U. S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                  FORM 10-KSB

 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                                      1934
                  For the fiscal year ended December 31, 2003

                                       OR

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT
                                    OF 1934
              For the transition period from ________ to ________

                         Commission file number 0-18599

                            BLACKHAWK BANCORP, INC.
                 (Name of small business issuer in its charter)

                 WISCONSIN                          39-1659424
            (State of Incorporation)           (IRS Employer ID No.)

                   400 Broad Street, Beloit, Wisconsin 53511
                    (Address of principal executive offices)

                    Issuer's Telephone Number (608) 364-8911

         Securities Registered Under Section 12(b) of the Exchange Act:
                                      NONE

         Securities Registered Under Section 12(g) of the Exchange Act:
                         COMMON STOCK, $ .01 PAR VALUE

 Check whether the issuer (1) filed all reports required to be filed by Section
 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
  subject to such filing requirements for the past 90 days.  Yes  X    No    .
                                                                 ---      ---

Check if there is no disclosure of delinquent filers in response to Item 405 of
    Regulation S-B is not contained in this form, and no disclosure will be
    contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
                  or any amendment to this Form 10-KSB. [   ]

      State issuer's revenues for its most recent fiscal year. $20,555,930

As of March 17, 2004, 2,526,145 shares of common stock were outstanding and the
aggregate market value (based on the bid price at March 17, 2004) of the shares
   held by non-affiliates (excludes shares reported or beneficially owned by
 directors and officers - does not constitute an admission to affiliate status)
                         was approximately $24,255,000.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of Blackhawk Bancorp, Inc.' s definitive proxy statement for its Annual
    Meeting of Stockholders, to be held on May 19, 2004, are incorporated by
                        reference into Part III hereof.

 Transitional Small Business Disclosure Format (check one): Yes [   ]  No [ X ]

                            BLACKHAWK BANCORP, INC.

                        FORM 10-KSB - TABLE OF CONTENTS

PART I                                                                     PAGE

Item  1.  Description of Business                                            3

Item  2.  Description of Property                                            7

Item  3.  Legal Proceedings                                                  8

Item  4.  Submission of Matters to a Vote of
          Security Holders                                                   8

PART II

Item  5.  Market for Common Equity, Related Stockholder Matters and
          Small Business Issuer Purchases of Equity Securities              10

Item  6.  Management's Discussion and Analysis
          or Plan of Operation                                              11

Item  7.  Financial Statements                                              36

Item  8.  Changes In and Disagreements with
          Accountants on Accounting and Financial
          Disclosure                                                        37

Item 8A.  Controls and Procedures                                           38

PART III

Item  9.  Directors, Executive Officers, Promoters and Control
          Persons; Compliance With Section 16(a) of the Exchange Act        39

Item 10.  Executive Compensation                                            39

Item 11.  Security Ownership of Certain Beneficial Owners and Management
          and Related Stockholder Matters                                   39

Item 12.  Certain Relationships and Related
          Transactions                                                      39

Item 13.  Exhibits and Reports on Form 8-K                                  39

Item 14.  Principal Accountant Fees and Services                            40

Signatures                                                                  41

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL.  Blackhawk  Bancorp, Inc. (the  "Company") was  incorporated under  the
laws of the state of Wisconsin in November 1989.  The Company owns and  operates
a subsidiary financial institution, Blackhawk State Bank ("Bank")  headquartered
in Beloit,  Wisconsin  and owns  100%  of  the common  securities  of  Blackhawk
Statutory Trust I, which was formed in December 2002 for the purpose of  issuing
Trust Preferred Securities.

On September  30, 2003  the Company  acquired DunC  Corp. and  its wholly  owned
subsidiary, First Bank, bc in  a transaction accounted for  as a purchase.   The
Company paid cash  consideration of  $7.2 million  for DunC  Corp.   Immediately
thereafter, DunC Corp was merged with and in  to the Company and First Bank,  bc
was merged with  and in to  the Bank.   In accordance with  the requirements  of
purchase accounting, the operations of the acquired companies have been included
with the operations of  the Company since  October 1, 2003.   In this  document,
unless we specifically otherwise  indicate, when we refer  to "DunC" we  include
both DunC  Corp. and  First  Bank, bc  together.   See  also  Item 6.    "Recent
Acquisition."

The Bank is a Wisconsin-chartered commercial bank operating eleven free-standing
branches, three of which are in Beloit,  Wisconsin and eight are located in  the
following cities in  Illinois: Belvidere (2),  Capron (1),  Machesney Park  (1),
Oregon (1), Rochelle  (1), Rockford  (1) and Roscoe  (1).   Bank management  has
begun a program to evaluate the  location and profitability of branch  locations
and has consolidated its  former Beloit Wal-Mart location  with the Beloit  East
location in 2002 and its former  Belvidere North State Street location with  the
Belvidere West location during  January 2004.  The  Bank has three  wholly-owned
subsidiaries: Nevahawk Investment, Inc.  ("Nevahawk"), an investment  subsidiary
located in Las Vegas,  Nevada;  RSL,  Inc. ("RSL"), which  in turn owns  Midland
Acceptance Corporation ("MAC"),  both of which  are substantially inactive;  and
First Financial Services, Inc. ("FFSI"), whose primary activity is ownership  of
the closed North State Street facility.

Through its  eleven  locations  the  Bank  provides  various  consumer  banking,
business banking and related financial services.   Consumer banking services  to
individuals include  demand,  savings  and  time  deposits.    Consumer  lending
services  include  installment  loans,  mortgage  loans,  overdraft  protection,
personal lines of  credit and  credit cards. The  Bank also  provides trust  and
investment services through a separate department of the bank and also through a
third party marketing agreement with a full service brokerage company.

Business banking services, which are provided to small business, commercial  and
governmental  organizations  include  commercial  and  commercial  real   estate
lending, deposits, cash management and letters of credit.

The Bank's primary source of revenue is  interest income and fees earned on  its
loans and investments, net of interest  paid on deposits and borrowings.   Other
non-interest income consists of mortgage loan  sale and servicing fees,  deposit
service charges, trust  fees,   retail non-deposit investment sales income,  and
investment securities gains or losses.

LENDING ACTIVITIES.   A  significant amount  of  the loans  in the  Bank's  loan
portfolio are secured  by residential or  commercial real estate.   Most of  the
real estate securing  mortgage loans is  located within  thirty minutes  driving
distance of the Bank's  offices. Commercial loans  are either collateralized  by
non-real estate assets or are unsecured and may have fixed or variable  interest
rates.   Consumer  and installment loans are  generally secured by  automobiles,
boats, or second liens on real  estate.  The Bank  also offers credit cards  and
home equity lines of  credit.  The  Analysis of Loan  Portfolio, located in  the
discussion of "Loans"  under Item 6  of this report,  shows the  changes in  the
types of loans from 2001 through 2003.

INVESTMENT ACTIVITIES.   The Bank and  its subsidiary,  Nevahawk, each  maintain
investment portfolios, which  are separately  managed to  provide liquidity  for
lending or deposit withdrawals, control interest rate risk and enhance earnings.
The investments  held  by  the  Bank and  Nevahawk  consist  primarily  of  U.S.
government and agency securities, mutual funds, corporate bonds, mortgage-backed
securities,  collateralized  mortgage   obligations  and   municipal  bonds   or
repurchase agreements  backed  by similar  securities.   The  Bank's  investment
portfolio is managed to maintain the Bank's need for liquidity; next to generate
an acceptable  level  of interest  income  from the  investment  portfolio;  and
finally to maintain  the interest rate  sensitivity of the  Bank's net  interest
income at desired levels.   The investment portfolio  of Nevahawk is managed  to
generate an acceptable level of interest  income; next to maintain the  interest
rate sensitivity of the consolidated Bank's net interest income; and finally  to
maintain the parent Bank's need for liquidity.  As more fully discussed in  Item
6 of this report,  the Wisconsin Department of  Revenue has instituted an  audit
program specifically aimed at  Nevahawk.  The Department  may take the  position
that the income  of Nevahawk is  taxable in Wisconsin  which could  result in  a
substantial negative impact on the earnings of the Company.

DEPOSIT ACTIVITIES.   Deposits  are divided  between interest  bearing and  non-
interest bearing.  Non-interest bearing deposits consist of checking accounts of
individuals, businesses and  governmental organizations.   The  interest-bearing
deposits include savings accounts,  money market deposit accounts,  certificates
of deposit,  individual retirement  accounts and  NOW accounts.   The  aggregate
balance of  time deposits  with balances  in excess  of $0.1  million was  $41.1
million at December 31, 2003.

WEALTH MANAGEMENT  SERVICES.   The  Bank  provides wealth  management  services,
including acting as trustee for living and testamentary trusts, and as an agent,
custodian, guardian, conservator, personal  representative or administrator  for
individuals or their  estates.   The Bank  also provides  retail investment  and
insurance products through a third-party marketing agreement with Raymond  James
Financial Services,  Inc.   During the  first quarter  of 2004,  the Bank  began
offering the trust services of Raymond  James Trust Company through this  third-
party marketing agreement, and began transitioning internally administered trust
accounts to  products  and  services offered  through  Raymond  James  Financial
Services, Inc. and Raymond James Trust Company.

COMPETITION.  Active competition exists for all services offered by the  Company
with other  state  banks, national  banks,  credit unions,  savings  and  loans,
finance companies, personal loan companies, brokerage and mutual fund companies,
mortgage bankers, insurance  agencies, and other  financial institutions in  the
Company's markets.    The  principal competitive  factors  in  the  banking  and
financial services industry are quality of services to customers, ease of access
to services, and pricing of services, including interest rates paid on deposits,
interest rates  charged on  loans,  and fees  charged  for fiduciary  and  other
services.   To compete  in  this environment,  the  Company endeavors  to  offer
competitive rates and  fees, convenient hours  and locations,  and high  quality
services, including internet banking and a unique courier service.

EMPLOYMENT.   As  of  December 31,  2003,  the  Company and  the  Bank  had  186
employees, of  which  149 were  employed  on a  full-time  basis.   The  Company
provides  a  variety  of  benefit  plans  to  its  employees,  including  health
insurance, long-term disability insurance,  group term life insurance,  flexible
spending  accounts,  profit  sharing,  401k,  and  stock  options.    Management
considers its relations with employees to be good.

REGULATORY FILINGS  WITH SECURITIES  AND EXCHANGE  COMMISSION.   Copies  of  our
Annual Reports on Form 10-KSB, Quarterly Reports on Form 10-QSB, Current Reports
on Form 8-K, and amendments to those reports are available free of charge at the
SEC's website  at http://www.sec.gov  and/or  from the  Company.   They  can  be
obtained at our website, http://www.blackhawkbank.com, through a link to the SEC
                         ----------------------------
website under  "Shareholder Information"  located at  the bottom  of the  "Bank"
page.

SUPERVISION AND REGULATION.  The Company and the Bank are extensively  regulated
under federal  and state  law.   Any descriptions  of statutory  and  regulatory
provisions contained in the following discussion are qualified in their entirety
by reference to the particular statutory and regulatory provisions.  Any  change
in applicable law or regulations may have a material effect on the Company.

THE COMPANY.
The Company is  registered as a  bank holding company  with the Federal  Reserve
Board (the "FRB") under the  Bank Holding Company Act  of 1956, as amended  (the
"BHC Act"), and in that capacity acquired all of the capital stock of the  Bank.
As a result, since formation of the bank holding company in 1990, the  Company's
activities  have  been  subject  to  limitations  imposed  under  the  BHC  Act.
Transactions between the  Company and  the Bank  and their  affiliates are  also
subject to certain  restrictions.   As a  registered bank  holding company,  the
Company is subject to various filing requirements of the FRB and is also subject
to examination by the FRB.

FRB approval must  be obtained  before a bank  holding company  acquires all  or
substantially all of the assets  of a bank or  savings association or merges  or
consolidates with  another bank  holding company  or  savings and  loan  holding
company. Under the BHC Act, we must obtain approval of the Federal Reserve Board
to acquire another bank or bank holding company.  The Federal Reserve Board  may
impose substantive conditions on any such acquisition.  We obtained the approval
of the Federal Reserve Board to acquire DunC  in 2003.  In connection with  that
acquisition, we agreed to maintain the  Bank's tier I capital to average  assets
ratio at a minimum of 7.0% through September 30, 2006.

GRAMM-LEACH-BLILEY ACT.   The  laws  and regulations  to  which the  Company  is
subject are constantly under review by  Congress, regulatory agencies and  state
legislatures.  In 1999 important legislation was passed by Congress to  overturn
Depression-era restrictions  on affiliations  by  banking organizations.    This
comprehensive legislation,  referred  to  as  the  Gramm-Leach-Bliley  Act  (the
"Act"), eliminates certain barriers to and restrictions on affiliations  between
banks and  securities firms,  insurance companies  and other  financial  service
organizations.  The Act provides for  a new type of "financial holding  company"
structure, under which affiliations among these  entities may occur, subject  to
the regulation of the Federal Reserve Board and regulation of affiliates by  the
functional regulators,  including the  Securities  and Exchange  Commission  and
state insurance regulators.   In addition, the  Act permits certain  non-banking
financial and  financially  related  activities to  be  conducted  by  operating
subsidiaries of a  national bank.   Under the Act,  a bank  holding company  may
become certified as  a financial  holding company by  filing a  notice with  the
Federal Reserve  Board, together  with a  certification  that the  bank  holding
company meets  certain criteria,  including  capital, management  and  Community
Reinvestment Act  requirements.    The  Act  contains  a  number  of  provisions
allocating regulatory authority among the  Federal Reserve Board, other  banking
regulators,  the  Securities  and   Exchange  Commission  and  state   insurance
regulators.  In addition, the Act imposes strict new limits on the transfer  and
use by financial  institutions of  nonpublic, personal  information about  their
customers.

Other important  provisions  of  the Act  permit  merchant  banking  activities,
venture capital activities,  and insurance underwriting,  to be  conducted by  a
subsidiary of a financial holding company.  It also allows municipal  securities
underwriting activities to be  conducted directly by a  national bank or by  its
subsidiary.  Under the Act,  a financial holding company  may engage in a  broad
list of "financial activities," and any non-financial activity that the  Federal
Reserve Board determines is "complementary" to a financial activity and poses no
substantial risk to the  safety and soundness of  the depository institution  or
the financial system. The Company has not elected to become a financial  holding
company.

On June 1, 2000, the federal  bank regulatory agencies issued final  regulations
implementing the Act's consumer  privacy protections.   Among other things,  the
new privacy regulations give  customers the right to  "opt out" of having  their
nonpublic,  personal  information  shared   by  a  financial  institution   with
nonaffiliated  third  parties,  bars  financial  institutions  from   disclosing
customer account  numbers or  other such  access  codes to  nonaffiliated  third
parties  for  direct  marketing  purposes  and  requires  annual  disclosure  by
financial  institutions  of  their   policies  and  procedures  for   protecting
customers' nonpublic,  personal  information.   Full  compliance  with  the  new
privacy regulations was mandatory as of July 1, 2001.

USA PATRIOT ACT OF 2001.  The USA Patriot Act of 2001 was adopted in 2001.   The
requirements of the Act went into effect in October 2002, upon issuance of final
rules, although certain provisions of the USA Patriot Act are subject to review,
expiration or  renewal  beginning  in  2004.    This  comprehensive  legislation
provides  that  U.S.  depository  institutions  are  prohibited  from  providing
correspondent banking services to  foreign shell banks.   It also requires  that
upon request of  the appropriate federal  banking agency the  Bank must  produce
records relating to its anti-money laundering compliance or its customers within
120 hours of the request. The Act allows the Bank to share information  relating
to  money  laundering  or  suspected   terrorists  with  the  Financial   Crimes
Enforcement Network (FinCEN) and other financial institutions.  In addition, the
Act requires the  institution to  establish anti-money  laundering programs  and
perform due diligence on  private banking and correspondent  accounts.  The  Act
allows the Treasury to  issue regulations on  the maintenance of  "concentration
accounts" and to prohibit an institution's customers from anonymously  directing
funds into  or  through such  accounts.  The  Federal Reserve  Board  and  other
regulators are required to consider the effectiveness of a bank holding  company
or its  financial  institution in  combating  money laundering  when  ruling  on
applications.

Section 326 of  the USA  Patriot Act of  2001 requires  the Bank  to develop  an
extensive Customer Identification Program  and obtain certain information  prior
to opening or adding a signatory to  an account. The Bank must adopt  risk-based
procedures for verifying the elements of  customer information and must  develop
procedures for determining whether the customer appears on any list of known  or
suspected terrorists or terrorist organizations  provided to the institution  by
any federal government agency. The Bank  must provide the customer prior  notice
of the requirements of the Act, and must  retain all records used to verify  the
customer's identity for a period of five years after the account is closed.

SARBANES-OXLEY ACT OF 2002.  The Sarbanes-Oxley Act of 2002 (the "Act")  impacts
corporate  governance  of  public   companies,  affecting  their  officers   and
directors, their audit  committees, their relationships  with their  accountants
and the audit function itself.

The Act implements a broad range of corporate governance and accounting measures
for public companies designed to promote  honesty and transparency in  corporate
America and better protect investors from corporate wrongdoing. The Act includes
the creation of an independent accounting  oversight board to oversee the  audit
of  public  companies  and  their  auditors,  provisions  restricting  non-audit
services  performed  by  independent   accountants  for  public  companies   and
additional corporate governance and responsibility provisions.

The Act requires  audit committees to  have in place  procedures to receive  and
address complaints regarding  accounting, internal control  and auditing  issues
and provides protection for corporate whistleblowers.  The Company has adopted a
policy providing employees with the  opportunity to confidentially report  their
concerns directly  to  members of  the  Bank's  Audit Committee  or  the  Bank's
Internal Auditor and has communicated its policy to all employees.

