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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 December 31, 2003

Commission file number 0-18121

MAF Bancorp, Inc.

(Exact name of registrant as specified in its charter)

55th Street & Holmes Avenue, Clarendon Hills, Illinois 60514-1500

Telephone Number (630) 325-7300

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 $.01 per share

(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.    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.  ¨

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

Based upon the closing price of the registrant’s common stock as of June 30, 2003, the aggregate market value of the voting stock held by non-affiliates of the registrant was $1,102,162,497.*

The number of shares of Common Stock outstanding as of March 8, 2004: 33,097,740

Documents Incorporated by Reference

PART III - Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on April 28, 2004 are incorporated by reference into Part III hereof.

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MAF BANCORP, INC. AND SUBSIDIARIES

FORM 10-K

Index

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Item 1. Business

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This report, in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere, contains, and other periodic reports and press releases of the Company may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. MAF Bancorp, Inc. (“Company”) intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. These forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “plan,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future.

Factors which could have a material adverse effect on operations and could affect management’s outlook or future prospects of the Company and its subsidiaries include, but are not limited to, higher than expected costs related to the St. Francis transaction, delays in the St. Francis data processing and systems conversions, unanticipated changes in interest rates or flattening of the yield curve, deteriorating economic conditions which could result in increased delinquencies in the Company’s loan portfolio, higher than expected overhead, infrastructure and compliance costs needed to support growth in the Company’s operations, legislative or regulatory developments, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the Company’s loan or investment portfolios, or further deterioration in the value of investment securities, demand for loan products, secondary mortgage market conditions, deposit flows, competition, demand for financial services and residential real estate in the Company’s market area, unanticipated slowdowns in real estate lot sales or problems in closing pending real estate contracts, delays in real estate development projects, the possible short-term dilutive effect of other potential acquisitions, if any, and changes in accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Available Information

The Company’s internet address is www.mafbancorp.com. The Company makes available through this address, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed, or furnished to, the SEC.

General

The Company was incorporated under the laws of the state of Delaware in 1989. The Company is a registered savings and loan holding company primarily engaged in the retail banking business through its wholly-owned subsidiary, Mid America Bank, fsb (“Bank”) and, to a lesser extent, in the residential real estate development business through MAF Developments, Inc. (“MAFD”). The Bank is one of the largest community-oriented financial institutions in the Chicago and Milwaukee metropolitan areas. The Company’s executive offices are located at 55th Street and Holmes Avenue, Clarendon Hills, Illinois 60514-1500. The Company’s telephone number is (630) 325-7300.

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The Company’s primary assets are its investments in the Bank, as well as in MAFD. The Company also maintains a small investment portfolio.

The Bank offers various financial services to its retail and business banking customers through a network of 67 branches in Illinois and Wisconsin. In 2003, the Bank added 29 branches through three acquisitions plus four de novo branches built by the Bank. The Illinois franchise is comprised of 44 branches in suburban and urban communities in the Chicago metropolitan area including 16 locations in the City of Chicago, a strong presence in western Cook and DuPage Counties, an increasing penetration in the rapidly growing collar counties of Will and Kane, as well as a presence in the north and southwest suburbs of Chicago. In Wisconsin, the Bank serves communities in Milwaukee and Waukesha counties and portions of Ozaukee, Washington and Walworth Counties through 23 retail branches under the name of St. Francis Bank, a division of Mid America Bank, fsb. Currently, the Bank plans to build four to five de novo branches in the next 18 months in its continued effort to expand its presence in the Chicago metropolitan area.

Historically, the Bank has principally been engaged in the business of attracting deposits from the retail consumer and using such deposits, along with other borrowings, to make loans secured by real estate, primarily one- to four-family residential mortgage loans. To a lesser extent, the Bank has made multi-family mortgage, commercial, residential construction, land acquisition and development as well as consumer loans, primarily home equity loans and lines of credit. In 2001, the Bank formed a commercial business lending unit to target lending and deposit relationships with small to medium-sized businesses in its primary market areas. The 2003 acquisitions of Fidelity Bancorp and St. Francis Capital Corporation, in particular, have significantly changed the asset mix and expanded the lending focus of the Bank. These acquisitions added a large amount of multifamily commercial real estate, construction, land loans and commercial business loans to the Bank’s portfolio. See “Lending Activities.” Through various wholly-owned subsidiaries, the Bank also provides general insurance services, investment services and securities brokerage primarily to Bank customers and limited title search services for certain loan transactions of the Bank’s loan customers. In addition, the Bank operates an investment subsidiary and a subsidiary engaged in investment in affordable housing projects. The bank also operates a captive reinsurance company, which shares in a portion of mortgage insurance premiums received by certain mortgage insurance companies on the Bank’s mortgage loan originations in return for assuming some of the risk of loss.

