1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 1998

Commission File Number 0-21298

ST. FRANCIS CAPITAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)

WISCONSIN 39-1747461
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

13400 BISHOPS LANE, SUITE 350, BROOKFIELD, WISCONSIN 53005-6203
---------------------------------------------------------------
(Address of principal executive offices, including zip code)

(414) 486-8700
--------------
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:
None
----

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, par value $0.01 per share
---------------------------------------
Preferred Stock Purchase Rights
-------------------------------
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or 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.
(1) Yes [ X ] No [ ] (2) Yes [ X ] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]

As of November 30, 1998, there were issued and outstanding 4,635,265
shares of the Registrant's Common Stock. The aggregate market value of the
voting stock held by non-affiliates of the Registrant, computed by reference to
the average of the bid and asked price of such stock as of November 30, 1998,
was $194.8 million. Soley for the purposes of this calculation, all executive
officers and directors of the Registrant are assumed to be affiliates; also
included as "affilliate shares" are certain shares held by various employee
benefit plans where the trustees are directors of the Registrant or are required
to vote a portion of unallocated shares at the direction of executive officers
or directors of the Registrant. The exclusion from such amount of the market
value of the shares owned by any person shall not be deemed an admission by the
Registrant that such person is an affiliate of the Registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of Form 10-K - Portions of the Proxy Statement for the 1998
Annual Meeting of Shareholders are incorporated by reference into Part III
hereof.
2

FORM 10-K TABLE OF CONTENTS

PAGE
PART I

ITEM 1 - BUSINESS ......................................................... 3

ITEM 2 - PROPERTIES ....................................................... 36

ITEM 3 - LEGAL PROCEEDINGS ................................................ 36

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............. 36

PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS .............................................. 37

ITEM 6 - SELECTED FINANCIAL DATA .......................................... 39

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ............................................ 41

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........ 61

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................... 62

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ............................................. 96

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............... 97

ITEM 11 - EXECUTIVE COMPENSATION ........................................... 97

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ... 97

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................... 97

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K .. 97

SIGNATURES ................................................................. 100

PART I

FORWARD-LOOKING STATEMENTS

When used in this Annual Report on Form 10-K or future filings with the
Securities and Exchange Commission, in quarterly reports or press releases or
other public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, various words or phrases are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements include words and phrases such as "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions and various other statements indicated herein with an
asterisk ("*") after such statements. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made, and to advise readers that various factors could
affect the Company's financial performance and could cause actual results for
future periods to differ materially from those anticipated or projected. Such
factors include, but are not limited to: (i) general market rates, (ii) general
economic conditions, (iii) legislative/regulatory changes, (iv) monetary and
fiscal policies of the U.S. Treasury and Federal Reserve, (v) changes in the
quality or composition of the Company's loan and investment portfolios, (vi)
demand for loan products, (vii) deposit flows, (viii) competition, (ix) demand
for financial services in the Company's markets, and (x) changes in accounting
principles, policies or guidelines.

The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.

ITEM 1. BUSINESS

GENERAL

St. Francis Capital Corporation (the "Company") is a holding company
incorporated under the laws of the State of Wisconsin and is engaged in the
financial services business through its wholly-owned subsidiary, St. Francis
Bank, F.S.B. (the "Bank"), a federally-chartered stock savings bank. In June
1993, the Bank converted from a federally-chartered mutual savings institution
to a stock savings institution. As part of the conversion, the Company
acquired all of the outstanding common stock of the Bank. In November 1994,
the Company completed the acquisition of the stock of Valley Bank East Central
in Kewaskum, Wisconsin as well as the deposits and certain assets of the
Hartford, Wisconsin branch of Valley Bank Milwaukee. The acquired bank offices
were combined as a commercial state-chartered bank named Bank Wisconsin ("Bank
Wisconsin"). In February 1997, the Company completed the acquisition of
Kilbourn State Bank in Milwaukee, Wisconsin. Kilbourn State Bank was merged
into Bank Wisconsin after the acquisition was completed. In September 1997,
Bank Wisconsin was merged into the Bank, with the Bank being the surviving
entity. The Company has reached a definitive agreement to acquire Reliance
Bancshares, Inc., headquartered in Milwaukee, Wisconsin. The acquisition is
currently expected to be completed in the first quarter of 1999.

The Bank is headquartered in Milwaukee, Wisconsin. Its deposits are insured up
to applicable limits by the Savings Association Insurance Fund ("SAIF"),
administered by the Federal Deposit Insurance Corporation ("FDIC"). Originally
chartered in 1923, the Bank serves southeastern Wisconsin with a network of 21
full-service, two limited service and two loan production offices.

The Company's principal business is attracting retail deposits from the general
public and investing those deposits, together with funds generated from other
operations, primarily to originate mortgage, consumer and other loans within
its primary market areas and to invest in mortgage-backed and related
securities. Primary areas of lending include single-family and multi-family
residential mortgages, home equity lines of credit, second mortgages,
commercial real estate and commercial loans. The Company also purchases
single-family mortgage loans, either by directly purchasing individual loans
from other local mortgage lenders or by purchasing pools of single-family
mortgage loans originated by other non-local lenders and secured by properties
located outside the State of Wisconsin. The Company also invests a significant
portion of its assets in mortgage-backed and related securities,

and to a lesser extent, invests in debt and equity securities, including U.S.
Government and federal agency securities, short-term liquid assets and other
marketable securities. The Company also invests in affordable housing projects
throughout the State of Wisconsin. The Company's revenues are derived
principally from interest on its loan portfolio, interest on mortgage-backed
and related securities, and interest and dividends on its debt and equity
securities. The affordable housing projects do not provide a significant
source of income before taxes, but rather provide income in the form of income
tax credits which reduce the Company's income tax liability. The Company's
principal sources of funds are from deposits, including brokered deposits,
repayments on loans and mortgage-backed and related securities, and advances
from the Federal Home Loan Bank - Chicago ("FHLB").

MARKET AREA AND COMPETITION
The Company offers a variety of deposit products, services and consumer,
commercial and mortgage loan offerings primarily within the metropolitan
Milwaukee area. The Company's main office is located at 13400 Bishops Lane,
Suite 350, Brookfield, Wisconsin. The Company's primary market area consists
of Milwaukee and Waukesha counties, and portions of Ozaukee, Washington,
Walworth and Kenosha counties. With the exception of the downtown Milwaukee
branch office, all full service branches of the Bank are located in areas that
generally are characterized as residential neighborhoods, containing
predominantly one- and two-family residences.

The Company has significant competition in its mortgage, consumer and
commercial lending business, as well as in attracting deposits. The Company's
competition for loans is principally from other thrift institutions, savings
banks, mortgage banking companies, insurance companies and commercial banks.
However, its most direct competition for deposits historically has come from
other thrifts, savings banks, commercial banks and credit unions. The Company
has faced additional competition for funds from a number of institutions,
including the availability of short-term money market funds and other corporate
and government securities funds offered by other financial service companies,
such as brokerage firms and insurance companies.

LENDING ACTIVITIES

GENERAL
The Company's largest component of the gross loan portfolio, which totaled
$971.7 million at September 30, 1998, was first mortgage loans secured by
owner-occupied one- to four-family residences. At September 30, 1998, one- to
four-family mortgage loans totaled $254.0 million or 26.1% of gross loans. Of
the total one- to four-family mortgage loans, $191.2 million or 75.3% were
ARMs. Of the remaining loans held at September 30, 1998, 13.8% were in
consumer loans, 14.7% were home equity loans, 10.8% were in multi-family
mortgage loans, 17.6% were in commercial real estate, 9.7% were in commercial
and agricultural and 7.3% were in residential construction. As part of its
strategy to manage interest rate risk, the Company originates primarily ARM
loans or fixed rate loans which have shorter maturities for its own loan
portfolio. However, the Company also offers longer term fixed rate mortgage
loans, many of which are sold in the secondary market.

The Company has been actively growing its loan portfolio which in addition to
its traditional one- to four-family lending, includes consumer, commercial,
multi-family and commercial real estate lending. One of the Company's
strategies will be to attempt to diversify its loan portfolio through lending
efforts in all of the above categories.* The acquisitions of Bank Wisconsin
and Kilbourn State Bank have led to the establishment of a commercial lending
function at the Company. In addition, the Bank has been actively growing its
consumer and home equity loan portfolios in recent years. Areas of lending
other than one- to four-family lending generally have higher levels of credit
risk and higher yields than one- to four-family lending. In addition, the
Company may purchase loans in the above categories in addition to originating
the loans on its own. Purchased loans involve different types of underwriting
than loans originated directly by the Company and as such represent a different
level of risk.

Levels of originations of various lending categories may vary from year-to-year
and result from levels of interest rates, market demand for loans and emphasis
by the Company on various types of loans. The Company will adjust its lending
emphasis occasionally in accordance with its view of the relative returns and
risks available at that time in each category of lending. Although there is
likely to be activity in all areas in which the Company makes loans in any
given year, the amount will vary given the above factors.

COMPOSITION OF LOAN PORTFOLIO
The following table sets forth the composition of the Company's loan portfolio
in dollar amounts and in percentages of the respective portfolios at the dates
indicated.

September 30,
----------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
Percent Percent Percent
Amount Of Total Amount Of Total Amount Of Total
---------- -------- ---------- -------- ---------- --------
(In thousands)

Mortgage loans:
One- to four-family....................... $ 254,047 26.1% $ 240,522 30.7% $ 270,614 40.5%
Residential construction.................. 71,092 7.3% 46,340 5.9% 32,249 4.8%
Multi-family.............................. 105,380 10.8% 101,289 12.9% 103,262 15.4%
Commercial real estate.................... 170,562 17.6% 87,950 11.2% 46,391 6.9%
Home equity............................... 142,993 14.7% 115,293 14.7% 90,579 13.5%
---------- ------- ---------- ------- ---------- -------
744,074 76.5% 591,394 75.4% 543,095 81.1%
Consumer loans:
Interim financing and installment......... 131,143 13.5% 120,305 15.3% 88,236 13.2%
Education................................. 2,529 0.3% 948 0.1% 12,142 1.8%
---------- ------- ---------- ------- ---------- -------
133,672 13.8% 121,253 15.4% 100,378 15.0%
---------- ------- ---------- ------- ---------- -------
Commercial and agriculture 93,927 9.7% 72,144 9.2% 25,177 3.9%
---------- ------- ---------- ------- ---------- -------
Gross loans receivable................... 971,673 100.0% 784,791 100.0% 668,650 100.0%
======= ======= =======
Less:
Mortgage loans held for sale.............. 23,864 24,630 20,582
Loans in process.......................... 83,436 38,200 29,631
Unearned discounts and
deferred loan fees...................... 1,419 2,332 1,874
Allowance for loan losses................. 7,530 6,202 5,217
Other..................................... 292 552 647
---------- ---------- ----------
Loans receivable, net....................... $855,132 $712,875 $610,699
========== ========== ==========

September 30,
------------------------------------------
1995 1994
-------------------- --------------------
Percent Percent
Amount Of Total Amount Of Total
---------- -------- ---------- --------
(In thousands)

Mortgage loans:
One- to four-family....................... $209,140 39.3% $178,700 38.6%
Residential construction.................. 25,277 4.8% 60,048 13.0%
Multi-family.............................. 93,756 17.6% 95,019 20.5%
Commercial real estate.................... 28,277 5.3% 18,347 4.0%
Home equity............................... 80,159 15.1% 66,031 14.2%
---------- ------- ---------- -------
436,609 82.1% 418,145 90.3%
Consumer loans:
Interim financing and installment......... 69,038 13.0% 34,554 7.5%
Education................................. 12,833 2.4% 10,113 2.2%
---------- ------- ---------- -------
81,871 15.4% 44,667 9.7%
---------- ------- ---------- -------
Commercial and agriculture 13,608 2.5% - -
---------- ------- ---------- -------
Gross loans receivable. ................. 532,088 100.0% 462,812 100.0%
======= =======
Less:
Mortgage loans held for sale.............. 1,138 2,978
Loans in process.......................... 10,903 26,015
Unearned discounts and
deferred loan fees..... ................ 2,081 2,351
Allowance for loan losses................. 4,076 3,435
Other..................................... 582 280
---------- ----------
Loans receivable, net....................... $513,308 $427,753
========== ==========

The following table sets forth the Company's loan originations and loan
purchases, sales and principal repayments for the years indicated. Mortgage
loans held for sale are included in the totals.

Year Ended September 30,
-----------------------------------------
1998 1997 1996
------------- ------------ ------------

(In thousands)
Mortgage loans (gross):
At beginning of period............................................................... $ 591,394 $ 543,095 $ 436,609
Mortgage loans originated:
One- to four-family............................................................... 165,829 104,009 97,565
Residential construction.......................................................... 90,911 59,566 31,320
Multi-family...................................................................... 39,808 22,959 29,310
Commercial real estate............................................................ 103,363 36,643 14,935
Home equity....................................................................... 105,938 86,995 65,104
------------ ----------- -----------
Total mortgage loans originated................................................. 505,849 310,172 238,234
Mortgage loans purchased:
One- to four-family............................................................... 65,446 21,480 56,230
Commercial real estate............................................................ 2,000 3,220 -
------------ ----------- -----------
Total mortgage loans purchased.................................................. 67,446 24,700 56,230
------------ ----------- -----------
Total mortgage loans originated and purchased................................... 573,295 334,872 294,464
Transfer of mortgage loans to foreclosed properties............................... (560) (496) (103)
Principal repayments.............................................................. (209,647) (169,235) (125,315)
Sales of mortgage loans:
Exchanged for mortgage-backed securities.......................................... (19,373) (57,337) -
Cash sales........................................................................ (191,035) (59,505) (62,560)
------------ ----------- -----------
Total sales of loans............................................................ (210,408) (116,842) (62,560)
------------ ----------- -----------
At end of period..................................................................... $ 744,074 $ 591,394 $ 543,095
============ =========== ===========
Consumer loans (gross):
At beginning of period............................................................... $ 121,253 $ 100,378 $ 81,871
Loans originated.................................................................. 93,700 57,157 61,378
Loans purchased................................................................... - 888 12,786
Repossessions and foreclosures.................................................... (230) (229) (23)
Loans charged-off................................................................. (783) (2,028) (167)
Principal repayments.............................................................. (80,268) (22,745) (40,365)
Loans sold........................................................................ - (12,168) (15,102)
------------ ----------- -----------
At end of period..................................................................... $ 133,672 $ 121,253 $ 100,378
============ =========== ===========
Commercial and agricultural loans (gross):
At beginning of period............................................................... $ 72,144 $ 25,177 $ 13,608
Loans originated.................................................................. 84,549 33,358 14,034
Loans purchased................................................................... - 30,182 3,736
Loans sold........................................................................ (273) - -
Principal repayments.............................................................. (62,493) (16,573) (6,201)
------------ ----------- -----------
At end of period..................................................................... $ 93,927 $ 72,144 $ 25,177
============ =========== ===========

LOAN MATURITY AND REPRICING
The following table shows the maturity of the Company's loan portfolio at
September 30, 1998. The table does not include prepayments or scheduled
principal amortization. Prepayments and scheduled principal amortization on
mortgage loans totaled $209.6 million, $169.2 million and $125.3 million for
the years ended September 30, 1998, 1997 and 1996.

At September 30, 1998
-------------------------------------------------------------------------------------------
One- to Commercial Gross
Four- Multi- Commercial Home and Loans
Family (1) Family (1) Real Estate Equity Consumer Agriculture Receivable
---------- ------------ ----------- ------------ ----------- ------------ -----------
(In thousands)
Amounts due:

Within one year.................. $187,092 $ 46,241 $ 59,200 $129,161 $ 11,310 $39,922 $472,926
After one year:
One to three years.............. 44,563 14,430 59,538 13,492 25,258 26,269 183,550
Three to five years............. 39,235 17,218 38,875 298 44,762 20,702 161,090
Over five years................. 54,249 27,491 12,949 42 52,342 7,034 154,107
-------- --------- -------- -------- -------- ------- --------
Total due after one year......... 138,047 59,139 111,362 13,832 122,362 54,005 498,747
-------- --------- -------- -------- -------- ------- --------
Total amounts due................ 325,139 105,380 170,562 142,993 133,672 93,927 971,673

Less:
Mortgage loans held for sale.... (23,864) - - - - - (23,864)
Loans in process................ (42,852) (15,794) (24,790) - - - (83,436)
Unearned discounts, premiums
and deferred loan fees, net.... (34) (825) (469) - (292) (91) (1,711)
Allowance for loan losses....... (1,186) (765) (2,035) (746) (1,074) (1,724) (7,530)
-------- -------- -------- -------- -------- ------- --------
Loans receivable, net............. $257,203 $ 87,996 $143,268 $142,247 $132,306 $92,112 $855,132
======== ======== ======== ======== ======== ======= ========

(1) Includes some residential construction lending.

The following table sets forth at September 30, 1998 the dollar amount of all
loans and mortgage-backed and related securities due after September 30, 1999,
and whether such loans have fixed interest rates or adjustable interest rates.

Due after September 30, 1999
-----------------------------------------
Fixed Adjustable Total
------------- ------------ ------------
(In thousands)

Mortgage loans:
One- to four-family (1).......................... $ 63,573 $ 74,474 $ 138,047
Multi-family (1)................................. 27,595 31,544 59,139
Commercial real estate........................... 28,801 82,561 111,362
Home equity...................................... 13,832 - 13,832
Consumer loans..................................... 113,982 8,380 122,362
Commercial and agriculture......................... 51,530 2,475 54,005
--------- --------- ----------
Gross loans receivable........................... 299,313 199,434 498,747
Mortgage-backed and related securities............. 324,658 372,842 697,500
--------- --------- ----------
Gross loans receivable and mortgage-
backed and related securities.................. $ 623,971 $ 572,276 $1,196,247
========= ========= ==========

(1) Includes some residential construction lending.

ONE- TO FOUR-FAMILY MORTGAGE LENDING
A significant portion of the Company's lending activity is the origination of
first mortgage loans secured by one- to four-family, owner occupied residences
within the Company's primary market area. Long-term 15- and 30- year
fixed-rate loans are generally originated to be sold in the secondary market,
as are five and seven year balloon loans. Shorter-term ARM loans are
originated both for sale in the secondary market and for the Company's loan
portfolio. In addition, loans made under special loan terms or programs,
principally originated within the purposes of the Community Reinvestment Act of
1977, as amended ("CRA"), are retained for the Company's own loan portfolio.
The Company follows Federal National Mortgage Association ("FNMA") underwriting
guidelines for most one- to four-family mortgage loans.

The lending policy of the Company generally allows for mortgage loans to be
made in amounts of up to 100% of the appraised value of the real estate to be
mortgaged to the Company. Loans that are made at 80% or less of appraised
value under underwriting guidelines of the major mortgage secondary market
makers can be sold in the secondary market. Loans not sold in the secondary
market are retained in the Company's portfolio and can include loans made at
levels of up to 100% of appraised value, which may have private mortgage
insurance. With respect to those loans made at levels of up to 100% of
appraised value, other underwriting criteria, such as debt service ability and
credit history are given greater emphasis than lending involving lower loan to
value ratios. In addition, loans with higher loan to value ratios may have a
higher level of risk of default and are accordingly made at higher interest
rates than other loans.

The Company makes loans under various governmental programs including the
Federal Housing Authority ("FHA"), the federal and state Veterans
Administration ("VA"), the Wisconsin Housing and Economic Development Authority
("WHEDA") and other City of Milwaukee-sponsored mortgage loan programs, and
sells these loans. See "-Loan Sales and Purchases," below.

ARM loans are included in mortgage loans held by the Company as part of its
loan portfolio. During the adjustment period, ARM loans typically can adjust
by a maximum of two percentage points per year with a lifetime cap
approximating six percentage points above the interest rate established at the
origination date of the ARM loan. Monthly payments of principal and interest
are adjusted when the interest rate adjusts, in order to maintain full
amortization of the mortgage loan within a maximum 30-year term. The initial
rates offered on ARM loans fluctuate with general interest rate changes, and
are determined by secondary market pricing, competitive conditions and the
Company's yield requirements. Currently, the Company primarily utilizes the
one-year Constant Maturity Treasury rate in order to determine the interest
rate payable upon the adjustment date of its ARM loans outstanding. Most of
the ARM loans are granted with conversion capabilities which provide terms
under which the borrower may convert the mortgage loan to a fixed rate mortgage
loan for a limited period during the early term of the ARM loan. The terms at
which the ARM may be converted to a fixed rate loan are established at the date
of loan origination and are set at a level allowing the Company to immediately
sell the ARM loan at the date of conversion.

The Company offers balloon loan programs under which the interest rate and
monthly payments are fixed for the first five to seven years of the mortgage
loan and, thereafter, provided certain conditions are met, the loan would
adjust to then current rates at the end of the fifth to seventh year, at which
time the loan balance is then amortized for the full remaining term of the
loan, based upon interest rates and appropriate principal and interest payments
then in effect.

At September 30, 1998, the Company had $254.0 million in one- to four-family
mortgage loans or 26.1% of the gross loan portfolio compared with $240.5
million or 30.7% of the portfolio at September 30, 1997. The decline in the
percent of one- to four-family loans to total loans also was due to the
increasing levels of other types of lending at the Bank. The increase in the
dollar amount of the portfolio was largely the result of the lower interest
rate environment in effect during the course of the year. The volume of one- to
four-family mortgage loan origination is highly dependent on the relative
levels of interest rates. During periods of lower interest rates, many of the
Company's loan customers prefer loans with fixed rates which the Company
originates and sells in the secondary market in connection with interest rate
risk management. In such environments, the Company's level of gains on mortgage
loans may be higher due to the increased percentage of loans being originated
which are subsequently sold in lieu of being retained in the Company's
portfolio. The Company has been expanding its one- to four-family
lending capacity and anticipates that as a result total originations will
continue to increase assuming continuing

9
interest rate levels.* Conversely, one- to four-family lending is subject
to numerous competitors which can result in lower origination totals if the
competitors are willing to make loans at lower rates than the Company.

RESIDENTIAL CONSTRUCTION LENDING
Residential construction loans are made to individuals who have signed
construction contracts with a home builder. Loan proceeds are disbursed in
increments as construction of the residence progresses. These loans have loan
to value ratios up to 95%. When the loan to value ratio exceeds 80%, private
mortgage insurance, which insures payment of the principal balance, is
generally required and reduces the Company's exposure to 75% of the loan
value or less. Single family residential construction loans are structured to
allow the borrower to pay interest only on the funds advanced during the first
nine months of the loan. Thereafter, the borrower is required to begin making
principal and interest payments based on an amortization schedule of 351 months
or less. Single family residential construction loan programs typically offered
by the Company are one- or three-year ARM loans or certain balloon loans
amortized over a 351-month period after the nine month interest only period.

From time to time, the Company engages in multi-family residential construction
lending. The loan to value ratios on these loans do not exceed 80%.
Multi-family construction loans typically offered by the Company are ARM loans
amortized over 348 months after allowing for interest only payments during a
twelve month construction period. Loan proceeds are advanced in increments as
construction of the project progresses.

At September 30, 1998, the Company had $71.1 million in residential
construction mortgage loans, or 7.3% of the gross loan portfolio, compared with
$46.3 million or 5.9% of the portfolio at September 30, 1997. A significant
portion of the Company's construction lending results in permanent mortgage
loans that are either retained in the mortgage loan portfolio or sold in the
secondary market.

MULTI-FAMILY LENDING
The Company originates multi-family loans which it holds in its loan portfolio.
Over the last five years, the Company has increased its emphasis in
multi-family lending and has offered both adjustable- and fixed-rate loans.
Multi-family loans generally have shorter maturities than one- to four-family
mortgage loans, though the Company will make multi-family loans with terms of
up to 30 years. The rates charged on the Company's fixed rate and ARM
multi-family loans are typically higher than on one- to four-family residential
properties. Multi-family ARM loans typically adjust in a manner similar to
that of the Company's other ARM loans, although generally at slightly higher
rates. Multi-family loans generally are underwritten in amounts up to 80% of
the lesser of the appraised value or purchase price of the underlying property.

At September 30, 1998, the largest aggregate amount of loans outstanding to any
one borrower consisted of a loan on a multi-family project in Madison,
Wisconsin, of $4.2 million. This loan does not exceed the regulatory "loans to
one borrower" limitation at September 30, 1998 of $19.1 million. See
"-Regulation," below. Loans secured by multi-family real estate generally
involve a greater degree of credit risk than one- to four-family loans and
carry larger loan balances. The increased credit risk is the result of several
factors, including the concentration of principal in a limited number of loans
and borrowers, the effects of general economic conditions on income-producing
properties and the increased difficulty of evaluating and monitoring these
types of loans. Furthermore, the repayment of loans secured by multi-family
real estate is typically dependent upon the successful operation of the related
real estate project. If the cash flow from the project is reduced, the
borrower's ability to repay the loan may be impaired. In some instances, the
risk level is mitigated by obtaining individual guarantees which may increase
the level of collateral supporting the loan. Despite the risks inherent in
multi-family lending, the Company's percentage of delinquent multi-family loans
to gross multi-family loans has been minimal

At September 30, 1998, the Company had $105.4 million in multi-family mortgage
loans or 10.8% of the gross loan portfolio compared with $101.3 million or
12.9% of the portfolio at September 30, 1997. The Company is continuing its
efforts to increase the amount of the multi-family loans in the loan portfolio.
These loans generally offer a greater yield than single-family loans, which,
the Company believes, justifies the increased credit risk.

COMMERCIAL REAL ESTATE LENDING
The current lending policy of the Company includes originating or purchasing
non-residential mortgage loans on a variety of commercial properties, including
small office buildings, warehouses, small industrial/manufacturing buildings,
motel properties and other improved non-residential properties. In recent
years, commercial real estate lending has been identified as a growth area for
the Company with the allocation of additional Company resources.
Due to the low interest rate environment in effect throughout the year, owners
of commercial real estate tend to refinance their loans to improve cash flows.
The Company was positioned to take advantage of this market and was able to
originate a significant amount of commercial real estate loans within its
normal credit risk guidelines. The Company originated 95 loans for $105.4
million during the current fiscal year, for an average loan size of $1.1
million. At September 30, 1998, the Company had $170.6 million in commercial
real estate mortgage loans or 17.6% of the gross loan portfolio, compared with
$88.0 million or 11.2% of the portfolio at September 30, 1997.

As of September 30, 1998, the largest commercial real estate loan outstanding to
any one borrower consisted of $11.3 million secured by a retail office building
in Germantown, Wisconsin. The Company's lending area now includes northern
Illinois as well the State of Wisconsin. During the current year, the Company
originated $15 million in commercial real estate loans in northern Illinois.
Commercial real estate loans generally are underwritten in amounts up to 75% of
the lesser of the appraised value or purchase price of the underlying property.
Loans secured by commercial real estate properties still involve a greater
degree of credit risk than residential mortgage loans and generally carry large
loan balances. Payments on loans secured by commercial real estate are often
susceptible to adverse conditions in the real estate market or the economy.
Despite the risks inherent in commercial real estate lending, the Company's
percentage of delinquent commercial real estate loans to gross commercial real
estate loans has been minimal. The Company is continuing its efforts to increase
the amount of commercial real estate loans in the loan portfolio as these loans
generally offer a better interest rate than single-family loans, which, the
Company believes, justifies the increased credit risk.

HOME EQUITY LENDING
The Company has increased its emphasis in originating home equity loans secured
by one- to four-family residences within its primary market area. These loans
currently are originated with an interest rate indexed to the prime rate and
adjustable monthly. Home equity loans are revolving lines of credit, which are
granted for a five-year term, renewable at the sole discretion of the Company
for additional five-year periods. The minimum monthly principal amortization
to repay home equity loans is based on 1.5% of the outstanding balance.
Typically, an origination fee is charged upon the origination of the loan and
an annual service fee is charged thereafter. Home equity lines of credit may
be made at up to a 100% loan-to-value level, including any outstanding prior
liens against the property which serves as collateral for the line of credit.
For loans over 80% loan-to-value, the Company may obtain private mortgage
insurance. The Company is usually in a second lien position on home equity
loans. At September 30, 1998, the Company held $143.0 million in home equity
loans or 14.7% of the gross loan portfolio, compared with $115.3 million or
14.7% of the portfolio at September 30, 1997. Home equity loans offer the
Company an asset that adjusts with current rates of interest and are part of
the Company's management of its interest rate risk.

CONSUMER LENDING
The Company originates a variety of secured consumer loans, including home
improvement loans, automobile loans, educational loans, fixed term installment
loans and interim financing loans, as well as loans secured by savings accounts
and unsecured loans. Consumer loan terms vary according to the type of
collateral, term of the loan and creditworthiness of the borrower. The Company
has been expanding its consumer lending portfolio because higher yields can be
obtained. The Company believes there is strong consumer demand for such loan
products, and the Company historically has experienced relatively low
delinquency and few losses on such products except for losses on sub-prime auto
loans described further herein. Management also believes that offering
consumer loan products helps expand and create stronger customer relationships.

At September 30, 1998, consumer loans totaled $133.7 million or 13.8% of gross
loans compared to $121.3 million or 15.4% of gross loans at September 30, 1997.
The increase in the portfolio has been primarily in the area of indirect auto
lending through dealers located in the Company's primary market area and fixed
term installment

loans the Company makes that are secured by second mortgages in residential
properties. The indirect auto lending is underwritten by the Company and does
not include any "subprime" lending.

During fiscal 1995 and through January 1996, the Company purchased sub-prime
automobile loans originated throughout the United States under a warehouse
financing agreement. The intent was to warehouse the loans until the
originator could originate sufficient quantities to securitize the loans to
sell to institutional investors. The loans were serviced by an independent
third party servicer and had various levels of insurance and also guarantees
from the originator. The level of delinquencies and defaults on these loans
increased significantly during fiscal 1996 and the Company ceased purchasing
such loans. The Company currently has no intent to enter into any similar
arrangement but does intend to continue to originate or purchase automobile
loans in its primary market areas. The carrying amount of the purchased
automobile loans was $172,000 at September 30, 1998.

Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of unsecured loans or loans secured by rapidly
depreciating assets such as automobiles. In such case, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment as a result of the greater likelihood of damage, loss or
depreciation. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
affected by adverse personal circumstances. Furthermore, the application of
various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount which can be recovered on such a loan. Although the
delinquencies and net charge-offs in the Company's consumer loan portfolio
generally have been low, there can be no assurance that the level of
delinquencies and charge-offs will not increase in the future.

COMMERCIAL AND AGRICULTURE LENDING
The Company originates a variety of commercial and agriculture loans, including
inventory and receivable financing, equipment loans, agriculture production
loans and interim financing loans, as well as loans secured by corporate or
farm assets and unsecured loans. Commercial and agriculture loans involve a
greater degree of risk than most other types of loans, and payments are often
susceptible to adverse employment and economic conditions. Also, the repayment
of loans secured by commercial business assets is typically dependent upon the
successful operation and the eventual cash flows of the business. The Company
anticipates commercial and agriculture lending to continue to increase as
management believes this type of lending is an important component of a
balanced loan portfolio. Typically, the Company targets smaller businesses
with which to establish commercial banking relationships. These relationships
may include secured or partially secured real estate, business or cash flow
loans and inventory lending. Collateral can take many forms, such as real
estate, inventory, and equipment or may include personal guarantees of business
owners or personal or other collateral of the business owner. The Company
takes into account all cash flows attributable to the business plus collateral
when making lending decisions. Despite the risks inherent in commercial
lending, the Company's percentage of delinquent commercial loans to gross
commercial loans has been minimal.

At September 30, 1998, the Company had $93.9 million in commercial loans or
9.7% of the gross loan portfolio compared with $72.1 million or 9.2% of the
portfolio at September 30, 1997. $18.7 million in commercial loans were
purchased as part of the Kilbourn State Bank acquisition in 1997. At September
30, 1998, the largest commercial loan facilities outstanding were a $5.9
million line to finance a leasing operation and a $9.0 million credit facility
to a manufacturing entity. The Company intends to continue to increase its
involvement in commercial lending and expects that this portfolio will grow as
a percentage of the total loan portfolio.*

CREDIT ENHANCEMENT PROGRAMS
The Company has entered into agreements whereby, for an initial and annual fee,
it will guarantee payment of an industrial revenue bond issue ("IRB"). The
IRB's were issued by municipalities to finance real estate owned by third
parties. The Company has not pledged any collateral for purposes of these
agreements. At September 30, 1998, the amount of the IRB's for which the
Company has guaranteed payment was $18.3 million.

LOAN SALES AND PURCHASES

SALE OF MORTGAGE LOANS
The Company makes loans under various governmental programs including FHA, VA,
WHEDA and other City of Milwaukee-sponsored mortgage loan programs. All loans
made under the various governmental agency programs are underwritten to and
must meet all requirements of the appropriate city, state or federal agency.
Most of the Company's loans granted under governmental agency programs are sold
on a non-recourse basis either to secondary market purchasers of such loans or,
in the case of WHEDA loans, sold directly to WHEDA. Except for loans sold to
WHEDA, servicing of the loans is typically released to the purchaser of such
loans. For the year ended September 30, 1998, the Company originated $9.0
million of loans under these various governmental programs.

