SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2003

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

For the transition period from ______________ to ______________ .

Commission File Number 0-23063

FIRST SECURITYFED FINANCIAL, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware		36-4177515
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

936 North Western Avenue, Chicago, Illinois		60622
(Address of Principal Executive Offices)		Zip Code

Registrant’s telephone number, including area code: (773) 772-4500

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) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such 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 (ss.229.405 of this chapter) 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 check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the act). YES |_| NO |X|

The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing price of such stock on June 30, 2003 was $58.8 million. (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.)

As of March 23, 2004, the Registrant had 4,043,565 shares of Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

PART II of Form 10-K - Annual Report to Stockholders for the fiscal year ended December 31, 2003. PART III of Form 10-K - Proxy Statement for 2004 Annual Meeting of Stockholders.

FORWARD-LOOKING STATEMENTS

First SecurityFed Financial, Inc. (“First SecurityFed” or the “Company”), and its wholly owned subsidiary, First Security Federal First Savings Bank (“First Security” or the “Bank”), may from time to time make written or oral “forward-looking statements,” including statements contained in its filings with the Securities and Exchange Commission (“SEC”). These forward-looking statements may be included in this Annual Report on Form 10-K and the exhibits attached to it, in First SecurityFed’s reports to shareholders and in other communications, which are made in good faith by us pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, that are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words “may”, “could”, “should”, “would”, “believe”, “anticipate”, “estimate”, “expect”, “intend”, “plan” and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in the forward-looking statements:

the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;
inflation, interest rate, market and monetary fluctuations;
the timely development of and acceptance of our new products and services and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors’ products and services;
the willingness of users to substitute our products and services for products and services of our competitors;
our success in gaining regulatory approval of our products and services, when required;
the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance);
the impact of technological changes;
changes in consumer spending and saving habits; and
competition from other financial services companies;
prevailing real estate values in our market area
our success at managing the risks involved in the foregoing.

The list of important factors stated above is not exclusive. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of First SecurityFed or First Security.

PART I

Item 1. Business

General

First SecurityFed is a Delaware corporation that was formed in 1997 by the Bank for the purpose of becoming a savings and loan holding company. The Company owns all of the outstanding capital stock of the Bank.

As a community-oriented financial institution, First Security seeks to serve the financial needs of communities in its ethnically diverse market area. We have achieved a significant penetration in our market area by engaging in substantial community service activities and targeting marketing initiatives focused on groups including ethnic communities within our market area.

Our business involves attracting deposits from the general public and using such deposits, together with other funds, to originate primarily one- to four-family residential mortgage loans and, to a lesser extent, multi-family and commercial real estate, construction, consumer and other loans in our market area. We also invest in mortgage-backed and other securities and other permissible investments.

The Bank offers a variety of accounts having a range of interest rates and terms. Our deposits include passbook and NOW accounts, money market accounts and certificate accounts with terms of three months to five years. We solicit deposits only in our primary market area and do not accept brokered deposits.

Market Area

Our main office is located in Chicago, Illinois and our branch offices are located in Chicago, Illinois, Philadelphia, Pennsylvania and Palatine, Illinois.

Our Western Avenue office is located on the near northwest side of Chicago in the “Ukrainian Village” community, a middle-income community where the Bank has focused its operations since 1964. This community is located approximately two and one half miles to the northwest of downtown Chicago and approximately three miles west of Lake Michigan. The majority of the community’s many businesses are small and local companies. Residences within the community consist primarily of two- to four-family flats and single family homes although there are also mid-size apartment buildings. Real estate values within this community have risen sharply over the last ten years as “gentrification” has occurred in much of this community due in part to its proximity to downtown Chicago.

Our Milwaukee Avenue office was opened in 1993 and is located in the “Norwood Park” neighborhood of Chicago. This community is a stable middle income area which also has many residents of Eastern European descent. Residences within the community consist primarily of single family homes as well as two and three flats and small apartment buildings. This area is located approximately eight miles northwest of downtown Chicago.

Our Philadelphia branch was acquired in 1994 through a purchase from the Resolution Trust Corporation. The branch is located in a moderate income neighborhood of Philadelphia known as “Rhawnhurst.” The community is home to many persons of Eastern European heritage, including new immigrants. Residences within the community consist primarily of single family row houses and, to a lesser extent, small apartment buildings.

Our northwest suburban Chicago branch was opened in 1977 in Rolling Meadows, Illinois, and in December 2002 relocated to a new facility in nearby Palatine, Illinois. Over the last 20 years, the northwest suburban area of Chicago has experienced significant population and commercial growth. However, as a result of competition, the branch’s deposit and loan growth has been modest. In December 2002, the Bank completed the remodeling of a building in Palatine, Illinois for its relocated northwest suburban office. The remodeled office is located in very close proximity to the Bank’s Rolling Meadows branch, but is a larger facility located on one acre of land enabling the Bank to offer drive-up lanes, 24-hour ATM service and a night depository. The new branch was opened to service the public in January 2003 and the Rolling Meadows facility was closed at that time.

Lending Activities

General. Our principal lending activity is originating for our portfolio fixed and, to a much lesser extent, adjustable rate (“ARM”) mortgage loans secured by one- to four-family residences located primarily in our market area. First

Security also originates and has recently increased its emphasis on multi-family and commercial real estate, construction, home equity, consumer and other loans in its market area. At December 31, 2003, our net loans receivable totaled $304.0 million. See “- Originations of Loans.”

The following table sets forth the composition of the Bank’s loan portfolio in dollar amounts and in percentages as of the dates indicated.

	December 31,

	2003					2002					2001					2000					1999

	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent

	(Dollars in thousands)
Real Estate Loans:
One- to four-family	$	169,139		51.63	%	$	188,449		59.46	%	$	207,067		68.60	%	$	212,863		75.32	%	$	200,201		80.58	%
Construction		65,510		20.00			32,486		10.25			23,371		7.74			11,745		4.16			3,800		1.53
Multi-family		24,156		7.37			33,464		10.56			28,659		9.50			19,272		6.82			13,389		5.39
Commercial		46,397		14.16			40,745		12.85			24,546		8.13			20,845		7.38			15,304		6.16
Mixed use (1)		9,020		2.75			11,463		3.62			7,931		2.63			8,972		3.17			9,084		3.65

Total real estate loans		314,222		95.91			306,607		96.74			291,574		96.60			273,697		96.85			241,778		97.31

Consumer loans:
Share loans		2,130		0.65			1,135		0.36			1,004		0.33			1,368		0.48			1,164		0.47
Automobile		—		—			—		—			—		—			—		—			3		0.01
Home equity		10,769		3.29			8,704		2.75			8,847		2.93			7,147		2.53			5,103		2.05
Other		504		0.15			482		0.15			398		0.14			383		0.14			402		0.16

Total consumer loans		13,403		4.09			10,321		3.26			10,249		3.40			8,898		3.15			6,672		2.69

Total loans		327,625		100.00	%		316,928		100.00	%		301,823		100.0	%		282,595		100.00	%		248,450		100.00	%
Less:
Construction loans in process		18,380					10,227					9,576					2,777					3,467
Deferred fees and discounts		2,236					2,122					1,991					1,803					1,500
Allowance for losses		3,032					2,937					2,806					2,561					2,315

Total loans receivable, net	$	303,977				$	301,642				$	287,450				$	275,454				$	241,168

_________________
(1) Mixed use refers to real estate on which the borrower both resides and conducts a business.

The following table shows the composition of the Bank’s loan portfolio by fixed- and adjustable-rate at the dates indicated.

	December 31,

	2003					2002					2001					2000					1999

	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent

	(Dollars in thousands)
Fixed-Rate Loans:
One- to four-family	$	161,977		49.44	%	$	183,393		57.86	%	$	202,753		67.18	%	$	204,971		72.53	%	$	193,552		77.90	%
Multi-family		22,188		6.77			33,464		10.56			28,659		9.50			19,272		6.82			13,389		5.39
Commercial		20,938		6.39			22,910		7.23			16,615		5.50			15,740		5.57			12,668		5.10
Mixed use(1)		9,021		2.75			11,463		3.62			7,931		2.63			8,972		3.17			9,084		3.66

Consumer		2,634		0.80			1,617		0.51			1,402		0.46			1,751		0.62			1,569		0.63

Total fixed-rate loans		216,758		66.16			252,847		79.78			257,360		85.27			250,706		88.71			230,262		92.68
Adjustable-Rate Loans

One-to-four-family		7,162		2.19			5,056		1.60			4,314		1.43			7,892		2.79			6,649		2.68
Multi-family		1,968		0.60			—		—			—		—			—		—			—		—
Commercial		25,458		7.77			17,835		5.62			7,931		2.63			5,105		1.81			2,636		1.06
Construction		65,510		20.00			32,486		10.25			23,371		7.74			11,745		4.16			3,800		1.53
Home Equity		10,769		3.29			8,704		2.75			8,847		2.93			7,147		2.53			5,103		2.05

Total adjustable- rate loans		110,867		33.84			64,081		20.22			44,463		14.73			31,889		11.29			18,188		7.32

Total loans		327,625		100.00	%		316,928		100.00	%		301,823		100.00	%		282,595		100.00	%		248,450		100.00	%

Less:
Construction loans in process		18,380					10,227					9,576					2,777					3,467
Deferred fees and discounts		2,236					2,126					1,991					1,803					1,500
Allowance for losses		3,032					2,932					2,806					2,561					2,315

Total loans receivable, net	$	303,977				$	301,642				$	287,450				$	275,454				$	241,168

_______________
(1) Mixed use refers to real estate on which the borrower both resides and conducts a business.

The following schedule illustrates the interest rate sensitivity of the Bank’s loan portfolio at December 31, 2003. Mortgages that have adjustable or renegotiable interest rates are shown as maturing in the period during which the final payment is due. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.