Information regarding the transactions completed by the Company in 2003 is set forth below:

On December 1, 2003, the Company completed its $358 million acquisition of St. Francis Capital Corporation, the 100% parent of St. Francis Bank. At November 30, 2003, St. Francis had assets of $2.19 billion, deposits of $1.36 billion, and stockholders’ equity of $191.1 million. The franchise added 23 branches to the Bank’s network, primarily in Milwaukee and its surrounding collar counties.

On July 21, 2003, the Company acquired Fidelity Bancorp, Inc. in an all-stock transaction valued at approximately $115 million. At July 2003, Fidelity had assets of $613 million, deposits of $435 million and stockholders equity of $60 million. Fidelity Bank added five branches to the Bank’s network.

On March 31, 2003, the Company purchased a branch of UmbrellaBank, fsb in Chicago, IL. The transaction involved the purchase of approximately $8.5 million in deposits.

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For financial information regarding the Company’s two separate lines of business (banking and land development), see “Note 19. Segment Information” to the audited consolidated financial statements of the Company included in “Item 8. Financial Statements and Supplementary Data.”

As a federally chartered savings bank, the Bank’s deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Chicago, which is one of the twelve regional banks for federally insured savings institutions comprising the FHLB system. The Bank is subject to extensive regulation, supervision and examination by the Office of Thrift Supervision (“OTS”), as its chartering authority and primary federal regulator, and by the FDIC, which insures its deposits up to applicable limits. Such regulation and supervision establish a comprehensive framework of activities in which the Bank can engage and is designed 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. Any change in such regulation, whether by the OTS, the FDIC or Congress, could have a material impact on the Bank and its operations. See “Regulation and Supervision - Federal Savings Institution Regulation” for more information. The Bank is further regulated by the Board of Governors of the Federal Reserve System as to reserves required to be maintained against deposits and certain other matters.

Competition

The Bank is faced with increasing competition in attracting retail and business banking customer business, including deposit accounts and loan originations. Several national financial institutions have recently announced and commenced aggressive de novo branching plans that are heightening the competitive pressures in the Company’s market areas particularly in the Chicago area. Competition for deposit accounts comes primarily from other savings institutions, commercial banks, money market mutual funds, and insurance companies (primarily in the form of annuity products). Factors affecting the attraction of customers include interest rates offered, pricing of fees and services, convenience of branch locations, access to ATMs, ability to access services through multiple distribution channels and office hours. Competition for loan products comes primarily from mortgage brokers, other savings institutions, commercial banks and mortgage banking companies. Competitive factors for loans include interest rates, terms, fees, and customer service.

Lending Activities

General. The Bank’s lending activities reflect its focus as a retail banking institution serving its local market area by concentrating on residential mortgage lending. The Bank is one of the largest originators of residential mortgages in its market area. The Bank had record residential loan originations in 2003, due to continued expansion into new lending markets, as well as a large volume of refinancings in response to historically low interest rates. The Bank’s residential originations are generally conducted through its branch retail network using primarily commissioned loan officers. The Bank has traditionally held its originations of adjustable-rate or shorter-term fixed-rate mortgage loans for its portfolio and sold a portion of its long-term fixed-rate loans directly into the secondary market. The Bank originates long-term fixed-rate mortgage loans in response to customer demand; however, the Bank tends to sell selected conforming and non-conforming long-term fixed-rate mortgage loans and a limited amount of ARM loans in the secondary market, primarily to the Federal National Mortgage Association (“Fannie Mae”), and to a lesser extent, the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and the Federal Home Loan Bank Mortgage Partnership Program (“MPF”). The volume of current loan originations sold into the secondary market varies over time based on the Bank’s available cash or borrowing capacity, Bank capital ratios, as well as in response to the Bank’s asset/liability management strategy. Consumer loans, primarily equity lines of credit and short-term fixed-rate home equity loans, have been increased through originations and acquisitions and now represent 15.5% of the Bank’s total loans receivable. This strategy has enabled the Bank to position itself to enhance the yield of its portfolio in a

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rising interest rate environment, while also limiting interest rate sensitivity, as these loans are generally based on the prime rate of interest plus or minus a stated margin. In addition, the Bank’s commercial business banking lending department added a variety of commercial business loans that are typically interest sensitive and of shorter duration. The Bank also originates multi-family loans, commercial real estate, residential construction and land acquisition and development loans. At December 31, 2003, the Bank’s total loan portfolio was $6.37 billion, representing over 71% of the total assets of the Company.