CAPITAL ADEQUACY. The  FRB has  adopted capital  guidelines as  to both  minimum
levels of  core  capital  and  risk-based  capital.  The  minimum  core  capital
requirement ranges from 3% to 5% of total assets depending upon the  regulator's
determination of the  holding company's strength.   The  guidelines assign  risk
weightings to assets and  off-balance sheet items,  and have minimum  risk-based
capital ratios.    All  bank  holding  companies  are  required  to  have  total
consolidated capital  of 8%  of risk-weighted  assets.   Core  capital  consists
principally of  shareholders' equity  less intangibles,  while qualifying  total
capital consists of core capital plus certain debt instruments and a portion  of
the allowance for loan losses.  The discussion of "Capital" under Item 6 of this
report reflects various regulatory measures of capital as of December 31,  2003.
The Company's core and risk-based capital  ratios, as shown, are well above  the
minimum levels.

Under Wisconsin law,  a bank  holding company  is deemed  to be  engaged in  the
banking business and is subject to supervision and examination by the  Wisconsin
Department of Financial Institutions (the "WDFI").   The WDFI is also  empowered
to issue orders to  a bank holding  company to remedy  any condition or  policy,
which, in the  opinion of  the WDFI,  endangers the  safety of  deposits of  any
subsidiary state bank  or trust company.   In the  event of non-compliance  with
such an order, the WDFI has the power to direct the operations of the state bank
or trust company and to restrict dividends paid to the bank holding company.

THE BANK.
Wisconsin-chartered banks, including the Bank,  are regulated and supervised  by
the WDFI.  Each Wisconsin chartered bank is periodically examined by the WDFI or
its primary  federal  regulator.   The  approval  of  the WDFI  is  required  to
establish or close  branches, merge with  other banks and  undertake many  other
activities.

Any Wisconsin bank  that does not  operate in accordance  with the  regulations,
policies  and  directives  of  the  WDFI   may  be  subject  to  sanctions   for
noncompliance.  The  WDFI may, under  certain circumstances,  suspend or  remove
directors, officers or employees who have violated the law, conducted the Bank's
business in a  manner which is  unsafe, unsound or  contrary to the  depositors'
interests or been negligent in the performance of their duties.

Wisconsin state  banks  are authorized  to  accept deposits  (including  demand,
savings and time deposits  and certificates of deposit).  Banks may make a  wide
variety of  loans (including  mortgage loans,  loans to  corporations and  other
commercial loans and other  personal consumer loans).   Other federal and  state
regulations with respect to banks include  required reserves, limitations as  to
the nature and amount, by type and borrower, of lending, regulatory approval  of
mergers and  consolidations,  issuance and  retirement  by  a bank  of  its  own
securities, and other aspects of banking operations.

In 2003 the Wisconsin legislature enacted legislation allowing certain Wisconsin
financial institutions  to  be  certified  as  "universal  banks"  and  exercise
expanded powers.  The Bank has not applied to the Wisconsin Division of  Banking
to be certified as a "universal bank."

PAYMENT OF DIVIDENDS.  The  Board of Directors of  a Wisconsin bank may  declare
and pay  a  dividend from  its  undivided profits  in  an amount  they  consider
expedient.   The  board  of directors  shall  provide  for the  payment  of  all
expenses, losses, required reserves, taxes, and interest accrued or due from the
bank before the declaration  of dividends from  undivided profits. If  dividends
declared and paid in either of the two immediately preceding years exceeded  net
income for either of those two years  respectively, the bank may not declare  or
pay any dividend in the current year that exceeds year-to-date net income except
with the  written consent  of  the WDFI.  Federal  and state  regulations  limit
dividends paid by the Bank to  the Company to net income  of the Bank. The  Bank
paid dividends to the Company of $1.4 million, $1.5 million and $1.5 million for
the years ended December 31, 2003, 2002 and 2001, respectively. During 2001  the
Bank received a waiver from the WDFI to  pay dividends to the Company in  excess
of current net income.

FEDERAL DEPOSIT INSURANCE CORPORATION.  The Bank's deposit accounts are  insured
by the FDIC.   FDIC insurance, at the  present time, generally  insures up to  a
maximum of $0.1 million for each insured depositor.  The FDIC imposes an  annual
assessment on deposits.   Effective since 1993, premiums  have been assessed  on
the basis of a  risk rating assigned by  the FDIC.  Since  that time the  Bank's
premium has been at the lowest available rate.

The FDIC issues regulations, conducts periodic examinations, requires the filing
of reports and generally  supervises the operations of  its insured banks.   The
approval of the FDIC is  required prior to any  merger or consolidation, or  the
establishment or  relocation  of  any  branch  office.    This  supervision  and
regulation is intended primarily for the protection of depositors.

As an  FDIC-insured bank,  the  Bank is  subject  to certain  FDIC  requirements
designed to  maintain the  safety  and soundness  of  individual banks  and  the
banking system.    The FDIC,  based  upon appraisals  during  examinations,  may
revalue assets of an insured institution  and require establishment of  specific
reserves in amounts  equal to the  difference between such  revaluation and  the
book value  of  the assets.    In addition,  the  FDIC has  adopted  regulations
regarding capital adequacy requirements similar to those of the FRB.

OTHER ASPECTS OF FEDERAL AND STATE LAW.  The Bank is also subject to federal and
state statutory and regulatory provisions covering, among other things, security
procedures, currency  reporting,  insider  and  affiliated  party  transactions,
management  interlocks,  community  reinvestment,  truth-in-lending,  electronic
funds transfers, truth-in-savings, privacy, and equal credit opportunity.

Proposals for new legislation  or rule making  affecting the financial  services
industry are continuously being advanced and considered at both the national and
state  levels.    Proposals  are   primarily  focused  upon  restructuring   and
strengthening regulation and supervision to reduce the risks to which assets  of
banks and savings institutions are exposed.

In addition, changes  in Wisconsin and  Illinois state taxation  can affect  the
Bank and  the Company.    See Item  6,  "Management's Discussion  and  Analysis,
Results  of  Operations--Income  Tax"  for  a  discussion  of  recent  Wisconsin
Department of  Revenue  activity  and interpretations  which  could  affect  our
Wisconsin state taxes.

Although further changes in  the regulatory framework  may be enacted,  specific
provisions and  their ultimate  effect upon  the business  of the  Bank and  the
Company cannot be reliably anticipated.

GOVERNMENTAL MONETARY POLICIES  AND ECONOMIC CONDITIONS.   The  earnings of  the
Bank and the Company  are affected not only  by general economic conditions  but
also by  the  policies  of various  governmental  regulatory  authorities.    In
particular, the FRB  influences general economic  conditions and interest  rates
through the regulation  of money and  credit conditions.   It does so  primarily
through open-market  operations  in  U.S.  Government  Securities,  varying  the
discount rate  on member  and nonmember  bank  borrowings, and  setting  reserve
requirements  against  bank  deposits.    FRB  monetary  policies  have  had   a
significant effect on the operating results of banks in the past and are  likely
to continue to have such an effect in the  future.  The general effect, if  any,
of such policies upon  the future business  and earnings of  the Bank cannot  be
accurately predicted.  In  addition, losses sustained  by the federal  insurance
funds and regulatory costs incurred in connection with failed or failing insured
depository institutions continue to  be assessed to  those within the  industry.
As such, future earnings  will be adversely affected  by regulations enacted  to
cover these losses and costs.

ITEM 2.  DESCRIPTION OF PROPERTY

On February 1,  2004, the Company  had eleven locations,  of which three  were
leased.   All  of  these offices  are  considered  by management  to  be  well
maintained and adequate for the purpose  intended. The former branch  property
at 1021 North State Street in  Belvidere was held for sale.   Management feels
all properties  are adequately  insured against  loss.   The Company's  eleven
locations are:

LOCATIONS
---------

                              Owned or                                Owned or
Address                       Leased       Address                    Leased
-------                       --------     -------                    --------

400 Broad St.,                Owned        2141 N. State St.,         Leased
Beloit, WI 53511                           Belvidere, IL 61108

2200 Cranston Rd.,            Owned        121 E. Locust Ave.,        Leased
Beloit, WI 53511                           Belvidere, IL 61008

1795 Madison Rd.,             Owned        422 Cherry Ave.,           Owned
Beloit, WI 53511                           Rochelle, IL 61068

5206 Elevator Rd.,            Leased       307 N. Franklin Dr.,       Owned
Roscoe, IL 61073                           Oregon, IL 61061

9609 Forest Hills Road,       Owned        209 W Main Street,         Owned
Machesney Park, IL 61115                   Capron, IL 61012

2475 N. Perryville Road,      Owned
Rockford, IL 61107

See  Note  6  to  the  Consolidated  Financial  Statements  for  further
information on properties.

ITEM 3.  LEGAL PROCEEDINGS

Management believes that no litigation is  threatened or pending in which  the
Company faces  potential loss  or exposure  which will  materially affect  the
Company's financial position or results of operation, other than  noted below.
Since the Company's banking subsidiary acts as a depository of  funds, trustee
or escrow agent, it is named as defendant in lawsuits involving claims  to the
ownership of  funds in  particular accounts.   This  and  other litigation  is
incidental to the Company's business.

In 2000  the Bank  filed  a lawsuit  in  Waukesha County,  Wisconsin,  against
Fiserv, Inc.,  a  former data  processing  services provider,  for  breach  of
contract.   The  bank  was seeking  to  recover  damages sustained  due  to  a
processing error in which  $0.5 million was improperly  charged to the  Bank's
check clearing account at the Federal Home Loan Bank of Chicago.   On February
14, 2003 a  jury delivered  a verdict  that Fiserv,  Inc. did  not breach  its
contract with the Bank.  Fiserv, Inc. also filed a counterclaim seeking a $0.4
million reimbursement of  legal fees.   On May 12,  2003 a judge  in the  case
denied Fiserv's  motion for  reimbursement of  legal fees.    In July,  Fiserv
appealed the  trial court's  denial of  its  request to  have its  legal  fees
reimbursed.  The Bank thereafter cross-appealed on several  grounds, including
the trial court's denial of its motion for a new trial.  Fiserv filed a motion
to dismiss the  Bank's cross-appeal on  procedural grounds.   This motion  was
denied and  the appeal  and cross-appeal  are currently  pending. The  Company
plans to aggressively contest  Fiserv's appeal of the  decision on legal  fees
and has not accrued  the legal fee reimbursement  claimed by Fiserv. The  Bank
also intends to aggressively pursue its  appeal for a new trial. Although  the
ultimate disposition of any  appeal can not be  predicted with any  certainty,
the Company believes that  the outcome of  the case will  not have a  material
adverse effect on  the Company's  consolidated financial  position, though  an
adverse  result  could  have  a  material  adverse  effect  on  the  Company's
consolidated results of operations in a given year.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters  were submitted  to a  vote  of security  holders during  the
fourth quarter of 2003.

EXECUTIVE OFFICERS

NAME AND AGE                  PRINCIPAL OCCUPATION
------------                  --------------------

R. Richard Bastian, III, 57   President  and  Chief  Executive  Officer  of  the
                              Company since February 2002 and of the Bank  since
                              May 2001.  Previously, President  of the  Bank  of
                              Kenosha from  January  1999 to  January  2001  and
                              Executive Vice President and Director of the Clean
                              Air Action Corporation from August 1994 to January
                              2000.

Todd J. James, 40             Executive  Vice  President  and  Chief   Financial
                              Officer of the Company and the Bank since February
                              2003. Senior  Vice President  and Chief  Financial
                              Officer  from  February  2002  to  February  2003.
                              Previously   Senior    Vice   President,    Amcore
                              Investment  Group  N.A.   from  October  1999   to
                              February 2002 and Vice President Amcore Financial,
                              Inc. from October 1998 to October 1999.

Todd L. Larson, 44            Senior Vice  President, Business  Banking for  the
                              Bank   since   January   2003.   Previously   Vice
                              President, Business  Banking  for  the  Bank  from
                              November 1999 to January 2003, and Vice  President
                              of Stillman BancCorp, N.A.  from November 1998  to
                              November 1999.

Terri L. Burdick, 40          Senior Vice President, Human Resources of the Bank
                              since  February  2003.    Vice  President,   Human
                              Resources  of  the  Bank  from  October  2001   to
                              February 2003.  Employee Benefits Manager for  The
                              Swiss Colony, Inc. from September 1999 to  October
                              2001. Previously, Corporate  Benefits Manager  for
                              Regal Beloit Corporation.

Peggy G. Holt, 46             Senior Vice President Operations/Technology of the
                              Bank  since   October   2003.   Previously,   Vice
                              President, Quality Control  & Process  Improvement
                              of the Bank from January 2003 until October  2003.
                              Self-employed     Organizational     Effectiveness
                              Consultant from January 2002 until December  2002.
                              Prior  thereto,   Senior  Consultant,   Leadership
                              Development    and    Senior    Vice    President,
                              Organizational    Development    of    Bank    One
                              Corporation.

Victoria A. Damron, 54        Vice President  of Marketing  for the  Bank  since
                              August    2002.     Previously    owner     Damron
                              Communications.

Dale L. Blachford, 49         Senior Vice President-Business Banking of the Bank
                              since  October  2003.  Previously  President   and
                              Director of First Bank, bc.

                                PART II

ITEM 5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

At December 31, 2003 the Company  had approximately 900 holders of its  common
stock.  Of the 2,522,995 shares then outstanding, 1,202,215 are held in street
name by approximately 560  shareholders.  The  remaining 1,320,780 shares  are
issued directly with the Company's transfer agent in book entry or certificate
form and are  held by 336  shareholders of record.    The  Company's stock  is
publicly traded on the  Over the Counter  Market under the  symbol BKHB.   The
following table sets forth the stock  price and dividend information for  each
quarter during  the years  ended December  31,  2003 and  2002.   Stock  price
information represents  high and  low asked  and bid  quotations  and as  such
reflect inter-dealer prices, without  retail mark-up, mark-down or  commission
and may not represent actual transactions.

<TABLE>
                                               For the Quarter Ended
              ---------------------------------------------------------------------------------------

              12/31/03   09/30/03    06/30/03   03/31/03    12/31/02   09/30/02   06/30/02   03/31/02
              --------   --------    --------   --------    --------   --------   --------   --------
<S>              <C>        <C>        <C>         <C>        <C>        <C>         <C>        <C>
Stock Price:
------
High           $12.35     $11.95      $12.00     $10.10      $10.00     $9.75      $10.25     $10.25
Low             11.75      11.25        9.15       9.10        8.25      8.55        9.35       9.10
Dividends        0.09       0.09        0.09       0.09        0.09      0.09        0.09       0.09
</TABLE>

For disclosures required  under the Company's  equity compensation plans,  see
Notes 1 and 11 to the Company's Consolidated Financial Statements  attached as
Exhibit 99.1 of this Form 10-KSB.

The Company does  not have a  formal dividend policy.   The Company  currently
pays a  quarterly dividend.   To  determine the  actual  amount of  dividends,
however, the Board must be mindful of regulatory and contractual limits on the
payment of dividends  by the Bank  and the  Company.  For  example, under  the
agreements relating  to  the  Company's  trust-preferred  securities,  if  the
Company shall have given notice of its election to defer payments  of interest
on the Company's trust  preferred securities or if  an Event of Default  shall
have occurred, the Company shall not, and shall not allow any Affiliate of the
Company to  declare  or pay  any  dividends  or distribution  on,  or  redeem,
purchase, acquire, or make a liquidation  payment with respect to, any of  the
Company's capital stock or its Affiliates' capital stock (other  than payments
of dividends or distributions to the Company).  In addition, the Bank  and the
Company are subject to  regulatory capital requirements.   In connection  with
the DunC acquisition,  the Company further  committed, for a  period of  three
years after the acquisition,  to maintain the Bank's  Tier 1 leverage  capital
ratio at not less than 7%. In addition, the Company made assurances to Federal
Regulators that  if  a  dividend  rate  of  80%  of  the  Banks  earnings  was
insufficient to meet debt service requirements, the Company will fund the debt
service with  additional capital.   The  capital may  come  from, among  other
things, a  reduction  or elimination  of  shareholder dividends  or  from  the
issuance of capital securities.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The purpose  of management's  discussion and  analysis  is to  provide  relevant
information regarding the  Registrant's financial condition  and its results  of
operations.  This discussion focuses on  the significant factors which  affected
the Company's  earnings  in 2003,  with  comparisons  to 2002  and  2001,  where
applicable.

FACTORS INFLUENCING FORWARD-LOOKING STATEMENTS

This report contains  certain forward-looking statements  within the meaning  of
the Private  Securities  Litigation Reform  Act  of  1995 with  respect  to  the
financial  condition,   results  of   operations,  plans,   objectives,   future
performance and  business of  Blackhawk Bancorp,  Inc. Statements  that are  not
historical facts,  including  statements  about beliefs  and  expectations,  are
forward-looking  statements.  These  statements  are  based  upon  beliefs   and
assumptions of Blackhawk's management and on information currently available  to
such management. The use of the words "believe", "expect", "anticipate", "plan",
"estimate", "may", "will" or similar expressions are forward-looking statements.
Forward-looking statements  speak  only  as  of the  date  they  are  made,  and
Blackhawk undertakes no obligation  to update publicly any  of them in light  of
new information or future events.