		One- to four-family Residential					Multi-family, Construction and Commercial Real Estate					Consumer					Total

Due During Years Ending December 31,		Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate			Amount		Weighted Average Rate
Due During Years Ending December 31,
	(Dollars in thousands)
2004		$	3,814		7.89	%	$	76,711		6.25	%	$	981		4.29	%	$	81,506		6.28	%
2005 to 2006			11,040		6.33			21,354		8.07			828		4.69			33,222		7.26
2007 and 2008			28,806		5.90			28,337		7.31			825		4.88			57,968		6.63
2009 to 2013			16,312		6.61			2,594		8.25			—		—			18,906		6.83
2014 to 2023			44,457		6.19			9,331		7.20			—		—			53,788		6.26
2024 and
following			64,710		6.82			17,525		7.95			—		—			82,235		6.82

Total		$	169,139		6.50		$	155,852		6.82		$	2,634		4.61		$	327,625		6.60

The total amount of loans due after December 31, 2003 that have predetermined interest rates is $257.3 million, while the total amount of loans due after such date that have floating or adjustable interest rates is $16.5 million.

Under federal law, the aggregate amount of loans that we are permitted to make to any one borrower is generally limited to 15% of unimpaired capital and surplus (25% if the security for such loan has a “readily ascertainable” value or 30% for certain residential development loans). At December 31, 2003, based on the above, the Bank’s regulatory loans-to-one borrower limit was approximately $10.3 million. On the same date, the Bank had no borrowers with outstanding balances in excess of this amount. As of December 31, 2003, the largest dollar amount

outstanding or committed to be lent to one borrower, or group of related borrowers, was $3.5 million, secured by two commercial buildings in the metropolitan Chicago area. At December 31, 2003, this loan was performing in accordance with its terms. As of the same date, there were 47 other lending relationships with carrying values in excess of $1.0 million.

All of the Bank’s lending is subject to its written underwriting standards and to loan origination procedures. Decisions on loan applications are made on the basis of detailed applications and property valuations (consistent with the Bank’s appraisal policy). The loan applications are designed primarily to determine the borrower’s ability to repay, and the more significant items on the application are verified through use of credit reports, financial statements, tax returns or confirmations. All mortgage loans currently originated by First Security are approved by the loan committee, currently comprised of Directors Babyk, Gawryk and Nadzikewycz and Vice President Korb, and ratified by the full Board of Directors.

The Bank requires title insurance or other evidence of title on its mortgage loans, as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. The Bank also requires flood insurance to protect the property securing its interest when the property is located in a flood plain.

One- to Four-Family Residential Real Estate Lending. The cornerstone of our lending program is the origination of loans secured by mortgages on owner-occupied one- to four-family residences. Historically, the Bank focused its residential lending activities on fixed-rate loans with terms of up to 30 years. In the 1980s, in order to reduce the average term to repricing of its assets, the Bank began to offer 15-year and 10-year fixed-rate loans as well as ARMs (although, as a result of customer preference, the ARM loan volume has been limited). Substantially all of our one- to four-family residential mortgage originations are secured by properties located in our market area. All mortgage loans currently originated by the Bank are retained and serviced by it.

We currently offer fixed-rate one-to-four family mortgage loans with maturities from 10 to 30 years. We also offer fixed-rate balloon products with a 30-year amortization schedule that are due in five years and which, under certain circumstances, may be extended for an additional term of up to five years, as applicable. As of December 31, 2003, we had $8.6 million of fixed rate loans with original terms of 10 years or less (most of which were three- or five-year balloon loans), $68.9 million of fixed-rate loans with original terms of 10-15 years and $105.9 million of fixed rate loans with original terms of more than 15 years. See “– Originations of Loans.”

We also originate fixed-rate home equity loans with terms of up to ten years. These loans are written so that the total balance does not exceed the lesser of $50,000 or 80% of the appraised value of the security property when combined with the balance of the first mortgage lien. At December 31, 2003, we had $2.0 million of home equity loans, all of which are classified in the tabular data as one- to four-family residential loans.

The Bank’s ARM loans carry interest rates that adjust at a margin (generally 250 basis points) over the yield on the One-Year and the Three-Year Average Monthly U.S. Treasury Constant Maturity Indexes (“CMT”). Such loans may carry terms to maturity of up to 30 years. The ARM loans currently offered by the Bank provide for a cap on annual interest rate changes of 200 basis points and a lifetime cap generally of 600 basis points over the initial rate. Initial interest rates offered on our ARM loans may be approximately 100-150 basis points below the fully indexed rate, although borrowers are qualified at the fully indexed rate. As a result, the risk of default on these loans may increase as interest rates increase. At December 31, 2003, one- to four-family ARMs totaled $5.1 million or 1.60% of the Bank’s total loan portfolio.

We generally lend up to 95% of the lesser of the sales price or appraised value of the security property on owner occupied one- to four-family loans, provided, however, that private mortgage insurance is obtained in an amount sufficient to reduce our exposure to not more than 80% of the sales price or appraised value, as applicable. The loan-to-value ratio on non-owner occupied, one- to four-family loans is generally 80% of the lesser of the sales price or appraised value of the security property. Non-owner occupied one- to four-family loans may pose a greater risk to the Bank than traditional owner occupied one- to four-family loans. In underwriting one- to four-family residential real estate loans, we currently evaluate the borrower’s ability to make principal, interest and escrow payments, the borrower’s credit history, the value of the property that will secure the loan and debt to income ratios.

Residential loans do not currently include prepayment penalties, are non-assumable and do not produce negative amortization. Our underwriting practices do not comply in every way with those required by most purchasers in the secondary market. For instance, the Bank, on occasion, will lend to borrowers that have income/debt service ratios

below that required by many secondary market purchasers. In such event, we require that the borrower have other attributes that justify approving a loan, such as a favorable repayment record with the Bank on previous lending relationships, favorable cash flow, a low loan to value ratio or other assets that can be used as additional collateral. We have found that non-compliance with secondary market standards at the time of origination does not in and of itself cause credit problems, since the Bank has engaged in this type of lending for many years and our overall delinquency experience on these loans has been satisfactory to date. In addition, these loans, once seasoned, may be saleable on the secondary market. Furthermore, we have found that these policies and procedures help us maintain and improve our customer relations and the Bank’s reputation in the communities we serve.

While we seek to originate most of our one- to four-family residential loans in amounts that are less than or equal to the applicable Federal Home Loan Mortgage Corporation maximum, we do make one- to four-family residential loans in amounts in excess of such maximum. Our delinquency experience on such loans has been similar to our experience on our other residential loans.

Our residential mortgage loans customarily include due-on-sale clauses giving us the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the property subject to the mortgage and the loan is not repaid.

Multi-family and Commercial Real Estate Lending. In order to increase the yield and interest rate sensitivity of our loan portfolio and complement residential lending opportunities, we originate permanent multi-family and commercial real estate loans secured by properties in our primary market area. As a result of the strong economy in our Chicago market area, increased customer demand and an increased emphasis on this lending on our part, we have been able to increase substantially our holdings of these types of loans over the last several years. At December 31, 2003, we had multi-family loans totaling $24.2 million, or 7.37% of our total loan portfolio, and $55.4 million in commercial and mixed use real estate loans, representing 16.91% of the total loan portfolio.

Our multi-family loan portfolio consists primarily of loans secured by 44 or fewer units. Our commercial real estate loans are secured primarily by retail stores, small office buildings, store/apartment complexes, taverns and store front offices.

Our multi-family real estate loans generally carry a maximum term of five years and have fixed rates; most of these loans are five-year balloons with a 25-year or more amortization schedule. These loans are generally made in amounts of up to 80% of the lesser of the appraised value or the purchase price of the property. Most of our commercial real estate loans are five-year balloon loans with fixed rates of interest. Included in our commercial real estate loans are lines of credit with outstanding balances of $25.5 million secured by commercial real estate with floating interest rates tied to the prime rate of interest. Commercial real estate loans are generally made in amounts up to 75% of the lesser of the appraised value or the purchase price of the property.

Appraisals on properties securing multi-family and commercial real estate loans in excess of $250,000 are performed by an independent appraiser designated by us at the time the loan is made. All appraisals on multi-family and commercial real estate loans are reviewed by the loan committee. In addition, our underwriting procedures require verification of the borrower’s credit history, income and financial statements, banking relationships, references and income history and projections for the property. We obtain personal guarantees on these loans.

At December 31, 2003, our largest multi-family and commercial real estate loan outstanding totaled $2.2 million and was secured by a 24 unit apartment building located in Chicago, Illinois. The loan was performing in accordance with its terms as of that date.

Multi-family and commercial real estate loans may present a higher level of risk than loans secured by one- to four-family residences. This greater risk is due to 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.

Construction Lending. We originate construction loans to builders, developers and individuals to finance development of one- to four-family, multi-family and, to a lesser extent, small commercial properties. These loans generally carry interest rates that float with the prime rate of interest and have maturities of one year or less. As a result, they can be valuable asset/liability management tools.

Because of consumer demand in our Chicago market area and our increase emphasis on construction lending, we have been able to increase significantly our construction loan activities over the last several years.

A small portion of the Company’s construction loans are made to individuals for the constructions of their residences. Such loans may be structured to convert to permanent loans at the end of the construction phase. Most of the Company’s other construction loans do not have prearranged takeout financing at the time of commitment and most of the underlying projects do not have tenants or buyers at the time of commitment. This can create a risk that the loan will not be promptly repaid at maturity.

The Bank requires independent appraisals on all construction loans. The maximum loan to value ratio on construction loans is 80% (75% in the case of commercial properties) and disbursements are made in increments as construction progresses and instructions warrant. The Bank requires a personal guarantee from the borrower on its construction loans.