In recent years, the Company has sold a significant amount of its originated
residential mortgage loans to secondary marketing agencies, principally FNMA,
primarily on a non-recourse basis. All mortgage loans, upon commitment, are
immediately categorized as either held for investment or held for sale.
Mortgage loans originated and sold to the secondary market totaled $210.4
million with gains of $4.4 million for the year ended September 30, 1998, and
totaled $116.8 million with gains of $1.6 million for the year ended September
30, 1997. The level of mortgage loan sales is dependent on the amount of
sellable loans being originated by the Company. Depending on factors such as
interest rates, levels of refinancings and competitive factors in the Company's
primary market area, the amount of mortgage loan originations ultimately sold
can vary significantly. The Company is subject to interest rate risk on fixed
rate loans in its pipeline from the point in time that the rate is locked with
the borrower until the loan is sold. The Company utilizes various financial
techniques to mitigate such interest rate risk, including short call/put option
strategies, long put options and forward sales commitments. Any one or all of
these strategies may be used depending upon management's determination of
interest rate volatility, the amount of loans currently in the pipeline and
current market conditions for mortgage-backed securities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Asset/Liability Management."

Loan commitments are issued as soon as possible upon completion of the
underwriting process, and mortgage loans are closed as soon as all title
clearance and other required procedures have been completed. Because of the
frequency of both the issuance of commitments and the scheduled closing dates
of the loans, the amount of loan commitments outstanding will vary. At
September 30, 1998, the Company had outstanding mortgage commitments totaling
$17.2 million.

The Company retains servicing of the majority of mortgage loans sold, receiving
a servicing fee, which represents the difference between the mortgage rate on
the loans sold and the yield at which such loans are sold. The servicing yield
earned by the Company on such transactions is typically between .25% and .375%
of the total balance of the loan serviced. The origination of a high volume of
mortgage loans and the related sales of the loans with servicing retained
provides the Company with additional sources of non-interest income through
loan servicing income and gains on the sales of loans. At September 30, 1998
the Company has recognized $3.3 million in mortgage servicing rights as
compared to $1.8 million at September 30, 1997. Correspondingly, mortgage
loans serviced for others included in the mortgage servicing rights calculation
increased from $165.1 million at September 30, 1997 to $302.2 million at
September 30, 1998. Total mortgage loans serviced for others equaled $413.7
million at September 30, 1998.

PURCHASE OF MORTGAGE LOANS
The Company, as a regular part of its mortgage lending activities, purchases
single-family mortgage loans originated in its primary market area by other
lenders, primarily mortgage bankers and brokers. The types of loans purchased
are generally newly originated loans with the same characteristics as the loans
normally originated by the Company in its regular lending operations. This
includes both fixed and adjustable rate mortgage loans which may or may not be
sold in the secondary market. The Company pays a fee to the originating
mortgage banker or broker which is amortized over the life of the loan for
loans retained in the portfolio or which becomes an adjustment to the gain or
loss recognized on loans sold in the secondary market. The Company maintains
the same underwriting standards on these loans as it does on the loans it
originates directly. During the fiscal year ended September 30, 1998, the
Company purchased $65.4 million of loans from other originators compared to
$21.5 million of loans

purchased during the fiscal year ended September 30, 1997. As part of the
Company's plans to diversify its single-family loan production, it is expected
that purchases of loans from other originators will continue in future years.*

The Company also has purchased pools of single-family loans originated by other
lenders in other parts of the country. The loans purchased have generally been
adjustable rate loans with interest rate adjustment features of one month to
one year and are indexed to current indexes such as the one-year treasury or to
lagging indexes such as the 11th district cost of funds. As part of its
interest rate risk management, the Company attempts to identify loans
originated in other parts of the country where adjustable rate lending is more
prevalent, since the availability of similar loan products within its primary
market area is limited and competition for that limited demand may force
interest rates to levels considered too low compared to other available
instruments. The Company generally does not make a significant amount of
short-term adjustable rate loans in its home market. Of the $65.4 million one-
to four-family mortgage loans purchased during the year ended September 30,
1998, $20.6 million were loans secured by properties located outside the state
of Wisconsin. Purchased loans can result in a higher level of risk due to the
Company not being involved in the original lending process. Efforts taken to
mitigate the additional risk include underwriting efforts by the Company prior
to purchase, review of the historical payment and credit history of the loans
being purchased, and purchasing loans with additional yields for the risks
taken.

LOAN ORIGINATION, SERVICING AND OTHER FEES
In addition to interest earned on loans, the Company receives income through
fees in connection with loan originations, loan sales, loan modifications, late
payments and for miscellaneous services related to its loans, including loan
servicing. Income from these activities varies from period to period with the
volume and type of loans originated.

In connection with the origination of mortgage loans, the Company typically
charges fees for processing and closing in addition to requiring borrower
reimbursement of out-of-pocket fees for costs associated with obtaining
independent appraisals, credit reports, title insurance, private mortgage
insurance and other items. The Company also may charge points for the
origination of loans in exchange for a lower interest rate on the loan itself.
However, with the availability of zero point mortgage loans in recent years,
most borrowers typically accept a slightly higher interest rate and pay zero
points. A borrower pays commitment fees at the time of loan commitment,
whereas the origination and discount fees are paid at time of closing.
Commitment fees are periodically collected on commercial real estate or
multi-family mortgage loans but are rarely collected as part of the origination
of single-family mortgage loans.

DELINQUENCIES, NON-PERFORMING ASSETS AND CLASSIFIED ASSETS

DELINQUENT LOANS
When a borrower fails to make a required payment by the end of the month in
which the payment is due, the Company generally initiates collection
procedures. The Company will send a late notice, and in most cases,
delinquencies are cured promptly. However, if a loan has been delinquent for
more than 60 days, the Company contacts the borrower directly, to determine the
reason for the delinquency and to effect a cure, and where it believes
appropriate, reviews the condition of the property and the financial position
of the borrower. At that time the Company may (i) accept a repayment program
for the arrearage; (ii) seek evidence of efforts by the borrower to sell the
property; (iii) request a deed in lieu of foreclosure; or (iv) initiate
foreclosure proceedings. When a loan, secured by a mortgage, is delinquent for
three or more monthly installments, the Company generally will initiate
foreclosure proceedings. With respect to delinquencies on FHA, VA or other
governmental loan program mortgage loans, the Company follows the appropriate
notification and foreclosure procedures prescribed by the respective agencies.

On mortgage loans or loan participations purchased by the Company, the Company
receives monthly reports from its loan servicers with which it monitors the
loan portfolio. Based upon servicing agreements with the servicers of the
loan, the Company relies upon the servicer to contact delinquent borrowers,
collect delinquent amounts and initiate foreclosure proceedings, when
necessary, all in accordance with applicable laws, regulations and the terms of
the servicing agreements between the Company and its servicing agents.

14
NON-PERFORMING ASSETS
Loans are placed on nonaccrual status when, in the judgment of Company
management, the probability of collection of principal or interest is deemed
insufficient to warrant further accrual of interest. The Company discontinues
the accrual of interest on loans when the borrower is delinquent as to a
contractually due principal or interest payment by 90 days or more. When a
loan is placed on nonaccrual status, all of the accrued interest on it is
reversed by way of a charge to interest income. Interest income is recorded on
nonaccrual loans when cash payments of interest are received. The accrual of
interest on a nonaccrual loan is resumed when all contractually past due
payments are current and when management believes the collection of the
outstanding loan principal and contractually due interest is no longer in
doubt.

Property acquired by the Company as a result of a foreclosure or by deed in
lieu of foreclosure is classified as foreclosed property. Foreclosed property
is recorded at the lower of the unpaid principal balance of the related loan or
the fair market value of the real estate acquired less the estimated costs to
sell the real estate. The amount by which the recorded loan balance exceeds
the fair market value of the real estate acquired less the estimated costs to
sell the real estate is charged against the allowance for loan losses at the
date title is received. Any subsequent reduction in the carrying value of a
foreclosed property, along with expenses incurred to maintain or dispose of a
foreclosed property, is charged against current earnings. At September 30,
1998, the Company had one one-to four-family loan classified as a foreclosed
property with a carrying value of $63,000.

Non-performing loans include loans placed on nonaccrual status and troubled
debt restructurings. Non-performing assets include non-performing loans and
foreclosed properties. The following table sets forth non-performing loans and
assets:

AT SEPTEMBER 30,
----------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ------------- ------------ ------------ -------------
(IN THOUSANDS)

One-to four-family mortgage loans... $ 600 $ 660 $ 44 $ 296 $ 175
Multifamily mortgage loans.......... - - - - 7,446
Commercial real estate loans........ 833 850 - - -
----------- ------------- ------------ ------------ -------------
Total non-performing
mortgage loans 1,433 1,510 44 296 7,621
Commercial loans.................... 593 100 - - -
Consumer loans...................... 835 1,385 3,846 136 14
----------- ------------- ------------ ------------ -------------
Total non-performing loans.... 2,861 2,995 3,890 432 7,635
Foreclosed properties............... 63 416 80 5,833 17
----------- ------------- ------------ ------------ -------------
Total non-performing assets... $ 2,924 $ 3,411 $ 3,970 $ 6,265 $ 7,652
=========== ============= ============ ============ =============
Total non-performing loans to
gross loans........................ 0.29 % 0.38 % 0.58 0.08 % 1.65 %
Allowance for loan losses to
total non-performing loans......... 263.19 207.08 134.11 943.52 44.99
Total non-performing assets to
total assets....................... 0.16 0.21 0.28 0.53 0.75

Interest on non-performing loans
on the accrual basis............... $ 388 $ 647 $ 296 $ 34 $ 596
Actual interest received on
non-performing loans............... 161 206 11 26 315
----------- ------------- ------------ ------------ -------------
Net reduction of interest income.... $ 227 $ 441 $ 285 $ 8 $ 281
=========== ============= ============ ============ =============

Non-performing assets as of September 30, 1998 and 1997 included $172,000 and
$1.1 million, respectively, of purchased auto loans, which are past due or in
default or are expected to become past due. The auto loans were purchased in
fiscal 1995 through January 1996 under a warehouse financing arrangement the
Company had with an originator of sub-prime automobile loans. The Company has
not funded any loans under this agreement subsequently. The Company recorded
$1.0 million in net charge-offs in fiscal 1998, which included $372,000 due to
the aforementioned auto loans. Also included in non-performing assets in 1998
is a single $833,000 commercial real estate loan on a shopping center that is
current as to principal and interest but there is some uncertainty as to future
contractual payments.

CLASSIFICATION OF ASSETS
Federal regulations require that each insured financial institution classify
its assets on a regular basis. In addition, in connection with examinations of
insured institutions by regulatory authorities, regulatory examiners have
authority to identify problem assets as "Substandard," "Doubtful" or "Loss".
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the Company will sustain some loss if the
deficiencies are not corrected. Doubtful assets have the weaknesses of
Substandard assets, with the additional characteristics that the weaknesses
make collection or liquidation in full, on the basis of currently existing
facts, conditions and values, questionable, and there is a high possibility of
loss. An asset classified as Loss is considered uncollectible and of such
little value that continuance as an asset of the Company is not warranted.
Assets classified as Substandard or Doubtful require the Company to establish
prudent general allowances for loan losses. Assets classified as Loss must
either be charged off or must have a specific allowance established for 100% of
the asset classified as a Loss. At September 30, 1998, the Company had assets
classified as Substandard of $3.1 million, $854,000 classified as Doubtful, and
$245,000 classified as Loss. The Doubtful classification consists primarily of
a commercial real estate loan on a shopping center.

Except for the aforementioned loans included in non-performing assets, the
classified assets principally consist of residential mortgage or consumer loans
and foreclosed properties. None of these remaining classified assets are
considered to represent either individually or in the aggregate any material
loss to the Company; however, such risk has been considered in establishing the
allowance for loan losses.

ALLOWANCE FOR LOAN LOSSES
Under federal regulations, when an insured institution classifies problem
assets as either Substandard or Doubtful, it is required to establish general
allowances for loan losses in an amount deemed prudent by management. In
addition to general valuation allowances, the Company may establish specific
loss reserves against specific assets in which a loss may be realized. General
allowances represent loss allowances that have been established to recognize
the inherent risks associated with lending activities, but which, unlike
specific allowances, have not been allocated to recognize probable losses on
particular problem assets. The Company's determination as to its
classification of assets and the amount of its specific and general valuation
allowances are subject to review by the Company's regulators which can order
the establishment of additional general or specific loss allowances.

The allowance for loan losses is a material estimate that is particularly
susceptible to significant changes in the near term and is established through
a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation, which
includes a review of all loans on which full collectibility may not be
reasonably assured, considers, among other matters, the estimated net
realizable value of the underlying collateral, economic conditions, historical
loan loss experience and other factors that warrant recognition in providing
for an adequate loan loss allowance.

A summary of activity in the allowance for losses on loans follows:

Year Ended September 30,
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(In thousands)

Balance at beginning of year $6,202 $5,217 $4,076 $3,435 $3,204
Provision for loan losses............................. 2,300 1,280 1,300 240 240
Charge-Offs:
Mortgage Loans:
One- to four family............................... 176 24 15 42 52
Multifamily....................................... - - - 210 -
Commercial real estate............................ - - - - -
Home equity....................................... 71 - 6 - 13
Consumer............................................ 740 2,028 167 55 17
Commercial and agricultural......................... 12 2 - - -
------ ------ ------ ------ ------
Total charge-offs 999 2,054 188 307 82

Recoveries:
Mortgage Loans:
One- to four family............................... - - - - -
Multifamily....................................... - - - - -
Commercial real estate............................ - - - - -
Home equity....................................... - - 21 - -
Consumer............................................ 27 80 8 12 2
Commercial and agricultural......................... - 1 - 2 -
------ ------ ------ ------ ------
Total recoveries................................ 27 81 29 14 2
------ ------ ------ ------ ------
Net charge-offs....................................... 972 1,973 159 293 80
Acquired bank's allowance............................. - 1,678 - 694 -
Reclassified allowance................................ - - - - 71
------ ------ ------ ------ ------
Balance at end of period.............................. $7,530 $6,202 $5,217 $4,076 $3,435
====== ====== ====== ====== ======
Ratio of allowance for loan losses to
gross loans receivable at end of period............... 0.77% 0.79% 0.78% 0.77% 0.74%

Ratio of allowance for loan losses to
non-performing loans at end of period................. 263% 207% 134% 944% 45%

Ratio of net charge-offs to average
gross loans during period............................. 0.12% 0.30% 0.03% 0.06% 0.02%

Management is aware of no material loans where serious doubts exist as to the
ability of the borrower to comply with the loan terms, except for the single
commercial real estate loan previously discussed. The 1998 increase in the
allowance for loan losses supports the Company's targeted current year's growth
in commercial and commercial real estate lending. Such loans may result in a
higher level of future charge-offs than the Company's more traditional lending
in one- to four-family mortgage loans. The 1997 increase in the amount of the
allowance for loan losses supports the growth in the loan portfolio and is
primarily attributable to the $1.7 million allowance of the acquired Kilbourn
State Bank.

The following table shows the Company's total allowance for loan losses and the
allocation to the various categories of loans at the dates indicated.

At September 30,
-------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ------------------------------- --------------------
% of % of
% of Loans in % of Loans in % of
Total Category Total Category Total
Loans by to Total Loans by to Total Loans by
Amount Category Loans Amount Category Loans Amount Category
---------- -------- -------- ----------- -------- -------- ---------- --------
(In thousands)
Breakdown of Allowance:

Mortgage loans:
One- to four-family...................... $ 1,186 0.36% 33.4% $ 925 0.32% 36.6% $ 957 0.32%
Multi-family............................. 765 0.73% 10.8% 670 0.66% 12.9% 840 0.81%
Commercial real estate................... 2,035 1.19% 17.6% 1,281 1.46% 11.2% 593 1.28%
Home equity.............................. 746 0.52% 14.7% 629 0.55% 14.7% 449 0.50%
---------- ------ ---------- ------ ----------
Total mortgage loans...................... 4,732 76.5% 3,505 75.4% 2,839
Consumer.................................. 1,074 0.80% 13.8% 717 0.59% 15.4% 2,128 2.12%
Commercial and agriculture................ 1,724 1.84% 9.7% 1,980 2.74% 9.2% 250 0.99%
---------- ------ ---------- ------ ----------
Total allowance for loan losses......... $ 7,530 100.0% $ 6,202 100.0% $ 5,217
========== ====== ========== ====== ==========

------------------------------
1996
------------------------------
% of
Loans in
Category
to Total
Loans
--------
(In Thousands)
Breakdown of Allowance:

Mortgage loans:
One- to four-family...................... 45.3%
Multi-family............................. 15.4%
Commercial real estate................... 6.9%
Home equity.............................. 13.5%
------
Total mortgage loans...................... 81.1%
Consumer.................................. 15.0%
Commercial and agriculture................ 3.9%
------
Total allowance for loan losses......... 100.0%
======

At September 30,
---------------------------------------------------------------
1995 1994
------------------------------ -------------------------------
% of % of
% of Loans in % of Loans in
Total Category Total Category
Loans by to Total Loans by to Total
Amount Category Loans Amount Category Loans
---------- -------- -------- ----------- -------- --------
(In thousands)
Breakdown of Allowance:

Mortgage loans:
One- to four-family...................... $ 1,031 0.44% 44.1% $ 718 0.27% 51.6%
Multi-family............................. 957 1.02% 17.6% 2,068 2.07% 20.5%
Commercial real estate................... 619 2.19% 5.3% 163 0.89% 4.0%
Home equity.............................. 504 0.63% 15.1% 259 0.39% 14.2%
--------- ------ ----------- ------
Total mortgage loans...................... 3,111 82.1% 3,208 90.3%
Consumer.................................. 789 0.96% 15.4% 227 0.51% 9.7%
Commercial and agriculture................ 176 1.29% 2.5% - - -
--------- ------ ----------- ------
Total allowance for loan losses......... $ 4,076 100.0% $ 3,435 100.0%
========= ====== =========== ======

The increase in the reserves allocated to commercial real estate over the last
two years reflects the Company's increased lending volume and the
aforementioned shopping center loan. The entire reserve that was part of the
Kilbourn State Bank acquisition was initially allocated to commercial lending.
Upon further review it was determined that the reserve was sufficient to
support additional underwriting as a percentage of loans outstanding. The
decrease in the allocated reserve on consumer loans was due to the decrease in
non-performing subprime auto loans.

INVESTMENT ACTIVITIES

GENERAL
The investment policy of the Company is designed primarily to provide and
maintain required liquidity, generate a favorable return on investments without
incurring undue interest rate and credit risk and complement the Company's
lending activities. The Company's investment policy permits investment in
various types of liquid assets permissible under Office of Thrift Supervision
("OTS") regulations, which include U.S. Treasury obligations, securities of
various federal agencies, certain certificates of deposits of insured banks and
savings institutions, certain bankers' acceptances and the purchase of federal
funds. The Company also invests in corporate debt, asset-backed securities,
mortgage-backed securities ("MBS's") and collateralized repurchase agreements,
municipal securities, mortgage mutual funds, collateralized mortgage
obligations ("CMO's"), real estate mortgage investment conduits ("REMIC's"),
interest-only stripped securities ("IO's"), principal-only stripped securities
("PO's") and CMO residuals. At the time of purchase, all of the Company's
investments are investment grade as rated by at least one of the major rating
agencies.

The Company determines the appropriate classification of securities at the time
of purchase and reevaluates such designations as of each statement of condition
date based on regulatory and accounting guidelines. The Company has
incorporated the requirements of those guidelines into the Company's investment
policy and has categorized its investments in three separate categories: (i)
Held to Maturity: debt and mortgage-backed and related securities are
classified as held to maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held to maturity securities are
carried at amortized cost; (ii) Available for Sale: debt and mortgage-back
and related securities not classified as held to maturity, or trading and
marketable equity securities not classified as trading are classified as
available for sale. Available for sale securities are stated at fair value,
with the unrealized gains or losses, net of tax, reported as a separate
component of shareholders' equity; and (iii) Trading: the Company maintains a
separate portfolio of assets which are carried at market value and have been
acquired for short term/trading purposes, to enhance the Company's financial
results, with unrealized gains or losses recognized in current income.

The investment activities of the Company consist primarily of investments in
mortgage-backed and related securities and other debt and equity securities,
consisting primarily of securities issued or guaranteed by the United States
Government or agencies thereof, and corporate obligations. Typical investments
include federally sponsored agency mortgage pass-throughs, private issue and
senior-subordinated pass-throughs and federally sponsored agency and private
issue CMO's.

MORTGAGE-BACKED AND RELATED SECURITIES
Mortgage-backed securities represent a participation interest in a pool of
single-family or multi-family mortgage loans, the principal and interest
payments on which are passed from the mortgage loan originators through
intermediaries that pool and repackage the participation interest in the form
of securities for sale to investors such as the Company. Such intermediaries
which guarantee the payment of principal and interest to investors can be
government sponsored enterprises such as Federal Home Loan Mortgage Corporation
("FHLMC"), FNMA and Government National Mortgage Association ("GNMA"), or
private mortgage security conduits. Mortgage-backed securities issued by
government sponsored enterprises generally increase the quality of the Company's
assets by virtue of the guarantees that back them and generally are
more liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of the Company.

When purchased by the Company, these securities have credit ratings of A or
better and meet the Federal Financial Institutions Examination Council
definition of low-risk securities. At September 30, 1998, private-issue
mortgage-backed securities, CMO's and REMIC's totaled $623.8 million, 89% of
which had a credit rating of AAA, 10% of which had a credit rating of AA, and
1% of which had a credit rating of A. At September 30, 1997, private-issue
mortgage-backed securities, CMO's and REMIC's totaled $667.2

million, 74% of which had a credit rating of AAA, 21% of which had a credit
rating of AA, 4% of which had a credit rating of A, and 1% which had a credit
rating of BBB. During the year ended September 30, 1997, the Company recorded
declines in fair value judged to be other than temporary on four of its private
issue mortgage-backed securities. The securities were written down to fair
value and an impairment loss of $3.4 million was recorded in the Company's
income statement. Prior to the adjustment, the Company's cost basis in these
securities was $12.5 million. The impairment loss resulted in a new cost basis
of $9.1 million for these four issues. The four issues under impairment were
private issue mortgage-backed securities backed by single-family loans secured
by properties located primarily in California. The underlying loans had
experienced significant delinquencies and foreclosures. The Company learned that
recoveries on these loans were less than previously realized and that the
various subordinate and cash positions within the mortgage-backed structures no
longer protected the Company's position in the securities. The Company wrote
these securities down to fair value, which is a level where the remaining cash
flows should provide a return at a market rate of interest income on the
remaining cost basis. * During the year ended September 30, 1998, one of the
impaired issues, with a cost basis of $7.2 million, was sold at a gain of
$151,000. At September 30, 1998, the cost basis and market value of the three
remaining impaired securities was $479,000 and $412,000, respectively, compared
with $9.1 million and $9.1 million, respectively, at September 30, 1997.

Private issue mortgage-backed securities and REMIC's have been an integral
component of the Company's plan to increase earning assets by purchasing such
securities and funding them with advances from the Federal Home Loan Bank or
with brokered certificates of deposit. Investment and aggregate investment
limitations and credit quality parameters of each class of investment are
prescribed in the Company's investment policy. The Company performs analyses
on mortgage related securities prior to purchase and on an ongoing basis to
determine the impact on earnings and market value under various interest rate
and prepayment conditions. In determining if declines in value in
mortgage-backed and related securities are other than temporary, management
estimates future cash flows to be generated by pools of loans underlying the
securities. Included in this evaluation are such factors as i) estimated loan
prepayment rates, ii) a review of delinquencies, foreclosures, repossessions
and recovery rates relative to the underlying mortgage loans collateralizing
each security, iii) the level of available subordination or other credit
enhancements, iv) an assessment of the servicer of the underlying mortgage
portfolio, and v) the rating assigned to each security by independent national
rating agencies.

At September 30, 1998, the aggregate securities of any single issuer (excluding
securities of the U.S. government and U.S. government agencies and
corporations) did not exceed 10% of the Company's shareholders' equity.

19
20

COMPOSITION OF THE COMPANY'S MORTGAGE-BACKED AND RELATED SECURITIES PORTFOLIO

Held to Maturity. At September 30, 1998, the Company held $63.1 million in its
mortgage-backed and related securities held to maturity portfolio. The
estimated market value of those securities at that date was $63.5 million. Of
this amount, at September 30, 1998, 100% were fixed rate REMIC securities. At
September 30, 1998, the mortgage-backed and related securities held to maturity
portfolio represented 3.4% of the Company's total assets compared to $66.8
million or 4.0% of total assets at September 30, 1997.

The following table sets forth certain information regarding the amortized
cost, weighted average yields and maturities of the Company's mortgage-backed
and related securities held to maturity at September 30, 1998. (Note: all
classes had a weighted term to maturity of over 10 years)

----------------------------------------------
Total
----------------------------------------------
Average
Remaining Estimated Weighted
Years to Amortized Fair Average
Maturity Cost Value Yield
--------- ------------ ----------- --------
(In thousands)

REMIC's:
FNMA.............. 16.0 $ 1,609 $ 1,612 6.60%
FHLMC............. 18.3 999 1,003 8.04%
Private Issue..... 21.3 60,479 60,882 6.62%
------------ -----------
$ 63,087 $ 63,497
============ ===========

Available for Sale. At September 30, 1998, the Company had mortgage-backed and
related securities available for sale with a carrying value of $634.0 million
and an estimated market value of $634.0 million which comprised 34.0% of total
assets. Of these, $7.8 million were MBS's issued by various federal agencies,
$115.3 million were private issue MBS's, $63.3 million were agency REMIC's, and
$448.3 million were private issue REMIC's. At September 30, 1997, the
Company's mortgage-backed and related securities held for sale were $620.7
million, representing 37.4% of total assets. Of these, $20.4 million were
MBS's issued by various federal agencies, $224.9 million were private issue
MBS's, $221.8 million were agency REMIC's, and $ 153.7 million were private
issue REMIC's. The Company is utilizing its capital position to increase
earning assets by increasing the level of mortgage-backed and related
securities in its portfolio. During the past year, the emphasis has been on
purchasing adjustable rate private issue mortgage-backed securities and
adjustable rate REMIC's which the Company views as having favorable interest
rate risk and pricing characteristics in comparison to other investment
alternatives. Although there may be various subordination levels within the MBS
or REMIC structure or levels of collateral underlying the securities that
should protect the Company's position in the securities, private issue
securities represent an additional level of credit risk when compared with
agency issue securities. The Company takes its perception of that additional
credit risk into consideration when making the determination of whether to buy
the security at the price and yield offered.

------------------------------------------------------------------------------
Over one year to Over five years to
five years ten years Over ten years
---------------------------- ---------------------- ------------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
-------------- --------- ----------- --------- ----------- -----------
(In thousands)

Participation certificates:
FNMA.................. - - - - $ 4,999 6.58%
FHLMC................. $ 1,967 5.97% - - 860 3.01%
Private Issue......... 211 8.45% $ 1,917 6.38% 113,190 7.11%

REMIC's:
GNMA.................. - - - - 3,175 6.35%
FNMA.................. 184 9.00% 426 7.63% 17,213 6.78%
FHLMC................. - - 14,052 6.62% 28,231 6.90%
Private Issue......... 207 6.50% 6,398 6.47% 441,641 6.51%
-------------- ----------- -----------
$ 2,569 $ 22,793 $ 609,309
============== =========== ===========

----------------------------------------------------
Total
----------------------------------------------------
Average
Remaining Estimated Weighted
Years to Amortized Fair Average
Maturity Cost Value Yield
------------ ---------- ---------- -----------
(In thousands)

Participation certificates:
FNMA................... 28.09 4,999 4,912 6.58%
FHLMC.................. 10.37 2,827 2,828 5.05%
Private Issue.......... 25.63 115,318 113,771 7.11%

REMIC's:
GNMA................... 23.56 3,175 3,213 6.35%
FNMA................... 25.36 17,823 17,929 6.83%
FHLMC.................. 16.85 42,283 42,060 6.81%
Private Issue.......... 29.05 448,246 449,290 6.50%
----------- ---------
$ 634,671 $634,003
=========== =========

Held for Trading. At September 30, 1998 and 1997, the Company did not have any
securities in its trading portfolio. The trading portfolio of the Company has
typically carried various mortgage-backed or related securities that are
purchased for short-term trading profits or securities that are required to be
classified as such by regulatory definition. The Company may from time to time
originate mortgage loans which are swapped for mortgage-backed securities
backed by the original loans. Currently, these securities are required to be
classified as trading securities. However beginning January 1, 1999, these
securities will be classified as held to maturity, available for sale or
trading based upon the ability and intent of the Company. The Company expects
to continue to sell mortgage loans by this method in future years.*

OTHER SECURITIES
The Company invests in various types of liquid assets that are permissible
investments for federally chartered savings associations or state-chartered
commercial banks, including U.S. Treasury obligations, securities of various
federal agencies, certain certificates of deposit of insured banks and savings
institutions, federal funds and, from time to time, repurchase agreements.
Subject to various restrictions applicable to all federally chartered savings
associations or state-chartered commercial banks, the Company also invests its
assets in commercial paper, investment grade corporate debt securities,
municipal securities, asset-backed securities and mutual funds, the assets of
which conform to the investments the Company is otherwise authorized to make
directly. Debt and equity securities are classified as either
available-for-sale or held-to-maturity at the time of purchase, and carried at
market value if available-for-sale or at amortized cost if held-to-maturity.
The Company's current investment policy permits purchases only of investments
rated investment grade by a nationally recognized rating agency and does not
permit purchases of securities of non-investment grade quality.

COMPOSITION OF THE COMPANY'S DEBT AND EQUITY SECURITIES PORTFOLIO

Held to Maturity. At September 30, 1998, the Company had debt securities with
an amortized cost of $1.8 million and an estimated market value of $1.9
million. Of the total, $1.0 million were U.S. Treasury and agency obligations
and $810,000 were state and municipal obligations. The Company purchases debt
securities that are in the top three investment grades (A or better) at the
time that the investment is made.

The following table sets forth certain information regarding the amortized
cost, weighted average yields and maturities of the Company's investment
securities held to maturity at September 30, 1998. The yields on the municipal
securities represent their taxable-equivalent yield.

-----------------------------------------------------------------------------
Over one year to Over five years to
Less than one year five years ten years
----------------------- --------------------------- -----------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
------------ --------- ------------- ------------ ------------ ---------
(In thousands)

U.S. Treasury and agency obligations. $ 1,007 7.94 - - - -
State and municipal obligations...... - - $ 510 9.17% $ 300 9.31%
------------ ------------- ------------
$ 1,007 $ 510 $ 300
============ ============= ============

U.S. Treasury and agency obligations. 0.4 $ 1,007 $ 1,020 7.94%
State and municipal obligations...... 4.5 810 855 9.22%
------------ ------------
$ 1,817 $ 1,875
============ ============

Available for Sale. At September 30, 1998, the Company had securities
available for sale with an amortized cost of $107.8 million and an estimated
market value of $109.1 million. Of the total, $84.8 million were U.S. Treasury
or agency obligations, $1.0 million were corporate notes and bonds, and $22.0
million were marketable equity securities, primarily shares of mutual funds
invested in bank or thrift eligible securities.

The following table sets forth certain information regarding the amortized
cost, weighted average yields and maturities of the Company's investment
securities available for sale at September 30, 1998. The yields on the
municipal securities represent their taxable-equivalent yield.

----------------------------------------------------------------------------
Over one year to Over five years to
Less than one year five years ten years
------------------------ ------------------------- -----------------------
Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield
------------- --------- ------------ ----------- ------------ ---------
(Dollars in thousands)

U.S. Treasury and agency
obligations................. $ 7,016 5.84% $58,494 5.64% $ 18,273. 6.42%
Corporate notes and bonds... - - 1,000 6.31% - -
Marketable equity
securities.................. 22,021 7.91% - - - -
------------- ------------ ------------
$29,037 $59,494 $ 18,273
============= ============ ============

------------------------ --------------------------------------------------
Over ten years Total
------------------------ --------------------------------------------------
Average
Weighted Remaining Estimated Weighted
Amortized Average Years to Amortized Fair Average
Cost Yield Maturity Cost Value Yield
------------- --------- ------------ ----------- ------------ ---------
(Dollars in thousands)

U.S. Treasury and agency
obligations................. $ 1,008 7.00% 4.5 $ 84,791 $ 86,022 5.84%
Corporate notes and bonds... - - 1.8 1,000 1,018 6.31%
Marketable equity
securities................. - - - 22,021 22,021 7.91%
------------- ----------- ------------
$ 1,008 $107,812 $109,061
============= =========== ============

AFFORDABLE HOUSING ACTIVITIES

The Company, through the Bank's subsidiary St. Francis Equity Properties
("SFEP"), invests in affordable housing properties throughout the State of
Wisconsin. The properties qualify for tax credits under Section 42 of the
Internal Revenue Code ("Code"). The Code provides a per state volume cap on
the amounts of low-income housing tax credits that may be taken in each state.
In order to claim a tax credit, a credit allocation must be received from the
appropriate state or local housing development authority, which in Wisconsin is
WHEDA. Typically, SFEP will commit to the equity funding of a specific
property that a developer has submitted to WHEDA for approval and received.
The developer then builds the property, generally with financing from the Bank,
with final equity funding from SFEP coming at the completion of construction.
Each property is structured as a limited liability partnership ("LLP") or
limited liability corporation ("LLC"), with SFEP being a 98% or 99% partner or
owner in each individual LLP or LLC.

The investment in the properties is treated as an equity investment for
accounting purposes and the financial condition, results of operations and cash
flows of each LLP or LLC is consolidated in the Company's financial statements.
The operations of the properties are not expected to contribute significantly
to the Company's net income before income taxes. However, the properties do
contribute in the form of income tax credits, which lower the Company's
effective tax rate. Once established, the credits on each property last for
ten years and are passed through from the LLP or LLC to SFEP and reduce the
consolidated federal tax liability of the Company. Gross revenues of SFEP were
$5.1 million, $3.4 million and $1.9 million for the years ended September 30,
1998, 1997 and 1996 respectively. Gross expenses of SFEP were $5.3 million,
$3.9 million and $2.2 million for each of the three years, respectively. The
net operating loss of SFEP results in an income tax benefit which is then
increased by the income tax credits which totaled $4.2 million, $2.9 million
and $1.6 million for the years ended September 30, 1998, 1997 and 1996,
respectively.