Contemplated, projected, forecasted or estimated results in such forward-looking
statements involve certain inherent risks and uncertainties. A number of factors
- many of which are beyond  the ability of the Company  to control or predict  -
could cause actual  results to  differ materially  from those  described in  the
forward-looking statements. Factors which could cause  such a variance to  occur
include, but  are not  limited to:  heightened  competition; adverse  state  and
federal regulation; failure to obtain new or retain existing customers;  ability
to attract and retain key executives  and personnel; changes in interest  rates;
unanticipated changes  in  industry  trends;  unanticipated  changes  in  credit
quality and  risk factors,  including general  economic conditions;  success  in
gaining regulatory approvals when required; changes in the Federal Reserve Board
monetary policies; unexpected outcomes of new  and existing litigation in  which
Blackhawk or  its  subsidiaries,  officers, directors  or  employees  are  named
defendants; technological changes;  changes in  accounting principles  generally
accepted in the United  States; changes in  assumptions or conditions  affecting
the application  of critical  accounting policies;  and the  inability of  third
party vendors to perform critical services for the Company or its customers.

                          CRITICAL ACCOUNTING POLICIES

The financial condition and  results of operations  for Blackhawk Bancorp,  Inc.
presented in the  Consolidated Financial Statements,  accompanying notes to  the
Consolidated Financial Statements, selected  financial data appearing  elsewhere
within this report,  and management's discussion  and analysis are,  to a  large
extent, dependent  upon the  Company's accounting  policies. The  selection  and
application of  these  accounting  policies involve  judgements,  estimates  and
uncertainties that are susceptible to change.

Presented below are  discussions of  those accounting  policies that  management
believes are the most important (Critical Accounting Policies) to the  portrayal
and  understanding  of  the  Company's   financial  condition  and  results   of
operations.  These  Critical  Accounting  Policies  require  management's   most
difficult, subjective and complex judgements  about matters that are  inherently
uncertain. In  the  event  that different  assumptions  or  conditions  were  to
prevail, and depending  upon the severity  of such changes,  the possibility  of
materially  different  financial  condition  or  results  of  operations  is   a
reasonable likelihood. See also  Note 1 of the  Notes to Consolidated  Financial
Statements.

LOANS

Loans are  the  Company's  largest income  earning  asset  category.  Loans  are
recorded at the amount advanced to  the borrower plus certain costs incurred  by
the Bank to originate the loan, less certain origination fees that are collected
from the borrower. The carrying amount of loans is reduced as principal payments
are made. Payments made  by the borrower are  allocated between interest  income
and  principal  payment  based  upon  the  outstanding  principal  amount,   the
contractual rate of interest and other contractual terms. The carrying amount is
further adjusted  to  reflect  amortization of  the  origination  costs  net  of
origination fees. These items are amortized over the expected life of the loan.

The accrual of  interest income is  generally discontinued (Non-Accrual  Status)
when management  believes  that  collection  of  principal  and/or  interest  is
doubtful or when payment becomes 90 days  past due.  Payments received from  the
borrower after a loan is placed on Non-Accrual Status are applied to reduce  the
principal balance of the loan until  such time that collectibility of  remaining
principal  and  interest  is  no  longer  doubtful.  Unpaid  interest  that  has
previously been recorded as  income is reversed against  interest income when  a
loan is placed on Non-Accrual Status.  The outstanding loan balance is  written-
off against  the  allowance for  loan  losses when  management  determines  that
probability of collection of principal will  not occur. See also the  discussion
of Allowance for Loan Losses that follows.

Those judgements and assumptions  that are most critical  to the application  of
this accounting policy  are the initial  and on-going  credit-worthiness of  the
borrower, the amount and timing  of future cash flows  of the borrower that  are
available for repayment of  the loan, the  sufficiency of underlying  collateral
and  the  enforceability  of   third-party  guarantees.  These  judgements   and
assumptions are dependent  upon or  can be influenced  by a  variety of  factors
including the  breadth  and depth  of  experience of  lending  officers,  credit
administration and loan review staff that periodically review the status of  the
loan, changing  economic  and  industry conditions,  changes  in  the  financial
condition of  the borrower  and changes  in the  value and  availability of  the
underlying collateral and guarantees.

If different assumptions or conditions were to prevail, the amount and timing of
interest income and  loan losses, due  to the inability  to collect  all of  the
remaining principal balance  that is due  from a borrower,  could be  materially
different. These factors are most pronounced during economic downturns. See also
the discussion of  "Loans" contained in  this Item and  Note 5 of  the Notes  to
Consolidated Financial Statements.

ALLOWANCE FOR LOAN LOSSES

Management periodically  reviews the  loan portfolio  in order  to establish  an
estimated allowance for  loan losses  (Allowance) that  are probable  as of  the
respective reporting  date.  Additions  to the  Allowance  are  charged  against
earnings for the period as a provision for loan losses (Provision). Actual  loan
losses are charged against (reduce) the Allowance when management believes  that
the collection of principal will not  occur. Unpaid interest for loans that  are
placed on Non-Accrual Status is reversed against the interest income  previously
recognized.  Subsequent  recoveries  of   amounts  previously  charged  to   the
Allowance, if any, are credited to (increase) the Allowance.

The Allowance is regularly  reviewed by management to  determine whether or  not
the amount is considered adequate to  absorb probable losses. The Bank's  policy
considers the Allowance to be adequate  within a range of  5% under or 10%  over
management's calculation  of  the  required allowance.  If  not,  an  additional
Provision is made to increase the  Allowance. This evaluation includes  specific
loss  estimates  on  certain  individually  reviewed  loans,  statistical   loss
estimates for loan groups or pools that are based on historical loss  experience
and  general  loss  estimates  that  are  based  upon  the  size,  quality,  and
concentration characteristics of the various loan portfolios, adverse situations
that may affect a borrower's ability to repay, and current economic and industry
conditions.

In addition to the judgements and assumptions noted in the preceding  discussion
of Loans, those most critical to  the application of this accounting policy  are
the frequency and subjectivity  of loan reviews and  risk gradings, emerging  or
changing trends  that  might  not  be fully  captured  in  the  historical  loss
experience, and charges against the Allowance for actual losses that are greater
than previously estimated. While the Company  strives to reflect all known  risk
factors in  its evaluation  of  the adequacy  of  the Allowance,  estimation  or
judgement errors may occur.

If different assumptions or conditions were to prevail, the Allowance may not be
adequate to absorb  the new estimate  of probable losses.  If so, an  additional
Provision may  be necessary  and the  amount  could be  material. See  also  the
discussion of  "Loans"  contained in  this  Item and  Note  5 of  the  Notes  to
Consolidated Financial Statements.

                               RECENT ACQUISITION

On September 30,  2003, the  Company acquired  DunC Corp.  and its  wholly-owned
subsidiary, First Bank,  bc (referred to  together as "DunC")  in a  transaction
accounted for using the purchase method  of accounting.  In accordance with  the
requirements of purchase  accounting, the operations  of the acquired  companies
have been included with the operations of the Company since date of acquisition.
Because of the relative size of the Company and DunC, the acquisition has had  a
significant effect on both the operations and balance sheets of the Company, and
significantly affects comparisons between 2002 and  2003.  In addition, as  part
of that acquisition,  the Company committed  to its regulators  to maintain  the
Bank's Tier 1 leverage capital at not less than 7% for three years, and to raise
capital in the event that the cash flow required to service debt incurred in the
acquisition exceeds 80% of Bank net income.

The following provides certain summary financial information about the financial
condition of DunC and  the assets and liabilities  acquired in the  acquisition,
and DunC's operations, prior to the acquisition to illustrate their impact  upon
the corporation:

Balance Sheet
(Dollars in thousands)          At September 30, 2003
----------------------          ---------------------
Loans......................           $    46,781
Allowance for Loan Losses..                 (889)
Investments................                11,104
Total Assets...............                77,726
Deposits...................                64,237
Borrowings.................                 3,631

Income Statement                  Nine Months Ended          Year Ended
(Dollars in thousands)            September 30, 2003      December 31, 2002
----------------------            ------------------      -----------------

Total Interest Income......             $   3,645          $   4,602
Total Interest Expense.....                   850              1,453
                                        ---------          ---------
Net Interest Income........                 2,795              3,149
Provision for Loan Losses..                   200                628
Non-Interest Income........                 1,819              2,497
Non-Interest Expense.......                 4,701              4,208
                                        ---------          ---------
Net Income (Loss) before Tax                (287)                810


                             RESULTS OF OPERATIONS

OVERVIEW

The Company reported net income of $1.2 million for the year ended December  31,
2003.  This compares to $1.2  million for the year  ended December 31, 2002  and
$0.9 million for the year ended December 31, 2001.  This represents no  increase
when comparing 2003 to 2002, and an increase of $0.3 million when comparing 2002
to 2001.  The Company dedicated substantial resources during the second half  of
2003 to the  successful integration of  the DunC acquisition.   This produced  a
significant drag on short term earnings,  including direct expenses incurred  of
approximately $0.1  million, and  the opportunity  cost of  management and  line
staff time dedicated to the effort.  The integration is substantially  complete.
This  overview  section,  along  with  the  above  information  on  the   recent
acquisition, provides  some of  the highlights  of the  Company's operations  in
2003.  It is only a summary.  We urge you to read the more complete  discussions
and analysis of that information in the balance of "Results of Operations."

Diluted earnings per share  for 2003 were  $0.48 compared to  $0.50 in 2002  and
$0.36 in 2001.   This represents  a decrease of  $0.02 per share  or 4.00%  when
comparing 2003 to 2002, and an increase  of $0.14 per share when comparing  2002
to 2001.  Diluted earnings per share for  2003 reflects a 2.02% increase in  the
weighted average  common  shares outstanding,  resulting  from the  issuance  of
shares for stock options exercised.

SELECTED FINANCIAL RATIOS
-------------------------

                                    2003     2002      2001     2000     1999
                                    ----     ----      ----     ----     ----

Return on average assets             0.33%    0.38%    0.27%   (0.09)%    0.39%
Return on average equity             4.69%    4.92%    3.65%   (1.19)%    4.64%
Average equity to average assets     7.14%    7.79%    7.42%    7.78%     7.43%
Dividend payout ratio               74.90%   72.41%  114.58%     n/m    100.18%
Interest rate spread                 3.04%    3.42%    3.23%    3.01%     3.15%
Net interest margin                  3.30%    3.77%    3.66%    3.48%     3.64%
Net noninterest expense
  to assets                          2.33%    2.56%    2.52%    2.57%     2.54%
Efficiency ratio                    86.60%   81.61%   82.04%   86.23%    81.66%
Allowance for loan losses to
  total loans at end of period       1.41%    1.10%    1.14%    1.79%     1.04%

The Company's return on average equity for  2003 was 4.69% versus 4.92% in  2002
and 3.65% in 2001.  The  Company's return on average  assets for 2003 was  0.33%
compared to 0.38% in 2002 and 0.27% in 2001.

Both  the  Company  and  the  Bank  continue  to  exceed  the  minimum   capital
requirements established by regulators for banks and bank holding companies.  In
addition, the Bank continues to be  "well capitalized" as defined by  regulatory
guidelines.  See Note  17 to the Consolidated  Financial Statements attached  as
Exhibit 99.1 to this Form 10-KSB.

In 2002  the Bank  invested $5.0  million  in Bank  Owned Life  Insurance.  This
redeployment of Bank  assets shifted income  from net interest  income to  other
noninterest income,  and  had the  effect  of increasing  cash  surrender  value
earnings by $0.2  million year  over year with  an offsetting  reduction in  net
interest income.

The 2002 results include the write-off of a $0.3 million receivable related to a
claim against a  former data  processing provider.   In  2000 the  bank filed  a
breach of contract lawsuit to recover $0.5 million that was charged to its check
clearing account in  error.  In  2000, $0.3 million  of the  original claim  was
written off and the remaining amount was written  off in 2002.  On February  14,
2003 a  Waukesha  County, Wisconsin  jury  delivered  a verdict  that  the  data
processor did not breach its contract  with the Bank.   The after tax charge  to
income in 2002 was $0.2 million.  As more  fully discussed under Item 3, Part  I
of this report, Fiserv, Inc. has appealed the denial of the reimbursement  claim
for $0.4 million  in legal  fees. The Company  has not  accrued this  contingent
liability.

During 2002 the  Bank closed  its Beloit  Wal Mart  in-store branch.   The  2002
results include an after tax charge of $40.0 thousand due to the abandonment  of
leasehold improvements.

In 2002  the  Bank changed  its  vacation policy  to  eliminate the  vesting  of
vacation on  December 31  for the  following year.   Instead,  vacation will  be
earned and  used in  the same  calendar year.  This change  resulted in  a  $0.1
million  decrease  in  salary   and  benefits  expense.     The  Bank's   future
profitability is also dependent on the  rapidly rising costs of health care  and
the cost of its group term health insurance which is anticipated to increase 10%
in 2004.

Pursuant to SFAS  No. 142,  an accounting  standard effective  January 1,  2002,
amortization of goodwill,  which resulted from  purchase accounting  adjustments
from previous acquisitions,  was discontinued.   Goodwill amortization for  2001
was $0.2 million or  $0.08 per share.   No transition  or impairment charge  was
required for 2003 or 2002.

NET INTEREST INCOME

Net interest income, which is the sum of interest and certain fees generated  by
earning assets minus interest paid on deposits and other funding sources, is the
primary source of the  Company's earnings.  All  discussions of interest  income
amounts and  rates are  on a  tax-equivalent basis,  which accounts  for  income
earned on loans and securities that are not fully subject to income taxes as  if
they were fully subject to income taxes.

The following rate/volume analysis is  prepared with non-accruing loans  treated
on a cash basis in accordance with the Company's practices as described in  Note
5 to  the  Consolidated  Financial  Statements  attached  to  this  report.  Tax
equivalency is calculated based on an effective combined income tax rate of 34%.

<TABLE>
      Average Balance              Average Rate                                                         Interest Earned or Paid
      ---------------              ------------                                                         -----------------------
  2003     2002       2001     2003    2002     2001   (Dollars in thousands)                           2003      2002      2001
  ----     ----       ----     ----    ----     ----                                                    ----      ----      ----
<S>        <C>        <C>      <C>     <C>      <C>    <C>                                              <C>       <C>       <C>
                                                       Interest Earning Assets:
$ 95,976  $ 71,938  $ 51,536    3.71%    4.86%   5.96%    Taxable investment securities                 $ 3,556   $ 3,497   $ 3,074
  28,971    20,088    17,992    5.96%    6.43%   6.42%    Tax-exempt investment securities (1)<F1>        1,728     1,292     1,155
--------  --------  --------                                                                            -------   -------   -------
 124,947    92,026    69,528    4.23%    5.20%   6.08%          Total investments                         5,284     4,789     4,229
 199,256   196,903   222,176    6.54%    7.44%   8.31%    Loans                                          13,026    14,659    18,465
   3,521     6,635     1,679    1.65%    2.00%   2.92%    Federal funds sold & repurchase agreements         58       133        49
   2,440     2,510     1,889    2.09%    1.83%   3.65%    Interest bearing deposits in banks                 51        46        69
--------  --------  --------                                                                            -------   -------   -------

 330,164   298,074   295,272    5.58%    6.58%   7.73% TOTAL EARNING ASSETS                             $18,419   $19,627   $22,812
                                                                                                        -------   -------   -------

  -2,541    -2,529    -3,065                              Allowance for loan losses
  12,309    10,114    10,017                              Cash & cash equivalents
  21,627    16,780    17,012                              Other assets
--------  --------  --------

$361,559  $322,439  $319,236                           TOTAL ASSETS
--------  --------  --------
--------  --------  --------

                                                       Interest Bearing Liabilities:
$ 39,734  $ 32,736  $ 28,443     .73%    1.04%   2.13%    Interest bearing checking accounts            $   292   $   342   $   607
  59,336    53,672    51,068     .77%    1.13%   2.20%    Savings and money market deposits                 454       604     1,123
 131,575   122,616   128,596    3.15%    4.06%   5.48%    Time deposits                                   4,146     4,980     7,051
--------  --------  --------                                                                            -------   -------   -------
 230,645   209,024   208,107    2.12%    2.84%   4.22%       Total interest bearing deposits              4,892     5,926     8,781
                                                          Company obligated mandatorily redeemable
   7,000       249       -0-    5.24%    5.22%              preferred securities of subsidiary trust        367        13       -0-
  11,889    15,325    11,439     .97%    1.91%   4.04%    Short-term borrowings                             115       292       462
  47,674    40,327    47,157    4.54%    5.34%   5.84%    Long-term borrowings                            2,163     2,152     2,753
--------  --------  --------                                                                            -------   -------   -------

 297,209   264,925   266,703    2.54%    3.16%   4.50% TOTAL INTEREST BEARING LIABILITIES               $ 7,537   $ 8,383   $11,996
                                                                                                        -------   -------   -------

                                3.04%    3.42%   3.23% INTEREST RATE SPREAD

  36,370    30,309    26,315                              Checking accounts
   2,181     2,075     2,531                              Other liabilities
--------  --------  --------
 335,759   297,309   295,549                           TOTAL LIABILITIES
  25,800    25,130    23,687                           Stockholders' equity
--------  --------  --------
                                                       TOTAL LIABILITIES AND
$361,559  $322,439  $319,236                             STOCKHOLDERS' EQUITY
--------  --------  --------
--------  --------  --------

                                3.30%    3.77%   3.66% NET INTEREST MARGIN/INCOME                       $10,882   $11,244   $10,816
                                                                                                        -------   -------   -------
                                                                                                        -------   -------   -------
</TABLE>

