estate losses
    
    
    911,546
    
    
    
    703,898Increase (decrease) in mortgage servicing rights valuation allowance
    
    
    (6,150,000
    )
    
    
    2,600,000Net loan costs deferred
    
    
    (1,472,195
    )
    
    
    (1,301,588
    )Amortization of mortgage servicing rights
    
    
    7,161,010
    
    
    
    8,097,995Other amortization
    
    
    4,027,383
    
    
    
    2,479,748Depreciation
    
    
    995,316
    
    
    
    848,071Gains on sales of mortgage loans
    
    
    (19,933,535
    )
    
    
    (14,800,406
    )Decrease (increase) in accrued interest receivable
    
    
    492,708
    
    
    
    (608,126
    )Decrease in accrued interest payable
    
    
    (657,281
    )
    
    
    (583,875
    )Increase (decrease) in current and deferred income taxes
    
    
    (773,979
    )
    
    
    1,741,525Other accruals and prepaids, net
    
    
    3,477,365
    
    
    
    (2,616,052
    )Net cash provided (used) by operations before loan originations and sales
    
    
    (1,756,130
    )
    
    
    5,617,316Loans originated for sale
    
    
    (604,037,683
    )
    
    
    (611,231,546
    )Sales of loans originated for sale or transferred from held for investment
    
    
    703,529,004
    
    
    
    623,318,366Net cash provided by operations
    
    
    97,735,191
    
    
    
    17,704,136Cash flows from investing activities:Decrease (increase) in interest-bearing deposits with banks
    
    
    116,821,215
    
    
    
    (18,549,364
    )Purchases of mortgage-backed and related securities available for sale
    
    
    (46,886,851
    )
    
    
    Principal repayments on mortgage-backed and related securities available for sale
    
    
    214,995,722
    
    
    
    74,190,946Principal repayments on mortgage-backed and related securities held for investment
    
    
    1,044,101
    
    
    
    28,013,963Loans originated for investment
    
    
    (354,945,657
    )
    
    
    (300,426,182
    )Loans purchased for investment
    
    
    (151,593,599
    )
    
    
    (298,674,142
    )Loan principal repayments
    
    
    313,846,767
    
    
    
    293,404,425Increase in Federal Home Loan Bank stock
    
    
    (920,200
    )
    
    
    (682,100
    )Additions to office properties and equipment
    
    
    (3,115,907
    )
    
    
    (2,570,017
    )Other, net
    
    
    (149,419
    )
    
    
    2,173,998Net cash provided (used) by investing activities
    
    
    89,096,172
    
    
    
    (223,118,473
    )Cash flows from financing activities:Increase (decrease) in deposit liabilities
    
    
    (237,680,004
    )
    
    
    203,816,986Purchased deposit liabilities
    
    
    
    
    
    
    25,290,037Repayment of long-term Federal Home Loan Bank advances
    
    
    (273,250,000
    )
    
    
    (38,915,000
    )Increase in short-term Federal Home Loan Bank borrowings
    
    
    350,600,000
    
    
    
    Increase (decrease) in other borrowings
    
    
    (1,002,290
    )
    
    
    3,997,906Increase in advance payments by borrowers for taxes and insurance
    
    
    1,967,170
    
    
    
    2,564,844Purchase of treasury stock
    
    
    (33,764
    )
    
    
    (5,103,990
    )Dividends paid
    
    
    (2,770,502
    )
    
    
    (2,564,575
    )Other, net
    
    
    (30,589,096
    )
    
    
    18,155,118Net cash provided (used) by financing activities
    
    
    (192,758,486
    )
    
    
    207,241,326Net increase (decrease) in cash and due from banks
    
    
    (5,927,123
    )
    
    
    1,826,989Cash and due from banks at beginning of period
    
    
    84,181,935
    
    
    
    87,459,682Cash and due from banks at end of period
    
    $
    78,254,812
    
    
    $
    89,286,671Supplemental disclosures of cash flow information:Interest and dividends received on loans and investments
    
    $
    35,441,096
    
    
    $
    40,474,369Interest paid on deposits and borrowings
    
    
    16,535,826
    
    
    
    20,426,789Income taxes paid
    
    
    6,946,000
    
    
    
    3,559,409Income taxes refunded
    
    
    
    
    
    
    7,875Transfer of loans from held for investment to held for sale
    
    
    23,271,363
    
    
    
    23,575,461


Refer to accompanying Notes to Consolidated Financial Statements.

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Consolidated Statements of Cash Flows
Nine months ended September 30, 2003 and 2002

Nine Months September 302003
    
    
    2002(Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Net income
    
    $
    26,950,629
    
    
    $
    24,912,514Adjustments to reconcile net income to net cash provided (used) by operations:Provision for loan and real estate losses
    
    
    1,241,105
    
    
    
    2,086,096Increase (decrease) in mortgage servicing rights valuation allowance
    
    
    (3,350,000
    )
    
    
    750,000Net loan costs deferred
    
    
    (4,024,034
    )
    
    
    (2,571,988
    )Amortization of mortgage servicing rights
    
    
    26,595,114
    
    
    
    15,273,974Other amortization
    
    
    11,679,431
    
    
    
    6,386,982Depreciation
    
    
    2,934,475
    
    
    
    2,401,099Gains on sales of mortgage loans
    
    
    (54,437,004
    )
    
    
    (23,756,983
    )Loss on sales of investments
    
    
    
    
    
    
    166,264Decrease in accrued interest receivable
    
    
    1,885,519
    
    
    
    934,846Decrease in accrued interest payable
    
    
    (1,210,968
    )
    
    
    (1,469,306
    )Increase (decrease) in current and deferred income taxes
    
    
    (1,927,378
    )
    
    
    2,854,677Other accruals and prepaids, net
    
    
    1,274,615
    
    
    
    (3,834,293
    )Net cash provided by operations before loan originations and sales
    
    
    7,611,504
    
    
    
    24,133,882Loans originated for sale
    
    
    (2,104,716,810
    )
    
    
    (942,435,231
    )Sales of loans originated for sale or transferred from held for investment
    
    
    2,243,573,880
    
    
    
    1,046,448,438Net cash provided by operations
    
    
    146,468,574
    
    
    
    128,147,089Cash flows from investing activities:Decrease (increase) in interest-bearing deposits with banks
    
    
    162,769,350
    
    
    
    (82,096,529
    )Sales of investment securities
    
    
    
    
    
    
    35,098,150Purchases of mortgage-backed and related securities available for sale
    
    
    (578,202,342
    )
    
    
    (137,185,310
    )Principal repayments on mortgage-backed and related securities available for sale
    
    
    473,907,391
    
    
    
    178,707,734Principal repayments on mortgage-backed and related securities held for investment
    
    
    28,203,728
    
    
    
    67,070,875Loans originated for investment
    
    
    (942,501,557
    )
    
    
    (775,477,847
    )Loans purchased for investment
    
    
    (191,846,609
    )
    
    
    (302,835,253
    )Loan principal repayments
    
    
    955,569,650
    
    
    
    742,797,342Increase in Federal Home Loan Bank stock
    
    
    (2,508,000
    )
    
    
    (26,736,300
    )Additions to office properties and equipment
    
    
    (7,723,759
    )
    
    
    (6,487,108
    )Purchase of net assets of other financial institutions
    
    
    
    
    
    
    (7,914,840
    )Other, net
    
    
    11,167,859
    
    
    
    15,284,983Net cash used by investing activities
    
    
    (91,164,289
    )
    
    
    (299,774,103
    )Cash flows from financing activities:Increase (decrease) in deposit liabilities
    
    
    (93,016,952
    )
    
    
    207,487,631Purchased deposit liabilities
    
    
    
    
    
    
    25,290,037Repayment of long-term Federal Home Loan Bank advances
    
    
    (297,600,000
    )
    
    
    (52,815,000
    )Increase (decrease) in short-term Federal Home Loan Bank borrowings
    
    
    350,600,000
    
    
    
    (12,500,000
    )Increase (decrease) in other borrowings
    
    
    (2,736,032
    )
    
    
    15,232,512Increase (decrease) in advance payments by borrowers for taxes and insurance
    
    
    (1,850,695
    )
    
    
    8,832,954Purchase of treasury stock
    
    
    (507,876
    )
    
    
    (13,770,106
    )Dividends paid
    
    
    (8,101,475
    )
    
    
    (7,585,459
    )Other, net
    
    
    (8,319,165
    )
    
    
    19,984,411Net cash provided (used) by financing activities
    
    
    (61,532,195
    )
    
    
    190,156,980Net increase (decrease) in cash and due from banks
    
    
    (6,227,910
    )
    
    
    18,529,966Cash and due from banks at beginning of period
    
    
    84,482,722
    
    
    
    70,756,705Cash and due from banks at end of period
    
    $
    78,254,812
    
    
    $
    89,286,671Supplemental disclosures of cash flow information:Interest and dividends received on loans and investments
    
    $
    110,604,448
    
    
    $
    122,462,642Interest paid on deposits and borrowings
    
    
    54,079,916
    
    
    
    61,610,017Income taxes paid
    
    
    18,132,400
    
    
    
    11,433,734Income taxes refunded
    
    
    119,687
    
    
    
    621,089Transfer of loans from held for investment to held for sale
    
    
    79,304,817
    
    
    
    80,189,500


Refer to accompanying Notes to Consolidated Financial Statements.