At September 30, 1998 the amount invested in affordable housing projects was
$50.8 million compared with $51.5 million at September 30, 1997. At September
30, 1998 and 1997, SFEP was a equity partner in 25 projects. The Company did
not invest in any new projects during the year ended September 30, 1998 due to
the level of income tax credits being recognized on current projects. The
amount of tax credits eligible to be taken on the Company's consolidated income
tax return is limited by the alternative minimum tax rules. The Company does
not anticipate investing in any significant new projects and may sell selected
projects if its tax situation is such that significant amounts of tax credits
will be subject to carryforward on the Company's consolidated federal tax
return.* At September 30, 1998, the Company has a low income housing credit
carryforward of $877,000.

The primary risk to the Company's results of operations from the affordable
housing investments involves the maintenance of the tax credits. The Company
has instituted several procedures which it believes will result in the
maintenance of the tax credits.* Those procedures include an outside audit of
the individual LLP or LLC, including tenant compliance records. An outside
audit of the original development costs, review of the LLP or LLC and tenant
compliance records by the Company's staff, and a review of audit and compliance
records of the LLP or LLC performed by WHEDA. The Company believes that it has
maintained compliance on all of its properties and that through September 30,
1998, no income tax credits are at risk.

Other risks of the affordable housing investments include the risks common to
the owning and operating of apartment units, including, 1) length of time of
initial lease up, 2) tenant vacancy factors, 3) operating costs of the
properties, 4) unexpected or significant capital improvement costs, and 5) the
market for the type of apartment unit in the area in which it resides.
Although marketing studies are part of the initial development of the property,
there can be no assurance that other similar properties might be built near any
of the Company's properties at a later date and have an adverse effect upon the
occupancy rate of the Company's units.

SOURCES OF FUNDS

GENERAL
The Company's primary sources of funds for use in lending, investing and for
other general purposes are deposits, including brokered deposits, proceeds from
principal and interest payment on loans, mortgage-backed and related securities
and debt and equity securities, FHLB advances, and to a lesser extent, reverse
repurchase agreements. Contractual loan payments are a relatively stable
source of funds, while deposit inflows and outflows and loan prepayments are
significantly influenced by general market interest rates and economic
conditions. Borrowings may be used on a short-term basis to compensate for
seasonal or other reductions in normal sources of funds or for deposit inflows
at less than projected levels, or they also may be used on a longer-term basis
to support expanded lending or investment activities.* The Company utilizes
advances from the FHLB and reverse repurchase agreements as sources for its
borrowings. The Company is currently utilizing its capital position to increase
assets by investing in primarily mortgage-backed or REMIC securities with
adjustable rates or short and medium terms, and financing the purchases with
advances from the FHLB that generally match the expected maturity duration of
the respective securities. At September 30, 1998 and 1997, the Company had
advances from the FHLB of $452.1 million or 25.9% of total liabilities, and
$385.1 million or 25.1% of total liabilities, respectively. At September 30,
1998 and 1997, the Company had reverse repurchase agreements outstanding of
$30.6 million or 1.8% of total liabilities, and $22.5 million or 1.5% of total
liabilities, respectively. Of the Company's outstanding FHLB advances at
September 30, 1998, $367.0 million will mature before September 30, 1999.

DEPOSITS
The Company offers a variety of deposit accounts having a range of interest
rates and terms. The Company's deposits principally consist of demand accounts
(non-interest bearing checking, interest bearing checking, money market demand
accounts ("MMDA") and passbook) and certificates of deposit. The flow of
deposits is influenced significantly by general economic conditions, changes in
prevailing interest rates and competition. The Company's deposits are obtained
primarily from the areas in which its branches are located, and the Company
relies principally on customer service, marketing programs and long-standing
relationships with customers to attract and retain these deposits. Various
types of advertising and promotions to attract and retain deposit accounts also
are used. Deposit promotions may involve the use of specific advertising for a
type of deposit or it may include some form of pricing incentive: either a
deposit product with a higher rate than currently offered by most competitors
in the Company's market area, or a temporary pricing concession for a limited
period of time. For several years, the Company also has used brokered deposits
as a funding source for its business activities. The brokered deposits are
used to fund both general operating activities of the Company and to fund the
Company's leverage program. At September 30, 1998, the Company had $214.9
million of brokered deposits, representing 17.7% of total deposits, compared to
$140.8 million or 12.9% of total deposits at September 30, 1997. Maturities of
brokered certificates range from three months to longer term certificates and
include certificates that are callable at the option of the Company. The
Company has used brokered deposits to fund operational activities when such
funds offer a better or quicker funding source than retail deposits or FHLB
advances.

Management monitors the Company's certificate accounts and, based on historical
experience, management believes it will retain a large portion of such accounts
upon maturity.* However, management believes that the likelihood for retention
of brokered certificates of deposit is more a function of the rate paid on such
accounts as compared to retail deposits which may be established due to branch
location or other intangible reasons. Management considers Company
profitability, the matching of term lengths with assets, the attractiveness to
customers and rates offered by competitors in deposit offerings and promotions.
The Company has been competitive in the types of accounts and interest rates
it has offered on its deposit products. The Company intends to continue its
efforts to attract deposits as a primary source of funds for supporting its
lending and investing activities.*

At September 30, 1998, the Company had outstanding $41.9 million in
certificates of deposit in amounts of $100,000 or more maturing as follows:

Amount at
September 30,1998
-----------------
(In thousands)

Three months or less..................... $ 5,472
Over three through six months............ 10,539
Over six months through twelve months.... 15,073
Over twelve months....................... 10,830
----------
Total........................ $ 41,914
==========

The following table sets forth the distribution of the Company's deposit
accounts at the dates indicated and the weighted average nominal interest rates
on each category of deposits presented. Management does not believe that the
use of year-end balances instead of average balances resulted in any material
difference in the information presented. In this table, brokered deposits are
included with certificates.

September 30,
------------------------------------------------------------------
1998 1997
-------------------------------- --------------------------------
Percent Average Percent Average
of Total Stated of Total stated
Amount Deposits Rate Amount Deposits rate
------------- -------- ------- ------------- -------- -------
(In thousands)

Demand deposits:
Non-interest bearing......... $ 66,337 5.4% - $ 52,582 4.8% -
Interest bearing............. 61,821 5.1% 1.34% 54,126 5.0% 1.61%
Passbook accounts.............. 133,282 11.0% 3.30% 105,356 9.7% 2.91%
Money market
demand accounts.............. 323,088 26.5% 4.81% 265,382 24.4% 4.87%
Certificates................... 632,346 52.0% 5.85% 609,690 56.1% 6.06%
------------- -------- ------------- --------
Total deposits................. $ 1,216,874 100.0% 4.75% $ 1,087,136 100.0% 4.95%
============= ======== ============= ========

September 30,
---------------------------------
1996
---------------------------------
Percent Average
of Total Stated
Amount Deposits Rate
------------- -------- --------
(In thousands)

Demand deposits:
Non-interest bearing $ 34,377 3.9% -
Interest bearing............. 39,710 4.5% 1.49%
Passbook accounts.............. 79,362 9.0% 2.87%
Money market
Demand accounts.............. 176,838 20.2% 4.53%
Certificates................... 547,397 62.4% 5.60%
------------- --------
Total deposits................. $ 877,684 100.0% 4.74%
============= ========

BORROWINGS AND OTHER FINANCING TRANSACTIONS
Although deposits are the Company's largest source of funds, the Company's
policy has been to utilize borrowings as an alternative or less costly source
of funds. The primary source of borrowing is advances from the FHLB which are
collateralized by the capital stock of the FHLB held by the Company and certain
of its mortgage loans and mortgage-backed and related securities. Such
advances are made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. The maximum amount the FHLB
will advance to member institutions for purposes other than meeting withdrawals
fluctuates from time to time in accordance with policies of the OTS and the
FHLB. At September 30, 1998, the Company's FHLB advances totaled $452.1
million, representing 25.9% of total liabilities, up from the $385.1 million
outstanding at September 30, 1997. At September 30, 1998, the Company had
additional borrowing capacity of $162.1 million from the FHLB; however,
additional securities may have to be pledged as collateral and additional FHLB
stock may have to be purchased.

Of the Company's outstanding FHLB advances at September 30, 1998, $367.0 million
will mature before September 30, 1999. Included in the amount maturing within
one year are $100.0 million of convertible fixed rate advances ("CFA" or
"CFAs"). A CFA is an advance that allows the FHLB to demand repayment prior to
the stated maturity date of the advance in accordance with its contractual
terms. In the event interest rates rise, the FHLB will more than likely
exercise its right to demand repayment of the CFA.* In that case, the Bank will
have the option of seeking alternative funding arrangements, if necessary, which
may be to enter into another CFA at the then prevailing interest rates or
entering into other funding arrangements. At September 30, 1998, the $100.0
million of outstanding CFAs have a maturity of seven to ten years and are
putable by the FHLB three to six months from the contract date and quarterly
thereafter.

The Company's borrowings from time to time include reverse repurchase
agreements. At September 30, 1998 and 1997, the Company had $30.6 million and
$22.5, respectively, of reverse repurchase agreements.

The line of credit was established by the Company for purposes of funding
activities of the Company. These typically include dividends, share
repurchases and acquisitions for cash such as the Kilbourn State Bank
acquisition. Dividends received from the Bank are used as the primary source
of cash to pay principal and interest on the line of credit. The line of
credit has a maximum borrowing amount of $30.0 million and is collateralized by
the stock of the Bank. At September 30, 1998 and 1997, the Company had $18.0
and $11.0 million, respectively, outstanding on the line of credit.

While increases in borrowings and changes in the collateralization levels due
to market interest rate changes could require the Company to add collateral to
secure its borrowings, the Company does not anticipate having a shortage of
qualified collateral to pledge against its borrowings.*

The following table sets forth certain information regarding the Company's FHLB
advances, borrowed funds and reverse repurchase agreements at or for the years
ended on the dates indicated.

At or for the year ended September 30,
--------------------------------------
1998 1997 1996
----------- ---------- -------------

(In thousands)
FHLB advances:
Average balance outstanding......................... $402,929 $388,802 $344,787
Maximum amount outstanding at any month-end during
the year.......................................... 469,051 422,569 373,569
Balance outstanding at end of year.................. 452,051 385,056 373,569
Weighted average interest rate during the year (1).. 5.56% 5.67% 5.43%
Weighted average interest rate at end of year....... 5.41% 5.66% 5.45%
Reverse repurchase agreements:
Average balance outstanding......................... $ 15,116 $ 5,425 $ 703
Maximum amount outstanding at any month-end during
the year.......................................... 30,550 22,481 -
Balance outstanding at end of year.................. 30,550 22,481 -
Weighted average interest rate during the year (1).. 2.31% 5.60% 5.81%
Weighted average interest rate at end of year....... 0.32% 5.80% -
Bank line of credit
Average balance outstanding......................... $ 9,000 $ 5,615 -
Maximum amount outstanding at any month-end during
the year......................................... 18,000 12,000 -
Balance outstanding at end of year.................. 18,000 11,000 -
Weighted average interest rate during the year (1).. 6.94% 6.89% -
Weighted average interest rate at end of year....... 6.74% 6.93% -
Total advances, reverse repurchase agreements
and bank line of credit:
Average balance outstanding......................... $427,045 $399,842 $345,490
Maximum amount outstanding at any month-end during
the year.......................................... 500,601 439,875 373,569
Balance outstanding at end of year.................. 500,601 418,537 373,569
Weighted average interest rate during the year (1).. 5.51% 5.69% 5.43%
Weighted average interest rate at end of year....... 5.16% 5.70% 5.45%

(1) Computed on the basis of average daily balances.

SUBSIDIARY ACTIVITIES
During the fiscal year ended September 30, 1998, the Bank had three
wholly-owned subsidiaries: St. Francis Insurance Services Corp. ("S-F
Insurance"), St. Francis Equity Properties, Inc. ("S-F Equity"), and SF
Investment Services ("SF Investment"). S-F Mortgage Corp. was liquidated on
February 3, 1998.

S-F Insurance. S-F Insurance is a Wisconsin corporation. S-F Insurance offers
fixed annuities, indexed annuities, life insurance, disability income and
survivorship life sold exclusively through licensed agents who also are
employees of the Bank. The Bank is reimbursed by S-F Insurance for
administration and sales services provided by the Bank. At September 30, 1998,
the Bank's total investment in S-F Insurance was approximately $253,000, and
S-F Insurance's assets of $245,000 consisted primarily of cash.

S-F Equity Properties. S-F Equity Properties ("SFEP") is a Wisconsin
corporation incorporated in February 1993 to own, operate and develop
multi-family rental property, either as a limited partner or

through other ownership status, for investment and subsequent resale.
Properties include projects for low-to-moderate income housing, which would
qualify for tax credits under Section 42 of the Code. SFEP is currently a
limited partner in 25 projects within the state of Wisconsin. Additionally, the
Bank has provided financing to 24 of the projects. However, the primary return
to the Company on these projects' is in the form of tax credits earned over the
first ten years of the projects life. At September 30, 1998, the Bank had loans
outstanding to such projects of $25.7 million. At September 30, 1998, the
Bank's total investment in S-F Equity was approximately $3.8 million and S-F
Equity's assets of $52.6 million consisted primarily of its interests in the
properties developed.

SF Investment. SF Investment is a company incorporated in Nevada for the
purpose of managing a portion of the Bank's investment portfolio. At September
30, 1998, the Bank's total investment in SF Investment was approximately $251.6
million and the assets consisted primarily of mortgage-related securities.

PERSONNEL

As of September 30, 1998, the Company had 371 full-time employees and 107
part-time employees. The employees of the Company are not represented by a
collective bargaining unit and the Company believes its relationship with its
employees to be good.

TAXATION

GENERAL
The following discussion of tax matters is intended to be a summary of the
material tax rules applicable to the Company and does not purport to be a
comprehensive description of all applicable tax rules.

BAD DEBT RESERVES
For the taxable years beginning before 1996, savings institutions, such as the
Bank, which met certain definitional tests primarily relating to their assets
and the nature of their business ("qualifying thrifts"), were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
additions could have been, within specified formula limits, deducted in
arriving at their taxable income.

In addition, earnings appropriated for bad debt reserves and deducted for
federal income tax purposes could not be used by the Bank to pay cash dividends
to the Company without the payment of income taxes by the Bank at the then
current income tax rate on the amount deemed distributed, which included the
amount of any federal income taxes attributable to the distribution. Thus, any
dividends to the Company that would have reduced amounts appropriated to the
Bank's bad debt reserves and have been deducted for federal income tax purposes
could have created a tax liability for the Company.

The Small Business Job Protection Act of 1996 ("the Act") repealed the reserve
method of accounting for bad debts by thrift institutions, effective for
taxable years beginning after 1995. The Bank is now required to use the
specific charge-off method. The Act also granted partial relief from the bad
debt reserve "recapture" which occurs in connection with the change in method
of accounting. There will not be any additional income tax expense to the Bank
on recapture.

CORPORATE ALTERNATIVE MINIMUM TAX
For taxable years beginning after December 31, 1986, the Internal Revenue Code
imposes an alternative minimum taxable income ("AMTI") which is imposed at a
rate of 20%. From time to time the Company may be subject to Alternative
Minimum Tax. The Company was subject to an environmental tax liability for the
year ended September 30, 1996, which was not material.

DISTRIBUTIONS
To the extent that (i) the Company's reserve for losses on qualifying real
property loans exceeds the amount that would have been allowed under an
experience method and (ii) the Company makes "non-dividend distributions" to
shareholders that are considered to result in distributions from the excess bad

debt reserve or the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be
included in the Company's taxable income. Non-dividend distributions include
distributions in excess of the Company's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Company's current or
accumulated earnings and profits, as calculated for federal income tax
purposes, will not be considered to result in a distribution from the Company's
bad debt reserves.

The amount of additional taxable income created from an Excess Distribution is
an amount that when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Thus, if certain portions of the Bank's
accumulated tax bad debt reserve are used for any purpose other than to absorb
qualified bad debt loans, such as for the payment of dividends or other
distributions with respect to the Company's capital stock (including
distributions upon redemption or liquidation), approximately one and one-half
times the amount so used would be includable in gross income for federal income
tax purposes, assuming a 35% corporate income tax rate (exclusive of state
taxes). See "-Regulation," below for limits on the payment of dividends of the
Bank and the Company.

STATE TAXATION

The State of Wisconsin imposes a tax on the Wisconsin taxable income of
corporations, including savings institutions, at the rate of 7.9%.

REGULATION

The Company is a savings and loan holding company registered with and subject
to regulation by the OTS under the Home Owners' Loan Act of 1933, as amended
(the "HOLA"). The Company is required to file certain reports and otherwise
comply with the rules and regulations of the OTS and the Securities and
Exchange Commission (the "SEC") under the federal securities laws. The Bank,
as a federally chartered savings bank, is subject to regulatory oversight by
its primary regulator, the OTS.

HOLDING COMPANY REGULATIONS
The Company must obtain approval from the OTS before acquiring control of more
than 5% of the voting shares of any other SAIF - insured institution. Such
acquisitions generally are prohibited if they result in a multiple savings and
loan holding company controlling savings institutions in more than one state.
However, such interstate acquisitions may be permitted based on specific state
authorization or in a supervisory acquisition of a failing savings institution.

REGULATION OF FEDERAL SAVINGS BANKS
The OTS has extensive regulatory and supervisory authority over the operations
of the Bank. This regulation and supervision established a comprehensive
framework of activities in which the Bank can engage and is intended primarily
for the protection of the insurance fund and depositors. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes.

The OTS also has enforcement authority over the Bank and the Company, and their
affiliated parties. This enforcement authority includes, among other things,
the ability to assess civil money penalties, issue cease-and-desist or removal
orders and initiate injunctive actions. In general, these enforcement actions
may be initiated for violations of laws or regulations or for unsafe or unsound
practices. Other actions or inaction may provide the basis for enforcement
actions, including misleading or untimely reports filed with the OTS.

The Bank is required to file periodic reports with the OTS Regional Director
and is subject to periodic examinations by the OTS and the FDIC. When these
examinations are conducted, examiners may, among other things, require the Bank
to provide for higher general or specific loan loss reserves or write down the
value of certain assets. The last regular examination by the OTS was in
October 1998.

ASSESSMENTS
Savings institutions are required by OTS regulations to pay assessments to the
OTS to fund the operations of the OTS. The general assessment, paid on a
semiannual basis, is computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the institution's latest
quarterly Thrift Financial Report. The Bank's OTS assessment for the three
month period ended June 30, 1998 was $163,000, based on Bank assets as of March
31, 1998 of $1.6 billion and the current OTS assessment rate.

QUALIFIED THRIFT LENDER REQUIREMENT
In order for the Bank to exercise the powers granted to SAIF-insured
institutions and maintain full access to FHLB advances, it must qualify as a
qualified thrift lender ("QTL"). Under the HOLA and OTS regulations, a savings
institution is required to maintain a level of qualified thrift investments
equal to at least 65% of its "portfolio assets" (as defined by statute) on a
monthly basis for nine out of 12 months per calendar year. Qualified thrift
investments for purposes of the QTL test consist primarily of the residential
mortgages and related investments. As of September 30, 1998, the Company
maintained 92.9% of its portfolio assets in qualified thrift investments and
therefore met the QTL test.

FEDERAL REGULATIONS
The Bank is subject to federal regulations which address various issues
including, but not limited to, insurance of deposits, capital requirements, and
community reinvestment requirements.

INSURANCE OF DEPOSITS
The Bank's deposits are insured up to applicable limits under the SAIF of the
FDIC. The FDIC regulations assign institutions to a particular capital group
based on the level of an institution's capital -- "well capitalized,"
"adequately capitalized," or "undercapitalized". These three groups are then
divided into three subgroups reflecting varying levels of supervisory concern,
from those institutions considered to be healthy to those which are considered
to be of substantial supervisory concern. This matrix results in nine
assessment risk classifications, with well capitalized, financially sound,
institutions paying lower rates than are paid by undercapitalized institutions
likely to pose a risk of loss to the insurance fund absent corrective actions.
At present the Bank pays no deposit insurance premium based upon its risk-based
classification.

Under the Federal Deposit Insurance Act (the "FDI Act"), insurance of deposits
may be terminated by the FDIC upon a finding that the institution has engaged
in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, rule, order
or condition imposed by the FDIC or the Division. Management of the Company
does not know of any practice, condition or violation that might lead to the
termination of deposit insurance. See, "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Recent Regulatory Legislative
Developments."

CAPITAL REQUIREMENTS

OTS REGULATION
For the fiscal year ended September 30, 1998, the OTS capital regulations
require savings institutions to meet two capital standards: (i) "tier 1 core
capital" in an amount not less than 4% of adjusted total assets and (ii)
"risk-based capital" of at least 8% of risk-weighted assets. Savings
institutions must meet both standards to comply with the capital requirements.

For the fiscal year ended September 30, 1997, the OTS capital regulations
require savings institutions to meet three capital standards: (i) "core
capital" in an amount not less than 3% of adjusted total assets; (ii) "tangible
capital" in an amount not less than 1.5% of adjusted total assets; and (iii)
"risk-based capital" of at least 8% of risk-weighted assets. Savings
institutions must meet all of the standards in order to comply with the capital
requirements.

The following table summarizes the Bank's capital ratios and the ratios
required by federal regulations:

To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----------- --------- --------- --------- ---------
(In thousands)

As of September 30, 1998:

Tangible capital................ 119,843 6.48% >=73,966 >=4.0% >= 92,458 >= 5.0%
Core capital.................... 119,843 6.48% >=73,966 >=4.0% >= 92,458 >= 5.0%
Tier 1 risk-based capital....... 119,843 10.23% >=46,846 >=4.0% >= 70,270 >= 6.0%
Risk-based capital.............. 127,373 10.88% >=93,693 >=8.0% >=117,116 >=10.0%

As of September 30, 1997:

Tangible capital................ 117,337 7.14% >=65,762 >=4.0% >= 82,211 >= 5.0%
Core capital.................... 117,337 7.14% >=65,762 >=4.0% >= 82,211 >= 5.0%
Tier 1 risk-based capital....... 117,337 11.66% >=40,261 >=4.0% >= 60,392 >= 6.0%
Risk-based capital.............. 122,856 12.21% >=80,523 >=8.0% >=100,653 >=10.0%

The minimum core capital requirement is 4% of adjusted total assets (the
"leverage limit" requirement). Core capital is defined to include common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
amounts of consolidated subsidiaries, less any unidentifiable intangible assets
(other than limited amounts of purchased mortgage servicing rights, supervisory
goodwill and other intangibles that meet certain salability and market
valuation tests); and equity and debt investments in subsidiaries which are not
"includable subsidiaries." Includable subsidiaries are defined as subsidiaries
engaged solely in activities permissible for a national bank, engaged in
activities impermissible for a national bank but only as an agent for its
customers, or engaged solely in mortgage-banking activities.

Each savings institution must also maintain total capital equal to at least 8%
of risk-weighted assets. Total capital consists of the sum of core and
supplementary capital, provided that supplementary capital cannot exceed core
capital, as defined above. Supplementary capital includes permanent capital
instruments such as, cumulative perpetual preferred stock, perpetual
subordinated debt, and mandatory convertible subordinated debt, maturing
capital instruments such as, subordinated debt, intermediate-term preferred
stock and mandatory redeemable preferred stock, subject to an amortization
schedule, and general valuation loan and lease loss allowances up to 1.25% of
risk-weighted assets. The OTS risk-based capital regulation assigns each
balance sheet asset held by a savings institution to one of five risk
categories based on the amount of credit risk associated with that particular
class of asset.

COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act of 1977, as amended (the "CRA"), a
depository institution has a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires the federal regulators to assess the
institution's record of meeting with the credit needs of its community and to
take such record into account in its evaluation of certain applications by such
institution. The CRA also requires all institutions to make public disclosure
of their CRA ratings and requires an institution's primary regulator to provide
a written evaluation of an institution's performance. The Bank's latest CRA
rating, received in May 1996, was "Outstanding."

On May 4, 1995, the federal banking regulators adopted a final rule ("Final CRA
Rule") governing compliance with CRA. The Final CRA Rule eliminates the
previous CRA regulation's twelve assessment factors and substitutes a
performance based evaluation system. The Final CRA Rule was phased in over a
period of time and became fully effective July 1, 1997. Under the Final CRA
Rule, an institution's performance in meeting the credit needs of its entire
community, including low- and moderate-income areas, as required by the CRA,
will generally be evaluated under three assessment tests relating to lending,
investment and service. Management of the Company does not anticipate that the
new CRA regulations will adversely affect the Bank.

FEDERAL HOME LOAN BANK SYSTEM
The Federal Home Loan Bank System, consisting of 12 FHLBs, is under the
jurisdiction of the Federal Housing Finance Board ("FHFB"). The designated
duties of the FHFB are to supervise the FHLBs; ensure that the FHLBs carry out
their housing finance mission; ensure that the FHLBs remain adequately
capitalized and able to raise funds in the capital market; and ensure that the
FHLBs operate in a safe and sound manner.

Members of the FHLB-Chicago are required to acquire and hold shares of capital
stock in the FHLB-Chicago in an amount equal to 1% of the aggregate outstanding
principal amount of residential mortgage loans, home purchase contracts and
similar obligations at the beginning of each year. Further, at no time shall
advances (borrowings) from the FHLB-Chicago exceed 20 times the amount paid by
such member for

FHLB-Chicago capital stock. The Bank is in compliance with these requirements
with a total investment in FHLB-Chicago stock of $23.5 million at September 30,
1998.

Among other benefits, the FHLBs provide a central credit facility primarily for
member institutions and make advances to members in accordance with policies
and procedures established by the FHFB and the Board of Directors of the
FHLB-Chicago. At September 30, 1998, the Bank had $452.1 million in advances
from the FHLB-Chicago. See "Business of the Company."

RESERVE REQUIREMENTS
Regulation D, promulgated by the FRB, imposes reserve requirements on all
depository institutions which maintain transaction accounts or non-personal
time deposits. Checking accounts, NOW accounts and certain other types of
accounts that permit payments or transfers to third parties fall within the
definition of transaction accounts and are subject to Regulation D reserve
requirements, as are any non-personal time deposits (including certain money
market deposit accounts). Under Regulation D, a depository institution must
maintain average daily reserves equal to 3% on the first $47.8 million of
transaction accounts. There has been a 0% reserve requirement on non-personal
deposits since December 27, 1990. In addition, the first $4.7 million of
otherwise reservable liabilities are exempt from the reserve requirement. The
Bank must reserve for transaction accounts in excess of $47.8 million in an
amount equal to 10% of such excess. These percentages and tranches are subject
to adjustment by the FRB. As of September 30, 1998, the Bank met Regulation D
reserve requirements.

OTHER FEDERAL LAWS

RESTRICTIONS ON LOANS TO INSIDERS
Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the
Federal Reserve establish limits on the total amount an institution may lend to
its executive officers, directors, and principal shareholders, and their
related interests (collectively referred to in this section as "insiders").
Generally, an insider may borrow an aggregate amount not exceeding 15% of the
institution's unimpaired capital and unimpaired surplus on an unsecured basis
and an additional 10% on a secured basis. The regulations limit, with certain
exceptions, the aggregate amount a depository institution may lend to its
insiders as a class to an amount not exceeding the institution's unimpaired
capital and unimpaired surplus.

Among other things, these provisions require that extensions of credit to
insiders (a) be made on terms that are substantially the same as, and follow
credit underwriting procedures that are not less stringent than, those
prevailing for comparable transactions with unaffiliated persons and that do
not involve more than the normal risk of repayment or present other unfavorable
features and (b) not exceed certain limitations on the amount of credit
extended to such persons, individually and in the aggregate, which limits are
based, in part, on the amount of the Bank's capital. In addition, extensions
of credit in excess of certain limits must be approved by the Bank's Board of
Directors. However, recent legislation permits the Bank to make loans to
executive officers, directors and principal stockholders on preferential terms,
provided the extension of credit is made pursuant to a benefit or compensation
program of the Bank that is widely available to employees of the Bank or its
affiliates and does not give preference to any insider over other employees of
the Bank or affiliate. An insider cannot knowingly receive, or permit a
related interest to receive, a loan that violates applicable regulations. The
Bank has not been significantly affected by such restrictions on loans to
insiders.

TRANSACTIONS WITH AFFILIATES
The Bank is required and Bank Wisconsin was required to comply with Sections
23A and 23B of the Federal Reserve Act ("Sections 23A and 23B") relative to
transactions with affiliates. Generally, Sections 23A and 23B limit the extent
to which the insured institution or its subsidiaries may engage in certain
covered transactions with an affiliate to an amount equal to 10% of such
institution's capital and surplus, place an aggregate limit on all such
transactions with affiliates to an amount equal to 20% of such capital and
surplus, and require that all such transactions be on terms substantially the
same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered

transaction" includes the making of loans, purchase of assets, issuance of a
guaranty and similar other types of transactions. Exemptions from 23A or 23B
may be granted only by the Federal Reserve Board. The Company has not been
significantly affected by such restrictions on transactions with affiliates.

FEDERAL SECURITIES LAWS
The Company's Common Stock is registered with the SEC under Section 12(g) of
the Exchange Act. The Company is subject to the information, proxy
solicitation, insider trading restrictions and other restrictions and other
requirements of the SEC under the Exchange Act.

ITEM 2. PROPERTIES

The Company conducts its business through 21 full-service locations, two
limited service offices in residential retirement communities and two loan
production offices. Ten of the full-service branches are located in Milwaukee
County, five are in Waukesha County, four are in Washington County, one in
Ozaukee County, and one is in Walworth County. Management believes the current
facilities are adequate to meet the present and immediately foreseeable needs
of the Company. The total net book value of property owned by the Company was
$20.5 million at September 30, 1998.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved as a plaintiff or defendant in various legal actions
arising in the normal course of its business. While the ultimate outcome of
these various legal proceedings cannot be predicted with certainty, it is the
opinion of management that the resolution of these legal actions will not have
a material effect on the Company's consolidated financial condition or results
of operations.

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

No matters were submitted to a vote of shareholders during the three months
ended September 30, 1998.

EXECUTIVE OFFICERS OF THE REGISTRANT

There are no arrangements or understandings between the persons named and any
other person pursuant to which such officers were selected, nor are there any
family relationships among them.

JAMES C. HAZZARD, age 53, is an Executive Vice President of the Bank. Mr.
Hazzard has held his position with the Bank since September 1997. From
November 1994 to September 1997, Mr. Hazzard was President of Bank Wisconsin, a
subsidiary of the Company that was merged into the Bank during 1997. Prior to
joining Bank Wisconsin, Mr. Hazzard served as President and Chief Executive
Officer of Associated Bank/F&M Bank Menomonee Falls, Wisconsin.

WILLIAM R. HOTZ, age 53, is Secretary and is an Executive Vice President of the
Company and of the Bank. Mr. Hotz joined the Company in those positions in May
1997 and was appointed an Executive Vice President of the Bank in September
1997. Prior to joining the Company and the Bank, Mr. Hotz was a shareholder of
the law firm of von Briesen, Purtell & Roper, s.c.

BRADLEY J. SMITH, age 43, is an Executive Vice President of the Bank. Mr.
Smith became Executive Vice President of the Bank in January 1997. Prior to
joining the Bank, Mr. Smith was a Senior Vice President of Provident Bank in
Cincinnati, Ohio from 1993 to 1996 and a Vice President prior to 1993.

JON D. SORENSON, age 43, is Chief Financial Officer and Treasurer and is an
Executive Vice President of the Company and of the Bank. Mr. Sorenson became
Chief Financial Officer and Treasurer of the Company in November 1992, and of
the Bank in September 1997. From December 1992 to September 1997, Mr. Sorenson
was a Senior Vice President of the Bank and prior to that he was a Vice
President of the Bank.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

The Company's common stock is currently being traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") National
Market System over-the-counter exchange under the symbol of STFR. Information
required by this item is incorporated by reference to the "Quarterly financial
information (Unaudited)" shown in Note 19 to Notes to Consolidated Financial
Statements and the "Earnings per share" Note 13 to Notes to Consolidated
Financial Statements included under Item 8 of this Annual Report on Form 10-K.

As of October 31, 1998, there were approximately 1,200 holders of record and
approximately 2,600 beneficial holders owning a total of 4,624,683 shares.

