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, 1999

Commission File Number 0-21298

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

WISCONSIN 39-1747461
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(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)

(262) 787-8700
--------------
(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, 1999, there were issued and outstanding 10,164,357
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, 1999,
was $164.6 million. Soley for the purposes of this calculation, all executive
officers and directors of the Registrant are assumed to be affiliates; also
included as "affiliate 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 1999 Annual
Meeting of Shareholders are incorporated by reference into Part III hereof.

FORM 10-K TABLE OF CONTENTS

Page
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PART I

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

ITEM 2 - PROPERTIES...................................................................... 33

ITEM 3 - LEGAL PROCEEDINGS............................................................... 33

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................. 33

PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS............................................................. 34

ITEM 6 - SELECTED FINANCIAL DATA......................................................... 35

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................... 37

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................... 54

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................... 55

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................................ 91

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................. 92

ITEM 11 - EXECUTIVE COMPENSATION.......................................................... 92

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................. 92

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................. 92

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................. 92

SIGNATURES .................................................................................. 95

PART I

FORWARD-LOOKING STATEMENTS

This Report contains certain forward looking statements with respect to the
financial condition, results of operation and business of St. Francis Capital
Corporation (the "Company"). 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.

ITEM 1. BUSINESS

GENERAL

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 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 acquired Kilbourn State Bank in Milwaukee, Wisconsin and merged it
into Bank Wisconsin. In September 1997, Bank Wisconsin was merged into the Bank.
In January 1999, the Company acquired Reliance Bancshares, Inc. in Milwaukee,
Wisconsin and merged it into the Bank after the acquisition was completed.

The Bank is headquartered in Milwaukee, Wisconsin and serves southeastern
Wisconsin with a network of 22 full-service, two limited service and four 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. The Company's
competition for deposits comes from other thrifts, savings banks, commercial
banks and credit unions. The Company has additional competition for funds from
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 $1.2
billion at September 30, 1999, was first mortgage loans secured by
owner-occupied one- to four-family residences. At September 30, 1999, one- to
four-family mortgage loans totaled $294.4 million or 23.8% of gross loans. Of
the total one- to four-family mortgage loans, $271.5 million or 92.2% were
adjustable rate mortgage loans ("ARMs"). Of the remaining loans held at
September 30, 1999, 12.0% were in consumer loans, 12.6% were home equity loans,
13.0% were in multi-family mortgage loans, 20.3% were in commercial real estate,
10.0% were in commercial and agricultural and 8.3% 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. The Company also originates 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. The Company has been
diversifying its loan portfolio through lending efforts in all of the above
categories. Areas of lending other than one- to four-family lending generally
have higher levels of credit risk and higher yields. 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 differing levels of interest rates, market demand for loans and
emphasis by the Company on various types of loans. The Company adjusts its
lending emphasis occasionally in accordance with its view of the relative
returns and risks available from time to 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 may vary given changes in 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,
----------------------------------------------------------------
1999 1998 1997
---------------------- -------------------- ---------------------
Percent Percent Percent
Amount Of Total Amount Of Total Amount Of Total
----------- --------- --------- --------- ----------- ---------
(In thousands)
Mortgage loans:

One- to four-family................ $ 294,438 23.8% $254,047 26.1% $240,522 30.7%
Residential construction........... 103,100 8.3% 71,092 7.3% 46,340 5.9%
Multi-family....................... 160,593 13.0% 105,380 10.8% 101,289 12.9%
Commercial real estate............. 251,914 20.3% 170,562 17.6% 87,950 11.2%
Home equity........................ 156,695 12.6% 142,993 14.7% 115,293 14.7%
---------- ----- -------- ----- -------- -----
966,740 78.0% 744,074 76.5% 591,394 75.4%
Consumer loans:
Interim financing and installment.. 148,034 11.9% 131,143 13.5% 120,305 15.3%
Education.......................... 984 0.1% 2,529 0.3% 948 0.1%
---------- ----- -------- ----- -------- -----
149,018 12.0% 133,672 13.8% 121,253 15.4%
---------- ----- -------- ----- -------- -----
Commercial and agriculture 123,899 10.0% 93,927 9.7% 72,144 9.2%
---------- ----- -------- ----- -------- -----
Gross loans receivable........... 1,239,657 100.0% 971,673 100.0% 784,791 100.0%
===== ===== =====
Less:
Mortgage loans held for sale....... 8,620 23,864 24,630
Loans in process................... 106,960 83,436 38,200
Unearned discounts and
deferred loan fees............... 1,351 1,419 2,332
Allowance for loan losses.......... 9,356 7,530 6,202
Other.............................. (21) 292 552
---------- -------- --------
Loans receivable, net.................. $1,113,391 $855,132 $712,875
========== ======== ========

September 30,
--------------------------------------------
1996 1995
---------------------- ---------------------
Percent Percent
Amount Of Total Amount Of Total
----------- --------- ----------- ---------
(In thousands)
Mortgage loans:

One- to four-family................. $ 270,614 40.5% $ 209,140 39.3%
Residential construction............ 32,249 4.8% 25,277 4.8%
Multi-family........................ 103,262 15.4% 93,756 17.6%
Commercial real estate.............. 46,391 6.9% 28,277 5.3%
Home equity......................... 90,579 13.5% 80,159 15.1%
--------- ----- ----------- -----
543,095 81.1% 436,609 82.1%

Consumer loans:
Interim financing and installment... 88,236 13.2% 69,038 13.0%
Education........................... 12,142 1.8% 12,833 2.4%
--------- ----- --------- -----
100,378 15.0% 81,871 15.4%
--------- ----- --------- -----
Commercial and agriculture 25,177 3.9% 13,608 2.5%
--------- ----- --------- -----
Gross loans receivable............ 668,650 100.0% 532,088 100.0%
===== =====

Less:
Mortgage loans held for sale........ 20,582 1,138
Loans in process.................... 29,631 10,903
Unearned discounts and
deferred loan fees................ 1,874 2,081
Allowance for loan losses........... 5,217 4,076
Other............................... 647 582
--------- ---------
Loans receivable, net................... $ 610,699 $ 513,308
========= =========

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,
-----------------------------------------------
1999 1998 1997
------------ ------------- ------------
(In thousands)
Mortgage loans (gross):

At beginning of period....................................... $ 744,074 $ 591,394 $ 543,095
Mortgage loans originated:
One- to four-family.................................... 201,715 165,829 104,009
Residential construction............................... 132,675 90,911 59,566
Multi-family........................................... 58,605 39,808 22,959
Commercial real estate................................. 129,233 103,363 36,643
Home equity............................................ 113,838 105,938 86,995
--------- --------- ---------
Total mortgage loans originated...................... 636,066 505,849 310,172
Mortgage loans purchased:
One- to four-family.................................... 57,106 65,446 21,480
Multi-family........................................... 3,617 - -
Commercial real estate................................. 15,349 2,000 3,220
--------- --------- ---------
Total mortgage loans purchased....................... 76,072 67,446 24,700
--------- --------- ---------

Total mortgage loans originated and purchased........ 712,138 573,295 334,872
Transfer of mortgage loans to foreclosed properties.... (883) (560) (496)
Transfer from commercial loans......................... 2,627 - -
Principal repayments................................... (290,887) (209,647) (169,235)
Sales of mortgage loans:
Exchanged for mortgage-backed securities............... (9,461) (19,373) (57,337)
Cash sales............................................. (190,868) (191,035) (59,505)
--------- --------- ---------
Total sales of loans................................. (200,329) (210,408) (116,842)
--------- --------- ---------
At end of period............................................. $ 966,740 $ 744,074 $ 591,394
========= ========= =========

Consumer loans (gross):
At beginning of period....................................... $ 133,672 $ 121,253 $ 100,378
Loans originated....................................... 102,998 93,700 57,157
Loans purchased........................................ - - 888
Repossessions, foreclosures and charge-offs............ (456) (230) (229)
Principal repayments................................... (84,112) (80,268) (22,745)
Loans sold............................................. (3,084) - (12,168)
--------- --------- ---------
At end of period............................................. $ 149,018 $ 133,672 $ 121,253
========= ========= =========

Commercial and agricultural loans (gross):
At beginning of period....................................... $ 93,927 $ 72,144 $ 25,177
Loans originated....................................... 114,532 84,549 33,358
Loans purchased........................................ - - 30,182
Transfer of commercial loans to mortgage loans......... (2,627) - -
Loans sold............................................. - (273) -
Principal repayments................................... (81,933) (62,493) (16,573)
--------- --------- ---------
At end of period............................................. $ 123,899 $ 93,927 $ 72,144
========= ========= =========

LOAN MATURITY AND REPRICING
The following table shows the maturity of the Company's loan portfolio at
September 30, 1999. The table does not include prepayments or scheduled
principal amortization. Prepayments and scheduled principal amortization on
mortgage loans totaled $290.9 million, $209.6 million and $169.2 million for the
years ended September 30, 1999, 1998 and 1997, respectively.

At September 30, 1999
-----------------------------------------------------------------------------------

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........... $ 7,102 $ 10,945 $ 22,366 $ 119,747 $ 9,485 $ 52,511 $ 222,156
After one year:
One to three years...... 4,941 16,571 18,416 4,532 21,995 19,756 86,211
Three to five years..... 33,712 27,478 43,007 37,306 83,632 38,673 263,808
Over five years......... 358,699 94,380 174,736 14,214 15,803 9,650 667,482
-------- --------- -------- --------- --------- ---------- ----------
Total due after one year.. 397,352 138,429 236,159 56,052 121,430 68,079 1,017,501
-------- --------- -------- -------- --------- ---------- ----------
Total amounts due......... 404,454 149,374 258,525 175,799 130,915 120,590 1,239,657
Less:
Mortgage loans held for
sale...................... (8,620) (8,620)
Loans in process.......... (54,069) (21,584) (31,307) (106,960)
Unearned discounts,
premiums and deferred
loan fees, net.......... 181 (584) (956) 106 (77) (1,330)
Allowance for loan
losses.................... (1,367) (1,113) (2,798) (949) (1,060) (2,069) (9,356)
-------- --------- -------- --------- --------- ---------- ----------
Loans receivable, net........ $340,579 $ 126,093 $223,464 $ 174,850 $129,961 $ 118,444 $1,113,391
======== ========= ======== ========= ========= ========== ==========

(1) Includes some residential construction lending.

The following table sets forth at September 30, 1999 the dollar amount of all
loans and mortgage-backed and related securities due after September 30, 2000,
and whether such loans have fixed interest rates or adjustable interest rates.

Due after September 30, 2000
--------------------------------------------
Fixed Adjustable Total
------------ ------------- -----------
(In thousands)
Mortgage loans:

One- to four-family (1)..................... $ 71,930 $ 325,422 $ 397,352
Multi-family (1)............................ 33,741 104,688 138,429
Commercial real estate...................... 35,633 200,526 236,159
Home equity................................. 18,689 37,362 56,051
Consumer loans.................................. 121,430 - 121,430
Commercial and agriculture...................... 53,026 15,054 68,080
--------- ---------- -----------
Gross loans receivable...................... 334,449 683,052 1,017,501
Mortgage-backed and related securities.......... 598,378 360,975 959,353
--------- ---------- -----------
Gross loans receivable and mortgage-
backed and related securities............. $ 932,827 $1,044,027 $ 1,976,854
========= ========== ===========

(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 and 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. 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 are
sometimes sold in the secondary market. Loans not sold in the secondary market
are retained in the Company's portfolio and sometimes include loans made at
levels of up to 100% of appraised value, which often have private mortgage
insurance. With respect to those loans made at levels of up to 100% of appraised
value, other underwriting criteria, such as the borrower's debt service ability
and credit history are given greater emphasis than lending involving lower loan
to value ratios. Loans with higher loan to value ratios are often assumed to
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 most of
these loans. See "-Loan Sales and Purchases," below.

ARM loans are often 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 utilizes primarily 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 provide
terms under which the borrower may convert the loan to a fixed rate 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, the interest rate adjusts to then current rates, 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, 1999, the Company had $294.4 million in one- to four-family
mortgage loans or 23.8% of the gross loan portfolio compared with $254.0 million
or 26.1% of the portfolio at September 30, 1998. The increase in the dollar
amount of the portfolio was largely the result of an increase in interest rates
during the year. During periods of rising interest rates customers are more
likely to take out ARM loans which the Company keeps in its portfolio. 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,
the Company originates a higher percentage of loans with fixed rates, which the
Company 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 lending capacity and anticipates that as a result
total one- to four-family mortgage loan originations will continue to increase
assuming continuing interest rate levels. However, one- to four-family mortgage
lending is subject to competition which, can result in lower origination totals
if competitors are willing to make loans at lower interest rates than the
Company.

RESIDENTIAL CONSTRUCTION LENDING
Residential construction loans are made to borrowers who have signed
construction contracts with a home builder. Loan proceeds are disbursed in
increments as construction of the residence progresses. Single family
residential construction loans have loan to value ratios up to 95%. When the
loan to value ratio exceeds 80%, private mortgage insurance is generally
required to reduce the Company's exposure to 75% of the loan value or less.
Typically, the borrower is required 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 typically do not exceed 80%.
Multi-family construction loans typically offered by the Company are ARM loans
amortized over 348 months or less 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, 1999, the Company had $103.1 million in residential
construction mortgage loans, or 8.3% of the gross loan portfolio, compared with
$71.1 million or 7.3% of the portfolio at September 30, 1998. A significant
portion of the Company's residential construction lending results in permanent
mortgage loans that are either retained in the mortgage loan portfolio or sold
in the secondary market.

MULTI-FAMILY MORTGAGE LENDING
The Company originates multi-family mortgage loans which it typically holds in
its loan portfolio. Over the last five years, the Company has increased its
emphasis in multi-family mortgage lending and has offered both adjustable- and
fixed-rate mortgage loans. Multi-family mortgage loans generally have shorter
maturities than one- to four-family mortgage loans, though the Company has made
multi-family mortgage loans with terms of up to 30 years. Multi-family loans
generally are underwritten in amounts up to 80% of the lesser of the appraised
value or the borrower's purchase price of the underlying property.

Loans secured by multi-family real estate generally have higher loan balances,
involve a greater degree of credit risk than one- to four-family loans, have a
higher rate of interest and ARM loans adjust at slightly higher rates. 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, 1999, the Company had $160.6 million in multi-family mortgage
loans or 13.0% of the gross loan portfolio compared with $105.4 million or 10.8%
of the portfolio at September 30, 1998. The Company is continuing its efforts to
increase the amount of 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. The Company
originated and refinanced an increased amount of commercial real estate loans
within its normal credit risk guidelines. The Company originated 139 loans for
$129.2 million during the current fiscal year. At September 30, 1999, the
Company had $251.9 million in commercial real estate mortgage loans or 20.3% of
the gross loan portfolio, compared with $170.6 million or 17.6% of the portfolio
at September 30, 1998.

The Company's commercial real estate lending area includes the states of
Illinois and Minnesota as well as its' primary geographic focus of Wisconsin.
Commercial real estate loans generally are underwritten in amounts up to 75% of
the lesser of the appraised value or the borrower's purchase price of the
underlying property. Loans secured by commercial real estate properties are
assumed to involve a greater degree of credit risk than residential mortgage
loans and generally carry larger 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
its 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, usually by a second mortgage, within its
primary market area. These loans currently are originated with an interest rate
indexed to the prime rate and adjustable monthly, and thus are part of the
Company's management of its interest rate risk. 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
often requires private mortgage insurance. At September 30, 1999, the Company
held $156.7 million in home equity loans or 12.6% of the gross loan portfolio,
compared with $143.0 million or 14.7% of the portfolio at September 30, 1998.

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, the term of the loan and the 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. Management also believes that
offering consumer loan products helps expand and create stronger customer
relationships.

At September 30, 1999, consumer loans totaled $149.0 million or 12.0% of gross
loans compared to $133.7 million or 13.8% of gross loans at September 30, 1998.
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 on
residential properties. The indirect auto lending is underwritten by the Company
and does not include any "subprime" lending.

Consumer loans often 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 cases, 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 from a borrower 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. 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. 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 providing a higher
yield than residential loans and is an important component of a balanced loan
portfolio. Typically, the Company targets smaller businesses with which to
establish commercial banking relationships. Despite the risks inherent in
commercial lending, the Company's percentage of delinquent commercial loans to
gross commercial loans has been minimal.

The Company also participates with other financial institutions in syndicated
credits whereby several lenders participate in commercial loan arrangements that
are larger than those that the Company would typically do on a stand-alone
basis. However, the Company has involved itself with only those types of credits
that it would lend to directly from its own operations, except for the size of
the loan. The Company is generally not the lead lender in these loans, but does
underwrite the credit on its own in addition to the underwriting performed by
the lead lender. The Company has also limited itself to credit facilities that
are to commercial borrowers with headquarters or significant operational
presence in Wisconsin. Syndicated credits in which the Company has participated
are generally variable rate loans, which also help contribute to the Company's
interest rate risk posture. At September 30, 1999, the Company had $34.9 million
or 28.2% of its commercial loan portfolio, in syndicated credits.

At September 30, 1999, the Company had $123.9 million in commercial loans or
10.0% of the gross loan portfolio compared with $93.9 million or 9.7% of the
portfolio at September 30, 1998. 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"), issued by
a municipality to finance real estate owned by a third party. The Company does
not pledge collateral for purposes of these agreements. At September 30, 1999,
the amount of IRB's for which the Company has guaranteed payment was $24.5
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, 1999, the Company originated $7.2 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 $200.3 million with
gains of $2.8 million for the year ended September 30, 1999, and totaled $210.4
million with gains of $4.4 million for the year ended September 30, 1998. 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 from the point
in time that the rate is fixed 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 for
which the Company

has issued a commitment 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, 1999, the Company had outstanding mortgage commitments totaling $9.7
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, 1999 the
Company had recognized $4.7 million in mortgage servicing rights as compared to
$3.3 million at September 30, 1998. Correspondingly, mortgage loans serviced for
others included in the mortgage servicing rights calculation increased from
$302.2 million at September 30, 1998 to $397.3 million at September 30, 1999.
Total mortgage loans serviced for others equaled $484.1 million at September 30,
1999.