Loan Portfolio Composition. The following table sets forth the composition of the Bank’s loan portfolio by loan type in dollar amounts and in percentages at the dates indicated and reflects the change in the loan portfolio mix resulting from the recent acquisitions that closed in 2003. The concentration in one- to four-family real estate has been reduced from 79.5% at December 31, 2002 to 61.3% at December 31, 2003. These acquisitions quickened the pace of loan diversification away from one-to four-family real estate loans that started in 2000.

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The following table shows the composition of the Bank’s loan portfolio, further broken down by fixed-rate and adjustable rate loans, as of the dates indicated. It reflects the significant changes occurring in the last two years from the increased efforts on making the loan portfolio more adjustable rate in nature and of shorter duration. These changes have resulted from an increased internal emphasis on originating floating rate equity lines of credit and commercial business loans, the retention of hybrid ARM mortgage loans in portfolio, while selling the majority of the long-term fixed rate mortgage loan originations in the secondary market. The table also reflects the significant impact the 2003 acquisitions had in increasing the percentage of adjustable rate loans in the portfolio.

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Loan Maturity. The following table shows the contractual final maturity of the Bank’s loan portfolio at December 31, 2003. The loan amounts do not reflect the timing of scheduled monthly principal repayment amounts. Principal repayments and prepayments on mortgage loans totaled $2.91 billion, $2.22 billion, and $1.88 billion, for the years ended December 31, 2003, 2002 and 2001, respectively. Based on these amounts, management believes the information in the following table is not indicative of what the actual repayments on these loans will be.

The following table sets forth at December 31, 2003 the dollar amount of loans receivable held for investment due after one year, and whether such loans have fixed or adjustable interest rates.

Residential Lending. The Bank offers fixed-rate mortgage loans with terms to maturity of 10, 15, 20 and 30 years and fixed-rate balloon loans that mature after seven years. The Bank’s fixed-rate loan products generally offer a monthly repayment option. Interest rates charged on fixed-rate loans are competitively priced on a daily basis based on secondary market prices and market conditions. The Bank also offers a variety of adjustable-rate mortgage loans which are also competitively priced to the secondary market prices in general, but may be more aggressively priced from time to time due to market conditions. The Bank generally originates its fixed-rate and adjustable-rate mortgage loans in a form consistent with secondary market standards as a means of maintaining high credit quality, and limiting liquidity risk should the Bank want to sell or securitize those loans.

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The Bank focuses its lending efforts primarily on the retail origination of loans secured by first mortgages on owner-occupied, one-to four-family residences. Residential loan originations are generated by the Bank’s marketing efforts, its present customers, walk-in customers and referrals from real estate brokers and builders. The Bank’s loan officers are compensated primarily through commissions, based on the level of loans originated in accordance with the Bank’s lending standards.

The Bank offers a mortgage loan modification program, for loans not previously sold in the secondary market, that allows the borrower to receive a reduced interest rate, change in term, or a change in loan program, in lieu of refinancing the original loan. The borrower is charged a fee that varies based upon the modifications made, including an appraisal fee when the Bank requires a reappraisal of the collateral. The program has been advantageous to the Bank during heavy refinancing periods, by enabling the Bank to meet customer demand for loan refinancings, limiting the disruption to its loan operations for loan customers who are borrowing for home purchases, as well as reducing the costs associated with refinance activity of existing borrowers.

Loan applications are reviewed in accordance with the underwriting standards approved by the Bank’s Board of Directors and which generally conform to Fannie Mae standards. Loans in excess of $3.0 million must be approved by the Loan Committee of the Board of Directors. In underwriting residential real estate loans, the Bank evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan. Potential borrowers are qualified for ARM loans and fixed-rate loans based on the initial or stated rate of the loan, except for one-year ARM loans with a loan-to-value ratio in excess of 70% and a term greater than 15 years, in which case the borrower is qualified at 2% above the initial note rate. Despite the benefits of ARM loans to the Bank’s asset/liability management program, they do pose potential additional risks, primarily because as interest rates rise, the underlying payment requirements of the borrower rise, thereby increasing the potential risk of default.