The Company paid quarterly dividends of $0.10 per share starting in November
1995, increased the dividend to $0.12 per share in November 1996, increased it
again to $0.14 per share in November 1997, and increased it again to $0.16 per
share in November, 1998. No dividends were paid prior to November 1995. While
there can be no assurance of the payment of future dividends, the Company
anticipates that future dividends, if paid, would be paid on a quarterly basis
in February, May, August and November.* Future payments of dividends will be
subject to determination and declaration by the Company's Board of Directors,
which will take into account the Company's financial condition, results of
operations, tax considerations, industry standards, economic conditions and
other factors, including regulatory restrictions which affect the payment of
dividends by the Company's subsidiaries to the Company.*

On September 25, 1997, the Company's Board of Directors adopted a shareholders'
rights plan (the "Rights Plan"). Under the terms of the Rights Plan, the Board
of Directors declared a dividend of one preferred share purchase right for each
outstanding share of common stock. Upon becoming exercisable, each right
entitles shareholders to buy one one-hundredth of a share of the Company's
preferred stock at an exercise price of $150. Rights do not become exercisable
until eleven business days after any person or group has acquired, commenced,
or announced its intention to commence a tender or exchange offer to acquire
15% or more of the Company's common stock, or in the event a person or group
owning 10% or more of the Company's common stock is deemed to be "adverse" to
the Company. If the rights become exercisable, holders of each right, other
than the acquiror, upon payment of the exercise price, will have the right to
purchase the Company's common stock (in lieu of preferred shares) having a
value equal to two times the exercise price. If the Company is acquired in a
merger, share exchange or other business combination or 50% or more of its
consolidated assets or earning power are sold, rights holders, other than the
acquiring or adverse person or group, will be entitled to purchase the
acquiror's shares at a similar discount. If the rights become exercisable, the
Company may also exchange rights, other than those held by the acquiring or
adverse person or group, in whole or in part, at an exchange ratio of one share
of the Company's common stock per right held. Rights are redeemable by the
Company at any time until they are excercisable at the exchange rate of $.01
per right. Issuance of the rights has no immediate dilutive effect, does not
currently affect reported earnings per share, is not taxable to the Company or
its shareholders, and will not change the way in which the Company's shares are
traded. The rights expire in ten years.

On October 31, 1997, the Company announced it had adopted a share repurchase
program for its common stock whereby the Company could purchase up to 10% of
the outstanding stock, or approximately 523,000 shares, commencing November 18,
1997 and concluding before November 18, 1998, depending upon market conditions.
The repurchased shares would become treasury shares and would be used for the
exercise of stock options under the stock option plan and for general corporate
purposes. The share repurchase program was completed on September 14, 1998 at
an average price of $40.46 per share. This was the eighth such repurchase
program that the Company has undertaken. At September 30, 1998, an aggregate
of 2,730,952 shares had been repurchased in all such repurchase programs at an
average price of $25.01. On September 23, 1998, the Company announced it had
adopted a share repurchase program for its common stock whereby the Company
could purchase up to 5% of the outstanding stock, or

approximately 240,000 shares. The repurchase program is authorized to start
September 28, 1998 and to run through September 30, 1999.

ITEM 6. SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

Set forth below are selected consolidated financial and other data. The
financial data is derived in part from, and should be read in conjunction with,
the Consolidated Financial Statements and notes thereto presented elsewhere in
this Annual Report on Form 10-K.

- --------------------------------------------------------------------------------------------------------------------------------
September 30,
1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA: (In thousands)

Total assets.............................................. $ 1,864,176 $ 1,660,649 $ 1,404,116 $ 1,189,215
Cash and cash equivalents................................. 30,746 42,858 22,459 20,780
Loans receivable, net..................................... 855,132 712,875 610,699 513,308
Mortgage loans held for sale.............................. 23,864 24,630 20,582 1,138
Debt securities held to maturity.......................... 1,817 3,833 6,215 49,928
Debt and equity securities available for sale............. 109,061 56,247 60,001 4,142
Mortgage-backed and related securities held to
maturity.............................................. 63,087 66,849 68,392 157,495
Mortgage-backed and related securities available
for sale.............................................. 634,003 620,716 519,766 360,077
Real estate held for investment........................... 29,997 51,476 36,865 24,264
Real estate held for sale................................. 20,772 - - -
Deposits.................................................. 1,216,874 1,087,136 877,684 688,348
Advances from the FHLB and other borrowings............... 504,677 420,228 375,034 345,681
Shareholders' equity...................................... 121,545 128,530 125,179 135,228

----------------
1994
----------------

SELECTED FINANCIAL DATA:
Total assets.............................................. $ 1,026,806
Cash and cash equivalents................................. 15,951
Loans receivable, net..................................... 427,753
Mortgage loans held for sale.............................. 2,978
Debt securities held to maturity.......................... 23,804
Debt and equity securities available for sale............. 2,374
Mortgage-backed and related securities held to
maturity.............................................. 159,178
Mortgage-backed and related securities available
for sale.............................................. 336,772
Real estate held for investment........................... 9,818
Real estate held for sale................................. -
Deposits.................................................. 569,892
Advances from the FHLB and other borrowings............... 317,317
Shareholders' equity...................................... 122,701

- --------------------------------------------------------------------------------------------------------------------------------
Year Ended September 30,
1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED OPERATING DATA: (In thousands, except per share data)

Total interest and dividend income........................ $ 117,909 $ 108,146 $ 92,097 $ 83,787
Total interest expense.................................... 76,063 69,363 56,413 50,223
--------------- -------------- -------------- ----------------
Net interest income before provision for loan losses.... 41,846 38,783 35,684 33,564
Provision for loan losses................................. 2,300 1,280 1,300 240
--------------- -------------- -------------- ----------------
Net interest income..................................... 39,546 37,503 34,384 33,324
Other operating income, net
Loan servicing and loan related fees...................... 2,125 1,813 1,258 1,276
Impairment loss on mortgage-backed securities............. - (3,400) - -
Securities gains/(losses)................................. 1,243 2,015 3,420 3,674
Gain on sales of mortgage loans held for sale, net........ 4,367 1,562 1,057 261
Other operating income.................................... 11,173 6,672 4,879 3,120
--------------- -------------- -------------- ----------------
Total other operating income, net....................... 18,908 8,662 10,614 8,331
--------------- -------------- -------------- ----------------
General and administrative expenses (1)................... 41,831 32,903 31,622 22,679
--------------- -------------- -------------- ----------------
Income before income tax expense and cumulative
effect of change in accounting principle................ 16,623 13,262 13,376 18,976
Income tax expense........................................ 1,826 1,544 2,911 6,277
--------------- -------------- -------------- ----------------
Net income......................................... $ 14,797 $ 11,718 $ 10,465 $ 12,699
=============== ============== ============== ================
Basic earnings per share $ 3.03 $ 2.33 $ 1.91 $ 2.18
=============== ============== ============== ================
Diluted earnings per share......................... $ 2.85 $ 2.20 $ 1.82 $ 2.10
=============== ============== ============== ================
Dividends per share................................ $ 0.56 $ 0.48 $ 0.40 n/a

----------------
1994
----------------

SELECTED OPERATING DATA:
Total interest and dividend income........................ $ 60,133
Total interest expense.................................... 31,633
---------------
Net interest income before provision for loan losses.... 28,500
Provision for loan losses................................. 240
---------------
Net interest income..................................... 28,260
Other operating income, net
Loan servicing and loan related fees...................... 1,116
Impairment loss on mortgage-backed securities............. -
Securities gains/(losses)................................. (88)
Gain on sales of mortgage loans held for sale, net........ 137
Other operating income.................................... 2,329
---------------
Total other operating income, net....................... 3,494
---------------
General and administrative expenses (1)................... 19,381
---------------
Income before income tax expense and cumulative
effect of change in accounting principle................ 12,373
Income tax expense........................................ 4,336
---------------
Net income......................................... $ 8,037
===============
Basic earnings per share $ 1.20
===============
Diluted earnings per share......................... $ 1.16
===============
Dividends per share................................ n/a

(1) General and administrative expenses for the year ended September 30, 1996
include a one-time special SAIF assessment of $4.2 million.

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (CONT.)

- ------------------------------------------------------------------------------------------------------------------------------------
At or For the Year Ended September 30,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA:

Performance Ratios (4):
Return on average assets....................................... 0.87% 0.77% 0.82%
Return on average equity....................................... 11.29 9.17 7.81
Shareholders' equity to total assets........................... 6.52 7.74 8.92
Average shareholders' equity to average assets................. 7.71 8.37 10.48
Dividend payout ratio.......................................... 19.65 21.82 21.98
Net interest spread during the period (1)...................... 2.47 2.45 2.56
Net interest margin (1)........................................ 2.68 2.73 2.97
General and administrative expenses to average assets.......... 2.46 2.16 2.47
Other.operating income to average assets....................... 1.11 0.57 0.83
Average interest-earning assets to average
interest-bearing liabilities.................................. 104.41 105.82 108.73

Asset Quality Ratios:
Non-performing loans to gross loans (2)........................ 0.29 0.38 0.58
Non-performing assets to total assets (2)...................... 0.16 0.21 0.28
Allowance for loan losses to gross loans....................... 0.77 0.79 0.78
Allowance for loan losses to non-performing loans (2).......... 263.19 207.08 134.11
Allowance for loan losses to non-performing assets (2)......... 257.52 181.82 131.41
Net charge-offs to average loans............................... 0.12 0.30 0.03

Regulatory Capital Ratios (3):
Tangible ratio................................................. 6.48 7.14 6.86
Core ratio..................................................... 6.48 7.14 6.86
Tier 1 risk-based ratio........................................ 10.23 11.66 12.60
Total.risk-based ratio......................................... 10.88 12.21 13.12

Other Data:
Number of deposit accounts..................................... 128,643 119,575 96,880
Number of real estate loans outstanding........................ 3,486 3,623 3,888
Number of real estate loans serviced........................... 8,479 7,672 7,101
Mortgage loan originations (in thousands)...................... $505,849 $310,172 $238,234
Consumer loan originations (in thousands)...................... $ 93,700 $57,157 $61,378
Full service customer facilities............................... 21 19 15

--------------------------------------
At or For the Year Ended September 30,
1995 1994
--------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA:

Performance Ratios (4):
Return on average assets....................................... 1.10% 0.87%
Return on average equity....................................... 10.02 6.44
Shareholders' equity to total assets........................... 11.37 11.95
Average shareholders' equity to average assets................. 10.95 13.52
Dividend payout ratio.......................................... n/a n/a
Net interest spread during the period (1)...................... 2.56 2.61
Net interest margin (1)........................................ 3.04 3.17
General and administrative expenses to average assets.......... 1.96 2.10
Other operating income to average assets....................... 0.72 0.38
Average interest-earning assets to average
interest-bearing liabilities.................................. 110.37 115.94

Asset Quality Ratios:
Non-performing loans to gross loans (2)........................ 0.08 1.65
Non-performing assets to total assets (2)...................... 0.53 0.75
Allowance for loan losses to gross loans....................... 0.77 0.74
Allowance for loan losses to non-performing loans (2).......... 943.52 44.99
Allowance for loan losses to non-performing assets (2)......... 65.06 44.89
Net charge-offs to average loans............................... 0.06 0.02

Regulatory Capital Ratios (3):
Tangible ratio................................................. 8.49 8.97
Core ratio..................................................... 8.49 8.97
Tier 1 risk-based ratio........................................ 16.57 18.97
Total risk-based ratio......................................... 17.18 19.54

Other Data:
Number of deposit accounts..................................... 88,391 75,708
Number of real estate loans outstanding........................ 4,018 3,741
Number of real estate loans serviced........................... 6,579 6,272
Mortgage loan originations (in thousands)...................... $109,366 $282,368
Consumer loan originations (in thousands)...................... $41,444 $35,896
Full service customer facilities............................... 13 11

- ---------------------------------------------------------------------

(1) Net interest spread represents the difference between the weighted average yield on interest-earning assets and the weighted
average cost of interest-bearing liabilities. Net interest margin represents net interest income as a percentage of average
interest-earning assets.
(2) Non-performing loans consist of nonaccrual loans and troubled debt restructurings. Non-performing assets consist of
non-performing loans and foreclosed properties, which consist of real estate acquired by foreclosure or deed-in-lieu thereof.
(3) Capital ratios are those of St. Francis Bank, F.S.B. only for 1994 through 1998.
(4) Performance ratios for the year ended September 30, 1996 include the effects of the one-time special SAIF assessment of $4.2
million.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL
St. Francis Capital Corporation (the "Company") is a bank holding company
incorporated under the laws of the State of Wisconsin and is engaged in the
financial services business through its wholly-owned subsidiary, St. Francis
Bank, F.S.B. (the "Bank"), a federally-chartered savings bank. In June 1993,
the Bank converted from a federally-chartered mutual savings institution to a
stock savings institution. As part of the conversion, the Company acquired all
of the outstanding common stock of the Bank. In February 1997, the Company
completed the acquisition of the stock of Kilbourn State Bank, which
subsequently merged into Bank Wisconsin. The Company merged the operations of
its St. Francis Bank and Bank Wisconsin bank subsidiaries in September 1997 and
currently operates with one subsidiary, St. Francis Bank.

The earnings of the Company depend on its level of net interest income and
other operating income offset by general and administrative expenses and the
level of low income housing credits. Net interest income is a function of the
Company's net interest spread, which is the difference between the average
yield earned on interest-earning assets and the average rate paid on
interest-bearing liabilities, as well as a function of average ratio of
interest-earning assets as compared to interest-bearing liabilities. Other
operating income consists primarily of loan servicing fees, deposit charges,
gains on sales of loans and securities, income from the operation of affordable
housing properties and commissions on insurance, annuity and brokerage
products. General and administrative expenses consist primarily of employee
compensation and benefits, occupancy and equipment costs, expenses from
operation of affordable housing properties, data processing and advertising
expenses. The Company's affordable housing subsidiary generates low income
housing credits which reduce the Company's federal income tax expense.

The Company's operating results are significantly affected by general economic
conditions and the monetary, fiscal and regulatory policies of governmental
agencies. Lending activities are influenced by the demand for and supply of
housing competition among lenders, the level of interest rates and the
availability of funds. Deposit flows and costs of funds likewise are heavily
influenced by prevailing market rates of interest on competing investment
alternatives, account maturities and the levels of personal income and savings
in the Company's market areas.

YEAR 2000

Advances and changes in available technology can significantly impact the
business and operations of the Company. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs or programs of third-party
providers that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. If not corrected, Year 2000 issues
could result in a major system failure or miscalculations and material costs to
the Company.

The Company is adhering to the Federal Financial Institution's Examination
Council ("FFIEC") Year 2000 directives that have been published since 1996,
which establish policy guidelines and time frames to guide Year 2000
compliance. All management activities and plans have incorporated the FFIEC
guidelines published to date.

The Company's Year 2000 compliance efforts have included completing an
inventory of all products and services that may be affected by Year 2000 date
related issues. Each item has been categorized as either mission critical,
moderate or low priority depending on its importance to the operation of the
Company's business activities. The Company is adhering to FFIEC guidelines for
completing the remediation, testing and implementation for all mission critical
activities by June 30, 1999. *The Company is currently on schedule to complete
Year 2000 compliance activities within its designated time frame. The project
is being overseen by a steering committee composed of representatives from all
areas of the Company and

being directed by the Company's Information Services division. Moderate and
low priority issues are scheduled to be reviewed, tested and, if necessary
remediated, by the middle of 1999.*

The Company utilizes a national third party provider for the bulk of its data
processing needs. As a result, a large part of the Company's mission critical
Year 2000 testing is for products and services processed by that service
provider. The service provider has completed the remediation and testing of its
systems and has had its Year 2000 compliant systems in production since June 30,
1998. The Company is in the process of independently testing its activities on
that system to verify that the service provider's system functions in the Year
2000 for those services used by the Company. In October, 1998, the Company
successfully completed the first phase of that testing and is scheduled to
complete testing by the spring of 1999.* The Company has no custom developed
system code. Therefore, the remediation phase of the Company's Year 2000 plan
does not include code renovation.

In addressing the Year 2000 issue, the Company has also taken into consideration
technology issues beyond its data processing activities. Non-data processing
systems include equipment in use which is not defined as computer hardware or
software. Such equipment could result in service or product breakdown if not
Year 2000 compliant. As part of its Year 2000 plan, the Company has addressed
such items as alarm systems, elevators, keyless entry systems, telephone and
data systems and others. The impact and status of these items are being
reviewed in the same manner as the Company's data processing systems.

The Year 2000 issue also may affect the Company's customers who may experience a
disruption in business that could potentially result in financial difficulties
and eventually result in an inability to repay their loans. The Company
includes as part of its normal underwriting standards consideration of the Year
2000 credit risk. The assessment is made through personal contact and a
questionnaire, which allows the Company to review the customer's Year 2000
awareness and compliance efforts. This process results in an overview of the
customer's preparedness but does not give absolute assurance that the customer
will not have problems with Year 2000 issues. The potential impact of Year 2000
on the customer's ability to repay loans can not be determined at this time.

The estimated costs of the Year 2000 issue are not expected to have a
significant impact on the Company's results of operations, liquidity or capital
resources. Direct costs of the Year 2000 issue have been estimated to not
exceed $500,000 per year for the fiscal years ending September 30, 1998, 1999
and 2000. The primary direct costs include compensation and benefits paid to
staff dedicated solely to the Year 2000 issue, direct costs paid to vendors or
others related to Year 2000 preparedness and the income statement effect of
hardware and software purchased to replace items not Year 2000 compliant. The
figure does not include costs considered by the Company to be indirect costs.
The primary indirect cost includes the time and effort of many of the Company's
employees to prepare for the Year 2000 in addition to performing their normal
work routines. The costs of the Year 2000 project are based on the Company's
best estimates, which include numerous assumptions about future events. Actual
costs may differ due to actual events being different than those assumed at the
time the cost estimates were prepared.

The Company presently believes that the compliance effort can and will be
completed prior to the Year 2000.* However, if required product or service
upgrades are not complete by that time, the Year 2000 issues could disrupt
normal business operations.* Although not expected at this time, the most
likely worst case scenario includes the Company being unable to process some or
all of its transactions on a temporary basis.* Because of the nature of this
scenario, the Company is in the process of establishing contingency plans for
all mission critical services.* Those contingency plans will also be tested as
part of the Company's Year 2000 preparedness.* Additionally, a business
resumption plan is being developed to mitigate risks associated with the
failure of mission critical systems.* The Year 2000 business resumption
contingency plan will be designed to ensure that mission critical core banking
processes will continue if one or more supporting systems fail and to allow for
limited transaction processing until the Year 2000 problems are fixed.*

Readers should be cautioned that forward-looking statements contained in the
Year 2000 disclosure should be read in conjunction with the Company's
disclosures regarding "Forward-Looking Statements" on page 3.

FINANCIAL CONDITION

Mortgage-backed and related securities, including securities available for
sale, increased to $697.1 million at September 30, 1998 from $687.6 million at
September 30, 1997, which represented 37.4% and 41.4% of total assets,
respectively. The Company is utilizing its capital position to increase
earning assets by investing in
mortgage-backed and related securities with adjustable interest rates or with
short and medium terms of two to five years. The assets are financed primarily
with FHLB advances or brokered certificates of deposit that generally match the
expected repricing period or average lives of the respective securities. The
Company purchases mortgage-backed securities that are guaranteed by both
government sponsored enterprises such as FHLMC, FNMA and GNMA as well as
securities that are issued by private mortgage security conduits. These
securities have credit ratings of A or better at the time of purchase and meet
the Federal Financial Institutions Examination Council definition of low-risk
securities. Mortgage-backed securities issued by government sponsored
enterprises generally increase the quality of the Company's assets by virtue of
the guarantees that back them. When the intermediary is a private entity,
neither the principal or interest on such securities is guaranteed. In
addition, loans that back private mortgage-backed securities generally are
non-conforming loans and consequently have a greater amount of credit risk and
generally will have a higher yield. The Company has been an active purchaser
of adjustable rate mortgage-backed securities as well as short-term
mortgage-related securities because of their lower level of interest rate risk
and low credit risk in relation to the interest earned on such securities.

During the year ended September 30, 1997, the Company recorded declines in fair
value judged to be other than temporary on four of its private issue
mortgage-backed securities. The securities were written down to fair value and
an impairment loss of $3.4 million was recorded in the Company's income
statement. Prior to the adjustment, the Company's cost basis in these
securities was $12.5 million. The impairment loss resulted in a new cost basis
of $9.1 million for these four issues. The four issues under impairment were
private issue mortgage-backed securities backed by single-family loans relating
to properties located primarily in California. The underlying loans had
experienced significant delinquencies and foreclosures and the Company learned
that recoveries on these loans were less than previously realized and that the
various subordinate and cash positions within the mortgage-backed structures no
longer protected the Company's position in the securities. The Company wrote
these securities down to fair value, which is a level where the remaining cash
flows should provide a return at a market rate of interest income on the
remaining cost basis. During the year ended September 30, 1998, one of the
impaired issues, with a cost basis of $7.2 million, was sold at a gain of
$151,000. At September 30, 1998, the cost basis and market value of the
impaired securities was $479,000 and 412,000, respectively, compared with $9.1
million and $9.1 million, respectively, at September 30, 1997.

Net loans receivable, including loans held for sale, increased $141.5 million
to $879.0 million at September 30, 1998 from $737.5 million at September 30,
1997. The Company has been actively diversifying its loan portfolio in recent
years and as a result, the increase in loans was due to a variety of lending
areas including commercial real estate, single-family construction, home equity
lines of credit, commercial and automobile lending. Gross commercial real
estate loans increased by $82.6 million to $170.6 million. Commercial real
estate lending was a growth area for the Company during the current year due to
the low interest rate environment in effect throughout the year. During
periods of low interest rates owners of commercial real estate loans tend to
refinance their loans to improve cash flows. The Company has made this an area
of emphasis in recent years and thus was positioned to originate a significant
amount of commercial real estate loans. Originations of commercial real estate
loans were $105.4 million for the year ended September 30, 1998 compared with
$36.6 million in the prior year. Single-family construction loans increased
$24.8 million to $71.1 million. The Company has also emphasized this area in
recent years and the low interest environment created a higher-than normal
demand for this product which the Company

44
was positioned to originate. As the interest rate and housing cycles change,
expectations would be that this portion of the loan portfolio would decrease in
size in relation to the rest of the loan portfolio.* Home equity lines of
credit increased $27.7 million to $143.0 million, commercial loans increased
$21.8 million to $93.9 million and automobile loans increased $16.8 million to
$32.2 million. All increases are the result of the Company's continued
expansion into commercial and consumer banking. The low interest rate
environment resulted in significant levels of activity in the Company's total
loan portfolio. Low interest rates generally lead to greater volume of loan
originations, but also tend to result in much higher levels of repayments. In
addition, the Company is more likely to originate more fixed rate mortgage loans
which are generally sold into the secondary market.* Thus the higher level of
originations does not necessarily lead to a proportionate increase in loans
outstanding.

Real estate held for investment and for sale decreased due to depreciation of
$707,000 to $50.8 million at September 30, 1998, from $51.5 million at September
30, 1997. Real estate held for investment consists of affordable housing
projects in which a subsidiary of the Bank invests, which qualify for tax
credits under Section 42 of the Internal Revenue Code. The subsidiary currently
is a limited partner in 25 projects all within the state of Wisconsin. The
Company did not invest in any new projects during the year ended September 30,
1998 due to the level of income tax credits being recognized on current
projects. The held for sale projects consist of 13 of the Company's affordable
housing investments with an aggregate carrying value of $20.8 million as of
September 30, 1998. The properties are expected to be sold prior to the end of
the next fiscal year at a yet to be determined gain. The properties are carried
at the lower of cost or market value and at September 30, 1998, no impairment
writedown was necessary. The Company's decision to dispose of several
properties was the result of a review of its consolidated federal tax return.
Under the alternative minimum tax rules, the Company is currently carrying
forward affordable housing tax credits that it has not utilized on its tax
return. Although all tax credits are expected to be used before their
expiration, sale of the properties will allow the Company to utilize the tax
credits sooner on its consolidated federal tax return.

Deposits increased $129.7 million to $1.22 billion at September 30, 1998 from
$1.09 billion at September 30, 1997. The increase in deposits was primarily due
to increases of $57.7 million in money market demand account deposits, $27.9
million in passbook accounts, $22.7 million in certificates of deposit and $21.5
million in checking accounts. The majority of the money market demand accounts
are tied to a national money market fund index and compete with money market
funds. The increase in passbook accounts was due to the introduction during the
year of a money market passbook account. The account was a hybrid of a
traditional passbook account and a money market account. As such it paid an
interest rate higher than traditional passbooks but lower than the Company's
money market demand account. At September 30, 1998, certificates of deposits
included $214.9 million in brokered certificates of deposit compared with $140.8
million at September 30, 1997. The brokered deposits are generally of terms
from three months to ten years in maturity with interest rates that approximate
the Company's retail certificate rates. Although the Company has experienced
growth in its deposit liabilities during 1998, there can be no assurance that
this trend will continue in the future, nor can there be any assurance the
Company will retain the deposits it now has.* The level of deposit flows during
any given period is heavily influenced by factors such as the general level of
interest rates as well as alternative yields that investors may obtain on
competing instruments, such as money market mutual funds.

Advances and other borrowings increased to $504.7 million at September 30, 1998,
from $420.2 million at September 30, 1997. The Company uses wholesale funding
sources, primarily advances from the Federal Home Loan Bank of Chicago, to fund
both its leveraging activities and to fund that part of loan growth not funded
by growth in retail deposits.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
GENERAL
Net income for the year ended September 30, 1998 increased $3.1 million or 26.3%
to $14.8 million from $11.7 million for the year ended September 30, 1997.
Factors causing the change in net income included a

$3.1 million increase in net interest income before provision for loan losses
and a $10.2 million increase in other operating income offset by an increase of
$1.0 million in the provision for loan losses and an increase of $8.9 million
in general and administrative expenses. Including in other operating income
for the prior year was an impairment loss of $3.4 million on mortgage-backed
and related securities.

NET INTEREST INCOME
Net interest income before provision for loan losses increased $3.0 million or
7.9% to $41.8 million for the year ended September 30, 1998 compared to $38.8
million for the year ended September 30, 1997. The increase was due to an
increase of $142.7 million in average earning assets, partially offset by a
decrease in the net interest margin to 2.68% in 1998 from 2.73% in 1997. While
the Company has adopted interest rate risk policies in an effort to protect net
interest income from significant increases or decreases in interest rates, the
Company's net income could still be affected by a narrowing of its net interest
rate spread.

Total interest income increased $9.8 million or 9.0% to $117.9 million for the
year ended September 30, 1998 compared to $108.1 million for the year ended
September 30, 1997. The increase in interest income was primarily the result
of a $10.1 million increase in interest on loans. The increase in interest on
loans was due to an increase in the average balance of loans to $800.8 million
for the year ended September 30, 1998, compared to $677.9 million for the year
ended September 30, 1997, partially offset by a decrease in the average yield
on loans which decreased to 8.46% for the year ended September 30, 1998, from
8.50% for the year ended September 30, 1997. The increase in the average
balance of loans is primarily due to the Company's efforts to increase its
emphasis on commercial and consumer lending. However, such loans, while
potentially resulting ultimately in higher yields for the Company, may result in
a higher level of credit risk than conventional mortgage loans. The decrease in
the average yield is primarily due to the lower interest rate environment in
effect during the year. As loans repay, they are replaced in the Company's
portfolio by new loans which generally have lower interest rates than the loans
previously put in the portfolio.

Total interest expense increased $6.7 million or 9.7% to $76.1 million for the
year ended September 30, 1998 compared to $69.4 million for the year ended
September 30, 1997. Interest expense on deposits increased $5.3 million or
10.2% to $52.3 million for the year ended September 30, 1998 compared to $47.0
million for the year ended September 30, 1997. The average balance of deposits
increased to $1.12 billion for the year ended September 30, 1998, from $979.3
million for the year ended September 30, 1997. The increases in the balances
of deposits are due to growth in retail deposit products and an increase in
brokered certificates of deposit. The average cost of deposits decreased to
4.67% for the year ended September 30, 1998, from 5.03% for the year ended
September 30, 1997. Brokered deposits increased to $214.9 million during the
year compared to $140.8 million in 1997 at weighted average stated rates of
6.15% and 6.49%, respectively. The higher cost of the brokered certificates
reflects the use of longer-term callable brokered deposits to fund the
Company's leverage program. The Company then, in effect, lowers the cost of
the deposits through the use of interest rate swaps to rates approximating
short-term rates. This funding then matches the interest rate characteristics
of the related asset, which is generally a short-term adjusting mortgage-backed
security. As part of a continuing strategy, the Company continues to offer
deposit products that compete more effectively with money market funds and
other non-financial deposit products. Such accounts have generally changed the
Company's traditional mix of deposit accounts to one that is more adjustable to
current interest rates such as the money market demand account. This has
resulted in passbook and certificate of deposit accounts representing a lower
percentage of the Company's total deposit portfolio.

PROVISION FOR LOAN LOSSES
The provision for loan losses increased $1.0 million or 79.7% to $2.3 million
for the year ended September 30, 1998 compared with $1.3 million for the year
ended September 30, 1997. The Company has been increasing its allowance for
loan losses to account for the diversification of the loan portfolio into loans
that are generally assumed to have a greater degree of credit risk than the
single family mortgage loans that had previously been a larger portion of the
loan portfolio. The allowance for loan losses totaled $7.5

million and $6.2 million at September 30, 1998 and 1997, respectively,
representing 0.77% and 0.79% of total gross loans, respectively. Net
charge-offs were $972,000 during the year ended September 30, 1998 and $2.0
million during the year ended September 30, 1997. Defaults of purchased
subprime auto loans and related repossessed autos sold during the year resulted
in charge-offs of $372,000 and $1.9 million for the years ended September 30,
1998 and 1997, respectively. The auto loan charge-offs relate to loans purchased
in 1995 and 1996 under a warehouse financing arrangement. The Company has not
purchased similar type loans since February, 1996. The provision for loan loss
is established based on management's evaluation of the risk inherent in its loan
portfolio and the general economy.

OTHER OPERATING INCOME
Other operating income increased $10.2 million or 118.3% to $18.9 million for
the year ended September 30, 1998 compared to $8.7 million for the year ended
September 30, 1997. The increase was primarily due to a $3.4 million
impairment loss in the prior year, increased gains on mortgage loans held for
sale, increased deposit fee income, interest on a state tax refund and
increased income from the Company's affordable housing subsidiary. The
increases were partially offset by a decline in security gains. Gains on the
sale of mortgage loans increased to $4.4 million for the year ended September
30, 1998 compared with $1.6 million for the prior year. The low level of
interest rates in effect during the current year have resulted in a significant
increase in the origination of fixed rate mortgage loans. The Company
generally sells such loans in the secondary market and resulting gains have
been significantly higher than the prior year. Deposit fees and service charges
increased to $3.5 million for the year ended September 30, 1998 compared with
$2.2 million in the prior year. The Company has been increasing its mix of
deposit accounts that generate various fee incomes such as overdraft fees and
ATM surcharges. The competitive market in which the Company operates has also
changed in the past year to a greater acceptance of fee based services. Other
operating income for the year ended September 30, 1998 includes $795,000
related to a refund of state income taxes related to a prior year's tax audit.
The interest portion of the refund is included in other operating income while
the portion that is a refund of previous taxes paid reduces current income tax
expense. Gains on investments and mortgage-backed and related securities were
$1.2 million for the year ended September 30, 1998, compared to $2.0 million
for the year ended September 30, 1997. The gains recognized were primarily due
to declining interest rates and the Company's continuing review of its
mortgage-backed securities portfolio. During the year the Company will sell
securities from its mortgage-backed securities portfolio and replace them with
similar securities with more favorable interest rate and maturity
characteristics. This is generally done when, in the opinion of management, a
security being held in portfolio appears to be overvalued and the Company will
receive greater economic value by selling the security rather than retaining
it. Income from the operations of the Company's affordable housing subsidiary
(which represents primarily rental income) increased to $5.1 million from $3.4
million for the years ended September 30, 1998 and 1997, respectively.

GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $8.9 million or 27.1% to $41.8
million for the year ended September 30, 1998, compared to $32.9 million for
the year ended September 30, 1997. The increase in general and administrative
expenses was primarily due to increases in: 1) compensation and benefits, 2)
office building and equipment expenses, 3) an increase in affordable housing
expenses and 4) the settlement of a borrower lawsuit which increased other
operating expenses by $684,000. The compensation, office building and
equipment expenses increased due to the Company's increasing level of banking
assets and expansion of new lines of business and its expansion of branch
locations. Over the last several years, the Company has been putting in place
the organizational and physical structure necessary to expand its existing
business lines and to increase its emphasis on newer lines of business. In
particular, the Company has expanded its commercial lending capabilities,
increased the number of physical branch locations, put in place an investment
products division and improved its level of technology. Included in these cost
areas are the costs of the Year 2000 issue which the Company estimates to not
exceed $500,000 each year. The increase in the affordable housing expenses is
due to the completion of the Company's investment program. It is expected that
these expenses will not significantly increase in future years.* The borrower
lawsuit was brought in connection with a contractor that went out of business
before completing

home improvement work on properties on which the Bank was the lender. The
settlement resulted in an expense of $684,000 over the course of the year.

INCOME TAX EXPENSE
Income tax expense increased by $282,000 or 18.3% to $1.8 million for the year
ended September 30, 1998 compared to $1.5 million for the year ended September
30, 1997. The Company's effective tax rate was 11.0% for the year ended
September 30, 1998, compared to 11.6% for the year ended September 30, 1997.
The Company's effective tax rate is significantly lower than the combined
federal and state tax rates due to the effect of the tax credits earned by the
Company's affordable housing subsidiary. Income tax credits increased to $4.2
million for the year ended September 30, 1998, compared to $2.9 million in the
prior year. The amount of credits eligible to be taken on the Company's
consolidated federal tax return is limited by the alternative minimum tax
rules. The Company does not anticipate investing in significant new projects
and may sell selected projects if its tax situation is such that significant
amounts of tax credits will be subject to carryforward on the Company's
consolidated federal tax return.* In addition, during the year ended
September 30, 1998, the Company recognized the effect of a refund of state
income taxes of $780,000 related to a prior year's tax audit.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
GENERAL
Net income for the year ended September 30, 1997 increased $1.2 million or
12.0% to $11.7 million from $10.5 million for the year ended September 30,
1996. The recent results include the operations of Kilbourn State Bank since
its acquisition on February 28, 1997. The prior year results were
significantly affected by a one-time industry-wide assessment of $2.5 million,
after tax, for the recapitalization of the SAIF. The increase in net income
was primarily the result of an increase in earning assets, which resulted in a
$3.1 million increase in net interest income and a $1.4 million decrease in
income tax expense, partially offset by a $2.0 million decrease in other income
and a $1.3 million increase in general and administrative expenses. The
decrease in other income was primarily due to a $3.4 million writedown to
reflect an impairment loss in the Company's mortgage-backed securities
portfolio.