<TABLE>
                                                            2003 Compared to 2002                  2002 Compared to 2001
                                                         Increase (Decrease) due to             Increase (Decrease) due to
                                                                 Rate/Volume                            Rate/Volume
                                                         --------------------------             --------------------------
                                                                         Rate/                                  Rate/
                                                    Rate      Volume    Volume      Net      Rate     Volume   Volume      Net
                                                    ----      ------    ------      ---      ----     ------   ------      ---
<S>                                                 <C>        <C>       <C>        <C>      <C>       <C>      <C>        <C>
Interest Earning Assets:
   Taxable investment securities                  ($  832)    $1,169  ($  278)    $   59  ($  569)    $1,217  ($  225)    $  423
   Tax-exempt investment securities (1)<F1>           (94)       571      (41)       436        2        135        0        137
                                                  -------     ------  -------     ------  -------     ------  -------     ------

      Total investments                              (926)     1,740     (319)       495     (567)     1,351     (225)       560

Loans                                              (1,787)       175      (21)    (1,633)  (1,924)    (2,100)     219     (3,806)
   Federal funds sold & repurchase
     agreements                                       (24)       (62)      11        (75)     (15)       145      (45)        84
   Interest bearing deposits in banks                   6         (1)       0          5      (34)        23      (11)       (23)
                                                  -------     ------  -------     ------  -------     ------  -------     ------

   TOTAL EARNING ASSETS                            (2,731)     1,852     (329)    (1,208)  (2,541)      (582)     (63)    (3,185)
                                                  -------     ------  -------     ------  -------     ------  -------     ------

Interest Bearing Liabilities:
   Interest bearing checking accounts                (101)        73      (22)       (50)    (310)        92      (47)      (265)
   Savings and money market deposits                 (194)        64      (20)      (150)    (548)        57      (28)      (519)
   Time deposits                                   (1,116)       364      (82)      (834)  (1,828)      (328)      85     (2,071)
                                                  -------     ------  -------     ------  -------     ------  -------     ------

      Total interest bearing deposits              (1,411)       501     (124)    (1,034)  (2,686)      (179)      10     (2,855)

   Company obligated mandatorily redeemable
      preferred securities of subsidiary trust          0        352        2        354        0          0       13         13
   Short-term borrowings                             (144)       (65)      32       (177)    (244)       157      (83)      (170)
   Long-term borrowings                              (322)       392      (59)        11     (237)      (399)      34       (601)
                                                  -------     ------  -------     ------  -------     ------  -------     ------

TOTAL INTEREST BEARING
LIABILITIES                                        (1,877)     1,180     (149)      (846)  (3,167)      (421)     (25)    (3,613)
                                                  -------     ------  -------     ------  -------     ------  -------     ------

NET INTEREST MARGIN                               ($  854)    $  672  ($  180)   ($  362)  $  626    ($  161) ($   37)    $  428
                                                  -------     ------  -------     ------  -------     ------  -------     ------
                                                  -------     ------  -------     ------  -------     ------  -------     ------
</TABLE>

(1)<F1>   Tax exempt investment securities are presented on a tax-equivalent
          basis.

Net interest income decreased  by $0.4 million, or  3.22%, to $10.9 million  for
2003, compared to  $11.2 million for  the comparable period  in 2002.   The  net
interest margin, which  is the  tax equivalent  net interest  income divided  by
average interest earning assets was  3.30% in 2003, 3.77%  in 2002 and 3.66%  in
2001. The decrease in Net Interest Margin between 2003 and 2002 is primarily due
to the impact of  loan run-off, primarily  in the first  quarter, and asset  re-
pricings experienced  throughout  2003.   In  the  fourth quarter  of  2003  the
downward trend in net interest margin was reversed.  This was partly due to  the
DunC asset and  liability mix. It  also reflects the  implementation of  pricing
strategies aimed at  generating loans and  lowering the Bank's  overall cost  of
funds. As  strategies  are implemented  to  shift  the balance  sheet  mix  from
investments to loans, and to attract more low-cost transaction deposit accounts,
management expects to see  continued improvement in the  net interest margin  in
2004. If economic conditions worsen, and negatively impact loan demand,  further
improvement in the net interest margin may not materialize.  The increase in Net
Interest Margin between 2002 and  2001 is primarily due  to the impact of  lower
market rates paid on deposit accounts  not being fully offset as earning  assets
re-priced more slowly in 2002.

For 2003, total  tax equivalent  interest income  decreased by  $1.2 million  or
6.15%, to $18.4  million compared  to $19.6 million  for 2002.  The decrease  in
interest income is due  to a 100 basis  point decrease in  the yield on  average
earning assets to 5.58% for 2003, compared to 6.58% for the same period in 2002.
The decrease in the yield  on average earning assets  for 2003 compared to  2002
was partially offset by a $32.1  million increase in average earning assets  due
to the  DunC acquisition  and growth.   At  September 30,  2003 DunC  had  $69.3
million of earning assets. The annualized impact of these assets on 2003 average
earning assets was $17.5 million, with the balance of $14.6 million coming  from
growth, primarily  in investment  securities.   For 2002,  total tax  equivalent
interest income decreased by $3.2 million  or 13.96%, to $19.6 million  compared
to $22.8 million for 2001. The decrease in interest income is due to a 115 basis
point decrease  in  the yield  on  average earning  assets  to 6.58%  for  2002,
compared to 7.73% for  the same period in  2001.  The decrease  in the yield  on
average earning assets for 2002 compared to 2001 was partially offset by a  $2.8
million increase in average earning assets.

Interest and fees on loans decreased  11.14% to $13.0 million for 2003  compared
to $14.7 million for  2002.  This decrease  was the result of  a 90 basis  point
decrease in yield on the portfolio offset by a $2.4 million or 1.20% increase in
average loans  outstanding.   The  annualized  impact of  the  DunC  acquisition
increased 2003  average  loans  outstanding  by  $11.5  million.    Without  the
acquisition average loans  would have decreased  by $9.2 million  or 4.62%.  The
decrease in  average  loans outstanding  for  2003 is  largely  attributable  to
continued refinancing  activity  in  the  residential  real  estate  market  and
economic conditions causing lower loan demand in the Company's primary  markets.
The lower  yield on  average  loans reflects  the  overall lower  interest  rate
environment and  continuing competitive  pricing pressure  for quality  credits.
Interest and fees on loans decreased  20.61% to $14.7 million for 2002  compared
to $18.5 million for the same period of 2001.  This decrease was the result of a
$25.3 million or 11.38%  decrease in average loans  outstanding and an 87  basis
point decrease  in  yield  on  the portfolio.  The  decrease  in  average  loans
outstanding for 2002 is largely attributable to the refinancing activity in  the
residential real estate market. The remaining decrease is the result of economic
conditions and lower  loan demand in  the Company's primary  markets. The  lower
overall portfolio yield  on average loans  reflects the  overall lower  interest
rate environment and competitive pricing  pressure for quality credit  customers
and the Federal  Reserve Bank's lowering  of managed rates  by 375 basis  points
during 2001 and another 50 basis points in November 2002.

Interest income on taxable securities increased by $0.1 million or 1.69% in 2003
to $3.6  million  compared to  $3.5  million for  2002  due to  higher  invested
balances in 2003.  Average balances of  taxable investment securities  increased
33.41% to $96.0 million for 2003 compared  to $71.9 million for the same  period
in the prior year. However, the  yield on average taxable investment  securities
decreased 115 basis  points to 3.71%  for 2003 compared  to 4.86%  for 2002  and
reflected lower  reinvestment opportunities  in 2003  due  to the  lower  market
interest rate environment that  existed throughout the year.   It also  reflects
accelerated amortization of purchase premiums on mortgage-backed securities, due
to high  prepayment speeds  experienced in  2003.   Interest income  on  taxable
securities increased by $0.4 million or 13.76% in 2002 to $3.5 million  compared
to $3.1  million for  2001. Average  balances of  taxable investment  securities
increased 39.59% to  $71.9 million for  2002 compared to  $51.5 million for  the
same period in the prior year. However, the yield on average taxable  investment
securities decreased 110 basis  points to 4.86% for  2002 compared to 5.96%  for
2001.

Interest from  fed  funds sold  and  repurchase agreements  decreased  to  $58.0
thousand for  the year  ended December  31, 2003,  compared to  $133.0  thousand
during the same period in 2002. The decrease  in interest on fed funds sold  and
repurchase agreements is primarily due to  lower invested average balances.  The
Company re-invested the proceeds from the liquidation of short-term  investments
into the investment portfolio to achieve  higher yields while still  effectively
managing its liquidity needs and interest rate risk.

Total interest expense decreased by $0.8 million, or 10.09%, to $7.5 million for
2003 compared  to $8.4  million for  the  same period  in  2002.   The  decrease
primarily reflected  lower  market  rates in  2003  offset  by  higher  balances
outstanding. Average interest bearing liabilities increased by $32.3 million  or
12.19% to $297.2 million for 2003 compared to $264.9 million for 2002.  The DunC
acquisition  added  $54.0  million  in  interest  bearing  liabilities  at   the
acquisition date, which was $13.6 million on an annualized basis. Other  average
interest bearing liabilities increased by 7.06% or $18.7 million. Total interest
expense decreased by $3.6 million, or 30.12%, to $8.4 million for 2002  compared
to $12.0 million for the same  period in 2001.   The decrease in total  interest
expense is  the result  of the  aforementioned lower  interest rate  environment
coupled with favorable shifts in the company's funding mix.

Interest paid on deposits decreased by $1.0 million, or 17.45%, to $4.9  million
for 2003 compared to  $5.9 million for the  same period in  2002.  The  decrease
primarily reflected  lower  market  rates in  2003  offset  by  higher  balances
outstanding. Average interest  bearing deposits  increased by  $21.6 million  or
10.34% to $230.6 million for 2003 compared to $209.0 million for 2002.  The DunC
acquisition added $50.3 million in interest bearing deposits as of September 30,
2003, which increased the average balance for the year by $12.7 million.   Other
average interest bearing deposits increased by $8.9 million or 4.27%.  The  Bank
also experienced improvement in its interest bearing deposit mix during 2003  as
time deposits  shifted  into interest  bearing  checking accounts  and  checking
accounts.  While interest paid on deposits decreased $2.9 million, or 32.51%  to
$5.9 million during 2002 compared to $8.8  million for the same period in  2001,
average total interest bearing deposits increased $0.9 million year over   year.
For 2002 the average balance of time deposits decreased $6.0 million, or  4.65%,
to $122.6 million compared to  $128.6 million for the  same period in 2001.  The
decrease in the average  balance of time deposits  was offset with increases  in
the average balances  of checking accounts,  interest-bearing checking  accounts
and  savings  accounts  of  $4.0  million,   $4.3  million  and  $2.6   million,
respectively.  Management believes that deposit growth and the shifts from  time
deposits to  non-maturity deposits  over the  last two  years is  partly due  to
customers holding balances  in transaction accounts,  waiting to re-invest  into
the stock market or  into extended maturity  time deposits when  rates rise.   A
significant increase in  rates and continued  consumer confidence  in the  stock
market may negatively impact the bank's liquidity and cost of funds.

Interest on Company obligated mandatorily  redeemable preferred securities of  a
subsidiary trust  increased by  $0.3 million  and reflected  the fact  that  the
securities were issued in December 2002 and were outstanding for the entire year
in 2003.   The average balance  outstanding was $7.0  million in  2003 and  $0.2
million in 2002.

Interest on short-term borrowings decreased $0.2 million to $0.1 million in 2003
compared to $0.3  million in 2002.   This decrease  is the result  of the  lower
managed interest  rate environment  in 2003  previously discussed  and a  22.42%
decrease in average  balances outstanding.   Interest  on short-term  borrowings
decreased $0.2 million to $0.3 million in 2002 compared to $0.5 million in 2001.
This decrease is the  result of the lower  managed interest rate environment  in
2002 previously discussed which offset the  33.97% increase in average  balances
outstanding.

Interest expense on long-term borrowings increased $11.0 thousand to $2.2
million compared to $2.2 million in 2002.  The increase reflects higher balances
outstanding offset by lower market rates in 2003. The interest paid on the
Company's long-term borrowing is expected to increase in 2004, as a result of
additional borrowing incurred in late 2003 in connection with the DunC
acquisition, even if market interest rates do not otherwise increase.

PROVISIONS FOR LOAN LOSSES

The provision for loan  losses (provision) is an  amount added to the  allowance
for loan losses  (allowance) to provide  for the known  and estimated amount  of
loans that  will  not be  collected.  Actual  loan losses  are  charged  against
(reduce) the allowance when management believes that the collection of principal
will not  occur. Subsequent  recoveries of  amounts  previously charged  to  the
allowance,  if  any,  are  credited  to  (increase)  the  allowance.  Management
determines the appropriate provision based upon a number of criteria,  including
a detailed  evaluation  of  certain credits,  historical  performance,  economic
conditions and overall quality of the loan portfolio.


SUMMARY OF LOAN LOSS EXPERIENCE
-------------------------------

                                                     December 31,
                                         --------------------------------------
(Dollars in thousands)                   2003     2002     2001    2000    1999
                                         ----     ----     ----    ----    ----
Allowance for loan losses, beginning   $2,079   $2,404   $3,894  $1,996  $1,915
Amounts associated with acquisition       889        0        0       0       0
Amounts associated with sale                0        0        0       0      24
Amounts charged-off:
Real estate-mortgage                        1       78    2,445     196      94
Consumer                                  499      542      340     170     314
Commercial and commercial real estate      21      769        0      28       0
                                       ------   ------   ------  ------  ------
Total Charge-offs                         521    1,389    2,785     394     408
                                       ------   ------   ------  ------  ------

                                                     December 31,
                                          --------------------------------------
                                          2003    2002     2001    2000     1999
                                          ----    ----     ----    ----     ----
Recoveries on amounts previously charged-off:
Real estate-mortgage                    $    7  $    2   $   30  $    1   $    5
Consumer                                   132      56       43      31       44
Commercial and commercial real estate       66       2        0       0        0
                                        ------  ------   ------  ------   ------
Total recoveries                           205      60       73      32       49
                                        ------  ------   ------  ------   ------
Net charge-offs                            316   1,329    2,712     362      359
                                        ------  ------   ------  ------   ------
Provision charged to expense               650   1,004    1,222   2,260      464
                                        ------  ------   ------  ------   ------
Allowance for loan losses, ending       $3,302  $2,079   $2,404  $3,894   $1,996
                                        ------  ------   ------  ------   ------
                                        ------  ------   ------  ------   ------

RATIOS
------
Allowance for loan loss
  to period-end loans                    1.41%   1.10%    1.14%   1.76%    1.04%
Net charge-offs to average loans         0.16%   0.67%    1.22%   0.18%    0.20%
Recoveries to charge -offs              39.35%   4.32%    2.62%   8.12%   12.01%
Problem loans to gross loans             1.74%   1.59%    2.04%   1.88%    1.60%

EFFECT ON INTEREST INCOME OF NON-ACCRUAL LOANS
----------------------------------------------
Income recognized                       $  103  $   12   $  177  $   74  $   35
Income that would have been
recognized in accordance with
the original loan terms                    217     156     185      178      73

The provision for loan losses of $0.6 million for 2003 represents a $0.4 million
or 35.26% decrease compared to $1.0 million for 2002.  The decrease reflects the
substantial resources and time  devoted to improved credit  quality in 2002  and
2003 and reflects  the progress in  credit quality especially  during a time  of
economic weakness in the Bank's primary markets.  The provision for loan  losses
of $1.0 million for 2002 represents  a $0.2 million or 17.84% decrease  compared
to $1.2 million for 2001.  In 2002, the provision includes $0.5 million to cover
a loss on  one commercial  relationship that was  also charged  off against  the
allowance in 2002.  The provision of $1.2 million in 2001 includes an  increased
amount based on management's assessment of the portfolio and economic conditions
in the Bank's primary  markets. In 2003,  the Bank had  net charge-offs of  $0.3
million (total charge-offs of $0.5 million less recoveries of $0.2 million).  In
2002, the Bank had  net charge-offs of $1.3  million (total charge-offs of  $1.4
million less recoveries of $0.1 million). In 2001, the Bank had net  charge-offs
of $2.7  million (total  charge-offs of  $2.8 million  less recoveries  of  $0.1
million).  Net charge-offs to  average loans were 0.16%  in 2003, 0.67% in  2002
and 1.22% in 2001. The allowance for loan losses as a percent of loans was 1.41%
at December 31,  2003 compared to  1.10% at December  31, 2002 and  to 1.14%  at
December 31, 2001.  The increase in the  allowance for loan losses as a  percent
of total loans  is partially due  to the $0.9  million allowance transferred  in
with the DunC  acquisition and  increased specific allocations of the  allowance
to identified problem loans.   Net charge-offs are  expected to increase  during
2004 as losses on identified problem loans are charged off.  However, management
does not anticipate any significant increases  in the provision for loan  losses
in 2004, unless economic  conditions in the  Bank's primary markets  deteriorate
further.