Upon receipt of a completed loan application from a prospective borrower, credit reports are ordered and income, employment and financial information is verified in accordance with underwriting standards. An appraisal of the real estate intended to secure the proposed loan is undertaken by a Bank appraiser or an independent appraiser previously approved by the Bank. It is the Bank’s policy to obtain title insurance on all mortgage loans. Borrowers also must obtain hazard (including fire) insurance prior to closing. The Bank requires flood insurance on properties located in special flood hazard areas. Borrowers are generally required to advance funds on a monthly basis together with each payment of principal and interest through a mortgage escrow account from which the Bank makes disbursements for items such as real estate taxes and hazard insurance premiums as they become due.

The Bank has adopted a policy of generally limiting the loan-to-value ratio on originated first mortgage loans and refinanced loans to 97% and requiring that loans exceeding 80% of the appraised value of the property or its purchase price, whichever is less, generally be insured by a mortgage insurance company approved by Fannie Mae in an amount sufficient to reduce the Bank’s exposure to no greater than the 75% level. However, the Bank has also started offering loans up to 100% loan-to-value under an affordable access program. In many instances under this program, loans up to 100% of the purchase price may be available for borrowers, particularly those who live in historically underserved communities. The Bank self-insures certain loans, subject to higher minimum credit quality standards, that have loan-to-value ratios between 80% and 90%, by charging a slightly higher interest rate. At December 31, 2003, the Bank had $313.3 million of mortgage loans, or 8% of the one- to four-family portfolio that had a loan-to-value ratio of greater than 80% without mortgage insurance. Included in that amount are $34.4 million of loans with greater than 90% loan-to-value ratios, primarily related to the Bank’s affordable housing initiatives. In 2001, the Bank formed a captive reinsurance subsidiary to accept a second-tier layer of risk on mortgage loans with mortgage insurance, in exchange for a portion of the mortgage insurance premiums paid by the customer to certain mortgage insurance companies. See “Subsidiary Activities – Mid America Re, Inc.” for more information.

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As part of its community lending effort, the Bank participates in or actively supports many special lending programs designed to promote affordable homeownership and to address the needs of underserved communities in the markets it serves. Under these programs, the Bank offers various innovative and flexible home mortgage products that primarily benefit low-to moderate-income borrowers, including high loan-to-value mortgages as discussed above. In February 2003, the Bank established an increased community lending goal of $3 billion of mortgage loan originations, in the Chicagoland area, in its CRA assessment area over the next six years. During 2003, $988 million of that goal was fulfilled. In May 2003, the Bank announced that it will provide $500 million in loans over the next five years to Milwaukee area communities and neighborhoods. This goal began to be fulfilled in December 2003 after the closing date of the acquisition. These goals include, single and multi-family home mortgage loans in low-to-moderate income census tracts, loans in predominantly minority communities, and loans to borrowers whose income is below 80% of median income. Management set these goals for the Bank assuming continued access to financing, mortgage purchase and affordable housing programs through Fannie Mae, Freddie Mac and MPF, continued access to secondary mortgage market outlets, continued adequacy of other funding sources critical to the Bank’s lending capacity, and favorable housing market and affordable interest rate conditions.

Multi-family Lending. The Bank originates multi-family residential mortgage loans in its market areas. At December 31, 2003, the Bank had multi-family loans of $621.3 million, including a portfolio of purchased participating interests of $2.5 million related to low-income housing. Multi-family loans represent 9.6% of total loans receivable at December 31, 2003. ARM loans represented 78.8% of the multi-family residential loan portfolio at December 31, 2003. Multi-family loans are generally offered with initial fixed-rate periods of one, three, five, seven and ten years. Multi-family residential mortgage loans are made for terms to maturity of up to 25 years and carry a loan-to-value ratio not greater than 80%. The Bank generally requires a net operating income to debt service ratio of at least 1.0 times. Loans secured by properties of five or more units are primarily qualified on the basis of rental income generated by the property.