NET INTEREST INCOME
Net interest income before provision for loan losses increased $3.1 million or
8.7% to $38.8 million for the year ended September 30, 1997 compared to $35.7
million for the year ended September 30, 1996.

Total interest income increased $16.0 million or 17.4% to $108.1 million for
the year ended September 30, 1997 compared to $92.1 million for the year ended
September 30, 1996. The increase in interest income was primarily the result
of a $10.1 million increase in interest on loans and a $4.1 million increase in
interest on mortgage-backed and related securities. The increase in interest
on loans was due to increases in the average balance of loans to $677.9 million
for the year ended September 30, 1997, compared to $553.7 million for the year
ended September 30, 1996, partially offset by a decrease in the average yield
on loans, which decreased to 8.50% for the year ended September 30, 1997, from
8.58% for the year ended September 30, 1996. The increase in the average
balance of loans is due primarily to the Company's recent efforts to emphasize
commercial, consumer and home equity lending in addition to the Kilbourn State
Bank acquisition. The decrease in the average yield is primarily due to the
Company now selling substantially all new originations of initially higher
yielding long-term, fixed-rate single-family mortgage loans in the secondary
market and retaining new originations of initially lower yielding
adjustable-rate single-family mortgage loans. The increase in interest income
on mortgage-backed and related securities was due to an increase in the average
balance of such securities to $627.4 million for the year ended September 30,
1997 from $559.5 million for the year ended September 30, 1996, partially
offset by a decrease in the average yield on such securities to 6.90% for the
year ended September 30, 1997 from 7.00% for the year ended September 30, 1996.
The Company has purchased significant amounts of adjustable rate and short-
and medium-term securities during the past two years as part of its efforts to
increase earning assets, funding those purchases with FHLB advances, whose
terms generally match the securities purchased.

Total interest expense increased $13.0 million or 23.0% to $69.4 million for
the year ended September 30, 1997 compared to $56.4 million for the year ended
September 30, 1996. Interest expense on deposits increased $9.4 million or
24.9% to $47.0 million for the year ended September 30, 1997 compared to $37.6
million for the year ended September 30, 1996. The increase in interest
expense was the result of increases in the average balances and costs on
deposits and advances and other borrowings. The average balances of deposits
increased to $934.9 million for the year ended September 30, 1997, from $757.3
million for the year ended September 30, 1996. The increases in the balances
of deposits are due to the Company's offering of additional deposit products,
the use of brokers to sell certificates of deposit and the Kilbourn State Bank
acquisition. The average cost of deposits increased to 5.03% for the year
ended September 30, 1997, from 4.97% for the year ended September 30, 1996.
Brokered deposits increased to $140.8 million during the year compared to
$138.6 million in 1996 at weighted average stated rates of 6.49% and 5.35%,
respectively. The higher cost of the brokered certificates reflects the use of
longer-term callable brokered deposits to fund the Company's leverage program.
The Company then, in effect, lowers the cost of the deposits through the use of
interest rate swaps to rates approximating short-term rates. This funding then
matches the interest rate characteristics of the related asset, which is
generally a short-term adjusting mortgage-backed security. The average cost of
deposits increased even though overall market rates of interest were slightly
lower for the year ended September 30, 1997 compared with the prior year. The
Company will generally meet its local competition in the pricing of deposit
products which may mean that its cost of funds may not correlate exactly with
national market rates such as treasury rates or LIBOR. Interest expense on
advances and other borrowings increased $3.6 million or 19.0% to $22.3 million
for the year ended September 30, 1997 from $18.8 million for the year ended
September 30, 1996. The average balance of advances and other borrowings
increased to $399.8 million for the year ended September 30, 1997, from $341.2
million for the year ended September 30, 1996, while the average cost of
advances and other borrowings increased to 5.59% for the year ended September
30, 1997, from 5.50% for the year ended September 30, 1996. The increase in
the average balance of borrowings was a result of the aforementioned leveraging
program with most of the borrowings being adjustable-rate advances which are
indexed to three-month LIBOR rates which have increased modestly over the
current year.

PROVISION FOR LOAN LOSSES
The provision for loan losses remained unchanged at $1.3 million for the years
ended September 30, 1997 and 1996. A significant portion of the provision for
the year ended September 30, 1997 includes a provision to recognize the
potential loss on a commercial real estate loan while the prior year includes a
provision of $1.0 million for loan losses related to purchased auto loans.
The commercial real estate loan is on a shopping center property located in
Wisconsin. The allowance for loan losses totaled $6.2 million and $5.2 million
at September 30, 1997 and 1996, respectively, representing 0.79% and 0.78% of
total loans, respectively. Net charge-offs were $2.0 million during the year
ended September 30, 1997 and $159,000 during the year ended September 30, 1996.

OTHER OPERATING INCOME
Other operating income decreased $2.0 million or 18.4% to $8.6 million for the
year ended September 30, 1997 compared to $10.6 million for the year ended
September 30, 1996. The decrease was primarily due to a $3.4 million writedown
to fair value on four of the Company's private issue mortgage-backed securities
and decreases in gains on investments and mortgage-backed and related
securities, partially offset by increases in gains on mortgage loans held for
sale, gains on trading account activity and increased income from the Company's
affordable housing subsidiary. During the year ended September 30, 1997, the
Company recorded declines in fair value judged to be other than temporary on
four of its private issue mortgage-backed securities. The Company believes
that these four securities, two of which were rated "A" and the other two of
which were rated "BBB" at September 30, 1997, were impaired during the year.
Therefore, in accordance with generally accepted accounting principles, these
securities were written down to fair value and the impairment loss was recorded
in the Company's income statement. Management's decision to write down these
issues reflects a decline in value resulting from the deterioration of the
collateral securing the loans within the REMIC structures. That decision is a
result of the level of delinquencies, foreclosures, repossessions and recovery
rates on the underlying loans. The securities have

been written down to $9.1 million at September 30, 1997 compared to an
original amortized cost basis of $12.5 million. This is a level at which the
remaining estimated cash flows should result in a market yield on the
securities.*

Gains on investments and mortgage-backed and related securities were $1.3
million for the year ended September 30, 1997, compared to $3.3 million for the
year ended September 30, 1996. The Company does not consider gains on the
sales of securities as a predictable source of earnings as such sales are based
on the Company's aforementioned review of individual securities within the
Company's available for sale portfolio whereby securities may be sold and
replaced with ones that offer a better combination of interest income, interest
rate risk or credit risk than the security sold. Gain/(loss) on foreclosed
properties decreased to a loss of $22,000 from a gain of $865,000 for the years
ended September 30, 1997 and 1996, respectively. For the year ended September
30, 1996, the gain was the result of the sale of one foreclosed property which
had a carrying value of $5.8 million. The gain on sale of this property was
$684,000. Gains from the trading account increased to $726,000 from $109,000
for the years ended September 30, 1997 and 1996, respectively. The increase in
trading gains was the result of the sale of mortgage-backed securities which
the Company had exchanged for its own mortgage loans ("loan swaps"). This
method of selling the Company's salable mortgage production is required, under
accounting rules, to be accounted for as a "trading" activity, and as such, the
resulting realized and unrealized gains or losses are classified as trading
income. The level of trading gains may fluctuate due to the volume of
originations of single-family mortgage loans which in turn can fluctuate due to
changes in interest rates. Sales of loans as opposed to loan swaps are
recorded as sales of mortgage loans in the income statement. Income from the
operations of the Company's affordable housing subsidiary (which represents
primarily rental income) increased to $3.4 million from $1.9 million for the
years ended September 30, 1997 and 1996, respectively. The Company currently
has 23 properties fully in operation compared to 15 in the prior year.

GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $1.3 million or 4.1% to $32.9
million for the year ended September 30, 1997, compared to $31.6 million for
the year ended September 30, 1996. The prior year included a one-time charge
of $4.2 million for the recapitalization of the SAIF. General operating
expenses of the Company have increased for various reasons, including: 1) costs
associated with the Kilbourn State Bank acquisition, 2) the opening of four
new branches, 3) the establishment of a centralized call center, 4) expansion
of the Company's lending areas and 5) other increased activity connected with
the Company's higher level of earning assets. In addition, the affordable
housing subsidiary showed an increase in operating expenses to $3.9 million
compared with $2.2 million in the prior year, primarily as a result of the
Company currently having 23 properties fully in operation compared to 15 in
the prior year. Amortization of intangible assets increased to $834,000 for
the year ended September 30, 1997 compared with $446,000 during the prior year
due to the purchase of Kilbourn State Bank during the year.

INCOME TAX EXPENSE
Income tax expense decreased by $1.4 million or 47.0% to $1.5 million for the
year ended September 30, 1997 compared to $2.9 million for the year ended
September 30, 1996. The decrease was primarily the result of income tax
credits received from investments in the low-income housing. The Company's
effective tax rate was 11.6% for the year ended September 30, 1997, compared to
21.8% for the year ended September 30, 1996. The decrease in effective rates
reflects the effect of the tax credits earned by the Company's affordable
housing subsidiary. Income tax credits increased to $2.9 million for the year
ended September 30, 1997, compared to $1.7 million in the prior year.

AVERAGE BALANCE SHEET
The following table sets forth certain information relating to the Company's
consolidated average statements of financial condition and the consolidated
statements of income for the years ended September 30, 1998, 1997 and 1996, and
reflects the average yield on assets and average cost of liabilities for the
years indicated. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
years shown. Average balances are derived principally from average daily
balances and include non-accruing loans. The yields and costs include fees
which are considered adjustments to yields. The amount of interest income
resulting from the recognition of loan fees was $453,000, $159,000 and $457,000
for the years ended September 30, 1998, 1997 and 1996, respectively. Interest
income on non-accruing loans is reflected in the year that it is collected.
Such amounts are not material to net interest income or net change in net
interest income in any year. Non-accrual loans are included in the average
balances and do not have a material effect on the average yield. Tax-exempt
investments are immaterial and the tax-equivalent method of presentation is not
included in the schedule. Interest rate swaps, which are accounted for as a
hedge of the cost of various liabilities, are included in the category of
liability being hedged.

YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET 1998 1997 1996
-------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
---------- -------- ------- ---------- -------- ------- ---------- ------- -------
(In thousands)

ASSETS
Federal funds sold and overnight
deposits.............................. $ 21,370 $ 1,177 5.51% $ 19,089 $ 1,048 5.49% $ 16,110 $ 864 5.36%
Trading account securities.............. 1,047 78 7.45 3,183 224 7.04 41 3 7.32
Debt and equity securities.............. 73,604 4,282 5.82 71,042 4,634 6.52 54,213 3,329 6.14
Mortgage-backed and related securities.. 643,243 43,207 6.72 627,393 43,266 6.90 559,531 39,163 7.00
Loans:
First mortgage........................ 466,027 38,045 8.16 419,827 34,460 8.21 357,529 29,324 8.20
Home equity........................... 132,402 11,847 8.95 101,962 9,555 9.37 81,842 7,889 9.64
Consumer.............................. 118,209 10,523 8.90 107,972 9,337 8.65 95,093 8,513 8.95
Commercial and agricultural........... 84,117 7,314 8.70 48,169 4,249 8.82 19,202 1,786 9.30
---------- -------- ---------- -------- ---------- -------
Total loans........................... 800,755 67,729 8.46 677,930 57,601 8.50 553,666 47,512 8.58
Federal Home Loan Bank stock............ 21,418 1,436 6.70 20,084 1,373 6.84 17,859 1,226 6.86
---------- -------- ---------- -------- ---------- -------
Total earning assets.................. 1,561,437 117,909 7.55 1,418,721 108,146 7.62 1,201,420 92,097 7.67
-------- -------- -------
Valuation allowances.................... (7,582) (7,394) (3,798)
Cash and due from banks................. 29,292 23,032 14,334
Other assets............................ 116,901 91,979 66,441
---------- ---------- ----------
Total assets.......................... $1,700,048 $1,526,338 $1,278,397
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts.......................... $ 63,935 $ 861 1.35 $ 50,433 $ 843 1.67 $ 42,013 $ 614 1.46
Money market demand accounts.......... 282,199 13,866 4.91 216,715 10,306 4.76 147,121 6,787 4.61
Passbook.............................. 128,046 4,187 3.27 91,586 2,617 2.86 84,078 2,392 2.84
Certificates of deposit............... 584,583 33,344 5.70 576,133 33,226 5.77 484,051 27,817 5.75
---------- -------- ---------- -------- ---------- -------
Total interest-bearing deposits..... 1,058,763 52,258 4.94 934,867 46,992 5.03 757,263 37,610 4.97
Advances and other borrowings........... 431,129 23,779 5.52 399,842 22,338 5.59 341,184 18,765 5.50
Advances from borrowers for taxes and
insurance............................. 5,569 26 0.47 5,967 33 0.55 6,477 38 0.59
---------- -------- ---------- -------- ---------- -------
Total interest-bearing liabilities.. 1,495,461 76,063 5.09 1,340,676 69,363 5.17 1,104,924 56,413 5.11
-------- -------- -------
Non-interest bearing deposits........... 60,676 44,453 27,812
Other liabilities....................... 12,896 13,384 11,721
Shareholders' equity.................... 131,015 127,825 133,940
---------- ---------- ----------
Total liabilities and shareholders'
equity................................ $1,700,048 $1,526,338 $1,278,397
========== ========== ==========
Net interest income..................... $ 41,846 $ 38,783 $35,684
======== ======== =======
Net yield on interest-earning assets.... 2.68% 2.73% 2.97%
Interest rate spread.................... 2.47 2.45 2.56
Ratio of earning assets to
interest-bearing liabilities.......... 104.41 105.82 108.73

RATE/VOLUME ANALYSIS
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income depends upon the volumes of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.

The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume), (iii) changes attributable to the
combined impact of volume and rate (changes in the rate multiplied by the
changes in the volume) and (iv) the net change.

YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------

1998 COMPARED TO 1997 1997 COMPARED TO 1996
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
---------------------------------------------------------------------------------------
RATE/ RATE/
(In thousands) RATE VOLUME VOLUME NET RATE VOLUME VOLUME NET
- -----------------------------------------------------------------------------------------------------------------------------------

INTEREST-EARNING ASSETS:
Federal funds sold and overnight
deposits................................ $ 3 $ 125 1 $ 129 $ 20 $ 160 $ 4 $ 184
Trading account securities................ 13 (150) (9) (146) - 230 (9) 221
Debt and equity securities................ (501) 167 (18) (352) 207 1,033 65 1,305
Mortgage-backed and related
securities.............................. (1,124) 1,093 (28) (59) (577) 4,750 (70) 4,103
Loans:
Mortgage................................ (187) 3,793 (21) 3,585 22 5,110 4 5,136
Home equity............................. (432) 2,853 (129) 2,292 (219) 1,939 (54) 1,666
Consumer................................ 275 885 26 1,186 (290) 1,153 (39) 824
Commercial and agriculture.............. (61) 3,171 (45) 3,065 (92) 2,694 (139) 2,463
-------- --------- ------ --------- -------- --------- ------ ---------
Gross loans receivable................ (405) 10,702 (169) 10,128 (579) 10,896 (228) 10,089
Federal Home Loan Bank stock.............. (26) 91 (2) 63 (5) 153 (1) 147
-------- --------- ------ --------- -------- --------- ------ ---------
Change in interest income............ (2,040) 12,028 (225) 9,763 (934) 17,222 (239) 16,049
INTEREST-BEARING LIABILITIES:
Deposits:
NOW accounts............................ (164) 226 (44) 18 88 123 18 229
Money market demand accounts............ 342 3,114 104 3,560 209 3,211 99 3,519
Passbook................................ 378 1,042 150 1,570 10 214 1 225
Certificates of deposit................. (364) 487 (5) 118 28 5,291 90 5,409
-------- --------- ------ --------- -------- --------- ------ ---------
Total deposits........................ 192 4,869 205 5,266 335 8,839 208 9,382
Advances and other borrowings............. (285) 1,748 (22) 1,441 362 3,226 (15) 3,573
Advances from borrowers for taxes
and insurance............................ (5) (2) - (7) (2) (3) - (5)
-------- --------- ------ --------- -------- --------- ------ ---------
Change in interest expense............ (98) 6,615 183 6,700 695 12,062 193 12,950
-------- --------- ------ --------- -------- --------- ------ ---------
Change in net interest income......... $(1,942) $ 5,413 $(408) $ 3,063 $(1,629) $ 5,160 $(432) $ 3,099
======== ========= ====== ========= ======== ========= ====== =========

ASSET/LIABILITY MANAGEMENT
The Company's profitability, like that of most financial institutions, depends
to a large extent upon its net interest income, which is the difference between
interest earned on its interest-earning assets, such as loans and investments,
and its interest expense paid on interest-bearing liabilities, such as deposits
and borrowings.

The Company maintains a high level of short-term savings deposits, including
passbook savings, NOW checking accounts and money market deposit accounts.
These accounts typically react more quickly to changes in market interest rates
than the Company's investments in mortgage-backed and related securities and
mortgage loans because of the shorter maturity and repricing characteristics of
deposits. As a result, sharp increases in interest rates may adversely affect
earnings while decreases in interest rates may beneficially affect earnings.

In an attempt to manage vulnerability to interest rate changes, management
closely monitors the Company's interest rate risks. The Company has
established its investment strategies through an Asset/Liability Committee,
which reports to the Board of Directors. The Committee generally meets monthly
and reviews the Company's interest rate risk position, maturing securities and
borrowings, interest rates and programs for raising deposits, including retail
and brokered and nonbrokered wholesale deposits, and originating and purchasing
of loans, and develops policies dealing with these issues. The Company
primarily seeks to manage its interest rate risk through structuring its
balance sheet by investing in a variety of different types of financial
instruments in order to reduce its vulnerability to changes in interest rates
and to enhance its income. The Company's assets and liabilities maturing and
repricing within one year generally result in a negative one-year gap, which is
when the level of liabilities maturing or repricing within one year are greater
than the level of assets maturing or repricing within the same period of time.
If interest rates were to rise significantly, and for a prolonged period, the
Company's operating results could be adversely affected. The Company attempts
to maintain a negative one-year gap of less than 15% of total assets. If in
the estimation of management, the one-year gap exceeded or was soon to exceed
that limit, actions would be taken to reduce the Company's exposure to rising
interest rates.

Generally, the Company uses the following strategies to reduce its interest
rate risk: (i) the Company seeks to originate and hold a variety of ARMs or
other mortgage loans with short- to medium-term average lives or terms and
invests in primarily adjustable-rate mortgage-backed and related securities
with short- to medium-term average lives; (ii) the Company seeks to lengthen
the maturities of deposits when deemed cost effective through the pricing and
promotion of certificates of deposit with terms of one to five years, and
periodically utilizes deposit marketing programs offering maturity and
repricing terms structured to complement the repricing and maturity
characteristics of the existing asset/liability mix; (iii) the Company has
utilized longer term borrowings, principally secured from the FHLB, in order to
manage its assets and liabilities and enhance earnings; and (iv) the Company is
utilizing its capital position to increase earning assets by investing
primarily in agency or private issue REMIC securities with short and medium
terms of two to five years and financing the purchases with FHLB advances or
brokered deposits that generally match the expected average lives of the
respective securities.

The Company continues to closely monitor its interest rate risk as that risk
relates to its strategies. At September 30, 1998, total interest-bearing
liabilities maturing or repricing within one year exceeded total
interest-earning assets maturing or repricing in the same period by $178.0
million, representing a negative cumulative one year gap ratio of 9.6%,
compared to a negative cumulative one year gap ratio of 10.8% at September 30,
1997. With a negative gap position, during periods of rising interest rates it
is expected that the cost of the Company's interest-bearing liabilities will
rise more quickly than the yield on its interest-earning assets, which will
have a negative effect upon its net interest income. Although the opposite
effect on net interest income would occur in periods of falling interest rates,
the Company could experience substantial prepayments of its fixed-rate mortgage
loans and mortgage-backed and related securities in periods of falling interest
rates, which results in the reinvestment of such proceeds at market rates which
are lower than current rates.

The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1998:

More than More than
Within Four to One Year Three
Three Twelve to Three Years to Over Five
Months Months Years Five Years Years Total
--------- ---------- --------- ---------- -------- -----------
(Dollars in thousands)

INTEREST-EARNING ASSETS: (1)
Loans: (2)
Fixed...................................... $ 40,978 $ 23,581 $ 52,092 $ 31,718 $ 70,770 $ 219,139
Variable................................... 121,983 89,335 70,518 58,670 18,821 359,327
Consumer loans (2)........................... 150,535 43,665 16,408 29,367 36,691 276,666
Mortgage-backed and related securities....... 4,439 10,187 30,956 10,467 7,038 63,087
Assets available for sale:
Mortgage loans............................. 23,864 - - - - 23,864
Fixed rate mortgage related................ 30,694 78,857 114,946 36,628 - 261,125
Variable rate mortgage related............. 258,205 114,673 - - - 372,878
Investment securities...................... 81,834 24,182 3,045 - - 109,061
Trading account securities................... - - - - - -
Other assets................................. 31,344 - - - 811 32,155
-------- --------- --------- -------- -------- ----------
............................................. $743,876 $ 384,480 $ 287,965 $166,850 $134,131 $1,717,302
======== ========= ========= ======== ======== ==========
INTEREST-BEARING LIABILITIES:
Deposits: (3)
NOW accounts............................... $ 5,735 $ 17,203 $ 23,555 $ 9,349 $ 6,153 $ 61,995
Passbook savings accounts.................. 3,911 11,732 23,761 16,369 36,247 92,020
Money market deposit accounts.............. 82,448 247,165 25,908 6,477 2,159 364,157
Certificates of deposit.................... 150,284 413,733 59,834 8,399 36 632,286
Borrowings (4)............................... 374,165 - 130,512 - - 504,677
Impact of interest rate swaps................ 160,000 (160,000) - - - -
-------- --------- --------- -------- -------- ----------
Total...................................... $776,543 $ 529,833 $ 263,570 $ 40,594 $ 44,595 $1,655,135
======== ========= ========= ======== ======== ==========
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities.... $(32,667) $(145,353) $ 24,395 $126,256 $ 89,536 $ 62,167
======== ========= ========= ======== ======== ==========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities......................... $(32,667) $(178,020) $(153,625) $(27,369) $ 62,167
======== ========= ========= ======== ========
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities as a percent of total
Assets...................................... -1.75% -9.55% -8.24% -1.47% 3.34%
======== ========= ========= ======== ========

(1) Adjustable and floating rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed rate assets are included in the periods in
which they are scheduled to be repaid based on scheduled amortization, in
each case adjusted to take into account estimated prepayments utilizing
the Company's historical prepayment statistics, modified for forecasted
statistics using the Public Securities Association model of prepayments.*
For fixed rate mortgage loans and mortgage-backed and related securities,
annual prepayment rates ranging from 8% to 30%, based on the loan coupon
rate, were used.
(2) Balances have been reduced for undisbursed loan proceeds, unearned
insurance premiums, deferred loan fees, purchased loan discounts and
allowances for loan losses, which aggregated $92.7 million at September
30, 1998.
(3) Although the Company's negotiable order of withdrawal ("NOW") accounts,
passbook savings accounts and money market deposit accounts generally are
subject to immediate withdrawal, management considers a certain portion of
such accounts to be core deposits having significantly longer effective
maturities based on the Company's retention of such deposits in changing
interest rate environments. NOW accounts, passbook savings accounts and
money market deposit accounts are assumed to be withdrawn at annual rates
of 37%, 17% and 88%, respectively, of the declining balance of such
accounts during the period shown. The withdrawal rates used are higher
than the Company's historical rates but are considered by management to be
more indicative of expected withdrawal rates in a rising interest rate
environment. If all the Company's NOW accounts, passbook savings accounts
and money market deposit accounts had been assumed to be repricing within
one year, the one-year cumulative deficiency of interest-earning assets to
interest-bearing liabilities would have been $328.0 million or 17.6% of
total assets.
(4) Adjustable and floating rate borrowings are included in the period in
which their interest rates are next scheduled to adjust rather than in the
period in which they are due.

Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as ARM loans and
mortgage-backed and related securities, have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. In
addition, the proportion of ARM loans and mortgage-backed and related
securities in the Company's portfolios could decrease in future periods if
market interest rates remain at or decrease below current levels due to the
exercise of conversion options and refinance activity. Further, in the event
of a change in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in the table. Finally, the
ability of many borrowers to service their debt may decrease in the event of an
interest rate increase.

The Company enters into interest rate exchange agreements ("swaps") from time
to time in order to reduce the interest rate risk associated with certain
liabilities. The agreements have been both fixed-pay, floating-receive swaps
whereby the Company pays interest at a fixed rate and receives interest at a
floating rate based on a notional amount of principal, locking in a fixed cost
of funds and fixed-receive, floating-pay swaps whereby the Company receives
interest at a fixed rate and pays interest at a floating rate based on a
notional amount of principal, locking in a floating cost of funds. The net
interest income or expense resulting from the differential between exchanging
floating rate and fixed rate interest payments is recorded on a current basis.
There are certain risks associated with swaps, including the risk that the
counterparty may default and that there may not be an exact correlation between
the indices on which the swap agreements are based and the terms of the hedged
liabilities. In order to offset these risks, the Company generally enters into
swap agreements only with nationally recognized securities firms and monitors
the credit status of counterparties, the level of collateral for such swaps and
the correlation between the hedged liabilities and indices utilized.
Generally, the swaps have been designed to more accurately match the interest
cash flows of certain liabilities used to fund specific assets to the interest
rate characteristics of those assets. However, there is no assurance that in
the event interest rates change, the swaps will move on the same basis or in
the same amounts as its cost of funds. At September 30, 1998 and 1997, the
Company had interest rate swaps outstanding with a notional amount of $225.0
million and $163.0 million, respectively. $235.0 million is the largest
aggregate notional amount of the Company's interest rate swaps at any one time
over the past five years.

The agreements consist of the following:

Notional
Amount Maturity Call Fixed Variable
(000s) Type Date Date Rate Rate
- --------------------------------------------------------------------------------

$10,000 Fixed Pay-Floating Receive 1998 not applicable 4.93 5.61
15,000 Fixed Pay-Floating Receive 1998 not applicable 5.25 5.61
10,000 Fixed Pay-Floating Receive 1998 not applicable 5.23 5.69
10,000 Fixed Pay-Floating Receive 1998 not applicable 5.43 5.59
10,000 Fixed Receive-Floating Pay 1998 not applicable 6.10 5.50
15,000 Fixed Receive-Floating Pay 2003 1999 6.00 5.51
15,000 Fixed Receive-Floating Pay 2005 1999 6.10 5.52
15,000 Fixed Receive-Floating Pay 2005 1999 6.25 5.36
10,000 Fixed Receive-Floating Pay 2003 1999 6.58 5.59
5,000 Fixed Receive-Floating Pay 2003 1999 6.47 5.59
10,000 Fixed Receive-Floating Pay 2003 1999 6.53 5.59
5,000 Fixed Receive-Floating Pay 2003 1999 6.49 5.59
10,000 Fixed Receive-Floating Pay 2007 1998 6.90 5.53
15,000 Fixed Receive-Floating Pay 2007 1999 7.15 5.29
15,000 Fixed Receive-Floating Pay 2007 1999 7.05 5.55
10,000 Fixed Receive-Floating Pay 2007 1999 7.13 5.55
15,000 Fixed Receive-Floating Pay 2005 1999 6.00 5.47
15,000 Fixed Receive-Floating Pay 2007 1999 6.90 5.51
15,000 Fixed Receive-Floating Pay 2008 1999 6.30 5.55

For the years ended September 30, 1998, 1997 and 1996, the Company realized net
interest income on interest rate exchange agreement activity of $1.9 million,
$752,000 and $413,000, respectively. While this activity resulted in net
interest income in fiscal years 1998, 1997 and 1996, the Company effectively
matched the related funding costs of certain assets with the interest rate
characteristics of those assets. The Company's Investment Policy limits the
notional amount of outstanding interest rate exchange agreements to $450.0
million. Any notional amounts of interest rate exchange agreements in excess
of $450.0 million must be approved by the Company's Board of Directors.

The Company use interest rate corridors to help protect its net interest margin
in various interest rate environments. The corridors pay the Company 1.0% per
annum of the notional amount over its life only when the three-month LIBOR rate
is between the corridor strike rates (inclusive of the strike rate). There are
no payments due to the Company when the three-month LIBOR rate is outside the
corridor strike rates.

The interest rate corridors consist of the following:

- -------------------------------------------------------------------------------
Notional
Amount Maturity
(000s) Payment Type Date Strike Rates
- -------------------------------------------------------------------------------

$5,000 1.0% when three-month LIBOR within corridor 2000 7.00%-8.00%
5,000 1.0% when three-month LIBOR within corridor 2000 7.50%-8.50%

The Company also utilizes financial futures or options to manage anticipated
increases in interest rates and the resulting decline in the market prices of
its mortgage loan production. The options provide a practical floor and cap on
portfolio market values for moderate interest rate movements while the forward
contracts are used to offset actual and anticipated on- and off-balance sheet
positions of the Company. These options result in a certain amount of potential
interest rate and market value risk exposure for the Company. The amount of
the actual exposure is determined by the exercise of these options. The
Company generally sells options for settlement no more than four

months forward. An option's likelihood of exercise is dependent upon the
relation of the market price of the underlying security to the strike price of
the option. The strategy is not meant to offset losses that could be incurred
during a substantial interest rate move and actually may result in additional
losses on the instruments themselves which is beyond the losses the Company
would have incurred had the management techniques not been utilized. The
combined effect of the Company's option, forward commitment and loan swap
activity is included in the income statement as part of securities
gains/(losses). The Company realized losses on that combined activity of
$699,000 for the year ended September 30, 1998 and realized gains of $844,000
and $203,000, respectively, for the years ended September 30, 1997 and 1996.
At September 30, 1998 and 1997, the notional amount of outstanding short put
options (which if exercised could result in a purchase) were zero in each year.
As of September 30, 1998 and 1997, the notional amount of outstanding short
call options (which if exercised could result in a sale) were $2.0 million in
each year. The notional amount of options and forward contracts outstanding
varies and is a function of the current lending activity of salable mortgage
loans. In order to limit the risks which may be associated with such financial
options or futures, the Company's Investment Policy limits the amount of
outstanding sold puts or calls used to manage the Company's trading portfolio
to $50.0 million. Any amounts of outstanding financial options or futures in
excess of these amounts must be approved by the Company's Board of Directors.

The following table sets forth the amounts of estimated cash flows for the
various interest-earning assets and interest-bearing liabilities outstanding at
September 30, 1998.

More than More than More than
Within One Year Two Years Three Years
One Year to Two Years to Three Years to Four Years
--------------------- -------------- -------------------- ------------------------

Interest Earning Assets (In millions)

Mortgage and
commercial loans:
Fixed rate........... $ 58.3 7.92% $ 26.7 7.86% $ 14.8 7.88% $ 20.3 7.88%
Adjustable rate...... 98.2 8.10% 50.9 8.09% 55.5 8.07% 32.7 7.85%

Consumer loans:
Fixed rate........... 12.0 8.30% 20.0 8.50% 13.4 8.51% 16.0 8.51%
Adjustable rate...... 31.5 8.63% 22.9 8.70% 52.9 8.80% 27.2 8.80%

Mortgage-backed
Securities:
fixed rate........... 121.3 6.52% 73.0 6.61% 73.0 6.69% 23.5 6.61%
adjustable rate...... 72.5 6.40% 56.2 6.40% 50.7 6.59% 43.2 6.70%

Debt and equity
securities............ 106.0 6.41% 3.0 6.19% - - - -

Other.................. 31.3 5.29% - - - - - -

Total interest ---------- ---------- -------- --------
earning assets........ $ 531.1 7.02% $ 252.7 7.33% $260.3 7.55% $162.9 7.59%
========== ========== ======== ========

Interest Bearing Liabilities

Deposits:
NOW accounts......... $ 22.9 1.00% $ 11.8 1.00% $ 11.8 1.00% $ 4.7 1.00%
Passbooks............ 15.6 1.89% 11.9 1.89% 11.9 1.89% 8.2 1.89%
Money market......... 329.6 4.57% 12.9 4.57% 12.9 4.57% 3.2 4.57%
Certificates......... 564.0 5.85% 29.9 5.87% 27.9 5.79% 5.4 5.88%

Borrowings
fixed rate........... 31.9 5.00% 0.1 6.95% - - - -
adjustable rate...... 287.8 5.38% 60.0 5.61% - - - -

Total interest ---------- ---------- -------- --------
bearing liabilities... $ 1,251.8 5.13% $ 126.6 4.79% $ 64.5 3.95% $ 21.5 3.10%
========== ========== ======== ========

More than Fair
Four Years Over Market
to Five Years Five Years Total Value
---------------------------------------------------------------------------

Interest Earning Assets

Mortgage and
commercial loans:
Fixed rate........... $ 20.3 7.85% $ 78.9 8.00% $ 219.1 7.93% $ 232.9
Adjustable rate...... 23.6 7.89% 122.2 8.03% 383.2 8.04% 374.9

Consumer loans:
Fixed rate........... 17.4 8.50% 54.8 8.50% 133.7 8.48% 138.0
Adjustable rate...... 8.6 9.00% - - 143.0 8.76% 147.6

Mortgage-backed
Securities:
fixed rate........... 23.5 6.87% 9.9 6.58% 324.2 6.55% 324.6
adjustable rate...... 38.4 6.80% 111.9 6.90% 372.9 6.65% 372.9

Debt and equity
securities............ - - - - 109.0 6.40% 109.0

Other.................. - - 0.8 5.15% 32.2 5.29% 32.2

Total interest ------ ------ -------- --------
earning assets........ $131.8 7.54% $378.5 7.66% $1,717.3 7.38% $1,734.2
====== ====== ======== ========

Interest Bearing Liabilities

Deposits:
NOW accounts......... $ 4.7 1.00% $ 6.2 1.00% $ 62.0 1.00% $ 62.0
Passbooks............ 8.2 1.89% 36.2 1.89% 92.0 1.89% 92.0
Money market......... 3.2 4.57% 2.2 4.57% 364.2 4.57% 364.2
Certificates......... 5.0 6.65% - - 632.2 5.86% 632.2

Borrowings
fixed rate........... - - 125.0 4.94 156.9 4.04% 156.9
adjustable rate...... - - - - 347.8 5.42% 347.8
------ ------ -------- --------
Total interest
bearing liabilities... $ 21.1 3.23% $169.6 4.14% $1,655.1 4.91% $1,629.9
====== ====== ======== ========

58
59

LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, borrowings from the FHLB,
proceeds from principal and interest payments on loans and principal and
interest payments on mortgage-backed and related securities and on debt and
equity securities. Although maturities and scheduled amortization of loans are
predictable sources of funds, deposit flows, mortgage prepayments and
prepayments on mortgage-backed and related securities are influenced
significantly by general interest rates, economic conditions and competition.
Mortgage loan and mortgage security prepayments slowed during 1996 because of
the generally higher level of interest rates, but have generally been higher
during 1997 and 1998 because of the generally lower level of interest rates
throughout the year.