                        NONINTEREST INCOME AND EXPENSE
                        ------------------------------

                                 2003              2002               2001
                                 ----              ----               ----
(Dollars in thousands)               % of              % of               % of
                                    Average           Average            Average
                            Amount  Assets    Amount  Assets     Amount  Assets
                            ------  ------    ------  -------    ------  -------

Noninterest expense        $12,141   3.36%   $11,271    3.49%   $10,870   3.41%
Noninterest income           3,726   1.03%     3,006    0.93%     2,826   0.89%
                           -------   -----   -------    -----   -------   -----
Net noninterest expense    $ 8,415   2.33%   $ 8,265    2.56%   $ 8,044   2.52%
                           -------   -----   -------    -----   -------   -----
                           -------   -----   -------    -----   -------   -----

NONINTEREST INCOME

Noninterest income increased 23.95% to $3.7 million in 2003 from $3.0 million in
2002.  Net security gains increased $0.1  million or 46.11% to $0.5 million  for
2003 compared to $0.3 million in 2002.  The increased level of gains reflects  a
restructuring of the Bank's  and Nevahawk's investment  portfolios in the  first
quarter of 2003  based on  available liquidity.  Of securities  that would  have
matured or been called in the next 12 to 18 months, $10.9 million were sold  and
the proceeds were reinvested  in longer term  securities.  The  gain on sale  of
loans increased 41.63 % or $0.2 million and is the result of better margins  and
the higher level  of refinancings that  occurred in 2003  due to interest  rates
being at 45 year historical lows. The ability  of the Bank to realize a  similar
level of gains in 2004 will be dependent on the level of interest rates and  the
amount of home purchases and refinancings occurring in the Bank's primary market
areas during  2004.  In  2003, $37.7  million  of  mortgages were  sold  to  the
secondary market at  an average gain  of 1.70% compared  to an  average gain  of
1.34% on the $33.8  million of mortgage  loans sold to  the secondary market  in
2002. In  2002 the  Bank purchased  $5.0 million  in Bank  Owned Life  Insurance
(BOLI) assets. The BOLI, which insures the lives of key employees, was purchased
to help offset  the cost of  increasing employee benefits.  Thus cash  surrender
value earnings  increased $0.2  million  or 191.12%  to  $0.3 million  for  2003
compared to $0.1  million for 2002.   Other noninterest  income increased by  an
additional $0.2 million in 2003 and reflects the absence of the charges for  the
closure of the  Bank's Beloit  Wal-Mart branch  and the  write down  of an  OREO
property that occurred in 2002 as discussed below.

Noninterest income increased 6.37% to $3.0 million in 2002 from $2.8 million  in
2001.   The majority  of this  increase  was from  net  security gains  as  they
increased $0.2 million  or 143.18%  to $0.3 million  for 2002  compared to  $0.1
million in 2001.  Service charges on deposit accounts increased $0.1 million  or
4.77% to $1.6 million and primarily reflect higher volumes of demand deposits in
2002.  The gain  on sale of loans  decreased $0.1 million and  is the result  of
turn-over in the  company's mortgage banking  management and origination  staff.
In 2002, $33.8  million of mortgages  were sold to  the secondary  market at  an
average gain of 1.34% compared to an average gain of 1.75% on the $32.2  million
of mortgage loans sold to  the secondary market in  2001.  Approximately 75%  of
the loan  volume sold  to  the secondary  market  was from  refinance  activity.
Brokerage and annuity  commissions increased $33.0  thousand or  26.83% to  $0.2
million. The cash value of BOLI increase  was $0.1 million or 181.78% for  2002,
reflecting the BOLI purchase described above.  These increases were offset by  a
$63.0 thousand loss from  abandonment of leasehold  improvements related to  the
closing of  the Bank's  Beloit Wal-Mart  in-store branch  in 2002  and the  $0.1
million write down of an OREO property based on a change in the estimate of  its
net realizable value.

NONINTEREST EXPENSE

Noninterest expense increased 7.72% to $12.1 million in 2003 from $11.3  million
in 2002.  In  accordance  with the  requirements  of  purchase  accounting,  the
expenses of DunC  were included in  2003 noninterest expense  since the date  of
acquisition.  The Company dedicated substantial resources during the second half
of 2003 to  the successful integration  of the DunC  acquisition.  Overall  this
produced a significant drag  on short term  earnings, including direct  expenses
incurred of approximately $0.1 million, and  the opportunity cost of  management
and line staff time dedicated to  the effort.  Professional fees decreased  $0.1
million or 15.04%, primarily due to less legal work on the Fiserv suit mentioned
in Item 3 above.  Other  noninterest expenses increased  $0.2 million or  11.81%
and reflect the costs associated with the DunC operations since October 1, 2003,
higher utilization  of  the Bank's  courier  service in  2003  and  inflationary
increases.  Data processing  services increased 18.72% or  $0.1 million to  $0.9
million for the year ended December  31, 2003 reflecting increased costs due  to
the DunC acquisition. Salaries and employee  benefits increased $0.6 million  or
11.54% to $6.0 million in 2003 and reflect inflationary increases and the  costs
of DunC staff after  the date of acquisition.   Advertising and marketing  costs
increased $0.1 million or 19.20%  for the year ended  December 31, 2003 to  $0.4
million and reflect the cost of communications to former First Bank customers to
ensure a smooth transition to Blackhawk.

Noninterest  expense increased 3.69% to $11.3 million in 2002 from $10.9 million
in 2001,  including  a  $0.3 million  charge  to  write off  the  balance  of  a
receivable related to the Bank's breach of contract claim against a former  data
processor.  Total salary  and benefits increased $0.2  million or 3.72% in  2002
compared to 2001.  Salaries and employee benefits for 2002 were reduced by  $0.1
million as a result  of the Company's  change in vacation  policy.  The  Company
changed its vacation policy to eliminate the vesting of vacation on December  31
for the following year.  Instead  vacation will be earned  and used in the  same
year.  Excluding the favorable impact from the change in vacation policy, salary
and benefits increased 6.51%.  This increase reflects the costs associated  with
attracting  several  key  members  of  the  management  team  that  joined   the
organization in the second half of 2001 and throughout 2002, including the chief
executive officer, chief financial officer and  other officers listed in Part  I
of this filing.

Equipment expense increased $0.1 million or 17.34% to $0.9 million in 2002  from
$0.8 million  in 2001.  The increase  is primarily  due to  higher  depreciation
expense on computer  equipment and systems  in 2002.   Professional fees,  while
down $0.1 million  or 11.16%  compared to 2001  were still  higher than  normal,
primarily due to the Fiserv lawsuit.   Amortization of intangibles decreased  by
$0.2 million as a result of FASB 142 which was adopted by the Company on January
1, 2002  and  eliminated  the amortization  of  goodwill  resulting  from  prior
acquisitions accounted for under the purchase method of accounting.  Goodwill is
subject to an annual impairment test.  No impairment charge was required for the
year.   Other expense  includes  $0.1 million  of  charges to  accrue  severance
payments for  former executives.    In addition,  the  Company realized  a  $0.1
million credit against  other expenses  due to  an adjustment  related to  stale
reconciling items.

Management monitors two ratios  related to other  operating income and  expense:
(1) Net  other operating  expense as  a percentage  of average  assets, and  (2)
Standard efficiency  ratio.   Net  other  operating expense  to  average  assets
decreased to 2.33% in 2003 from  2.56% in 2002 compared to  2.52% in 2001.   The
decrease from 2002 to 2003 reflects management's commitment to control costs  in
2003 to offset pressure on net interest  income. The increase from 2001 to  2002
reflected management's  commitment  to  invest  resources  to  create  long-term
stockholder value, including  the recruitment of  a number of  key managers  and
upgrading desktop computers and operating systems. The standard efficiency ratio
(noninterest  expense divided  by net  interest income  plus  other  noninterest
income) increased to 86.60% in  2003, compared to 81.61%  in 2002 and 82.04%  in
2001.  The increase reflects the lower level of net interest margin realized  in
2003 compared to  2002 which was  only partially offset  by  higher  noninterest
income and control of noninterest expense.

INCOME TAXES

The effective income tax rate for the  Company in 2003 was 1.38%. The  effective
income tax rate was 19.53% in 2002 and  25.32% in 2001. The primary reasons  for
the decline  in  the effective  income  tax rate  from  2002 to  2003  were  the
increased holdings of tax-exempt municipal securities and the Bank's purchase of
$5.0 million of BOLI, on which the earnings are tax exempt.  The primary reasons
for the decline  in the effective  income tax rate  from 2001 to  2002 were  the
increased holdings  of tax-exempt  municipal securities,  the decrease  in  non-
deductible amortization of intangibles and the  Bank's purchase of $5.0  million
of BOLI, in 2002,  on which the earnings  are tax exempt.   Income generated  at
Nevahawk has  not  been  subject  to  state  income  taxes  while  certain  U.S.
government agency  investments qualify  for state  tax  exemption for  the  Bank
within Illinois.

Like  out-of-state  subsidiaries  of  many  Wisconsin  financial   institutions,
Nevahawk (an  out-of-state  subsidiary  of  the Bank)  which holds  and  manages
investment assets,  has  not  been subject  to  Wisconsin  tax.   The  Wisconsin
Department of Revenue  has instituted an  audit program, including  an audit  of
Blackhawk,  specifically   aimed  at  out-of-state  bank  subsidiaries  and  has
indicated that it may withdraw favorable rulings previously issued in connection
with such subsidiaries.  As a result  of these developments, the Department  may
take the position that the income of the out-of-state subsidiaries is taxable in
Wisconsin.  Such  a  determination  will  likely  be  challenged  by   financial
institutions in the state, including the Bank.  If the Department is  successful
in its efforts, it could result in a substantial negative impact on the earnings
of the Company, depending upon the determination made.   As of the date of  this
filing, the  Department  has  not  provided  the  Company  with  information  to
determine the negative impact of the Department's position in the matter.

                             BALANCE SHEET ANALYSIS

OVERVIEW

This overview section, along with "Recent  Acquisition" above, provides some  of
the highlights of changes in the Company's balance sheet in 2003.  It is only  a
summary.  We urge you to read the more complete discussions and analysis of that
information in the balance of "Balance Sheet Analysis."

Total assets as of December 31, 2003 increased $72.8 million or 20.66% to $425.2
million compared  to  $352.4  million  as  of  December  31,  2002.    The  DunC
acquisition added  $77.7 million  in assets  as  of the  acquisition date.    In
addition, December 31  total assets included  short-term year-end deposits  from
one commercial customer of $11.8 million in 2003 and $18.6 million in 2002.   In
addition to these effects,  other total assets increased  2.04% year over  year.
Total average assets for  the year increased $39.1  million or 12.13% to  $361.6
million compared to $322.4 million in 2002.  The annualized impact of the assets
acquired in  the  DunC  acquisition was  $19.6  million;  other  average  assets
increased $19.5 million or 6.05% year over year.

<TABLE>

THREE-YEAR COMPARISON OF AVERAGE BALANCE SHEETS
-----------------------------------------------

                                                                Years Ended December 31,
                                            ----------------------------------------------------------------
                                                   2003                 2002                   2001
                                            -------------------   --------------------   -------------------
                                                     Percent of             Percent of            Percent of
(Dollars in thousands)                      Amount      Total     Amount      Total      Amount      Total
                                            ------   ----------   ------    ----------   ------   ----------
<S>                                          <C>         <C>       <C>         <C>        <C>         <C>
ASSETS:
   Federal funds sold
      and repurchase agreements            $  3,521      0.97%   $  6,635      2.06%    $  1,679      0.53%
   Interest bearing deposits
        in banks                              2,440      0.68%      2,510      0.78%       1,889      0.59%
   Taxable investment
       Securities                            95,976     26.55%     71,938     22.31%      51,537     16.14%
   Tax-exempt investment
       Securities                            28,971      8.01%     20,088      6.23%      17,992      5.64%
   Loans, net of unearned
       Income                               199,256     55.11%    196,903     61.06%     222,176     69.60%
                                           --------    -------   --------    -------    --------    -------
     Total earning assets                   330,164     91.32%    298,074     92.44%     295,273     92.50%
                                           --------    -------   --------    -------    --------    -------
   Cash and due from banks                   12,309      3.40%     10,114      3.14%      10,016      3.14%
   Office buildings and equipment             7,539      2.09%      6,659      2.07%       6,838      2.14%
   Other non-earning assets                  11,548      3.19%      7,592      2.35%       7,108      2.22%
                                           --------    -------   --------    -------    --------    -------
     Total non-earning assets                31,396      8.68%     24,365      7.56%      23,962      7.50%
                                           --------    -------   --------    -------    --------    -------
TOTAL ASSETS                               $361,559    100.00%   $322,439    100.00%    $319,235    100.00%
                                           --------    -------   --------    -------    --------    -------
                                           --------    -------   --------    -------    --------    -------
</TABLE>

<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY/CAPITAL
--------------------------------------------
LIABILITIES:                                                   Years Ended December 31,
                                            ------------------------------------------------------------------
                                                  2003                  2002                   2001
                                            -------------------   --------------------   ---------------------

                                                     Percent of             Percent of              Percent of
                                            Amount     Total      Amount      Total      Amount       Total
                                            ------   ----------   ------    ----------   ------     ----------
<S>                                          <C>        <C>        <C>         <C>        <C>          <C>

   Interest bearing checking accounts      $ 39,734     10.99%   $ 32,736     10.15%    $ 28,443       8.91%
   Savings deposits                          59,336     16.41%     53,672     16.65%      51,068      16.00%
   Time deposits                            131,575     36.39%    122,616     38.03%     128,596      40.28%
                                           --------    -------   --------    -------    --------     -------
    Total interest bearing deposits         230,645     63.79%    209,024     64.83%     208,107      65.19%

   Company obligated mandatorily
     redeemable preferred securities
     of subsidiary trust                      7,000      1.94%        249      0.08%         -0-       0.00%
   Short-term borrowings                     11,889      3.29%     15,325      4.75%      11,439       3.58%
   Long-term borrowings                      47,674     13.18%     40,327     12.51%      47,157      14.78%
                                           --------    -------   --------    -------    --------     -------
    Total interest-bearing liabilities      297,209     82.20%    264,925     82.17%     266,703      83.55%

   Checking accounts                         36,370     10.06%     30,309      9.40%      26,315       8.24%
   Other liabilities                          2,181      0.60%      2,075      0.64%       2,530       0.79%
                                           --------    -------   --------    -------    --------     -------
    Total liabilities                       335,759     92.86%    297,309     92.21%     295,548      92.58%

  Stockholders' Equity/Capital               25,800      7.14%     25,130      7.79%      23,687       7.42%
                                           --------    -------   --------    -------    --------     -------
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY/CAPITAL                             $361,559    100.00%   $322,439    100.00%    $319,235     100.00%
                                           --------    -------   --------    -------    --------     -------
                                           --------    -------   --------    -------    --------     -------
</TABLE>

SECURITIES

INVESTMENT SECURITIES
---------------------
                                                         December 31,
                                                 ------------------------------
(Dollars in thousands)                             2003       2002       2001
                                                 --------   --------   --------
Available-for-Sale:
US Treasury                                      $      0   $      0   $      0
US Government Agency                               32,737     36,766     37,459
Tax-exempt obligations                             16,904      3,951        233
Other securities                                   68,466     43,180      4,903
                                                 --------   --------   --------
Total market value of available
for sale securities                               118,107     83,897     42,595
                                                 --------   --------   --------

Held-to-Maturity:
US Treasury                                             0          0          0
US Government Agency                                1,591      3,305      4,768
Tax-exempt obligations                             16,015     19,697     18,967
                                                 --------   --------   --------
Total book value of
held-to-maturity securities                        17,606     23,002     23,735
                                                 --------   --------   --------

Total market value of
held-to-maturity securities                        18,437     24,016     24,172
                                                 --------   --------   --------
Total amortized cost of securities               $134,637   $104,843   $ 65,104
                                                 --------   --------   --------

<TABLE>
MATURITY OF INVESTMENT SECURITIES
---------------------------------
                                                     After One but
                                  Within              Within Five          After Five but
                                 One Year                Years            Within Ten Years       After Ten Years
                            ------------------     -----------------      -----------------     -----------------
(Dollars in thousands)      Amount       Yield     Amount      Yield      Amount      Yield     Amount      Yield
                            ------       -----     ------      -----      ------      -----     ------      -----
<S>                          <C>          <C>       <C>         <C>        <C>         <C>       <C>         <C>
Available-for-Sale:
US Government Agency        $3,032       5.23%    $24,116      4.39%     $ 5,589      4.66%     $    0      0.00%
Tax-exempt obligations         226       2.69%      2,777      2.96%       8,747      3.48%      5,154      3.90%
Other securities             3,034       6.39%      5,549      4.16%      57,471      4.40%      2,412      1.67%
                            ------       -----    -------      -----     -------      -----     ------      -----

Total                        6,292       5.70%     32,442      4.23%      71,807      4.31%      7,566      3.19%
                            ------       -----    -------      -----     -------      -----     ------      -----

Held-to-Maturity:
US Government Agency             0       0.00%          0      0.00%           0      0.00%          0      0.00%
Tax-exempt obligations       2,783       4.18%     11,865      4.30%       1,367      4.01%          0      0.00%
Other securities                 0       0.00%        264      5.66%       1,232      5.61%         95      6.42%
                            ------       -----    -------      -----     -------      -----     ------      -----

Total                        2,783       4.18%     12,129      4.33%       2,599      4.77%         95      6.42%
                            ------       -----    -------      -----     -------      -----     ------      -----

Grand Total                 $9,075       5.23%    $44,571      4.26%     $74,406      4.32%     $7,661      3.23%
                            ------       -----    -------      -----     -------      -----     ------      -----
                            ------       -----    -------      -----     -------      -----     ------      -----
</TABLE>

Available-for-sale and held-to-maturity securities  increased $28.8 million,  to
$135.7 million, as of December 31, 2003  from $106.9 million as of December  31,
2002.   The  increase  includes  $11.1  million  in  securities  from  the  DunC
acquisition. The remainder of the increase was due to re-investment of  proceeds
from loan  run-off and  investment of  additional borrowings  in investments  to
fully utilize the Bank's capital.

FEDERAL HOME LOAN BANK OF CHICAGO STOCK

The Bank's  investment  in  stock of  the  Federal  Home Loan  Bank  of  Chicago
increased from $4.5 million at December 31, 2002 to $5.3 million at December 31,
2003. The increase is due to the acquisition of $0.5 million in additional stock
in the DunC acquisition and stock dividends received.