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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 and nine month
periods ended September 30,2003, may not necessarily be indicative of the
results that may be expected for the entire year ending December 31, 2003.

Certain 2002 balances have been reclassified to conform to the 2003
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 and nine month periods ended September 30,
2003 and 2002, is as follows:

Three Months Ended September 302003
    
    
    2002Diluted
    
    
    Basic
    
    
    Diluted
    
    
    BasicNet income
    
    $
    10,165,532
    
    
    $
    10,165,532
    
    
    $
    9,056,126
    
    
    $
    9,056,126Average common shares issued, net of actual treasury shares
    
    
    19,789,160
    
    
    
    19,789,160
    
    
    
    19,765,053
    
    
    
    19,765,053Potential common shares issued under stock options (treasury stock method)
    
    
    232,814
    
    
    
    
    
    
    
    282,884
    
    
    
    Average common shares and potential common shares
    
    
    20,021,974
    
    
    
    19,789,160
    
    
    
    20,047,937
    
    
    
    19,765,053Earnings per share
    
    $
    0.51
    
    
    $
    0.51
    
    
    $
    0.45
    
    
    $
    0.46


Nine Months Ended September 302003
    
    
    2002Diluted
    
    
    Basic
    
    
    Diluted
    
    
    BasicNet income
    
    $
    26,950,629
    
    
    $
    26,950,629
    
    
    $
    24,912,514
    
    
    $
    24,912,514Average common shares issued, net of actual treasury shares
    
    
    19,751,802
    
    
    
    19,751,802
    
    
    
    19,958,830
    
    
    
    19,958,830Potential common shares issued under stock options (treasury stock method)
    
    
    234,579
    
    
    
    
    
    
    
    280,780
    
    
    
    Average common shares and potential common shares
    
    
    19,986,380
    
    
    
    19,751,802
    
    
    
    20,239,610
    
    
    
    19,958,830Earnings per share
    
    $
    1.35
    
    
    $
    1.36
    
    
    $
    1.23
    
    
    $
    1.25


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.

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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. However, the Wisconsin Department of Revenue (WDR)
recently began an examination of the Bank specifically aimed at the Banks
relationship with FCHI. Management believes the WDR may take the position that
the income of FCHI is 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, as well as the private rulings the WDR issued in
1993 and 1997 in connection with the Banks formation and operation of FCHI.
However, the WDR has indicated that it may repudiate these rulings. If the WDR
is successful in these efforts, it may have a substantial negative impact on
the earnings of the Corporation. Management is uncertain at this time whether
the WDR exam will result in an assessment or whether any such assessment will
be upheld upon appeal.

NOTE 5Segment Information

Reportable SegmentsThe Corporation tracks profitability in six major
areas: (i) residential lending, (ii) commercial real estate lending, (iii)
consumer lending, (iv) education lending, (v) business banking, and (vi)
investment and mortgage-related securities. Residential lending is divided
into two profit centers for segment reporting purposes: (i) a mortgage banking
profit center that is responsible for loan origination, sales of loans in the
secondary market, and servicing of residential loans, and (ii) a residential
loan portfolio that consists of loans held by the Corporation for investment
purposes (loans held for sale are included in the mortgage banking profit
center). This profit center also includes mortgage-backed securities that are
collateralized by loans that were originated by the Corporation. Commercial
real estate lending consists of the Corporations portfolio of multi-family and
non-residential mortgage loans, excluding loans assigned to the business
banking profit center, as well as functions related to the origination and
servicing of such loans. Consumer lending consists of the Corporations second
mortgage, automobile, and other consumer installment loans, excluding loans
assigned to the business banking profit center, as well as functions related to
the origination and servicing of such loans. Education lending consists of the
Corporations portfolio of education loans, as well as functions related to the
origination and servicing of such loans. Business banking consists of the
Corporations portfolio of commercial business loans, including certain
commercial real estate and consumer loans assigned to the business banking
profit center, as well as functions related to the origination and servicing of
such loans. Finally, the Corporations investment and mortgage-related
securities portfolio is considered a profit center for segment reporting
purposes. As previously noted, however, mortgage-backed securities
collateralized by loans originated by the Corporation are included in the
residential loan profit center, rather than the investment and mortgage-related
securities portfolio.

The Corporations extensive branch network, which delivers checking,
savings, certificates of deposit and other financial products and services to
customers, is considered a support department for segment reporting purposes,
as more fully described in a subsequent paragraph.

Measurement of Segment Profit (Loss)Management evaluates the after-tax
performance of the Corporations profit centers as if each center were a
separate entityeach with its own earning assets, actual and/or allocated
non-earning assets, and allocated funding resources. Each profit center has
its own interest income, non-interest income, and non-interest expense as
captured by the Corporations accounting systems. Interest expense is
allocated to each profit center according to its use of the Corporations
funding sources, which consist primarily of deposit liabilities, wholesale
borrowings, and equity. In general, all funding sources are allocated
proportionately to each profit center. However, in certain instances specific
funding sources may be matched against specific assets of profit centers. For
example, deposits from business customers are matched against the assets of the
business banking profit center. In addition, wholesale borrowings drawn to
originate or purchase specific assets are matched against the appropriate
profit center.

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

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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.

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 InformationThe following
table summarizes the profit (loss) and average assets of each of the
Corporations reportable segments for the three month and nine month periods
ended September 30, 2003 and 2002. 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 1.38% and 1.28% of
average deposit liabilities outstanding during the three months ended September
30, 2003 and 2002, respectively. For the nine month periods ended September
30, 2003 and 2002, the net cost to acquire and maintain deposit liabilities was
1.33% and 1.32%, respectively.

Three Months Ended September 302003
    
    
    2002Profit Center
    
    Profit (Loss)
    
    
    Average Assets
    
    
    Profit (Loss)
    
    
    Average AssetsMortgage banking
    
    $
    6,945,801
    
    
    $
    104,563,182
    
    
    $
    3,618,790
    
    
    $
    80,884,190Residential loans
    
    
    758,769
    
    
    
    768,106,188
    
    
    
    2,135,370
    
    
    
    880,820,660Commercial real estate lending
    
    
    2,061,369
    
    
    
    535,768,198
    
    
    
    2,560,350
    
    
    
    582,760,550Consumer lending
    
    
    1,495,642
    
    
    
    485,742,199
    
    
    
    1,909,152
    
    
    
    504,501,862Education lending
    
    
    29,025
    
    
    
    206,493,540
    
    
    
    318,143
    
    
    
    206,679,131Business banking
    
    
    (49,840
    )
    
    
    214,142,249
    
    
    
    
    
    
    
    Investment and mortgage-related securities
    
    
    (359,033
    )
    
    
    724,612,010
    
    
    
    251,063
    
    
    
    579,512,799Other segments
    
    
    (86,578
    )
    
    
    1,496,640
    
    
    
    (361,140
    )
    
    
    67,456,734Subtotal
    
    
    10,795,156
    
    
    
    3,040,924,206
    
    
    
    10,431,728
    
    
    
    2,902,615,926Non-GAAP adjustments
    
    
    (629,624
    )
    
    
    37,031,690
    
    
    
    (1,375,602
    )
    
    
    37,939,402Net income/total average assets
    
    $
    10,165,532
    
    
    $
    3,077,955,896
    
    
    $
    9,056,126
    
    
    $
    2,940,555,328


Nine Months Ended September 302003
    
    
    2002Profit Center
    
    Profit (Loss)
    
    
    Average Assets
    
    
    Profit (Loss)
    
    
    Average AssetsMortgage banking
    
    $
    16,393,971
    
    
    $
    106,071,656
    
    
    $
    5,891,723
    
    
    $
    76,999,204Residential loans
    
    
    2,674,792
    
    
    
    789,527,687
    
    
    
    6,058,193
    
    
    