The Bank also makes a limited number of land loans. Such loans are generally limited to 60% of the lesser appraised value or actual cost.

At December 31, 2003, the Bank’s largest construction loan was $3,000,000 (including undisbursed amounts.) On the same day, the Bank had 30 construction loans in excess of $750,000 (including undisbursed amounts.)

Construction lending generally affords us the opportunity to receive interest at rates higher than those obtainable from residential lending and to receive higher origination and other loan fees. In addition, such loans are generally made for relatively short terms. Nevertheless, construction lending to persons other than owner-occupants is generally considered to involve a higher level of credit risk than one- to four-family residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on construction projects, real estate developers and managers. In addition, the nature of these loans is such that they are more difficult to evaluate and monitor. Our risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value upon completion of the project and the estimated cost (including interest) of the project. If the estimate of value proves to be inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project with a value which is insufficient to assure full repayment and/or the possibility of having to make substantial investments to complete and sell the project. Because defaults in repayment may not occur during the construction period, it may be difficult to identify problem loans at an early stage. When loan payments become due, the cash flow from the property may not be adequate to service the debt. In such cases, we may be required to modify the terms of the loan.

As of December 31, 2003, the Bank had committed $65.5 million to borrowers for construction loans. As of this same date, $47.1 million of the committed funds have been disbursed. We intend to continue our emphasis on construction lending in the future.

Consumer Lending. Management believes that offering consumer loan products helps to expand the Bank’s customer base and to create stronger ties to its existing customer base. In addition, because consumer loans generally have shorter terms to maturity and carry higher rates of interest than do residential mortgage loans, they can be valuable asset/liability management tools. We originate a variety of different types of consumer loans, including home equity lines of credit, and deposit account loans for household and personal purposes. Due to the tax advantages to the borrower of home equity lines of credit, we have focused our recent consumer lending activities primarily on home equity lines of credit. At December 31, 2003, consumer loans totaled $13.4 million or 4.09% of total loans outstanding.

Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower. Other than the home equity lines of credit, the Bank’s consumer loans are made at fixed interest rates, with terms of up to five years.

Our home equity lines of credit are written so that the total commitment amount, when combined with the balance of the first mortgage lien, may not exceed 80% of the appraised value of the property. These loans are written with fixed terms of up to five years and carry interest rates that float with the prime rate of interest. At December 31, 2003, our home equity lines of credit totaled $10.8 million outstanding, or 3.29% of our total loan portfolio.

The underwriting standards we employ for consumer loans include a determination of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although

creditworthiness of the applicant is of primary consideration, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount.

Consumer loans may entail greater credit risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Originations of Loans

Real estate loans are originated by our staff through walk-ins and referrals from existing customers or real estate agents.

Our ability to originate loans is dependent upon customer demand for loans in our market and to a lesser extent, customer service and marketing efforts. Demand is affected by both the local economy and the interest rate environment. As a result of the strong real estate market in our primary market areas and our emphasis on customer service and community outreach, the Bank has experienced loan growth in recent years. See “Market Area.” However, as a result of consumer demand, most recent originations other than construction loans have carried fixed rather than adjustable interest rates. Under current policy, all loans we originate are retained in our portfolio. See “One- to Four- Family Residential Lending” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Asset/Liability Management” in the Annual Report attached as Exhibit 13 hereto.

As a reflection of our emphasis on customer service, we have not sold loans in the past, but may do so in the future to manage interest rate risk. Servicing of such loans would be retained by us.

The following table shows the loan origination, purchase and repayment activities of the Bank for the periods indicated.

	Year Ended December 31,

	2003			2002			2001

	(In Thousands)
Originations by type:
Adjustable rate:
- one- to four-family	$	75,352		$	4,271		$	18,288
- multi-family		16,906			—			5,001
- commercial		—			21,756			1,250

Total adjustable rate		92,258			26,027			24,539
Fixed rate:
- one- to four-family		56,130			58,010			72,718
- multi-family		7,877			14,428			13,460
- commercial		11,164			17,468			10,600
- consumer		2,012			3,479			5,721

Total fixed-rate		77,183			93,385			102,499

Total loans originated		169,441			119,412			127,038
Principal repayments		(166,897	)		(104,958	)		(114,615	)
Decrease in other items, net		(209	)		(262	)		(427	)

Net increase	$	2,335		$	14,192		$	11,996

Delinquencies and Non-Performing Assets

Delinquency Procedures. When a borrower fails to make a required payment on a loan, we attempt to cure the delinquency by contacting the borrower. Generally, our personnel work with the delinquent borrower on a case by case basis to solve the delinquency. Generally, a late notice is sent on all delinquent loans followed by a phone call after the thirtieth day of delinquency. Additional written and verbal contacts may be made with the borrower between 30 and 60 days after the due date. If the loan is contractually delinquent for 90 days, we may institute appropriate action to foreclose on the property. Generally, after 120 days, foreclosure procedures are initiated. If foreclosed, the property is sold at public sale and may be purchased by the Bank.

Real estate we acquire as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired by foreclosure or deed in lieu of foreclosure, it is recorded at the lower of cost or fair value less estimated selling costs. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized.

The following table sets forth the Bank’s loan delinquencies by type, by amount and by percentage of type at December 31, 2003.

	Loans Delinquent For:														Total Loans Delinquent

	60-89 Days							90 Days and Over							60 Days or More

	Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category			Number		Amount		Percent of Loan Category

	(Dollars in Thousands)
Real Estate:
One- to four-family		9	$	840		0.50	%		14	$	2,215		1.31	%		23	$	3,055		1.81	%

Multi-family		1		89		0.37			1		231		0.96			2		320		1.33

Commercial		3		637		1.37			1		14		0.03			4		651		1.40

Mixed Use		—		—		—			2		285		3.16			2		285		3.16

Consumer		—		—		—			4		4		0.03			4		4		0.03


Total		13	$	1,566		0.48	%		22	$	2,749		0.84	%		35	$	4,315		1.32	%

Classification of Assets. Federal regulations require that each savings institution classify its own assets on a regular basis. In addition, in connection with examinations of savings institutions, Office of Thrift Supervision (“OTS”) and Federal Deposit Insurance Corporation (“FDIC”) examiners have authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: Substandard, Doubtful and Loss. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that we 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 Loss is considered uncollectible and of such little value that continuance as an asset on the balance sheet of the institution is not warranted. Assets classified as Substandard or Doubtful require the institution to establish prudent general allowances for loan losses. If an asset or portion thereof is classified as a Loss, the institution charges off such amount against the loan loss allowance. If an institution does not agree with an examiner’s classification of an asset, it may appeal this determination to the District Director of the OTS.

On the basis of management’s review of its assets, at December 31, 2003, it had classified a total of $2.7 million of its loan and other assets as follows:

	At December 31, 2003

	(In Thousands)
Substandard	$	2,616
Doubtful		133
Loss		—

Total		2,749

Our classified assets consist of the non-performing loans referred to below.

Non-Performing Assets. The table below sets forth the amounts and categories of non-performing assets in our loan portfolio. Accrued interest on loans delinquent 90 days or more is credited to an interest reserve account which offsets the amount of capitalized interest in loans receivable. See Note 4 of the Notes to Consolidated Financial Statements in the Annual Report attached as Exhibit 13 hereto. Foreclosed assets include assets acquired in settlement of loans.

	December 31,

	2003			2002			2001			2000			1999

	(Dollars in Thousands)
Non-accruing loans:
One- to four-family	$	1,511		$	876		$	433		$	680		$	—
Commercial real estate		14			219			206			110			—
Mixed Use		209			—			—			235			—

Total		1,734			1,095			639			1,025			—
Accruing loans delinquent 90 days or
more:
One- to four-family		704			876			845			208			934
Multi-family		231			—			—			—			25
Commercial real estate		—			—			259			237			360
Mixed Use		76			77			81			82			—
Consumer		4			10			7			9			8

Total		1,015			963			1,192			536			1,327
Foreclosed assets:
One- to four-family		—			—			—			—			66
Total		—			—			—			—			66

Total non-performing assets	$	2,749		$	2,058		$	1,831		$	1,561		$	1,393

Total as a percentage of total assets		0.56	%		0.44	%		0.33	%		0.39	%		0.37	%

For the years ended December 31, 2003 and December 31, 2002, the gross interest income (less additions to the interest reserve) that would have been recorded had the non-accruing loans (and accruing loans delinquent 90 days or more) been current in accordance with their original terms amounted to $224,000 and $231,000, respectively. No interest income was recognized on non-accruing loans for the years ended December 31, 2003 and December 31, 2002, respectively.

Other Loans of Concern. In addition to the non-performing assets set forth in the table above, as of December 31, 2003, there were no other loans with respect to which known information about the possible credit problems of the borrowers or the cash flows of the security properties have caused management to have concerns as to the ability of the borrowers to comply with present loan repayment terms and that may result in the future inclusion of such items in the non-performing asset categories.

Management considers its non-performing and “of concern” assets in establishing its allowance for loan losses.

The following table sets forth an analysis of our allowance for loan losses.

	Year Ended December 31,

	2003			2002			2001			2000			1999

	(Dollars in Thousands)
Balance at beginning of period	$	2,937		$	2,806		$	2,561		$	2,315		$	2,069
Charge-offs:
One- to four-family		7			—			—			—			—
Commercial real estate		—			—			42			—			—
Consumer		24			4			—			—			—

		31			4			42			—			—
Recoveries:
Construction or development		—			—			143			—			—
Consumer		6			8			—			—			—

		6			8			143			—			—
Net (charge-offs) recoveries		(25	)		4			101			—			—

Additions charged to operations		120			127			144			246			246

Balance at end of period	$	3,032		$	2,937		$	2,806		$	2,561		$	2,315
Ratio of net charge-offs (recoveries) during the
period to average loans outstanding during the
period		—	%		—	%		(0.04	)%		—	%		—	%
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets		—	%		(0.19	)%		(6.96	)%		—	%		—	%

The distribution of our allowance for losses on loans at the dates indicated is summarized as follows:

	December 31,
	2003				2002				2001				2000					1999

	Amount of Loan Loss Allowance	Loan Amounts by Category	Percent of Loans in Each Category of Total Loans		Amount of Loan Loss Allowance	Loan Amounts by Category	Percent of Loans in Each Category of Total Loans		Amount of Loan Loss Allowance	Loan Amounts by Category	Percent of Loans in Each Category of Total Loans		Amount of Loan Loss Allowance	Loan Amounts by Category		Percent of Loans in Each Category of Total Loans		Amount of Loan Loss Allowance	Loan Amounts by Category	Percent of Loans in Each Category of Total Loans

	(Dollars in Thousands)
One-to four- family	$ 676	$ 169,139	54.69	%	$ 730	$ 188,449	61.44	%	$ 839	$ 207,067	70.85	%	$ 872	$ 212,863		76.07	%	$ 823	$ 200,201	81.71	%
Multi-family	260	24,156	7.81		330	33,464	10.91		172	28,659	9.81		116	19,272		6.89		80	13,389	5.47
Commercial
and mixed use real
estate	605	55,417	17,92		565	52,208	17.02		490	32,477	11.11		473	29,817		10.66		607	24,388	9.95
Construction	1,000	47,130	15.24		765	22,259	7.26		710	13,795	4.72		448	8,968		3.20		33	333	0.14
Consumer	85	13,403	4.34		80	10,321	3.37		76	10,249	3.51		35	8,904		3.18		107	6,680	2.73
Unallocated	406	—	—		467	—	—		519	—	—		617	—		—		665	—	—

Total	$3,032	$ 309,245	100.00	%	$2,937	$ 306,701	100.00	%	$2,806	$ 292,247	100	%	$2,561	$ 279,8	24	100.00	%	$2,315	$ 244,991	100.00	%

The allowance for loan losses is established through a provision for loan losses charged to earnings based on management’s evaluation of the risk inherent in its entire loan portfolio. This evaluation, which includes a review of all loans of which full collectibility may not be reasonably assured, considers the market value of the underlying collateral, growth and composition of the loan portfolio, delinquency trends, adverse situations that may affect the borrower’s ability to repay, prevailing economic conditions and other factors that warrant recognition in providing for an adequate allowance for loan losses. In determining the general reserves under these policies, historical charge-offs and recoveries, changes in the mix and levels of the various types of loans, collateral values in the current loan portfolio and current economic conditions are considered.

While management believes that it uses the best information available to determine the allowance for loan losses, unforeseen economic and market conditions could result in adjustments to the allowance for loan losses, and net earnings could be significantly affected, if circumstances differ substantially from the assumptions used in making the final determination.

Securities Activities

General. Generally, the investment policy of the Company is to invest funds among categories of investments based upon our asset/liability management policies, investment quality, loan and deposit volume, national and local economic conditions, liquidity needs and performance objectives. In accordance with our asset/liability

management policy, we have recently focused a significant part of our investment activities on instruments with terms to repricing or maturity of five years or less and municipal securities that are exempt from federal taxes.

Our securities are classified into two categories: held-to-maturity and available-for-sale. Securities that we have the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. All other securities not classified as held-to-maturity are classified as available-for-sale. At December 31, 2003, we had $105.7 million of securities classified as available-for-sale. Available-for-sale securities are reported at fair value with unrealized gains and losses included, on an after-tax basis, in a separate component of shareholders’ equity.

Mortgage-Backed and Related Securities. In order to supplement our lending activities and achieve our asset/liability management goals, we invest in mortgage-backed and related securities. As of December 31, 2003, all of the mortgage-backed and related securities we owned were issued, insured or guaranteed either directly or indirectly by a federal agency or are rated “AAA” by a nationally recognized credit rating agency. It should be noted, however, that, while a (direct or indirect) federal guarantee or a high credit rating may indicate a high degree of protection against default, they do not indicate that the securities will be protected from declines in value based on changes in interest rates or prepayment speeds.

Consistent with our asset/liability management strategy, at December 31, 2003, $34.5 million, or 87.22% of our mortgage-backed and related securities were classified available-for-sale. In addition, on the same date, $7.0 million or 17.73% of our mortgage-backed and related securities carried adjustable rates. At December 31, 2003, all of our mortgage-backed and related securities were pass through securities. For additional information regarding our mortgage-backed securities portfolio, see Note 3 of the Notes to Consolidated Financial Statements in the Annual Report attached as Exhibit 13 hereto.

The following table sets forth the composition of our mortgage-backed securities at the dates indicated.

	December 31,

		2003					2002					2001

	Carrying Value		% of Total			Carrying Value		% of Total			Carrying Value		% of Total

	(Dollars in Thousands)
Mortgage-backed securities
held-to-maturity:
Government National Mortgage Association	$	3,728		9.43	%	$	8,043		32.62	%	$	13,285		55.64	%
Federal National Mortgage Association		317		0.80			1,001		4.06			1,716		7.19
Federal Home Loan Mortgage Association		1,010		2.55			2,836		11.50			2,708		11.34
Collateralized Mortgage Obligations		—		—			—		—			171		0.72

		5,055		12.78			11,880		48.18			17,880		74.89
Mortgage-backed securities
available-for- sale:
Government National Mortgage Association		13,625		34.46			856		3.47			794		3.32
Federal National Mortgage Association		17,530		44.33			9,004		36.51			2,264		9.48
Federal Home Loan Mortgage Association		3,332		8.43			2,920		11.84			2,938		12.31

		34,487		87.22			12,780		51.82			5,996		25.11

Total mortgage-backed securities	$	39,542		100.00	%	$	24,660		100.00	%	$	23,876		100.00	%

The following table sets forth the contractual maturities of our mortgage-backed securities at December 31, 2003.

	Due in														December 31, 2002

	6 Months or Less		6 Months to 1 Year		1 to 3 Years		3 to 5 Years		5 to 10 Years		10 to 20 Years		Over 20 Years		Amortized Cost		Carrying Value

	(In Thousands)
Federal Home Loan Mortgage Corporation	$	—	$	3	$	—	$	45	$	—	$	2,923	$	1,332	$	4,303	$	4,342
Federal National Mortgage Association		—		—		4		—		10		11,490		6,161		17,665		17,847
Government National Mortgage Association		—		—		47		—		—		1,958		15,242		17,247		17,353


Total	$	—	$	3	$	51	$	45	$	10	$	16,371	$	22,735	$	39,215	$	39,542

The market values of a portion of our mortgage-backed securities held-to-maturity have been from time to time lower than their carrying values. However, for financial reporting purposes, such declines in value are considered to be temporary in nature, since they have been due to changes in interest rates rather than credit concerns. See Note 2 of the Notes to Consolidated Financial Statements in the Annual Report attached as Exhibit 13 hereto.

The following table shows our mortgage-backed securities purchase, sale and repayment activities for the periods indicated.

	Year Ended December 31,

	2003			2002			2001

	(In Thousands)
Purchases:
Adjustable-rate	$	1,533		$	—		$	—
Fixed-rate		33,191			9,417			15,879

Total purchases		34,724			9,417			15,879
Principal repayments		(21,132	)		(9,176	)		(5,675	)
Discount/premium net change		912			500			462
Fair value net change		378			43			184

Net increase (decrease)	$	14,882		$	784		$	10,850

Our holdings of mortgage-backed securities are approximately 8.00% of our total assets. Since pass-through mortgage-backed securities generally carry a yield approximately 50 to 100 basis points below that of the corresponding type of residential loan (due to the implied federal agency guarantee fee and the retention of a servicing spread by the loan servicer), in the event that the proportion of our assets consisting of mortgage-backed securities increases relative to our loans, our asset yields could be somewhat adversely affected. We will evaluate mortgage-backed securities purchases in the future based on our asset/liability objectives, market conditions and alternative investment opportunities.

Other Securities. In order to complement our lending and mortgage-backed securities activities, and to increase our holdings of short and intermediate term assets, we invest in liquid investments and in high-quality investments, such as U.S. Treasury and agency obligations. At December 31, 2003 and December 31, 2002, our other securities portfolio totaled $108.7 million and $87.1 million, respectively. At December 31, 2003, we did not own any other securities of a single issuer in an amount exceeding 10% of our shareholders equity, other than federal agency obligations. See Note 3 of the Notes to Consolidated Financial Statements in the Annual Report attached as Exhibit 13 hereto for additional information regarding our other securities portfolio.

The following table sets forth the composition of our other securities and other earning assets at the dates indicated.

	December 31,

		2003					2002					2001

	Carrying Value		% of Total			Carrying Value		% of Total			Carrying Value		% of Total

	(Dollars in Thousands)
Securities held-to-maturity:
US government agencies	$	9,038		8.31	%	$	28,474		32.69	%	$	46,223		51.31	%
Municipal bonds		28,525		26.23			28,772		33.04			28,113		31.21

		37,563		34.54			57,246		65.73			74,336		82.52

Securities available-for sale:
US Treasury		346		0.32	%		361		0.42	%		348		0.39	%
US government agencies		48,118		44.25			14,982		17.20			3,078		3.41
Mutual funds		4,014		3.69			3,294		3.78			3,182		3.53
Municipal bonds		18,499		17.01			11,064		12.70			8,737		9.70
Corporate notes		—		—			—		—			260		0.29
Other equity		208		0.19			147		0.17			140		0.16

		71,185		65.46			29,848		34.27			15,745		17.48

Total securities	$	108,748		100.00	%	$	87,094		100.00	%		90,081		100.00	%


Other earning assets:
Interest-earning deposits with
banks	$	3,909		14.84	%	$	5,631		21.62	%		1,423		9.81	%
FHLB stock		20,139		76.43			14,788		56.77			12,162		83.80
Federal funds sold		2,300		8.73			5,629		21.61			928		6.39


Total	$	26,348		100.00	%	$	26,048		100.00	%		14,513		100.00	%

The composition and remaining maturities of our other securities portfolio, excluding mutual funds, other equity securities and Federal Home Loan Bank (“FHLB”) stock, is indicated in the following table.

	December 31, 2003

	Less Than 1 Year			1 to 5 Years			5 to 10 Years			Over 10 years			Total Securities

	Amortized Cost			Amortized Cost			Amortized Cost			Amortized Cost			Amortized Cost			Fair Value

	(Dollars in Thousands)
US Treasury	$	—		$	—		$	257		$	—		$	257		$	346
Federal agency obligations		1,000			1,000			23,638			31,462			57,100			57,362
Municipal bonds		299			1,700			9,503			34,845			46,347			49,215


Total securities	$	1,299		$	2,700		$	33,398		$	66,307		$	103,704	(1)	$	106,924

Weighted average yield		5.79	%		3.66	%		5.04	%		5.08	%		5.03	%

________________
(1) Includes $102.9 million of callable securities.

See Note 3 of Notes to the Consolidated Financial Statements in the Annual Report attached as Exhibit 13 hereto for a discussion of our securities portfolio.

Sources of Funds

General. The Bank’s primary sources of funds are deposits, payments (including prepayments) of loan principal, interest earned on loans and securities, repayments of securities, borrowings and funds provided from operations.

Deposits. We offer deposit accounts having a wide range of interest rates and terms. The Bank’s deposits consist of passbook savings, NOW, money market and various certificate accounts. We rely primarily on competitive

pricing, customer service and community outreach to attract and retain these deposits. The Bank’s customers may access their accounts through any of our five offices and six automated teller machines (“ATMs”). In addition, our customers may access their accounts through several nationwide ATM networks. The Bank only solicits deposits in its market area and does not currently use brokers to obtain deposits.

We manage the pricing of our deposits in keeping with our asset/liability management, profitability and growth objectives. The variety of deposit accounts offered by the Bank has allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. As some customers have become more interest rate conscious, the Bank has become more susceptible to short-term fluctuations in its certificate of deposit flows.

Management believes that the “core” portion of its regular passbook savings, NOW and money market accounts, which amounted to $139.7 million or 45.08% of total deposits at December 31, 2003, can have a lower cost and be more resistant to interest rate changes (and competing non-depository financial products) than certificate accounts. We utilize customer service, community outreach and marketing initiatives in an effort to build and maintain the volume of such deposits. However, there can be no assurance as to whether we will be able to maintain or increase our core deposits in the future.

The table below sets forth the Bank’s deposit flows for the periods indicated.

	Year Ended December 31,

	2003			2002			2001

	(Dollars In Thousands)
Opening balance	$	290,612		$	268,857		$	252,662
Deposits		474,596			457,133			439,561
Withdrawals		(461,547	)		(443,392	)		(434,362	)
Interest credited		6,181			8,014			10,996

Ending balance	$	309,842		$	290,612		$	268,857

Net increase (decrease)		19,230			21,755			16,195
Percent increase (decrease)		6.62	%		8.09	%		6.41	%

The following table sets forth the dollar amount of savings deposits in the Bank as of the dates indicated.

	December 31,

	2003					2002					2001

	Amount		Percent of Total			Amount		Percent of Total			Amount		Percent of Total

	(Dollars in Thousands)
Passbook Accounts 1.10%	$	103,531		33.4	%	$	100,371		34.5	%	$	83,963		31.2	%
NOW Accounts 0.40%		30,088		9.7			25,233		8.7			23,946		8.9
Money Market Accounts 1.00%		6,073		2.0			5,978		2.1			4,720		1.8

Total Non-Certificates		139,692		45.1			131,582		45.3			112,629		41.9
Certificates:
0.00 - 3.99%		141,231		45.6			127,023		43.7			73,044		27.2
4.00 - 5.99%		20,342		6.6			22,570		7.8			70,067		26.0
6.00 - 7.99%		8,533		2.7			9,395		3.2			13,075		4.9
8.00 - 9.00%		44		—			42		—			42		—

Total Certificates		170,150		54.9			159,030		54.7			156,228		58.1

Total Deposits	$	309,842		100.0	%		290,612		100.0	%		268,857		100.0	%

The following table shows rate and maturity information for our certificates of deposit as of December 31, 2003.

	Less Than 1 Year		1 to 2 Years		2 to 3 Years		3 to 4 Years		4 to 5 Years		Total

	(In Thousands)
1.00 - 1.99%	$	84,888	$	1,462	$	—	$	—	$	—	$	86,350
2.00 - 2.99%		31,221		3,571		1,121		29		—		35,942
3.00 - 3.99%		3,102		691		137		10		14,999		18,939
4.00 - 4.99%		570		130		935		8,268		3,903		13,806
5.00 - 5.99%		455		600		448		5,033		—		6,536
6.00 - 6.99%		3,788		4,716		29		—		—		8,533
7.00 - 7.99%		—		—		—		—		—		—
8.00 - 8.99%		44		—		—		—		—		44

	$	124,068	$	11,170	$	2,670	$	13,340	$	18,902	$	170,150

The following table indicates the amount of our certificates of deposit and other deposits by time remaining until maturity as of December 31, 2003.

	Maturity

	3 Months or Less		Over 3 to 6 Months		Over 6 to 12 Months		Over 12 Months		Total

	(In Thousands)
Certificates of deposit less than $100,000	$	24,904	$	29,469	$	31,652	$	31,066	$	117,091
Certificates of deposit $100,000 or more		13,257		12,930		11,856		15,016		53,059

Total certificates of deposit	$	38,161	$	42,399	$	43,508	$	46,082	$	170,150

For additional information regarding the composition of our deposits, see Note 7 of the Notes to the Consolidated Financial Statements in the Annual Report attached as Exhibit 13 hereto.

Borrowings. Our other available sources of funds include advances from the FHLB of Chicago and other borrowings. Our FHLB advances to date have primarily consisted of subsidized borrowings to fund special housing programs. As a member of the FHLB of Chicago, the Bank is required to own capital stock in the FHLB of Chicago and is authorized to apply for advances from the FHLB of Chicago. Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities. The FHLB of Chicago may prescribe the acceptable uses for these advances, as well as limitations on the size of the advances and repayment provisions. At December 31, 2003, the weighted average term to maturity of our FHLB advances was 40 months. See Note 8 of the Notes to Consolidated Financial Statements in the Annual Report attached as Exhibit 13 hereto.

The following table sets forth the maximum month-end balance and average balance of FHLB advances for the periods indicated.

	Year Ended December 31,

	2003			2002			2001			2000			1999

	(Dollars In Thousands)
Maximum Balance:
FHLB Advances	$	93,951		$	94,682		$	83,600		$	65,850		$	46,300
Average Balance:
FHLB Advances	$	93,084		$	86,904		$	68,003		$	56,597		$	34,607
Weighted average interest rate of FHLB advances during the year		5.00	%		5.33	%		5.47	%		6.03	%		5.41	%

Subsidiary Activities

As a federally chartered savings bank, First Security is permitted by OTS regulations to invest up to 2% of its assets in the stock of, or loans to, service corporation subsidiaries, and may invest an additional 1% of its assets in service corporations where such additional funds are used for inner-city or community development purposes. In addition to investments in service corporations, federal institutions are permitted to invest an unlimited amount in operating subsidiaries engaged solely in activities which a federal savings association may engage in directly.

At December 31, 2003, First Security had one wholly owned service corporation, Western Security Service Corporation (“Western” or the “Subsidiary”). Western, an Illinois corporation, was incorporated in November 1977 for the purpose of offering customers and members of the general public credit, life, mortgage and disability insurance. First Security’s investment in Western was $118,580 as of December 31, 2003. Western recognized net income of $38,171 during the year ended December 31, 2003 and $26,913 during the year ended December 31, 2002.

Competition

We face strong competition both in originating real estate loans and in attracting deposits. Competition in originating loans comes primarily from credit unions, mortgage bankers, commercial banks and other savings institutions, which also make loans secured by real estate located in our market area. First Security competes for loans principally on the basis of the interest rates and loan fees it charges, the types of loans it originates, community outreach and the quality of services it provides to borrowers.

Competition for deposits is principally from credit unions, commercial banks, mutual funds, securities firms and other savings institutions located in the same communities. The ability of the Bank to attract and retain deposits depends on its ability to provide an investment opportunity that satisfies the requirements of investors as to rate of return, liquidity, risk, convenient locations and other factors. We compete for these deposits by offering competitive rates, convenient business hours, community outreach and a customer oriented staff.

We also experience competition from online financial service providers.

Regulations — General

First Security is a federally chartered savings bank, the deposits of which are federally insured and backed by the full faith and credit of the United States Government. Accordingly, First Security is subject to broad federal regulation and oversight extending to all its operations. First Security is a member of the FHLB of Chicago and is subject to certain limited regulation by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”). As the savings and loan holding company of First Security, the Company also is subject to federal regulation and oversight. The purpose of the regulation of the Company and other holding companies is to protect subsidiary savings associations. First Security is a member of the Savings Association Insurance Fund (“SAIF”) and the deposits of First Security are insured by the Federal Deposit Insurance Corporation (“FDIC”). As a result, the FDIC has certain regulatory and examination authority over First Security.

Certain of these regulatory requirements and restrictions are discussed below or elsewhere in this document.

Federal Regulation of Savings Associations

The OTS has extensive authority over the operations of savings associations. As part of this authority, First Security is required to file periodic reports with the OTS and is subject to periodic examinations by the OTS and the FDIC. When these examinations are conducted by the OTS and the FDIC, the examiners may require First Security to provide for higher general or specific loan loss reserves. All savings associations are subject to a semi-annual assessment, based upon the savings association’s total assets, to fund the operations of the OTS.

The OTS also has extensive enforcement authority over all savings institutions and their holding companies, including First Security and the Company. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with the OTS. Except under certain circumstances, public disclosure of final enforcement actions by the OTS is required.

In addition, the investment, lending and branching authority of First Security is prescribed by federal laws and it is prohibited from engaging in any activities not permitted by such laws. For instance, no savings institution may invest in non-investment grade corporate debt securities. In addition, the permissible level of investment by federal associations in loans secured by non-residential real property may not exceed 400% of total capital, except with approval of the OTS. Federal savings associations are also generally authorized to branch nationwide. First Security is in compliance with the noted restrictions.

First Security’s general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of unimpaired capital and surplus). At December 31, 2003, First Security’s lending limit under this restriction was approximately $10.3 million. First Security is in compliance with the loans-to-one-borrower limitation.

The OTS, as well as the other federal banking agencies, has adopted guidelines establishing safety and soundness standards on such matters as loan underwriting and documentation, asset quality, internal controls and audit systems, interest rate risk exposure and compensation and other employee benefits. Any institution that fails to comply with these standards must submit a compliance plan.

Insurance of Accounts and Regulation by the FDIC

First Security is a member of the SAIF, which is administered by the FDIC. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government. As the insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the FDIC. The FDIC also has the authority to initiate enforcement actions against savings associations, after giving the OTS an opportunity to take such action, and may terminate the deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The FDIC’s deposit insurance premiums are assessed through a risk-based system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their level of capital and supervisory evaluation. Under the system, institutions classified as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1 or core capital to risk-weighted assets (“Tier 1 risk-based capital”) of at least 6% and a risk-based capital ratio of at least 10%) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a risk-based capital ratio of less than 8%) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions will be made by the FDIC for each semi-annual assessment period. Based on the Bank’s most recent semi-annual assessment, as of December 31, 2003, the Bank is classified as well capitalized.

The FDIC is authorized to increase assessment rates, on a semiannual basis, if it determines that the reserve ratio of the SAIF will be less than the designated reserve ratio of 1.25% of SAIF-insured deposits. In setting these increased assessments, the FDIC must seek to restore the reserve ratio to that designated reserve level, or such higher reserve ratio as established by the FDIC. The FDIC may also impose special assessments on SAIF members to repay amounts borrowed from the United States Treasury or for any other reason deemed necessary by the FDIC.

Effective January 1, 1997, the premium schedule for Bank Insurance Fund (“BIF”) and SAIF insured institutions ranged from 0 to 27 basis points. In addition, all BIF and SAIF insured institutions are required to pay a financing corporation assessment in order to fund the interest on bonds issued to resolve the thrift failures in the 1980s. Prior to January 1, 2000, SAIF members paid approximately 6 basis points for each $100 of domestic deposits. The assessment was reduced to 2.12 basis points as of January 1, 2000, when BIF insured institutions began to fully participate in the assessment. As of January 1, 2004, the assessment stood at 1.52 basis points. These assessments, which may be revised based upon the level of BIF and SAIF deposits, will continue until the bonds mature in the year 2017.

Regulatory Capital Requirements

Federally insured savings associations, such as First Security, are required to maintain a minimum level of regulatory capital. The OTS has established capital standards that require the Bank to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets and of Tier I capital to qualifying total assets (leverage ratio). These capital requirements must be generally as stringent as the comparable capital requirements for national banks. The OTS is also authorized to impose capital requirements in excess of these standards on individual associations on a case-by-case basis.

The capital regulations require a leverage ratio of 4% of adjusted total assets (as defined by regulation). Tier I capital, used to calculate the leverage ratio, generally includes common stockholders’ equity and retained income and certain noncumulative perpetual preferred stock and related income. In addition, all intangible assets, other than a limited amount of purchased mortgage servicing rights, must be deducted from Tier I capital for calculating compliance with the requirement. At December 31, 2003, First Security had $61,192 of intangible assets recorded as assets on its financial statements, as a result of its acquisition of assets and assumption of liabilities from the Resolution Trust Corporation in 1994.

The OTS regulations establish special capitalization requirements for savings associations that own subsidiaries. In determining compliance with the capital requirements, all subsidiaries engaged solely in activities permissible for national banks or engaged in certain other activities solely as agent for its customers are “includable” subsidiaries that are consolidated for capital purposes in proportion to the association’s level of ownership. For excludable subsidiaries the debt and equity investments in such subsidiaries are deducted from assets and capital. At December 31, 2003, First SecurityFed had no deductions for non-includable subsidiaries.

At December 31, 2003, First Security had Tier I capital of $68.6 million or 14.1% of adjusted total assets, which is approximately $49.1 million above the minimum requirement of 4% of adjusted total assets in effect on the date.

The capital standards also require Tier I capital equal to at least 4% of risk-weighted assets.

At December 31, 2003, First Security had Tier I capital equal to $68.6 million or 25.7% of risk-weighted assets, which is $37.9 million above the minimum Tier I risk-based capital ratio of 4% in effect on that date.

The OTS risk-based requirement requires savings associations to have total capital of at least 8% of risk-weighted assets. Total capital consists of core capital, as defined above, and supplementary capital. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the risk-based requirement only to the extent of core capital. The OTS is also authorized to require a savings association to maintain an additional amount of total capital to account for concentration of credit risk and the risk of non-traditional activities. At December 31, 2003, First Security had $3.0 million of general loss reserves all, of which qualifies as supplementary capital, which was less than 1.25% of risk-weighted assets.

Certain exclusions from capital and assets are required to be made for the purpose of calculating total capital. Such exclusions consist of equity investments (as defined by regulation) and that portion of land loans and nonresidential construction loans in excess of an 80% loan-to-value ratio and reciprocal holdings of qualifying capital instruments. First Security had no such exclusions from capital and assets at December 31, 2003.

In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk inherent in the type of asset. For example, the OTS has assigned a risk weight of 50% for prudently underwritten permanent one- to four-family first lien mortgage loans not more than 90 days delinquent and having a loan to value ratio of not more than 80% at origination unless insured to such ratio by an insurer approved by the FNMA or FHLMC.

On December 31, 2003, First Security had total risk-based capital of approximately $71.6 million (including $68.6 million in core capital and $3.0 million in qualifying supplementary capital) and risk-weighted assets of $266.9 million; or total capital equal to 26.8% of risk-weighted assets. This amount was $50.2 million above the 8% requirement in effect on that date.

The OTS and the FDIC are authorized and, under certain circumstances, required to take certain actions against savings associations that fail to meet their capital requirements. The OTS is generally required to take action to restrict the activities of an “undercapitalized association” (generally defined to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-based capital ratio or an 8% risk-based capital ratio). Any such association must submit a capital restoration plan and, until such plan is approved by the OTS, may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions. The OTS is authorized to impose the additional restrictions that are applicable to significantly undercapitalized associations.

As a condition to the approval of the capital restoration plan, any company controlling an undercapitalized association must agree that it will enter into a limited capital maintenance guarantee with respect to the institution’s achievement of its capital requirements.

Any savings association that fails to comply with its capital plan or is “significantly undercapitalized” (i.e., Tier 1 risk-based or core capital ratios of less than 3% or a risk-based capital ratio of less than 6%) must be made subject to one or more of additional specified actions and operating restrictions that may cover all aspects of its operations and include a forced merger or acquisition of the association. An association that becomes “critically undercapitalized” (i.e., a tangible capital ratio of 2% or less) is subject to further mandatory restrictions on its activities in addition to those applicable to significantly undercapitalized associations. In addition, the OTS must appoint a receiver (or conservator with the concurrence of the FDIC) for a savings association, with certain limited exceptions, within 90 days after it becomes critically undercapitalized. Any undercapitalized association is also subject to the general enforcement authority of the OTS and the FDIC, including the appointment of a conservator or a receiver.

The OTS is also generally authorized to reclassify an association into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

The imposition by the OTS or the FDIC of any of these measures on the association may have substantial adverse effects on its operations and profitability.

Limitations on Dividends and Other Capital Distributions

OTS regulations impose various restrictions on savings associations with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. OTS regulations also prohibit a savings association from declaring or paying any dividends or from repurchasing any of its stock if, as a result, the regulatory capital of the association would be reduced below the amount required to be maintained for the liquidation account established in connection with its mutual to stock conversion.

Generally, savings associations, such as First Security, that before and after the proposed distribution remain well-capitalized, may make capital distributions during any calendar year equal to 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an association deemed to be in need of more than normal supervision by the OTS may have its dividend authority restricted by the OTS. First Security may pay dividends in accordance with this general authority.

Savings associations proposing to make any capital distribution need not submit written notice to the OTS prior to such distribution unless they are not a subsidiary of a holding company or would not remain well capitalized following the distribution 30 days prior to such distribution. Savings associations that do not, or would not meet their current minimum capital requirements following a proposed capital distribution, however, must obtain OTS approval prior to making such distribution. The OTS may object to the distribution during that 30-day period based on safety and soundness concerns. See “- Regulatory Capital Requirements.”

Liquidity

Prior to the passage of the Financial Regulatory Relief and Economic Efficiency Act of 2000, all savings associations, including First Security, were required to maintain an average daily balance of liquid assets equal to a certain percentage of the average daily balance of its liquidity base during the preceding calendar quarter or a percentage of the amount of its liquidity base at the end of the preceding quarter. For a discussion of what First Security includes in liquid assets, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in the Annual Report attached as Exhibit 13 hereto. This liquid asset ratio requirement would vary from time to time (between 4% and 10%) depending upon economic conditions and savings flows of all savings associations. At the time the rule was in effect, the minimum liquid asset ratio was 4%.

Qualified Thrift Lender Test

All savings associations, including First Security, are required to meet a qualified thrift lender (“QTL”) test to avoid certain restrictions on their operations. This test requires a savings association to have at least 65% of its portfolio

assets (as defined by regulation) in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis. As an alternative, the savings association may maintain 60% of its assets in those assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under either test, such assets primarily consist of residential housing related loans and investments. At December 31, 2003, First Security met the test and has always met the test since its effectiveness.

Any savings association that fails to meet the QTL test must convert to a national bank charter, unless it requalifies as a QTL and thereafter remains a QTL. If such an association has not yet requalified or converted to a national bank, its new investments and activities are limited to those permissible for both a savings association and a national bank, and it is limited to national bank branching rights in its home state. In addition, the association is immediately ineligible to receive any new FHLB borrowings and is subject to national bank limits for payment of dividends. If such association has not requalified or converted to a national bank within three years after the failure, it must divest of all investments and cease all activities not permissible for a national bank. If any association that fails the QTL test is controlled by a holding company, then within one year after the failure, the holding company must register as a bank holding company and become subject to all restrictions on bank holding companies. See “- Holding Company Regulation.”

Community Reinvestment Act

Under the Community Reinvestment Act (“CRA”), every FDIC insured institution has a continuing and affirmative obligation consistent with safe and sound banking practices 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 OTS, in connection with the examination of First Security, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as a merger or the establishment of a branch, by First Security. An unsatisfactory rating may be used as the basis for the denial of an application by the OTS.

The federal banking agencies, including the OTS, have recently revised the CRA regulations and the methodology for determining an institution’s compliance with the CRA. Due to the heightened attention being given to the CRA in the past few years, First Security may be required to devote additional funds for investment and lending in its local community. First Security was examined for CRA compliance in June 2003 and received a rating of satisfactory.

Transactions with Affiliates

Generally, transactions between a savings bank or its subsidiaries and its affiliates are required to be on terms as favorable to the bank as transactions with non-affiliates. In addition, certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the bank’s capital. Affiliates of First Security include the Company and any company that is under common control with First Security. In addition, a savings bank may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates. The OTS has the discretion to treat subsidiaries of savings banks as affiliates on a case by case basis.

Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations enforced by the OTS. These conflict of interest regulations and other statutes also impose restrictions on loans to such persons and their related interests. Among other things, such loans must be made on terms substantially the same as for loans to unaffiliated individuals.

Holding Company Regulation

The Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, the Company is required to register and file reports with the OTS and is subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over the Company and its non-savings association subsidiaries, such as Western. This authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association.

As a unitary savings and loan holding company, the Company generally is not subject to activity restrictions. If the Company acquires control of another savings association as a separate subsidiary, it would become a multiple

savings and loan holding company, and the activities of the Company and any of its subsidiaries (other than First Security or any other SAIF-insured savings association) would become subject to such restrictions unless such other associations each qualify as a QTL and were acquired in a supervisory acquisition.

If First Security fails the QTL test, the Company must obtain the approval of the OTS prior to continuing after such failure, directly or through its other subsidiaries, any business activity other than those approved for multiple savings and loan holding companies or their subsidiaries. In addition, within one year of such failure the Company must register as, and will become subject to, the restrictions applicable to bank holding companies. The activities authorized for a bank holding company are more limited than are the activities authorized for a unitary or multiple savings and loan holding company. See “- Qualified Thrift Lender Test.”

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

USA Patriot Act

The USA Patriot Act was signed into law on October 26, 2001. The USA Patriot Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. The USA Patriot Act also requires the federal banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether to approve a merger or other acquisition application of a member institution. Accordingly, if we engage in a merger or other acquisition, our controls designed to combat money laundering would be considered as part of the application process. The Company has established policies, procedures and systems designed to comply with these regulations.

Federal Securities Law

The common stock of the Company is registered with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Exchange Act.

First SecurityFed common stock held by persons who are deemed to be affiliates (generally officers, directors and principal stockholders) of the Company pursuant to the SEC’s rules and regulations may not be resold without registration or unless sold in accordance with certain resale restrictions. If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three-month period, subject to restrictions on the manner of sale and a reporting requirement.

Sarbanes-Oxley Act of 2002

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, which contains important new requirements for public companies in the area of financial disclosure and corporate governance. Among the requirements of the Sarbanes-Oxley Act of 2002 are written certifications by our Chief Executive Officer and Chief Financial Officer of our quarterly and annual reports filed with the SEC, as well as disclosures regarding our internal controls and procedures. In response to the Sarbanes-Oxley Act of 2002 and the related regulations, the Company has reviewed its practices, policies and procedures to ensure our ability to comply with the requirements of the Act.

Federal Reserve System

The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts). At December 31, 2003, First Security was in compliance with these reserve requirements. The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements that may be imposed by the OTS. See “-Liquidity.”

Savings associations are authorized to borrow from the Federal Reserve Bank “discount window,” but Federal Reserve Board regulations require associations to exhaust other reasonable alternative sources of funds, including FHLB borrowings, before borrowing from the Federal Reserve Bank.

Federal Home Loan Bank System

First Security is a member of the FHLB of Chicago, which is one of 12 regional FHLBs, that administers the home financing credit function of savings associations. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System. It makes loans to members (i.e., advances) in accordance with policies and procedures, established by the board of directors of the FHLB, that are subject to the oversight of the Federal Housing Finance Board. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances are required to provide funds for residential home financing.

As a member, First Security is required to purchase and maintain stock in the FHLB of Chicago. At December 31, 2003, First Security had $20.1 million in FHLB stock, which was in compliance with this requirement. In past years, First Security has received substantial dividends on its FHLB stock. Over the past five calendar years such dividends have averaged 6.50% and were 6.11% for calendar year 2003. As a result of its holdings, the Bank could borrow up to $402 million from the FHLB.

For the year ended December 31, 2003, dividends paid by the FHLB of Chicago to First Security totaled $1,128,000, which constitutes a $423,000 increase from the amount of dividends received in calendar year 2002.

Federal and State Taxation

Savings associations such as First Security that meet certain conditions prescribed by the Internal Revenue Code of 1986, as amended (the “Code”), were previously permitted to establish reserves for bad debts and to make annual additions thereto that may, within specified formula limits, be taken as a deduction in computing taxable income for federal income tax purposes. The amount of the bad debt reserve deduction is computed under the experience method. Under the experience method, the bad debt reserve deduction is an amount determined under a formula based generally upon the bad debts actually sustained by the savings association over a period of years.

In addition to the regular income tax, corporations, including savings associations such as First Security, generally are subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a corporation’s regular taxable income (with certain adjustments) and tax preference items, less any available exemption. The alternative minimum tax is imposed to the extent it exceeds the corporation’s regular income tax and net operating losses can offset no more than 90% of alternative minimum taxable income.

A portion of the Bank’s reserves for losses on loans may not, without adverse tax consequences, be utilized for the payment of cash dividends or other distributions to a shareholder (including distributions on redemption, dissolution or liquidation) or for any other purpose (except to absorb bad debt losses). As of December 31, 2003, First Security’s excess for tax purposes totaled approximately $2.0 million.

First Security files its federal, state and local income tax returns on a calendar year basis using the accrual method of accounting.

First Security has not been audited by the IRS with respect to consolidated federal income tax returns in the past five years. With respect to years examined by the IRS, either all deficiencies have been satisfied or sufficient reserves have been established to satisfy asserted deficiencies. In the opinion of management, any examination of still open returns (including returns of subsidiary and predecessors of, or entities merged into, First Security) would not result in a deficiency that could have a material adverse effect on the financial condition of First Security and its consolidated subsidiary.

Illinois Taxation. For Illinois income tax purposes, the Bank is taxed at an effective rate equal to 7.18% of Illinois taxable income. For these purposes, “Illinois Taxable Income” generally means federal taxable income, subject to certain adjustments (including the addition of interest income on state and municipal obligations and the exclusion of interest income on United States Treasury obligations).

Delaware Taxation. As a Delaware holding company, the Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual fee to the State of Delaware. The Company is also subject to an annual franchise tax imposed by the State of Delaware.

Employees

At December 31, 2003, the Company, including its subsidiaries, had a total of 96 employees, including 23 part-time employees. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good.

Executive and Other Officers of the Company Who Are Not Directors

The business experience of each officer who is not also a director is set forth below. Each of the following officers serves until his or her successor is duly elected.

Executive Officers

Harry Kucewicz. Mr. Kucewicz, age 47, is currently serving as the Treasurer and Chief Financial Officer of both the Company and the Bank. He began working at the Bank in 1978 as the Controller. He was elected Treasurer and Chief Financial Officer in 1990. Mr. Kucewicz is responsible for all of the Company’s and Bank’s financial and accounting functions.

Paul T. Bandriwsky. Mr. Bandriwsky, age 48, is currently Vice President and Chief Operating Officer of both the Company and the Bank. He began working at the Bank in 2000 and was appointed to his present capacity at that time. Mr. Bandriwsky has over 20 years of experience in banking management, lending and real estate. He is responsible for the day-to-day operations of the Bank’s retail banking branches, human resources and marketing/advertising.

Other Officers

Mary H. Korb. Ms. Korb, age 56, is currently Vice President of the Company and Vice President — Lending of the Bank. Ms. Korb supervises all aspects of the Bank’s lending operations, including lending compliance. Ms. Korb has been with the Bank since 1970, and has served in her present capacity since March 1991.

Irene S. Subota. Ms. Subota, age 57, currently serves as Vice President of the Company and as Vice President — Savings of the Bank. Ms. Subota is in charge of all aspects of the Bank’s savings function, including compliance. Ms. Subota has been employed by the Bank since 1973, and has served in her current position since 1992.

Adrian Hawryliw. Mr. Hawryliw, age 67, has served as Philadelphia Branch Manager of the Bank since 1994 when the Philadelphia, Pennsylvania branch was acquired from the Resolution Trust Corporation, and is currently a Vice President of the Bank and of the Company. Mr. Hawryliw is responsible for supervising operations of the Philadelphia, Pennsylvania branch, including business development, retail deposits, real estate lending, accounting and marketing. He has over 34 years of banking experience in the Philadelphia area, holding various positions including Chief Financial Officer and Vice President/Investments for other area institutions.

Peter Ilnyckyj. Mr. Ilnyckyj, age 35 is currently serving as the Vice President of Investor Relations of both the Company and the Bank. Mr. Ilnyckyj began working at the Bank in 1987 and was elected Vice President in 2002. Mr. Ilnyckyj has also functioned as the Accounting Department Manager since 1994 and oversees the daily accounting duties and OTS Regulatory Reporting.

Item 2. Properties

The following table sets forth information concerning the main office and each branch office of the Bank at December 31, 2003. At December 31, 2003, the Bank’s premises had an aggregate net book value of approximately $3.8 million.

Location	Year Acquired/ Established			Net Book Value at December 31, 2003		Deposits

	(In Thousands)
Main Office:
936 North Western Avenue Chicago, Illinois 60622-4695		1964	Owned	$	888	$	171,711
Branch Offices:
820 N. Western Avenue Chicago, Illinois 60622		1983	Owned		158		3,380
5670 N. Milwaukee Avenue Chicago, Illinois 60646		1993	Owned		840		32,776
7918 Bustleton Avenue Philadelphia, Pennsylvania 19152		1994	Owned		477		81,188
2251 Plum Grove Road Palatine, Illinois 60067		2002	Owned		1,466		20,787

We believe that our current facilities are adequate to meet our present and foreseeable future needs.

The Bank’s depositor and borrower customer files are maintained by an independent data processing company. The net book value of the data processing and computer equipment utilized by the Bank at December 31, 2003 was approximately $150,400.

Item 3. Legal Proceedings

From time to time, First Security is involved as plaintiff or defendant in various legal proceedings 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 should not have a material effect on the Company’s and the Bank’s financial position or results of operations.

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

No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 2003.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

The information set forth under the caption “Shareholders Information” in the attached 2003 Annual Report to Stockholders is incorporated herein by reference.

Item 6. Selected Financial Data

The information set forth under the caption “Selected Consolidated Financial Information” in the attached 2003 Annual Report to Stockholders is incorporated herein by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information set forth under the caption “Management’s Discussion and Analysis” in the attached 2003 Annual Report to Stockholders is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The information set forth under the caption “Quantitative and Qualitative Disclosures About Market Risk” in the attached 2003 Annual Report to Stockholders is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data

The information set forth under the caption “Consolidated Financial Statements” in the attached 2003 Annual Report to Stockholders is incorporated herein by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

There has been no Current Report on Form 8-K filed within 24 months prior to the date of the most recent financial statements reporting a change of accountants and/or reporting disagreements on any matter of accounting principle or financial statement disclosure.

Item 9A. Controls and Procedures

The Company has adopted interim disclosure controls and procedures designed to facilitate the Company’s financial reporting. The interim disclosure controls currently consist of communications among the Chief Executive Officer, the Chief Financial Officer and each department head to identify any transactions, events, trends, risks or contingencies which may be material to the Company’s operations. The Company’s disclosure controls also contain certain elements of its internal controls adopted in connection with applicable accounting and regulatory guidelines. Finally, the Chief Executive Officer, the Chief Financial Officer, the Audit Committee and the Company’s independent auditors also meet on a quarterly basis and discuss the Company’s material accounting policies. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of these interim disclosure controls as of the end of the period covered by this report and found them to be adequate.

The Company maintains internal control over financial reporting. There have not been any significant changes in such internal control over the financial reporting in the last quarter that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors

The information concerning Directors of the Corporation is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in May 2004.

Executive Officers

Information regarding the business experience of the executive officers of the Corporation and the Bank who are not also directors contained in Part I of this Form 10-K is incorporated herein by reference.

Section 16(a) Beneficial Ownership Reporting Compliance

The information set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held in May 2004 is incorporated herein by reference.

Item 11. Executive Compensation

Information concerning executive compensation is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in May 2004.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning security ownership of certain beneficial owners and management and information concerning equity compensation plans is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in May 2004.

Item 13. Certain Relationships and Related Transactions

Information concerning certain relationships and related transactions is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in May 2004 a copy of which will be filed not later than 120 days after the close of the fiscal year.

Item 14. Principal Accountant Fees and Services

Information concerning principal accountant fees and services is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to he held in May 2004 a copy of which will be filed not later than 120 days after the close of the fiscal year.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)(1) Financial Statements:

The following financial statements are included in this Form 10-K:

Five-Year Summary of Selected Consolidated Financial Data.

Report of Independent Auditors.

Consolidated Balance Sheets at December 31, 2003 and 2002.

Consolidated Statements of Income for the fiscal years ended December 31, 2003, 2002 and 2001.

Consolidated Statements of Comprehensive Income for the fiscal years ended December 31, 2003, 2002 and 2001.

Consolidated Statements of Shareholders' Equity for the fiscal years ended December 31, 2003, 2002 and 2001.

Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2003, 2002 and 2001.

Notes to Consolidated Financial Statements.

(a)(2) Financial Statement Schedules:

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

(a)(3) Exhibits:

See Exhibit Index.

(b) Reports on Form 8-K:

There were no current reports on Form 8-K filed by the Corporation during the quarter ended December 31, 2003.

SIGNATURES

Pursuant to the requirements of Section 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.

EXHIBIT INDEX

Regulation S-K Exhibit Number	Document	Reference to Prior Filing or Exhibit Number Attached Hereto

3(a)	Certificate of Incorporation	*
3(b)	By-Laws	**
4	Instruments defining the right of security holders, including debentures	*
10	Executive Compensation Plans and Arrangements
	(a) Employment Agreement between Julian E. Kulas and the Bank.	***
	(b) Change-In-Control Severance Agreement between Harry I. Kucewicz and the Bank	***
	(c) Change-In-Control Severance Agreement between Paul Bandriwsky and the Bank	***
	(d) 1998 Stock Option and Incentive Plan	****
	(e) 1998 Recognition and Retention Plan	****
13	Annual Report to Security Holders	13
14	Code of Ethics	14
21	Subsidiaries of Registrant	21
23	Consent of Independent Auditor	23
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	31.1
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	31.2
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	32

Regulation S-K Exhibit Number

Document

Reference to Prior Filing or Exhibit Number Attached Hereto

3(a)

Certificate of Incorporation

3(b)

By-Laws

Instruments defining the right of security holders, including debentures

Executive Compensation Plans and Arrangements

(a) Employment Agreement between Julian E. Kulas and the Bank.

***

(b) Change-In-Control Severance Agreement between Harry I. Kucewicz and the Bank

***

(d) 1998 Stock Option and Incentive Plan

****

(e) 1998 Recognition and Retention Plan

****

Annual Report to Security Holders

Code of Ethics

Subsidiaries of Registrant

Consent of Independent Auditor

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

31.1

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

_____________
* Filed as an Exhibit to the Company's Form S-1 Registration Statement filed on July 21, 1997 (File No. 333-31739) pursuant to Section 5 of the Securities Act of 1933. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-K.

** Filed as an Exhibit to the Company's Form 10-Q Quarterly report filed on November 15,1999 (File No. 000-23063) pursuant to Section 12 of the Securities Exchange Act of 1934. All of such previously filed documents are hereby incorporated by reference in accordance with Item 601 of Regulation S-K.

*** Filed as an Exhibit to the Company's Annual Report on Form 10-K filed on March 31, 2003 (File no. 000-23063) pursuant to Section 12 of the Securities Exchange Act of 1934. All of such previously filed documents are hereby incorporated by reference in accordance with Item 601 of Regulation S-K.

**** Filed as an Exhibit to the Company's Definitive Proxy Statement on Schedule 14A on March 24, 1998 (File No. 0-23063). All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-K.

/s/ Julian E. Kulas		/s/ Steve Babyk

Julian E. Kulas		Steve Babyk
President, Chief Executive Officer and Director		Director
(Principal Executive Officer)
Date: March 30, 2004		Date: March 30, 2004

/s/ Lila Maria Bodnar		/s/ Myron Dobrowolsky

Lila Maria Bodnar		Myron Dobrowolsky
Recording Secretary and Director		Director
Date: March 30, 2004		Date: March 30, 2004

/s/ Terry Gawryk		/s/ George Kawka

Terry Gawryk		George Kawka
Secretary and Director		Director
Date: March 30, 2004		Date: March 30, 2004

/s/ Paul Nadzikewycz		/s/ Jaroslav H. Sydorenko

Paul Nadzikewycz		Jaroslav H. Sydorenko
Chairman of the Board		Director
Date: March 30, 2004		Date: March 30, 2004

/s/ Chrysta Wereszczak		/s/ Harry Kucewicz

Chrysta Wereszczak		Harry Kucewicz
Director		Principal Financial and Accounting Officer
Date: March 30, 2004		Date: March 30, 2004