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, 1999, the Company purchased
$57.1 million of loans from other originators compared to $65.4 million of loans
purchased during the fiscal year ended September 30, 1998. 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 note 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 $57.1 million one- to four-family mortgage loans
purchased during the year ended September 30, 1999, $21.5 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 higher yields for the additional 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 loans 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 a loan commitment,
whereas the origination and discount fees are paid at the 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 attempt 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 installment
periods, 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 loans, the
Company relies upon the servicers 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.

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, 1999, the
Company had seven loans classified as foreclosed property with a total combined
carrying value of $371,000.

13
14

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,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(In thousands)

One-to four-family mortgage loans.. $ 464 $ 600 $ 660 $ 44 $ 296

Multifamily mortgage loans......... - - - - -

Commercial real estate loans....... 848 833 850 - -
-------- --------- -------- -------- ---------
Total non-performing
mortgage loans............. 1,312 1,433 1,510 44 296
Commercial loans................... 964 593 100 - -
Consumer loans..................... 564 835 1,385 3,846 136
-------- --------- -------- -------- ---------
Total non-performing loans.... 2,840 2,861 2,995 3,890 432
Foreclosed properties.............. 371 63 416 80 5,833
-------- --------- -------- -------- ---------
Total non-performing assets... $ 3,211 $ 2,924 $ 3,411 $ 3,970 $ 6,265
======== ========= ======== ======== =========

Total non-performing loans to
gross loans..................... 0.23 % 0.29 % 0.38 % 0.58 % 0.08 %
Allowance for loan losses to
total non-performing loans...... 329.44 263.19 207.08 134.11 943.52
Total non-performing assets to
total assets.................... 0.13 0.16 0.21 0.28 0.53

Interest on non-performing loans
on the accrual basis............ $ 274 $ 388 $ 647 $ 296 $ 34
Actual interest received on
non-performing loans............ 150 161 206 11 26
-------- --------- -------- -------- ---------
Net reduction of interest income... $ 124 $ 227 $ 441 $ 285 $ 8
======== ========= ======== ======== =========

Non-performing assets as of September 30, 1999 and 1998 included $10,000 and
$172,000, 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
zero and $1.0 million, respectively, in net charge-offs in fiscal 1999 and 1998.
At September 30, 1999 and 1998, non-performing assets includes $798,000 and
$833,000, respectively, on a single commercial real estate loan on a shopping
center.

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, 1999, the Company had assets classified as
Substandard of $2.6 million, $1.1 million classified as Doubtful, and $228,000
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, consumer loans,
commercial 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,
1999 1998 1997 1996 1995
--------- --------- ---------- ---------- ----------
(In thousands)

Balance at beginning of year $ 7,530 $ 6,202 $ 5,217 $ 4,076 $ 3,435
Provision for loan losses................. 1,920 2,300 1,280 1,300 240
Charge-Offs:
Mortgage Loans:
One- to four family............... 59 176 24 15 42
Multifamily....................... - - - - 210
Commercial real estate............ - - - - -
Home equity....................... 51 71 - 6 -
Consumer............................. 316 740 2,028 167 55
Commercial and agricultural.......... 21 12 2 - -
------- ------- ------- ------- -------
Total charge-offs.............. 447 999 2,054 188 307

Recoveries:
Mortgage Loans:
One- to four family............... - - - - -
Multifamily....................... - - - - -
Commercial real estate............ - - - - -
Home equity....................... 16 - - 21 -
Consumer............................. 33 27 80 8 12
Commercial and agricultural.......... 1 - 1 - 2
------- ------- ------- ------- -------
Total recoveries............... 50 27 81 29 14
-------- ------- ------- ------- -------

Net charge-offs........................... 397 972 1,973 159 293
Acquired bank's allowance................. 303 - 1,678 - 694

------- ------- ------- ------- -------
Balance at end of period.................. $ 9,356 $ 7,530 $ 6,202 $ 5,217 $ 4,076
======= ======= ======= ======= =======

Ratio of allowance for loan losses to
gross loans receivable at end of period... 0.75% 0.77% 0.79% 0.78% 0.77%

Ratio of allowance for loan losses to
non-performing loans at end of period..... 329% 263% 207% 134% 944%

Ratio of net charge-offs to average
gross loans during period................. 0.04% 0.12% 0.30% 0.03% 0.06%

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 1999 and 1998 increases in
the allowance for loan losses supports the Company's targeted 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 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,
---------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ----------------------------- ----------------------------

% of % of % of
% of Loans in % of Loans in % of Loans in
Total Category Total Category Total Category
Loans by to Total Loans by to Total Loans by to Total
Amount Category Loans Amount Category Loans Amount Category Loans
-------- -------- --------- --------- --------- --------- --------- --------- ---------
(In thousands)

Breakdown of Allowance:
Mortgage loans:
One- to four-family....... $ 1,368 0.34% 32.1% $ 1,186 0.36% 33.4% $ 925 0.32% 36.6%
Multi-family.............. 1,032 0.64% 13.0% 765 0.73% 10.8% 670 0.66% 12.9%
Commercial real estate.... 2,879 1.14% 20.3% 2,035 1.19% 17.6% 1,281 1.46% 11.2%
Home equity............... 949 0.61% 12.6% 746 0.52% 14.7% 629 0.55% 14.7%
------- ----- ------- ---- ------- -----
Total mortgage loans........ 6,228 78.0% 4,732 76.5% 3,505 75.4%
Consumer.................... 1,059 0.71% 12.0% 1,074 0.80% 13.8% 717 0.59% 15.4%
Commercial and agriculture.. 2,069 1.67% 10.0% 1,724 1.84% 9.7% 1,980 2.74% 9.2%
------- ----- ------- ----- ------- -----
Total allowance for loan
losses..................... $ 9,356 100.0% $ 7,530 100.0% $ 6,202 100.0%
======= ===== ======= ===== ======= =====

At September 30,
----------------------------------------------------------
1996 1995
---------------------------- -----------------------------
% 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....... $ 957 0.32% 45.3% $ 1,031 0.44% 44.1%
Multi-family.............. 840 0.81% 15.4% 957 1.02% 17.6%
Commercial real estate.... 593 1.28% 6.9% 619 2.19% 5.3%
Home equity............... 449 0.50% 13.5% 504 0.63% 15.1%
------ ----- ------- -----
Total mortgage loans......... 2,839 81.1% 3,111 82.1%
Consumer..................... 2,128 2.12% 15.0% 789 0.96% 15.4%
Commercial and agriculture... 250 0.99% 3.9% 176 1.29% 2.5%
------ ----- ------- -----
Total allowance for loan 5,217 100.0% $ 4,076 100.0%
losses..................... ====== ===== ======= =====

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 and equity securities,
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-backed 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.

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, 1999, private-issue
mortgage-backed securities, CMO's and REMIC's totaled $721.5 million, 82% of
which had a credit rating of AAA, 13% of which had a credit rating of AA, 3% of
which had a credit rating of A, and 2% of which had a credit rating lower than
A. 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.
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 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. 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. The Company had no investment in the
securities as of September 30, 1999 compared with a cost basis of $479,000 as of
September 30, 1998.

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 FHLB, brokered certificates
of deposit or other forms of borrowing. 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.

At September 30, 1999, 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.

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

Held to Maturity. At September 30, 1999, the Company held $39.5 million in its
mortgage-backed and related securities held to maturity portfolio. The estimated
market value of those securities at that date was $39.3 million. Of this amount,
at September 30, 1999, 100% were fixed rate REMIC securities. At September 30,
1999, the mortgage-backed and related securities held to maturity portfolio
represented 1.6% of the Company's total assets compared to $63.1 million or 3.4%
of total assets at September 30, 1998.

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, 1999.

-------------------------------------------------------
Over five years to
ten years Over ten years
-------------------------- ---------------------------

Weighted Weighted
Amortized Average Amortized Average
Cost Yield Cost Yield
------------ ------------ ------------ ------------
(In thousands)

REMIC's:
FNMA................. $ - - $ 364 5.73%
Private Issue........ 13,197 6.32% 25,914 6.73%
-------- --------
$ 13,197 $ 26,278
======== ========

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

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

REMIC's:
FNMA................. 17.25 $ 364 $ 363 5.73%
Private Issue........ 19.18 39,111 38,887 6.59%
-------- --------
$ 39,475 $ 39,250
======== ========

Available for Sale. At September 30, 1999, the Company had mortgage-backed and
related securities available for sale with a carrying value of $919.9 million
and an estimated market value of $919.9 million which comprised 37.2% of total
assets. Of these, $31.3 million were MBS's issued by various federal agencies,
$69.5 million were private issue MBS's, $205.9 million were agency REMIC's, and
$613.2 million were private issue REMIC's. At September 30, 1998, the Company's
mortgage-backed and related securities held for sale were $634.0 million,
representing 34.0% of total assets. Of these, $7.7 million were MBS's issued by
various federal agencies, $113.8 million were private issue MBS's, $63.2 million
were agency REMIC's, and $449.3 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.

------------------------------------------------------------------------------------
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................. $ - - $ 29,927 6.53% $ 1,527 1.88%
FHLMC................ 1,022 5.61% - - - -
Private Issue........ - - 1,230 6.95% 69,739 6.58%

REMIC's:
GNMA................. - - - - 2,134 6.27%
FNMA................. 107 9.00% 316 6.28% 42,012 6.35%
FHLMC................ - - 10,909 6.73% 153,498 6.26%
Private Issue........ 36 4.00% 49,450 6.57% 573,047 6.26%
----------- ----------- -----------
$ 1,165 $ 91,832 $ 841,957
=========== =========== ===========

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

Participation certificates:
FNMA................. 8.64 $ 31,454 $ 30,335 6.31%
FHLMC................ 1.75 1,022 1,015 5.61%
Private Issue........ 25.42 70,969 69,492 6.59%

REMIC's:
GNMA................. 22.56 2,134 2,133 6.27%
FNMA................. 23.68 42,435 42,069 6.36%
FHLMC................ 21.86 164,407 161,673 6.29%
Private Issue........ 26.07 622,533 613,162 6.28%
----------- -----------
$934,954 $919,879
=========== ===========

Held for Trading. At September 30, 1999 and 1998, 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. These securities are classified as trading securities by
the Company as it is the Company's intent to sell those securities over a short
period of time.

20
21

OTHER SECURITIES
The Company invests in various types of investment-grade quality liquid assets
that are permissible investments for federally chartered savings associations,
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, 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 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.

COMPOSITION OF THE COMPANY'S DEBT AND EQUITY SECURITIES PORTFOLIO

Held to Maturity. At September 30, 1999, the Company had debt securities with an
amortized cost of $810,000 and an estimated market value of $834,000. The entire
amount was 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, 1999. The yields on the municipal securities
represent their taxable-equivalent yield. (Note: all state and municipal
obligations had a weighted term to maturity of over one year to five years.)

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

State and municipal obligations............ 3.54 $ 810 $ 834 6.09%
------- -------
$ 810 $ 834
======= =======

Available for Sale. At September 30, 1999, the Company had securities available
for sale with an amortized cost of $223.1 million and an estimated market value
of $216.6 million. Of the total, $218.5 million were U.S. Treasury or agency
obligations, $1.1 million were corporate notes and bonds, and $3.5 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, 1999. 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................... $ 501 4.57% $ 135,546 5.58% $ 72,473 6.30%
Corporate notes and bonds..... 1,000 6.31% 99 5.60% - -
Marketable equity securities.. 1,860 4.72% - - - -
-------- --------- --------
$ 3,361 $ 135,645 $ 72,473
======== ========= ========

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

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................... $ 10,000 6.50% 5.17 $ 218,520 $ 212,306 5.86%
Corporate notes and bonds..... - - - 1,099 1,100 6.25%
Marketable equity securities.. 1,643 0.86% 11.73 3,503 3,243 2.91%
--------- --------- ---------
$ 11,643 $ 223,122 $ 216,649
========= ========= =========

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"). 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
$3.7 million, $5.1 million and $3.4 million for the years ended September 30,
1999, 1998 and 1997 respectively. Gross expenses of SFEP were $3.8 million, $5.3
million and $3.9 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 $3.0 million, $4.2 million and $2.9
million for the years ended September 30, 1999, 1998 and 1997, respectively.

At September 30, 1999 the amount invested in affordable housing projects was
$28.4 million compared with $50.8 million at September 30, 1998. At September
30, 1999, SFEP was a equity partner in 12 projects compared with 25 projects at
September 30, 1998. During the year ended September 30, 1999, the Company
realized gains of $1.2 million on the sale of 13 affordable housing projects
which had been classified as real estate held for sale at September 30, 1998.
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 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 tax credits sooner on its consolidated federal tax return. At September
30, 1999, the Company has a tax credit carryforward of $3.9 million.

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, 1999, 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.

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. 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, 1999 and 1998, the Company had advances from the FHLB of $607.5 million or
25.9% of total liabilities, and $452.1 million or 25.9% of total liabilities,
respectively. At September 30, 1999 and 1998, the Company had reverse repurchase
agreements outstanding of $177.7 million or 7.6% of total liabilities, and $30.6
million or 1.8% of total liabilities, respectively. Of the Company's outstanding
FHLB advances at September 30, 1999, $277.5 million will mature before September
30, 2000.

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
(checking and money market demand accounts ("MMDA")), 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 the general operating activities of the
Company and to fund the Company's mortgage-backed and related securities
portfolio. At September 30, 1999, the Company had $421.8 million of brokered
deposits, representing 28.4% of total deposits, compared to $214.9 million or
17.7% of total deposits at September 30, 1998. 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, 1999, the Company had outstanding $59.8 million in certificates
of deposit in amounts of $100,000 or more maturing as follows:

Amount at
September 30,1999
-----------------
(In thousands)

Three months or less..................................... $ 12,418
Over three through six months............................ 22,347
Over six months through twelve months.................... 11,434
Over twelve months....................................... 13,595
--------
Total................................ $ 59,794
========

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,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- --------------------------------------
Percent Average Percent Average
of Total Stated of Total stated
Amount Deposits Rate Amount Deposits rate
------------- ----------- ---------- ------------- ----------- ----------
(In thousands)

Demand deposits:
Non-interest bearing....... $ 73,906 5.0% - $ 66,337 5.4% -
Interest bearing....... 68,621 4.6% 1.14% 61,821 5.1% 1.34%
Passbook accounts.......... 115,638 7.8% 2.29% 133,282 11.0% 3.30%
Money market
Demand accounts........ 360,360 24.3% 4.29% 323,088 26.5% 4.81%
Certificates............... 865,778 58.3% 5.66% 632,346 52.0% 5.85%
----------- ------ ----------- ------
Total deposits............. $ 1,484,303 100.0% 4.58% $ 1,216,874 100.0% 4.75%
=========== ====== =========== ======

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

Demand deposits:
Non-interest bearing... $ 52,582 4.8% -
Interest bearing....... 54,126 5.0% 1.61%
Passbook accounts.......... 105,356 9.7% 2.91%
Money market
Demand accounts........ 265,382 24.4% 4.87%
Certificates............... 609,690 56.1% 6.06%
----------- ------
Total deposits............. $ 1,087,136 100.0% 4.95%
=========== ======

26
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, 1999, the Company's FHLB advances totaled $607.5 million,
representing 25.9% of total liabilities, up from the $452.1 million outstanding
at September 30, 1998. At September 30, 1999, the Company had additional
borrowing capacity of $80.5 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, 1999, $362.5 million
will mature before September 30, 2000. Included in the amount maturing within
one year are $250.0 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, 1999, the $250.0 million of
outstanding CFAs have a maturity of two to ten years and are putable by the FHLB
during the next fiscal year and quarterly thereafter.

The Company also utilizes reverse repurchase agreements as a funding source. A
reverse repurchase agreement is a transaction between the Company and a broker
whereby the Company borrows money against a specific asset, generally a
mortgage-backed and related security, for a set interest rate for a specified
term. The reverse repurchase agreements generally have terms of 30 to 60 days.
However, at September 30, 1999, the Company had one callable reverse repurchase
agreement with a term of six months. At September 30, 1999 and 1998, the Company
had $177.7 million and $30.6, respectively, of reverse repurchase agreements.

The Company's borrowings from time to time include Federal funds purchased. At
September 30, 1999 and 1998, the Company had $25.0 million and zero,
respectively, of Federal funds purchased.

The line of credit was established by the Company for purposes of funding
corporate activities of the Company. These typically include dividends, share
repurchases and acquisitions such as the Kilbourn State Bank and Reliance
Bancshares, Inc. acquisitions. 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, 1999 and 1998, the
Company had $21.0 and $18.0 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.

26
27

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,
---------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
(In thousands)

FHLB advances:
Average balance outstanding............................... $ 580,842 $ 402,929 $ 388,802
Maximum amount outstanding at any month-end during
the year............................................ 645,051 469,051 422,569
Balance outstanding at end of year........................ 607,546 452,051 385,056
Weighted average interest rate during the year (1)........ 4.94% 5.56% 5.67%
Weighted average interest rate at end of year............. 5.02% 5.41% 5.66%
Reverse repurchase agreements:
Average balance outstanding............................... $ 125,210 $ 15,116 $ 5,425
Maximum amount outstanding at any month-end during
the year............................................ 205,010 30,550 22,481
Balance outstanding at end of year........................ 177,654 30,550 22,481
Weighted average interest rate during the year (1)........ 4.29% 2.31% 5.60%
Weighted average interest rate at end of year............. 5.35% 0.32% 5.80%
Bank line of credit
Average balance outstanding............................... $ 24,750 $ 9,000 $ 5,615
Maximum amount outstanding at any month-end during
the year............................................ 30,000 18,000 12,000
Balance outstanding at end of year........................ 21,000 18,000 11,000
Weighted average interest rate during the year (1)........ 6.39% 6.94% 6.89%
Weighted average interest rate at end of year............. 6.62% 6.74% 6.93%

Total advances, reverse repurchase agreements
and bank line of credit:

Average balance outstanding............................... $ 730,802 $ 427,045 $ 399,842
Maximum amount outstanding at any month-end during
the year............................................ 851,601 517,601 439,875
Balance outstanding at end of year........................ 806,200 500,601 418,537
Weighted average interest rate during the year (1)........ 4.99% 5.51% 5.69%
Weighted average interest rate at end of year............. 5.16% 5.16% 5.70%

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

SUBSIDIARY ACTIVITIES
During the fiscal year ended September 30, 1999, the Bank had three wholly
owned subsidiaries: St. Francis Insurance Services Corporation ("SF Insurance"),
St. Francis Equity Properties, Inc., and SF Investment Corporation ("SF
Investment").