    815,583,840Commercial real estate lending
    
    
    6,887,901
    
    
    
    526,432,155
    
    
    
    7,325,269
    
    
    
    568,884,211Consumer lending
    
    
    4,248,490
    
    
    
    480,559,959
    
    
    
    4,809,702
    
    
    
    446,987,737Education lending
    
    
    613,853
    
    
    
    209,066,724
    
    
    
    1,791,356
    
    
    
    210,355,952Business banking
    
    
    (266,756
    )
    
    
    200,634,955
    
    
    
    
    
    
    
    Investment and mortgage-related securities
    
    
    (1,226,718
    )
    
    
    716,119,549
    
    
    
    1,295,819
    
    
    
    559,003,251Other segments
    
    
    (384,017
    )
    
    
    1,378,694
    
    
    
    (544,249
    )
    
    
    53,862,272Subtotal
    
    
    28,941,515
    
    
    
    3,029,791,378
    
    
    
    26,627,811
    
    
    
    2,731,676,466Non-GAAP adjustments
    
    
    (1,990,886
    )
    
    
    36,919,929
    
    
    
    (1,715,297
    )
    
    
    27,523,786Net income/total average assets
    
    $
    26,950,629
    
    
    $
    3,066,711,307
    
    
    $
    24,912,514
    
    
    $
    2,759,200,252


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

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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 September 30
    
    
    Nine Months Ended September 302003
    
    
    2002
    
    
    2003
    
    
    2002Net income as reported
    
    $
    10,165,532
    
    
    $
    9,056,126
    
    
    $
    26,950,629
    
    
    $
    24,912,514Stock-based compensation, net of tax
    
    
    (175,062
    )
    
    
    (181,168
    )
    
    
    (434,916
    )
    
    
    (685,635
    )Pro forma net income
    
    $
    9,990,470
    
    
    $
    8,874,958
    
    
    $
    26,515,713
    
    
    $
    24,226,879Basic earnings per share as reported
    
    $
    0.51
    
    
    $
    0.46
    
    
    $
    1.36
    
    
    $
    1.25Pro forma basic earnings per share
    
    $
    0.51
    
    
    $
    0.45
    
    
    $
    1.35
    
    
    $
    1.22Diluted earnings per share as reported
    
    $
    0.51
    
    
    $
    0.45
    
    
    $
    1.35
    
    
    $
    1.23Pro forma diluted earnings per share
    
    $
    0.50
    
    
    $
    0.44
    
    
    $
    1.32
    
    
    $
    1.20


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.

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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 EstimatesFor 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 2002 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 RightsFor 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 2002 Form 10-K. Additional discussion is also
available in the 2002 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 and nine month periods ended September 30, 2003
and 2002, 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 EstateFor 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
2002 Form 10-K. Additional discussion is also available in the 2002 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
and nine month periods ended September 30, 2003 and 2002, 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 PoliciesDuring the nine months ended
September 30, 2003 and 2002, 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, two new accounting
standards were adopted in 2002 that were significant to the financial services
industry as a whole. These standards are itemized in the paragraphs that
follow.

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Statement of Financial Accounting Standards No. 141, Business
Combinations (SFAS 141)This standard requires the purchase method of
accounting for all mergers and acquisitions, except in very limited instances.
The Corporation adopted SFAS 141 in January 2002. This adoption did not have a
material impact on the Corporation because the acquisitions completed in 2002
would have been accounted for using the purchase method regardless of SFAS 141.
For additional discussion, refer to Note 15 of the Corporations Audited
Consolidated Financial Statements, in Part II, Item 8, of its 2002 Form 10-K.

Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142)The Corporation adopted SFAS 142 in January
2002. For further discussion, refer to Goodwill and Intangible Assets in
Note 1, as well as Note 6, of the Corporations Audited Consolidated Financial
Statements, included in Part II, Item 8, of its 2002 Form 10-K.

Results of Operations

Quarter OverviewThe Corporations net income for the three months ended
September 30, 2003, was $10.2 million or $0.51 per diluted share compared to
$9.1 million or $0.45 in the same period last year. These amounts represented
a return on average assets of 1.32% and 1.23%, respectively, and a return on
average equity of 18.07% and 17.87%, respectively.

The increase in net income from 2002 to 2003 was primarily attributable to
a $15.0 million increase in mortgage banking revenue, a $1.6 million increase
in community banking revenue, and a $348,000 decrease in provision for loan
losses. These developments were offset in large part by a $12.6 million
increase in non-interest expense, a $2.2 million decrease in net interest
income, and an $883,000 increase in income tax expense.

Nine Month OverviewThe Corporations net income for the nine months
ended September 30, 2003, was $27.0 million or $1.35 per diluted share compared
to $24.9 million or $1.23 in the same period last year. These amounts
represented a return on average assets of 1.17% and 1.20%, respectively, and a
return on average equity of 16.35% and 16.84%, respectively.

The increase in net income from 2002 to 2003 was primarily attributable to
a $24.3 million increase in mortgage banking revenue, a $4.9 million increase
in community banking revenue, and a $1.2 million decrease in provision for loan
losses. These developments were offset in large part by a $20.2 million
increase in non-interest expense, a $5.5 million decrease in net interest
income, and a $2.4 million increase in income tax expense.

The following paragraphs discuss the aforementioned changes in more detail
along with other changes in the components of net income during the three and
nine month periods ended September 30, 2003 and 2002.

Net Interest IncomeNet interest income decreased by $2.2 million or
10.2% and by $5.5 million or 9.0% during the three and nine month periods ended
September 30, 2003, as compared to the same periods in the previous year.
These declines occurred despite the fact that the Corporations average
interest-earning assets increased by $118 million or 4.3% and by $270 million
or 10.5% between these periods. The principal source of this growth occurred
in the Corporations mortgage-related securities. This growth was largely
funded by increases in money market deposit accounts and non-interest-bearing
deposit liabilitiesprincipally custodial accounts.

The Corporations interest rate spread declined from 2.70% and 2.78%
during the three and nine month periods ended September 30, 2002, to 2.23% and
2.16%, during the same periods in 2003, respectively. This development more
than offset the increase in net interest income caused by growth in
interest-earning assets. Market interest rates declined dramatically in 2002
and have remained at historically low levels into 2003. As a result, the
Corporation experienced a larger decline in the yield on its earning assets
than it did on its cost of funding sources, due principally to high levels of
refinance activity and the build-up of liquidity on the Corporations balance
sheet. In March 2003, management lowered rates on certificates of deposit and
certain other deposit offerings to improve the Corporations interest rate
spread. These steps, as well as marketing efforts that resulted in a
significant increase in money market deposit accounts, contributed to a 64
basis point reduction in the Corporations cost of

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##### Table of Contents



interest-bearing liabilities during the three month period ended September
30, 2003, and helped to minimize further yield on earning assets.

During the third quarter of 2003 the Corporation prepaid $128 million in
term advances from the Federal Home Loan Bank of Chicago (FHLB) and incurred
a prepayment penalty of $7.4 million. These advances had a remaining maturity
of 1.3 years and a weighted average cost of 5.84%. They were replaced with
overnight borrowings from the FHLB at a substantially lower rate.
Additionally, approximately 24% of the Corporations existing certificates of
deposit will mature during the next three months and will likely be replaced at
significantly lower costs. As a result, management expects the Corporations
interest rate spread to stabilize or improve slightly during the remainder of
2003, although there can be no assurances.

Net interest income in 2003 benefited from an increase in average
non-interest-bearing deposit liabilities, which was the principal reason the
Corporations ratio of average interest-earning assets to interest-bearing
liabilities improved during the three and nine month periods ended September
30, 2003. The increase in non-interest-bearing deposits was due principally to
a substantial increase in custodial accounts related to mortgage loans serviced
for third parties. Refer to Financial ConditionDeposit Liabilities for
additional discussion.

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 and nine month periods ended
September 30, 2003 and 2002.