Commercial Real Estate Lending. Loans secured by commercial real estate, generally carry a higher yield and are made for a shorter term than fixed-rate one- to four-family residential loans. At December 31, 2003, the Bank had $535.7 million of commercial real estate loans. Historically, the Bank’s policy has been to originate commercial real estate loans on a limited basis primarily to assist the Bank in an effort to maintain an interest-rate sensitive loan portfolio. With the acquisitions completed since 2001, however, the Company has expanded its commercial real estate lending area to facilitate the growth in this portfolio. During 2003, the Bank’s commercial real estate portfolio increased by $393.2 million, with $370.4 million of that increase due to the acquisition of St. Francis. The current portfolio includes a variety of commercial properties, including office buildings, warehouses, industrial/manufacturing buildings, motel properties, land acquisition and development and other improved non-residential properties.

Commercial real estate loans are generally made in amounts up to 80% of the appraised value of the property, as determined by an independent appraiser previously approved by the Bank. The Company’s commercial real estate lending area includes the states of Illinois, Wisconsin and Minnesota, with its primary geographical focus in the Chicago and Milwaukee metropolitan areas. The Bank often requires borrowers to provide their personal guarantees on loans made for commercial real estate.

Loans secured by commercial real estate properties are generally larger and involve a greater degree of risk than residential mortgage loans. Because payments on loans secured by commercial real estate properties are often dependent on the successful operation or

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management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. The Bank seeks to minimize these risks by lending primarily on existing income-producing properties and generally restricting such loans to properties in the Chicago and Milwaukee areas. The Bank analyzes the financial condition of the borrower and the reliability and predictability of the net income generated by the security property in determining whether to extend credit. In addition, the Bank generally requires a net operating income to debt service ratio of at least 1.15 times. At December 31, 2003, the Bank’s ten largest commercial real estate loans totaled $64.8 million, all of which are current and performing in accordance with their original terms.

Construction and Land Lending. The Bank originates loans to finance the construction of one- to four-family residences, primarily in its market areas. At December 31, 2003, the Bank had $135.7 million of construction loans of which $107.4 million, and $16.2 million financed the construction of one- to four-family and multi-family residences, respectively. The Bank also originates loans for the acquisition and development of unimproved property to be used primarily for residential purposes in cases where the Bank is to provide the construction funds to improve the properties. At December 31, 2003, the Bank’s construction and land loans totaled $210.7 million, or 3.3%, of total loans receivable.

The Bank uses loan underwriting and construction loan guidelines for financing primarily individual, owner-occupied houses where qualified contractors are involved. Construction loans are generally structured either to be converted to permanent loans at the end of the construction phase or to be paid off upon receiving financing from another financial institution. The majority of the single-family construction loans were acquired from St. Francis. These loans are generally hybrid ARMs originated with a final maturity of 30 years, that convert to a permanent loan after an initial construction period of up to twelve months, during which the borrower only pays interest. Construction loans are based on the appraised value of the property, as determined by either an independent appraiser, or an appraiser on staff at the Bank, and an analysis of the potential marketability and profitability of the project. The Bank also makes construction loans, with maturities of up to 12 months, with extensions as needed. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant.

Land loans include loans to developers for the development of residential subdivisions in the Bank’s market areas. At December 31, 2003, the Bank had land loans to developers totaling $33.2 million. Of this amount, the largest aggregate amount of land acquisition and development loans to a single developer amounted to $11.7 million. In addition to land loans, this borrower had construction loans with the Bank totaling $8.7 million. Loans to developers are generally short-term loans with terms of three to five years. Under Bank policy, the loan-to-value ratio may not exceed 80% and is generally less than 75%. The majority of such loans are floating rate based on the prime rate or LIBOR. Loans generally are made to customers of the Bank and developers with whom the Bank has had long-standing relationships. The Bank requires an independent appraisal of the property and feasibility studies may be required to determine the profit potential of the development project.

Land loans are also made to local builders for the purchase of improved lots. At December 31, 2003, the Bank had land loans outstanding to local builders totaling $7.9 million. Such loans are generally for terms of up to three years and are generally granted at rates similar to rates quoted for residential mortgage loans. The loan-to-value ratio on such loans is limited to 75%. Land loans for the purchase of fully improved lots are also made to individuals. At December 31, 2003, the Bank had land loans to individuals totaling $33.9 million. Such loans are made for up to 15-year terms with adjustable or fixed interest rates that are made at the prevailing rates for one- to four-family residential loans.