The ratio of liquid assets to deposits and short-term borrowings required by
the OTS is currently 5.0%. The Bank's liquidity ratio was 6.3% and 7.1% at
both September 30, 1998 and 1997. The Bank adjusts its liquidity levels in
order to meet various funding needs and to meet its asset and liability
management objectives.

The Bank's most liquid assets are cash and cash equivalents and highly liquid,
short-term investments. The levels of these assets are dependent on the Bank's
operating, financing, lending and investing activities during any given period.
At September 30, 1998 and 1997, liquid assets of the Bank (as defined in the
OTS regulations) were $83.3 million and $81.9 million, respectively.

Excess funds generally are invested in short-term investments such as federal
funds or overnight deposits at the FHLB. The Company has found brokered
certificates of deposit to be an efficient source and a cost-effective method,
relative to local retail market deposits, of meeting the Company's funding
needs. Management believes that a significant portion of its retail deposits
will remain with the Company, and in the case of brokered deposits, may be
replaced with similar type accounts even should the level of interest rates
change. However, in the event of a significant increase in market interest
rates, the cost of obtaining replacement brokered deposits would increase as
well. Whenever the Company requires funds beyond its ability to generate them
internally, additional sources of funds are available and obtained from
borrowings from the FHLB. Funds also may be available through reverse
repurchase agreements wherein the Company pledges mortgage-backed securities.
The Company utilizes its borrowing capabilities on a regular basis. At
September 30, 1998, FHLB advances totaled $452.1 million or 25.9% of total
liabilities and at September 30, 1997, FHLB advances were $385.1 million or
25.1% of total liabilities. At September 30, 1998, the Company had a borrowing
capacity available of $162.1 million from the FHLB; however, additional
securities may have to be pledged as collateral. At September 30, 1998,
reverse repurchase agreements totaled $30.6 million or 1.8% of total
liabilities compared with $22.5 million at September 30, 1997. The Company's
reverse repurchase agreements are generally short-term, with maturities of less
than 90 days. In a rising interest rate environment, such short-term
borrowings present the risk that upon maturity, the borrowings will have to be
replaced with higher rate borrowings. The Company generally has matched such
borrowings to specific assets and has relatively little liquidity risk due to
the fact that the assets and borrowings mature at approximately the same time.

The amount of principal repayments on loans and mortgage securities are heavily
influenced by the general level of interest rates in the economy. Funds
received from principal repayments on mortgage securities for the years ended
September 30, 1998 and 1997, were $317.9 million and $92.4 million,
respectively. Funds received from principal repayments on loans for the years
ended September 30, 1998 and 1997, were $352.4 million and $208.6 million,
respectively. In addition to principal repayments, the Company sells mortgage
loans to government agencies (primarily FNMA) and to institutional investors.
Total mortgage loan sales to FNMA and others were $210.4 million and $116.8
million for the years ended September 30, 1998 and 1997, respectively.

Through both origination and purchase, the Company primarily reinvests funds
received back into loans receivable and mortgage-backed and related securities.
Loan originations totaled $684.1 million and $400.7 million for the years
ended September 30, 1998 and 1997, respectively. Purchases of mortgage-backed
and related securities totaled $556.5 million and $306.4 million for the years
ended September 30, 1998 and 1997, respectively. During the years ended
September 30, 1998 and 1997, the Company repurchased approximately 523,000 and
387,000 shares of its common stock in share repurchase programs at a total cost
of approximately $21.2 million and $11.8 million, respectively.

At September 30, 1998 and 1997, the Company had outstanding loan commitments
including lines of credit of $200.5 million and $164.7 million, respectively.
The Company had no commitments to purchase loans outstanding at either of these
dates. At September 30, 1998 and 1997, the Company had commitments to purchase
$37.0 million and $1.9 million, respectively, of mortgage-backed and related
securities. The Company anticipates it will have sufficient funds available to
meet its current loan commitments, including loan applications received and in
process prior to the issuance of firm commitments.* Certificates of deposit,
including brokered certificates, which are scheduled to mature in one year or
less at September 30, 1998 and 1997, were $376.7 million and $401.5 million,
respectively. Management believes that a significant portion of such deposits
will remain with the Company.

IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein have
been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation
is reflected in the increased cost of the Company's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company are
monetary in nature. As a result, interest rates have a greater impact on the
Company's performance than do the effects of general levels of inflation.

CURRENT ACCOUNTING DEVELOPMENTS
The FASB issued SFAS No. 130, "Reporting Comprehensive Income," which is
effective for fiscal years beginning after December 15, 1997 and will be
adopted by the Company in the fiscal quarter ended December 31, 1998. This
statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Adoption is
not expected to materially effect results of operations or financial position.

The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which is effective for fiscal years beginning after
December 15, 1997 and will be adopted by the Company in its September 30, 1999
financial statements. This statement establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Adoption is not
expected to have an effect on results of operations or financial position.

The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which is effective for years beginning after June 15,
1999, although earlier adoption is permitted. This standard establishes new
rules for the recognition and measurement of derivatives and hedging
activities. It requires all derivatives to be recorded on the balance sheet at
fair value, although the timing of recognition in earnings will depend on the
classification of the hedge according to criteria established by SFAS 133.
Changes in the fair value of derivatives that do not meet these criteria are
required to be included in earnings in the period of the change. The Company
will adopt this standard on October 1, 1999 and expects that it will not
materially effect results of operations or financial position.

The FASB issued SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise: an amendment of FASB Statement No. 65," which is effective
for the first fiscal quarter beginning after December 15, 1998 and will be
adopted by the Company on January 1, 1999. This statement requires that after
the securitization of a mortgage loan held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities
or other retained interests based on its ability and intent to sell or hold
those investments. This statement conforms the subsequent accounting for
securities retained after the securitization of mortgage loans held by a
mortgage banking entity with

the required accounting for securities retained after the securitization of
other types of assets by a nonmortgage banking enterprise. Adoption is not
expected to materially effect results of operations or financial position.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in the section captioned "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is incorporated
herein by reference.

62
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEPENDENT AUDITORS' REPORT

The Board of Directors
St. Francis Capital Corporation:

We have audited the accompanying consolidated statements of financial condition
of St. Francis Capital Corporation and Subsidiary (the "Company") as of
September 30, 1998 and 1997, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the years in the
three year period ended September 30, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of St. Francis Capital
Corporation and Subsidiary as of September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three year
period ended September 30, 1998 in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Milwaukee, Wisconsin
October 23, 1998

62
63
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition

- -----------------------------------------------------------------------------------------------------
September 30,
(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------

ASSETS
Cash and due from banks ................................................ $ 23,861 $ 22,899
Federal funds sold and overnight deposits .............................. 6,885 19,959
----------- -----------
Cash and cash equivalents .............................................. 30,746 42,858
----------- -----------
Assets available for sale, at fair value:
Debt and equity securities (notes 3 and 9) ......................... 109,061 56,247
Mortgage-backed and related securities (notes 4 and 9) ............. 634,003 620,716
Mortgage loans held for sale, at lower of cost or market (note 5) ...... 23,864 24,630
Securities held to maturity, at amortized cost:
Debt securities (market values of $1,875 and $3,908,
respectively) (note 3) ......................................... 1,817 3,833
Mortgage-backed and related securities (market values of $63,497
and $66,219, respectively) (notes 4 and 9) ..................... 63,087 66,849
Loans receivable, net (notes 5 and 9) .................................. 855,132 712,875
Federal Home Loan Bank stock, at cost .................................. 23,453 20,843
Accrued interest receivable (note 6) ................................... 9,726 9,250
Foreclosed properties .................................................. 63 416
Real estate held for investment ........................................ 29,997 51,476
Real estate held for sale .............................................. 20,772 --
Premises and equipment, net (note 7) ................................... 32,165 24,711
Other assets (notes 5 and 11) .......................................... 30,290 25,945
----------- -----------
Total assets ........................................................... $ 1,864,176 $ 1,660,649
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (note 8) ...................................................... $ 1,216,874 $ 1,087,136
Short term borrowings (note 9) ......................................... 417,672 129,381
Long term borrowings (note 9) .......................................... 87,005 290,847
Advances from borrowers for taxes and insurance ........................ 8,553 9,563
Accrued interest payable and other liabilities (notes 8 & 15) .......... 12,527 15,192
----------- -----------
Total liabilities ...................................................... 1,742,631 1,532,119
----------- -----------

Commitments and contingencies (notes 2 and 16) ......................... -- --

Shareholders' equity:
Preferred stock $.01 par value:
Authorized, 6,000,000 shares
None issued ........................................................ -- --
Common stock $.01 par value:
Authorized 12,000,000 shares
Issued 7,289,620 shares
Outstanding, 4,787,683 and 5,226,998 shares, respectively .......... 73 73
Additional paid-in-capital ............................................. 75,310 73,541
Unrealized gain on securities available for sale, net of tax ........... 381 1,046
Unearned ESOP compensation (note 15) ................................... (2,678) (3,088)
Treasury stock, at cost (2,501,937 and 2,062,622 shares at September 30,
1998 and 1997, respectively) (note 14) ............................. (63,903) (44,511)
Retained earnings, substantially restricted (note 12) .................. 112,362 101,469
----------- -----------
Total shareholders' equity ............................................. 121,545 128,530
----------- -----------
Total liabilities and shareholders' equity ............................. $ 1,864,176 $ 1,660,649
=========== ===========

See accompanying Notes to Consolidated Financial Statements

63
64
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income

- --------------------------------------------------------------------------------------------------------
Year ended September 30,
-------------------------------------
(In thousands, except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------

Interest and dividend income:
Loans (note 5) .............................................. $ 67,729 $ 57,601 $ 47,512
Mortgage-backed and related securities ...................... 43,207 43,266 39,163
Debt and equity securities .................................. 4,282 4,634 3,329
Federal funds sold and overnight deposits ................... 1,177 1,048 864
Federal Home Loan Bank stock ................................ 1,436 1,373 1,226
Trading account securities .................................. 78 224 3
--------- --------- ---------
Total interest and dividend income ................................ 117,909 108,146 92,097

Interest expense:
Deposits (note 8) ........................................... 52,258 46,992 37,610
Advances and other borrowings ............................... 23,805 22,371 18,803
--------- --------- ---------
Total interest expense ............................................ 76,063 69,363 56,413
--------- --------- ---------

Net interest income before provision for loan losses .............. 41,846 38,783 35,684
Provision for loan losses (note 5) ................................ 2,300 1,280 1,300
--------- --------- ---------
Net interest income ............................................... 39,546 37,503 34,384
--------- --------- ---------

Other operating income (expense), net:
Loan servicing and loan related fees ........................ 2,125 1,813 1,258
Depository fees and service charges ......................... 3,524 2,159 1,451
Impairment loss on mortgage-backed securities ............... -- (3,400) --
Securities gains (notes 3 and 4) ............................ 1,243 2,015 3,420
Gain on sales of mortgage loans held for sale, net (note 5).. 4,367 1,562 1,057
Insurance annuity and brokerage commissions ................. 1,200 398 249
Gain (loss) on foreclosed properties ........................ (4) (22) 865
Income from affordable housing .............................. 5,059 3,363 1,899
Other income ................................................ 1,394 774 415
--------- --------- ---------
Total other operating income, net ................................. 18,908 8,662 10,614
--------- --------- ---------

General and administrative expenses:
Compensation and other employee benefits .................. 19,674 15,564 13,242
Office building, including depreciation ................... 3,302 2,551 2,106
Furniture and equipment, including depreciation ........... 3,380 2,466 1,874
Federal deposit insurance premiums ........................ 643 742 5,641
Affordable housing expenses ............................... 5,280 3,901 2,156
Other general and administrative expenses (note 10) ....... 9,552 7,679 6,603
--------- --------- ---------
Total general and administrative expenses ......................... 41,831 32,903 31,622
--------- --------- ---------

Income before income tax expense .................................. 16,623 13,262 13,376
Income tax expense (note 11) ...................................... 1,826 1,544 2,911
--------- --------- ---------
Net income ........................................................ $ 14,797 $ 11,718 $ 10,465
========= ========= =========

Basic earnings per share (note 13) ................................ $ 3.03 $ 2.33 $ 1.91
========= ========= =========
Diluted earnings per share (note 13) .............................. $ 2.85 $ 2.20 $ 1.82
========= ========= =========

See accompanying Notes to Consolidated Financial Statements

64
65
ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity

- --------------------------------------------------------------------------------

Unrealized
Shares of Gain (Loss)
Common Additional on Securities Unearned
Stock Common Paid-In Available ESOP
Outstanding Stock Capital For Sale Compensation
----------------------------------------------------------------------
(Dollars in thousands, except for shares of common stock outstanding)

BALANCE AT SEPTEMBER 30, 1995............... 6,078,799 $ 73 $71,819 $ 2,332 $ (3,996)
Net income.................................. -- -- -- -- --
Cash dividend - $0.40 per share............. -- -- -- -- --
Exercise of stock options................... 5,100 -- -- -- --
Purchase of treasury stock.................. (608,390) -- -- -- --
Amortization of unearned compensation....... -- -- 424 -- 508
Change in unrealized gain (loss) on
securities available for sale, net of
tax.................................... -- -- -- (4,097) --
------------- -------- ---------- ---------- --------

BALANCE AT SEPTEMBER 30, 1996............... 5,475,509 73 72,243 (1,765) (3,488)
Net income.................................. -- -- -- -- --
Cash dividend - $0.48 per share............. -- -- -- -- --
Exercise of stock options................... 138,790 -- 432 -- --
Purchase of treasury stock.................. (387,301) -- -- -- --
Amortization of unearned compensation....... -- -- 866 -- 400
Change in unrealized gain (loss) on
securities available for sale, net of
tax.................................... -- -- -- 2,811 --
------------- -------- ---------- ---------- ---------

BALANCE AT SEPTEMBER 30, 1997............... 5,226,998 73 73,541 1,046 (3,088)
Net income.................................. --
Cash dividend - $0.56 per share............. -- -- -- -- --
Exercise of stock options................... 83,673
Purchase of treasury stock.................. (522,988) --
Amortization of unearned compensation....... -- -- 1,473 -- 410
Change in unrealized gain (loss) on
securities available for sale, net of
tax.................................... -- -- -- (665) --
------------- -------- ---------- ---------- ---------
BALANCE AT SEPTEMBER 30, 1998............... 4,787,683 $ 73 $75,310 $ 381 (2,678)
============= ======== ========== ========== =========

ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders' Equity

- --------------------------------------------------------------------------------

Unearned
Restricted Treasury Retained
Stock Stock Earnings Total
-----------------------------------------------------------
(Dollars in thousands, except for shares of common stock outstanding)

BALANCE AT SEPTEMBER 30, 1995............... $ (701) $(20,142) $85,843 $ 135,228
Net income.................................. -- -- 10,465 10,465
Cash dividend - $0.40 per share............. -- -- (2,199) (2,199)
Exercise of stock options................... -- 96 (464) (368)
Purchase of treasury stock.................. -- (15,483) -- (15,483)
Amortization of unearned compensation....... 701 -- -- 1,633
Change in unrealized gain (loss) on
securities available for sale, net of
tax.................................... -- -- -- (4,097)
--------- --------- ----------- ------------

BALANCE AT SEPTEMBER 30, 1996............... -- (35,529) 93,645 125,179
Net income.................................. -- -- 11,718 11,718
Cash dividend - $0.48 per share............. -- -- (2,450) (2,450)
Exercise of stock options................... -- 2,834 (1,444) 1,822
Purchase of treasury stock.................. -- (11,816) -- (11,816)
Amortization of unearned compensation....... -- -- -- 1,266
Change in unrealized gain (loss) on
securities available for sale, net of
tax.................................... -- -- -- 2,811
--------- --------- ----------- ------------

BALANCE AT SEPTEMBER 30, 1997............... -- (44,511) 101,469 128,530
Net income.................................. -- -- 14,797 14,797
Cash dividend - $0.56 per share............. -- -- (2,912) (2,912)
Exercise of stock options................... -- 1,768 (992) 1,072
Purchase of treasury stock.................. -- (21,160) -- (21,160)
Amortization of unearned compensation....... -- -- -- 1,883
Change in unrealized gain (loss) on
securities available for sale, net of (665)
tax.................................... -- -- --
-------- -------- --------- ----------
BALANCE AT SEPTEMBER 30, 1998............... $ -- $(63,903) $ 112,362 $121,545
======== ======== ========= ==========

See accompanying Notes to Consolidated Financial Statements

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ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flow

September 30,
----------------------------------------
1998 1997 1996
----------------------------------------
(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ......................................................... $ 14,797 $ 11,718 $ 10,465
Adjustments to reconcile net income to net cash provided by
operating activities:
Provisions for loan losses ................................... 2,300 1,280 1,300
Depreciation, accretion and amortization ..................... 8,415 5,421 3,573
Deferred income taxes ........................................ (836) (691) (2,073)
Securities gains/(losses) .................................... (1,243) (2,015) (3,420)
Impairment loss on mortgage-backed securities ................ -- 3,400 --
Originations of loans held for sale .......................... 210,408 116,842 62,560
Proceeds from sales of loans held for sale ................... (214,009) (114,356) (71,124)
Stock-based compensation expense ............................. 1,883 1,266 1,633
Decrease in trading account securities, net .................. -- -- 3,000
Other, net ................................................... (6,539) (3,380) 4,974
--------- --------- ---------
Total adjustments .................................................. 379 7,767 423
--------- --------- ---------
Net cash provided by operating activities .......................... 15,176 19,485 10,888
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of debt securities held to maturity.... 2,016 2,841 25,508
Purchases of debt securities held to maturity .................. -- (459) (18,535)
Purchases of mortgage-backed and related securities held
to maturity .................................................. -- -- (1,000)
Principal repayments on mortgage-backed and related
securities held to maturity .................................. 3,762 1,543 5,573
Purchases of mortgage-backed securities available for sale ..... (556,456) (306,405) (323,622)
Proceeds from sales of mortgage-backed securities
available for sale ........................................... 229,046 112,315 178,602
Principal repayments on mortgage-backed securities
available for sale ........................................... 314,123 90,868 62,579
Purchase of debt and equity securities available for sale ...... (135,422) (51,199) (64,944)
Proceeds from sales of debt and equity securities available
for sale ..................................................... 71,213 47,200 33,875

Proceeds from maturities of debt and equity securities
available for sale ............................................. 11,395 15,399 16,369
Bank acquisition, net of cash acquired ......................... -- (7,118) --
Purchases of Federal Home Loan Bank stock ...................... (4,450) (2,580) (2,059)
Redemption of Federal Home Loan Bank stock ..................... 1,840 800 436
Purchase of loans .............................................. (67,446) (25,587) (69,016)
Increase in loans, net of loans held for sale .................. (74,811) (14,030) (40,312)
Increase in real estate held for investment .................... (1,783) (16,525) (13,648)
Proceeds from sale of foreclosed properties .................... -- -- 6,767
Purchases of premises and equipment, net ....................... (10,492) (10,526) (6,634)
--------- --------- ---------
Net cash used in investing activities .............................. (217,465) (163,463) (210,061)
--------- --------- ---------

See accompanying Notes to Consolidated Financial Statements

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ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flow

September 30,
------------------------------------
1998 1997 1996
------------------------------------
(In thousands)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ................................................. 129,738 141,650 189,336
Proceeds from advances and other borrowings .............................. 758,618 224,965 140,122
Repayments on advances and other borrowings .............................. (688,604) (210,746) (97,248)
Increase (decrease) in securities sold under agreements
to repurchase .......................................................... 14,435 22,481 (13,521)
Increase (decrease) in advances from borrowers for taxes
and insurance .......................................................... (1,010) (1,529) 213
Dividends paid ........................................................... (2,912) (2,450) (2,199)
Stock option transactions ................................................ 1,072 1,822 (368)
Purchase of treasury stock ............................................... (21,160) (11,816) (15,483)
--------- --------- ---------
Net cash provided by financing activities .................................... 190,177 164,377 200,852
--------- --------- ---------

Increase (decrease) in cash and cash equivalents ............................. (12,112) 20,399 1,679

Cash and cash equivalents:
Beginning of period .................................................... 42,858 22,459 20,780
--------- --------- ---------
End of period .......................................................... $ 30,746 $ 42,858 $ 22,459
========= ========= =========

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ............................................................... $ 76,461 $ 69,062 $ 57,143
Income taxes ........................................................... 4,459 2,205 4,521

Supplemental schedule of noncash investing and financing activities:

The following summarizes significant noncash investing and financing
activities:
Mortgage loans secured as mortgage-backed securities ................... $ 19,373 $ 57,337 --
Transfer of mortgage-backed and related securities
to assets available for sale ........................................ -- -- $ 117,300
Transfer from loans to foreclosed properties ........................... 560 725 126
Transfer of mortgage loans to mortgage loans held for sale ............. 69,143 33,136 11,937
Transfer of real estate held for investment to real estate
held for sale ...................................................... 20,772 -- --
Acquisitions:
Assets acquired .................................................... -- $ 93,044 --

Cash paid for purchase of stock .................................... -- $ (25,283) --
Cash acquired ...................................................... -- 18,165 --
========= ========= =========
Net cash used for acquisitions ..................................... -- $ (7,118) --
========= ========= =========

See accompanying Notes to Consolidated Financial Statements

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(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of St. Francis Capital Corporation and
subsidiary (the "Company") conform to generally accepted accounting principles
and to general practice within the banking industry. The Company provides a full
range of banking and related financial services to individual and corporate
customers through its network of bank affiliates. The Company is subject to
competition from other financial institutions and is regulated by federal and
state banking agencies and undergoes periodic examinations by those agencies.
The following is a description of the more significant of those policies that
the Company follows in preparing and presenting its consolidated financial
statements. In preparing the consolidated financial statements in conformity
with generally accepted accounting principles, management is required to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiary, St. Francis Bank, F.S.B. ("Bank"), the Bank's
subsidiaries, SF Investment Corp. ("SF Investment"), SF Insurance Services
Corp., S-F Mortgage Corp (liquidated February 3, 1998) and St. Francis Equity
Properties ("SFEP") and limited partnerships which are all more than 50% owned
by SFEP. All significant intercompany accounts and transactions have been
eliminated in consolidation.

(b) Statements of Cash Flows
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash on hand, interest-bearing deposits with the Federal
Home Loan Bank-Chicago ("FHLB") and other financial institutions and federal
funds sold.

(c) Trading Account Securities
Trading account securities include debt securities which are held for resale in
anticipation of short-term market movements. Trading account securities are
stated at fair value. Gains and losses, both realized and unrealized, are
included in securities gains/(losses).

(d) Securities Held to Maturity and Available For Sale
Management determines the appropriate classification of debt and equity
securities at the time of purchase and reevaluates such designations as of each
statement of condition date. Debt securities are classified as held-to-maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Held to maturity securities are stated at amortized cost.

Debt securities not classified as held to maturity, or trading and marketable
equity securities not classified as trading are classified as available for
sale. Available for sale securities are stated at fair value, with the
unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity.

The cost of debt securities classified as held to maturity or available for sale
is adjusted for amortization of premiums and accretion of discounts to maturity,
or in the case of mortgage-backed and related securities, over the estimated
life of the security. Such amortization is based on a level-yield method and is
included in interest income from the respective security. Interest and dividends
are included in interest and dividend income from investments. Realized gains
are included in net gains and losses from sales of investments and
mortgage-backed and related securities. The cost of securities sold is based on
the specific identification method.

In determining if declines in value in mortgage-backed and related securities
are other than temporary, management estimates future cash flows to be generated
by pools of loans underlying the securities. Included in this evaluation are
such factors as i) estimated loan prepayment rates, ii) a review of
delinquencies, foreclosures, repossessions and recovery rates relative to the
underlying mortgage loans collateralizing each security, iii) the level of
available subordination or other credit enhancements, iv) an assessment of the
servicer of the underlying mortgage portfolio and v) the rating assigned to each
security by independent national rating agencies.

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(e) Loans Held For Sale
Mortgage loans held for sale generally consist of certain fixed-rate and
adjustable-rate first mortgage loans. Mortgage loans held for sale are carried
at the lower of cost (less principal payments received) or market value, as
determined by outstanding commitments from investors or current quoted investor
yield requirements on an aggregate basis.

(f) Loans and Fees and Income on Loans
Loans are carried at the outstanding principal amount reduced by purchased
discount, deferred fees, unearned insurance premiums, loans in process and the
allowance for loan losses. Loans sold with recourse are derecognized at the time
of sale. The estimated liability related to recourse provisions is periodically
evaluated with increases charged to expense. Loans for which management has the
intent and ability to hold for the foreseeable future or until maturity or
repayment are carried at their unpaid principal balances. Interest on loans is
recorded as income in the period earned.

Loans are normally placed on non-accrual status when contractually past due 90
days or more as to interest or principal payments. Additionally, whenever
management becomes aware of facts or circumstances that may adversely impact the
collectibility of principal or interest on loans, it is management's practice to
place such loans on non-accrual status immediately, rather than delaying such
action until the loans become 90 days past due. Previously accrued and
uncollected interest on such loans is reversed, amortization of related loan
fees is suspended, and income is recorded only to the extent that interest
payments are subsequently received in cash and a determination has been made
that the principal balance of the loan is collectible. If collectibility of the
principal is in doubt, payments received are applied to loan principal.

Loan origination and commitment fees and certain direct loan origination costs
are deferred and the net amounts amortized as an adjustment of the related
loan's yield. These amounts are amortized to income using the level yield
method, over the contractual life of the related loans. Discounts on purchased
loans are amortized using a method which approximates level yield. Unamortized
discounts on purchased loans which prepay are amortized immediately.

Loan origination fees and costs associated with loans sold are deferred and
recognized at the time of sale as a component of gain or loss on the sale of
loans. Fees for the servicing of loans are recognized as income when earned.

(g) Mortgage Servicing Rights
The Bank recognizes as a separate asset the rights to service mortgage loans for
others, however those servicing rights are acquired. The value of mortgage
servicing rights is amortized in relation to the servicing revenue expected to
be earned. The evaluation of mortgage servicing rights for impairment takes into
consideration certain risk characteristics including loan type, note rate,
prepayment trends and external market factors.

(h) Allowance for Loan Losses
The allowance for loan losses is maintained at a level adequate to provide for
loan losses through charges to operating expense. The allowance is based upon
past loan loss experience and other factors which, in management's judgment,
deserve current recognition in estimating loan losses. Such other factors
considered by management include growth and composition of the loan portfolio,
the relationship of the allowance for loan losses to outstanding loans and
economic conditions. In connection with the determination of the allowance for
loan losses, management obtains independent appraisals for significant
properties which collateralize loans. With respect to loans which are deemed
impaired, the calculation of reserve levels is based upon the discounted present
value of expected cash flows received from the debtor or other measures of value
such as market prices or collateral values.

Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for
losses on loans. Such agencies may require the Company to recognize additions to
the allowance based on their judgments about information

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available to them at the time of their examination.

(i) Financial Options
Interest rate swaps, forward and future commitments and contracts and option
contracts purchased or sold may be used from time to time to manage interest
rate exposure by hedging specific assets or liabilities. Realized and unrealized
gains and losses on these instruments are deferred and amortized over the life
of the hedged assets and liabilities. Financial instruments which do not meet
the criteria for hedge accounting are marked to market in aggregate and any
gains or losses are recognized in the income statement line item securities
gains/(losses).

Fees received on options written are deferred at the time the fees are received
and recognized in other operating income at the earlier of the settlement or the
expiration of the contract.

(j) Foreclosed Properties
Foreclosed properties (which were acquired by foreclosure or by deed in lieu of
foreclosure) are initially recorded at the lower of the carrying value of the
related loan balance or the fair market value of the real estate acquired less
the estimated costs to sell the real estate at the date title is received. Costs
relating to the development and improvement of the property are capitalized.
Income and expenses incurred in connection with holding and operating the
property are charged to expense. Valuations are periodically performed by
management and independent third parties and an allowance for loss is
established by a charge to expense if the carrying value of a property exceeds
its fair value less estimated costs to sell.

(k) Real Estate Held for Investment and for Sale
Real estate held for investment is multi-family rental property (affordable
housing projects) that SFEP, owns, operates and develops as a limited partner.
The properties are recorded at cost less accumulated depreciation. The Company
evaluates the recoverability of the carrying value on a regular basis. If the
recoverability was determined to be in doubt, a valuation allowance would be
established by way of a charge to expense. Depreciation expense is provided on a
straight-line basis over the estimated useful life of the assets. Expenditures
for normal repairs and maintenance are charged to expense as incurred. Certain
properties (affordable housing projects) for which management has plans to sell
are recorded at the lower of cost less accumulated depreciation or fair value,
less costs to sell. Depreciation expense is not provided on properties held for
sale.

Real estate held for sale is multi-family affordable housing projects, which
SFEP had previously classified as held for investment, but has decided to
dispose. The held for sale projects consist of 13 of the Company's affordable
housing investments with an aggregate carrying value of $20.8 million as of
September 30, 1998. The properties are expected to be sold prior to the end of
the next fiscal year at a yet to be determined gain. The properties are carried
at the lower of cost or market value and at September 30, 1998, no impairment
writedown was necessary. The Company's decision to dispose of several properties
was the result of a review of its consolidated federal tax return. Under the
alternative minimum tax rules, the Company is currently carrying forward
affordable housing tax credits that it has not utilized on its tax return.
Although all tax credits are expected to be used before their expiration, sale
of the properties will allow the Company to utilize the tax credits sooner on
its consolidated federal tax return.

(l) Premises and Equipment
Premises and equipment are recorded at cost less accumulated depreciation and
amortization. Depreciation and amortization expense are provided on a
straight-line basis over the estimated useful lives of the assets. The cost of
leasehold improvements is amortized on the straight-line basis over the lesser
of the term of the respective lease or the estimated economic life of the
improvements.

Expenditures for normal repairs and maintenance are charged to expense as
incurred. When properties are retired or otherwise disposed of, the related cost
and accumulated depreciation are removed from the respective accounts and the
resulting gain or loss is recorded in income.

(m) Federal Home Loan Bank Stock
The Company's investment in FHLB stock meets the minimum amount required by
current regulation and

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is carried at cost which is its redeemable (fair) value since the market for
this stock is limited.

(n) Income Taxes
The Company and its subsidiaries file consolidated Federal income tax returns.
Federal income tax expense is allocated to each subsidiary based on an
intercompany tax sharing agreement. Each subsidiary files separate state and
local income or franchise tax returns.

Income taxes are accounted for using the asset and liability method. Under this
method, deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to the differences between the financial
statement carrying amount of assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.

Affordable housing tax credits are recognized as a reduction of income tax
expense in the year they are available to be used in the Company's consolidated
income tax returns.

(o) Stock-based Compensation Plans
The Company has various stock based compensation plans that authorize the
granting of stock options, restricted stock, and other stock based awards to
eligible employees. The Company has elected to not adopt the recognition
provisions of SFAS No. 123, "Accounting for Stock Based Compensation", which
requires a fair-value based method of accounting for stock options and equity
awards, but will continue to follow APB No. 25, "Accounting for Stock Issued to
Employees", and related interpretations to account for its stock based
compensation plans. Pursuant to the disclosure requirements of SFAS No. 123, the
Company has included in Note 15 the effect of the fair value of employee
stock-based compensation plans on net income and earnings per share on a pro
forma basis as if the fair value based method of accounting defined in SFAS No.
123 was applied.

(p) Pending Accounting Changes
The FASB issued SFAS No. 130, "Reporting Comprehensive Income," which is
effective for fiscal years beginning after December 15, 1997 and will be adopted
by the Company in the fiscal quarter ended December 31, 1998. This statement
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Adoption is not expected to
materially effect results of operations or financial position.

The FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is effective for years beginning after June 15, 1999,
although earlier adoption is permitted. This standard establishes new rules for
the recognition and measurement of derivatives and hedging activities. It
requires all derivatives to be recorded on the balance sheet at fair value,
although the timing of recognition in earnings will depend on the classification
of the hedge according to criteria established by SFAS 133. Changes in the fair
value of derivatives that do not meet these criteria are required to be included
in earnings in the period of the change. The Company will adopt this standard on
October 1, 1999 and expects that it will not materially effect results of
operations or financial position.

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The FASB issued SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise: an amendment of FASB Statement No. 65," which is effective
for the first fiscal quarter beginning after December 15, 1998 and will be
adopted by the Company on January 1, 1999. This statement requires that after
the securitization of a mortgage loan held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold those
investments. This statement conforms the subsequent accounting for securities
retained after the securitization of mortgage loans held by a mortgage banking
entity with the required accounting for securities retained after the
securitization of other types of assets by a nonmortgage banking enterprise.
Adoption is not expected to materially effect results of operations or financial
position.

(q) Reclassification
Certain amounts for prior years have been reclassified to conform to the 1998
presentation.

(2) ACQUISITIONS

In February 1997, the Company completed the acquisition of Kilbourn State Bank
for $25.3 million cash. Under the terms of the agreement, the Company acquired
all of the outstanding shares of Kilbourn State Bank, with the acquisition being
accounted for as a purchase. The related accounts and results of operations are
included in the Company's consolidated financial statements from the date of
acquisition. The acquisition of Kilbourn State Bank added $93.0 million in
assets, including additions of $62.6 million to net loans and $67.8 million to
deposits.

The excess of cost over the fair value of assets acquired is accounted for as
goodwill and will be amortized over fifteen years using the straight-line
method. The amount of goodwill recorded due to the acquisition was $9.1 million.

On June 30, 1998, the Company entered into an agreement to acquire Reliance
Bancshares, Inc. of Milwaukee. The transaction will be a stock and cash
transaction which, based on the Company's stock price on that day, valued
Reliance at $10.00 per share or approximately $24.0 million. The value of the
merger consideration on which shareholders elect to receive cash will be limited
to 40% of the value of the transaction. The actual price will depend on the
Company's stock price during a pricing period prior to the closing of the
transaction. The proposed acquisition, which will be treated as a purchase
transaction for accounting purposes, is expected to be completed in January
1999, subject to Reliance shareholder and regulatory approvals. Reliance has
approximately $45 million in assets and operates with one office in Milwaukee,
WI.

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(3) DEBT AND EQUITY SECURITIES

The following is a summary of available for sale and held to maturity debt and
equity securities:

Amortized Gross Unrealized Estimated
(In thousands) Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------------------------

At September 30, 1998:
Available for sale:
U.S. Treasury obligations and obligations of
U.S. Government agencies ................ $ 84,791 $ 1,231 $ -- $ 86,022
Corporate notes and bonds .................. 1,000 18 -- 1,018
Marketable equity securities ............... 22,021 -- -- 22,021
-------- -------- -------- --------
$107,812 $ 1,249 $ -- $109,061
======== ======== ======== ========

Held to maturity:
U.S. Treasury obligations and obligations of
U.S. Government agencies ................ $ 1,007 $ 13 $ -- $ 1,020
State and municipal obligations ............ 810 45 -- 855
-------- -------- -------- --------
$ 1,817 $ 58 $ -- $ 1,875
======== ======== ======== ========

At September 30, 1997:
Available for sale:
U.S. Treasury obligations and obligations of
U.S. Government agencies ................ $ 22,026 $ 124 $ 26 $ 22,124
State and municipal obligations ............ 429 6 -- 435
Corporate notes and bonds .................. 5,518 12 3 5,527
Asset-backed securities .................... 21,200 51 551 20,700
Marketable equity securities ............... 7,461 -- -- 7,461
-------- -------- -------- --------
$ 56,634 $ 193 $ 580 $ 56,427
======== ======== ======== ========

Held to maturity:
U.S. Treasury obligations and obligations of
U.S. Government agencies ................ $ 3,023 $ 46 $ -- $ 3,069
State and municipal obligations ............ 810 29 -- 839
-------- -------- -------- --------
$ 3,833 $ 75 $ -- $ 3,908
======== ======== ======== ========

The amortized cost and estimated fair value of debt and equity securities
available for sale and held to maturity at September 30, 1998, by contractual
maturity, are as follows:

Amortized Estimated
(In thousands) Cost Fair Value
- ----------------------------------------------------------------------------------------

Less than one year.................................... $ 8,023 $ 8,091
Greater than one year but less than five years........ 60,004 66,084
Greater than five years but less than ten years....... 18,573 13,651
Greater than ten years................................ 1,008 1,089
-------------- ---------------
87,608 88,915
Marketable equity securities.......................... 22,021 22,021
-------------- ---------------
$ 109,629 $ 110,936
============== ===============

During the years ended September 30, 1998, 1997 and 1996, proceeds from the sale
of available for sale debt and equity securities were $71.2 million, $47.2
million and $33.9 million, respectively. The gross realized gains on such sales
totaled $209,000, $65,000 and $614,000 in 1998, 1997 and 1996, respectively. The
gross realized losses on such sales totaled $1.7 million, $24,000 and $126,000
in 1998, 1997 and 1996,

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respectively. There were no sales of held to maturity debt securities in 1998,
1997 and 1996.

(4) MORTGAGE-BACKED AND RELATED SECURITIES

The following is a summary of available for sale mortgage-backed and related
securities and held to maturity mortgage-backed and related securities:

Amortized Gross Unrealized Estimated
(In thousands) Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------

At September 30, 1998:
Available for sale:
Participation certificates:
FNMA ................... $ 4,999 $ -- $ 87 $ 4,912
FHLMC .................. 2,827 9 8 2,828
Private issue .......... 115,318 661 2,208 113,771
REMICs:
GNMA ................... 3,175 38 -- 3,213
FNMA ................... 17,823 149 43 17,929
FHLMC .................. 42,283 248 471 42,060
Private issue .......... 448,210 1,561 517 449,254
CMO residual .............. 36 -- -- 36
-------- -------- -------- --------
$634,671 $ 2,666 $ 3,334 $634,003
======== ======== ======== ========

Held to maturity:
REMICs:
FNMA ................... $ 1,609 $ 4 $ 1 $ 1,612
FHLMC .................. 999 4 -- 1,003
Private issue .......... 60,479 413 10 60,882
-------- -------- -------- --------
$ 63,087 $ 421 $ 11 $ 63,497
======== ======== ======== ========
At September 30, 1997:
Available for sale:
Participation certificates:
GNMA ................... $ 3,604 $ 299 $ -- $ 3,903
FNMA ................... 12,277 90 -- 12,367
FHLMC .................. 4,078 24 -- 4,102
Private issue .......... 224,530 1,160 829 224,861
REMICs:
GNMA ................... 4,219 28 -- 4,247
FNMA ................... 66,185 634 87 66,732
FHLMC .................. 150,151 735 81 150,805
Private issue .......... 153,658 859 855 153,662
CMO residual .............. 37 -- -- 37
-------- -------- -------- --------
$618,739 $ 3,829 $ 1,852 $620,716
======== ======== ======== ========

Held to maturity:
REMICs:
FNMA ................... $ 2,102 $ 7 $ 9 $ 2,100
FHLMC .................. 1,917 27 -- 1,944
Private issue .......... 62,830 59 714 62,175
-------- -------- -------- --------
$ 66,849 $ 93 $ 723 $ 66,219
======== ======== ======== ========

During the years ended September 30, 1998, 1997 and 1996, proceeds from the sale
of available for sale mortgage-backed and related securities were $229.0
million, $112.3 million and $178.6 million,

74
75

respectively. The gross realized gains on such sales totaled $4.4 million, $1.3
million and $2.8 million in 1998, 1997 and 1996, respectively. The gross
realized losses on such sales totaled $930,000, $28,000 and $10,000 in 1998,
1997 and 1996, respectively. There were no sales of held to maturity
mortgage-backed and related securities in 1998, 1997 and 1996.

During the year ended September 30, 1997, the Company recorded an impairment
loss of $3.4 million to reflect other than temporary impairment of the carrying
value of certain private issue mortgage-backed securities. The securities,
carried at $12.5 million prior to the writedown, were adjusted to fair value of
$9.1 million. Based on the new carrying value, estimated future cash flows on
the securities should reflect a market rate of interest. The cost basis of
impaired securities is $479,000 at September 30, 1998. The decline in the cost
basis during the year is due to repayments and the sale of one issue of the
mortgage-backed securities which was determined to be impaired at September 30,
1997. The security sold had an adjusted cost basis of $7.2 million and a
$151,000 gain was recorded on the sale.

At September 30, 1998 and 1997, $325.1 million and $267.7 million, respectively,
of mortgage-related securities were pledged as collateral for FHLB advances.

(5) LOANS RECEIVABLE

Loans receivable are summarized as follows:

September 30,
(In thousands) 1998 1997
- ----------------------------------------------------------------------

First mortgage - one- to four-family ......... $254,047 $240,522
First mortgage - residential construction..... 71,092 46,340
First mortgage - multi-family ................ 105,380 101,289
Commercial real estate ....................... 170,562 87,950
Home equity .................................. 142,993 115,293
Commercial and agriculture ................... 93,927 72,144
Consumer secured by real estate .............. 85,595 89,627
Interim financing and consumer loans ......... 13,375 15,255
Indirect autos ............................... 32,173 15,423
Education .................................... 2,529 948
-------- --------
Total gross loans ........................ 971,673 784,791
-------- --------
Less:
Loans in process ......................... 83,436 38,200
Unearned insurance premiums .............. 292 552
Deferred loan and guarantee fees ......... 848 1,290
Purchased loan discount .................. 571 1,042
Allowance for loan losses ................ 7,530 6,202
-------- --------
Total deductions ......................... 92,677 47,286
-------- --------
Total loans receivable ....................... 878,996 737,505
Less: First mortgage loans held for sale..... 23,864 24,630
-------- --------
Loans receivable, net ........................ $855,132 $712,875
======== ========

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Activity in the allowance for loan losses is as follows:

Years Ended September 30,
------------------------------
(In thousands) 1998 1997 1996
- -----------------------------------------------------------------------

Balance at beginning of year .......... $ 6,202 $ 5,217 $ 4,076
Provision charged to expense....... 2,300 1,280 1,300
Charge-offs ....................... (999) (2,054) (188)
Recoveries ........................ 27 81 29
Acquired bank's allowance ......... -- 1,678 --
------- ------- -------
Balance at end of year ................ $ 7,530 $ 6,202 $ 5,217
======= ======= =======

Recoveries are insignificant in all years. Non-performing loans and troubled
debt restructurings totaled approximately $2.9 million and $3.0 million at
September 30, 1998 and 1997, respectively. Non-performing loans at September 30,
1998 and 1997 include $172,000 and $1.1 million, respectively, of purchased auto
loans which are past due or in default. Non-performing loans at September 30,
1998 and 1997 also includes a single commercial real estate loan collateralized
by a shopping center mortgage with a balance of $833,000 and $850,000,
respectively. Impaired loans totaled $1.0 million and $1.9 million at September
30, 1998 and 1997, respectively. These loans had associated impairment reserves
of $529,000 and $782,000 at September 30, 1998 and 1997, respectively. During
1998 and 1997, the average balance of impaired loans was $1.4 million and $4.1
million, respectively. Interest income on impaired loans for the year ended
September 30, 1998 was $63,000, compared to zero at September 30, 1997 and 1996.
Interest income on impaired loans is recognized only to the extent that payments
are expected to exceed the amount of principal due on the loans.

The effect of non-performing loans on interest income is as follows:

Years Ended September 30,
---------------------------
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------

Interest at original contractual rate... $388 $647 $296
Interest collected ..................... 161 206 11
---- ---- ----
Net reduction of interest income.... $227 $441 $285
==== ==== ====

The fair value of capitalized mortgage servicing rights approximates the amount
at September 30, 1998 and 1997. Changes in capitalized mortgage servicing are
summarized as follows:

September 30,
(In thousands) 1998 1997 1996
- --------------------------------------------------------------------------------

Balance at beginning of year ......... $ 1,802 $ 701 $ --
Servicing rights capitalized ..... 2,158 1,158 724
Amortization of servicing rights.. (659) (57) (23)
------- ------- -------
Balance at end of year ............... $ 3,301 $ 1,802 $ 701
======= ======= =======

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77
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances of
these loans are summarized as follows:

September 30,
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------

Mortgage loans underlying pass-through securities - FNMA ..... $133,586 $177,649 $141,944
Mortgage loan portfolios serviced for:
FNMA .................................................... 252,059 115,080 72,038
FHLMC ................................................... 603 982 1,233
WHEDA ................................................... 20,834 15,129 8,665
Other investors ......................................... 6,596 2,836 2,954
-------- -------- --------

Total loans serviced for others ......................... $413,678 $311,676 $226,834
======== ======== ========

Custodial escrow balances maintained in connection with the
foregoing loan servicing and included in demand deposits.. $ 15,301 $ 10,810 $ 8,738
======== ======== ========

(6) ACCRUED INTEREST RECEIVABLE

Accrued interest receivable is summarized as follows:

September 30,
(In thousands) 1998 1997
- ----------------------------------------------------------------

Mortgage-backed and related securities.... $3,474 $3,535
Loans receivable ......................... 5,094 4,670
Other .................................... 1,158 1,045
------ ------
$9,726 $9,250
====== ======

(7) PREMISES AND EQUIPMENT

A summary of premises and equipment, at cost, follows:

September 30,
(In thousands) 1998 1997
- ------------------------------------------------------------------------------

Land and land improvements ...................... $ 5,197 $ 4,755
Office buildings and improvements ............... 20,569 16,479
Furniture, fixtures and equipment ............... 18,399 13,264
Leasehold improvements .......................... 1,886 1,060
-------- --------
46,051 35,558
Accumulated depreciation and amortization... (13,886) (10,847)
-------- --------
$ 32,165 $ 24,711
======== ========

Range of depreciable lives:
Office buildings and improvements 5 - 40 years
Furniture, fixtures and equipment 5 - 10 years
Leasehold improvements 5 - 40 years

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78
(8) DEPOSITS

Deposit accounts are summarized as follows:

September 30,
--------------------------------------------------------------------
(In thousands) 1998 1997
- -------------------------------------------------------------------------------------------------
Weighted Weighted
average average
rate Amount Percent rate Amount Percent
- -------------------------------------------------------------------------------------------------

Demand deposits:
Non-interest bearing .... -- $ 66,337 5.4% -- $ 52,582 4.8%
Interest bearing ........ 1.34% 61,821 5.1 1.61% 54,126 5.0
Passbook accounts ........... 3.30 133,282 11.0 2.91 105,356 9.7
Money market
demand accounts ......... 4.81 323,088 26.5 4.87 265,382 24.4
Certificates ................ 5.85 632,346 52.0 6.06 609,690 56.1
---------- ----- ---------- -----
Total deposits .............. 4.75 $1,216,874 100.0% 4.95 $1,087,136 100.0%
========== ===== ========== =====

The certificates category above includes approximately $214.9 million and $140.8
million of brokered deposits at weighted average stated rates of 6.15% and 6.49%
at September 30, 1998 and September 30, 1997, respectively.

Aggregate annual maturities of certificate accounts at September 30, 1998 are as
follows:

Weighted
average
Maturities during year ended September 30: Amount rate
--------------- ------------
(In thousands)

1999............................................... $ 376,718 5.62%
2000............................................... 94,262 5.78
2001............................................... 13,077 5.73
2002............................................... 4,560 5.94
2003............................................... 3,840 5.92
Thereafter......................................... 139,889 5.74
----------- 6.55
$ 632,346
===========

Certificates, net of brokered deposits, include approximately $41.9 million and
$48.6 million in denominations of $100,000 or more at September 30, 1998 and
1997, respectively.

Interest expense on deposits is as follows:

Years Ended September 30,
(In thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------

Demand deposits............................................. $ 861 $ 843 $ 614
Money market demand accounts................................ 13,867 10,306
6,787
Passbook accounts........................................... 4,186 2,617 2,392
Certificates of deposit.................................... 33,344 27,817
33,226
========== ========= ========
$ 52,258 $ 46,992 $37,610
========== ========= ========

Accrued interest payable on deposits totaled approximately $3.4 million and $3.6
million at September 30, 1998 and 1997, respectively.

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79
(9) SHORT AND LONG TERM BORROWINGS

Advances and other borrowings consist of the following:

(In thousands) Weighted Average
Interest Rate
-------------------------
September 30, September 30,
------------------------- Matures in fiscal ------------------------
Description 1998 1997 year ended 1998 1997
- ------------------------------------------------------------ ---------------------------------------------

Reverse repurchase agreements.... - % 5.80 % 1998 $ - $22,481
0.32 - 1999 30,550 -

Retail repurchase agreements..... 4.87 - 1999 1,329 -

Bank line of credit.............. - 6.93 1998 - 11,000
6.74 - 1999 18,000 -

Advances from Federal Home
Loan Bank Of Chicago.......... 6.10 - Open Line Advance 12,000 -
- 5.62 1998 - 95,000
5.39 5.68 1999 355,000 230,000
5.60 5.67 2000 55,051 55,056
5.63 5.70 2001 5,000 5,000
- - 2002 - -
2003 - -
5.02 - 2004 and after 25,000 -

Federal Reserve Bank
Treasury tax & loan advances... 5.42 5.42 Daily overnight 793 900

Mortgages payable................ 8.61 9.22 Various 1,954 791
----------- -----------
$ 504,677 $ 420,228
Less: short term borrowings...... 417,672 129,381
----------- -----------
Long term borrowings............. $ 87,005 $ 290,847
=========== ===========

The Company is required to maintain as collateral unencumbered mortgage loans
and mortgage-related securities such that the outstanding balance of FHLB
advances does not exceed 60% of the book value of this collateral. In addition,
these notes are collateralized by all FHLB stock. At September 30, 1998 and
1997, $245.1 million and $234.2 million, respectively, of mortgage loans and
$325.1 million and $267.7 million, respectively, of mortgage-related securities
were pledged as collateral for FHLB advances. The variable rate advances are
tied to the one-month and three-month LIBOR indices. FHLB advances are subject
to a prepayment penalty if they are repaid prior to maturity. The maximum amount
of borrowings at any month end during the years ended September 30, 1998 and
1997 was approximately $469.1 million and $422.6 million, respectively. The
approximate average amount outstanding was $402.9 million and $388.8 million for
those same years. The weighted average interest rate was 5.56% and 5.67% during
those years. The Federal Reserve Bank advances are collateralized by agency debt
with a carrying value of $2.0 million at September 30, 1998. The Federal Reserve
Bank advances are collateralized by U.S. Treasury bills with a carrying value of
$2.0 million at September 30, 1997.

Securities sold under agreements to repurchase averaged $15.1 million and $5.4
million based on average daily balances during the years ended September 30,
1998 and 1997, respectively. The maximum amount outstanding at any month-end was
$30.6 million and $22.5 million during those years, respectively. The average
balances are calculated based on daily balances. Securities sold under
agreements to repurchase were delivered for escrow to the broker-dealer who
arranged the transactions.

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80
The Bank line of credit averaged $9.0 million and $5.6 million for the years
ended September 30, 1998 and 1997. The maximum amount outstanding at any
month-end was $18.0 million and $12.0 million, respectively. The line of credit
allows for individual advances of one to six months at rates tied to equivalent
term LIBOR indices and is collateralized by the stock of the Bank. The line of
credit allows for up to $30.0 million in borrowings.

(10) OTHER GENERAL AND ADMINISTRATIVE EXPENSES

Other general and administrative expenses are as follows:

Years Ended September 30,
-------------------------------------------
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------

Data processing.............................................. $ 1,741 $ 1,574 $ 1,317
Advertising.................................................. 1,435 1,350 1,425
Stationery, printing and office supplies..................... 784 617 481
Telephone and postage........................................ 1,223 1,036 724
Insurance and surety bond premiums............................ 108 130 103
Professional fees and services................................ 582 475 310
Supervisory assessment........................................ 284 253 220
Amortization of intangible assets............................. 1,080 834 446
Organization dues and subscriptions........................... 132 123 124
Consumer lending.............................................. 203 234 357
Miscellaneous ................................................ 1,980 1,053 1,096
------- -------- --------
$ 9,552 $ 7,679 $ 6,603
======= ======== ========

(11) INCOME TAXES

Income tax expense (benefit) in the consolidated statements of income consists
of the following:

- -----------------------------------------------------------------------------------------------------------
(In thousands) Federal State Total
- -----------------------------------------------------------------------------------------------------------

YEAR ENDED SEPTEMBER 30, 1998
Current...................................................... $ 3,360 $ (698) $ 2,662
Deferred..................................................... (1,180) 344 (836)
------- ------ -------
$ 2,180 $ (354) 1,826
======= ====== =======

YEAR ENDED SEPTEMBER 30, 1997
Current...................................................... $ 2,114 $ 121 $ 2,235
Deferred..................................................... (507) (184) (691)
------- ------ -------
$ 1,607 $ ( 63) $ 1,544
======= ====== =======

YEAR ENDED SEPTEMBER 30, 1996
Current...................................................... $ 4,785 $ 199 $ 4,984
Deferred..................................................... (1,820) (253) (2,073)
------- ------ -------
$ 2,965 $ (54) $ 2,911
======= ====== =======

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Actual income tax expense differs from the "expected" income tax expense
computed by applying the statutory Federal corporate tax rate to income before
income tax expense, as follows:

- ------------------------------------------------------------------------------------------------------
Years Ended September 30,
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------

Federal income tax expense at statutory rate of 35%...... $ 5,818 $ 4,642 $ 4,682
State income taxes, net of Federal income tax benefit.... (241) (41) (35)
Tax exempt interest...................................... (146) (156) (237)
Non-deductible compensation.............................. 424 127 176
Acquisition intangible amortization...................... 247 152 21
Change in beginning of year valuation allowance.......... - - (171)
Affordable housing credits............................... (4,176) (2,923) (1,617)
Other, net............................................... (100) (257) 92
-------- --------- --------
$ 1,826 $ 1,544 $ 2,911
======== ========= ========

Included in other assets is a deferred tax asset of $3.6 million and $2.6
million at September 30, 1998 and 1997, respectively. The tax effects of
temporary differences that give rise to significant portions of deferred tax
assets and deferred tax liabilities are presented below:

- ------------------------------------------------------------------------------------------------------------
September 30,
(In thousands) 1998 1997
- ------------------------------------------------------------------------------------------------------------

DEFERRED TAX ASSETS:
Allowance for loan losses................................................ $ 2,032 $ 1,260
Deferred interest and fee income......................................... 568 807
Net operating losses..................................................... 711 590
Valuation adjustments and reserves....................................... 47 1,412
Accrued expenses......................................................... 425 199
Deferred compensation.................................................... 471 572
Unrealized loss on available for sale securities......................... 231 -
Non-qualified stock option exercise...................................... 297 447
Low income housing credit carryover...................................... 877 -
--------- --------
Gross deferred tax asset................................................. 5,659 5,287
Less valuation allowance................................................. (692) (425)
--------- --------
Net deferred tax asset................................................... 4,967 4,862

DEFERRED TAX LIABILITIES:
Fixed asset tax basis adjustments........................................ (1,031) (883)
FHLB stock tax basis adjustment.......................................... (307) (307)
Unrealized gains on available for sale securities........................ - (125)
Unamortized accounting change for securities marked to market............ - (526)
Other.................................................................... (61) (376)
--------- --------
Gross deferred tax liability............................................. (1,399) (2,217)
--------- --------
Net deferred tax asset .................................................. $ 3,568 $ 2,645
========= ========

At September 30, 1998 and 1997, deferred tax assets include approximately $13.8
million and $11.5 million of various state net operating loss carry forwards
respectively, which begin to expire in 1999 and are reduced by the valuation
allowance to the extent full realization is in doubt. The low income housing
credits included in deferred tax assets at September 30, 1998 can be carried
forward for 15 years. Therefore, the credits will expire in 2012.

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(12) SHAREHOLDERS' EQUITY

In accordance with federal regulations, at the time the Bank converted from a
federal mutual savings bank to a federal stock savings bank, the Bank
established a liquidation account equal to its retained earnings of $63.0
million to provide a limited priority claim for the benefit of qualifying
depositors who maintain their deposit accounts at the Bank after conversion. The
liquidation account is reduced annually to the extent that eligible account
holders have reduced their qualifying deposits. Subsequent increases will not
restore an eligible account holder's interest in the liquidation account. In the
unlikely event of a complete liquidation of the Bank, and only in such event,
each eligible account holder would receive from the liquidation account a
liquidation distribution based on his or her proportionate share of the then
remaining qualifying deposits. At September 30, 1998, the balance of the
liquidation account was approximately $21.6 million. Under current regulations,
the Bank is not permitted to pay dividends on its stock if the effect would
reduce its regulatory capital below the liquidation account.

Office of Thrift Supervision ("OTS") regulations also provide that an
institution that exceeds all fully phased-in capital requirements before and
after a proposed capital distribution could, and after prior notice but without
approval by the OTS, make capital distributions during the calendar year of up
to 100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its "surplus capital ratio" (the excess capital over
its fully phased-in capital requirements) at the beginning of the calendar year.
Any additional capital distributions would require prior regulatory approval.
During the year ended September 30, 1998, the Bank paid dividends to the Company
totaling $15.6 million. As of September 30, 1998, retained earnings of the Bank
of approximately $21.3 million were free of restriction and available for
dividend payments.

Unlike the Bank, the Company is not subject to these regulatory restrictions on
the payment of dividends to its shareholders. However, the Company's source of
funds for future dividends may depend upon dividends from the Bank.

Under the Internal Revenue Code and the Wisconsin Statutes, for tax years
beginning before 1996, the Company was permitted to deduct an annual addition to
a reserve for bad debts. This amount differed from the provision for loan losses
recorded for financial accounting purposes. Under prior law, bad debt deductions
for income tax purposes were included in taxable income of later years only if
the bad debt reserves were used for purposes other than to absorb bad debt
losses. Because the Company did not intend to use the reserve for purposes other
than to absorb losses, no deferred income taxes were provided. Shareholders'
equity at September 30, 1998 includes approximately $21.9 million, for which no
federal or state income taxes were provided. Under SFAS No. 109, deferred income
taxes have been provided on certain additions to the tax reserve for bad debts.

The Small Business Job Protection Act of 1996 repealed the bad debt reserve
method for tax years beginning after 1995. The Bank will not be required to
recapture into income any of the restricted amounts previously deducted except
in the unlikely event of a partial or complete liquidation of the Bank or if
nondividend distributions to shareholders exceed current and accumulated
earnings and profits.

The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's and the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of the Company's and the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company's and the Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios of total
and Tier 1 capital (as defined in the regulations) to

82
83
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of September 30, 1998, that the
Company and the Bank meet all capital adequacy requirements to which they are
subject.

As of September 30, 1998, the most recent notification from the OTS categorized
the Bank as well-capitalized under the regulatory framework for prompt
corrective action. A well-capitalized institution significantly exceeds the
required minimum level for each relevant capital measure. There are no
conditions or events since that notification that management believes have
changed the institution's category.

The following table summarizes the Bank's capital ratios and the ratios required
by federal regulations:

To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- --------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------- --------- ----------- ---------- --------- ----------- -------
(In thousands)

As of September 30, 1998:

Tangible capital.............. 119,843 6.48% >=73,966 >=4.0% >= 92,458 >= 5.0%
Core capital ................. 119,843 6.48% >=73,966 >=4.0% >= 92,458 >= 5.0%
Tier 1 risk-based capital..... 119,843 10.23% >=46,846 >=4.0% >= 70,270 >= 6.0%
Risk-based capital............ 127,373 10.88% >=93,693 >=8.0% >=117,116 >=10.0%

As of September 30, 1997:

Tangible capital.............. 117,337 7.14% >=65,762 >=4.0% >= 82,211 >= 5.0%
Core capital ................. 117,337 7.14% >=65,762 >=4.0% >= 82,211 >= 5.0%
Tier 1 risk-based capital..... 117,337 11.66% >=40,261 >=4.0% >= 60,392 >= 6.0%
Risk-based capital............ 122,856 12.21% >=80,523 >=8.0% >=100,653 >=10.0%

On September 25, 1997, the Company's Board of Directors adopted a shareholders'
rights plan (the "Rights Plan"). Under the terms of the Rights Plan, the Board
of Directors declared a dividend of one preferred share purchase right for each
outstanding share of common stock. Upon becoming exercisable, each right
entitles shareholders to buy one one-hundredth of a share of the Company's
preferred stock at an exercise price of $150. Rights do not become exercisable
until eleven business days after any person or group has acquired, commenced, or
announced its intention to commence a tender or exchange offer to acquire 15% or
more of the Company's common stock, or in the event a person or group owning 10%
or more of the Company's common stock is deemed to be "adverse" to the Company.
If the rights become exercisable, holders of each right, other than the
acquiror, upon payment of the exercise price, will have the right to purchase
the Company's common stock (in lieu of preferred shares) having a value equal to
two times the exercise price. If the Company is acquired in a merger, share
exchange or other business combination or 50% or more of its consolidated assets
or earning power are sold, rights holders, other than the acquiring or adverse
person or group, will be entitled to purchase the acquiror's shares at a similar
discount. If the rights become exercisable, the Company may also exchange
rights, other than those held by the acquiring or adverse person or group, in
whole or in part, at an exchange ratio of one share of the Company's common
stock per right held. Rights are redeemable by the Company at any time until
they are exercisable at the exchange rate of $.01 per right. Issuance of the
rights has no immediate dilutive effect, does not currently affect reported
earnings per share, is not taxable to the Company or its shareholders, and will
not change the way in which the Company's shares are traded. The rights expire
ten years from the date of issuance.

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84
(13) EARNINGS PER SHARE

Basic earnings per share of common stock for the years ended September 30, 1998,
1997 and 1996, have been determined by dividing net income for the year by the
weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share of common stock for the years ended September 30,
1998, 1997 and 1996, have been determined by dividing net income for the year by
the weighted average number of shares of common stock outstanding during the
year adjusted for the dilutive effect of outstanding stock options. Total shares
outstanding for earnings per share calculation purposes have been reduced by the
ESOP shares that have not been committed to be released.

The computation of earnings per common share for the years ended September 30 is
as follows:

1998 1997 1996
----------- ----------- -----------

Net income for the period................. $14,797,000 $11,718,000 $10,465,000
=========== =========== ===========

Common shares issued...................... 7,289,620 7,289,620 7,289,620

Treasury shares........................... 2,120,753 1,939,847 1,450,789

Unallocated ESOP shares................... 282,578 321,730 363,222
----------- ----------- -----------

Weighted average common shares
outstanding during the period.......... 4,886,289 5,028,043
5,475,609
Effect of dilutive stock options
outstanding........................... 305,085 305,506 289,416
----------- ----------- -----------
Diluted weighted average common shares
outstanding............................ 5,191,374 5,333,549 5,765,025
=========== =========== ===========

Basic earnings per share.................. $ 3.03 $ 2.33 $ 1.91
=========== =========== ===========
Diluted earnings per share................ $ 2.85 $ 2.20 $ 1.82
=========== =========== ===========

(14) STOCK REPURCHASE PROGRAM

On October 31, 1997, the Company announced a share repurchase program for its
common stock whereby the Company may purchase up to 10% of the outstanding
common stock, or approximately 523,000 shares, commencing November 18, 1997 and
concluding before November 18, 1998, depending upon market conditions. The
repurchased shares became treasury shares and are to be used for the exercise of
stock options under the stock option plan and for general corporate purposes.
The share repurchase program was completed on September 14, 1998 at an average
price of $40.46 per share. This was the eighth such repurchase program that the
Company has undertaken. At September 30, 1998, an aggregate of 2,730,952 shares
had been repurchased in all such repurchase programs at an average price of
$25.01. On September 23, 1998, the Company announced a share repurchase program
for its common stock whereby the Company may purchase up to 5% of the
outstanding stock, or approximately 240,000 shares. The repurchase program is
authorized to start September 28, 1998 and run through September 30, 1999.

(15) EMPLOYEE BENEFIT PLANS

DEFINED CONTRIBUTION PLANS:
The Company has a defined contribution pension plan which covers substantially
all employees who are at least 21 years of age and have completed 1,000 hours or
more of service each year. Company contributions are based on a set percentage
of each participant's compensation for the plan year. Plan expense for the years
ended September 1998, 1997 and 1996 was approximately $285,000, $427,000 and
$289,000,

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respectively. The Company funds the plan's costs.

The Company also has a defined contribution savings plan for substantially all
employees. The plan is qualified under Section 401(k) of the Internal Revenue
Code. Participation in the plan requires that an employee be at least 21 years
of age and have a minimum of six months of full-time service. Participants may
elect to defer a portion of their compensation (between 2% and 10%) and
contribute this amount to the plan. Under the plan, the Company will match the
contribution made by each employee up to fifty percent of 4% of the eligible
employee's annual compensation. Plan expense for the years ended September 30,
1998, 1997 and 1996 was approximately $179,000, $154,000 and $111,000,
respectively. The Company funds the plan's costs.

The aggregate benefit payable to any employee of both defined contribution plans
is dependent upon the rates of contribution, the earnings of the fund and the
length of time such employee continues as a participant.