Dollars in thousands
    
    Three Months Ended September 30, 2003
    
    
    Three Months Ended September 30, 2002Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost
    
    
    Balance
    
    
    Interest
    
    
    CostInterest-earning assets:Single-family mortgage loans
    
    $
    764,603
    
    
    $
    9,942
    
    
    
    5.20
    %
    
    $
    820,919
    
    
    $
    12,996
    
    
    
    6.33
    %Commercial real estate loans
    
    
    576,435
    
    
    
    9,312
    
    
    
    6.46
    
    
    
    554,265
    
    
    
    10,398
    
    
    
    7.50Consumer loans
    
    
    522,738
    
    
    
    8,522
    
    
    
    6.52
    
    
    
    474,227
    
    
    
    8,948
    
    
    
    7.55Education loans
    
    
    195,812
    
    
    
    1,642
    
    
    
    3.35
    
    
    
    200,095
    
    
    
    2,062
    
    
    
    4.12Business loans
    
    
    70,536
    
    
    
    817
    
    
    
    4.63
    
    
    
    61,621
    
    
    
    801
    
    
    
    5.20Total loans
    
    
    2,130,124
    
    
    
    30,234
    
    
    
    5.68
    
    
    
    2,111,126
    
    
    
    35,205
    
    
    
    6.67Mortgage-backed and related securities
    
    
    577,416
    
    
    
    3,603
    
    
    
    2.50
    
    
    
    400,829
    
    
    
    4,559
    
    
    
    4.55Interest-bearing deposits with banks
    
    
    76,925
    
    
    
    191
    
    
    
    0.99
    
    
    
    157,813
    
    
    
    637
    
    
    
    1.61Other earning assets
    
    
    57,263
    
    
    
    920
    
    
    
    6.43
    
    
    
    54,118
    
    
    
    682
    
    
    
    5.04Total interest-earning assets
    
    
    2,841,728
    
    
    
    34,948
    
    
    
    4.92
    
    
    
    2,723,886
    
    
    
    41,082
    
    
    
    6.03Non-interest-earning assets:Office properties and equipment
    
    
    38,732
    
    
    
    
    
    
    
    
    
    
    
    35,018Other assets
    
    
    197,496
    
    
    
    
    
    
    
    
    
    
    
    181,652Total assets
    
    $
    3,077,956
    
    
    
    
    
    
    
    
    
    
    $
    2,940,555Interest-bearing liabilities:Regular savings accounts
    
    $
    180,777
    
    
    $
    114
    
    
    
    0.25
    %
    
    $
    165,982
    
    
    $
    254
    
    
    
    0.61
    %Checking accounts
    
    
    139,898
    
    
    
    140
    
    
    
    0.40
    
    
    
    130,702
    
    
    
    115
    
    
    
    0.35Money market accounts
    
    
    320,652
    
    
    
    879
    
    
    
    1.10
    
    
    
    238,757
    
    
    
    762
    
    
    
    1.28Certificates of deposit
    
    
    1,313,017
    
    
    
    10,597
    
    
    
    3.22
    
    
    
    1,404,660
    
    
    
    13,058
    
    
    
    3.72Total interest-bearing deposits
    
    
    1,954,344
    
    
    
    11,730
    
    
    
    2.40
    
    
    
    1,940,101
    
    
    
    14,191
    
    
    
    2.93FHLB advances
    
    
    376,083
    
    
    
    4,053
    
    
    
    4.31
    
    
    
    422,789
    
    
    
    5,563
    
    
    
    5.26Other borrowings
    
    
    29,120
    
    
    
    95
    
    
    
    1.31
    
    
    
    19,062
    
    
    
    89
    
    
    
    1.87Total interest-bearing liabilities
    
    
    2,359,546
    
    
    
    15,879
    
    
    
    2.69
    
    
    
    2,381,952
    
    
    
    19,843
    
    
    
    3.33Non-interest-bearing liabilities:Non-interest-bearing deposits
    
    
    459,248
    
    
    
    
    
    
    
    
    
    
    
    320,319Other liabilities
    
    
    34,161
    
    
    
    
    
    
    
    
    
    
    
    35,569Total liabilities
    
    
    2,852,957
    
    
    
    
    
    
    
    
    
    
    
    2,737,840Stockholders equity
    
    
    224,999
    
    
    
    
    
    
    
    
    
    
    
    202,715Total liabilities and stockholders equity
    
    $
    3,077,956
    
    
    
    
    
    
    
    
    
    
    $
    2,940,555Net interest income
    
    
    
    
    
    $
    19,070
    
    
    
    
    
    
    
    
    
    
    $
    21,240Interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.23
    %
    
    
    
    
    
    
    
    
    
    
    2.70
    %Net interest income as a percent of average
earning assets
    
    
    
    
    
    
    
    
    
    
    2.68
    %
    
    
    
    
    
    
    
    
    
    
    3.12
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    120.44
    %
    
    
    
    
    
    
    
    
    
    
    114.36
    %


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##### Table of Contents



Dollars in thousands
    
    Nine Months Ended September 30, 2003
    
    
    Nine Months Ended September 30, 2002Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Cost
    
    
    Balance
    
    
    Interest
    
    
    CostInterest-earning assets:Single-family mortgage loans
    
    $
    776,018
    
    
    $
    30,485
    
    
    
    5.24
    %
    
    $
    747,070
    
    
    $
    36,493
    
    
    
    6.51
    %Commercial real estate loans
    
    
    560,901
    
    
    
    28,994
    
    
    
    6.89
    
    
    
    541,716
    
    
    
    31,087
    
    
    
    7.65Consumer loans
    
    
    516,580
    
    
    
    25,798
    
    
    
    6.66
    
    
    
    420,794
    
    
    
    24,515
    
    
    
    7.77Education loans
    
    
    198,070
    
    
    
    5,560
    
    
    
    3.74
    
    
    
    203,336
    
    
    
    8,120
    
    
    
    5.32Business loans
    
    
    70,426
    
    
    
    2,614
    
    
    
    4.95
    
    
    
    49,245
    
    
    
    2,145
    
    
    
    5.81Total loans
    
    
    2,121,996
    
    
    
    93,451
    
    
    
    5.87
    
    
    
    1,962,162
    
    
    
    102,359
    
    
    
    6.96Mortgage-backed and related securities
    
    
    542,309
    
    
    
    11,701
    
    
    
    2.88
    
    
    
    417,479
    
    
    
    15,681
    
    
    
    5.01Investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,820
    
    
    
    92
    
    
    
    3.14Interest-bearing deposits with banks
    
    
    110,417
    
    
    
    1,058
    
    
    
    1.28
    
    
    
    131,648
    
    
    
    1,659
    
    
    
    1.68Other earning assets
    
    
    56,684
    
    
    
    2,508
    
    
    
    5.90
    
    
    
    46,415
    
    
    
    1,736
    
    
    
    4.99Total interest-earning assets
    
    
    2,831,406
    
    
    
    108,719
    
    
    
    5.12
    
    
    
    2,561,523
    
    
    
    121,528
    
    
    
    6.33Non-interest-earning assets:Office properties and equipment
    
    
    37,981
    
    
    
    
    
    
    
    
    
    
    
    32,819Other assets
    
    
    197,325
    
    
    
    
    
    
    
    
    
    
    
    164,858Total assets
    
    $
    3,066,711
    
    
    
    
    
    
    
    
    
    
    $
    2,759,200Interest-bearing liabilities:Regular savings accounts
    
    $
    175,398
    
    
    $
    328
    
    
    
    0.25
    %
    
    $
    159,175
    
    
    $
    1,025
    
    
    
    0.86
    %Checking accounts
    
    
    137,703
    
    
    
    351
    
    
    
    0.34
    
    
    
    112,747
    
    
    
    409
    
    
    
    0.48Money market accounts
    
    
    267,484
    
    
    
    1,871
    
    
    
    0.93
    
    
    
    230,137
    
    
    
    2,578
    
    
    
    1.49Certificates of deposit
    
    
    1,394,766
    
    
    
    35,814
    
    
    
    3.42
    
    
    
    1,306,975
    
    
    
    38,981
    
    
    
    3.98Total interest-bearing deposits
    
    
    1,975,351
    
    
    
    38,364
    
    
    
    2.59
    
    
    
    1,809,035
    
    
    
    42,993
    
    
    
    3.17FHLB advances
    
    
    379,846
    
    
    
    14,240
    
    
    
    5.00
    
    
    
    441,328
    
    
    
    17,007
    
    
    
    5.14Other borrowings
    
    
    24,175
    
    
    
    265
    
    
    
    1.46
    
    
    
    12,892
    
    
    
    140
    
    
    
    1.45Total interest-bearing liabilities
    
    
    2,379,372
    
    
    
    52,869
    
    
    
    2.96
    
    
    
    2,263,256
    
    
    
    60,141
    
    
    
    3.54Non-interest-bearing liabilities:Non-interest-bearing deposits
    
    
    428,314
    
    
    
    
    
    
    
    
    
    
    
    268,474Other liabilities
    
    
    39,274
    
    
    
    
    
    
    
    
    
    
    
    30,187Total liabilities
    
    
    2,846,961
    
    
    
    
    
    
    
    
    
    
    