LOANS

<TABLE>

ANALYSIS OF LOAN PORTFOLIO
--------------------------
                                                 2003                  2002                   2001
                                          ------------------     -----------------      -----------------
(Dollars in thousands)                                 % of                  % of                   % of
                                          Amount       Total     Amount      Total      Amount      Total
                                          ------       -----     ------      -----      ------      -----
<S>                                        <C>          <C>       <C>         <C>        <C>         <C>
Real estate-mortgage                     $ 58,443      25.39%   $ 50,355     27.03%    $ 65,093     31.13%
Real estate-construction                   15,310       6.65%      8,916      4.79%       9,806      4.69%
Real estate-held-for-sale                   1,026        .44%      2,315      1.24%       2,752      1.31%
Consumer                                   41,301      17.95%     34,668     18.61%      40,483     19.36%
Commercial and commercial real estate     117,364      51.00%     92,125     49.45%      93,405     44.66%
                                         --------     -------   --------    -------    --------    -------

Gross loans                               233,444     101.43%    188,379    101.12%     211,539    101.15%

Allowance for loan loss                    (3,302)     -1.43%     (2,079)    -1.12%      (2,404)    -1.15%
                                         --------     -------   --------    -------    --------    -------

Net loans                                $230,142     100.00%   $186,300    100.00%    $209,135    100.00%
                                         --------     -------   --------    -------    --------    -------
                                         --------     -------   --------    -------    --------    -------
</TABLE>

Net loans increased  23.53% or $43.8  million during 2003  to $230.1 million  at
December 31,  2003 from  $186.3 million  at December  31, 2002.  DunC had  $45.9
million of net loans at the  acquisition date. The increase occurred across  all
categories of loans. Excluding the DunC loans  the net decrease in net loans  of
$2.1 million reflects  weak loan  demand during  2003 in  the Company's  primary
market area and the volume of real estate loans refinanced off the balance sheet
and into the  secondary market.  To mitigate the  impact of  prepayments in  the
mortgage loan portfolio, the Bank held $29.8 million of new origination 10 to 15
year fixed  rate  mortgages and  adjustable  rate mortgages  in  the  portfolio.
Although economic news has been mixed, management has seen some increase in loan
demand in the fourth quarter of  2003 and into the first  quarter of 2004.   The
Bank is implementing strategies to be more competitive on high quality  business
and consumer credits and  expects this strategy, along  with improved demand  in
its primary markets, to reverse the trend of declining loan balances.

ASSET QUALITY AND NON-PERFORMING LOANS

<TABLE>
NON-PERFORMING LOANS AT PERIOD END
----------------------------------
                                                 2003      2002      2001      2000      1999
                                                 ----      ----      ----      ----      ----
<S>                                              <C>       <C>       <C>       <C>       <C>
Impaired loans-still accruing                   $  923    $  418    $1,147    $2,063    $1,984
Impaired loans-non-accrual                       2,058         0         0         0         0
Other non-accrual                                1,030     2,560     2,808     1,819       565
Past due 90 days or more and still accruing         42        26       356       280       529
                                                ------    ------    ------    ------    ------
   Total impaired loans                         $4,053    $3,004    $4,311    $4,162    $3,078
                                                ------    ------    ------    ------    ------
                                                ------    ------    ------    ------    ------
</TABLE>

As of December 31, 2003, total  non-performing loans were $4.1 million or  1.74%
of gross loans compared to $3.0 million or 1.59% of gross loans at December  31,
2002.  Non-performing loans include loans  that are determined by management  to
be impaired because full collection of interest and principal is doubtful,  have
been placed in non-accrual status, and accruing loans which are past-due  ninety
days or more as to  interest and/or principal payments.   The increase in  total
non-performing loans  at  December  31,  2003 compared  to  a  year  earlier  is
primarily due  to $0.9  million of  non-performing loans,  obtained in the  DunC
acquisition, most of which are secured by commercial real estate.

The Bank uses an internal asset classification system as a means of  identifying
and  reporting  problem  and  potential  problem  loans.    All  commercial  and
commercial  real estate loans are graded on a scale  of 1 to 7, with 1 being the
best  credit  grade.  Loans  graded  5,  6  or  7  are  classified  as  "watch",
"substandard"  and   "doubtful",  respectively.   An  asset   is  classified  as
substandard if  it is inadequately protected by the current net worth and paying
capacity of the obligor, or the  collateral pledged, if any.  Substandard assets
include those  characterized by the distinct  possibility that the  Company will
sustain  some loss if  the deficiencies are not corrected.  Assets classified as
doubtful have all of the weaknesses inherent  in those classified as substandard
with the added  characteristic that the  weaknesses present  make collection  or
liquidation  in full, on  the basis of currently  existing facts, conditions and
values,  highly  questionable  and  improbable.  Once  an  asset  is  considered
uncollectible and viewed as non-bankable it is charged off as a loss against the
allowance account. Assets that do not currently expose the Company to sufficient
risk   to  warrant  classification  as  substandard  or  doubtful,  but  possess
weaknesses that may or may not be within the control of the customer, are deemed
to be watch loans.  The classified loans are reviewed monthly by  the directors'
loan  committee, which  must  approve  all  additions  and  deletions  from  the
classified list.

In 2003, the Bank  implemented changes in how  it categorizes and allocates  its
allowance for loan losses to non-performing loans.  In years prior to 2003,  the
bank  applied  estimated  loss  percentages   to  loans  classified  as   watch,
substandard and doubtful, with  deviations from the percentage  when a loss  was
eminent.  In  2003, the  bank updated  its loan  policy to  include an  internal
process that more effectively categorizes non-performing loans and allocates the
allowance for loan losses.   The changes in  this internal process and  improved
categorization of non-performing loans accounts for the shifts in the categories
of non-performing loans in the table above.   Under the policy adopted in  2003,
all commercial and commercial real estate loans classified as watch, substandard
and doubtful are evaluated  for impairment quarterly.   Specific allocations  of
the allowance are made based  upon this evaluation.   For other segments of  the
portfolio  and  commercial  and  commercial  real  estate  loans  that  are  not
considered impaired, an estimate of existing probable losses is determined based
on a three  year historical  loss ratio  for each  major segment.   The  amounts
determined using the historical loss factors are then adjusted after considering
the impact  of certain  qualitative factors,  including:  levels and  trends  of
delinquent and  non-accrual  loans;  trends in  volume  and  terms;  changes  in
underwriting standards;  experience and  depth of  lending staff;  national  and
local economic  trends  and  conditions;  and  industry  concentrations  in  the
portfolio. For  additional discussion  of the  Bank's non-performing  loans  see
Note 5 to the Consolidated  Financial  Statements  attached  to  this filing  as
Exhibit 99.1.

<TABLE>
                        ALLOCATION OF ALLOWANCE FOR LOAN LOSS BY CATEGORY

                                                   2003                       2002                     2001
                                           -----------------------     ----------------------    ---------------------
                                                       Percent of                 Percent of               Percent of
                                                       Gross Loans                Gross Loans              Gross Loans
(Dollars in thousands)                     Amount      By Category     Amount     By Category    Amount    By Category
                                           ------      -----------     ------     -----------    ------    -----------
<S>                                         <C>            <C>          <C>           <C>         <C>          <C>
Real estate-mortgage                       $  154          4.66%       $  212        10.20%      $  174        7.24%
Real estate-construction                        0          0.00%            0         0.00%           0        0.00%
Consumer                                      445         13.48%          176         8.46%         300       12.48%
Commercial and commercial real estate       2,796         84.68%        1,632        78.50%       1,765       73.42%
Unallocated                                   (93)        (2.82%)          59         2.84%         165        6.86%
                                           ------        -------       ------       -------      ------      -------
Total                                      $3,302        100.00%       $2,079       100.00%      $2,404      100.00%
                                           ------        -------       ------       -------      ------      -------
                                           ------        -------       ------       -------      ------      -------
</TABLE>

The allowance  for loan  losses was  $3.3 million  or 1.41%  of total  loans  at
December 31, 2003 compared to $2.1 million  or 1.10% of total loans at  December
31, 2002.   At December 31,  2003 the allowance  for loan losses  to total  non-
performing loans equaled 81.47% compared to 69.21% at December 31, 2002.

The unallocated  portion  of  the  reserve  represents  the  difference  between
management's calculation of  the required allowance,  based on  the Bank's  loan
policy, and the actual allowance at year end.  The Bank's loan policy, which was
adopted in 2003, considers the allowance for loan losses to be adequate within a
range of  5%  under  and  10% over  management's  calculation  of  the  required
allowance.   The unallocated  portion  of the  allowance  at December  31,  2003
represents a 2.74% shortfall from the calculated allowance, which is within  the
policy limit.  In addition, the Bank's historical loss ratio for commercial  and
commercial real estate loans includes a $1.9 million charge-off that occurred in
the second quarter of 2001.  After June 30,  2004 this charge-off will no longer
be included  in the  calculation of  the three  year historical loss factor, and
will reduce the  required reserve amount  by approximately  $0.9  million.  This
upcoming  change  in  the  historical  loss  factor  was  one  consideration  in
determining  that the  allowance  was  adequate at  2.74% below  the  calculated
amount.

The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the  collectability of the  principal is unlikely.  The
allowance for loan losses is adequate  to cover probable credit losses  relating
to specifically identified loans, as well as probable credit losses inherent  in
the balance of the  loan portfolio.   In accordance with  FASB Statements 5  and
114, the allowance  is provided for  losses that have  been incurred  as of  the
balance sheet date.  The allowance is based on past events and current  economic
conditions, and does  not include  the effects  of expected  losses on  specific
loans or groups of loans that are  related to future events or expected  changes
in economic conditions. Management  reviews a calculation  of the allowance  for
loan losses on a  quarterly basis.  While  management uses the best  information
available to make  its evaluation, future  adjustments to the  allowance may  be
necessary if there are significant changes in economic conditions.

In addition, various regulatory agencies  periodically review the allowance  for
loan losses.   These agencies  may require  the bank  to make  additions to  the
allowance for loan losses  based on their judgments  of collectibility based  on
information available to them  at the time of  their examination. The policy  of
the Company is to place a loan on non-accrual status if: (a) payment in full  of
interest and principal is not expected, or (b) principal or interest has been in
default for a period of 90  days or more, unless the  obligation is both in  the
process of collection and  well secured. Well secured  is defined as  collateral
with sufficient market value to repay principal and all accrued interest. A debt
is in the process of collection if collection  of the debt is proceeding in  due
course either through legal action, including judgement enforcement  procedures,
or in appropriate circumstances, through collection efforts not involving  legal
action which are reasonably expected  to result in repayment  of the debt or  in
its restoration to current status.

GOODWILL

The DunC acquisition  increased Goodwill by  $1.6 million from  $3.8 million  at
December 31, 2002 to $5.4 million at December 31, 2003.  Goodwill, the excess of
cost over  fair value  of net  assets  acquired in  acquisitions, is  not  being
amortized in accordance with the provisions of Statement of Financial Accounting
Standards No.  142.    Goodwill  is evaluated  annually  for  impairment.    Any
impairment in  goodwill would  be recognized  against income  in the  period  of
impairment  and  could  have  a  material   adverse  effect  on  the   Company's
consolidated results of operations in a given year.

DEPOSITS

Total deposits at December  31, 2003 were $323.6  million as compared to  $263.1
million at  December  31, 2002.    In the  DunC  acquisition, $64.2  million  in
deposits were assumed. Also,  we received short-term  deposits of $11.8  million
and $18.6 million made on the final business day of 2003 and 2002, respectively.
Beyond those factors, other deposits increased $3.1 million, or 1.27%.  The Bank
continued to see a favorable shift in the mix of its deposits in 2003.   Average
interest bearing  checking  accounts for  2003  were 10.99%  of  average  assets
compared to  10.15%  in 2002  and  average demand  deposit  accounts, which  are
noninterest bearing, were 10.06% of average assets in 2003 compared to 9.40%  in
2002. Time  deposits as  a percent  of  average assets  decreased to  36.39%  of
average assets in 2003 from 38.03% in 2002.

COMPOSITION OF DEPOSITS AND INTEREST RATES PAID
-----------------------------------------------

<TABLE>
                                                                       Years Ended December 31,
                                    ------------------------------------------------------------------------------------------------
                                                  2003                              2002                              2001
                                    -------------------------------  ------------------------------   ------------------------------
                                    Average   Percent of   Average   Average   Percent of   Average   Average   Percent of   Average
(Dollars in thousands)              Balance     Total       Rate     Balance      Total      Rate     Balance      Total      Rate
                                    -------   ----------   -------   -------   ----------   -------   -------   ----------   -------
<S>                                   <C>       <C>         <C>        <C>        <C>        <C>        <C>        <C>        <C>
Noninterest bearing demand
   deposits                         $ 36,370     13.62%        --    $ 30,309     12.66%        --    $ 26,315     11.23%        --
Interest bearing demand deposits      39,734     14.88%     0.73%      32,736     13.68%     1.04%      28,443     12.13%     2.13%
Savings deposits                      59,336     22.22%     0.77%      53,672     22.43%     1.13%      51,068     21.78%     2.20%
Time deposits                        131,575     49.28%     3.15%     122,616     51.23%     4.06%     128,596     54.86%     5.48%
                                    --------    -------     -----    --------    -------     -----    --------    -------     -----

Total                               $267,015    100.00%     2.12%    $239,333    100.00%     2.84%    $234,422    100.00%     4.22%
                                    --------    -------     -----    --------    -------     -----    --------    -------     -----
                                    --------    -------     -----    --------    -------     -----    --------    -------     -----
</TABLE>

SHORT-TERM BORROWINGS

SHORT-TERM BORROWINGS

(Dollars in thousands)
Balance outstanding December 31,                    2003       2002       2001
                                                  -------    -------    -------
Repurchase agreements                             $ 9,486    $13,399    $ 5,037
Fed funds purchased                                     0          0          0
FHLB Open line of credit                                0          0          0
Line of Credit                                          0         55      1,050
                                                  -------    -------    -------
Total Short-Term Borrowings                       $ 9,486    $13,454    $ 6,087
                                                  -------    -------    -------
                                                  -------    -------    -------

Weighted rate December 31,
Repurchase agreements                               0.61%      0.95%      1.25%
Fed funds purchased                                    --         --         --
FHLB Open line of credit                               --         --         --
Line of Credit                                         --      3.38%      3.93%
                                                  -------    -------    -------
Total Short-Term Borrowings                         0.61%      0.96%      1.71%
                                                  -------    -------    -------
                                                  -------    -------    -------

(Dollars in thousands)                              2003       2002       2001
                                                  -------    -------    -------
Maximum month-end outstanding balance
Repurchase agreements                             $14,324    $18,131    $12,599
Fed funds purchased                                16,347      6,395      6,865
FHLB Open line of credit                                0          0          0
Line of Credit                                         55      6,056      1,050

(Dollars in thousands)                               2003       2002       2001
                                                  -------    -------    -------
Year-to-date average amount outstanding
Repurchase agreements                             $10,008    $11,924    $ 8,071
Fed funds purchased                                 1,843        921      1,004
FHLB Open line of credit                              -0-        -0-        697
Line of Credit                                         38      2,480      1,010
                                                  -------    -------    -------
Total Short-Term Borrowings                       $11,889    $15,325    $10,782
                                                  -------    -------    -------
                                                  -------    -------    -------

Year-to-date average weighted rate                  2003       2002       2001
                                                  -------    -------    -------
Repurchase agreements                               0.89%      1.49%      3.92%
Fed funds purchased                                 1.40%      1.93%      5.14%
FHLB Open line of credit                            0.00%      0.00%      6.43%
Line of Credit                                      3.34%      3.86%      4.94%
                                                  -------    -------    -------
Total Short-Term Borrowings                         0.97%      1.90%      4.29%
                                                  -------    -------    -------
                                                  -------    -------    -------

Total short-term borrowings  as of December 31,  2003 decreased $4.0 million  or
29.49% to $9.5 million  compared to $13.5  million at December  31, 2002.   This
decrease is  due  to a  decrease  in  repurchase agreements  with  business  and
governmental organizations.  The Bank's  customers use repurchase agreements  to
invest excess liquidity on a daily basis.  In addition, the Company paid off its
$0.1 million line of credit in September 2003.

LONG-TERM BORROWINGS

Long-term borrowings increased $17.0  million to $55.9  million at December  31,
2003 compared to $38.9 million at December 31, 2002.  The Company borrowed  $7.5
million under a term loan in September 2003 to finance the DunC acquisition. The
term loan  provides  for quarterly  principal  payments over  a  12-year  period
commencing July 15, 2004.   The Company  has the option  to select from  various
interest rates, currently 3.17% (200 BP over 3 month LIBOR adjusted  quarterly).
Among others, certain covenants placed upon  the Company include limitations  on
further mergers without the consent of the lender, a requirement to maintain the
Bank's  total  risk-based  capital ratio  of  at  least 11%,  a  requirement  to
maintain a ratio of the Bank's  non-performing assets plus other real estate  to
total loans plus other real estate at or below 2.25% and to maintain the  Bank's
ratio of allowance for loan losses to non-performing loans at or above 1%.

The Company assumed $3.6 million of long-term borrowings in connection with  the
DunC acquisition.

The Bank's primary source for long-term borrowings has been, and is expected  to
continue to be, the Federal Home  Loan Bank of Chicago  ("FHLB").  In 2003,  the
Bank paid off  $2.1 million  in FHLB advances  and borrowed  an additional  $8.0
million from the FHLB; at year end, borrowings from the FHLB were $48.4 million.