Construction and land development loans afford the Bank the opportunity to increase the interest rate sensitivity of its loan portfolio and to receive yields higher than those obtainable

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on ARM loans secured by existing residential properties. These higher yields correspond to the higher risks associated with construction lending. Construction and land development loans involve additional risks attributable to the fact that loan funds are advanced upon the security of the project under construction, which is of uncertain value prior to its completion. Because of the uncertainties inherent in estimating construction costs as well as the market value of the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. As a result of the foregoing, construction and land development lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest. If the Bank is forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that the Bank will be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. In addition, the Bank may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time. The Bank has attempted to address these risks through its underwriting procedures and its limited amount of construction lending on multi-family and commercial real estate properties.

Consumer Lending. The Bank’s consumer lending is primarily home equity lines of credit and fixed-rate second mortgage loans and to a limited extent, auto loans and unsecured consumer loans. On December 31, 2003, outstanding balances on home equity lines represented $898.5 million or 14% of the Bank’s total loan portfolio. Home equity lines of credit are generally extended up to 85% of the appraised value of the property, less existing liens, generally at interest rates which range from the designated prime rate minus .50% to plus .50%, based on balances drawn. To a lesser extent, the Bank offers home equity lines of credit at greater than 85% of the appraised value of the property. The interest rate on 85%-100% loan-to-value lines of credit is the designated prime rate plus 1.50% to 3.50%. The Bank uses the same underwriting standards for home equity lines of credit as it uses for residential mortgage loans. Other home equity loans consist of $67.1 million of primarily fixed-rate second mortgage loans that amortize over a three-to ten-year period.

Commercial Business Lending. The Bank originates a variety of commercial loans, including working capital financing, equipment loans, real estate loans and personal loans. Collateral can take many forms, such as real estate, business or personal assets, or in some cases may be unsecured. Business loans may include the personal guarantees of business owners. Historical and projected financial statements, business and personal credit inquiries and collateral valuations are analyzed to give the Bank assurance that the borrowers will generate sufficient cash flow to cover ongoing expenses and debt service. The type and liquidity of the collateral taken as a secondary source of repayment is monitored, as is ongoing debt service capacity. Additionally, the Bank may provide letter of credit services to certain borrowers on a case-by-case basis.

New commercial loans are reviewed and approved on a weekly basis by a committee of senior management and loan officers that are responsible for the review and approval of new loans up to $4.0 million. Under the Bank’s policies, loans up to $7.5 million are subject to approval by a committee consisting of members of the Bank’s board of directors, and loans over $7.5 million must be approved by the board of directors. In addition, a loan grading system was established for reviewing and assessing portfolio credit quality for all commercial business loans. An internal loan review committee of senior management and loan officers of the Bank periodically monitors credit quality of commercial business loans including loans on the Bank’s “watch list” to determine actions to be taken, including collection, additional collateral, and accrual status. During 2003, the Bank also established an independent loan review function to review commercial loan files and ascertain compliance with Bank documentation and underwriting policies and also to independently grade the loans. At December 31, 2003, the Bank’s portfolio of commercial business loans was $128.3 million.

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Commercial loans may involve a greater degree of risk than other types of loans, and a borrower’s ability to repay may be more susceptible to adverse economic conditions. The value of the collateral securing a commercial loan is often dependent upon the successful operation of the business. To the extent the Bank originates loans outside of its primary market areas, risk may be elevated due to the increased difficulty distance brings in monitoring the loan and the borrower’s business. The Company’s strategy is to continue to grow its commercial lending portfolio, as management believes this type of lending is providing a higher yield than residential loans and is an important component in helping to maintain a balanced loan portfolio. Typically, the Company targets small to medium sized, privately held businesses in its primary market areas with which to establish commercial banking relationships.

Credit Enhancement Programs. The Company has entered into agreements whereby, for an initial 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 these agreements. At December 31, 2003 the amount of IRBs for which the Company has guaranteed payment was $29.2 million.