    2,561,916Stockholders equity
    
    
    219,751
    
    
    
    
    
    
    
    
    
    
    
    197,284Total liabilities and stockholders equity
    
    $
    3,066,711
    
    
    
    
    
    
    
    
    
    
    $
    2,759,200Net interest income
    
    
    
    
    
    $
    55,850
    
    
    
    
    
    
    
    
    
    
    $
    61,387Interest rate spread
    
    
    
    
    
    
    
    
    
    
    2.16
    %
    
    
    
    
    
    
    
    
    
    
    2.78
    %Net interest income as a percent of average
earning assets
    
    
    
    
    
    
    
    
    
    
    2.63
    %
    
    
    
    
    
    
    
    
    
    
    3.20
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    119.00
    %
    
    
    
    
    
    
    
    
    
    
    113.18
    %


Provision for Loan LossesProvision for loan losses was $368,000 and
$716,000 during the three months ended September 30, 2003 and 2002,
respectively. It was $886,000 and $2.1 million during the nine month periods
ended as of the same dates, respectively. The Corporation did not record any
loan loss provisions over-and-above its actual charge-off activity in the first
nine months of 2003 due in part to stable levels of non-performing assets and
improved credit quality in its loan portfolio. Also affecting the recent nine
month period was the recapture of specific loss provisions that were
established in the fourth quarter of 2002 on two business loan relationships
that paid off during the period. On an annualized basis, net charge-offs were
0.08% and 0.10% of average loans outstanding during the three and nine month
periods in 2003, respectively. These amounts compared to 0.07% and 0.08%
during the same periods in 2002.

As of September 30, 2003, and December 31, 2002, the Corporations
allowance for loan losses was $11.0 million and $11.7 million, respectively, or
0.50% and 0.55% of loans held for investment, respectively. The allowance for
loan losses was 158% and 217% 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.

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##### Table of Contents



Non-Interest IncomeNon-interest income for the three month period ended
September 30, 2003 and 2002, was $33.1 million and $16.7 million, respectively.
These amounts represented 63% and 44% of the Corporations total revenue
during such periods. Non-interest income for the nine month periods ending as
of the same dates were $71.5 million and $42.6 million, respectively, or 56%
and 41% of total revenue, respectively. The following paragraphs discuss the
principal components of non-interest income and the primary reasons for their
changes from 2002 to 2003.

Community Banking RevenueCommunity banking revenue increased by $1.5
million or 17.5% and by $4.9 million or 19.9% during the three and nine months
ended September 30, 2003, respectively, as compared to the same periods in the
previous year. The following table shows the Corporations community banking
revenue for the three and nine month periods ended September 30, 2003 and 2002.

Three Months Ended September 30
    
    
    Nine Months Ended September 30Dollars in thousands
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002Overdraft fees
    
    $
    5,168
    
    
    $
    4,442
    
    
    $
    14,601
    
    
    $
    11,835ATM and debit card fees
    
    
    2,781
    
    
    
    2,534
    
    
    
    8,252
    
    
    
    7,117Account service charges
    
    
    729
    
    
    
    590
    
    
    
    1,938
    
    
    
    1,630Other fee income
    
    
    433
    
    
    
    384
    
    
    
    1,257
    
    
    
    1,078Total deposit account revenue
    
    
    9,111
    
    
    
    7,950
    
    
    
    26,048
    
    
    
    21,660Consumer loan insurance premiums and commissions
    
    
    261
    
    
    
    297
    
    
    
    718
    
    
    
    764Other consumer loan fees
    
    
    96
    
    
    
    66
    
    
    
    280
    
    
    
    228Total consumer loan revenue
    
    
    357
    
    
    
    363
    
    
    
    998
    
    
    
    992Investment services revenue
    
    
    961
    
    
    
    564
    
    
    
    2,259
    
    
    
    1,785Total community banking revenue
    
    $
    10,429
    
    
    $
    8,877
    
    
    $
    29,305
    
    
    $
    24,437


Deposit account revenue increased by $1.2 million or 14.6% during the
three months ended September 30, 2003, as compared to the same period in
the previous year. This increase was due mostly to a $726,000 or 16.3%
increase in overdraft fees, a $247,000 or 9.7% increase in ATM and debit card
fees, and a $139,000 or 23.6% increase in account service charges. These
increases were due in part to 7.9% 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.

On August 1, 2003, interchange fees for issuers of debit cards were
reduced by MasterCard and Visa. This action arose out of the settlement of a
lawsuit by certain merchants against MasterCard and Visa. As a result of this
action, the Corporation believes its debit card income, a component of
community banking revenue, will decline by up to $500,000 per quarter.
Furthermore, on January 1, 2004, new interchange rates are expected to go into
effect. These rates will vary by merchant or merchant category. Until these
rates have been finalized, debit card issuers like the Bank will not be able to
determine the impact such rate changes will have on revenues from their debit
card programs.

Investment services revenue increased by $397,000 or over 70% during the
three months ended September 30, 2003, 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 sales of tax-deferred annuity
products and mutual funds caused principally by an increase in the number of
registered investment representatives in the Corporations offices.

The explanations for the changes in community banking revenue for the nine
month periods ended September 30, 2003 and 2002, were substantially the same as
those given in previous paragraphs.

Mortgage Banking RevenueMortgage banking revenue increased by $15.0
million or more than 200% and by $24.3 million or nearly 150% during the three
and nine months ended September 30, 2003, respectively, as compared to the same
periods in the previous year. The following table shows the Corporations
mortgage banking revenue for the three and nine month periods ended September
30, 2003 and 2002.

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Three Months Ended September 30
    
    
    Nine Months Ended September 30Dollars in thousands
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002Gross servicing fees
    
    $
    2,741
    
    
    $
    2,384
    
    
    $
    7,896
    
    
    $
    7,118Mortgage servicing rights amortization
    
    
    (7,161
    )
    
    
    (8,098
    )
    
    
    (26,595
    )
    
    
    (15,274
    )Mortgage servicing rights valuation (loss) recovery
    
    
    6,150
    
    
    
    (2,600
    )
    
    
    3,350
    
    
    
    (750
    )Total loan servicing fees, net
    
    
    1,731
    
    
    
    (8,314
    )
    
    
    (15,349
    )
    
    
    (8,906
    )Gains on sales of mortgage loans
    
    
    19,934
    
    
    
    14,800
    
    
    
    54,437
    
    
    
    23,757Other mortgage-related income
    
    
    452
    
    
    
    674
    
    
    
    1,408
    
    
    
    1,378Total mortgage banking revenue
    
    $
    22,117
    
    
    $
    7,160
    
    
    $
    40,496
    
    
    $
    16,229


Gross servicing fees increased by $357,000 or 15.0% during the three
months ended September 30, 2003, as compared to the same period in the
previous year. This increase was due primarily to $437 million or 15.5% growth
in average loans serviced for others, compared to the year-ago period. This
growth was caused by a significant increase in the origination and sale of
fixed-rate mortgage loans, as described in a later paragraph.

Amortization of mortgage servicing rights was $7.2 million and $8.1
million during the three months ended September 30, 2003 and 2002,
respectively. The decline in the most recent period was attributed principally
to a decrease in prepayment activity. Management is uncertain what direction
interest rates will move in the immediate future. 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.

During the three months ended September 30, 2003, the Corporation
recaptured $6.2 million in its valuation allowance for mortgage servicing
rights. This allowance had been established in previous periods as a result of
declining mortgage rates. The recapture was principally the result of recent
increases in mortgage rates, which lowered market expectations for future
prepayment activity. The balance in the valuation was zero at September 30,
2003. It should be noted, however, if market interest rates decline in the
future the Corporation may be exposed to unfavorable valuation adjustments
against its portfolio of MSRsprimarily because of 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.

At September 30, 2003, and 2002, loans serviced for others were $3.3
billion and $2.9 billion, respectively. As of the same dates, mortgage
servicing rights were $36.8 million and $28.6 million, net of the valuation
allowance, if any.

Gains on sales of loans increased by $5.1 million from $14.8 million
during the three months ended September 30, 2002, to $19.9 million during the
same period in 2003. This increase was due in part to an improvement in the
average gain on sales in the most recent period. This development was
principally the result of wider spreads in the secondary market and higher
values for the servicing rights component of the gain due to higher rates and
declining prepayment expectations. Also contributing to the increase was an
$80.2 million or 12.9% increase in the Corporations mortgage loan sales. This
increase was due to a historically low interest rate environment that resulted
in increased originations and sales of fixed-rate mortgage loans in the
secondary market.