COMPANY OBLIGATED  MANDATORILY  REDEEMABLE PREFERRED  SECURITIES  OF  SUBSIDIARY
TRUST HOLDING SOLELY SUBORDINATED DEBENTURES

In December of 2002 the Company capitalized Blackhawk Statutory Trust I for  the
purpose of issuing  $7.0 million  in trust  preferred capital  securities.   The
Company capitalized  the trust  and then  issued  $7.2 million  of  subordinated
debentures to the trust, which in turn issued $7.0 million of capital securities
to an outside investor.  Management believes that this is an advantageous method
of funding the Company's growth strategies.  The subordinated debentures do  not
contain  restrictions   or  covenants   typically   found  in   bank   financing
arrangements.   Also, while  it  qualifies for  regulatory  purposes as  tier  1
capital, with  certain limitations,  it does  not dilute  the ownership  of  the
existing  stockholders.  See  Note 10 to  the Consolidated Financial  Statements
for further  discussion of  Company Obligated  Mandatorily Redeemable  Preferred
Securities of Subsidiary Trust Holding Solely Subordinated Debentures.

As   more  fully  discussed  in  Notes  1 and  10  of  the   December  31,  2003
Consolidated Financial Statements  the Company will  adopt Financial  Accounting
Standards  Board  Interpretation  (FIN)  No.  46   ,  in  connection  with   its
consolidated financial statements  for the quarter  ended March  31, 2004.   The
implementation of  FIN  46  will  require  the  Company  to  de-consolidate  its
investment in Blackhawk Statutory Trust I  (the "Trust") because the Company  is
not the primary  beneficiary. There will  be no impact  on stockholders  equity,
income from continuing operations or net  income upon adoption of the  standard.

The trust preferred securities issued by the Trust are currently included in the
Tier 1 capital of the Company for regulatory capital purposes.  However, because
the financial  statements  of  the Trust  will  no  longer be  included  in  the
Company's consolidated financial  statements, the Federal  Reserve Board may  in
the future  disallow inclusion  of  the trust  preferred  securities in  Tier  1
capital for  regulatory capital  purposes.  In  July 2003,  the Federal  Reserve
Board issued a supervisory letter instructing bank holding companies to continue
to include the trust preferred securities in their Tier 1 capital for regulatory
capital purposes until  notice is given  to the contrary.   The Federal  Reserve
Board intends to review the regulatory implications of the change in  accounting
treatment of subsidiary  trusts that issue  trust preferred  securities and,  if
necessary or warranted, provide further appropriate  guidance.  There can be  no
assurance that the Federal Reserve Board will continue to permit institutions to
include trust  preferred securities  in Tier  1 capital  for regulatory  capital
purposes. As of  December 31, 2003,  assuming the Company  was not permitted  to
include the $7 million in trust preferred securities issued by the Trust in  its
Tier 1 capital, the Company would still exceed the regulatory required  minimums
for capital adequacy purposes.

ASSET/LIABILITY MANAGEMENT

<TABLE>
INTEREST RATE RISK ANALYSIS
---------------------------
                                                            Two-      Four-     Seven-     Ten-      Over
December 31, 2003                                   One     three      six       nine     twelve     One
(Dollars in thousands)                             Month    months    months    months    months     year      Total
                                                   -----    ------    ------    ------    ------     ----      -----
<S>                                                 <C>      <C>       <C>       <C>       <C>       <C>        <C>

Federal funds sold and short-term investments     $ 6,120   $     0   $     0   $     0   $     0  $      0   $ 6,120
Interest bearing deposits                             960       198       298       293         0     1,092     2,841
Taxable investment securities                       6,808     3,022     4,012     4,802     2,537    81,613   102,794
Tax-exempt investment securities                      100       970       597       329     1,270    29,652    32,918
Federal Home Loan Bank of Chicago stock                 0     5,327         0         0         0         0     5,327
Loans                                              62,801     4,498     8,400    10,131     6,343   141,271   233,444
                                                  -------   -------   -------   -------   -------  --------  --------
Total interest-earning assets                     $76,789   $14,015   $13,307   $15,555   $10,150  $253,628  $383,444
                                                  -------   -------   -------   -------   -------  --------  --------
                                                  -------   -------   -------   -------   -------  --------  --------
</TABLE>

<TABLE>
MATURITY AND INTEREST SENSITIVITY OF LOANS
------------------------------------------
December 31, 2003
                                                                                           Greater Than
(Dollars in thousands)                     Time Remaining to Maturity                        One Year
                                ------------------------------------------------       ----------------------
                                             After One                                  Fixed        Floating
                                Due Within   But Within   After Five                   Interest      Interest
                                 One Year    Five Years      Years         Total         Rate          Rate
                                ----------   ----------   ----------       -----       --------      --------
<S>                                <C>          <C>           <C>           <C>          <C>           <C>

Real estate-mortgage              $   701     $  5,067      $52,585      $ 58,443      $ 25,692      $31,960
Real estate-construction            8,307        6,933        7,093        15,310           -0-        7,003
Real estate-held for sale           1,026          -0-          -0-         1,026           -0-          -0-
Consumer                            6,394       32,415        1,961        40,770        22,238       12,138
Commercial and commercial
real estate                        45,353       67,061        5,481       117,895        62,955        9,587
                                  -------     --------      -------      --------      --------      -------
Gross Loans                       $61,871     $111,476      $60,097      $233,444      $110,884      $60,689
                                  -------     --------      -------      --------      --------      -------
                                  -------     --------      -------      --------      --------      -------
</TABLE>

<TABLE>
INTEREST RATE RISK ANALYSIS
---------------------------
                                                Time Remaining to Maturity
                                 ----------------------------------------------------------
December 31, 2003                Due Within    Four to     Seven to      After
(Dollars in thousands)            3 months    6 months     12 months    12 months     Total
                                 ----------   --------     ---------    ---------     -----
<S>                                 <C>          <C>          <C>          <C>         <C>
Certificates of Deposit
   Less than $100,000              $17,766     $14,518      $22,159      $46,645     $101,088
   More than $100,000                5,231      11,331       10,476       14,021       41,059
                                   -------     -------      -------      -------     --------
Total                              $22,997     $25,849      $32,635      $60,666     $142,147
                                   -------     -------      -------      -------     --------
                                   -------     -------      -------      -------     --------
</TABLE>

Asset/liability management is the process of identifying, measuring and managing
the risk to the Company's earnings  and capital resulting from the movements  in
interest rates.  It is the  Company's objective to protect earnings and  capital
while achieving liquidity, profitability and strategic goals.

The Company focuses its measure of interest rate  risk on the effect a shift  in
interest rates would have on earnings rather than on the amount of assets and/or
liabilities subject to re-pricing in a given time period.  Since not all  assets
or liabilities move at the same rate and at the same time, a determination  must
be made  as  to  how each  interest  earning  asset and  each  interest  bearing
liability adjusts with  each change  in the base  rate.   The Company  develops,
evaluates and  amends its  assumptions  on an  ongoing  basis and  analyzes  its
earnings exposure quarterly.

In addition  to  the effect  on  earnings, a  quarterly  evaluation is  made  to
determine the change  in the economic  value of equity  with various changes  in
interest rates.   This determination indicates how much the value of the  assets
and the value  of the  liabilities change with  a specified  change in  interest
rates.   The  net difference  between  the economic  values  of the  assets  and
liabilities results in an economic value of equity.

As part  of  the  Company's asset/liability  management  strategy,  the  Company
entered into an interest  rate swap agreement in  June 2003. The swap  agreement
had the effect of converting the Company's $7.0 million of variable rate Company
Obligated  Mandatorily  Redeemable  Preferred  Securities  of  Subsidiary  Trust
Holding Solely Subordinated  Debentures to a  fixed rate.   See Note  16 to  the
Consolidated Financial Statements for a further discussion of the interest  rate
swap.

LIQUIDITY

Liquidity, as it relates to the Bank, is a measure of its ability to fund  loans
and withdrawals of deposits  in a cost-effective manner.   The Bank's  principal
sources of funds  are deposits, scheduled  amortization and  prepayment of  loan
principal, amortization,  prepayment  and  maturity  of  investment  securities,
short-term borrowings and  income from operations.   Additional sources  include
purchasing fed funds, sale of securities, sale of loans, borrowing from both the
Federal Reserve Bank and Federal Home Loan Bank, and dividends paid by Nevahawk,
a wholly owned subsidiary of the Bank.

The liquidity needs of the Company generally consist of payment of dividends  to
its stockholders,  payments of  principal and  interest  on borrowed  funds  and
subordinated debentures, and a limited amount of expenses. The sources of  funds
to provide this liquidity are issuance  of capital stock and dividends from  its
subsidiary Bank.  Certain  restrictions are imposed upon  the Bank, which  could
limit its ability to pay dividends if it  did not have net earnings or  adequate
capital in the  future.   The Company maintains  adequate liquidity  to pay  its
expenses.

The following discussion of the Company's cash flows below provides some of the
highlights of the Company's cash flows. It is only a summary.  We urge you to
read the more complete discussions and analysis of the Company's cash flows
contained in the Consolidated Statements of Cash Flows in the Company's
Consolidated Financial Statements attached to this Form 10-KSB as Exhibit 99.1.

The Company had cash flow from operations of $3.5 million in 2003, $5.7 million
in 2002 and $1.5 million in 2001.  Cash flow from operations used cash for the
origination of loans for the secondary market of $34.7 million in 2003, $32.9
million in 2002 and $33.6 million in 2001.  The sale of loans to the secondary
market provided cash of $37.7 million in 2003, $33.8 million in 2002 and $32.2
million in 2001.

Cash used in investing activities was $2.9 million in 2003, $23.5 million in
2002 and $5.5 million in 2001.  The Company received cash from the sale,
maturity or call of investment securities of $84.2 million in 2003, $33.1
million in 2002 and $33.9 million in 2001.  Cash was used to purchase investment
securities of $103.5 million in 2003, $72.8 million in 2002 and $26.6 million in
2001.  In 2003 the Company used net cash of $4.5 million in the DunC
acquisition.  This consisted of the $7.2 million paid for DunC net of $2.7
million in cash received.  The acquisition of DunC was funded by the December
2002 issuance of the Company's trust preferred securities, which proceeds were
temporarily used to reduce bank debt.  At closing of the DunC acquisition, the
Company increased bank debt by $7.5 million.  In addition, the Company invested
$1.4 million, $0.9 million and $0.8 million in fixed assets for the years 2003,
2002 and 2001, respectively.

Cash provided by financing activities was $4.1 million in 2003, $18.6 million in
2002 and $2.3 million in 2001.  The Company used $3.6 million in 2003 to fund a
net decrease in deposits.  In 2002 net deposit growth provided $13.5 million in
cash, while in 2001 $11.3 million was used to fund a net decrease in deposits.
Cash was used to pay stockholder dividends of $0.9 million in 2003, $0.9 million
in 2002 and $1.1 million in 2001.  Net borrowings generated cash of $8.6 million
in 2003, $4.9 million in 2002 and $14.6 million in 2001.

The following table summarizes the Company's cash needs for significant
contractual obligations and other potential funding needs at December 31, 2003
(in thousands):

               Time      Long-term    Operating   Data Processing
             Deposits   debt(1)<F2>    Leases        Commitment       Total
             --------   -----------   ---------   ---------------     -----
2004         $ 81,633     $13,475      $  164          $  534       $ 95,806
2005           38,537      12,098         164             534         51,333
2006            8,843       3,825         164             534         13,366
2007           11,426       1,953         161             534         14,074
2008            1,708       9,875         114             404         12,101
Thereafter          0      21,687       1,000               0         22,687
             --------     -------      ------          ------       --------
Total        $142,147     $62,913      $1,767          $2,540       $209,367
             --------     -------      ------          ------       --------
             --------     -------      ------          ------       --------

Commitments to extend credit                                  $   34,356
                                                              ----------

(1)<F2>   Long-term  debt  includes  company obligated  mandatorily   redeemable
          preferred securities.

OFF-BALANCE SHEET ITEMS

The Company is party to financial instruments with off-balance-sheet risk in the
normal course of  business to meet the  financing needs of its customers.  These
financial instruments  include commitments  to extend credit and standby letters
of credit.  They involve, to varying degrees, elements  of credit risk in excess
of amounts recognized on the consolidated balance sheets.

The Company's exposure  to credit  loss in the  event of  nonperformance by  the
other party to  the financial instrument  for commitments to  extend credit  and
standby letters of credit is represented  by the contractual notional amount  of
those instruments.    The  Company  uses the  same  credit  policies  in  making
commitments and  issuing  letters of  credit  as they  do  for  on-balance-sheet
instruments.

Off-balance-sheet financial  instruments,  whose  contracts  represented  credit
and/or interest rate risk at December 31, were as follows:

                                                  2003           2002
                                                  ----           ----
                                                (Amounts in thousands)
       Unused Lines of Credit
         Commercial and other                   $29,151        $20,183
         Credit cards                             4,221          4,463
       Standby Letters of Credit                    984            950
       Commitments to Extend Credit               1,528          5,343

Commitments to extend credit  are agreements to  lend to a  customer as long  as
there is no violation of any condition established in the contract.  Commitments
generally have  fixed expiration  dates or  other  termination clauses  and  may
require payment of a fee.  Since many of the commitments are expected to  expire
without being  drawn  upon, the  total  commitment amounts  do  not  necessarily
represent future cash requirements.

Standby letters of  credit are  conditional commitments  issued by  the Bank  to
guarantee the performance of a customer to a third-party.  Those guarantees  are
primarily issued  to  support public  and  private borrowing  arrangements  and,
generally, have terms of one year or less.  The credit risk involved in  issuing
letters of credit  is essentially the  same as that  involved in extending  loan
facilities  to  customers.    The  Company  evaluates  each  customer's   credit
worthiness on  a case-by-case  basis.   The amount  of collateral  obtained,  if
deemed  necessary  by  the  Company  upon  extension  of  credit,  is  based  on
management's credit evaluation of the counterparty.  Collateral held varies  but
may include accounts receivable, inventory, property and equipment, and  income-
producing commercial properties.  In the event the customer does not perform  in
accordance with the terms of the agreement with the third-party, the Bank  would
be required to  fund the  commitment.  The  maximum potential  amount of  future
payments the Bank could  be required to make  is represented by the  contractual
amount shown in the summary above.  If the commitment is funded, the Bank  would
be entitled to seek recovery from the customer.  At December 31, 2003 and  2002,
no  amounts  have  been  recorded  as  liabilities  for  the  Bank's   potential
obligations under these guarantees.  Credit card commitments are unsecured.

The Bank frequently enters into loan sale commitments prior to closing loans  in
order to limit interest rate risk for the period of time between when a loan  is
committed and when it is sold.  These  sale commitments are typically made on  a
loan-by-loan basis.

Except for the above-noted commitments to  originate loans in the normal  course
of business, the Company  and Bank have not  undertaken the use of  off-balance-
sheet derivative financial instruments for any purpose.

The Company and the Bank do not engage in the use of futures or option contracts
as of December 31, 2003.

CAPITAL

SELECTED EQUITY RATIOS
----------------------                             2003      2002    Regulatory
                                                   Ratio    Ratio    Requirement
                                                   -----    -----    -----------

Equity as a percent of assets                      6.06%    7.32%         N/A
Core capital as a percent of risk based assets     9.64%   12.94%       4.00%
Total capital as a percent of risk based assets   10.89%   13.94%       8.00%
Leverage ratio                                     6.01%    8.29%       4.00%


Total stockholder's equity as  of December 31, 2003  and 2002 was $25.8 million.
While total  stockholder's  equity  did not  change,  the  individual components
reflected the following changes for 2003:

   o   Surplus increased by $0.1 million from the issuance of stock under the
       employee and director stock option plans;

   o   Retained earnings increased by $0.3 million (2003 net income of $1.2
       million less dividends declared of $0.9 million) and;

   o   Accumulated Other Comprehensive  Income decreased by $0.4 million due  to
       a  $0.6  million decrease  in  unrealized  gains on  available  for  sale
       securities offset by a $0.2  million gain on the Company's interest  rate
       SWAP agreement.

The capital ratios of the Company are in excess of the regulatory  requirements.
Under guidelines issued by the Federal Reserve Bank, the $7.0 million of company
obligated  mandatorily  redeemable  preferred  securities  of  subsidiary  trust
holding solely subordinated debentures issued in  December 2002 are included  in
Tier 1 and total capital of the Company at December 31, 2003.  Tier 1 capital as
a percent of risk based assets for 2003 is 9.64% compared to a December 31, 2002
ratio of  12.94% and  a regulatory  requirement of  4.0%.   Total capital  as  a
percent of risk based assets for 2003 is 10.89% compared to a December 31,  2002
ratio of 13.94% and a regulatory requirement of 8.0%. The leverage ratio for the
Company for 2003 is 6.01% compared to a December  31, 2002 ratio of 8.29% and  a
4.0% regulatory requirement. The decrease in  all three capital ratios  reflects
the financing of the DunC acquisition with debt rather than equity in 2003.

As noted  in Item  1 of  this report,  the Bank  is also  subject to  regulatory
capital requirements.  The capital ratios at December 31, 2003 and 2002 compared
to  the  regulatory  requirements are  detailed  in Note 17 to the  Consolidated
Financial Statements.    As  a  condition to  obtaining  approval  of  the  DunC
acquisition by federal and state regulators, the Company has agreed to  maintain
the Bank's tier 1 capital to average assets  ratio at a minimum of 7.0%  through
September 30, 2006.   The Bank's tier 1  capital to average  assets was 7.5%  at
December 31, 2003 and  7.7% at December  31, 2002.   The Company also  committed
that, in the event the Bank's earnings  are not sufficient to produce cash  flow
to acquisition service debt  at 80% of the  earnings dividend rate, the  Company
will fund the debt service with additional capital.  The capital may come, from,
among other things, a reduction or elimination of stockholder dividends or  from
the issuance of capital  securities.  This may  impact the Company's ability  to
pay future dividends.