OFFICER DEFERRED COMPENSATION PLAN:
The Company has deferred compensation plans covering certain officers of the
Company. These arrangements provide for monthly payments to be made upon
retirement or reaching certain age levels for periods of 10 to 15 years. A
liability is recorded for the present value of the future payments under these
agreements earned through September 30, 1998 and 1997 amounting to $682,000 and
$618,000, respectively. The Company owns insurance policies on the lives of
these officers, which have cash surrender values of $1.5 million and $1.3
million, respectively, and are intended to fund these benefits.

EMPLOYEE STOCK OWNERSHIP PLAN:
In conjunction with the conversion of the Bank to a stock savings bank, an
employee stock ownership plan ("ESOP") was adopted covering all full-time
employees of the Company who have attained age 21 and completed one year of
service during which they work at least 1,000 hours. The ESOP borrowed $4.9
million from the Company and purchased 490,648 common shares issued in the
conversion. The debt bears a variable interest rate based on the borrower's
prime lending rate which was 8.25% at September 30, 1998. The balance of this
loan was $3.5 million and $3.8 million at September 30, 1998 and 1997,
respectively. The Bank makes annual contributions to the ESOP equal to the
ESOP's debt service less dividends received by the ESOP. All dividends received
by the ESOP are used to pay debt service. The ESOP shares initially were pledged
as collateral for its debt. As the debt is repaid, shares are released from
collateral and allocated to active employees, based on the proportion of debt
service paid in the year. The Company accounts for its ESOP in accordance with
Statement of Position 93-6. Accordingly, the debt of the ESOP is recorded as
debt and the shares pledged as collateral are reported as unearned ESOP shares
in the statement of financial position. As shares are released from collateral,
the Company reports compensation expense equal to the current market price of
the shares. The excess of the current market price of shares released over the
cost of those shares is credited to paid-in-capital. As shares are released they
become outstanding for earnings-per-share computations. Dividends on allocated
ESOP shares are recorded as a reduction of shareholders' equity; dividends on
unallocated ESOP shares are recorded as a reduction of debt and accrued
interest. ESOP compensation expense for the years ended September 30, 1998, 1997
and 1996 was $1.6 million, $1.3 million and $932,000, respectively. The
following is a summary of ESOP shares at September 30, 1998 and 1997:

Shares
-------------------------------
1998 1997
-------------------------------

Allocated shares....................... 192,053 152,403
Shares released for allocation......... 30,753 30,091
Unreleased shares...................... 267,842 308,154
-------------------------------
Total ESOP shares...................... 490,648 490,648
===============================

Fair value of unreleased shares
at September 30,.................. $ 9,642,000 $11,517,000
===============================

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STOCK OPTION AND INCENTIVE PLANS:
The Company has adopted stock option plans for the benefit of directors and
officers of the Company. The option exercise price cannot be less than the fair
value of the underlying common stock as of the date of the option grant, and the
maximum term cannot exceed ten years. Stock options awarded to directors may be
exercised at any time or on a cumulative basis over varying time periods,
provided the grantee remains a director of the Company. The stock options
awarded to officers are exercisable on a cumulative basis over varying time
periods, depending on the individual option grant terms which may include
provisions for acceleration of vesting periods.

At September 30, 1998, 84,607 shares were reserved for future grants. Further
information concerning the options is as follows:

Option Price
Shares Per Share
------ ---------

Shares under option
September 30, 1995......................................... 505,354 $ 10.00 - 16.75
Options granted.......................................... -
-
Options canceled......................................... - -
Options exercised........................................ (28,952) 10.00
---------- ----------------
September 30, 1996......................................... 476,402 10.00 - 16.75
Options granted.......................................... 336,200 26.25 - 38.75
Options canceled......................................... (17,246) 10.00 - 29.00
Options exercised........................................ (138,790) 10.00
---------- ----------------
September 30, 1997......................................... 656,566 10.00 - 38.75
Options granted.......................................... 36,667 38.38
Options canceled......................................... (24,750) 29.00
Options exercised........................................ (86,673) 10.00 - 29.00
---------- ----------------
September 30, 1998......................................... 581,810 10.00 - 38.75
========== ================

Options exercisable 298,017 $ 10.00 - 38.75
========== ================

The following table summarizes information about stock options outstanding at
September 30, 1998:

Options Outstanding Options Exercisable
---------------------------------------------- --------------------------------
Weighted Weighted
Exercise Number Average Average Number Average
Price Range Outstanding Exercise Price Life* Outstanding Exercise Price
- ------------------- -- --------------- ---------------- ------------ --------------- ----------------

$10.00 241,443 $10.00 4.71 221,257 $10.00
$16.75 8,500 $16.75 5.83 1,417 $16.75
$26.25-$29.00 293,200 $28.91 8.51 70,132 $29.00
$38.38-$38.75 38,667 $38.39 9.01 14,700 $38.38

*Average contractual life remaining in years

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For purposes of providing the pro forma disclosures required under SFAS No. 123,
"Accounting for Stock-Based Compensation", the fair value of stock options
granted was estimated using the Black-Scholes option pricing model. The per
share weighted-average fair value of stock options granted during 1998 and 1997
was $12.64 and $7.18, respectively, on the date of grant with the following
weighted-average assumptions used for grants in 1998 and 1997, respectively:

September 30,
1998 1997
---------------- -----------------

Expected dividend yield............................................ 1.55% 1.47%
Risk-free interest rates........................................... 5.82% 6.75%
Expected lives..................................................... 10 years 10 years
Expected volatility................................................ 15% 15%

Had compensation cost for the Company's stock-based plans been determined in
accordance with SFAS No. 123, net income and earnings per share would have been
reduced to the pro forma amounts indicated below. This pro forma net income
reflects only options granted in 1998 and 1997. Therefore, the full impact of
calculating compensation cost under SFAS No. 123 is not reflected in the
pro-forma net income and earnings per share amounts.

September 30,
1998 1997
---------------- -----------------

Net Income As reported.......................... $ 14,797,000 $ 11,718,000
Pro forma............................ $ 14,519,000 $ 11,479,000

Basic earnings per share As reported.......................... $ 3.03 $ 2.33
Pro forma............................ $ 2.97 $ 2.28

Diluted earnings per share As reported.......................... $ 2.85 $ 2.20
Pro forma............................ $ 2.80 $ 2.16

MANAGEMENT RECOGNITION AND RETENTION PLAN:
The Company and the Bank have a Management Recognition and Retention Plan
("MRP"). Pursuant to the MRP, 280,370 shares of common stock were awarded to
directors and officers and are earned over three years. The aggregate purchase
price of these shares, initially recorded as a reduction of shareholders'
equity, were amortized as compensation expense as participants became fully
vested. All participants became fully vested as of June 18, 1996. MRP expense
for the years ended September 30, 1998, 1997 and 1996 was $-0-, $-0- and
$701,000, respectively.

(16) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND OTHER COMMITMENTS

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 and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the consolidated financial statements. The contractual or notional
amounts of those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.

The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for the commitments to extend credit is
represented by the contractual notional amount of those instruments. The Company
uses the same credit policies in making commitments and conditional obligations
as it does for instruments reflected in the consolidated financial statements.

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Contractual or Notional
Amount(s)
September 30,
1998 1997
--------------- --------------
(In thousands)

Financial instruments whose contract amounts
represent credit risk, are as follows:
Commitments to extend credit:
Fixed-rate loans................................. $ 10,637 $ 10,890
Variable-rate loans.............................. 19,647 16,792
Mortgage loans sold with recourse................... 35,558 39,763
Guarantees under IRB issues........................ 18,301 11,220
Interest rate swap agreements...................... 225,000 163,000
Interest rate corridors............................. 10,000 30,000
Commitments to:
Purchase mortgage-backed securities.............. - 1,930
Sell mortgage-backed securities.................. 37,000 1,930
Unused and open-ended lines of credit:
Consumer......................................... 158,210 122,970
Commercial....................................... 25,061 14,075
Open option contracts written:
Short-call options............................... 2,000 2,000
Commitments to fund equity investments............. - 2,903

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 of 45 days or less or other termination
clauses and may require a fee. Fixed-rate loan commitments as of September 30,
1998 have interest rates ranging from 6.50% to 7.50%. Because some commitments
expire without being drawn upon, the total commitment amounts do not necessarily
represent cash requirements. The Company evaluates the creditworthiness of each
customer 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. The Company generally extends credit on a
secured basis. Collateral obtained consists primarily of one- to four-family
residences and other residential and commercial real estate.

Loans sold with recourse represent one- to four-family mortgage loans that are
sold to secondary market agencies, primarily FNMA, with the servicing of these
loans being retained by the Company. The Company receives a larger servicing
spread on those loans being serviced then it would if the loans had been sold
without recourse.

The Company has entered into agreements whereby, for an initial and annual fee,
it will guarantee payment for an industrial development revenue bond issue
("IRB"). The IRBs are issued by municipalities to finance real estate owned by a
third party. Potential loss on a guarantee is the notional amount of the
guarantee less the value of the real estate collateral. At September 30, 1998,
appraised values of the real estate collateral exceeded the amount of the
guarantees.

Interest rate swap agreements generally involve the exchange of fixed and
variable rate interest payments without the exchange of the underlying notional
amount on which the interest rate payments are calculated. The notional amounts
of these agreements represent the amounts on which interest payments are
exchanged between the counterparties. The notional amounts do not represent
direct credit exposures. The Company is exposed to credit-related losses in the
event of nonperformance by the counterparties on interest rate payments but does
not expect any counterparty to fail to meet their obligations. The fixed
pay-floating receive agreements were entered into as hedges of the interest
rates on FHLB advances. The fixed receive-floating pay agreements were entered
into as hedges of the interest rates on fixed rate certificates. Interest

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receivable or payable on interest rate swaps is recognized using the accrual
method. The use of interest rate swaps enables the Company to synthetically
alter the repricing characteristics of designated interest-bearing liabilities.

The agreements at September 30, 1998 consist of the following:

Notional
Amount Maturity Call Fixed Variable
(000s) Type Date Date Rate Rate
- -------------------------------------------------------------------------------------------------------------------

The fair value of interest rate swaps, which is based on the present value of
the swap using dealer quotes, represent the estimated amount the Company would
receive or pay to terminate the agreements taking into account current interest
rates and market volatility. The interest rate swaps are off-balance sheet
items; therefore at September 30, 1998, the gross unrealized gains and losses of
$2.1 million and $545,000, respectively, equals the fair value of the interest
rate swaps of $1.6 million. At September 30, 1997, the gross unrealized gains
and losses of $328,000 and $710,000, respectively, equals the fair value loss of
the interest rate swaps of $382,000.

The Company uses interest rate corridors to help protect its net interest margin
in various interest rate environments. The corridors pay the Company 1.0% per
annum of the notional amount over its life only when the three-month LIBOR rate
is between the corridor strike rates (inclusive of the strike rate). There are
no payments due to the Company when the three-month LIBOR rate is outside the
corridor strike rates.

The interest rate corridors consist of the following:

- ----------------------------------------------------------------------------------------------------------
Notional
Amount Maturity
(000s) Payment Type Date Strike Rates
- ----------------------------------------------------------------------------------------------------------

$5,000 1.0% when three-month LIBOR within corridor 2000 7.00%-8.00%
5,000 1.0% when three-month LIBOR within corridor 2000 7.50%-8.50%

These instruments do not qualify as hedges and are accounted for in the trading
portfolio, and therefore, are valued at fair value. The fair value of the
interest rate corridors is $1,000 at September 30, 1998.

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Commitments to buy/sell mortgage-backed securities are contracts which represent
notional amounts to buy/sell mortgage-backed securities at a future date and
specified price. Such commitments generally have fixed settlement dates.

The unused and open consumer lines of credit are conditional commitments issued
by the Company for extensions of credit such as home equity, auto, credit card
or other similar consumer type financing. Furthermore, the unused and open
commercial lines of credit are also conditional commitments issued by the
Company for extensions of credit such as working capital, agricultural
production, equipment or other similar commercial type financing. The credit
risk involved in extending lines of credit is essentially the same as that
involved in extending loan facilities to customers. Collateral held for these
commitments may include, but may not be limited to, real estate, investment
securities, equipment, accounts receivable, inventory and Company deposits.

The open option contracts written represent the notional amounts to buy
(short-put options) or sell (short-call options) mortgage-backed securities
(GNMA or FNMA) at a future date and specified price. The Company receives a
premium/fee for option contracts written which gives the purchaser the right,
but not the obligation, to buy or sell mortgage-backed securities within a
specified time period for a contracted price. Because these contracts can expire
without being drawn upon, the total commitment amounts do not necessarily
represent cash requirements. The options expire in 76 days.

The commitments to fund equity investments represent amounts SFEP, is committed
to invest in low-income housing projects, which would qualify for tax credits
under Section 42 of the Internal Revenue Code (the "Code"). The investment in
the low-income housing projects is included in the Company's balance sheet as
real estate held for investment.

The Company's primary business activities include granting residential mortgage
and consumer loans to customers located within the proximity of their branch
locations, primarily within the State of Wisconsin. Approximately $18.5 million
of commercial real estate and multi-family loans are outside Wisconsin as of
September 30, 1998.

In the normal course of business, various legal proceedings involving the
Company are pending. Management, based upon advice from legal counsel, does not
anticipate any significant losses as a result of these actions.

The Company leases 13 offices under agreements which expire at various dates
through January 2030, with nine leases having renewable options. Rent expense
under these agreements totaled approximately $804,000, $468,000 and $252,000 for
the years ended September 30, 1998, 1997 and 1996, respectively.

The future minimum rental commitments as of September 30, 1998 under these
leases for the next five years and thereafter, are as follows:

Years Ended September 30, Amount
-----------------------------------------------------
(In thousands)

1999............................... $ 899
2000............................... 878
2001............................... 878
2002............................... 849
2003............................... 776
2004 and thereafter................ 6,056

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(17) FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments (SFAS No. 107), requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
materially affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS No. 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent, and should not be interpreted to represent, the
underlying value of the Company.

The following table presents the estimates of fair value of financial
instruments at September 30, 1998:

- -----------------------------------------------------------------------------------------------------------
Carrying Fair
(In thousands) Value Value
- -----------------------------------------------------------------------------------------------------------

Financial Assets:
Cash and cash equivalents................................................... $ 30,746 $ 30,746
Debt and equity securities.................................................. 110,878 110,936
Mortgage-backed and related securities...................................... 697,090 697,500
Mortgage loans held for sale................................................ 23,864 24,562
Loans receivable............................................................ 855,132 869,203
Federal Home Loan Bank stock................................................ 23,453 23,453

Financial Liabilities:
Certificate accounts........................................................ 632,346 632,346
Other deposit accounts...................................................... 584,528 584,528
Advances and other borrowings............................................... 504,677 504,677

- ----------------------------------------------------------------------------------------------------------
Notional Carrying Fair
(In thousands) Amount Value Value
- ----------------------------------------------------------------------------------------------------------

Off-Balance Sheet Items:
Commitments to extend credit..................................... $ 30,284 - *

Unused and open-ended lines of credit............................ 183,271 - *

Commitments to sell mortgage-backed and related securities....... 37,000 - -
Interest rate swap agreements.................................... 225,000 $ (11) $ 1,597
Interest rate corridors.......................................... 10,000 - 1
Open option contracts:
Short-call options............................................. 2,000 (17) (17)

* Amount is not material.

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The following table presents the estimates of fair value of financial
instruments at September 30, 1997:

Financial Assets:
Cash and cash equivalents................................................... $ 42,858 $ 42,858
Debt and equity securities.................................................. 60,080 60,155
Mortgage-backed and related securities...................................... 687,565 686,935
Mortgage loans held for sale................................................ 24,630 25,048
Loans receivable............................................................ 712,875 723,268
Federal Home Loan Bank stock................................................ 20,843 20,843

Financial Liabilities:
Certificate accounts........................................................ 609,691 609,691
Other deposit accounts...................................................... 477,446 477,446
Advances and other borrowings............................................... 420,228 420,228

- -----------------------------------------------------------------------------------------------------------
Notional Carrying Fair
(In thousands) Amount Value Value
- -----------------------------------------------------------------------------------------------------------

Off-Balance Sheet Items:
Commitments to extend credit..................................... $27,682 - *

Unused and open-ended lines of credit............................ 137,045 - *

Commitments to purchase mortgage-backed and related securities... 1,930 - -
Commitments to sell mortgage-backed and related securities....... 1,930 - -
Interest rate swap agreements.................................... 163,000 $ (553) $ 382
Interest rate corridors.......................................... 30,000 63 63
Open option contracts:
Short-put options.............................................. - - -
Short-call options............................................. 2,000 (8) (8)

* Amount is not material.

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.

DEBT AND EQUITY AND MORTGAGE-BACKED AND RELATED SECURITIES: Fair values for debt
and equity and mortgage-backed and related securities are based on quoted market
prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.

MORTGAGE LOANS HELD FOR SALE: The fair values for mortgage loans held for sale
are based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan characteristics.

LOANS RECEIVABLE: For variable-rate mortgage loans that reprice frequently and
with no significant change in credit risk, fair values are based on carrying
values. The fair values for residential mortgage loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair values
for commercial real estate loans, rental property mortgage loans, and consumer
and other loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The

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carrying amount of accrued interest approximates its fair value.

FEDERAL HOME LOAN BANK STOCK: FHLB stock is carried at cost which is its
redeemable (fair) value since the market for this stock is limited.

CERTIFICATE ACCOUNTS: The fair values of fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities of the outstanding certificates of deposit. In accordance
with SFAS No. 107, the fair value of liabilities cannot be less than the
carrying value.

OTHER DEPOSITS: The fair values disclosed for other deposits, which include
interest and non-interest checking accounts, passbook accounts and money market
accounts, are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying value amounts).

FEDERAL HOME LOAN BANK AND OTHER BORROWINGS: The fair values of the Company's
long-term borrowings are estimated using discounted cash flow analyses, based on
the Company's current incremental borrowing rates for similar types of borrowing
arrangements. In accordance with SFAS No. 107, the fair value of liabilities
cannot be less than the carrying value.

OFF-BALANCE SHEET ITEMS: The fair value of the Company's off-balance sheet
instruments are based on quoted market prices and fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the credit standing of the related counterparty.

The fair value of the interest rate swap agreements is based on the present
value of the swap using dealer quotes. These values represent the estimated
amount the Company would receive or pay to terminate the agreements, taking into
account current interest rates and market volatility. The fair value of the
interest rate corridors is based on dealer quotes at period end. The corridors
are marked to market as a trading asset. The fair value of the commitment to
fund equity investments is not determinable and is therefore not shown.

The fair value estimates are presented for on-balance sheet financial
instruments without attempting to estimate the value of the Company's long-term
relationships with depositors and the benefit that results from low-cost funding
provided by deposit liabilities.

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(18) FINANCIAL INFORMATION OF ST. FRANCIS CAPITAL CORPORATION (PARENT ONLY)

STATEMENT OF FINANCIAL CONDITION

September 30,
(In thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------
ASSETS

Cash, all with Bank........................................................... $ 1,483 $ 2,430
Mortgage-backed and related securities available for sale..................... - 476
Investment in subsidiaries, at equity......................................... 137,587 136,473
Accrued interest receivable and other assets.................................. 812 791
------------- -------------
Total assets............................................................ $139,882 $140,170
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Advances and other borrowings............................................. $ 18,000 $ 11,000
Accrued interest and other liabilities.................................... 337 640
------------- -------------
Total liabilities....................................................... 18,337 11,640
------------- -------------

Shareholders' equity:
Common stock.............................................................. 73 73
Additional paid-in capital................................................ 75,310 73,541
Unrealized gain on securities available for sale.......................... 381 1,046
Unearned ESOP compensation................................................ (2,678) (3,088)
Treasury stock, at cost................................................... (63,903) (44,511)
Retained earnings, substantially restricted............................... 112,362 101,469
------------- -------------
Total shareholders' equity.............................................. 121,545 128,530
------------- -------------
Total liabilities and shareholders' equity.............................. $139,882 $140,170
============= =============

STATEMENT OF INCOME

Year ended
September 30,
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------

Dividend received from Bank.................................. $ 15,627 $ 11,500 $ 13,124
Interest and other dividend income........................... 421 701 1,487
Other income (loss).......................................... - (25) 291
Advances and other borrowings................................ (581) (418) -
General and administrative expenses.......................... (828) (1,160) (1,138)
------------- ------------- --------------
Income before income tax expense and equity in
undistributed earnings of subsidiaries................. 14,639 10,598 13,764
Income tax expense........................................... (242) (335) 143
------------- ------------- --------------
Income before equity in undistributed earnings of
subsidiaries........................................... 14,881 10,933 13,621
Equity in (distributed) undistributed earnings of
subsidiaries............................................... (84) 785 (3,156)
------------- ------------- --------------
Net income................................................... $ 14,797 $ 11,718 $ 10,465
============= ============= ==============

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STATEMENT OF CASH FLOWS

Year ended
September 30,
(In thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
Net income................................................. $ 14,797 $ 11,718 $ 10,465
Adjustments to reconcile net income to cash provided
by operations:
Equity in distributed (undistributed) earnings of
subsidiaries............................................ 84 (785) 3,156
Increase (decrease) in liabilities...................... (303) 640 -
Other, net.............................................. (11) (307) 288
------------ ------------ --------------
Cash provided by operations................................ 14,567 11,266 13,909
------------ ------------ --------------

Cash flows from investing activities:
Purchase of Kilbourn State Bank stock...................... - (25,283) -
Proceeds from sales of securities available for sale....... 395 3,900 18,075
Purchase of securities available for sale.................. - - (3,824)
Principal repayments on securities available for sale...... 91 133 181
------------ ------------ --------------
Cash provided by (used in) investing activities............ 486 (21,250) 14,432
------------ ------------ --------------

Cash flows from financing activities:
Stock option transactions.................................. 1,072 1,822 (368)
Proceeds from advances and other borrowings................ 39,000 12,000 -
Repayments from advances and other borrowings.............. (32,000) (1,000) -
Purchase of treasury stock................................. (21,160) (11,816) (15,483)
Dividends paid............................................. (2,912) (2,450) (2,199)
------------ ------------ --------------
Cash used in financing activities.......................... (16,000) (1,444) (18,050)
------------ ------------ --------------

Increase (decrease) in cash................................ (947) (11,428) 10,291
Cash at beginning of year.................................. 2,430 13,858 3,567
============ ============ ==============
Cash at end of year........................................ $ 1,483 $ 2,430 $ 13,858
============ ============ ==============

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(19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

For the quarter ended,
-------------------------------------------------------------------------------
Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
1998 1998 1998 1997 1997 1997 1997 1996
-------------------------------------------------------------------------------
(Dollars in thousands, except earnings per share and market prices)

Interest and dividend income.. $ 31,200 $ 29,569 $ 27,680 $ 29,460 $ 29,317 $ 28,304 $ 25,691 $ 24,834

Interest expense.............. 20,156 18,981 17,924 19,002 19,109 18,058 16,312 15,884
-------------------------------------------------------------------------------
Net interest income........... 11,044 10,588 9,756 10,458 10,208 10,246 9,379 8,950
Provision for loan losses..... 300 300 1,500 200 779 129 111 261
-------------------------------------------------------------------------------
Net interest income after
provision for loan
losses................... 10,744 10,288 8,256 10,258 9,429 10,117 9,268 8,689
Securities gains/(losses)..... 287 464 (118) 610 370 511 273 861
Gain (loss) on sales of
mortgage loans held for
sale, net................ 1,129 894 1,302 1,042 728 464 143 227

Other operating income........ 3,221 3,323 3,989 2,765 1,118 164 2,234 1,569
-------------------------------------------------------------------------------
Total other operating income 4,637 4,681 5,173 4,417 2,216 1,139 2,650 2,657
General and administrative
expenses................. 10,755 10,743 10,366 9,967 8,314 8,840 8,287 7,462
-------------------------------------------------------------------------------
Income before income tax
expense.................. 4,626 4,226 3,063 4,708 3,331 2,416 3,631 3,884
Income tax expense (benefit) 764 672 (520) 910 222 (60) 655 727
-------------------------------------------------------------------------------
Net income.................... $ 3,862 $ 3,554 $ 3,583 $ 3,798 $ 3,109 $ 2,476 $ 2,976 $3,157
===============================================================================

Basic earnings per share (1).. $ 0.82 $ 0.72 $ 0.72 $ 0.77 $ 0.62 $ 0.49 $ 0.59 $ 0.62

Diluted earnings per share
(2)...................... $ 0.77 $ 0.69 $ 0.68 $ 0.72 $ 0.59 $ 0.46 $ 0.56 $ 0.59

Weighted average shares -
basic.................... 4,737,596 4,905,481 4,964,794 4,939,200 4,976,454 5,033,560 5,041,665 5,060,848
Weighted average shares -
diluted.................. 4,998,005 5,177,069 5,262,816 5,273,064 5,229,931 5,339,389 5,335,033 5,348,785

Market Information:
High..................... $ 40.13 $ 45.25 $ 50.75 $ 50.50 $ 38.00 $ 38.75 $ 32.25 $ 27.00
Low...................... 35.00 35.75 41.50 36.75 33.88 29.00 26.00 25.00
Close.................... 36.00 38.75 45.50 50.50 37.75 38.75 29.50 26.00

(1) Basic earnings per share of common stock have been determined by dividing
net income for the period by the weighted average number of shares of common
stock outstanding during the period.

(2) Diluted earnings per share of common stock have been determined by dividing
net income for the period by the weighted average number of shares of common
stock outstanding during the period adjusted for the dilutive effect of
outstanding stock options.

Net income and earnings per share as reported above for the three-month period
ended June 30, 1997 has been restated from the previously issued unaudited
quarterly financial statements. The Company determined that it had not properly
evaluated an other than temporary impairment loss on private mortgage-backed
securities during the quarter ended June 30, 1997. The net effect of the change
was to decrease net income by $1.2 million or $.23 per share for the three
months ended June 30, 1997.

The quarter ended September 30, 1997 contained the effect of an other than
temporary impairment loss on private mortgage-backed securities. The loss was
$1.35 million with an after-tax effect on net income of $790,000 or $0.15 per
share for the quarter. The quarter also contained the effect of an additional
provision for loan losses of $650,000 with an after-tax effect of $390,000 or
$0.07 per share for the quarter, to provide for a potential default on a
commercial real estate property.

On October 23, 1998, the Company declared a dividend of $0.16 per share on the
Company's common stock for the quarter ended September 30, 1998, which was the
thirteenth cash dividend payment since the Company became a publicly-held
company in June 1993. The dividend was payable on November 20, 1998 to
shareholders of record as of November 10, 1998. At November 30, 1998, the
closing price of the Company's common stock was $42.00 per share.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

96
97
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this item with respect to directors is included under
the heading "Election of Directors" in the Company's definitive Proxy Statement,
dated December 16, 1998, relating to the 1999 Annual Meeting of Shareholders
currently scheduled for January 27, 1999, which is incorporated herein by
reference. Information concerning executive officers who are not directors is
contained in Part I of this Form 10-K pursuant to paragraph (b) of Item 401 of
Regulation S-K in reliance on Instruction G(3).

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item is included under the heading "Compensation of
Executive Officers and Directors" in the Company's definitive Proxy Statement,
dated December 16, 1998, relating to the 1999 Annual Meeting of Shareholders
currently scheduled for January 27, 1999, which is incorporated herein by
reference. However, the information set forth under the heading "Compensation
Committee Report" in the Company's definitive Proxy Statement dated December 16,
1998, shall not be deemed to be incorporated by reference by any general
statement into any filing and shall not otherwise be deemed to be filed under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required by this item is included under the heading "Security
Ownership of Certain Beneficial Owners" in the Company's definitive Proxy
Statement, dated December 16, 1998, relating to the 1999 Annual Meeting of
Shareholders currently scheduled for January 27, 1999, which is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item is included under the heading "Indebtedness of
Management and Certain Transactions" in the Company's definitive Proxy
Statement, dated December 16, 1998, relating to the 1999 Annual Meeting of
Shareholders currently scheduled for January 27, 1999, which is incorporated
herein by reference.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) FINANCIAL STATEMENTS

The following financial statements and financial statement schedules are
included under a separate caption "Financial Statements and Supplementary Data"
in Part II, Item 8 hereof and are incorporated herein by reference:

Independent Auditors' Report
Consolidated Statements of Financial Condition at September 30, 1998
and 1997
Consolidated Statements of Income for Years Ended September 30, 1998,
1997 and 1996
Consolidated Statements of Shareholders' Equity for Years Ended
September 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for Years Ended September 30,
1998, 1997 and 1996
Notes to Consolidated Financial Statements

97
98
(a) (2) FINANCIAL STATEMENT SCHEDULES

All financial statement schedules have been omitted as the required information
is inapplicable or has been included in the Consolidated Financial Statements.

(a) (3) EXHIBITS:

3.1 Articles of Incorporation of Registrant(1)
3.2 Amended By-laws of Registrant(2)
3.3 Stock Charter of St. Francis Bank, F.S.B.(1)
3.4 By-laws of St. Francis Bank, F.S.B.(1)
3.5 Articles of Amendment to the Articles of Incorporation of Registrant(4)
4.0 Shareholders' Rights Agreement dated as of September 25, 1997 between the Registrant and Firstar Trust
Company(4)
10.1 St. Francis Bank, F.S.B. Money Purchase Pension Plan(1)
10.2 St. Francis Bank, F.S.B. 401(k) Savings Plan(1)
10.3 St. Francis Bank, F.S.B. Employee Stock Ownership Plan(1)
10.4 Credit Agreement by and between St. Francis Bank, F.S.B. Employee Stock Ownership
Trust and Registrant(1)
10.5 St. Francis Bank, F.S.B. Management Recognition and Retention Plan and Trust(1)
10.6 St. Francis Capital Corporation 1993 Incentive Stock Option Plan(1)
10.7 St. Francis Capital Corporation 1993 Stock Option Plan for Outside Directors(1)
10.8 1980 Deferred Compensation Agreement-John C. Schlosser(1)
10.9 1986 Deferred Compensation Agreement-John C. Schlosser(1)
10.10 1986 Deferred Compensation Agreement-Thomas R. Perz(1)
10.11 1987 Deferred Compensation Agreement-Thomas R. Perz(1)
10.12 1988 Deferred Compensation Agreement-Edward W. Mentzer(1)
10.13 1992 Consulting, Non-Competition and Supplemental Compensation Agreement-John C. Schlosser(1)
10.14 1996 Employment Agreement-Thomas R. Perz(3)
10.15 1996 Employment Agreement-James C. Hazzard(3)
10.16 1996 Employment Agreement-John C. Schlosser(3)
10.17 1997 Employment Agreement-Bradley J. Smith(4)
10.18 1998 Employment Agreement-Jon D. Sorenson(5)
10.19 St. Francis Capital Corporation 1997 Stock Option Plan(4)
10.20 Split Dollar Life Insurance Agreement-Thomas R. Perz(4)
11.1 Statement regarding computation of per share earnings See footnote (13) in Part II Item 8
13.1 1998 Summary Annual Report to Shareholders(6)
21.1 Subsidiaries of the Registrant See "Subsidiaries" in Part I Item I
23.1 Consent of KPMG Peat Marwick LLP(5)
24.1 Powers of Attorney for certain officers and directors(1)
27.1 Financial Data Schedule(5)
99.1 Proxy Statement for 1999 Annual Meeting of Shareholders(5)

(1) Incorporated by reference to exhibits filed with the Registrant's Form S-1
Registration Statement declared effective on April 22, 1993. (Registration
Number 33-58680).
(2) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995.
(3) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1996.
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997.
(5) Filed herewith.
(6) Filed in paper format pursuant to Rule 101(b)(1) of Regulation S-T.

A copy of one or more of the exhibits listed herein can be obtained by writing
Jon D. Sorenson, Chief Financial Officer, St. Francis Capital Corporation, 13400
Bishops Lane, Brookfield, Wisconsin 53005.

98
99
(b) REPORTS ON FORM 8-K

None

Reference is made to the exhibit index set forth above at (a)(3).

(d) FINANCIAL STATEMENT SCHEDULES

Reference is made to the disclosure set forth above at (a)(1 and 2).

99
100
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

ST. FRANCIS CAPITAL CORPORATION

By: /s/ Thomas R. Perz
--------------------------------
Thomas R. Perz, President and
Chief Executive Officer
(Duly Authorized Representative)

Date: December 7, 1998
--------------------------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrants and
in the capacities and on the dates indicated.

/s/ Thomas R. Perz /s/ Jon D. Sorenson
----------------------------------- -----------------------------------
Thomas R. Perz, President, Jon D. Sorenson, Chief Financial
Chief Executive Officer and Officer and Treasurer (Principal
Director (Principal Executive and Financial and Accounting Officer)
Operating Officer)

Date: December 7, 1998 Date: December 7, 1998
-------------------------- --------------------------

/s/ John C. Schlosser /s/ Julia H. Taylor
----------------------------------- -----------------------------------
John C. Schlosser, Chairman of the Julia H. Taylor, Director
Board and Director

Date: December 7, 1998 Date: December 7, 1998
-------------------------- --------------------------

/s/ Rudolph T. Hoppe /s/ Edward W. Mentzer
----------------------------------- -----------------------------------
Rudolph T. Hoppe, Director Edward W. Mentzer, Director

Date: December 7, 1998 Date: December 7, 1998
-------------------------- --------------------------

/s/ Jeffrey A. Reigle /s/ Edmund O. Templeton
----------------------------------- -----------------------------------
Jeffrey A. Reigle, Director Edmund O. Templeton, Director

Date: December 7, 1998 Date: December 7, 1998
-------------------------- --------------------------

/s/ David J. Drury
-----------------------------------
David J. Drury, Director

Date: December 7, 1998
--------------------------

100