Market interest rates have increased in recent months from historically
low levels. If this trend continues, management expects the Corporations
gains on sales of mortgage loans to be substantially lower in the fourth
quarter than they were in the most recent period. 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 decreased by $221,000 or over 30% during the
three months ended September 30, 2003, as compared to the same period in the
previous year. This decrease was due principally to timing of payments to
third-party vendors for loan-closing services.

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With the exception of amortization on MSRs, the explanations for the
changes in the components of mortgage banking revenue for the nine month
periods ended September 30, 2003 and 2002, are substantially the same as those
given in previous paragraphs. The $11.3 million increase in amortization of
MSRs for the nine months ended September 30, 2003, was caused by an
historically low interest rate environment during the first half of 2003 that
resulted in a dramatic increase in loan prepayment activity as borrowers
refinanced older, higher-rate residential mortgage loans.

Other Non-Interest IncomeOther non-interest income decreased by $113,000
or 16.6% and by $386,000 or 18.3% during the three and nine month periods ended
September 30, 2003, respectively, as compared to the same periods in the
previous year. The decrease in the most recent quarterly period was primarily
due to a decline in earnings on the Corporations bank-owned life insurance
policies. The decrease in the nine month period was due principally to the
receipt of a special dividend in 2002 related to the Corporations ownership in
its primary ATM network provider.

Non-Interest ExpenseExcluding the FHLB prepayment penalty, non-interest
expense for the three months ended September 30, 2003 and 2002, was $28.1
million and $22.9 million, respectively, which was 3.58% and 3.11% of average
assets during such periods, respectively. Non-interest expense for the nine
months ended September 30, 2003 and 2002 was $76.1 million and $63.3 million,
respectively, which was 3.29% and 3.06% of average assets during such periods,
respectively (again, excluding the FHLB prepayment penalty). The following
paragraphs discuss the principal components of non-interest expense and the
primary reasons for their changes from 2002 to 2003.

Compensation and Employee BenefitsCompensation and employee benefits
increased by $2.2 million or 16.1% during the three months ended September 30,
2003, 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. Since June 30, 2002, the
Corporation has increased the number of its banking facilities from 84 to 92.
In September 2002, the Corporation acquired four banking facilities in
south-eastern Minnesota from another financial institution. As of September
30, 2003, the Corporation had 1,289 full-time equivalent employees. This
compared to 1,213 and 1,196 as of December 31, 2002, and September 30, 2002,
respectively.

Also contributing to the increase in compensation and employee benefits in
2003 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. The Corporation intends to expand
its offering of business banking products in additional markets in 2003,
although there can be no assurances.

Compensation and employee benefits in the third quarter of 2003 was also
impacted by an increase in employee pension costs. Such costs rose by $316,000
or 160% during the three months ended September 30, 2003, as compared to the
same period in the previous year. In late 2002, management completed a review
of the Corporations pension plan established for the benefit of its full-time
employees. As a result of changes in assumptions implemented in conjunction
with the review, as well as certain amendments to the pension plan, the
Corporations pension expense will be substantially higher in 2003. Pension
expense for 2003 is expected to approximate $1.7 million compared to $734,000
in 2002. Furthermore, management has reduced the assumption for the expected
return on plan assets to 8.50% in 2003, which compared to 9.00% in 2002.

Compensation and employee benefits increased by $5.9 million or 15.2%
during the nine months ended September 30, 2003, as compared to the same period
in the previous year. The explanations for the change between these periods
were substantially the same as those given in previous paragraphs. In
addition, expenditures for employee health care, the Corporations
postretirement employee benefits plan, and its 401(k) savings plan increased
$1.0 million in the aggregate during the nine months ended September 30, 2003
as compared to the same period in the previous year. The reasons for these
increases are similar to those described in earlier paragraphs.

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Occupancy and EquipmentOccupancy and equipment expense increased by
$755,000 or 27% and $2.1 million or 27% during the three and nine months ended
September 30, 2003, respectively, as compared to the same periods in the
previous year. These increases were 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. Also contributing to the increases in both periods
were disposition costs of $502,000 associated with the closure of three
supermarket banking facilities and the replacement of obsolete internet banking
software.

Communications, Postage, and Office SuppliesCommunications, postage,
and office supplies expense increased by $249,000 or 15.4% and by $763,000 or
16.5% during the three and nine months ended September 30, 2003, respectively,
as compared to the same periods in the previous year. These increases were
also caused principally by 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.

ATM and Debit Card Transaction CostsATM and debit card transaction costs
increased by $158,000 or 15.1% and by $546,000 or 18.7% during the three and
nine months ended September 30, 2003, respectively, as compared to the same
periods in the previous year. These increases 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 135 ATMs in communities located throughout Wisconsin,
northern Illinois, and south-eastern Minnesota.

Advertising and MarketingAdvertising and marketing costs declined
modestly during the most recent quarter and increased by $173,000 or 7.0%
during the nine months ended September 30, 2003, as compared to the same period
in the previous year. The increase during the nine month period 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 IntangiblesAmortization of intangible assets, which
consists primarily of deposit-based intangibles, did not change during the most
recent quarter and increased by $78,000 or 15.3% during the nine months ended
September 30, 2003, as compared to the same period in the previous year. The
increase during the nine month period was attributed to increased amortization
of the deposit-based intangibles recorded in connection with the Corporations
acquisitions in the second and third quarters of 2002.

FHLB Prepayment PenaltyDuring the quarter the Bank prepaid $128 million
in term advances from the FHLB and incurred a prepayment penalty of $7.4
million. The advances had a remaining maturity of 1.3 years and a weighted
average cost of 5.84%. They were replaced by overnight borrowings from the
FHLB at a substantially lower rate. Management estimates that this action will
increase the Banks net interest income by $1.5 million in the fourth quarter,
assuming no change in overnight borrowing rates.

Other Non-Interest ExpenseOther non-interest expense increased by $1.8
million or 75% and by $3.2 million or 53% during the three and nine months
ended September 30, 2003, respectively, as compared to the same periods in the
previous year. These increases were caused by a variety of factors, the most
significant of which was increased costs related to servicing of loans for the
Federal National Mortgage Association (FNMA) and the Federal Home Loan Bank
of Chicago (FHLB). Under the terms of the servicing agreements with these
agencies, the Corporation is required to pay a full months interest when
certain loans are repaid, regardless of the actual date of the loan payoff. A
declining interest rate environment and increased prepayment activity in 2003
resulted in increased payment of loan pay-off interest to FNMA and FHLB. Also
contributing to the increase during the three and nine month periods were
losses on the disposition of four residential properties. These developments
were partially offset by a decline in provision for customer losses.

Income Tax ExpenseIncome tax expense for the three months ended
September 30, 2003 and 2002, was $6.2 million and $5.3 million, respectively,
or 37.8% and 36.9% of pretax income, respectively. Income tax expense for the
nine months ended September 30, 2003 and 2002, was $16.1 million and $13.7
million, respectively, or 37.4% and 35.4% of pretax income, respectively. The
Corporations effective tax rate has increased in recent

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periods due principally to a higher 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.

FCHI has not been subject to taxation in Wisconsin since FCHIs formation
in 1993. However, the Wisconsin Department of Revenue (WDR) recently began an
examination of the Bank specifically aimed at the Banks relationship with
FCHI. Management believes the WDR may take the position that the income of
FCHI is 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, as well as the private rulings the WDR issued in 1993 and 1997 in
connection with the Banks formation and operation of FCHI. However, the WDR
has indicated that it may repudiate these rulings. If the WDR is successful in
these efforts, it may have a substantial negative impact on the earnings of the
Corporation. Management is uncertain at this time whether the WDR exam will
result in an assessment or whether any such assessment will be upheld upon
appeal.

Segment InformationThe 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 and nine month
periods ended September 30, 2003 and 2002. 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.

Mortgage BankingProfits from the Corporations mortgage banking
activities were $6.9 million in the third quarter of 2003 compared to $3.6
million in the same period last year. Year-to-date, profits were up $10.5
million compared to 2002. Loan origination volumes and loan servicing fees are
the principal drivers of performance in this profit center. In the first nine
months of 2003, the Corporations mortgage banking operation originated $2.5
billion in single-family residential loans compared to $1.3 billion in the same
period of the previous year. However, these improvements were partially offset
by a substantial increase in amortization of MSRs. Beginning in 2001 and
continuing through 2003, market interest rates for mortgage loans declined
dramatically and have remained at historically low levels. As a result,
amortization of MSRs has increased relative to prior periods. 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 LoansProfits from the Corporations residential loan
portfolio decreased by $1.4 million or 64% and $3.4 million or 56% during the
three and nine month periods ended September 30, 2003, respectively, compared
to the same periods in the previous year. The decline in this profit centers
earnings was primarily due to a decline 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 58 basis
points between the nine month period in 2002 and the same period in 2003. In
contrast, the yield on the profit centers single-family residential loans
declined by 127 basis points between the periods.

During the nine months ended September 30, 2003, the average assets
assigned to this profit center were $790 million, a $26 million or 3.2%
decrease from the same period in 2002. Average assets during the most recent
quarter declined by $113 million or 12.8% compared to the third quarter of
2002. A decrease in loans purchased contributed to the decline in average
assets. Year-to-date, residential loan purchases decreased from $297 million
in 2002 to $186 million in 2003.

Commercial Real Estate LendingProfits from commercial real estate
lending declined by $499,000 or 19.5% and $437,000 or 6.0% during the three and
nine month periods ended September 30, 2003, respectively, as compared to the
same periods in 2002. This decline was partially the result of a decrease in
the profit centers interest rate spread in 2003 compared to 2002. 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 58 basis points between the first nine months of 2003
and the same period in the previous year. However, the yield on commercial real
estate loans declined by 76 basis points between these same periods. Also
contributing to the decline in profits was a $42 million or 7.5% decrease in
average assets assigned to this

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profit center. During the nine months ended September 30, 2003, this
profit center originated $80 million in commercial real estate loans compared
to $82 million in the same period last year.

Consumer LendingProfits from the Corporations consumer lending
activities decreased by $414,000 or 21.7% and $561,000 or 11.7% during the
three and nine month periods ended September 30, 2003, respectively, as
compared to the same periods in the previous year. This decrease was primarily
attributable to a decline in the profit centers interest rate spread in the
most recent year, compared to the same timeframe in 2002. Similar to
commercial real estate loans, this profit center is principally funded by
deposit liabilities and, to a lesser extent, by wholesale borrowings. The
yield on consumer loans declined by 111 basis points between the first nine
months of 2003 and the same period in the previous year. The Corporations
average cost of interest-bearing liabilities, however, only declined by 58
basis points between these same periods.

During the nine months ended September 30, 2003, the average assets
assigned to this profit center were $481 million, a $34 million or 7.5%
increase over the same period last year. Year-to-date, this profit center has
originated $380 million in loans in 2003 compared to $334 million in 2002.

Education LendingProfits from education lending declined by $289,000 or
91% and $1.2 million or 66% during the three and nine month periods ended
September 30,2003, respectively, as compared to the same periods in the
previous year. These declines were primarily due to a decrease in the profit
centers interest rate spread in 2003 compared to 2002. During 2003, the
average yield on education loans has declined more than the average cost of the
funding sources for the profit center, which consist primarily of money market
demand accounts. Education loans have variable rates. As such, their yield
responds quickly to changes in market interest rates.

During the nine months ended September 30, 2003, the average assets
assigned to this profit center were $209 million, a $1.3 million or 0.6%
decline from the same period last year. Year-to-date, this profit center has
originated $47.9 million in loans in 2003 compared to $35.7 million in 2002.
Competition for education lending has increased significantly in recent years.
As a result, management has found it difficult to increase the size of this
portfolio. Management expects this trend to continue into the foreseeable
future.

Business BankingLosses from the Corporations business banking
operations were $50,000 and $267,000 for the three and nine month periods ended
September 30,2003. 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 financial results of this
profit center have not been reported separately for 2002 due to efforts in that
year to design these products on the Corporations systems, as well as efforts
to develop departmental allocations of costs and revenues necessary to fairly
present the operating results of this line of business.

Investment and Mortgage-Related SecuritiesLoss from the Corporations
investment securities portfolio was $359,000 in the three month period ended
September 30, 2003, compared to a profit of $251,000 in the same period in
2002. On a year-to-date basis, the loss was $1.2 million in 2003 compared to a
profit of $1.3 million in 2002. These declines were primarily due to a
decrease in the profit centers interest rate spread in 2003 compared to 2002.
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 58 basis points between the first nine
months of 2003 and the same period in the previous year. However, the yield on
the investment securities portfolio declined by 139 basis points between these
same periods due to accelerated prepayments of higher yielding securities.
Additionally, the profitability of this profit center has been adversely
impacted in 2002 and 2003 by high levels of liquidity on the balance sheet that
has shifted the mix of the portfolio towards lower yielding overnight
investments.

During the nine months ended September 30, 2003, the average assets
assigned to this profit center were $716 million, a $157 million or 28%
increase from the same period last year.

Other SegmentsThis segment consists of the parent holding company and
certain of the Banks wholly-owned subsidiaries. In addition, in 2002 this
profit center contained the preliminary results of the

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Corporations new line of businessbusiness banking. The financial
results of this profit center were not reported separately in 2002 due to
continuing efforts to develop the departmental allocations of costs and
revenues necessary to fairly present the operating results of this line of
business.

Non-GAAP AdjustmentsNon-GAAP adjustments were ($630,000) in the third
quarter of 2003 compared to ($1.4) million in the third quarter of 2002. This
increase was due to a $8.8 million change in MSR loss provisions between
periods that is ignored in the product profitability model. This change was
only partially offset by $4.4 million increase in FHLB prepayment penalty
expense, net of income tax expense. This item was also ignored in the model.
Year-to-date, non-GAAP adjustments were ($2.0) million in 2003 compared to
($1.7) million in 2002.

Net Cost to Acquire and Maintain Deposit LiabilitiesIn 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 1.38% and
1.28% of average deposit liabilities outstanding during the three months ended
September 30, 2003 and 2002, respectively. The increase in net cost between
these periods was the result of an increase in the Corporations net costs of
operating its branch network and a decrease in its average deposit liabilities.
On a year-to-date basis, the net cost was 1.33% and 1.32%, respectively.

Financial Condition

OverviewThe Corporations total assets decreased by $35.0 million or
1.2% during the nine months ended September 30, 2003. This decrease was due
primarily to declines in overnight investments and loans held for sale, the
proceeds from which were redirected in part to mortgage-related securities and
loans held for investment, as well as a net reduction in deposit liabilities
and FHLB advances.

Overnight InvestmentsInterest-bearing deposits with banks, which consist
of overnight investments at the FHLB, short-term money market accounts, and
federal funds purchased, decreased by $163 million or 91% from $180 million at
December 31, 2002, to $17.0 million at September 30, 2003. This decrease was
the result of the reinvestment of these balances into other interest-earning
assets such as mortgage-related securities and loans held for investment.

Mortgage-Backed and Related SecuritiesThe Corporations aggregate
investment in its mortgage-backed and related securities portfolios increased
by $71.7 million or 18.1% during the nine months ended September 30, 2003.
During this period, the Corporations purchased $578 million in short- and
medium-term, fixed- and adjustable-rate collateralized mortgage obligations
(CMOs). This development was offset in part by the repayment of $502 million
in mortgage-backed and related securities.

Loans Held for SaleThe Corporations loans held for sale decreased by
$32.2 million or nearly 65% during the nine months ended September 30, 2003.
During the latter part of the third quarter of 2003, some stability returned to
the interest rate environment with rates even increasing slightly, which
curtailed high levels of refinance activity and resulted in a lower level of
loans held for sale.

Loans Held for InvestmentThe Corporations loans held for investment
increased by $91.9 million or 4.4% during the nine months ended September 30,
2003. Most of this increase was the result of the Corporations purchase of
$186 million in single-family residential loans from third-party financial
institutions. The historically low interest rate environment that has
persisted over the past year had a significant impact on the ability of the
Corporation to maintain its internally-originated portfolio of loans held for
investment. This situation developed because low interest rates tend to
increase customer preference for fixed-rate mortgage loans, as opposed to

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adjustable-rate loans. In addition, a low interest rate environment
encourages borrowers to refinance their existing adjustable-rate residential
loans into fixed-rate loans to lock-in a lower long-term rate. Given the
Corporations policy of selling these types of loans in the secondary market,
its internally-originated portfolio of adjustable-rate residential loans
declined in the most recent period.

Single-family residential loans purchased by the Corporation are subjected
to substantially the same underwriting process as the Corporations own loans.
The servicing of these loans is retained by the sellers, for which the
Corporation pays a fee of approximately 38 basis points on the unpaid principal
balance. The loans are generally located throughout the U.S., with no single
state making up more than 30 to 40% of the overall principal. The loans have
adjustable-rates that reset annually at an average margin of approximately 275
basis points above the one-year U.S. Treasury bill. Most of the loans have
fixed interest rates for terms of five years before their first adjustment
date. FCHI, the Banks wholly-owned investment subsidiary in Nevada, purchased
the loans.