As  more  fully  discussed  under  "Company  Obligated  Mandatorily   Redeemable
Preferred Securities of Subsidiary Trust Holding Solely Subordinated Debentures"
above, the Company's capital  ratios may be  negatively impacted should  federal
regulators no  longer permit  the inclusion  of  the Company's  trust  preferred
securities in  Tier 1  capital.   Such  a determination  could have  a  material
adverse effect on the Company's ability to meet its capital commitments.

IMPACT OF INFLATION AND CHANGING PRICES

Unlike most industrial companies, most of the assets and liabilities of the Bank
are monetary in nature.   Consequently, interest rates  have a more  significant
impact on the Company's performance and results of operations than the effect of
general levels of inflation.  Interest rates do not necessarily move in the same
direction or  in the  same magnitude  as the  prices of  goods and  services  as
measured  by  the  Consumer  Price  Index.     As  discussed  previously   under
Asset/Liability Management,  the Bank's  interest rate  exposure in  conjunction
with the direction of the movement in interest rates, is an important factor  in
the Company's results  of operations.   The Company's  financial statements  are
prepared in  accordance with  generally  accepted accounting  principles,  which
require the measurement of financial position and results of operations in terms
of historical dollars, without giving consideration  to changes in the  relative
purchasing power of money over time due to inflation.

ITEM 7. FINANCIAL STATEMENTS

The required financial statements  are attached to this  Form 10-KSB as  Exhibit
99.1 and are incorporated herein by reference.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On August 27, 2002, the Audit Committee of the Board of Directors of the Company
approved a  change  in auditors.  The  Board  of Directors  ratified  the  Audit
Committee's engagement of  McGladrey &  Pullen, LLP  to serve  as the  Company's
independent public accountants and replacement  of Wipfli Ullrich Bertelson  LLP
("Wipfli") as the Company's independent public accountants, effective August 28,
2002.

Wipfli performed audits  of the consolidated  financial statements  for the  two
years ended December 31, 2001 and 2000. Their reports did not contain an adverse
opinion or a  disclaimer of opinion  and were not  qualified or  modified as  to
uncertainty, audit scope, or accounting principles.

During the two years ended December 31, 2001, and from December 31, 2001 through
the effective  date  of the  Wipfli  termination, there  were  no  disagreements
between the  Company  and Wipfli  on  any  matter of  accounting  principles  or
practice, financial statement disclosure, or auditing scope or procedure,  which
disagreements would have caused Wipfli to  make reference to the subject  matter
of such disagreements in connection with this report.

During the two years ended December 31,  2001, and from December 31, 2001  until
the effective date of the dismissal of Wipfli, Wipfli did not advise the Company
of any of the following matters:

1. That  the internal  controls necessary for  the Company  to develop  reliable
financial statements did not exist;

2. That information had come to Wipfli's attention that had led it to no  longer
be able to rely on management's  representations, or that had made it  unwilling
to be associated with the financial statements prepared by management;

3. That there was  a need to expand significantly the scope of the audit of  the
Company, or that  information had  come to  Wipfli's attention  that if  further
investigated: (i) may materially impact the fairness or reliability of either  a
previously-issued audit  report  or  underlying  financial  statements,  or  the
financial statements  issued  or  to  be  issued  covering  the  fiscal  periods
subsequent to the  date of the  most recent financial  statements covered by  an
audit report  (including  information that  may  prevent it  from  rendering  an
unqualified audit report on those financial statements) or (ii) may cause it  to
be unwilling to rely  on management's representation or  be associated with  the
Company's financial statements and that, due to its dismissal, Wipfli did not so
expand the scope of its audit or conduct such further investigation;

4. That  information  had come  to  Wipfli's  attention that  it  had  concluded
materially impacted the  fairness or reliability  of either:  (i) a  previously-
issued audit report or the underlying financial statements or (ii) the financial
statements issued or to be issued  covering the fiscal period subsequent to  the
date of  the  most  recent  financial statements  covered  by  an  audit  report
(including information that, unless  resolved to the accountant's  satisfaction,
would prevent it from rendering an  unqualified audit report on those  financial
statements), or that, due to its dismissal, there were no such unresolved issues
as of the date of its dismissal.

Wipfli has furnished a letter to the SEC dated August 29, 2002, stating that  it
agrees with the above statements, which  was included in earlier filings by  the
Company. The letter is provided as Exhibit 16.1.

During the two years ended December 31, 2001, and from December 31, 2001 through
engagement  of  McGladrey  &  Pullen,   LLP  as  the  Registrant's   independent
accountant, neither the Company nor anyone on its behalf had consulted McGladrey
& Pullen, LLP with  respect to any accounting  or auditing issues involving  the
Company. In particular, there was no  discussion with the Company regarding  the
application of accounting  principles to a  specified transaction,  the type  of
audit opinion that might be rendered on the financial statements, or any related
item.

ITEM  8A.  CONTROLS AND PROCEDURES

We maintain  disclosure controls  and procedures  designed  to ensure  that  the
information we must  disclose in our  filings with the  Securities and  Exchange
Commission is recorded, processed,  summarized and reported  on a timely  basis.
Our principal executive  officer and principal  financial officer have  reviewed
and evaluated our disclosure  controls and procedures as  defined in Rules  13a-
15(e) and 15d-15(e) under the Securities  Exchange Act of 1934, as amended  (the
"Exchange Act")  as  of the  end  of the  period  covered by  this  report  (the
"Evaluation Date").   Based  on such  evaluation, such  officers have  concluded
that, as of  the Evaluation  Date, our  disclosure controls  and procedures  are
effective in bringing to their attention on a timely basis material  information
relating to  us  required to  be  included in  our  periodic filings  under  the
Exchange Act.

There have not been any changes in our internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred  during
our most recent fiscal quarter that have materially affected, or are  reasonably
likely to materially affect, our internal control over financial reporting.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

a)   Directors of the Company.  The information that will appear under "Election
     of Directors" in the  definitive Proxy Statement to  be prepared and  filed
     for the Company's Annual Meeting of Stockholders to be held on May 19, 2004
     is incorporated herein by this reference.

b)   Executive officers of the Company.  The information presented in Item I  of
     this report is incorporated herein by this reference.

c)   Section 16(a) Beneficial  Ownership Reporting  Compliance. The  information
     that will  appear  under  "Section  16(a)  Beneficial  Ownership  Reporting
     Compliance" in the definitive proxy statement to be prepared and filed  for
     the Company's Annual Meeting of Stockholders to be held on May 19, 2004  is
     incorporated herein by this reference.

d)   Code of Ethics.   The information that will  appear under "Company Code  of
     Ethical Practices" in the  definitive  Proxy Statement  to be  prepared and
     filed for the  Company's Annual  Meeting of Stockholders to  be held on May
     19, 2004 is incorporated herein by this reference.

ITEM 10.  EXECUTIVE COMPENSATION

The information that will appear under "Director and Executive Compensation"  in
the definitive Proxy Statement to be prepared and filed for the Company's Annual
Meeting of Stockholders to  be held on  May 19, 2004  is incorporated herein  by
this reference.

ITEM 11.   SECURITY OWNERSHIP OF  CERTAIN BENEFICIAL OWNERS  AND MANAGEMENT  AND
RELATED STOCKHOLDER MATTERS

The information that  will appear under  "Equity Compensation Plan  Information"
and "Beneficial Ownership of Securities" in the definitive Proxy Statement to be
prepared and filed for the Company's  Annual Meeting of Stockholders to be  held
on May 19, 2004 is incorporated herein by this reference.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information that will appear under "Certain Transactions with Management and
Others" in  the definitive  Proxy Statement  to be  prepared and  filed for  the
Company's Annual  Meeting  of  Stockholders  to  be held  on  May  19,  2004  is
incorporated herein by this reference.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

a)   Documents Filed:

1. and 2.  Financial Statements.   The Company's  Consolidated  Balance  Sheets,
                                   Consolidated    Statements     of     Income,
                                   Consolidated   Statements   of   Changes   in
                                   Stockholders' Equity, Consolidated Statements
                                   of  Cash  Flows  and  Notes  to  Consolidated
                                   Financial Statements  are  attached  to  this
                                   Form 10-KSB as exhibit 99.1.

3.         Exhibits.               See "Exhibit  Index"  which  is  incorporated
                                   herein by this reference.

b)     Reports On Form 8-K:

          During the  fourth quarter  of 2003  the Company  filed an  8-K  dated
          October 14, 2003 which provided the information required under Item  2
          as a result of  the Company's acquisition of  DunC Corp. An 8-K/A  was
          filed on  November 12,  2003  to amend  that  filing, to  furnish  the
          financial Statements  and  Exhibits  required under  Item  7.    Those
          statements were as follows:

            o   Consolidated Balance Sheets of DunC Corp. as of December 31,
                2002 and 2001.

            o   Consolidated Statements from Income of DunC Corp. for the years
                ended December 31, 2002 and 2001.

            o   Consolidated Statements of Changes in Stockholders' Equity of
                DunC Corp. for the years ended December 31, 2002 and 2001.

            o   Consolidated Statements of Cash Flows of DunC Corp. for the
                years ended December 31, 2002 and 2001.

            o   Unaudited Consolidated Statements of Financial Condition of
                DunC Corp. as of June 30, 2003 and 2002 and as of December 31,
                2002.

            o   Unaudited Consolidated Statements of Income of DunC Corp. for
                the six months ended June 30, 2003 and 2002.

            o   Unaudited Consolidated Statements of Cash Flows of DunC for the
                six months ended June 30, 2003 and 2002.

            o   Unaudited Pro Forma Condensed Combined Statements of Financial
                Condition of The Corporation and DunC as of June 30, 2003.

            o   Unaudited Pro Forma Condensed Combined Statements of Income for
                the six months ended June 30, 2003 and for the year ended
                December 31, 2002 of The Corporation and DunC

          Also, the Company furnished  a Report on Form  8-K dated November  12,
          2003 under  Item 12  which reported  3rd  quarter 2003  results;  that
          report is not deemed "filed."

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information  that  will appear  under  "Audit  and Non-Audit  Fees"  in  the
definitive Proxy Statement  to be prepared  and filed for  the Company's  Annual
Meeting of Stockholders to  be held on  May 19, 2004  is incorporated herein  by
this reference.

SIGNATURES

In accordance  with Section  13 or  15(d) of  the Exchange  Act, the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                              Blackhawk Bancorp, Inc.

                                      By /s/ Todd J. James
                                         -----------------------------------
                                      Todd J. James
                                      Executive Vice President and Secretary
                                      March 17, 2004

In accordance with the Exchange  Act, this report has  been signed below by  the
following persons on behalf of the registrant and in the capacities on March 17,
2004.

Principal Executive Officer and Director:
  Director, President and                  /s/ R. Richard Bastian, III
  Chief Executive Officer                  ---------------------------
                                           R. Richard Bastian, III,
                                           President and Chief Executive Officer

Principal Financial Officer                /s/ Todd J. James
                                           -----------------
                                           Todd J. James
                                           Executive Vice President,
                                           Treasurer and Chief Financial Officer

Principal Accounting Officer               /s/ Thomas L. Lepinski
                                           ----------------------
                                           Thomas L. Lepinski, C.P.A.,
                                           Principal Accounting Officer

Directors:

/s/ John B. Clark                          /s/ Merritt J. Mott
-----------------                          -------------------
  John B. Clark                            Merritt J. Mott

/s/ Roger G. Bryden                        /s/ Stephen P. Carter
-------------------                        ---------------------
  Roger G. Bryden                          Stephen P. Carter

/s/ Charles Hart                           /s/ George D. Merchant
----------------                           ----------------------
  Charles Hart                             George D. Merchant

/s/ Kenneth A Hendricks                    /s/ Prudence A. Harker
-----------------------                    ----------------------
  Kenneth A. Hendricks                     Prudence A. Harker

/s/ Charles J. Howard                      /s/ Stephen R. Thomas
---------------------                      ---------------------
  Charles J. Howard                        Stephen R. Thomas

                            Blackhawk Bancorp, Inc.
                                Exhibit Index To
                       2003 Annual Report on Form 10-KSB


Exhibit                            Incorporated Herein      Filed
Number   Description               By Reference To:         Here-with  Page No.
------   -----------               ----------------         ---------  --------

2.1      Agreement and Plan of     Exhibit 2.1 to Form 8-K
         Merger By and Among       dated March 17, 2003
         Blackhawk Bancorp, Inc.
         DunC Merger Corporation
         and DunC Corp

3.1      Amended and Restated      Exhibit 3.1 to
         Articles of Incorporation Amendment No. 1 to
         of Blackhawk Bancorp,     Registration
         Inc.                      Statement on Form
                                   S-1(Reg. No. 33.32351)

3.2      By-Laws of Blackhawk      Exhibit 3.2 to
         Bancorp, Inc., as         Amendment No. 1 to
         amended.                  Registration
                                   Statement on Form S-1

3.3      Amendments to By-Laws     Exhibit 3.3 to 1994
         of Blackhawk Bancorp,     Form 10-KSB dated March
         Inc., as amended.         29, 1995

3.4      Amendments to By-Laws of  Exhibit 3.4 to 1994
         Blackhawk Bancorp, Inc.,  Form 10-KSB dated March
         as amended.               29, 1995.

4.1      Sections 15 and 19 of     Exhibit 1.2 to
         Plan of Conversion of     Amendment No. 1 to
         Beloit Savings Bank, as   Registration
         amended                   Statement on Form-1
                                   (No. 33-32351) filed on
                                   March 5, 1990.

4.2      Blackhawk Bancorp, Inc.                            X          45
         Floating Rate Junior
         Subordinated Deferrable
         Interest Debentures
         Indenture Dated as of
         December 19, 2002

4.3      Credit Agreement with US  Exhibit 4 to Form 8-K
         Bank National Association dated September 30,
         dated September 26, 2003  2003

10.12    Blackhawk State Bank      Exhibit 10.12 to 1996
         Officer Bonus Plan, as    Form 10-KSB, dated
         amended *<F3>             March 28, 1997

10.2     Written description of    Proxy Statement for its
         Plan for Life Insurance   Annual Meeting of
         of Blackhawk State        Stockholders, on May 8,
         Bank *<F3>                1991, dated April 4,
                                   1991

10.3     Blackhawk Bancorp, Inc.   Exhibit 10.3 to 1990
         Employee Stock Ownership  Form 10-K, dated
         Plan *<F3>                March 31, 1990

10.31    Amendment to Blackhawk    Exhibit 10.31 to 1994
         Bancorp, Inc.             Form 10-KSB, dated
         Employee Stock Ownership  March 29,1995
         Plan *<F3>

10.4     Blackhawk Bancorp, Inc.   Exhibit 10.4 to
         Employee Stock Ownership  Amendment No. 1 to
         Trust *<F3>               Registration Statement
                                   Form S-1 (No. 33-32351)

10.5     Blackhawk Bancorp, Inc.   Exhibit 10.5 to
         Directors' Stock Option   Amendment No. 1 to
         Plan *<F3>                Registration
                                   Statement Form S-1
                                   (No. 33-32351)

10.6     Blackhawk Bancorp, Inc.   Exhibit 10.6 to
         Executive Stock Option    Registration
         Plan *<F3>                Statement Form S-1
                                   (No. 33-32351)

10.7     Form of Severance Payment Exhibit 10.8 to
         Agreement entered into    Amendment No. 1 to
         between Blackhawk State   Registration
         Bank and Messrs. Calkins, Statement Form S-1
         Kelley and Rusch *<F3>    (No. 33-32351)

10.71    Form of Severance Payment Exhibit 10.8 to 1994
         Agreement entered into    Form 10-KSB, dated
         between Blackhawk State   March 29, 1995
         Bank and Mr.
         Conerton *<F3>

10.72    Employment Agreement      Exhibit 4.4 to 2002
         between Blackhawk State   Form 10-QSB for the
         Bank and R. Richard       quarter ended September
         Bastian, III              30, 2002

10.73    Employment Agreement                               X          46
         between Blackhawk State
         Bank and Dale Blachford

10.8     Blackhawk Bancorp, Inc.   Exhibit 10.9 to 1994
         Directors' Stock Option   Form 10-KSB, dated
         Plan *<F3>                March 29, 1995

10.9     Blackhawk Bancorp, Inc.   Proxy Statement for its
         Executive Stock Option    Annual Meeting of
         Plan *<F3>                Stockholders on May 13,
                                   1998, dated April 2,
                                   1998
14       Code of Ethics                                     X          55

16.1     Letter on Change in                                X          56
         Certifying Accountant

21       Subsidiaries of                                    X          57
         Registrant

31.1     Rule 13a-14(a)/15d-14(a)                           X          58
         Certification

31.2     Rule 13a-14(a)/15d-14(a)                           X          59
         Certification

32.1     Certification Pursuant to
         18 U. S. C. Section 1350,
         as Adopted Pursuant to
         Section 906 of the
         Sarbanes-Oxley Act of
         2002                                               X          60

32.2     Certification Pursuant to
         18 U. S. C. Section 1350,
         as Adopted Pursuant to
         Section 906 of the
         Sarbanes-Oxley Act of
         2002                                               X          61

99.1     Financial Statements                               X          62

*<F3>     Each management contract and compensatory plan or arrangement required
          to be filed as an exhibit to this report is identified in the Exhibit
          Index by an asterisk following the description of the exhibit.