Environmental Issues. The Bank encounters certain environmental risks in its lending activities. Under federal and state environmental laws, lenders may become liable for the costs of cleaning up hazardous materials found on security property. Although environmental risks are usually associated with industrial and commercial loans, risks may be substantial for residential lenders like the Bank if environmental contamination makes the security property unsuitable for use. This could also have an effect on nearby property values. In accordance with Fannie Mae and Freddie Mac guidelines, appraisals for single-family residences on which the Bank lends include comments on environmental influences. The Bank attempts to control its risk by training its appraisers and underwriters to be cognizant of signs indicative of environmental hazards. No assurance can be given, however, that the values of properties securing loans in the Bank’s portfolio will not be adversely affected by unforeseen environmental risks, although the Bank is unaware of any such environmental issues which subject it to potential material liability at this time.

Environmental concerns such as asbestos containing material, underground storage tanks, mold, and lead based paint can pose a health risk to tenants and negatively impact the collateral value of security property. To mitigate this risk to the Bank, loan policies call for management to consider all relevant factors in order to determine whether an environmental review is needed and, if so, the scope and detail, prior to the Bank’s origination of commercial and multi-family loans. The relevant factors include, but are not limited to, the following: age of property, use of property, location of property, knowledge of subject area, borrower(s) financial capacity to withstand potential clean-up costs, loan amount and loan-to-value ratio of the proposed loan. For loans in excess of $1 million, a satisfactory Phase I environmental exam is generally required as part of the loan approval process, with further investigation in the form of a Phase II exam taking place as dictated therein.

Originations, Purchases, Sales, Swaps of Mortgage Loans and Mortgage-Backed Securities. The Bank originates both ARM and fixed-rate loans. Its ability to originate loans is dependent upon the relative customer demand for fixed-rate or ARM loans in the origination and purchase market, which is affected by the term structure (short-term compared to long-term) of interest rates as well as the current and expected future level of interest rates. The Bank sells selected conforming and non-conforming long-term fixed-rate and a limited amount of ARM mortgage loans in the secondary mortgage market to manage its interest rate risk exposure. In the last two years the Bank has generally sold most of its conforming and non-conforming, or jumbo long-term fixed-rate loan originations. In 2003, the Bank retained the majority of its 15-year fixed rate originations in its loan portfolio as it could absorb the interest rate risk in this product with the change in its asset mix and increase in core deposit levels. These loan sales also allow the Bank to continue to make loans when deposit flows decline or funds are not otherwise available for lending. Generally, the loans are sold for cash or securitized and

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sold in the secondary mortgage market to investors such as Fannie Mae, Freddie Mac, and MPF as well as mortgage bankers, investment banks and other financial institutions. The majority of these loans are sold without recourse, except those loans sold to MPF, where the Bank retains a limited level of risk in exchange for better pricing on the loans sold. At December 31, 2003, the Bank had approximately $10.4 million in net credit risk exposure on loans it has sold to MPF.

The Bank may also exchange or swap loans out of its portfolio for mortgage-backed securities primarily with Fannie Mae and Freddie Mac that are either sold simultaneously or held as mortgage-backed-securities available for sale. Generally, the mortgage-backed securities are used to collateralize borrowings and deposits or are sold in the secondary market to raise additional funds. Swap activity by the Bank is governed by pricing levels in the secondary mortgage market for whole mortgage loans versus securitized mortgage loans, as well as the level of rates for collateralized borrowings. During the current year, the Bank swapped and sold $76.9 million in loans receivable, compared to $58.8 million for the year ended December 31, 2002. Additionally, in 2003 and 2002 the Bank swapped $85.3 million and $67.6 million, respectively, of long-term fixed-rate prepayment penalty protected loans that were in their final year of prepayment protection into mortgage-backed securities.