Mortgage Servicing RightsThe Corporations mortgage servicing rights,
net of valuation allowances (if any), were $36.8 million and $30.2 million as
of September 30, 2003, and December 31, 2002, respectively. These amounts were
1.11% and 1.02% of the outstanding principal of loans serviced for others,
which amounted to $3.3 billion and $3.0 billion at September 30, 2003, and
December 31, 2002, respectively. The valuation allowance for MSR losses was
zero at September 30, 2003, and $3.4 million at December 31, 2002.

Deposit LiabilitiesThe Corporations deposit liabilities decreased by
$93.0 million or 3.9% during the nine months ended September 30, 2003. In
March 2003, management lowered rates on certificates of deposit and certain
other deposit offerings in an effort to improve the Corporations interest rate
spread. Although the Corporations certificate of deposits remain
competitively priced, management believes growth in the Corporations deposit
liabilities may slow or even be negative in the near term as the Corporations
most rate-sensitive customers move deposits to competitors offering higher
rates.

During the third quarter of 2003 the Corporation introduced a new money
market account with a guaranteed rate of 2% through the end of 2003. Customer
balances in this account grew by $163 million during the period.

The Corporations deposit liabilities were also impacted by a $48.7
million or over 35% decrease in custodial deposit accounts during the nine
months ended September 30, 2003. 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 declined at September 2003 due to decreases in loan prepayment
activity that began late in the current quarter.

FHLB AdvancesThe Corporations FHLB advances increased by $53.0 million
or 13.2% during the nine
months ended September 30, 2003. This increase occurred as a result of the
aforementioned decrease in deposit liabilities.

During the third quarter of 2003 the Bank prepaid $128 million in term
advances from the Federal Home Loan Bank of Chicago and incurred a prepayment
penalty of $7.4 million. The advances had a remaining maturity of 1.3 years
and a weighted average cost of 5.84%. They were replaced by overnight
borrowings from the FHLB at a substantially lower rate.

Non-Performing AssetsThe 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 $10.5 million
or 0.35% of total assets at September 30, 2003, compared to $9.1 million or
0.30% of total assets at December 31, 2002. The Corporations allowance for
loan and real estate losses was 106% and 130% of total non-performing assets as
of the same dates, respectively.

In addition to non-performing assets, at September 30, 2003, management
was closely monitoring $16.7 million in assets, which it had classified as
doubtful or substandard, but which were performing in accordance with

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their terms. This compares to $22.6 million in such assets at December
31, 2002. The decrease from 2002 was due primarily to three business
relationships that refinanced with other financial institutions.

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 nine months of 2003, the
Corporation used these sources of funds to fund loan commitments, purchase
mortgage-related securities, and cover maturing liabilities and deposit
withdrawals. 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 September 30, 2003, was
7.55% 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 6.19% as of September 30, 2003.

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 September 30, 2003, 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 $8.1 million and $7.6 million
during the nine months ended September 30, 2003 and 2002, respectively.
These amounts equated to dividend payout ratios of 30.1% and 30.4% 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 October 28, 2003, the Corporations Board of Directors declared a
regular quarterly dividend of $0.14 per share payable on December 11, 2003, to
shareholders of record on November 20, 2003.

During the nine month period ending September 30, 2003, the Corporation
repurchased 26,198 shares under its 2000 stock repurchase plan (the 2000
Plan) at a cost of approximately $508,000. In April 2002, the Corporations
Board of Directors adopted another stock repurchase plan (the 2002 Plan) that
authorizes the repurchase of up to 1,001,678 shares or approximately 5% of the
Corporations outstanding common stock. In April 2003, 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 nine month period ending September 30, 2003, the Corporation
reissued 115,460 shares of common stock out of its inventory of treasury stock
with a cost basis of approximately $2.3 million. In general, these shares were
issued upon the exercise of stock options by, or the issuance of restricted
stock to, employees and directors of the Corporation.

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Other Matters

On October 10, 2003, the Corporation completed the acquisition of Liberty
Bancshares, Inc. (LBI), the parent company of Liberty State Bank,
headquartered in St. Paul, Minnesota. As a result of the acquisition, LBI was
merged into the Corporation. The transaction was valued at approximately $80
million, of which 38 percent was cash and 62 percent was 2.6 million
newly-issued common shares of FTFC. The purchase price represented
approximately 2.0 times LBIs book value and 16 times 12-month trailing
earnings as of September 30, 2003. The transaction was accounted for using the
purchase method of accounting in accordance with SFAS 142. The amount of
goodwill recorded in connection with this transaction will depend on the
estimated fair value that will be assigned to the identifiable tangible and
intangible assets and liabilities of LBI, including a deposit-based intangible
asset. Management has not completed a deposit portfolio valuation analysis as
of the date of this report or completed its estimate of the fair value of LBIs
tangible assets and liabilities. As such, management is not able to estimate
the value of the deposit-based intangible or goodwill at this time.

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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- and adjustable-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 September 30, 2003, 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, 2002.

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ITEM 4CONTROLS AND PROCEDURES

The Corporations senior management, with the participation of the
Corporations chief executive officer and chief financial officer, evaluated
the effectiveness of the Corporations disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
September 30, 2003. Based on this evaluation, the Corporations chief
executive officer and chief financial officer concluded that, as of September
30, 2003, the disclosure controls and procedures were (1) designed to ensure
that material information relating to the Corporation, including the Bank and
the Banks wholly-owned subsidiaries, is made known to the Corporations chief
executive officer and chief financial officer by others within those entities,
particularly during the period in which this report was being prepared and (2)
effective, in that they provide reasonable assurance that information required
to be disclosed in the reports that the Corporation files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms.

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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

None.

ITEM 5Other Information

None.

ITEM 6Exhibits and Reports on Form 8-K

a) Exhibits.

Exhibit Number
    
    Description31.1
    
    Certification of President and Chief Executive Officer of First Federal
Capital Corp31.2
    
    Certification of Senior Vice President and Chief Financial Officer of
First Federal Capital Corp31.3
    
    Certification of Controller of First Federal Capital Corp34.1
    
    Certification required by Section 906 of the Sarbanes-Oxley Act of 2002
signed by President and Chief Executive Officer of First Federal Capital
Corp34.2
    
    Certification required by Section 906 of the Sarbanes-Oxley Act of 2002
signed by Senior Vice President and Chief Financial Officer of First
Federal Capital Corp34.3
    
    Certification required by Section 906 of the Sarbanes-Oxley Act of 2002
signed by Controller of First Federal Capital Corp


b) Reports on Form 8-K.

During 2003, First Federal Capital Corp filed the following reports on Form 8-K:

Report filed April 10, 2003. The report included a press release
announcing that First Federal Capital Corp entered into a definitive
merger agreement to acquire Liberty Bancshares Inc., St. Paul, MN. The
agreement and plan of merger was included by exhibit.

Report filed April 17, 2003. The report included a press release
announcing earnings for First Federal Capital Corp for the three months
ended March 31, 2003.

Report filed July 7, 2003. The report included a press release
announcing that First Federal Capital Corp, on September 30, engaged
Deloitte & Touche LLP as its independent accountant, replacing Ernst &
Young LLP. The letter of concurrence was included by exhibit. No
disagreements were cited.

Report filed October 23, 2003. The report included a press release
announcing earnings for First Federal Capital Corp for the three and nine
month periods ended September 30, 2003.

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Exhibit Index

Exhibit Number
    
    Description31.1
    
    Certification of President and Chief Executive Officer of First Federal
Capital Corp31.2
    
    Certification of Senior Vice President and Chief Financial Officer of
First Federal Capital Corp31.3
    
    Certification of Controller of First Federal Capital Corp34.1
    
    Certification required by Section 906 of the Sarbanes-Oxley Act of 2002
signed by President and Chief Executive Officer of First Federal Capital
Corp34.2
    
    Certification required by Section 906 of the Sarbanes-Oxley Act of 2002
signed by Senior Vice President and Chief Financial Officer of First
Federal Capital Corp34.3
    
    Certification required by Section 906 of the Sarbanes-Oxley Act of 2002
signed by Controller of First Federal Capital Corp


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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
    
    November 12, 2003Jack C. RuschPresident and Chief Executive Officer(duly authorized officer)/s/ Michael W. Dosland
    
    November 12, 2003Michael W. DoslandSenior Vice President andChief Financial Officer/s/ Kenneth C. Osowski
    
    November 12, 2003Kenneth C. OsowskiVice President and Controller


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