SF Insurance. SF Insurance is a Wisconsin corporation and 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 SF Insurance for administration and sales
services provided by the Bank to SF Insurance. At September 30, 1999, the Bank's
total investment in SF Insurance was approximately $283,000, and SF Insurance's
assets of $278,000 consisted primarily of cash.

SF 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 12 projects within the state of

Wisconsin. Additionally, the Bank has provided financing to all 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, 1999, the Bank had loans outstanding to such projects of $13.5 million. At
September 30, 1999, the Bank's total investment in SFEP was approximately $5.8
million and SFEP assets of $29.8 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, 1999,
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, 1999, the Company had 374 full-time employees and 122
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
From time to time the Company may be subject to alternative minimum tax on its
corporate income tax returns. The alternative minimum tax is calculated at a
rate of 20% on alternative minimum taxable income as defined in the Internal
Revenue code. The Company's actual tax payment is then based on the higher of
its regular tax liability or its alternative minimum tax.

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 another institution whose deposits are insured
by the Savings Association Insurance Fund ("SAIF") of the FDIC. (See "New
Financial Services Act" below for further applicable regulation).

REGULATION OF FEDERAL SAVINGS BANKS
The OTS has extensive regulatory, supervisory and enforcement authority over the
operations of the Company, the Bank and their affiliated parties. This
regulation and supervision established a comprehensive framework of activities
in which the entities 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 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, 1999 was $189,000, based on Bank assets as of March 31,
1999 of $2.3 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, 1999, the Company maintained 91.4% 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.

NEW FINANCIAL SERVICES ACT
On November 12, 1999 the Gramm-Leach-Bliley Act of 1999 (the "Financial Services
Modernization Act" or "Act") was signed into law. The new law does a number of
things intended to increase competition in the financial services area,
including repealing sections of the 1933 Glass-Steagall Act so that financial
firms, such as banks, securities and insurance firms can affiliate with each
other, through the formation of financial holding companies. The Act appoints
the Federal Reserve as the "umbrella" regulator for such entities. The Act also
restricts the chartering and transferring of unitary thrift holding companies,
although it does not restrict the operations of unitary holding companies which
were in existence prior to May 4, 1999, and which continue to meet the Qualified
Thrift Lender Test and control only a single savings institution. The Company is
a unitary holding company and it and the Bank presently meet these requirements.
The Act adopts a number of consumer protections, including provisions aimed at
protecting privacy of information and requiring disclosure of ATM usage charges.
Many of the Act's provisions require regulatory action, including the
promulgation of regulations, to become effective and it is too early to assess
the eventual impact of the Act on either the financial services industry in
general or the specific operations of the Company and the Bank.

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 SAIF. 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 years ended September 30, 1999 and 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.

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, 1999:

Tangible capital.............. 144,222 5.82% > 99,136 > 4.0% > 123,921 > 5.0%
- - - -
Core capital ................. 144,222 5.82% > 99,136 > 4.0% > 123,921 > 5.0%
- - - -
Tier 1 risk-based capital..... 144,222 9.98% > 57,803 > 4.0% > 86,704 > 6.0%
- - - -
Risk-based capital............ 153,578 10.63% > 115,606 > 8.0% > 144,507 > 10.0%
- - - -
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%
- - - -

Unrealized gains and losses on securities available for sale are not included in
the above tangible, core and risk-based capital amounts. At September 30, 1999,
if all available for sale securities were sold and the unrealized losses were
recognized, the Bank's capital ratios would exceed those required to be well
capitalized.

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 November 1998, was "Outstanding."

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 $30.8 million at
September 30, 1999.

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, 1999, the Bank had $607.5 million in advances
from the FHLB-Chicago. See "Business of the Company."

RESERVE REQUIREMENTS
Regulation D, promulgated by the Federal Reserve Board ("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 $46.5 million of
transaction accounts. There is no reserve requirement on non-personal deposits.
In addition, the first $4.9 million of otherwise reservable liabilities are
exempt from the reserve requirement. The Bank must reserve for transaction
accounts in excess of $46.5 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, 1999, 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. It is a violation for an insider to 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 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 FRB. 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
Securities and Exchange Act of 1934, under which the Company is subject to
various restrictions and requirements.

ITEM 2. PROPERTIES

The Company conducts its business through 22 full-service locations, two limited
service offices in residential retirement communities and four loan production
offices. Eleven 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 $22.1
million at September 30, 1999.

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, 1999.

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 S. ECKEL, age 44, is an Executive Vice President of the Bank. Mr.
Eckel has held his position with the Bank since January 1999. Prior to that Mr.
Eckel was a Senior Vice President of the Bank.

JUDITH M. GAUVIN, age 41, is an Executive Vice President of the Bank. Ms.
Gauvin has held her position with the Bank since October 1999. Prior to that Ms.
Gauvin was a Senior Vice President of the Bank.

JAMES C. HAZZARD, age 54, 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.

WILLIAM R. HOTZ, age 54, 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.

WILLIAM T. JAMES, age 40, is an Executive Vice President of the Company and
the Bank. Mr. James has held those positions since January 1999. Mr. James was a
Senior Vice President of the Company and the Bank from 1997 to 1999. Prior to
1997, Mr. James was an Assistant Vice President of the Company and a Vice
President of the Bank.

BRADLEY J. SMITH, age 44, 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.

JON D. SORENSON, age 44, 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.

33
34

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 September 30, 1999, there were approximately 1,250 holders of record
and approximately 3,000 beneficial holders owning a total of 10,156,770 shares.

The Company paid quarterly dividends of $0.05 per share starting in November
1995, increased the dividend to $0.06 per share in November 1996, increased it
again to $0.07 per share in November 1997, increased it again to $0.08 per share
in November 1998, and increased it again to $0.09 per share in November, 1999.
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
ten years from the date of issuance.

The Company's most recent share repurchase program for approximately 480,000
shares was completed on February 4, 1999 at an average price of $18.73 per
share. This was the ninth such repurchase program that the Company has
undertaken. At September 30, 1999, an aggregate of 5,941,904 shares had been
repurchased in all such repurchase programs at an average price of $13.01. On
April 22, 1999, 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 505,000 shares. The repurchase program is authorized to start
April 29, 1999 and run through March 31, 2000. No shares have been purchased
under this authorization through November 30, 1999.

34
35

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,

1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL DATA: (In thousands)

Total assets.................................$2,473,356 $1,864,176 $1,660,649 $1,404,116 $1,189,215
Cash and cash equivalents.................... 32,562 30,746 42,858 22,459 20,780
Loans receivable, net........................ 1,113,392 855,132 712,875 610,699 513,308
Mortgage loans held for sale................. 8,620 23,864 24,630 20,582 1,138
Debt securities held to maturity............. 810 1,817 3,833 6,215 49,928
Debt and equity securities available for
sale.......................................... 216,649 109,061 56,247 60,001 4,142
Mortgage-backed and related securities held
to maturity................................... 39,475 63,087 66,849 68,392 157,495
Mortgage-backed and related securities
available for sale............................ 919,879 634,003 620,716 519,766 360,077
Real estate held for investment.............. 28,402 29,997 51,476 36,865 24,264
Real estate held for sale.................... - 20,772 - - -
Deposits..................................... 1,484,303 1,216,874 1,087,136 877,684 688,348
Advances from the FHLB and other borrowings.. 834,738 504,677 420,228 375,034 345,681
Shareholders' equity......................... 131,514 121,545 128,530 125,179 135,228

- ----------------------------------------------------------------------------------------------------------------
Year Ended September 30,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
SELECTED OPERATING DATA: (In thousands, except per share data)

Total interest and dividend income.......... $ 145,545 $ 117,909 $ 108,146 $ 92,097 $ 83,787
Total interest expense...................... 93,282 76,063 69,363 56,413 50,223
----------- ----------- ----------- ----------- -----------
Net interest income before provision for
loan losses............................... 52,263 41,846 38,783 35,684 33,564
Provision for loan losses................... 1,920 2,300 1,280 1,300 240
----------- ----------- ----------- ----------- -----------
Net interest income...................... 50,343 39,546 37,503 34,384 33,324
Other operating income, net
Loan servicing and loan related fees........ 2,016 2,125 1,813 1,258 1,276
Impairment loss on mortgage-backed
securities................................... - - (3,400) - -
Securities gains/(losses)................... (253) 1,243 2,015 3,420 3,674
Gain on sales of mortgage loans held for
sale, net.................................... 2,806 4,367 1,562 1,057 261
Other operating income ..................... 11,717 11,173 6,672 4,879 3,120
----------- ----------- ----------- ----------- -----------
Total other operating income, net........ 16,286 18,908 8,662 10,614 8,331
----------- ----------- ----------- ----------- -----------
General and administrative expenses (1).... 43,563 41,831 32,903 31,622 22,679
----------- ----------- ----------- ----------- -----------
Income before income tax expense........... 23,066 16,623 13,262 13,376 18,976
Income tax expense......................... 6,410 1,826 1,544 2,911 6,277
----------- ----------- ----------- ----------- -----------
Net income......................... $ 16,656 $ 14,797 $ 11,718 $ 10,465 $ 12,699
=========== =========== =========== =========== ===========
Basic earnings per share $ 1.78 $ 1.51 $ 1.17 $ 0.96 $ 1.09
=========== =========== =========== =========== ===========
Diluted earnings per share......... $ 1.70 $ 1.43 $ 1.10 $ 0.91 $ 1.05
=========== =========== =========== =========== ===========
Dividends per share................ $ 0.32 $ 0.28 $ 0.24 $ 0.20 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,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------

SELECTED FINANCIAL RATIOS AND OTHER DATA:
Performance Ratios (4):

Return on average assets................... 0.75 % 0.87 % 0.77 % 0.82 % 1.10 %
Return on average equity................... 13.12 11.29 9.17 7.81 10.02
Shareholders' equity to total assets....... 5.32 6.52 7.74 8.92 11.37
Average shareholders' equity to average 5.73 7.71 8.37 10.48 10.95
assets......................................
Dividend payout ratio...................... 18.82 19.65 21.82 21.98 n/a
Net interest spread during the period (1).. 2.33 2.47 2.45 2.56 2.56
Net interest margin (1).................... 2.51 2.68 2.73 2.97 3.04
General and administrative expenses to 1.97 2.46 2.16 2.47 1.96
average assets
Other operating income to average assets... 0.74 1.11 0.57 0.83 0.72
Average interest-earning assets to average
interest-bearing liabilities............. 103.93 104.41 105.82 108.73 110.37

Asset Quality Ratios:
Non-performing loans to gross loans (2).... 0.23 0.29 0.38 0.58 0.08
Non-performing assets to total assets (2).. 0.13 0.16 0.21 0.28 0.53
Allowance for loan losses to gross loans... 0.75 0.77 0.79 0.78 0.77
Allowance for loan losses to
non-performing loans (2).................... 329.44 263.19 207.08 134.11 943.52
Allowance for loan losses to
non-performing assets (2)................... 291.37 257.52 181.82 131.41 65.06
Net charge-offs to average loans........... 0.04 0.12 0.30 0.03 0.06

Regulatory Capital Ratios (3):
Tangible ratio............................. 5.82 6.48 7.14 6.86 8.49
Core ratio................................. 5.82 6.48 7.14 6.86 8.49
Tier 1 risk-based ratio.................... 9.98 10.23 11.66 12.60 16.57
Total risk-based ratio..................... 10.63 10.88 12.21 13.12 17.18

Other Data:
Number of deposit accounts................. 136,292 128,643 119,575 96,880 88,391
Number of real estate loans outstanding.... 3,482 3,486 3,623 3,888 4,018
Number of real estate loans serviced....... 9,046 8,479 7,672 7,101 6,579
Mortgage loan originations (in thousands).. $636,066 $505,849 $310,172 $238,234 $109,366
Consumer loan originations (in thousands).. $102,998 $ 93,700 $ 57,157 $ 61,378 $ 41,444
Full service customer facilities........... 22 21 19 15 13

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

(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 1995 through
1999.
(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
The Company is a bank holding company engaged in the financial services business
serving southeastern Wisconsin through its wholly-owned subsidiary, the Bank.
In January 1999, the Company completed the acquisition of the stock of Reliance
Bancshares, Inc., which was subsequently merged into the 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 tax 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

The Company has completed its Year 2000 compliance activities. 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 was categorized as either mission critical, moderate or low priority
depending on its importance to the operation of the Company's business
activities. The remediation and testing of all critical, moderate and low
priority systems is complete at this time. The project has been overseen by a
steering committee composed of representatives from all areas of the Company and
directed by the Company's Information Services division.

The Company is in compliance with the Federal Financial Institution's
Examination Council ("FFIEC") Year 2000 directives that were published in 1996,
which established policy guidelines and time frames to guide Year 2000
compliance. All management activities and plans have incorporated the FFIEC
guidelines published to date. In addition, the Company is examined for Year 2000
readiness on a periodic basis by its primary federal regulator.

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 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 was for products and services processed by that service
provider. The service provider completed the remediation and testing of its
systems and has had its Year 2000 compliant systems in production since June 30,
1998. The Company successfully completed its testing of that system to verify
that the service provider's system functions in the Year 2000 for those services
used by the Company. The Company has no custom developed system code. Therefore,
the remediation phase of the Company's Year 2000 plan did not include code
renovation.

In addressing the Year 2000 issue, the Company also considered 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 addressed such items as
alarm systems, elevators, keyless entry systems, telephone and data systems and
others. The successful testing of all such systems has been completed.

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 a customer's Year 2000
awareness and compliance status. 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 cannot be determined at this time.
However, it has been considered as a factor in establishing the Company's loan
loss allowance.

The estimated costs of the Year 2000 issues 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, 1999 and 2000. The
primary direct costs include 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; primarily 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.

The Company presently believes that it has successfully completed its Year 2000
activities. However, unidentified 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 has established contingency plans for all mission critical services. All
contingency plans have been completed at this time and have been tested and
modified throughout 1999. The Year 2000 contingency plan have been designed to
ensure that mission critical core banking processes will continue if one or more
supporting system's fail, and to allow for limited transaction processing until
the Year 2000 problems are fixed.

FINANCIAL CONDITION

Mortgage-backed and related securities, including securities available for sale,
increased to $959.4 million at September 30, 1999 from $697.1 million at
September 30, 1998, which represented 38.8% and 37.4% 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 because of
their lower level of interest rate risk and low credit risk in relation to the
interest earned. 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.
Private mortgage-backed securities generally will have a higher yield, but have
a greater amount of credit risk since they are generally backed by
non-conforming loans and neither the principal nor interest on such securities
is guaranteed.

Net loans receivable, including loans held for sale, increased $243.0 million to
$1.12 billion at September 30, 1999 from $879.0 million at September 30, 1998.
In addition to the Company's efforts to grow its loan portfolio, the Company has
been actively diversifying its loan portfolio in recent years and as a result,
the increase included commercial real estate, single-family construction, home
equity lines of credit, commercial and automobile lending. Gross commercial real
estate and multi-family loans increased by $136.6 million to $412.5 million. The
Company has made this an area of emphasis in recent years, allocating
significant resources and personnel. Although interest rates rose during the
year, it was still considered a favorable rate environment. The Company was
therefore positioned to originate $210.2 million of commercial real estate and
multi-family loans for the year ended September 30, 1999 compared with $145.2
million in the prior year. Single-family construction loans increased $32.0
million to $103.1 million. The Company has also emphasized this niche area in
recent years and has a strong position in the market to take advantage of the
higher-than normal demand for this product. 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. One to
four family home mortgage loans increased $40.4 million to $294.4 million. As
interest rates rose later in the current year, originations shifted from
fixed-rate products to adjustable-rate ARM products, which the Company retained
in its loan portfolio. It is anticipated that a majority of these loans

may eventually convert to a fixed-rate product and be sold into the secondary
market. Commercial loans increased $30.0 million to $123.9 million, reflecting
the Company's continued commitment to this area also. Originations increased to
$114.5 million loans for the year ended September 30, 1999 compared with $84.5
million in the prior year. Home equity lines of credit increased $13.7 million
to $156.7 million and consumer loans increased $15.3 million to $149.0 million.
Increases in all areas of the portfolio are the result of increased originations
over the current year, offset by accelerated repayments. The growth in consumer
loans is primarily the result of an increase of $12.1 million in indirect auto
loans to $44.3 million.

Real estate held for investment and for sale decreased to $28.4 million at
September 30, 1999, from $50.8 million at September 30, 1998, consisting of 12
affordable housing projects within the state of Wisconsin, which qualify for tax
credits under Section 42 of the Internal Revenue Code. The decrease is due to
the sale of 13 properties during fiscal year 1999 at a gain of $1.2 million. The
Company is currently carrying forward affordable housing tax credits that it has
not utilized on its tax returns. The decision to dispose of the 13 properties
allows the Company to utilize the tax credits sooner on its consolidated federal
tax return.

Deposits increased $267.4 million to $1.48 billion at September 30, 1999 from
$1.22 billion at September 30, 1998. The increase in deposits was due primarily
to increases of $37.3 million in money market demand account deposits, $233.4
million in certificates of deposit and $14.3 million in checking accounts, and a
decrease of $17.6 million in passbook accounts. At September 30, 1999,
certificates of deposits included $421.8 million in brokered certificates of
deposit compared with $214.9 million at September 30, 1998, an increase of
$206.9 million. The brokered deposits are generally used to fund the Company's
leverage program, with terms from three months to ten years in maturity. The
majority of the money market demand accounts are tied to a national money market
fund index and compete with money market funds. 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 $834.7 million at September 30, 1999,
from $504.7 million at September 30, 1998. The Company uses wholesale funding
sources, primarily advances from the FHLB, 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, 1999 AND 1998

GENERAL
Net income for the year ended September 30, 1999 increased $1.9 million
or 12.8% to $16.7 million from $14.8 million for the year ended September 30,
1998. Factors causing the change in net income included a $10.4 million increase
in net interest income before provision for loan losses, a $2.6 million decrease
in other operating income offset by a decrease of $.4 million in the provision
for loan losses, an increase of $1.7 million in general and administrative
expenses and an increase of $4.6 million in income tax expenses.

NET INTEREST INCOME
Net interest income before provision for loan losses increased $10.4 million or
24.9% to $52.3 million for the year ended September 30, 1999 compared to $41.8
million for the year ended September 30, 1998. The increase was due to an
increase of $522.0 million in average earning assets, partially offset by a
decrease in the net interest margin to 2.51% in 1999 from 2.68% in 1998. 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 $27.6 million or 23.4% to $145.6 million for the
year ended September 30, 1999 compared to $117.9 million for the year ended
September 30, 1998. The increase in interest income was primarily the result of
increases of $12.7 million in interest on loans, $9.4 million in interest on
mortgage-backed and related securities and $5.6 million in interest in debt and
equity securities. The increase in interest on loans was due to an increase in
the average balance of loans to $992.8 million for the year ended September 30,
1999, compared to $800.8 million for the year ended September 30, 1998,
partially offset by a decrease in the average yield on loans which decreased to
8.11% for the year ended September 30, 1999, from 8.46% for the year ended
September 30, 1998. The increase in interest on interest mortgage-backed and
related securities was due to an increase in the average balance to $869.1
million for the year ended September 30, 1999, compared to $643.2 million for
the year

ended September 30, 1998, partially offset by a decrease in the average yield
on mortgage-backed securities which decreased to 6.05% for the year ended
September 30, 1999, from 6.72% for the year ended September 30, 1998. The
increase in interest on debt and equity securities was due to an increase in the
average balance to $177.7 million for the year ended September 30, 1999,
compared to $73.6 million for the year ended September 30, 1998, partially
offset by a decrease in the average yield on debt and equity securities which
decreased to 5.53% for the year ended September 30, 1999, from 5.82% for the
year ended September 30, 1998. The increase in the average balance of loans
includes the acquisition of $25.7 million in net loans from Reliance, but is due
primarily to the Company's efforts to increase its emphasis on commercial and
consumer lending. The increase in the average balances of mortgage-backed and
related securities and debt and equity securities is due primarily to the
Company's efforts to fully leverage its capital. The decrease in the average
yields is due primarily to the lower interest rate environment in effect during
the year as compared to historical rates. As loans and securities repay and/or
mature, they are replaced in the Company's portfolios by new loans and
securities, which generally have lower interest rates than those previously put
in the portfolio.

Total interest expense increased $17.2 million or 22.6% to $93.3 million for the
year ended September 30, 1999 compared to $76.1 million for the year ended
September 30, 1998. Interest expense on deposits increased $5.1 million or 9.8%
to $57.4 million for the year ended September 30, 1999 compared to $52.3 million
for the year ended September 30, 1998. The average balance of deposits increased
to $1.29 billion for the year ended September 30, 1999, from $1.06 billion for
the year ended September 30, 1998. 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 4.46% for the
year ended September 30, 1999, from 4.94% for the year ended September 30, 1998.
Brokered deposits increased to $421.8 million during the year compared to $214.9
million in 1998 at weighted average stated rates of 6.08% and 6.15%,
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
deposit portfolio other than brokered certificates.

PROVISION FOR LOAN LOSSES
The provision for loan losses decreased $.4 million or 16.5% to $1.9 million for
the year ended September 30, 1999 compared with $2.3 million for the year ended
September 30, 1998. The allowance for loan losses totaled $9.4 million and $7.5
million at September 30, 1999 and 1998, respectively, representing 0.75% and
0.77% of total gross loans, respectively. 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 decreased $2.6 million or 16.1% to $16.3 million for the
year ended September 30, 1999 compared to $18.9 million for the year ended
September 30, 1998. The decrease was primarily due to decreases in gains on
sales of mortgage loans, gains on securities, income from the Company's
affordable housing subsidiary and other income, partially offset by a gain on
the sale of real estate held for sale and increases in deposit fee income. Gains
on the sale of mortgage loans decreased to $2.8 million for the year ended
September 30, 1999 compared with $4.4 million for the prior year. The level of
gains on loans is highly dependent on the interest rate environment and
resulting level of origination of mortgage loans. The recent increase in
interest rates on mortgage loans has resulted in a lower level of loan
originations and also in a higher proportion of adjustable rate mortgage loans
which the Company retains in its own portfolio. The Company generally realizes
less gain on the sale of loans than during periods of rising interest rates.
Losses on investments and mortgage-backed and related securities were $253,000
for the year ended September 30, 1999, compared to gains of $1.2 million for the
year ended September 30, 1998. The Company does not consider gains on the sale
of securities as a predictable source of earnings, as such sales are based on
the Company's ongoing review of the individual securities within the Company's
available for

41
sale portfolio whereby securities may be sold and replaced with ones that offer
a different combination of interest income, interest rate risk or credit risk
than the security sold. Income from the operations of the Company's affordable
housing subsidiary (which represents primarily rental income) decreased to $3.7
million from $5.1 million for the years ended September 30, 1999 and 1998,
respectively. This was due to sale of 13 affordable housing properties on which
the Company realized gains of $1.2 million for the year ended September 30,
1999. Deposit fees and service charges increased to $4.2 million for the year
ended September 30, 1999 compared with $3.5 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. 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 income tax expense.

GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $1.8 million or 4.4% to $43.6
million for the year ended September 30, 1999, compared to $41.8 million for the
year ended September 30, 1998. The increase in general and administrative
expenses was due primarily to increases in compensation and benefits and office
building and equipment expenses, partially offset by a decrease in affordable
housing expenses. The compensation, office building and equipment expenses
increased due to the Company's increasing level of banking assets, the addition
of physical branch locations and expansion of newer lines of business. In
particular, the Company has expanded its commercial lending capabilities and put
in place an investment products division. Included in these cost areas are the
costs of the Year 2000 issue. The decrease in the affordable housing expenses is
due to the sale of 13 affordable housing properties. Included in other general
and administrative expenses for the year ended September 30, 1998 is $684,000
relating to a settlement of a lawsuit involving a contractor that went out of
business before completing home improvement work on properties on which the Bank
was the lender

INCOME TAX EXPENSE
Income tax expense increased by $4.6 million to $6.4 million for the year ended
September 30, 1999 compared to $1.8 million for the year ended September 30,
1998. The Company's effective tax rate was 27.8% for the year ended September
30, 1999, compared to 11.0% for the year ended September 30, 1998. 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. The increase in the effective tax rate is due to
the aforementioned refund of state income taxes of $780,000 included in the
prior year, and the decrease in tax credits earned by the Company's affordable
housing subsidiary due to the sale of 13 properties in the current year. Income
tax credits decreased to $3.0 million for the year ended September 30, 1999,
compared to $4.2 million in the prior year. The Company is currently carrying
forward tax credits that it has not utilized on its tax returns. The decision to
dispose of several properties will allow the Company to utilize the tax credits
sooner on its consolidated federal tax return.

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. Included 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.

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 decrease in the
average yield is primarily due to the lower interest rate environment in effect
during the year. As loans repay, they were 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.

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 year 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 were 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
increased 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 also changed during 1998 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 was included in other operating income while
the portion that was a refund of previous taxes paid reduced 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 continuous review of its
mortgage-backed securities portfolio. During the year the Company sold
securities from its mortgage-backed securities portfolio and replaced them with
similar securities with more favorable interest rate and maturity
characteristics. 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 increased level of banking assets and
expansion of new lines of business and its expansion of branch locations. Over
the last several years, the Company put 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 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. 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.
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.

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, 1999, 1998 and 1997, 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 $630,000, $453,000 and $159,000 for the years
ended September 30, 1999, 1998 and 1997, 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 the liability being hedged.

43
44

YEAR ENDED SEPTEMBER 30,
------------------------------------------------------
AVERAGE BALANCE SHEET 1999 1998
------------------------------------------------------
AVERAGE
AVERAGE YIELD/ AVERAGE
BALANCE INTEREST COST BALANCE INTEREST
------------------------------------------------------
(In thousands)
ASSETS

Federal funds sold and overnight deposits.............. $ 14,466 $ 734 5.07 % $ 21,370 $ 1,177
Trading account securities............................. 350 26 7.43 1,047 78
Debt and equity securities............................. 177,732 9,833 5.53 73,604 4,282
Mortgage-backed and related securities................. 869,073 52,605 6.05 643,243 43,207
Loans:
First mortgage....................................... 593,473 47,213 7.96 466,027 38,045
Home equity.......................................... 144,657 11,852 8.19 132,402 11,847
Consumer............................................. 146,321 12,444 8.50 118,209 10,523
Commercial and agricultural.......................... 108,310 8,958 8.27 84,117 7,314
---------------------- ----------------------
Total loans........................................ 992,761 80,467 8.11 800,755 67,729
Federal Home Loan Bank stock........................... 29,027 1,880 6.48 21,418 1,436
---------------------- ----------------------
Total earning assets............................. 2,083,409 145,545 6.99 1,561,437 117,909
----------- -----------
Valuation allowances................................... (16,877) (7,582)
Cash and due from banks................................ 34,118 29,292
Other assets........................................... 113,695 116,901
----------- -----------
Total assets..................................... $2,214,345 $1,700,048
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts......................................... $ 71,995 $ 831 1.15 $ 63,935 $ 861
Money market demand accounts......................... 351,849 14,767 4.20 282,199 13,866
Passbook............................................. 125,403 3,277 2.61 128,046 4,187
Certificates of deposit.............................. 736,747 38,500 5.23 584,583 33,344
---------------------- ----------------------
Total interest-bearing deposits.................... 1,285,994 57,375 4.46 1,058,763 52,258
Advances and other borrowings.......................... 713,345 35,889 5.03 431,129 23,779
Advances from borrowers for taxes and insurance........ 5,296 18 0.34 5,569 26
---------------------- ----------------------
Total interest-bearing liabilities............... 2,004,635 93,282 4.65 1,495,461 76,063
----------- -----------
Non-interest bearing deposits.......................... 70,903 60,676
Other liabilities...................................... 11,894 12,896
Shareholders' equity................................... 126,913 131,015
----------- -----------
Total liabilities and shareholders' equity............. $2,214,345 $1,700,048
=========== ===========
Net interest income.................................... $ 52,263 $ 41,846
=========== ===========
Net yield on interest-earning assets................... 2.51 %
Interest rate spread................................... 2.33
Ratio of earning assets to interest-bearing
liabilities.......................................... 103.93

--------------------------------------------------
AVERAGE BALANCE SHEET 1997
--------------------------------------------------
AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/
COST BALANCE INTEREST COST
--------------------------------------------------
(In thousands)

Federal funds sold and overnight deposits.............. 5.51 % $ 19,089 $ 1,048 5.49 %
Trading account securities............................. 7.45 3,183 224 7.04
Debt and equity securities............................. 5.82 71,042 4,634 6.52
Mortgage-backed and related securities................. 6.72 627,393 43,266 6.90
Loans:
First mortgage....................................... 8.16 419,827 34,460 8.21
Home equity.......................................... 8.95 101,962 9,555 9.37
Consumer............................................. 8.90 107,972 9,337 8.65
Commercial and agricultural.......................... 8.70 48,169 4,249 8.82
----------------------
Total loans........................................ 8.46 677,930 57,601 8.50
Federal Home Loan Bank stock.......................... 6.70 20,084 1,373 6.84
----------------------
Total earning assets............................. 7.55 1,418,721 108,146 7.62
-----------
Valuation allowances................................... (7,394)
Cash and due from banks................................ 23,032
Other assets........................................... 91,979
-----------
Total assets..................................... $1,526,338
===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts......................................... 1.35 $ 50,433 $ 843 1.67
Money market demand accounts......................... 4.91 216,715 10,306 4.76
Passbook............................................. 3.27 91,586 2,617 2.86
Certificates of deposit.............................. 5.70 576,133 33,226 5.77
----------------------
Total interest-bearing deposits.................... 4.94 934,867 46,992 5.03
Advances and other borrowings.......................... 5.52 399,842 22,338 5.59
Advances from borrowers for taxes and insurance........ 0.47 5,967 33 0.55
----------------------
Total interest-bearing liabilities............... 5.09 1,340,676 69,363 5.17
-----------
Non-interest bearing deposits.......................... 44,453
Other liabilities...................................... 13,384
Shareholders' equity................................... 127,825
-----------
Total liabilities and shareholders' equity............. $1,526,338
===========
Net interest income.................................... $ 38,783
===========
Net yield on interest-earning assets................... 2.68 % 2.73 %
Interest rate spread................................... 2.47 2.45
Ratio of earning assets to interest-bearing
liabilities.......................................... 104.41 105.82

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,
-------------------------------------------------------------------------------
1999 COMPARED TO 1998 1998 COMPARED TO 1997
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....................... $ (93) $ (380) $ 30 $ (443) $ 3 $ 125 $ 1 $ 129
Trading account securities...... - (52) - (52) 13 (150) (9) (146)
Debt and equity securities...... (210) 6,058 (297) 5,551 (501) 167 (18) (352)
Mortgage-backed and related
securities..................... (4,271) 15,169 (1,500) 9,398 (1,124) 1,093 (28) (59)
Loans:
Mortgage..................... (971) 10,404 (265) 9,168 (187) 3,793 (21) 3,585
Home equity.................. (999) 1,096 (92) 5 (432) 2,853 (129) 2,292
Consumer..................... (470) 2,503 (112) 1,921 275 885 26 1,186
Commercial and agriculture (357) 2,104 (103) 1,644 (61) 3,171 (45) 3,065
-------- --------- --------- --------- --------- -------- --------- ---------
Gross loans receivable..... (2,797) 16,107 (572) 12,738 (405) 10,702 (169) 10,128
Federal Home Loan Bank stock.... (49) 510 (17) 444 (26) 91 (2) 63
-------- --------- --------- --------- --------- -------- --------- ---------
Change in interest
income..................... (7,420) 37,412 (2,356) 27,636 (2,040) 12,028 (225) 9,763

INTEREST-BEARING LIABILITIES:...
Deposits:
NOW accounts................. (123) 109 (16) (30) (164) 226 (44) 18
Money market demand
accounts..................... (2,022) 3,422 (499) 901 342 3,114 104 3,560
Passbook..................... (841) (86) 17 (910) 378 1,042 150 1,570
Certificates of deposit...... (2,796) 8,679 (727) 5,156 (364) 487 (5) 118
-------- --------- --------- --------- --------- -------- --------- ---------
Total deposits............. (5,782) 12,124 (1,225) 5,117 192 4,869 205 5,266
Advances and other borrowings... (2,089) 15,566 (1,367) 12,110 (285) 1,748 (22) 1,441
Advances from borrowers for
taxes and insurance............. (7) (1) - (8) (5) (2) - (7)
---------- --------- --------- --------- --------- -------- --------- ---------
Change in interest
expense.................... (7,878) 27,689 (2,592) 17,219 (98) 6,615 183 6,700
---------- --------- --------- --------- --------- -------- --------- ---------
Change in net interest
income..................... $ 458 $ 9,723 $ 236 $10,417 $(1,942) $ 5,413 $ (408) $ 3,063
========== ========= ========= ========= ========= ======== ========= =========

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
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 seeks primarily 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 occurs 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 monitor its interest rate risk as that risk relates to
its strategies. At September 30, 1999, total interest-bearing liabilities
maturing or repricing within one year exceeded total interest-earning assets
maturing or repricing in the same period by $416.6 million, representing a
negative cumulative one-year gap ratio of 16.9%, compared to a negative
cumulative one-year gap ratio of 9.6% at September 30, 1998. Subsequent to
September 30, 1999, the Company took several steps to lower its negative
one-year gap to under 15%. The steps included, but were not limited to,
lengthening the maturity structure of several of its funding sources including
FHLB advances and brokered certificates of deposit. 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, 1999:

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........................... $ 54,648 $ 41,407 $ 49,368 $ 32,976 $ 47,034 $ 225,433
Variable........................ 143,987 98,094 117,228 149,678 75,642 584,629
Consumer loans (2).................... 158,632 58,316 40,674 28,526 17,181 303,329
Mortgage-backed and related
securities........................... 6,087 12,325 16,625 4,438 - 39,475
Assets available for sale:
Mortgage loans.................. 8,620 - - - - 8,620
Fixed rate mortgage related..... 81,713 141,015 240,132 75,221 20,823 558,904
Variable rate mortgage related.. 271,121 89,854 - - - 360,975
Investment securities........... 72,379 3,501 96,108 44,661 - 216,649
Trading account securities............ - - - - - -
Other assets.......................... 34,315 - - 810 - 35,125
Impact of interest rate swaps......... 20,000 - (20,000) - - -
-------------------------------------------------------------------
Total........................... $851,502 $444,512 $540,135 $336,310 $160,680 $ 2,333,139
===================================================================
INTEREST-BEARING LIABILITIES:
Deposits: (3)
NOW accounts.................... $ 6,506 $ 19,521 $ 26,727 $ 10,608 $ 6,981 $ 70,343
Passbook savings accounts....... 3,730 11,192 22,665 15,614 32,537 85,738
Money market deposit accounts... 92,536 277,607 13,837 3,459 1,153 388,592
Certificates of deposit......... 193,609 287,332 54,491 95,518 234,774 865,724
Borrowings (4)........................ 490,550 - 319,188 25,000 - 834,738
Impact of interest rate swaps ........ 330,000 - - (95,000) (235,000) -
-------------------------------------------------------------------
Total........................... $1,116,931 $595,652 $436,908 $ 55,199 $ 40,445 $ 2,245,135
===================================================================

Excess (deficiency) of interest-
earning assets over interest-
bearing liabilities.................. $ (265,429) $(151,140) $103,227 $281,111 $120,235 $ 88,004
===================================================================

Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities.......... $ (265,429) $(416,569) $(313,342) $ (32,231) $ 88,004
=======================================================

Cumulative excess (deficiency) of
interest-earning assets over
interest- bearing liabilities as a
percent of total assets.............. (10.74%) (16.85%) (12.67%) (1.30%) 3.56%
=======================================================

(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 $117.6 million at September
30, 1999.
(3) Although the Company's 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 $550.2 million or 22.2% 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.

47
48

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.

In order to measure earnings sensitivity the Corporation utilizes a dynamic gap
analysis. The dynamic gap analysis involves analyzing the impact on contractual
repricing and maturity characteristics for rate sensitive assets, liabilities,
and off balance sheet instruments adjusted for the anticipated impact on
repricing, prepayment, and option features for different interest rate scenarios
(various parallel yield curve shifts). A dynamic consolidated gap position is
then analyzed for the impact on net interest income in the various environments.
The Corporation's consolidated one year negative gap is -16.13% as of September
30, 1999. The projected sensitivity on net interest income for an immediate and
parallel upward yield curve shift of 100 and 200 basis points is -6% and -13%
respectively.

The Corporation further measures interest rate risk by analyzing the impact of
changing interest rates on the Corporation's market value portfolio equity
(market value adjusted capital). The market value portfolio equity analysis
involves analyzing the market value of all rate sensitive assets and liabilities
under different interest rate and prepayment environments. The change in the
market value portfolio equity for changes in interest rates is measured against
its current base case. This sensitivity is monitored and compared to desired
internal levels and current industry standards. The consolidated market value
portfolio equity sensitivity to an immediate and parallel upward yield curve
shift of up 100 and 200 basis points is -11% and -39% respectively.

48
49

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, 1999 and 1998, the Company
had interest rate swaps outstanding with a notional amount of $350.0 million and
$225.0 million, respectively. $350.0 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 2000 not applicable 6.75% 6.25%
10,000 Fixed Pay-Floating Receive 2001 not applicable 7.05 6.41
15,000 Fixed Receive-Floating Pay 2003 1999 6.00 5.13
5,000 Fixed Receive-Floating Pay 2003 1999 6.47 5.52
5,000 Fixed Receive-Floating Pay 2003 1999 6.43 5.52
15,000 Fixed Receive-Floating Pay 2005 1999 6.10 5.14
10,000 Fixed Receive-Floating Pay 2008 1999 5.85 5.37
15,000 Fixed Receive-Floating Pay 2009 1999 7.00 5.36
10,000 Fixed Receive-Floating Pay 2004 2000 6.00 5.39
10,000 Fixed Receive-Floating Pay 2004 2000 6.00 5.23
10,000 Fixed Receive-Floating Pay 2004 2000 6.00 5.40
10,000 Fixed Receive-Floating Pay 2004 2000 6.05 5.41
10,000 Fixed Receive-Floating Pay 2004 2000 6.63 5.20
10,000 Fixed Receive-Floating Pay 2004 2000 7.00 5.42
15,000 Fixed Receive-Floating Pay 2004 2000 6.50 4.56
5,000 Fixed Receive-Floating Pay 2004 2000 6.50 5.02
15,000 Fixed Receive-Floating Pay 2005 2000 6.00 5.36
15,000 Fixed Receive-Floating Pay 2005 2000 6.25 5.38
10,000 Fixed Receive-Floating Pay 2006 2000 6.13 5.20
10,000 Fixed Receive-Floating Pay 2006 2000 7.00 5.40
15,000 Fixed Receive-Floating Pay 2007 2000 7.05 5.20
10,000 Fixed Receive-Floating Pay 2007 2000 7.13 5.20
15,000 Fixed Receive-Floating Pay 2007 2000 6.90 5.13
15,000 Fixed Receive-Floating Pay 2008 2000 6.30 5.31
10,000 Fixed Receive-Floating Pay 2009 2000 6.00 5.21
10,000 Fixed Receive-Floating Pay 2009 2000 6.00 5.17
10,000 Fixed Receive-Floating Pay 2009 2000 6.05 5.25
10,000 Fixed Receive-Floating Pay 2009 2000 6.25 5.15
10,000 Fixed Receive-Floating Pay 2009 2000 6.30 5.27
15,000 Fixed Receive-Floating Pay 2009 2000 7.00 5.41
10,000 Fixed Receive-Floating Pay 2009 2000 7.13 5.20
5,000 Fixed Receive-Floating Pay 2009 2001 6.25 5.37

For the years ended September 30, 1999, 1998 and 1997, the Company realized net
interest income on interest rate exchange agreement activity of $2.8 million,
$1.9 million and $752,000, respectively. While this activity resulted in net
interest income in fiscal years 1999, 1998 and 1997, 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 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
gains on that combined activity of $95,000 and $844,000, respectively, for the
years ended September 30, 1999 and 1997 and realized losses of $699,000 for the
year ended September 30, 1998. At September 30, 1999 and 1998, 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, 1999 and 1998, the
notional amount of outstanding short call options (which if exercised could
result in a sale) were zero and $2.0 million, respectively. 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.

50
51
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, 1999.

More than
Within One Year
One Year to Two Years
------------------------------------------------
(In millions)

Interest Earning Assets

Mortgage and
commercial loans:
Fixed rate ............. $ 76.3 8.13% $ 49.9 8.07%
Adjustable rate ........ 146.7 8.15% 77.8 8.15%

Consumer loans:
Fixed rate ............. 13.4 8.30% 21.6 8.47%
Adjustable rate ........ 30.9 8.53% 22.5 8.53%

Mortgage-backed
securities:
fixed rate ............. 241.2 6.37% 128.3 6.43%
adjustable rate ........ 68.6 6.14% 54.1 6.15%

Debt and equity
securities ............... 75.9 5.36% 48.0 6.02%

Other ...................... 34.3 5.25% -- --

Total interest ---------- --------
Earning assets ........... $ 687.3 6.89% $ 402.2 7.11%
========== ========

Interest Bearing Liabilities

Deposits:
NOW accounts ........... $ 26.0 0.50% $ 13.4 0.50%
Passbooks .............. 14.9 1.00% 11.4 1.00%
Money market ........... 370.2 3.74% 6.9 3.74%
Certificates ........... 455.0 5.18% 73.1 5.41%

Borrowings
Fixed rate ............. 328.4 5.13% 290.0 4.93%
Adjustable rate ........ 161.3 5.70% 30.0 5.53%

Total interest ---------- --------
Bearing liabilities....... $ 1,355.8 4.70% $ 424.8 4.79%
========== ========

More than More than More than
Two Years Three Years Four Years
to Three Years to Four Years to Five Years
------------------------------------------------------------------------
(In millions)

Mortgage and
commercial loans:
Fixed rate ............. $ 14.5 8.09% $ 20.6 8.09% $ 21.5 8.07%
Adjustable rate ........ 50.3 8.10% 61.4 8.00% 72.5 8.10%

Consumer loans:
Fixed rate ............. 13.9 8.52% 15.2 8.52% 19.4 8.52%
Adjustable rate ........ 51.3 8.53% 27.0 8.53% 16.0 8.53%

Mortgage-backed
securities:
fixed rate ............. 128.4 6.60% 42.0 6.74% 37.6 6.78%
adjustable rate ........ 46.9 6.15% 43.3 6.16% 39.7 6.16%

Debt and equity
securities ............... 48.0 5.90% 22.3 6.30% 22.3 6.40%

Other ...................... -- -- -- -- -- --

Total interest ---------- -------- ---------
Earning assets ........... $ 353.3 7.08% $ 231.8 7.37% $ 229.0 7.44%
========== ======== ========

Interest Bearing Liabilities

Deposits:
NOW accounts ........... $ 13.4 0.50% $ 5.3 0.50% $ 5.3 0.50%
Passbooks .............. 11.3 1.00% 7.8 1.00% 7.8 1.00%
Money market ........... 6.9 3.74% 1.7 3.74% 1.7 3.74%
Certificates ........... 7.3 5.45% 4.2 5.74% 91.4 6.24%

Borrowings
Fixed rate ............. 25.0 5.02% -- -- -- --
Adjustable rate ........ -- -- -- -- -- --
Total interest ---------- -------- --------
Bearing liabilities....... $ 63.9 3.27% $ 19.0 2.15% $ 106.2 5.53%
========== ======== ========

Fair
Over Market
Five Years Total Value
--------------------------------------------------------
(In millions)

Mortgage and
commercial loans:
Fixed rate ............. $ 51.3 8.21% $ 234.1 8.12% 236.5
Adjustable rate ........ 176.0 8.35% 584.8 8.18% 590.6

Consumer loans:
Fixed rate ............. 72.3 9.07% 155.8 8.75% 156.2
Adjustable rate ........ -- -- 147.7 8.53% 148.7

Mortgage-backed
securities:
fixed rate ............. 20.8 6.75% 598.4 6.50% 590.3
adjustable rate ........ 108.3 6.18% 360.9 6.16% 349.1

Debt and equity
securities ............... -- -- 216.5 5.83% 210.9

Other ...................... 0.8 5.15% 35.1 5.25% 35.1

Total interest ---------- -------- --------
Earning assets ........... $ 429.5 7.82% $2,331.1 7.23% $2,317.4
========== ======== ========

Interest Bearing Liabilities

Deposits:
NOW accounts ........... $ 7.0 0.50% $ 70.4 0.50% $ 65.6
Passbooks .............. 32.5 1.00% 85.7 1.00% 76.3
Money market ........... 1.2 3.74% 388.6 3.74% 388.6
Certificates ........... 234.7 6.46% 865.7 5.66% 860.1

Borrowings
Fixed rate ............. -- -- 643.4 5.03% 637.8
Adjustable rate ........ -- -- 191.3 5.67% 191.3

Total interest ---------- -------- --------
Bearing liabilities....... $ 275.4 5.65% $2,245.1 4.81% $2,219.7
========== ======== ========

52
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
Within One Year
One Year to Two Years
-------------------------------------------------
(Dollars in millions)

Interest Earning Assets

Mortgage and
Commercial loans:
Fixed rate ............. $ 58.3 7.92% $ 26.7 7.86%
Adjustable rate ........ 98.2 8.10% 50.9 8.09%

Consumer loans:
Fixed rate ............. 12.0 8.30% 20.0 8.50%
Adjustable rate ........ 31.5 8.63% 22.9 8.70%

Mortgage-backed
Securities:
Fixed rate ............. 121.3 6.52% 73.0 6.61%
Adjustable rate ........ 72.5 6.40% 56.2 6.40%

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%
========== ========

Interest Bearing Liabilities

Deposits:
NOW accounts ........... $ 22.9 1.00% $ 11.8 1.00%
Passbooks .............. 15.6 1.89% 11.9 1.89%
Money market ........... 329.6 4.57% 12.9 4.57%
Certificates ........... 564.0 5.85% 29.9 5.87%

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%
========== ========

More than More than More than
Two Years Three Years Four Years
to Three Years to Four Years to Five Years
---------------------------------------------------------------------
(Dollars in millions)

Interest Earning Assets
Mortgage and
Commercial loans:
Fixed rate ............. $ 14.8 7.88% $ 20.3 7.88% $ 20.3 7.85%
Adjustable rate ........ 55.5 8.07% 32.7 7.85% 23.6 7.89%

Consumer loans:
Fixed rate ............. 13.4 8.51% 16.0 8.51% 17.4 8.50%
Adjustable rate ........ 52.9 8.80% 27.2 8.80% 8.6 9.00%

Mortgage-backed
Securities:
Fixed rate ............. 73.0 6.69% 23.5 6.61% 23.5 6.87%
Adjustable rate ........ 50.7 6.59% 43.2 6.70% 38.4 6.80%

Debt and equity
Securities ............... -- -- -- -- -- --
Other ...................... -- -- -- -- -- --

Total interest ---------- -------- --------
Earning assets ........... $ 260.3 7.55% $ 162.9 7.59% $ 131.8 7.54%
========== ======== ========

Interest Bearing Liabilities

Deposits:
NOW accounts ........... $ 11.8 1.00% $ 4.7 1.00% $ 4.7 1.00%
Passbooks .............. 11.9 1.89% 8.2 1.89% 8.2 1.89%
Money market ........... 12.9 4.57% 3.2 4.57% 3.2 4.57%
Certificates ........... 27.9 5.79% 5.4 5.88% 5.0 6.65%

Borrowings
Fixed rate ............. -- -- -- -- -- --
Adjustable rate ........ -- -- -- -- -- --

Total interest ---------- -------- --------
Bearing liabilities....... $ 64.5 3.95% $ 21.5 3.10% $ 21.1 3.23%
========== ======== ========

Fair
Over Market
Five Years Total Value
------------------------------------------------------------
Interest Earning Assets (Dollars in millions)

Mortgage and
Commercial loans:
Fixed rate ............. $ 78.9 8.00% $ 219.1 7.93% $ 232.9
Adjustable rate ........ 122.2 8.03% 383.2 8.04% 374.9

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

Mortgage-backed
Securities:
Fixed rate ............. 9.9 6.58% 324.2 6.55% 324.6
Adjustable rate ........ 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 ........... $ 378.5 7.66% $ 1,717.3 7.38% $1,734.2
========== ========= ========

Interest Bearing Liabilities

Deposits:
NOW accounts ........... $ 6.2 1.00% $ 62.0 1.00% $ 62.0
Passbooks .............. 36.2 1.89% 92.0 1.89% 92.0
Money market ........... 2.2 4.57% 364.2 4.57% 364.2
Certificates ........... -- -- 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....... $ 169.6 4.14% $ 1,655.1 4.91% $1,629.9
========== ========= ========

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 have generally been higher
during 1997, 1998 and 1999 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 7.6% and 6.3% at both
September 30, 1999 and 1998. 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, 1999 and 1998, liquid assets of the Bank (as defined in the OTS
regulations) were $125.0 million and $83.3 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, 1999,
FHLB advances totaled $607.5 million or 25.9% of total liabilities and at
September 30, 1998, FHLB advances were $452.1 million or 25.9% of total
liabilities. At September 30, 1999, the Company had a borrowing capacity
available of $80.5 million from the FHLB. At September 30, 1999, reverse
repurchase agreements totaled $177.7 million or 7.6% of total liabilities
compared with $30.6 million at September 30, 1998. 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, 1999 and 1998, were $294.7 million and $317.9 million, respectively. Funds
received from principal repayments on loans for the years ended September 30,
1999 and 1998, were $456.9 million and $352.4 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 $200.3 million and $210.4 million for the years ended
September 30, 1999 and 1998, 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 $853.6 million and $684.1 million for the years ended
September 30, 1999 and 1998, respectively. Purchases of mortgage-backed and
related securities totaled $608.0 million and $556.5 million for the years ended
September 30, 1999 and 1998, respectively. During the years ended September 30,
1999 and 1998, the Company repurchased approximately 480,000 and 1,046,000
shares of its common stock in share repurchase programs at a total cost of
approximately $9.0 million and $21.2 million, respectively.

At September 30, 1999 and 1998, the Company had outstanding loan commitments
including lines of credit of $268.8 million and $200.5 million, respectively.
The Company had no commitments to purchase loans outstanding at either of these
dates. At September 30, 1999 and 1998, the Company had commitments to purchase
zero and

54
$37.0 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,
1999 and 1998, were $455.1 million and $376.7 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. 133, "Accounting for Derivative Instruments and Hedging
Activities," which is effective for years beginning after June 15, 2000,
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, 2000 and expects that it will not materially effect results of
operations or financial position.

The FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" in June 1999. Statement No. 137 defers the
effective date of Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities" for one year. Statement No. 133, as amended, is now
effective for all fiscal quarters beginning after June 15, 2000.

Statement No. 133 generally requires that derivatives embedded in hybrid
instruments be separated from their host contracts and be accounted for
separately as derivative contracts. For instruments existing at the date of
adoption, Statement No. 133 provides an entity the option of not applying this
provision to such hybrid instruments entered into before January 1, 1998 and not
substantially modified thereafter. Consistent with the deferral of the effective
date for one year, Statement No. 137 provides an entity the option of not
applying this provision to hybrid instruments entered into before January 1,
1998 or 1999 and not substantially modified thereafter.

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 was 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 did not 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

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, 1999 and 1998, and the related consolidated statements of income,
changes in shareholders' equity and comprehensive income and cash flows for each
of the years in the three-year period ended September 30, 1999. 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, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 1999 in conformity with generally accepted accounting
principles.

KPMG LLP

Milwaukee, Wisconsin
October 20, 1999

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

- ---------------------------------------------------------------------------------------------------------
September 30,
(In thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------
ASSETS

Cash and due from banks................................................... $ 29,074 $ 23,861
Federal funds sold and overnight deposits................................. 3,488 6,885
--------- ---------
Cash and cash equivalents................................................. 32,562 30,746
--------- ---------
Assets available for sale, at fair value:
Debt and equity securities (notes 3 and 9)............................ 216,649 109,061
Mortgage-backed and related securities (notes 4 and 9)................ 919,879 634,003
Mortgage loans held for sale, at lower of cost or market (note 5)......... 8,620 23,864
Securities held to maturity, at amortized cost:
Debt securities (market values of $834 and $1,875,
respectively) (note 3)............................................ 810 1,817
Mortgage-backed and related securities (market values of $39,250
and $63,497, respectively) (notes 4 and 9)........................ 39,475 63,087
Loans receivable, net (notes 5 and 9)..................................... 1,113,391 855,132
Federal Home Loan Bank stock, at cost..................................... 30,827 23,453
Accrued interest receivable (note 6)...................................... 14,090 9,726
Foreclosed properties..................................................... 371 63
Real estate held for investment........................................... 28,402 29,997
Real estate held for sale................................................. - 20,772
Premises and equipment, net (note 7)...................................... 32,924 32,165
Other assets (notes 5 and 11)............................................. 35,356 30,290
----------- -----------
Total assets.............................................................. $ 2,473,356 $ 1,864,176
=========== ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (note 8)......................................................... $ 1,484,303 $ 1,216,874
Short term borrowings (note 9)............................................ 588,790 417,672
Long term borrowings (note 9)............................................. 245,948 87,005
Advances from borrowers for taxes and insurance........................... 8,904 8,553
Accrued interest payable and other liabilities (notes 8 & 15)............. 13,897 12,527
----------- -----------
Total liabilities......................................................... 2,341,842 1,742,631
----------- -----------

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 24,000,000 shares
Issued 14,579,240 shares
Outstanding, 10,156,770 and 9,575,366 shares, respectively............ 146 146
Additional paid-in-capital................................................ 82,426 75,237
Unearned ESOP compensation (note 15)...................................... (2,260) (2,678)
Retained earnings, substantially restricted (note 12)..................... 123,193 112,362
Accumulated other comprehensive income (loss)............................. (13,057) 381
Treasury stock, at cost (4,422,470 and 5,003,874 shares at September 30,
1999 and 1998, respectively) (note 14)................................ (58,934) (63,903)
----------- -----------
Total shareholders' equity................................................ 131,514 121,545
----------- -----------
Total liabilities and shareholders' equity................................ $ 2,473,356 $ 1,864,176
=========== ===========

See accompanying Notes to Consolidated Financial Statements

ST. FRANCIS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income

- ------------------------------------------------------------------------------------------------------------
Year ended September 30,
---------------------------------------
(In thousands, except per share data) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------

Interest and dividend income:
Loans (note 5).......................................... $ 80,467 $ 67,729 $ 57,601
Mortgage-backed and related securities.................. 52,605 43,207 43,266
Debt and equity securities.............................. 9,833 4,282 4,634
Federal funds sold and overnight deposits............... 734 1,177 1,048
Federal Home Loan Bank stock............................ 1,880 1,436 1,373
Trading account securities.............................. 26 78 224
-------- -------- --------
Total interest and dividend income............................ 145,545 117,909 108,146

Interest expense:
Deposits (note 8)....................................... 57,375 52,258 46,992
Advances and other borrowings........................... 35,907 23,805 22,371
-------- -------- --------
Total interest expense........................................ 93,282 76,063 69,363
-------- -------- --------

Net interest income before provision for loan losses.......... 52,263 41,846 38,783
Provision for loan losses (note 5)............................ 1,920 2,300 1,280
-------- -------- --------
Net interest income........................................... 50,343 39,546 37,503
-------- -------- --------

Other operating income (expense), net:
Loan servicing and loan related fees.................... 2,016 2,125 1,813
Depository fees and service charges..................... 4,228 3,524 2,159
Impairment loss on mortgage-backed securities - - (3,400)
Securities gains (losses) (notes 3 and 4)............... (253) 1,243 2,015
Gain on sales of loans (note 5)......................... 2,806 4,367 1,562
Insurance annuity and brokerage commissions............. 1,733 1,200 398
Loss on foreclosed properties........................... (18) (4) (22)
Income from affordable housing.......................... 3,716 5,059 3,363
Gain on sale of real estate held for sale............... 1,225 - -
Other income............................................ 833 1,394 774
-------- -------- --------
Total other operating income, net............................. 16,286 18,908 8,662
-------- -------- --------

General and administrative expenses:
Compensation and other employee benefits.............. 21,646 19,674 15,564
Office building, including depreciation............... 4,196 3,302 2,551
Furniture and equipment, including depreciation....... 4,357 3,380 2,466
Federal deposit insurance premiums.................... 722 643 742
Affordable housing expenses........................... 3,816 5,280 3,901
Other general and administrative expenses (note 10)... 8,826 9,552 7,679
-------- -------- --------
Total general and administrative expenses..................... 43,563 41,831 32,903
-------- -------- --------

Income before income tax expense.............................. 23,066 16,623 13,262
Income tax expense (note 11).................................. 6,410 1,826 1,544
-------- -------- --------
Net income.................................................... $ 16,656 $ 14,797 $ 11,718
======== ======== ========

Basic earnings per share (note 13)............................ $ 1.78 $ 1.51 $ 1.17
======== ======== ========
Diluted earnings per share (note 13).......................... $ 1.70 $ 1.43 $ 1.10
======== ======== ========

See accompanying Notes to Consolidated Financial Statements

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

- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Shares of Other
Common Additional Unearned Comprehensive
Stock Common Paid-In ESOP Retained Income/ Treasury
Outstanding Stock Capital Compensation Earnings (Loss) Stock Total
--------------------------------------------------------------------------------------------------
(In thousands, except Shares of Common Stock Outstanding)

BALANCE AT SEPTEMBER 30, 1996 -
AS PREVIOUSLY REPORTED..... 5,475,509 $ 73 $ 72,243 $ (3,488) $ 93,645 $ (1,765) $(35,529) $125,179
2-for-1 stock split declared
March 23, 1999............. 5,475,509 73 (73) - - - - -
---------- ----- -------- -------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1996... 10,951,018 $ 146 $ 72,170 $ (3,488) $ 93,645 $ (1,765) $(35,529) $125,179
Net income...................... - - - - 11,718 - - 11,718

Change in unrealized gain on
securities available for
sale....................... - - - - - 6,541 - 6,541
Reclassification adjustment
for gains realized in net
income..................... - - - - - (2,015) - (2,015)
Incomes taxes................... - - - - - (1,715) - (1,715)
--------
Comprehensive income............ 14,529

Cash dividend - $0.24 per
share...................... - - - - (2,450) - - (2,450)
Purchase of treasury stock...... (774,602) - - - - - (11,816) (11,816)
Exercise of stock options,
net........................ 277,580 - 432 - (1,444) - 2,834 1,822
Amortization of unearned
compensation............... - - 866 400 - - - 1,266
---------- ----- -------- -------- -------- -------- --------- --------

BALANCE AT SEPTEMBER 30, 1997... 10,453,996 146 73,468 (3,088) 101,469 1,046 (44,511) 128,530
Net income...................... - - - - 14,797 - - 14,797
Change in unrealized gain on
securities available for
sale....................... - - - - - 163 - 163
Reclassification adjustment
for gains realized in
net income................. - - - - - (1,243) - (1,243)
Incomes taxes................... - - - - - 415 - 415
--------
Comprehensive income............ 14,132

Cash dividend - $0.28 per
share...................... - - - - (2,912) - - (2,912)
Purchase of treasury stock...... (1,045,976) - - - - - (21,160) (21,160)
Exercise of stock options,
net........................ 167,346 - 296 - (992) - 1,768 1,072
Amortization of unearned
compensation............... - - 1,473 410 - - 1,883
---------- ----- -------- -------- -------- -------- --------- --------

BALANCE AT SEPTEMBER 30, 1998... 9,575,366 146 $ 75,237 (2,678) 112,362 381 (63,903) 121,545
Net income...................... - - - - 16,656 - - 16,656
Change in unrealized loss on
securities available for
sale....................... - - - - - (22,381) - (22,381)
Reclassification adjustment
for losses realized in
net income................. - - - - - 253 - 253
Incomes taxes................... - - - - - 8,690 - 8,690
--------
Comprehensive income............ 3,218

Cash dividend - $0.32 per
share...................... - - - - (3,162) - - (3,162)
Shares of common stock issued
for acquisition............ 734,564 - 5,556 - - - 9,727 15,283
Purchase of treasury stock...... (479,974) - - - - - (8,988) (8,988)
Exercise of stock options,
net........................ 326,814 - 88 - (2,663) - 4,230 1,655
Amortization of unearned
compensation............... - - 1,545 418 - - - 1,963
---------- ----- -------- -------- -------- --------- -------- --------
BALANCE AT SEPTEMBER 30, 1999... 10,156,770 $ 146 $ 82,426 $ (2,260) $123,193 $(13,057) $(58,934) $131,514
========== ===== ======== ======== ======== ========= ======== ========

See accompanying Notes to Consolidated Financial Statements

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

September 30,
----------------------------------------
1999 1998 1997
----------------------------------------
(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income......................................................... $ 16,656 $ 14,797 $ 11,718
Adjustments to reconcile net income to net cash provided by
operating activities:
Provisions for loan losses................................... 1,920 2,300 1,280
Depreciation, accretion and amortization..................... 8,492 8,415 5,421
Deferred income taxes........................................ 5,256 (836) (691)
Securities gains/(losses).................................... 253 (1,243) (2,015)
Impairment loss on mortgage-backed securities................ - - 3,400
Originations of loans held for sale.......................... (190,975) (214,009) (114,356)
Proceeds from sales of loans held for sale................... 203,413 210,408 116,842
Stock-based compensation expense............................. 1,963 1,883 1,266
Gain on sale of loans........................................ (2,806) (4,367) (1,562)
Gain on sale of real estate held for sale.................... (1,225) - -
Other, net................................................... (11,073) (2,172) (1,818)
--------- --------- ---------
Total adjustments.................................................. 15,218 379 7,767
--------- --------- ---------
Net cash provided by operating activities.......................... 31,874 15,176 19,485
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of debt securities held to maturity... 1,004 2,016 2,841
Purchases of debt securities held to maturity.................. - - (459)
Proceeds from maturities of mortgage-backed and related
securities held to maturity.................................. 3,909 - -
Principal repayments on mortgage-backed and related
securities held to maturity.................................. 19,703 3,762 1,543
Purchases of mortgage-backed securities available for sale..... (608,028) (556,456) (306,405)
Proceeds from sales of mortgage-backed securities
available for sale........................................... 47,494 229,046 112,315
Principal repayments on mortgage-backed securities
available for sale........................................... 275,015 314,123 90,868
Purchase of debt and equity securities available for sale...... (238,259) (135,422) (51,199)
Proceeds from sales of debt and equity securities available
for sale..................................................... 94,722 71,213 47,200
Proceeds from maturities of debt and equity securities
available for sale........................................... 43,409 11,395 15,399
Net cash used for acquisitions................................. (4,286) - (7,118)
Purchases of Federal Home Loan Bank stock...................... (16,774) (4,450) (2,580)
Redemption of Federal Home Loan Bank stock..................... 9,554 1,840 800
Purchase of loans.............................................. (76,072) (67,446) (25,587)
Increase in loans, net of loans held for sale.................. (170,325) (74,811) (14,030)
Proceeds from sale of real estate held for sale................ 21,997 - -
Increase in real estate held for investment.................... (232) (1,783) (16,525)
Purchases of premises and equipment, net....................... (3,683) (10,492) (10,526)
--------- --------- ---------
Net cash used in investing activities.............................. (600,852) (217,465) (163,463)
--------- --------- ---------

See accompanying Notes to Consolidated Financial Statements

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

September 30,
-------------------------------------------
1999 1998 1997
-------------------------------------------
(In thousands)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits..................................... 250,877 129,738 141,650
Proceeds from advances and other borrowings.................. 2,795,147 758,618 224,965
Repayments on advances and other borrowings.................. (2,612,188) (688,604) (210,746)
Increase in securities sold under agreements to repurchase... 147,102 14,435 22,481
Increase (decrease) in advances from borrowers for taxes
and insurance.............................................. 351 (1,010) (1,529)
Dividends paid............................................... (3,162) (2,912) (2,450)
Stock option transactions.................................... 1,655 1,072 1,822
Purchase of treasury stock................................... (8,988) (21,160) (11,816)
----------- ---------- ---------
Net cash provided by financing activities........................ 570,794 190,177 164,377
----------- ---------- ---------

Increase (decrease) in cash and cash equivalents................. 1,816 (12,112) 20,399

Cash and cash equivalents:
Beginning of year.......................................... 30,746 42,858 22,459
----------- ---------- ---------
End of year................................................ $ 32,562 $ 30,746 $ 42,858
=========== ========== =========

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................... $ 92,542 $ 76,461 $ 69,062
Income taxes............................................... 1,703 4,459 2,205

Supplemental schedule of noncash investing and financing activities:

The following summarizes significant noncash investing
and financing activities:
Mortgage loans secured as mortgage-backed securities....... $ 9,461 $ 19,373 $ 57,337
Transfer from loans to foreclosed properties............... 871 560 725
Transfer of mortgage loans to mortgage loans held for
sale................................................... 44,263 69,143 33,136
Transfer of real estate held for investment to real estate
held for sale.......................................... - 20,772 -
Acquisitions:
Assets acquired........................................ $ 42,866 - $ 93,044

Common stock issued for acquisition.................... 15,283

Cash paid for purchase of stock........................ $ (10,132) - $ (25,283)
Cash acquired.......................................... 5,846 - 18,165
----------- ---------- ---------
Net cash used for acquisitions......................... $ (4,286) - $ (7,118)
=========== ========== =========

See accompanying Notes to Consolidated Financial Statements

(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 debt 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 securities gains/(losses). 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.

(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. For the purpose of evaluating impairment of mortgage servicing
rights, serviced loans are stratified based upon certain predominant risk
characteristics including loan type, note rate, prepayment trends and external
market factors.

(g) Intangibles
The excess of the purchase price over the fair value of net assets of
subsidiaries acquired consists primarily of goodwill that is being amortized on
straight-line methods. Goodwill is amortized to operating expense over periods
of 15 to 25 years. The Company reviews long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell.

During 1999 and 1998, the Company recorded additional goodwill of $3.2 million
and zero, respectively. Goodwill outstanding, net of accumulated amortization,
at September 30, 1999 and 1998 was $15.1 million and $13.5 million,
respectively.

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63

(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 allowance 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 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 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 carried at the lower of cost or market
value and at September 30, 1998, no impairment writedown was necessary. The
properties were sold during the year ended September 30, 1999 at a gain of $1.2
million. 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

63
64
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 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 not to follow 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 follows 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) Future Accounting Pronouncements

In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued.
Pursuant to this rule, the consolidated statements of changes in shareholders'
equity and comprehensive income now include a new measure called "comprehensive
income," which includes net income as well as certain items that are reported
within a separate component of shareholders equity that bypass net income.
Currently, the Company's only component of other comprehensive income is its
unrealized gains (losses) on securities available for sale.

64
65
embedded in other contracts. It requires all derivatives to be recorded as
either assets or liabilities in the balance sheet at fair value. Changes in the
fair value of derivatives, except for certain derivatives qualifying as cash
flow hedges, are required to be included in earnings in the period of the
change. The Company will adopt this standard on October 1, 2000 and expects that
it will not materially effect results of operations or financial position.

(q) Reclassification
Certain amounts for prior years have been reclassified to conform to the 1999
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 is amortized over fifteen years using the straight-line method. The
amount of goodwill recorded due to the acquisition was $9.1 million.

In January 1999, the Company completed the acquisition of Reliance Bancshares,
Inc. ("Reliance") for $25.4 million in stock and cash. Under the terms of the
agreement each share of Reliance common stock was converted into either .25
shares of common stock of the Company or $5.20 in cash in accordance with
elections made by Reliance shareholders and subject to certain specified
allocation and proration procedures. The Company issued 734,564 shares of common
stock in connection with this transaction. The acquisition was treated as a
purchase transaction for accounting purposes. The related accounts and results
of operations are included in the Company's consolidated financial statements
from the date of acquisition. The acquisition of Reliance added $42.9 million in
assets, including additions of $25.7 million to net loans and $16.6 million to
deposits. Proforma results for the prior period are not materially different

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66
from the historical information. All share and per share amounts have been
restated to give effect to the two-for-one stock split effective April 19, 1999.

The excess of cost over the fair value of net assets acquired is
accounted for as goodwill and is amortized over twenty five years using the
straight-line method. The amount of goodwill recorded due to the acquisition was
$3.2 million.

(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, 1999:
Available for sale:
U.S. Treasury obligations and obligations of
U.S. Government agencies................ $218,520 $ 1 $ 6,215 $212,306
Corporate notes and bonds.................. 1,099 1 - 1,100
Marketable equity securities .............. 3,503 - 260 3,243
------------ ------------ ------------ ------------
$223,122 $ 2 $ 6 ,475 $216,649
============ ============ ============ ============

Held to maturity:
State and municipal obligations............ $ 810 $ 24 $ - $ 834
------------ ------------ ------------ ------------
$ 810 $ 24 $ - $ 834
============ ============ ============ ============

At September 30, 1998:
Available for sale:
U.S. Treasury obligations and obligations of
U.S. Government agencies................ $ 84,783 $ 1,145 $ - $ 85,928
Corporate notes and bonds.................. 1,008 104 - 1,112
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
============ ============ ============ ============

The amortized cost and estimated fair value of debt and equity securities
available for sale and held to maturity at September 30, 1999, by contractual
maturity, are as follows:

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

Less than one year.................................... $ 1,501 $ 1,501
Greater than one year but less than five years........ 136,455 134,037
Greater than five years but less than ten years....... 72,473 69,499
Greater than ten years................................ 11,643 10,586
-------------- ---------------
222,072 215,623
Marketable equity securities.......................... 1,860 1,860
-------------- ---------------
$ 223,932 $ 217,483
============== ===============

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During the years ended September 30, 1999, 1998 and 1997, proceeds from the sale
of available for sale debt and equity securities were $94.7 million, $71.2
million and $47.2 million, respectively. The gross realized gains on such sales
totaled $58,000, $209,000 and $65,000 in 1999, 1998 and 1997, respectively. The
gross realized losses on such sales totaled $85,000 $1.7 million and $24,000 in
1999, 1998 and 1997, respectively. There were no sales of held to maturity debt
securities in 1999, 1998 and 1997.

(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, 1999:
Available for sale:
Participation certificates:
FNMA................................ $ 31,454 $ 15 $ 1,134 $ 30,335
FHLMC............................... 1,022 - 7 1,015
Private issue....................... 70,969 398 1,875 69,492
REMICs:
GNMA................................ 2,134 - 1 2,133
FNMA................................ 42,435 51 417 42,069
FHLMC............................... 164,407 37 2,771 161,673
Private issue....................... 622,497 122 9,493 613,126
CMO residual........................... 36 - - 36
------------- -------------- ------------- --------------
$ 934,954 $ 623 $ 15,698 $ 919,879
============= ============== ============= ==============

Held to maturity:
REMICs:
FNMA................................ $ 364 $ - $ 1 $ 363
Private issue....................... 39,111 21 245 38,887
------------- -------------- ------------- --------------
$ 39,475 $ 21 $ 246 $ 39,250
============= ============== ============= ==============

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
============= ============== ============= ==============

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During the years ended September 30, 1999, 1998 and 1997, proceeds from the sale
of available for sale mortgage-backed and related securities were $47.5 million,
$229.0 million and $112.3 million, respectively. The gross realized gains on
such sales totaled $119,000, $4.4 million and $1.3 million in 1999, 1998 and
1997, respectively. The gross realized losses on such sales totaled $439,000,
$930,000 and $28,000 in 1999, 1998 and 1997, respectively. There were no sales
of held to maturity mortgage-backed and related securities in 1999, 1998 and
1997.

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. The cost basis of impaired securities is zero and $479,000 at
September 30, 1999 and 1998, respectively.

At September 30, 1999 and 1998, $484.2 million and $325.1 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) 1999 1998
- --------------------------------------------------------------------------------------------------------

First mortgage - one- to four-family.................................... $ 294,438 $ 254,047
First mortgage - residential construction............................... 103,100 71,092
First mortgage - multi-family........................................... 160,593 105,380
Commercial real estate.................................................. 251,914 170,562
Home equity............................................................. 156,695 142,993
Commercial and agriculture.............................................. 123,899 93,927
Consumer secured by real estate......................................... 89,991 85,595
Interim financing and consumer loans.................................... 13,744 13,375
Indirect autos.......................................................... 44,299 32,173
Education............................................................... 984 2,529
----------- ----------
Total gross loans................................................... 1,239,657 971,673
----------- ----------
Less:
Loans in process.................................................... 106,960 83,436
Unearned insurance premiums......................................... (21) 292
Deferred loan and guarantee fees.................................... 614 848
Purchased loan discount............................................. 737 571
Allowance for loan losses........................................... 9,356 7,530
------------ -----------
Total deductions.................................................... 117,646 92,677
------------ -----------
Total loans receivable.................................................. 1,122,011 878,996
Less: First mortgage loans held for sale............................... 8,620 23,864
------------ -----------
Loans receivable, net................................................... $ 1,113,391 $855,132
============ ===========

Activity in the allowance for loan losses is as follows:

Years Ended September 30,
-------------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------

Balance at beginning of year............................ $ 7,530 $ 6,202 $ 5,217
Provision charged to expense........................ 1,920 2,300 1,280
Charge-offs......................................... (447) (999) (2,054)
Recoveries.......................................... 50 27 81
Acquired bank's allowance........................... 303 1,678
-
---------- --------- --------
Balance at end of year.................................. $ 9,356 $ 7,530 $ 6,202
========== ========= ========

Non-performing loans and troubled debt restructurings totaled approximately $2.8
million and $2.9 million at September 30, 1999 and 1998, respectively.
Non-performing loans at September 30, 1999 and 1998 also includes a single
commercial real estate loan collateralized by a shopping center mortgage with a
balance of $798,000 and $833,000, respectively. Impaired loans totaled $809,000
and $1.0 million at September 30, 1999 and 1998, respectively. These loans had
associated reserves of $400,000 and $529,000 at September 30, 1999 and 1998,
respectively. During 1999 and 1998, the average balance of impaired loans was
$923,000 and $1.4 million, respectively. Interest income on impaired loans for
the years ended September 30, 1999, 1998 and 1997 was $48,000, $63,000 and $0,
respectively. 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) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------

Interest at original contractual rate.................. $ 274 $ 388 $ 647
Interest collected..................................... 150 161 206
-------- -------- --------
Net reduction of interest income................... $ 124 $ 227 $ 441
======== ======== ========

The fair value of capitalized mortgage servicing rights approximates the amount
at September 30, 1999, 1998 and 1997. Changes in capitalized mortgage servicing
rights are summarized as follows:

September 30,
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------

Balance at beginning of year.................................. $ 3,301 $ 1,802 $ 701
Servicing rights capitalized.............................. 2,316 2,158 1,158
Amortization of servicing rights.......................... (888) (659) (57)
--------- --------- ---------
Balance at end of year........................................ $ 4,729 $ 3,301 $ 1,802
========= ========= =========

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) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------

Mortgage loans underlying pass-through securities - FNMA...... $ 95,937 $ 133,586 $ 177,649
Mortgage loan portfolios serviced for:
FNMA..................................................... 357,060 252,059 115,080
FHLMC.................................................... - 603 982
WHEDA.................................................... 26,469 20,834 15,129
Other investors.......................................... 4,648 6,596 2,836
---------- ---------- ----------
Total loans serviced for others.......................... $ 484,114 $ 413,678 $ 311,676
========== ========== ==========

Custodial escrow balances maintained in connection with the
foregoing loan servicing and included in demand deposits... $ 12,724 $ 15,301 $ 10,810
========== ========== ==========

(6) ACCRUED INTEREST RECEIVABLE

Accrued interest receivable is summarized as follows:

September 30,
(In thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------

Mortgage-backed and related securities............................... $ 4,469 $ 3,474
Loans receivable..................................................... 6,333 5,094
Debt and equity securities........................................... 2,792 776
Federal Home Loan Bank stock......................................... 496 382
---------- ---------
$ 14,090 $ 9,726
========== =========

(7) PREMISES AND EQUIPMENT

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

September 30,
(In thousands) 1999 1998
- --------------------------------------------------------------------------------------------------------

Land and land improvements........................................... $ 4,618 $ 5,197
Office buildings and improvements.................................... 19,274 20,569
Furniture, fixtures and equipment.................................... 21,188 18,399
Leasehold improvements............................................... 4,654 1,886
---------- ----------
49,734 46,051
Accumulated depreciation and amortization....................... (16,810) (13,886)
---------- ----------
$ 32,924 $ 32,165
========== ==========

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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(8) DEPOSITS

Deposit accounts are summarized as follows:

September 30,
-----------------------------------------------------------------------------------
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Weighted Weighted
average average
rate Amount Percent rate Amount Percent
- ----------------------------------------------------------------------------------------------------------------

Demand deposits:
Non-interest bearing.. - $ 73,906 5.0 % - $ 66,337 5.4 %
Interest bearing...... 1.14 % 68,621 4.6 1.34 % 61,821 5.1
Passbook accounts......... 2.29 115,638 7.8 3.30 133,282 11.0
Money market
demand accounts....... 4.29 360,360 24.3 4.81 323,088 26.5
Certificates.............. 5.66 865,778 58.3 5.85 632,346 52.0
----------- --------- ----------- ---------
Total deposits............ 4.58 $ 1,484,303 100.0 % 4.75 $ 1,216,874 100.0 %
=========== ========= =========== =========

The certificates category above includes approximately $421.8 million and $214.9
million of brokered deposits at weighted average stated rates of 6.08% and 6.15%
at September 30, 1999 and September 30, 1998, respectively. Original maturities
of brokered certificates range from three months to longer-term certificates and
include certificates that are callable at the option of the Company.

Aggregate annual maturities of certificate accounts at September 30, 1999 are as
follows:

Weighted
Average
Maturities during year ended September 30: Amount Rate
- ------------------------------------------ --------------- ------------
(In thousands)

2000............................................... $ 455,049 5.18%
2001............................................... 73,133 5.41
2002............................................... 7,320 5.45
2003............................................... 4,154 5.75
2004............................................... 91,379 6.24
Thereafter......................................... 234,743 6.46
---------
$ 865,778
=========

Certificates, net of brokered deposits, include approximately $59.8 million and
$41.9 million in denominations of $100,000 or more at September 30, 1999 and
1998, respectively.

Interest expense on deposits is as follows:

Years Ended September 30,
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------

Demand deposits............................................ $ 831 $ 861 $ 843
Money market demand accounts............................... 14,767 13,867 10,306
Passbook accounts.......................................... 3,277 4,186 2,617
Certificates of deposit.................................... 38,500 33,344 33,226
--------- --------- --------
$ 57,375 $ 52,258 $ 46,992
========= ========= ========

Accrued interest payable on deposits totaled approximately $6.7 million and $3.4
million at September 30, 1999 and 1998, respectively.

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(9) SHORT AND LONG TERM BORROWINGS

Advances and other borrowings consist of the following:

(In thousands) Weighted Average
Interest Rate
-------------------------
September 30, Matures in fiscal September 30,
------------------------- ------------------------
Description 1999 1998 year ended 1999 1998
- --------------------------------------------------------------- ---------------------------------------------

Reverse repurchase agreements.... - % 0.32 % 1999 $ - $30,550
5.35 - 2000 177,654 -

Retail repurchase agreements..... - 4.87 1999 - 1,329
4.34 - 2000 790 -

Bank line of credit.............. - 6.74 1999 - 18,000
6.62 - 2000 21,000 -

Advances from Federal Home
Loan Bank Of Chicago.......... 5.89 6.10 Open Line Advance 32,500 12,000
- 5.39 1999 - 355,000
5.05 5.60 2000 330,046 55,051
5.54 5.63 2001 25,000 5,000
- - 2002 - -
- - 2003 - -
5.14 - 2004 85,000 -
4.76 5.02 2005 and after 135,000 25,000

Federal Funds Purchased.......... 6.00 - Daily overnight 25,000 -

Federal Reserve Bank
Treasury tax & loan advances... 5.11 5.42 Daily overnight 1,800 793

Mortgages payable................ 8.04 8.61 Various 948 1,954
---------- ----------
$ 834,738 $ 504,677
Less: short term borrowings...... 588,790 417,672
---------- ----------
Long term borrowings............. $ 245,948 $ 87,005
========== ==========

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, 1999 and
1998, $283.2 million and $245.1 million, respectively, of mortgage loans and
$484.2 million and $325.1 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 from the FHLB at any month end during the years ended September
30, 1999 and 1998 was approximately $645.1 million and $469.1 million,
respectively. The approximate average amount outstanding was $580.8 million and
$402.9 million for those same years. The weighted average interest rate was
4.94% and 5.56% during those years. Included in the FHLB advances that mature in
the next fiscal year are $250.0 million of convertible fixed rate advances
("CFA"). A CFA is an advance that allows the FHLB to demand repayment prior to
the stated maturity date in accordance with its contractual terms. At September
30, 1999, the $250.0 of outstanding CFA's have a maturity of two to ten years
and are putable by the FHLB during the next fiscal year and quarterly
thereafter.

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The Federal Reserve Bank advances are collateralized by agency debt with a
carrying value of $2.0 million at September 30, 1999 and 1998.

Securities sold under agreements to repurchase averaged $125.2 million and $15.1
million based on average daily balances during the years ended September 30,
1999 and 1998, respectively. The maximum amount outstanding at any month-end was
$205.0 million and $30.6 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.

The Bank line of credit averaged $24.8 million and $9.0 million for the years
ended September 30, 1999 and 1998. The maximum amount outstanding at any
month-end was $30.0 million and $18.0 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) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------

Data processing............................................... $ 1,734 $ 1,741 $ 1,574
Advertising................................................... 1,194 1,435 1,350
Stationery, printing and office supplies...................... 680 784 617
Telephone and postage......................................... 1,433 1,223 1,036
Insurance and surety bond premiums............................ 143 108 130
Professional fees and services................................ 410 582 475
Supervisory assessment........................................ 310 284 253
Amortization of intangible assets............................. 1,192 1,080 834
Organization dues and subscriptions........................... 201 132 123
Consumer lending.............................................. 161 203 234
Miscellaneous ................................................ 1,368 1,980 1,053
--------- --------- ----------
$ 8,826 $ 9,552 $ 7,679
========= ========= ==========

(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, 1999
current...................................................... $ 1,143 $ 11 $ 1,154
Deferred..................................................... 4,252 1,004 5,256
------- ------- -------
$ 5,395 $ 1,015 $ 6,410
======= ======= =======

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
======= ======= =======

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) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------

Federal income tax expense at statutory rate of 35%...... $ 8,073 $ 5,818 $ 4,642
State income taxes, net of Federal income tax benefit.... 662 (241) (41)
Tax exempt interest...................................... (136) (146) (156)
Non-deductible compensation.............................. 449 424 127
Acquisition intangible amortization...................... 230 247 152
Affordable housing credits............................... (2,969) (4,176) (2,923)
Other, net............................................... 101 (100) (257)
-------- -------- -------
$ 6,410 $ 1,826 $ 1,544
======== ======== =======

Included in other assets is a deferred tax asset of $6.3 million and $3.6
million at September 30, 1999 and 1998, 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) 1999 1998
- -------------------------------------------------------------------------------------------------

DEFERRED TAX ASSETS:
Allowance for loan losses................................................ $ 3,013 $ 2,032
Deferred interest and fee income......................................... 362 568
Net operating losses..................................................... 1,178 711
Valuation adjustments and reserves....................................... 47 47
Accrued expenses......................................................... 541 425
Deferred compensation.................................................... 742 471
Unrealized loss on available for sale securities......................... - 231
Non-qualified stock option exercise...................................... 88 297
Low income housing credit carryover...................................... 3,891 877
-------- --------
Gross deferred tax asset................................................. 9,862 5,659
Less valuation allowance................................................. (875) (692)
-------- --------
Net deferred tax asset................................................... 8,987 4,967

DEFERRED TAX LIABILITIES:
Fixed asset tax basis adjustments........................................ (1,344) (1,031)
FHLB stock tax basis adjustment.......................................... (307) (307)
Unrealized gains on available for sale securities........................ (543) -
Other.................................................................... (530) (61)
-------- --------
Gross deferred tax liability............................................. (2,724) (1,399)
-------- --------
Net deferred tax asset .................................................. $ 6,263 $ 3,568
======== ========

At September 30, 1999 and 1998, deferred tax assets include approximately $22.9
million and $13.8 million of various state net operating loss carry forwards
respectively, which begin to expire in 2007 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, 1999 and 1998 can be
carried forward for 15 years. Therefore, the credits will expire in 2013 and
2012, respectively. The deferred tax asset increased even though the Company
incurred deferred tax expense during the year primarily due to the increase in
the mark-to-market loss on available for sale securities that is included in
other comprehensive income.

(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, 1999, the balance of the
liquidation account was approximately $19.8 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, 1999, the Bank paid dividends to the Company
totaling $17.1 million. As of September 30, 1999, retained earnings of the Bank
of approximately $16.0 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, 1999 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 risk-weighted assets (as
defined), and of Tier 1 capital (as defined) to average assets (as defined).

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Management believes, as of September 30, 1999, that the Company and the Bank
meet all capital adequacy requirements to which they are subject.

As of September 30, 1999, 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:

As of September 30, 1999:

Tangible capital.............. 144,222 5.82% > 99,136 >4.0% >123,921 > 5.0%
- - - -
Core capital ................. 144,222 5.82% > 99,136 >4.0% >123,921 > 5.0%
- - - -
Tier 1 risk-based capital..... 144,222 9.98% > 57,803 >4.0% > 86,704 > 6.0%
- - - -
Risk-based capital............ 153,578 10.63% > 115,606 >8.0% >144,507 > 10.0%
- - - -
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%
- - - -

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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77
(13) EARNINGS PER SHARE

Basic earnings per share of common stock for the years ended September 30, 1999,
1998 and 1997, 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,
1999, 1998 and 1997, 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:

1999 1998 1997
---------------- --------------- ---------------

Net income for the period................. $16,656,000 $14,797,000 $11,718,000
================ =============== ===============

Common shares issued...................... 14,579,240 14,579,240 14,579,240

Weighted average treasury shares.......... 4,736,967 4,241,506 3,879,694

Unallocated ESOP shares................... 482,252 565,156 643,460
---------------- --------------- ---------------

Weighted average common shares
outstanding during the period......... 9,360,021 9,772,578 10,056,086
Effect of dilutive stock options
outstanding........................... 438,501 610,170 611,012
---------------- --------------- ---------------
Diluted weighted average common shares
outstanding........................... 9,798,522 10,382,748 10,667,098
================ =============== ===============

Basic earnings per share.................. $ 1.78 $ 1.51 $ 1.17
================ =============== ===============
Diluted earnings per share................ $ 1.70 $ 1.43 $ 1.10
================ =============== ===============

(14) STOCK REPURCHASE PROGRAM

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 common
stock, or approximately 480,000 shares, commencing September 28, 1998 and
concluding before September 30, 1999, 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 February 4, 1999 at an average
price of $18.73 per share. This was the ninth such repurchase program that the
Company has undertaken. At September 30, 1999, an aggregate of 5,941,904 shares
had been repurchased in all such repurchase programs at an average price of
$13.01. On April 22, 1999, 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 505,000 shares. The repurchase program is authorized to
start April 29, 1999 and run through March 31, 2000. No shares have been
purchased under this program 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

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years ended September 1999, 1998 and 1997 was approximately $180,000, $285,000
and $427,000, 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,
1999, 1998 and 1997 was approximately $228,000, $179,000 and $154,000,
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, 1999 and 1998 amounting to $1.1 million
and $682,000, respectively. The Company owns insurance policies on the lives of
these officers, which have cash surrender values of $2.0 million and $1.5
million, respectively, and are intended to fund these benefits. Plan expense for
the years ended September 30, 1999, 1998 and 1997 was approximately $63,000,
$56,000 and $53,000, respectively.

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 981,296 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, 1999. The balance of this
loan was $3.1 million and $3.5 million at September 30, 1999 and 1998,
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, 1999, 1998
and 1997 was $1.7 million, $1.6 million and $1.3 million, respectively.

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The following is a summary of ESOP shares at September 30, 1999 and 1998:

Shares
-------------------------------
1999 1998
-------------------------------

Allocated shares....................... 467,076 384,106
Shares released for allocation......... 62,252 61,506
Unreleased shares...................... 451,968 535,684
-------------------------------
Total ESOP shares...................... 981,296 981,296
===============================

Fair value of unreleased shares
at September 30,.................. $ 9,294,000 $9,642,000
===============================

STOCK OPTION 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, 1999, 189,548 shares were reserved for future grants. Further
information concerning the options is as follows:

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

Shares under option
September 30, 1996......................................... 952,804 $ 5.00 - 8.38
Options granted.......................................... 672,400 13.13 - 19.38
Options canceled......................................... (34,492) 5.00 - 14.50
Options exercised........................................ (277,580) 5.00
----------- ----------------
September 30, 1997......................................... 1,313,132 5.00 - 19.38
Options granted.......................................... 73,334 19.19
Options canceled......................................... (49,500) 14.50
Options exercised........................................ (173,346) 5.00 - 14.50
----------- ----------------
September 30, 1998......................................... 1,163,620 5.00 - 19.38
Options granted.......................................... 785,264 15.62 - 21.31
Options canceled......................................... (41,550) 14.50 - 20.25
Options exercised........................................ (341,652) 5.00 - 18.50
----------- ----------------
September 30, 1999......................................... 1,565,682 5.00 - 21.31
=========== ================
Options exercisable 440,042 $ 5.00 - 19.38
=========== ================

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The following table summarizes information about stock options outstanding at
September 30, 1999:

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

$5.00 156,542 $5.00 3.71 156,170 $5.00
$8.38 17,000 $8.38 4.83 5,668 $8.38
$13.13-$14.50 555,024 $14.45 7.51 129,588 $14.50
$15.62-$18.50 135,082 $16.24 9.21 118,416 $16.02
$18.88 502,600 $18.88 9.41 - $18.88
$19.19-$21.31 199,434 $19.86 8.52 30,200 $19.20

*Average contractual life remaining in years

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 1999 and 1998
was $5.51 and $6.32, respectively, on the date of grant with the following
weighted-average assumptions used for grants in 1999 and 1998, respectively:

September 30,
1999 1998
---------------- -----------------

Expected dividend yield............................................ 1.84% 1.55%
Risk-free interest rates........................................... 5.95% 5.82%
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 1999, 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,
1999 1998
---------------- -----------------

Net Income As reported.......................... $ 16,656,000 $ 14,797,000
Pro forma............................ $ 15,935,000 $ 14,519,000

Basic earnings per share As reported.......................... $ 1.78 $ 1.51
Pro forma............................ $ 1.70 $ 1.49

Diluted earnings per share As reported.......................... $ 1.70 $ 1.43
Pro forma............................ $ 1.63 $ 1.40

(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

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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.

Contractual or Notional
Amount(s)
September 30,
1999 1998
--------------- --------------
(In thousands)
Financial instruments whose contract amounts
represent credit risk, are as follows:

Commitments to extend credit:
Fixed-rate loans.................................. $ 959 $ 10,637
Variable-rate loans............................... 50,043 19,647
Mortgage loans sold with recourse................... 17,053 35,558
Guarantees under IRB issues......................... 24,484 18,301
Commercial letters of credit........................ 2,695 -
Interest rate swap agreements....................... 350,000 225,000
Interest rate corridors............................. - 10,000
Commitments to:
Purchase mortgage-backed securities............... - -
Sell mortgage-backed securities................... - 37,000
Unused and open-ended lines of credit:
Consumer.......................................... 176,958 158,210
Commercial........................................ 40,855 25,061
Open option contracts written:
Short-call options................................ - 2,000

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,
1999 have interest rates ranging from 8.00% to 8.25%. 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, 1999,
appraised values of the real estate collateral exceeded the amount of the
guarantees.

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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 debt securities. The fixed receive-floating pay agreements were entered
into as hedges of the interest rates on fixed rate certificates of deposit.
Interest 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 earning
assets and interest-bearing liabilities.

The agreements at September 30, 1999 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, 1999, the gross unrealized gains and losses of
$167,000 and $8.6 million,

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respectively, equal the fair value loss of the interest rate swaps of $8.4
million. At September 30, 1998, the gross unrealized gains and losses of $2.1
million and $545,000, respectively, equal the fair value of the interest rate
swaps of $1.6 million.

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 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 $57.1 million
of commercial real estate and multi-family loans are outside Wisconsin as of
September 30, 1999.

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 17 offices under agreements which expire at various dates
through August 2056, with twelve leases having renewable options. Rent expense
under these agreements totaled approximately $1.1 million, $804,000 and $468,000
for the years ended September 30, 1999, 1998 and 1997, respectively.

The future minimum rental commitments as of September 30, 1999 under these
leases for the next five years and thereafter, are as follows:

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

2000............................... $ 1,093
2001............................... 1,076
2002............................... 1,019
2003............................... 993
2004............................... 741
2005 and thereafter................ 8,480

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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, 1999:

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

Financial Assets:
Cash and cash equivalents................................................... $ 32,562 $ 32,562
Debt and equity securities.................................................. 217,459 217,483
Mortgage-backed and related securities...................................... 959,354 959,129
Mortgage loans held for sale................................................ 8,620 8,620
Loans receivable............................................................ 1,113,391 1,121,574
Federal Home Loan Bank stock................................................ 30,827 30,827

Financial Liabilities:
Certificate accounts........................................................ 865,778 865,778
Other deposit accounts...................................................... 618,525 618,525
Advances and other borrowings............................................... 834,738 834,738

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

Off-Balance Sheet Items:
Commitments to extend credit..................................... $ 51,002 - *
Unused and open-ended lines of credit............................ 217,813 - *
Interest rate swap agreements.................................... 350,000 $ 1,232 $ (8,426)

* Amount is not material.

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

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

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.

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 carrying amount of accrued interest approximates
its fair value.

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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 ADVANCES 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) SEGMENT INFORMATION

The Company's operations include four strategic business segments: Retail
Banking, Commercial Banking, Mortgage Banking and Investments. Financial
performance is primarily based on the individual segments direct contribution to
Company net income. The Company's segments do not include the operations of the
parent holding company, nor the operations of the Bank's operating subsidiaries.
Capital is not allocated to the segments and thus net interest income related to
the free funding associated with capital is not included in the individual
segments. The Company only charges the segments with direct expenses. Costs
associated with administrative and centralized back-office support areas of the
Bank are not allocated to the segments. Income taxes are allocated to the
segments based on the Bank's effective tax rate prior to the consolidation with
its affordable housing subsidiary.

The Retail Banking segment consists of the Bank's retail deposits, branch and
ATM network, consumer lending operations, annuity and brokerage services and
call center. The segment includes a much higher level of interest-bearing
liabilities than earning assets. The Company views this segment as a significant
funding vehicle for the other lending segments. The Company's transfer pricing
model has the effect of viewing this segment as a comparison to the cost of
wholesale funds.

The Commercial Banking segment consists of the Bank's commercial, commercial
real estate and multifamily lending operations. It also includes the lending
aspects of the Company's affordable housing subsidiary.

The Mortgage Banking segment consists of the Bank's single-family mortgage
lending operation. Single-family lending consists of three primary operations:
portfolio lending, lending for sale in the secondary market and loan servicing.

The Investment segment consists of the Company's portfolio of mortgage-backed
and related securities, its debt and equity securities and other short-term
investments. This segment also includes the Company's wholesale sources of
funding including FHLB advances, brokered certificates of deposits, reverse
repurchase agreements and federal funds purchased.

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- -------------------------------------------------------------------------------------------------------------
BUSINESS SEGMENTS Retail Commercial Mortgage Total
Banking Banking Banking Investments Segments
- -------------------------------------------------------------------------------------------------------------

Year ended September 30, 1999
Net interest income $ 17,071 $ 12,605 $ 5,658 $ 10,570 $ 45,904
Provision for loan losses 506 1,173 241 - 1,920
Other operating income 6,602 925 3,415 (288) 10,654
General and administrative expenses 22,118 2,889 4,377 811 30,195
Income tax expense 373 3,469 1,642 3,505 8,989
-------- -------- -------- ---------- ----------
Segment profit $ 676 $ 5,999 $ 2,813 $ 5,966 $ 15,454
======== ======== ======== ========== ==========

Segment average assets $291,029 $428,599 $285,434 $1,081,711 $2,086,773
======== ======== ======== ========== ==========

Year ended September 30, 1998
Net interest income $ 14,680 $ 8,574 $ 3,750 $ 9,819 $ 36,823
Provision for loan losses 1,258 605 437 - 2,300
Other operating income 5,308 1,106 5,259 981 12,654
General and administrative expenses 20,554 2,247 3,777 748 27,326
Income tax expense (691) 2,225 1,562 3,336 6,432
-------- -------- -------- ---------- ----------
Segment profit $(1,133) $ 4,603 $ 3,233 $ 6,716 $ 13,419
======== ======== ======== ========== ==========

Segment average assets $250,931 $302,690 $271,038 $ 760,664 $1,585,323
======== ======== ======== ========== ==========

RECONCILEMENT OF SEGMENT INFORMATION TO FINANCIAL STATEMENTS

Year ended September 30,
1999 1998

NET INTEREST INCOME AND OTHER OPERATING INCOME
Total for segments $ 56,558 $ 49,477
Unallocated transfer pricing credit (primarily on
capital) 9,304 7,783
Income from affordable housing subsidiary 4,941 5,059
Holding company interest expense (1,583) (581)
Elimination of intercompany interest income (1,438) (2,247)
Other 767 1,263
---------- ----------
Consolidated total revenue $ 68,549 $ 60,754
========== ==========

PROFIT
Total for segments $ 15,454 $ 13,419
Unallocated transfer pricing credit (primarily on
capital) 5,582 4,670
Unallocated administrative and centralized support
costs (a) (5,132) (5,098)
Holding company net loss (1,462) (746)
Elimination of intercompany interest income (863) (1,348)
Affordable housing tax credits 2,969 4,176
Other 108 (276)
---------- ----------
Consolidated net income $ 16,656 $ 14,797
========== ==========
AVERAGE ASSETS
Total for segments $2,086,773 $1,585,323
Elimination of intercompany loans (15,995) (25,777)
Other assets not allocated 111,577 140,502
---------- ----------
Consolidated average assets $2,214,345 $1,700,048
========== ==========

(a) After-tax effect of $8.6 million and $8.5 million of general and
administrative expenses for the years ended September 30, 1999 and 1998,
respectively.

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

STATEMENT OF FINANCIAL CONDITION

September 30,
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------
ASSETS

Cash, all with Bank........................................................... $ 2,089 $ 1,483
Investment in subsidiaries, at equity......................................... 150,602 137,587
Accrued interest receivable and other assets.................................. 391 812
------------- -------------
Total assets............................................................ $153,082 $139,882
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Advances and other borrowings............................................. $ 21,000 $ 18,000
Accrued interest and other liabilities.................................... 568 337
------------- -------------
Total liabilities....................................................... 21,568 18,337
------------- -------------

Shareholders' equity:
Common stock.............................................................. 146 146
Additional paid-in capital................................................ 82,426 75,237
Accumulated other comprehensive income (loss)............................. (13,057) 381
Unearned ESOP compensation................................................ (2,260) (2,678)
Treasury stock, at cost................................................... (58,934) (63,903)
Retained earnings, substantially restricted............................... 123,193 112,362
------------- -------------
Total shareholders' equity.............................................. 131,514 121,545
------------- -------------
Total liabilities and shareholders' equity.............................. $153,082 $139,882
============= =============

STATEMENT OF INCOME

Year ended
September 30,
(In thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------

Dividend received from Bank................................... $ 17,133 $ 15,627 $ 11,500
Interest and other dividend income............................ 351 421 701
Other income (loss)........................................... - - (25)
Interest expense on advances and other borrowings............. (1,583) (581) (418)
General and administrative expenses........................... (994) (828) (1,160)
------------- ------------- --------------
Income before income tax expense and equity in
undistributed earnings of subsidiaries.................. 14,907 14,639 10,598
Income tax expense............................................ (764) (242) (335)
------------- ------------- --------------
Income before equity in undistributed earnings of
Subsidiaries............................................ 15,671 14,881 10,933
Equity in (distributed) undistributed earnings of subsidiaries 985 (84) 785
------------- ------------- --------------
Net income.................................................... $ 16,656 $ 14,797 $ 11,718
============= ============= ==============

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STATEMENT OF CASH FLOWS

Year ended
September 30,
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
Net income.................................................. $ 16,656 $ 14,797 $ 11,718
Adjustments to reconcile net income to cash provided
by operations:
Equity in distributed (undistributed) earnings of
subsidiaries........................................... (985) 84 (785)
Increase (decrease) in liabilities..................... 268 (303) 640
Other, net............................................. 129 (11) (307)
------------- ------------- --------------
Cash provided by operations................................ 16,068 14,567 11,266
------------- ------------- --------------

Cash flows from investing activities:
Net cash used for acquisitions............................. (8,964) - -
Purchase of Kilbourn State Bank stock...................... - - (25,283)
Proceeds from sales of securities available for sale....... 997 395 3,900
Principal repayments on securities available for sale...... - 91 133
------------- ------------- --------------
Cash provided by (used in) investing activities............ (7,967) 486 (21,250)
------------- ------------- --------------

Cash flows from financing activities:
Stock option transactions.................................. 1,655 1,072 1,822
Proceeds from advances and other borrowings................ 98,000 39,000 12,000
Repayments from advances and other borrowings.............. (95,000) (32,000) (1,000)
Purchase of treasury stock................................. (8,988) (21,160) (11,816)
Dividends paid............................................. (3,162) (2,912) (2,450)
------------- ------------- --------------
Cash used in financing activities.......................... (7,495) (16,000) (1,444)
------------- ------------- --------------

Increase (decrease) in cash................................ 606 (947) (11,428)
Cash at beginning of year.................................. 1,483 2,430 13,858
------------- ------------- --------------
Cash at end of year........................................ $ 2,089 $ 1,483 $ 2,430
============= ============= ==============

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(20) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

For the quarter ended,
---------------------------------------------------------------------------------------------
Sep 30 Jun 30 Mar 31 Dec 31 Sep 30 Jun 30 Mar 31 Dec 31
1999 1999 1999 1998 1998 1998 1998 1997
---------------------------------------------------------------------------------------------
(In thousands, except earnings per share and market prices)

Interest and dividend income $ 41,086 $ 38,523 $ 35,144 $ 30,792 $ 31,200 $ 29,569 $ 27,680 $ 29,460
Interest expense.............. 26,404 24,371 22,244 20,263 20,156 18,981 17,924 19,002
--------- -------- -------- -------- -------- -------- -------- --------
Net interest income........... 14,682 14,152 12,900 10,529 11,044 10,588 9,756 10,458
Provision for loan losses..... 480 480 480 480 300 300 1,500 200
--------- -------- -------- -------- -------- -------- -------- --------
Net interest income after
Provision for loan 14,202 13,672 12,420 10,049 10,744 10,288 8,256 10,258
losses........................
Securities gains/(losses)..... (5) 124 (400) 28 287 464 (118) 610
Gain on sales of loans held
For sale, net............ 262 420 860 1,264 1,129 894 1,302 1,042
Other operating income........ 3,205 3,129 3,226 4,173 3,221 3,323 3,989 2,765
--------- -------- -------- -------- -------- -------- -------- --------
Total other operating income.. 3,462 3,673 3,686 5,465 4,637 4,681 5,173 4,417

General and administrative
Expenses................. 10,777 10,888 10,905 10,993 10,755 10,743 10,366 9,967
--------- -------- -------- -------- -------- -------- -------- --------
Income before income tax 6,887 6,457 5,201 4,521 4,626 4,226 3,063 4,708
expense.......................
Income tax expense (benefit).. 2,145 1,978 1,531 756 764 672 (520) 910
--------- -------- -------- -------- -------- -------- -------- --------
Net income.................... $ 4,742 $ 4,479 $ 3,670 $ 3,765 $ 3,862 $ 3,554 $ 3,583 $ 3,798
========= ======== ======== ======== ======== ======== ======== ========

Basic earnings per share (1).. $ 0.49 $ 0.46 $ 0.39 $ 0.43 $ 0.41 $ 0.36 $ 0.36 $ 0.38

Diluted earnings per share
(2)........................... $ 0.47 $ 0.45 $ 0.37 $ 0.41 $ 0.39 $ 0.34 $ 0.34 $ 0.36

Weighted average shares - 9,693,643 9,658,894 9,322,724 8,767,262 9,475,192 9,810,962 9,929,588 9,878,400
basic.........................
Weighted average shares - 10,091,034 10,031,270 9,792,261 9,263,844 9,996,010 10,354,138 10,525,632 10,546,128
diluted.......................

Market Information:
High..................... $ 21.75 $ 22.00 $ 21.63 $ 21.13 $ 20.06 $ 22.63 $ 25.38 $ 25.25
Low...................... 19.50 18.50 18.50 17.25 17.50 17.88 20.75 18.38
Close.................... 20.56 21.50 21.44 21.13 18.00 19.38 22.75 25.25

(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.

On October 20, 1999, the Company declared a dividend of $0.09 per share on the
Company's common stock for the quarter ended September 30, 1999, which was the
seventeenth cash dividend payment since the Company became a publicly-held
company in June 1993. The dividend was payable on November 19, 1999 to
shareholders of record as of November 10, 1999. At November 30, 1999, the
closing price of the Company's common stock was $20.06 per share.

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

None.

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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 15, 1999, relating to the 1999 Annual Meeting of Shareholders
currently scheduled for January 26, 2000, 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 15, 1999, relating to the 1999 Annual Meeting of Shareholders
currently scheduled for January 26, 2000, 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 15,
1999, 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 15, 1999, relating to the 1999 Annual Meeting of
Shareholders currently scheduled for January 26, 2000, 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 15, 1999, relating to the 1999 Annual Meeting of
Shareholders currently scheduled for January 26, 2000, 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, 1999
and 1998
Consolidated Statements of Income for Years Ended September
30, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for Years Ended
September 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for Years Ended September 30,
1999, 1998 and 1997
Notes to Consolidated Financial Statements

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(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 1986 Deferred Compensation Agreement as Amended-Thomas R. Perz(6)
10.9 1987 Deferred Compensation Agreement-Thomas R. Perz(1)
10.10 1988 Deferred Compensation Agreement-Edward W. Mentzer(1)
10.11 1996 Employment Agreement-Thomas R. Perz(3)
10.12 1996 Employment Agreement-James C. Hazzard(3)
10.13 1997 Employment Agreement-Bradley J. Smith(4)
10.14 1998 Employment Agreement-Jon D. Sorenson/(5)
10.15 1998 Employment Agreement-James S. Eckel(6)
10.16 St. Francis Capital Corporation 1997 Stock Option Plan(4)
10.17 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 1999 Summary Annual Report to Shareholders(7) Enclosed
21.1 Subsidiaries of the Registrant See "Subsidiaries" in Part I Item I
23.1 Consent of KPMG LLP(6) Attached
24.1 Powers of Attorney for certain officers and directors(1)
27.1 Financial Data Schedule(6)
99.1 Proxy Statement for 1999 Annual Meeting of Shareholders(6) Attached

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, Suite 350, Brookfield, WI 53005-6203.

(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) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1998.

(6) Filed herewith.

(7) Filed in paper format pursuant to Rule 101(b)(1) of Regulation S-T.

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(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).

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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, 1999
-----------------------------------
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, 1999 Date: December 7, 1999
------------------------- --------------------------

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

Date: December 7, 1999 Date: December 7, 1999
------------------------- --------------------------

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

Date: December 7, 1999 Date: December 7, 1999
------------------------- --------------------------

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

Date: December 7, 1999 Date: December 7, 1999
------------------------- --------------------------

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

Date: December 7, 1999
------------------------