In 2003, the Bank originated and purchased $4.99 billion in loans receivable, compared to $3.69 billion in 2002. During 2003, with the continued decrease in interest rates, fixed-rate mortgage loan originations for single family residences were $2.19 billion compared to $1.59 billion for the previous year, as customers continued to take advantage of the ability to lock in historically low long-term mortgage rates. During 2003, originations of adjustable rate single family mortgage loans were $1.79 billion compared to $1.46 billion for 2002. Of the fixed-rate originations in 2003, $1.67 billion, or 76%, conformed to the requirements for sale to Fannie Mae and Freddie Mac and $521.9 million, or 24%, did not conform to the requirements of these agencies. The Bank’s “nonconforming” loans are generally designated as such because the principal loan balance exceeds $322,700 ($333,700 as of January 1, 2004), which is the Freddie Mac, Fannie Mae, and MPF purchase limit, and not because the loans present increased risk of default to the Bank. Loans with such excess balances generally carry interest rates from one-eighth to three-eighths of one percent higher than similar, conforming fixed-rate loans. The Bank generally sells its conforming fixed-rate production to Freddie Mac, Fannie Mae, and MPF and to a lesser degree, also sells a portion of its non-conforming production to non-government agency investors. Generally, prior to 2001, nonconforming loans were held in the Bank’s loan portfolio. During the current year, the Bank sold $1.77 billion of loans into the secondary market, compared to $1.31 billion in 2002. Prior to its acquisition by the Company, St. Francis also tended to sell fixed-rate loan originations into the secondary market, a significant portion of which activity was conducted through its wholly owned subsidiary, St. Francis Mortgage Corporation, a Wisconsin corporation with an office in Illinois that purchased loans originated by mortgage brokers in the Midwest and then sold them to various investors. For the St. Francis fiscal year ended September 30, 2003, SF Mortgage purchased and sold approximately $580 million of mortgages. This wholesale volume was heavily refinance driven. As contemplated, St. Francis sold this mortgage banking subsidiary to a third party prior to its merger with the Company, and the Company has not continued St. Francis’ wholesale mortgage operation. This will contribute to what is expected to be lower loan originations and loan sale profits for the Company in 2004 compared to the aggregate origination volumes and loan sale profits for the two companies combined based on their respective 2003 fiscal years.

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The following table sets forth the Bank’s originations, purchases, sales, swaps and principal repayments of loans receivable for the periods indicated.

Loan servicing fee income. Loan servicing fee income is generated from loans that the Bank has originated and sold, and includes fees for the collection and remittance of mortgage payments, insurance policies and real estate taxes. Typically, the Bank receives a servicing fee for performing the aforementioned services equal to at least .25% for fixed-rate mortgages and .25% to .375% for ARM loans on the outstanding principal balance of the sold loan being serviced. Servicing fees are included in income as loan payments are received. Costs of servicing loans for others are charged to expense as incurred. The Bank is required to capitalize mortgage servicing rights upon the sale of loans based on assumptions as to fee income earned, estimated prepayment speeds of the underlying mortgage loans, and the cost of servicing. Mortgage servicing rights are amortized based on the estimated life of the loan servicing income stream, which is recorded as a decrease to loan servicing fee income. In addition, mortgage servicing rights are periodically assessed for impairment, with any impairment or recovery recognized through a valuation allowance.

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The following table shows the components of loan servicing fee income in dollars and as a percentage of loans serviced for others, as well as other information regarding loans serviced for others for the years indicated:

Residential Lending Collection Procedures. When a borrower fails to make a required payment by the end of the month in which the payment is due, the Bank generally institutes collection procedures. The Bank 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 Bank’s procedure is to contact the borrower in order to determine the reason for the delinquency and to effect a cure, and, where appropriate, loan personnel will review the condition of the property and the financial circumstances of the borrower. Based upon the results of any such investigation, the Bank may: (1) accept a repayment program for the arrearage from the borrower; (2) seek evidence, in the form of a listing contract, of efforts by the borrower to sell the property if the borrower has stated that he is attempting to sell; (3) request a deed in lieu of foreclosure; or (4) initiate foreclosure proceedings. When a loan payment is delinquent for three or more monthly installments, the Bank will generally initiate foreclosure proceedings. Interest income on loans is reduced by the full amount of accrued and uncollected interest on loans that are in process of foreclosure or otherwise determined to be uncollectible.

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Business Banking Collection Procedures. Business banking officers and staff are responsible for monitoring delinquencies regularly, and loan officers generally contact borrowers by telephone or written correspondence within 30 days of a loan becoming delinquent to address payment of past due amounts. As part of the collection procedures, business banking staff review the borrower’s financial condition and consider the Bank’s collateral and documentation position. If delinquency persists beyond an agreed to cure period and the loan is in default, the Bank may work with the borrower to restructure the loan in appropriate circumstances. If the Bank is not able to reach a satisfactory solution with the Borrower, the Bank will generally initiate legal action to protect its interest in the borrower’s cash flow and collateral. Where appropriate, the Bank uses internal staff to handle foreclosure or legal proceedings. For larger or more complex situations, the Bank generally retains outside counsel.

Delinquent Loans. At December 31, 2003, 2002, and 2001, delinquencies in the Bank’s portfolio were as follows: