SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
            For Annual and Transition Reports Pursuant to Sections 13
                 or 15(d) of the Securities Exchange Act of 1934

(Mark One)
[ X ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

For the fiscal year ended               September 30, 2001
                          --------------------------------------------

                                     - or -

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

For the transition period  __________________ to ____________________

Commission Number: 0-24648

                               FSF FINANCIAL CORP.
             (Exact name of Registrant as specified in its Charter)
      Minnesota                                                  41-1783064
(State or other jurisdiction of incorporation                 (I.R.S. Employer)
  or organization)                                           Identification No.)

201 Main Street South, Hutchinson, Minnesota                     55350-2573
(Address of principal executive offices)                          Zip Code

Registrant's telephone number, including area code:  (320) 234-4500

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 $0.10 per share
                     ---------------------------------------
                                (Title of Class)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filling requirements for the past 90 days.   X  YES        NO
                                            ---        ---

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

        The aggregate market value of the voting stock held by non-affiliates of
the  Registrant,  based on the average  bid and asked price of the  Registrant's
Common Stock as quoted on the National Association of Securities Dealers,  Inc.,
Automated  Quotations  National  Market on November 30,  2001,  was $ 27,871,698
(1,597,232 shares at $ 17.45 per share).                            ------------
                     -------
        As of  November  30, 2001 there were  issued and  outstanding  2,306,714
shares of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions  of the Annual  Report to  Stockholders  for the Fiscal Year Ended
     September 30, 2001. (Parts I,II and IV)
2.   Portions of the Proxy  Statement for the Annual Meeting of  Stockholders to
     be held January 15, 2002. (Part III)
<PAGE>
                                     PART I

FSF Financial  Corp. (the  "Corporation")  may from time to time make written or
oral  "forward-looking  statements",   including  statements  contained  in  the
Corporation's  filings with the  Securities and Exchange  Commission  (including
this annual  report on Form 10-K and the  exhibits  thereto),  in its reports to
stockholders and in other  communications by the Corporation,  which are made in
good faith by the  Corporation  pursuant to the "safe harbor"  provisions of the
Private Securities Litigation Reform Act of 1995.

These  forward-looking  statements  involve  risks  and  uncertainties,  such as
statements of the Corporation's plans, objectives,  expectations,  estimates and
intentions,  that are subject to change based on various important factors (some
of which are beyond the Corporation's  control).  The following  factors,  among
others, could cause the Corporation's financial performance to differ materially
from the plans, objectives,  expectations, estimates and intentions expressed in
such  forward-looking  statements:  The strength of the United States economy in
general  and the  strength  of the  local  economies  in which  the  Corporation
conducts operations;  the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the board of governors of
the federal  reserve  system,  inflation,  interest  rates,  market and monetary
fluctuations;  the timely  development  of and  acceptance  of new  products and
services of the  Corporation  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
competitors' products and services for the Corporation's  products and services;
the success of the  Corporation in gaining  regulatory  approval of its products
and services,  when required;  the impact of changes in financial services' laws
and  regulations  (including  laws  concerning  taxes,  banking,  securities and
insurance);  technological changes;  acquisitions;  changes in consumer spending
and saving  habits and the  success of the  Corporation  at  managing  the risks
resulting from these factors.

The  Corporation  cautions that the factors listed above are not exclusive.  The
Corporation does 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 the
Corporation.


ITEM 1.     BUSINESS

General

FSF Financial Corp. is a Minnesota corporation organized in May, 1994, and as of
October 6, 1994,  became the  holding  company  for First  Federal  fsb  ("First
Federal" or the  "Bank").  First  Federal is the  resulting  institution  of the
merger  between First State Federal  Savings and Loan  Association,  Hutchinson,
Minnesota and First Federal Savings and Loan Association of Hastings,  Hastings,
Minnesota.  The Corporation  operates two wholly owned  subsidiaries:  Insurance
Planners and the Bank.  Insurance  Planners  (the  "Agency")  is an  independent
property and casualty  insurance  agency located in Hutchinson,  Minnesota.  The
Corporation  acquired  the Agency on June 1, 1998.  On November  17,  1998,  the
Corporation acquired Homeowners Mortgage Corporation ("HMC"), a mortgage banking
company located in Vadnais Heights, Minnesota. As of June 1, 2000, HMC became an
operating subsidiary of the bank following regulatory approval.  See "Subsidiary
Activity".

First  Federal's  business  consists  primarily of attracting  deposits from the
general  public and using such  deposits,  together  with  borrowings  and other
funds,  to make mortgage  loans secured by  residential  real estate  located in
Minnesota.  At September  30, 2001,  First  Federal  operated 11  retail-banking
offices  in  Minnesota.  On  November  9,  2001,  First  Federal  completed  its
acquisition  of the ING Bank branch  facility in the St.  Cloud and  Minneapolis
area. See "Item 2- Properties".

First  Federal is regulated by the Office of Thrift  Supervision  ("OTS") and by
the Federal Deposit Insurance  Corporation  ("FDIC") which,  through the Savings
Association  Insurance  Fund ("SAIF"),  insures up to certain legal limits,  the
deposit accounts of institutions such as First Federal fsb. First Federal fsb is
also a member of the Federal Home Loan Bank ("FHLB") of Des Moines, which is one
of the twelve  regional banks for federally  insured  savings  institutions  and
certain other residential lending entities comprising the Federal Home Loan Bank
System.

                                       1
<PAGE>
Competition

The  Corporation is one of many financial  institutions  serving its market area
that consists of the ten Minnesota counties of Benton,  Carver,  Dakota, McLeod,
Meeker, Sherburne,  Sibley, Stearns,  Washington and Wright. The competition for
deposit  products  comes  from  other  insured  financial  institutions  such as
commercial banks, thrift  institutions,  credit unions and multi-state  regional
banks in the  Corporation's  market area.  Deposit  competition  also includes a
number of insurance  products sold by local agents and investment  products such
as mutual funds and other  securities sold by local and regional  brokers.  Loan
competition varies depending upon market conditions and comes from other insured
financial  institutions such as commercial banks,  thrift  institutions,  credit
unions, multi-state regional banks and mortgage bankers.

                                       2
<PAGE>



Lending Activities

The following  table sets forth the composition of the loan portfolio in dollars
and in percentages of total loans at the dates indicated:

<TABLE>
<CAPTION>
                                                                   At September 30,
                        ------------------------------------------------------------------------------------------------------------
                           2001                  2000                  1999                  1998                  1997
                        ------------------------------------------------------------------------------------------------------------

                          Amount       %        Amount       %        Amount       %        Amount       %        Amount       %
                        ------------------------------------------------------------------------------------------------------------
                                                                (Dollars in Thousands)
<S>                   <C>          <C>      <C>          <C>      <C>          <C>      <C>          <C>      <C>          <C>
Residential
real estate:
   One to four
     family  (1)        $ 81,790     19.1     $101,034     26.3     $120,884     38.8     $157,340     52.2     $170,422     60.3
   Residential
     construction        142,035     33.2       82,408     21.5       42,937     13.8       21,960      7.3       20,796      7.4
   Multi-family            5,922      1.4        4,737      1.2        5,635      1.8        2,975      1.0        3,370      1.2
                        ----------------------------------------------------------------------------------------------------------

                         229,747     53.7      188,179     49.0      169,456     54.4      182,275     60.4      194,588     68.9

Agricultural loans        49,935     11.7       43,829     11.4       33,384     10.7       22,959      7.6            -        -
Land and commercial
  real estate             55,220     12.9       50,970     13.3       36,429     11.7       34,399     11.4       38,582     13.7
Commercial business       23,908      5.6       29,831      7.8       29,767      9.6       21,095      7.0        8,114      2.9
                        ----------------------------------------------------------------------------------------------------------

                         129,063     30.1      124,630     32.4       99,580     32.0       78,453     26.0       46,696     16.5
Consumer:
   Home equity and
     second mortgage      29,991      7.0       28,106      7.3       24,312      7.8       23,606      7.8       20,812      7.4
   Automobile loans       13,023      3.0       13,255      3.5        7,428      2.4        9,670      3.2       11,596      4.1
   Other                  26,292      6.1       29,943      7.8       10,898      3.5        7,605      2.5        8,821      3.1
                        ----------------------------------------------------------------------------------------------------------
Total consumer loans      69,306     16.2       71,304     18.6       42,638     13.7       40,881     13.6       41,229     14.6
                        ----------------------------------------------------------------------------------------------------------
          Total loans    428,116    100.0      384,113    100.0      311,674    100.0      301,609    100.0      282,513    100.0
                                 =========             =========             =========             =========             =========
Less:
   Loans in process      (73,235)              (36,864)              (26,156)              (16,658)              (20,364)
   Deferred fees            (774)                 (711)                 (507)                 (641)                 (703)
   Allowance for loan
     losses               (1,541)               (1,534)               (1,387)               (1,035)                 (852)
                        ---------         -------------         -------------         -------------         -------------
        Total loans,
          net           $352,566              $345,004              $283,624              $283,275              $260,594
                        =========         =============         =============         =============         =============
</TABLE>
(1)  Includes loans held for sale in the amount of $12.1 million,  $3.2 million,
     $5.3  million,  $2.7 million and $204,000 as of September  30, 2001,  2000,
     1999, 1998 and 1997, respectively.

                                       3
<PAGE>



The following table sets forth the loan  originations,  loan sales and principal
payments for the periods indicated:

<TABLE>
<CAPTION>
                                                                   Years Ended September 30,
                                             -----------------------------------------------------------------------
                                                    2001           2000          1999          1998          1997
                                             -----------------------------------------------------------------------
                                                                         (In Thousands)
<S>                                            <C>            <C>           <C>           <C>           <C>
Total gross loans receivable at
    end of period                                $ 428,116      $ 384,113     $ 311,674     $ 301,609     $ 282,513
Loans originated:
  Residential real estate:
     One to four family                             99,017         56,400       130,461        56,768        55,144
     Residential construction                      150,254         94,929        55,700        23,007        12,968
     Multi-family                                        -              -             -           240           190
                                             -----------------------------------------------------------------------
       Total residential real estate               249,271        151,329       186,161        80,015        68,302
  Land                                              14,258          7,189         5,900         4,960        20,077
  Commercial business                               12,912         16,149        13,033         9,801         2,402
  Agricultural                                      42,040         38,204        28,081        27,049             -
  Consumer                                          29,471         49,804        27,503        25,740        28,465
                                             -----------------------------------------------------------------------
          Total loans originated                   347,952        262,675       260,678       147,565       119,246
Purchase of loans                                   27,337         32,417        40,883        10,832         8,528
Sale of loan participation                          (1,600)          (851)       (3,000)            -             -
Sale of loans                                     (129,245)       (54,364)     (128,925)      (24,953)       (6,661)
Principal repayments                              (235,841)      (166,921)     (169,131)     (112,284)      (72,035)
Other (net)                                         35,400          (517)         9,560       (2,064)         1,331
                                             -----------------------------------------------------------------------
Net loan activity                                $  44,003      $  72,439     $  10,065     $  19,096     $  50,409
                                             =======================================================================
</TABLE>

Maturity of Loans
The following table sets forth the maturity of the Bank's loans at September 30,
2001. The table does not include prepayments or scheduled principal  repayments.
Prepayments and scheduled  principal  repayments on loans totaled $203.4 million
for the year ended September 30, 2001.  Adjustable rate mortgage loans are shown
as maturing based on contractual maturities.

<TABLE>
<CAPTION>
                                     One to Four         Land,                           Commercial
                                        Family        Multi-Family                        Business,
                                     Real Estate     and Commercial                    Agriculture and
                                      Mortgages       Real Estate      Construction       Consumer          Total
                                 -----------------------------------------------------------------------------------
                                                                   (In Thousands)
<S>                                 <C>              <C>               <C>             <C>             <C>
Amounts Due:
Within 3 months                       $  12,733        $    19,403       $  65,417       $    51,843     $  149,396
3 months to 1 year                       35,306              6,781          76,618            37,676        156,381
                                 -----------------------------------------------------------------------------------
Total due before one year                48,039             26,184         142,035            89,519        305,777
                                 -----------------------------------------------------------------------------------

After 1 year:
   1 to 3 years                          12,124             25,913               -            30,231         68,268
   3 to 5 years                           5,826              3,751               -            20,417         29,994
   5 to 10 years                            911              2,751               -             2,564          6,226
   10 to 20 years                         7,485              2,543               -               418         10,446
   Over 20 years                          7,405                  -               -                 -          7,405
                                 -----------------------------------------------------------------------------------
Total due after one year                 33,751             34,958               -            53,630        122,339
                                 -----------------------------------------------------------------------------------
Total amount due                      $  81,790        $    61,142      $  142,035       $   143,149     $  428,116
                                 ===================================================================================
</TABLE>

                                       4
<PAGE>



The following  table sets forth,  as of September 30, 2001, the dollar amount of
all loans due after  September  30,  2002,  based upon fixed rates of  interest,
balloon rates or adjustable rates.

<TABLE>
<CAPTION>
                                                              Fixed-        Balloon      Adjustable
                                                              Rates          Rates          Rates         Total
                                                           ------------- -------------- -------------- -------------
                                                                                (In Thousands)
<S>                                                          <C>            <C>            <C>           <C>
One to four family real estate and construction                $  8,775       $  5,400       $ 19,576      $ 33,751
Land, multi-family and commercial real estate                    29,016          2,130          3,812        34,958
Commercial business, agricultural and consumer                   23,061              -         30,569        53,630
                                                           ------------- -------------- -------------- -------------
     Total                                                     $ 60,852       $  7,530       $ 53,957      $122,339
                                                           ============= ============== ============== =============
</TABLE>

One- to-Four Family Mortgage Loans
The  largest  portion of  mortgage  loans are made for the  purpose of  enabling
borrowers to purchase one- to-four family  residences  secured by first liens on
the  properties.  The Bank and HMC originate  balloon,  adjustable rate mortgage
loans  ("ARM")  and fixed rate  mortgage  loans  secured by  one-to-four  family
residences  with terms of up to 30 years.  FHA and VA loans are also offered and
then sold,  servicing released in the secondary market.  Borrower demand for ARM
loans versus fixed rate mortgage  loans depends on various  factors,  including,
but not limited to, interest rates offered,  the  expectations of changes in the
short and long term levels of interest rates and loan fees charged. The relative
amount of fixed rate,  balloon and ARM loans that can be  originated at any time
is largely determined by the demand for each in a competitive  environment.  All
fixed rate loans are sold in the secondary market,  some with servicing released
and some  servicing  retained,  which are sold to the Federal Home Loan Mortgage
Corporation ("FHLMC").

The Bank  originates  three,  five and seven year balloon  mortgage  loans,  the
majority of which are the three year.  These  mortgages  contain no  contractual
assurances  that the loan will be renewed.  At  maturity,  the loan is generally
re-written  and   re-recorded.   If  the  borrower's  loan  payment  history  is
satisfactory, a new appraisal is not required.  Management believes that balloon
loans have a pricing  characteristic  that helps offset the  detrimental  effect
that rising rates could have on net interest income because the balloon loans do
not contain  interest  rate  adjustment  caps.  At September  30, 2001,  balloon
mortgages were $15.0 million, or 4.3% of the Bank's loan portfolio.

The Bank offers ARM loans that adjust  every year,  with the initial  adjustment
coming one, three,  five, seven or ten years after  origination.  The loans have
terms from 10 to 30 years and the  interest  rates on these loans are  generally
based on Treasury bill indices. The annual interest rate cap (the maximum amount
which the  interest  rate may  increase  in a year) on the  Bank's  ARM loans is
generally  2.0% and the lifetime cap is generally  6.0% over the initial rate of
the loan. The Bank considers  market factors and competitive  rates on loans, as
well as its own cost of funds when determining the rates on the loans it offers.
The Bank does not originate loans with negative amortization.

Residential Construction Lending.
The Bank and HMC originate residential construction loans to qualified borrowers
for construction of one- to-four family residential properties primarily located
in the  Bank's  market  area.  Construction  loans  are  made to  builders  on a
pre-sold,  speculative  and  model  home  basis  and  primarily  to  owners  for
construction of their primary residence on a construction/permanent  basis. Such
loans  generally  have  terms  from six to nine  months.  Loans for  speculative
housing  construction are made to area builders only after a thorough background
check, which includes an analysis of the builder's financial statements,  credit
reports and reference checks with sub-contractors and suppliers,  has been made.
The  Bank  usually  will  have  no more  than  two  speculative  or  model  home
construction  loans  outstanding  at any one time to any  single  builder.  Loan
proceeds are disbursed in increments as construction progresses and only after a
physical  inspection  of the  project  has been made.  Accrued  interest on loan
disbursements is paid monthly.

Loans  involving  construction  financing  present a greater  level of risk than
loans  for  the  purchase  of  existing  homes  because   collateral  value  and
construction  costs can only be estimated at the time the loan is approved.  The
Bank and HMC have sought to minimize the risk by limiting  construction  lending
to qualified  borrowers primarily in the Bank's market area, limiting the number
of construction loans for speculative  purposes  outstanding at any one time and
by   installing   a  system  to  inspect  the   property  and  to  monitor  loan
disbursements.

                                       5
<PAGE>

Land Acquisition and Development Loans,  Commercial Real Estate and Multi-Family
Lending The Bank originates land loans on residential  properties located in the
Bank's primary market area. Land lending generally involves  additional risks to
the  lender  as  compared  with  residential  mortgage  lending.  This  risk  is
attributable  to the fact that loan funds are advanced upon the security of land
under  development  and  predicated  on the future  value of the  property  upon
completion of development. Loans on undeveloped land may run the risk of adverse
zoning changes and environmental or other restrictions on future use. Because of
these  factors,  the  analysis  of land  loans  requires  an  expertise  that is
different in  significant  respects from that which is required for  residential
lending.

Commercial  real estate loans are permanent  loans secured by improved  property
such as office buildings,  retail or wholesale facilities,  industrial buildings
and  other  non-residential  buildings.  Commercial  real  estate  loans  may be
originated in amounts up to 80% of the appraised value of the mortgaged property
as determined by a certified or licensed independent appraiser.

Multi-family  residential  real  estate  loans are  permanent  loans  secured by
apartment buildings. Of primary concern in multi-family  residential real estate
lending is the borrower's creditworthiness,  feasibility and cash flow potential
of the project.  Loans  secured by income  properties  generally  are larger and
involve greater risks than residential  mortgage loans because payments on loans
secured by income properties are often dependent on the successful  operation or
management  of the  properties.  As a  result,  repayment  of such  loans may be
subject to, more than residential real estate loans,  adverse  conditions in the
real  estate  market or the  economy.  In order to monitor  cash flows on income
properties,  the Bank requires borrowers and loan guarantors, if any, to provide
annual financial  statements and rent rolls on multi-family  loans. At September
30, 2001, the five largest land  acquisition  and  development,  commercial real
estate and  multi-family  loans ranged from $2.3 million to $6.9 million with an
average  committed  outstanding  balance  of $3.9  million.  All such loans were
current and have performed in accordance with their terms.

Commercial Business Lending
The Bank's  commercial  business loans are for a variety of purposes;  including
working capital, accounts receivable, inventory, equipment and acquisitions. The
Bank has no energy or foreign loans.

Residential  mortgage  loans are generally  made on the basis of the  borrower's
ability  to make  repayments  from his or her  employment  income and also other
income sources.  These  residential  mortgage loans are secured by real property
with a value that tends to be more  easily  ascertainable.  Commercial  business
loans  are  generally  made  on the  basis  of the  borrower's  ability  to make
repayment  from the cash  flow of the  borrower's  business.  As a  result,  the
availability  of funds for the  repayment of  commercial  business  loans may be
substantially  dependent on the success of the business  itself (which is likely
to be dependent upon the general economic environment.) Business assets, such as
accounts receivable,  equipment and inventory, as well as real estate sometimes,
but not  always,  secure the Bank's  commercial  business  loans.  However,  the
collateral  securing these loans may  depreciate  over time, may be difficult to
appraise or may fluctuate in value based on the success of the business.

The Bank  recognizes  the general  increased  risk  associated  with  commercial
business lending.  The Bank's commercial  business lending policy emphasizes (1)
credit  file  documentation,  (2)  analysis  of the  borrower's  character,  (3)
analysis  of the  borrower's  capacity  to repay the loan,  (4)  adequacy of the
borrower's capital and collateral and (5) evaluation of the industry  conditions
affecting the borrower. Analysis of the borrower's past, present and future cash
flows is also an important aspect of the Bank's credit analysis.  The Bank plans
to  continue  to expand  its  commercial  business  lending,  subject  to market
conditions.

The Bank  generally  obtains  annual  financial  statements  from  borrowers for
commercial  business loans. These statements are analyzed to monitor the quality
of the loan.  As of September  30, 2001,  the five largest  commercial  business
loans  ranged  from $2.0  million to $6.1  million,  with an  average  committed
balance  outstanding  of $3.5  million.  All such  loans  are  current  and have
performed in accordance with their terms.

                                       6
<PAGE>
Agricultural Lending
The Bank originates loans to finance the purchase of farmland,  livestock,  farm
machinery and equipment,  seed,  fertilizer and for other farm related products.
Agricultural  operating  loans are  originated  at either an adjustable or fixed
rate of interest  for up to a one year term or, in the case of  livestock,  upon
sale.  Most  agricultural  operating  loans have terms of one year or less. Such
loans  provide for payments of principal  and interest at least  annually,  or a
lump sum payment upon maturity if the original term is less than one year. Loans
secured by agricultural  machinery are generally  originated as fixed rate loans
with terms of up to five years.

Agricultural  real estate loans are frequently  originated with adjustable rates
of interest.  Generally, such loans provide for a fixed rate of interest for the
first three  years,  adjusting  annually  thereafter.  In  addition,  such loans
generally provide for a ten year term based on a 20 year amortization  schedule.
Adjustable rate  agricultural  real estate loans are generally limited to 80% of
the value of the property securing the loan.

Agricultural lending affords the Bank the opportunity to earn yields higher than
those  obtainable  on  one-to-four  family  residential  lending.  Nevertheless,
agricultural  lending involves a greater degree of risk than one-to-four  family
residential  mortgage  loans  because of the  typically  larger loan amount.  In
addition,  payments  on loans  are  dependent  on the  successful  operation  or
management of the farm property securing the loan or for which an operating loan
is  utilized.  The  success  of the loan may also be  affected  by many  factors
outside the control of the farm borrower.

Weather  presents one of the greatest  risks as hail,  drought,  floods or other
conditions  can severely  limit crop yields and thus impair loan  repayments and
the  value  of  the  underlying  collateral.  This  risk  can  be  reduced  with
multi-peril crop insurance,  which can guarantee set yields to provide certainty
of repayment. Unless the circumstances of the borrower merit otherwise, the Bank
generally  does not require its  borrowers to procure  multi-peril  crop or hail
insurance.  However,  recent changes in government  support  programs  generally
require  that  farmers  procure  multi-peril  crop  insurance  to be eligible to
participate in such programs.

Grain and  livestock  prices also present a risk as prices may decline  prior to
sale resulting in a failure to cover  production  costs. The farmer with the use
of futures contracts or options to provide a "floor" below which prices will not
fall may reduce  these  risks.  The Bank does not  monitor or require the use by
borrowers of future contracts or options.

Another risk is the  uncertainty of government  programs and other  regulations.
Some farmers rely on the income from  government  programs to make loan payments
and if these  programs are  discontinued  or  significantly  changed,  cash flow
problems or defaults could result.

Finally,  many farms are dependent on a limited number of key individuals  whose
injury or death may result in an inability to successfully  operate the farm. At
September 30, 2001, the five largest agricultural loans ranged from $1.2 million
to $2.8 million,  with an average committed outstanding balance of $1.7 million.
All such loans are in the Bank's market area,  are current and have performed in
accordance with their terms.

Consumer and Other Loans
The Bank offers  consumer  and other loans in the form of home equity and second
mortgages,  automobile and loans for other purposes.  Federal regulations permit
federally  chartered thrift  institutions to make secured and unsecured consumer
loans up to 35% of an institution's  assets. The Bank originates  consumer loans
in order to provide a wide range of  financial  services  to its  customers  and
because the shorter  terms and normally  higher  interest  rates help maintain a
profitable spread between its average loan yield and the Bank's cost of funds.

In connection with consumer loan applications,  the Bank verifies the borrower's
income and reviews credit bureau reports.  In addition,  the relationship of the
loan to the value of the collateral is considered. Consumer loans entail greater
risks than one-to-four family residential  mortgage loans,  particularly because
consumer loans are secured by rapidly  depreciable assets such as automobiles or
loans that are  unsecured.  In such  cases,  any  repossessed  collateral  for a
defaulted  loan  may  not  provide  an  adequate  source  of  repayment  of  the
outstanding loan balance, since there is a greater likelihood of damage, loss or
depreciation of the underlying  collateral.  Further,  consumer loan collections
are dependent on the

                                       7
<PAGE>
borrower's  continuing financial stability,  and therefore are more likely to be
adversely  affected  by job  loss,  divorce,  illness  or  personal  bankruptcy.
Finally,  the application of various federal and state laws,  including  federal
and state  bankruptcy  and  insolvency  laws,  may limit the amount which can be
recovered on such loans in the event of a default.

Loan Approval Authority and Underwriting
The primary source of mortgage loan  applications  is referrals from existing or
past  customers.  Applications  are also  solicited  from real  estate  brokers,
contractors, call-ins and walk-ins to the offices.

Upon  receipt of any loan  application  from a  prospective  borrower,  a credit
report is ordered and verifications of specific information relating to the loan
applicant's  employment,  income and credit standing are requested. An appraisal
or valuation  determination,  subject to  regulatory  requirements,  of the real
estate intended to secure the proposed loan is undertaken.  Licensed independent
appraisers  and two  authorized  appraisers on staff at the Bank are utilized in
determining the value of property. In connection with the loan approval process,
underwriters  analyze  the loan  applications  and the  property  involved.  All
residential, home equity, multi-family,  construction and commercial real estate
loans are underwritten, subject to the loan underwriting policies as approved by
the Board of Directors. In general, the Board of Directors must approve loans in
excess of $1.0 million.

Loan applicants are promptly  notified of the decision by a letter setting forth
the  terms  and  conditions  of the  decision.  If  approved,  these  terms  and
conditions  include the amount of the loan,  interest  rate basis,  amortization
term,  a brief  description  of real  estate to be  mortgaged  and the notice of
requirement of insurance  coverage to be maintained.  Title insurance or a title
opinion  are  required on first  mortgage  loans,  as well as fire and  casualty
insurance on all properties securing loans.  Insurance must be maintained during
the entire term of the loan. Flood insurance is also required, if appropriate.

Loans to One Borrower
Under federal law,  federally  chartered savings banks have,  subject to certain
exemptions,  aggregate  lending  limits  to one  borrower  equal to 15.0% of the
institution's  unimpaired  capital and surplus.  As of September 30, 2001, First
Federal's five largest lending relationships  included a $4.3 million commercial
line of  credit,  a $6.1  million  line of  credit to an  unaffiliated  mortgage
banking company,  $7.2 million in construction and development  loans to a local
developer,  a $3.5 million  commercial real estate loan and $6.9 million in land
development loans to a local developer.  This is approximately 6.5% of the total
loans.  At September  30, 2001,  all of these loans were within the loans to one
borrower  limitations,  performing in accordance with their terms, and at market
rates of interest.

Loan Servicing
The  Bank  services  substantially  all of the  loans  that  it  retains  in its
portfolio.  However,  HMC does not engage in any loan servicing.  Loan servicing
includes  collecting and remitting  loan payments,  accounting for principal and
interest,  making advances to cover delinquent  payments,  making inspections of
mortgaged premises (as required), contacting delinquent mortgagors,  supervising
foreclosures and property  dispositions in the event of unremedied  defaults and
generally  administering  the loans.  Funds that have been escrowed by borrowers
for the payment of mortgage related expenses,  such as property taxes and hazard
and mortgage insurance premiums, are maintained in non-interest bearing accounts
at the Bank.  At September 30, 2001,  the Bank had $298,000  deposited in escrow
accounts for its loans serviced for others.

The following  table  presents  information  regarding the loans serviced by the
Bank for others at the dates indicated:

<TABLE>
<CAPTION>
                                                              September 30,
                                         ----------------------------------------------------
                                               2001               2000               1999
                                         ----------------------------------------------------
                                                             (In Thousands)
<S>                                    <C>                <C>                 <C>
Mortgage loan portfolios serviced for:
          FHLMC                          $     42,736       $     45,002        $     48,219
          Other Investors                      10,232              7,126               7,269
                                         ----------------------------------------------------
                                         $     52,968       $     52,128        $     55,488
                                         ====================================================
</TABLE>
                                       8
<PAGE>
The Bank receives fees for servicing  mortgage loans, which generally amounts to
0.25% per annum on the declining  balance of mortgage loans.  Such fees serve to
compensate the Bank for the cost of performing the servicing functions.  Another
source of loan servicing  revenues is late fees.  For the years ended  September
30, 2001,  2000 and 1999,  the Bank earned gross fees of $276,000,  $247,000 and
$236,000,  respectively from loan servicing. The Bank retains a portion of funds
received  from  borrowers  on the loans it services for others in payment of its
servicing fees received on loans serviced for others.

Non-Performing and Problem Assets

Loan Collections and Delinquent Loans
The Bank's  collection  procedures  provide  that when a loan is 30 days or more
delinquent,  the  borrower is  contacted  by mail and  telephone  and payment is
requested.  If the  delinquency  continues,  subsequent  efforts will be made to
contact  the  borrower.  In certain  instances,  the Bank may modify the loan or
grant a limited moratorium on loan payments to enable the borrower to reorganize
his financial affairs. Once a loan delinquency exceeds 60 days, it is classified
as special  mention and the Bank attempts to work with the borrower to establish
a repayment schedule to cure the delinquency.  If the borrower is unable to cure
the delinquency,  the Bank will institute  foreclosure actions. If a foreclosure
action is taken and the loan is not reinstated,  paid in full or refinanced, the
property is sold at a judicial  sale at which the Bank may be the buyer if there
are no offers to satisfy  the debt.  Any  property  acquired  as the result of a
foreclosure or by deed in lieu of  foreclosure is classified as foreclosed  real
estate  until such time as it is sold or otherwise  disposed of by the Bank.  At
September 30, 2001, the Bank had $126,000 of foreclosed real estate,  consisting
of a  one-to-four  family  residential  loan.  When  foreclosed  real  estate is
acquired,  it is  recorded at the lower of the unpaid  principal  balance of the
related loan or its fair market value less related  disposition costs. Any write
down of the property is charged to the allowance for losses.

Non-performing Assets
Loans are reviewed on a regular basis and are placed on non-accrual status when,
in the opinion of management, the collection of additional interest is doubtful.
Residential  mortgage  loans are  generally  placed on  non-accrual  status when
either  principal  or interest is 90 days or more past due.  Consumer  loans are
generally charged off when the loan becomes over 90 days delinquent.  Commercial
business and real estate loans are generally  placed on non-accrual  status when
the loan is 90 days or more past due.  Interest accrued and unpaid at the time a
loan is placed  on  non-accrual  status  is  charged  against  interest  income.
Subsequent  payments are either applied to the outstanding  principal balance or
recorded  as  interest  income,  depending  on the  assessment  of the  ultimate
collectibility  of the loan. At September 30, 2001, there were no accruing loans
that were contractually past due 90 days or more.

                                       9
<PAGE>
The  following  table  sets  forth   information  with  respect  to  the  Bank's
non-performing  assets for the periods indicated.  During the periods indicated,
the Bank had no restructured  loans within the meaning of Statement of Financial
Accounting  Standards  (SFAS) No. 15 and there were no impaired loans within the
meaning of SFAS 114, as amended by SFAS 118.

<TABLE>
<CAPTION>
                                                                           At September 30,
                                                   -----------------------------------------------------------------
                                                       2001         2000         1999         1998         1997
                                                   -----------------------------------------------------------------
                                                                        (Dollars in Thousands)
<S>                                                  <C>           <C>          <C>          <C>          <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
   Residential construction loans                      $  1,043      $   323      $     -      $     -      $   393
   Permanent loans secured by one to
      four family units                                      78           55          205          240           25
Non-mortgage loans:
   Commercial and agricultural                            1,195          452            -            -            -
   Consumer                                                 637          159           22           69           82
                                                   -----------------------------------------------------------------
Total non-accrual loans                                   2,953          989          227          309          500
Foreclosed real estate and real estate
   held for investment                                      126          321          323          502           72
                                                   -----------------------------------------------------------------
Total non-performing assets                            $  3,079     $  1,310      $   550      $   811      $   572
                                                   =================================================================
Total non-performing loans to net loans                   0.84%        0.29%        0.08%        0.11%        0.19%
                                                   =================================================================
Total non-performing loans to total assets                0.62%        0.21%        0.05%        0.07%        0.13%
                                                   =================================================================
Total non-performing assets to total assets               0.65%        0.28%        0.13%        0.19%        0.15%
                                                   =================================================================
</TABLE>

There were eight residential  construction  loans accounted for on a non-accrual
basis.  One loan with a  balance  of  $251,000  was paid in full  subsequent  to
September  30,  2001.  Two  loans  totaling  $245,000  are  in  the  process  of
foreclosure. The homes are about 90% complete and the loan-to-value ratio on the
homes is approximately  65%. The five remaining loans have balances ranging from
$100,000 to $138,000 and should be resolved in a satisfactory manner. There were
two loans  secured by one to four family  residential  units  accounted for on a
non-accrual  basis. The commercial and agricultural  loans were comprised of two
agricultural  loans  totaling  $252,000  that were  paid-in-full  subsequent  to
September  30, three loans  totaling  $382,000  that are in the process of being
liquidated,  one operating  loan for  $406,000,  insured by the US Department of
Agriculture, that is being liquidated and two loans, totaling $155,000 that have
repayment  schedules  in  place.  There  are 33  consumer  loans  that were in a
non-accrual  status at September 30, 2001 that had balances ranging from $279 to
$89,000.  The majority of the loans have payment schedules  established that are
closely monitored,  and some of the loans are in the liquidation process.  Loans
that  are in the  liquidation  process  are  evaluated  for  impairment  and the
balances are adjusted, if necessary, in accordance with SFAS 114.

Interest  income  that  would have been  recorded  on loans  accounted  for on a
non-accrual  basis  under the  original  terms of such  loans was  approximately
$178,000 for the year ended September 30, 2001.

Classified Assets
Management, in compliance with regulatory guidelines, has instituted an internal
loan  review  program,   whereby  loans  are  classified  as  special   mention,
substandard,  doubtful or loss.  When a loan is  classified  as  substandard  or
doubtful,  management is required to establish a general  valuation  reserve for
loan losses in an amount that is deemed prudent.  General  allowances  represent
those that have been  established  to recognize  inherent risk  associated  with
lending  activities,  but  which,  unlike  specific  allowances,  have  not been
allocated to particular  problem assets.  When  management  classifies a loan as
loss, a reserve equal to 100% of the loan balance may be established or the loan
is charged off.

An asset is considered  substandard if the paying  capacity and net worth of the
obligor or the collateral  inadequately  protects it. Substandard assets include
those  characterized  by the  distinct  possibility  that the  institution  will
sustain some loss if the  deficiencies are not corrected.  Assets  classified as
doubtful have all of the weaknesses  inherent in those  classified  substandard,
with the added  characteristic  that the weaknesses  present make  collection or
liquidation  in  full,  highly  questionable  and  improbable,  on the

                                       10
<PAGE>

basis of currently existing facts,  conditions and values.  Assets classified as
loss are those  considered  uncollectible  and of such  little  value that their
continuance  as assets without the  establishment  of a specific loss reserve is
not warranted. Assets which do not currently expose the insured institution to a
sufficient  degree of risk and are not  classified in one of the  aforementioned
categories but possess credit  deficiencies or potential  weaknesses,  including
all loans over 60 days delinquent, are required to be designated special mention
by  management.  The  OTS  has  promulgated  regulations  that  discontinue  the
classification  of assets as special  mention.  However,  the Bank  continues to
utilize this category.

Management's  evaluation of the classification of assets and the adequacy of the
reserve  for loan losses is  reviewed  by  regulatory  agencies as part of their
periodic  examinations.  At  September  30,  2001 the Bank had total  classified
assets of $4.8 million of which $1.2 million were considered  substandard and no
assets were classified as doubtful or loss.  Special mention assets totaled $3.6
million at September 30, 2001.

Allowance for Loan and Lease Losses and Foreclosed Real Estate
In making loans,  the Bank recognizes that credit losses will be experienced and
that the risk of loss will vary with, among other things, the type of loan being
made, the  creditworthiness of the borrower over the term of the loan and in the
case of a secured loan,  the quality of the  collateral for the loan. The Bank's
management  evaluates the need to establish reserves against losses on loans and
other assets each quarter based on estimated losses on specific loans and on any
real  estate held for sale or  investment  when a finding is made that a loss is
estimable and probable. Such evaluation includes a review of all loans for which
full  collectibility  may not be reasonably  assured and considers,  among other
matters,  the  estimated  market value of the  underlying  collateral of problem
loans, prior loss experience, economic conditions and overall portfolio quality.
While  management  recognizes and charges  against the allowance for loan losses
accounts that are determined to be uncollectible,  experience  indicates that at
any point in time, possible losses may exist in the loan portfolio which are not
specifically  identifiable.  Therefore,  based upon  management's best estimate,
each year an amount may be charged to  earnings to maintain  the  allowance  for
loan losses at a level sufficient to recognize potential risk.

Impaired  loans,  including all loans that are in a troubled debt  restructuring
involving a modification of terms, are measured at the present value of expected
future cash flows discounted at the loan's initial effective  interest rate. The
fair value of the  collateral  of an impaired  collateral  dependent  loan or an
observable  market  price,  if one  exists,  may be  used as an  alternative  to
discounting.  If the  measure  of the  impaired  loan is less than the  recorded
investment in the loan,  impairment is recognized through the allowance for loan
losses.  A loan is considered  impaired when,  based on current  information and
events,  it is probable  that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan agreement.

The Bank believes it has established  its existing  allowance for loan losses in
accordance  with  GAAP.  However,   there  can  be  no  assurance  that  banking
regulators,  in  reviewing  the Bank's loan  portfolio,  will not request  First
Federal  to  significantly  increase  its  allowance  for loan  losses or that a
deteriorating real estate market or other unforeseen  economic changes may cause
a significant  increase in allowance for loan losses. This may negatively affect
the Bank's financial condition and earnings.

                                       11
<PAGE>
The following table sets forth  information with respect to the Bank's allowance
for loan losses at the dates indicated:

<TABLE>
<CAPTION>
                                                                           At September 30,
                                                   -----------------------------------------------------------------
                                                         2001         2000         1999         1998         1997
                                                   -----------------------------------------------------------------
                                                                        (Dollars in Thousands)

<S>                                                  <C>          <C>          <C>          <C>          <C>
Average loans outstanding                              $344,470     $308,721     $274,676     $276,730     $237,475
                                                   =================================================================
Allowance balance (beginning of period)                $  1,534     $  1,387     $  1,035     $    852     $    776
                                                   -----------------------------------------------------------------
Provision (credit):
   Residential and construction                              85            -            -            -            -
   Land and Commercial real estate                           30           60           20            2           40
   Commercial/agricultural business                         772          156          418          293            -
   Consumer                                                 190            -           18            7           80
                                                   -----------------------------------------------------------------
       Total provision                                    1,077          216          456          302          120
Charge off:
   Residential and construction                               -            -            -           45           13
   Commercial real estate                                   756            -            -            -            -
   Consumer                                                 371           98          142           87           37
                                                   -----------------------------------------------------------------
       Total charge offs                                  1,127           98          142          132           50
Recoveries:
   Residential and construction                               -            -            -            -            -
   Commercial real estate                                    35            -            -            -            -
   Consumer                                                  22           29           38           13            6
                                                   -----------------------------------------------------------------
       Total recoveries                                      57           29           38           13            6
                                                   -----------------------------------------------------------------
Net charge offs                                           1,070           69          104          119           44
                                                   -----------------------------------------------------------------
Allowance balance (at end of period)                   $  1,541     $  1,534     $  1,387     $  1,035      $   852
                                                   =================================================================
Allowance as percent of net loans                         0.44%        0.44%        0.48%        0.36%        0.33%
Net loans charged off as a percent of
   average loans                                          0.31%        0.02%        0.04%        0.04%        0.02%
</TABLE>

To further  monitor and assess the risk  characteristics  of the loan portfolio,
loan delinquencies are reviewed to consider any developing loan problems.  Based
upon the procedures in place, the Bank's  experience  regarding  charge-offs and
recoveries and the current risk elements in the portfolio,  management  believes
the  allowance  for loan  losses at  September  30, 2001 is  adequate.  However,
assessment of the adequacy of the allowance for loan losses involves  subjective
judgments  regarding  future  events  and thus  there can be no  assurance  that
additional provisions for loan losses will not be required in future periods.

The  following  table sets forth the breakdown by loan category of the allowance
for loan losses:

<TABLE>
<CAPTION>
                                                                         September 30,
                                   ------------------------------------------------------------------------------------------
                                     2001              2000              1999              1998              1997
                                   ------------------------------------------------------------------------------------------
                                             Percent           Percent           Percent           Percent           Percent
                                             of Loans          of Loans          of Loans          of Loans          of Loans
                                             in Each           in Each           in Each           in Each           in Each
                                             Category          Category          Category          Category          Category
                                             to Total          to Total          to Total          to Total          to Total
                                     Amount   Loans    Amount   Loans    Amount   Loans    Amount   Loans    Amount   Loans
                                   ------------------------------------------------------------------------------------------
                                                                    (Dollars in Thousands)
<S>                                <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>      <C>      <C>
Real Estate:
     One-to-four family              $   49    19.1%   $   59    26.3%   $   73    38.8%   $   94    52.2%    $ 103    60.3%
     Residential construction           117    33.2%       59    21.5%       25    13.8%       11     7.3%        5     7.4%
     Multi-family                        48     1.4%       47     1.2%       56     1.8%       30     1.0%       34     1.2%
     Land and commercial real estate    390    12.9%      473    13.2%      486    11.7%      347    11.4%      380    13.7%
Agricultural loans                      318    11.7%      245    11.4%      200    10.7%      138     7.6%        -     0.0%
Commercial business                     239     5.6%      298     7.8%      297     9.6%      211     7.0%      124     2.9%
Consumer loans                          380    16.0%      353    18.6%      250    13.6%      204    13.5%      206    14.5%
                                   ------------------------------------------------------------------------------------------
                                     $1,541   100.0%   $1,534   100.0%   $1,387   100.0%   $1,035   100.0%    $ 852   100.0%

</TABLE>
                                       12
<PAGE>
Investment and Mortgage-Backed Securities Activities

General
Federally  chartered thrift institutions have the authority to invest in various
types of liquid assets, including United States Treasury obligations, securities
of various Federal  agencies,  certain  certificates of deposit of insured banks
and savings institutions,  certain bankers'  acceptances,  repurchase agreements
and loans on Federal Funds. To supplement lending activities, subject to various
restrictions,  the Bank  invests a portion  of its assets in  commercial  paper,
corporate debt  securities and asset backed  securities  (e.g.,  mortgage-backed
securities).  A significant portion of the Bank's income during recent years has
been  attributable to interest income on such  securities.  The Corporation does
not have the same investment limitations as the Bank.

Mortgage-Backed and Related Securities
First Federal invests in residential  mortgage-backed  securities  guaranteed by
participation  certificate  issues by the FHLMC, the Federal  National  Mortgage
Association ("FNMA") and the Government National Mortgage Association  ("GNMA").
The mortgage-backed  securities  portfolio as of September 30, 2001 consisted of
$42.0  million in Real Estate  Mortgage  Investment  Conduits  ("REMICs"),  $5.7
million in a FNMA certificate and $5.5 million in FHLMC certificates.

Mortgage-backed  securities  represent  a  participation  interest  in a pool of
single family or multi-family mortgages. The principal and interest payments are
passed  from  the  mortgage  originators,   through  intermediaries   (generally
quasi-governmental  agencies) that pool and repackage the participation interest
in the form of securities to investors such as the Bank. Such quasi-governmental
agencies,  which  guarantee  the payment of principal and interest to investors,
primarily include FHLMC, FNMA and GNMA.

Mortgage-backed  securities  typically are issued with stated principal  amounts
and pools of  mortgages  that have loans with  interest  rates that are within a
range and have varying  maturities back the  securities.  The underlying pool of
mortgages  is primarily  composed of either  fixed rate  mortgages or ARM loans.
Mortgage-backed  securities are generally referred to as mortgage  participation
certificates or pass-through  certificates.  As a result, the interest rate risk
characteristics  of the  underlying  pool  of  mortgages,  (i.e.  fixed  rate or
adjustable  rate) as well as prepayment  risk, are passed on to the  certificate
holder.  The life of a  mortgage-backed,  pass-through  security is equal to the
life of the underlying  mortgages.  Mortgage-backed  securities issued by FHLMC,
FNMA and GNMA make up a majority of the pass-through market.

Mortgage-backed  securities  provide  for  monthly  payments  of  principal  and
interest and generally have contractual  maturities  ranging from five to thirty
years. In periods of declining  interest  rates,  payments on many mortgages are
received  faster than the  contractual  amount  required,  causing the estimated
lives of mortgage related securities to be significantly shorter than expected.

REMICs are typically issued by a special purpose entity ("issuer"), which may be
organized  in a variety of legal  forms,  such as a trust,  a  corporation  or a
partnership.  The entity aggregates pools of pass-through securities,  which are
used to collateralize the mortgage-related  securities.  Once combined, the cash
flows can be divided into tranches or classes of individual securities,  thereby
creating more predictable average duration for each security than the underlying
pass-through pools. Accordingly, under this security structure all principal pay
downs from the various  mortgage pools are allocated to a mortgage related class
or classes  structured to have priority until it has been paid off. Thus,  these
securities are intended to address the  reinvestment  concerns  associated  with
mortgage-backed  securities  pass-through,  namely that (i) they tend to pay off
when interest rates fall,  thereby taking their relatively high coupon with them
and (ii) their expected average life may vary significantly  among the different
tranches.

Some REMIC  instruments are more like traditional debt instruments  because they
have stated  principal  amounts and  traditionally  defined interest rate terms.
Purchasers of certain other REMIC securities are entitled to the excess, if any,
of the issuer's cash inflows,  including  reinvestment  earnings,  over the cash
outflows for debt service and  administrative  expenses.  These mortgage related
instruments  may include  instruments  designated as residual  interests and are
riskier  in that they  could  result in the loss of a  portion  of the  original
investment.   Cash  flows  from  residual   interests  are  very   sensitive  to
prepayments,  and thus,  contain a high degree of interest  rate risk.  Residual
interest represents an ownership interest in the underlying collateral,  subject
to the first lien of the REMICs investors.

                                       13
<PAGE>
The REMICs held by the Bank at September  30, 2001  consisted  of floating  rate
tranches.  The  interest  rate of all of the  Bank's  floating  rate  securities
adjusts monthly and provides the institution with net interest margin protection
in an increasing market rate environment. The securities are backed by mortgages
on one to four family residential real estate and have contractual maturities up
to 30 years.  None of the securities  are deemed to be "high risk"  according to
OTS guidelines.  The securities are primarily  companion  tranches to "PACs" and
"TACs". PACs and TACs (Planned and Targeted  Amortization  Classes) are designed
to provide a specific principal and interest cash flow.  Principal payments that
are received in excess of the amount  needed for the PACs and TACs are allocated
to the  companion  tranches.  When the PACs and  TACs are  repaid  in full,  all
principal  is then used to pay the  companion  tranches.  Although the timing of
principal  payments may be impacted by the amount of prepayments (the higher the
level of  prepayments,  the sooner the principal  will be received),  all of the
principal and interest payments are guaranteed.

Investment Securities
The Bank is required under federal regulation, to maintain a sufficient level of
liquid  assets  which may be invested in  specified  short-term  securities  and
certain other investments.  However, the OTS does not prescribe by regulation to
a minimum  amount  or  percentage  of liquid  assets.  Liquidity  levels  may be
increased or decreased, depending upon the yields on investment alternatives and
upon  management's  judgement  as to  the  attractiveness  of  the  yields  then
available in  relationship  to other  opportunities.  Also its  expectations  of
future yield levels,  as well as  management's  projections as to the short-term
demand for funds, are used in the Bank's loan originating and other  activities.
These  securities  consist  mainly  of  U.S.  Government   Securities  and  U.S.
Government  Agency  obligations.  The  Bank  also  invests  in debt  and  equity
securities.

The Board of Directors  establishes  the  investment  policy of the Bank.  It is
designed to provide and maintain  liquidity,  to generate a favorable  return on
investments  without  incurring  undue  interest  rate  and  credit  risk and to
compliment  the Bank's  lending  activity.  The policy  currently  provides  for
investments held to maturity and investments available for sale.

The amount of short-term  securities reflects  management's  strategy to provide
interest rate  adjustments  for securities that are shorter than their maturity.
It is the  intention  of  management  to maintain a repricing  structure  in the
Bank's investment  portfolio that better matches the interest rate sensitivities
of its assets and  liabilities.  However,  during  periods of rapidly  declining
interest rates,  such  investments also decline at a faster rate than the yields
on  fixed  rate  investments.   Investment  decisions  are  made  within  policy
guidelines established by the Board of Directors.  Unless loan demand increases,
the Bank intends to maintain its investments at current levels.

Investment Activities
Current regulatory and accounting  guidelines  regarding  investment  securities
(including  mortgage-backed  securities)  require the  Corporation to categorize
securities as held to maturity,  available for sale or trading.  As of September
30, 2001,  the  Corporation  had  securities  classified as held to maturity and
available for sale in the amounts of $38.2 million and $48.5 million. There were
no securities classified as trading. Securities classified as available for sale
are reported for financial purposes at the fair market value with net changes in
the market  value from  period to period  included  as a separate  component  of
stockholders'   equity,  net  of  income  taxes.  At  September  30,  2001,  the
Corporation's  securities  available  for  sale had an  amortized  cost of $49.0
million and a market  value of $48.5  million  (unrealized  loss,  net of tax of
$541,000).  Changes in the market value of securities  available for sale do not
affect the  Corporation's  income.  In addition,  changes in the market value of
securities  available  for sale do not  affect  the  Bank's  regulatory  capital
requirements or its loan to one borrower limit.

                                       14
<PAGE>
Investment and Mortgage-Backed Securities Portfolio
The following table sets forth the carrying value of First Federal's  investment
securities portfolio, short-term investments, FHLB stock and mortgage-backed and
related securities at the dates indicated:

                                                            September 30,
                                                  ------------------------------
                                                    2001       2000       1999
                                                  --------   --------   --------
                                                          (In Thousands)
Investment securities:
   Debt securities                                $ 12,420   $ 18,393   $ 19,937
   Debt securities available for sale                3,055     12,728     12,794
   FHLB Stock                                        5,925      6,375      7,363
   Equity securities available for sale             12,021     11,871     11,921
                                                  --------   --------   --------
Total investment securities                         33,421     49,367     52,015
Interest bearing deposits                            9,767      5,552     16,020
Mortgage-backed and related securities:
   Mortgage-backed and related securities           25,731     26,986     27,587
   Mortgage-backed and related securities
       available for sale                           27,481     15,369     15,979
                                                  --------   --------   --------
Total mortgage-backed and related securities        53,212     42,355     43,566
                                                  --------   --------   --------
Total investments                                 $ 96,400   $ 97,274   $111,601
                                                  ========   ========   ========


                                       15
<PAGE>
The  following  table sets forth  certain  information  regarding  the  carrying
values,  weighted  average  yields  and  maturities  of  the  Bank's  investment
portfolio at September 30, 2001:

<TABLE>
<CAPTION>
                     Adjustable    One Year or Less  One to Five Years Five to Ten Years   More than Ten          Total Investment
                                                                                               Years                 Securities
                 ----------------- ----------------- ----------------- ------------------ ------------------- ----------------------
                 Carrying  Average Carrying  Average Carrying  Average  Carrying  Average Carrying  Average Carrying Average  Market
                  Value     Yield   Value     Yield    Value    Yield    Value     Yield   Value     Yield    Value   Yield   Value
                  -----     -----   -----     -----    -----    -----    -----     -----   -----     -----    -----   -----   -----
                                                                  (Dollars in Thousands)
<S>           <C>        <C>      <C>       <C>    <C>         <C>    <C>        <C>    <C>        <C>    <C>        <C>   <C>
U. S.
  Government
  and Federal
  Agency
  Obligations
  held to
  maturity        $   -       - %   $   -       - %  $ 9,221     3.82 % $ 2,000    3.19 % $ 1,199    7.13 % $12,420  4.03%   $12,490

Federal Agency
  Obligations
  available
  for sale            -       -         -       -      3,055     5.28         -       -         -       -   $ 3,055  5.28      3,055

Equity
  Securities
  available
  for sale       12,021    4.98         -       -          -        -         -       -         -       -   $12,021  4.98     12,021

FHLB Stock          N/A     N/A       N/A     N/A        N/A      N/A       N/A     N/A       N/A     N/A   $ 5,925  4.08      5,925

Mortgage-
  backed
  and related
  securities
  held to
  maturity       24,970    4.76         -       -         10     7.59        10   15.68       741    7.04   $25,731  4.83     25,586

Mortgage-
  backed
  and related
  securities
  available
  for sale       16,698    4.69         -       -          -        -         -       -    10,783    5.99   $27,481  5.20     27,481

Interest-
  bearing
  deposits        9,767    1.98         -       -          -        -         -       -         -       -   $ 9,767  1.98      9,767
                -------             -----            -------            -------           -------           -------           ------
       Total    $63,456    4.35 %   $   -       - %  $12,286     4.18 % $ 2,010    3.23 % $12,723    6.15 % $96,400  4.53%   $96,325
                =======             =====            =======            =======           =======           =======          =======
</TABLE>

                                       16
<PAGE>
Deposits and Other Sources of Funds

General
Deposits are a major source of funds for the Bank's lending and other investment
purposes.  In  addition  to  deposits,  the Bank  derives  funds  from  loan and
mortgage-backed   securities   principal   payments,   interest  on   investment
securities,  proceeds  from  the  maturity  of  mortgage-backed  securities  and
investment  securities  and  borrowings.  Loan  and  mortgage-backed  securities
payments are a relatively  stable source of funds,  while general interest rates
and money market conditions significantly influence deposit inflows.  Borrowings
may  be  used  on a  short-term  basis  to  compensate  for  reductions  in  the
availability of funds from other sources. They may also be used on a longer-term
basis for general business purposes.

Deposits
First Federal offers a wide variety of deposit accounts.  It constantly  strives
to meet consumer's needs by offering new products. This, in addition to interest
rate risk management and  asset/liability  ratios,  is taken into  consideration
prior to offering new products.  Deposit account terms vary, primarily as to the
required  minimum balance amount,  the amount of time that the funds must remain
on deposit and the applicable interest rate.

The Bank's current deposit products  include regular  savings,  demand deposits,
NOW, money market and certificate of deposit  accounts  ranging in terms from 91
days to 5 years including certificates of deposit with negotiable interest rates
and  balances  in  excess  of  $100,000  (jumbo   certificates)  and  Individual
Retirement  Accounts (IRAs).  All checking and savings accounts are eligible for
an  Express  Teller  ATM  card.  This  card can be used at any  Express  Teller,
Fastbank,  or Instant Cash ATM in Minnesota  and  surrounding  states.  With the
addition  of the  Plus  and  Cirrus  network  automated  banking  system,  First
Federal's  Express  Teller ATM card can be used at  thousands  of ATM  locations
throughout the United States and the world.

Deposits are obtained  primarily  from  residents in the  Minnesota  counties of
McLeod, Dakota, Meeker, Sibley, Carver, Wright, Benton,  Sherburne,  Stearns and
Washington.  First Federal  attracts deposit accounts by offering a wide variety
of products, competitive interest rates, convenient locations and service hours.
The Bank uses  traditional  methods of  advertising to attract new customers and
deposits, including radio and print media advertising.

The Bank pays interest on its deposits that are competitive in the  marketplace.
Interest  rates on  deposits  are set  weekly,  based on a  number  of  factors,
including:  (1) the previous  week's  deposit  flow,  (2) a current  survey of a
selected group of  competitor's  rates for similar  products,  (3) external data
which may influence interest rates, (4) investment opportunities and loan demand
and (5) scheduled maturities.

The following table  indicates the amount of the Bank's  certificates of deposit
of $100,000 or more by time remaining until maturity as of September 30, 2001:

                                                          Certificates
            Maturity Period                                of Deposit
                                                        -----------------
                                                          (In Thousands)
            Within three months                         $         14,863
            Three through six months                               5,636
            Six through twelve months                             32,804
            Over twelve months                                    10,934
                                                         ----------------
                                                         $        64,237
                                                         ================


Borrowings.
Savings deposits are the primary source of funds for First Federal's lending and
investment  activities and also for its general business purposes.  The Bank, if
the need  arises,  may  rely  upon  advances  from  the  FHLB of Des  Moines  to
supplement  its  supply  of  lendable  funds  and  to  meet  deposit  withdrawal
requirements.  Advances  from the FHLB of Des  Moines are  typically  secured by
First Federal's  stock in the FHLB and a portion of First Federal's  residential
mortgage loans and other assets (principally securities which are obligations of
or guaranteed by the U.S. Government).

                                       17
<PAGE>

Advances have been  utilized when adequate  spreads can be obtained and the risk
(credit risk,  interest rate risk and market risk) in the  transaction  has been
minimized.  Advances  have been used to  purchase  mortgage-backed  and  related
securities and to purchase  single family  residential  mortgages  originated by
other financial institutions within the State of Minnesota.

The  following  table  sets forth  certain  information  as to the  Bank's  FHLB
advances at the date indicated:

                                           As of and for the Years Ended
                                                   September 30,
                                      ------------------------------------------
                                            2001           2000          1999
                                      ------------------------------------------
                                               (Dollars in Thousands)

          Maximum balance              $  127,500      $  140,967    $  144,177
          Average balance                 117,957         138,213       143,123
          Balance at end of period        113,500         127,500       140,967
          Weighted average rate:
               at end of period             5.87%           5.89%         5.39%
               during the period            5.99%           5.89%         5.47%


It is First  Federal's  policy to fund loan demand and investment  opportunities
out of  current  loan  and  mortgage-backed  securities  repayments,  investment
maturities  and new  deposits.  However,  the Bank has utilized FHLB advances to
supplement  these  sources.  This policy may change in the future as  investment
opportunities are presented or loan demand increases.

Subsidiary Activity

As of September 30, 2001, the Corporation  had two directly owned  subsidiaries:
the Bank and the Agency.

The Bank is permitted  to invest up to 2% of its assets in the capital  stock of
subsidiary corporations in the form of secured or unsecured loans. An additional
investment  of 1% of assets is  permitted  when such  investments  are  utilized
primarily for community development purposes. As of September 30, 2001, the Bank
was  authorized  to  invest up to  approximately  $9.4  million  in the stock of
service  corporations  (based upon the 2%  limitation).  The Bank has two wholly
owned  subsidiaries,  Firstate  Services,  Inc. ("FSI") and Homeowners  Mortgage
Corporation  ("HMC").  FSI was  incorporated in the State of Minnesota in August
1983 and is engaged in the sale, on an agency basis, of mutual funds,  annuities
and life, credit life and disability insurance products. HMC was incorporated in
the State of Minnesota in 1988 and  originates  residential  mortgage loans from
two  locations in  Minnesota.  As of September  30, 2001,  the net book value of
First Federal's investment in stock, unsecured loans and conforming loans in FSI
was $105,000 and HMC was $2.8 million.  For the fiscal year ended  September 30,
2001, FSI had net income of $15,587 and HMC had net loss of $111,552.

Insurance  Planners (the "Agency") was incorporated in the State of Minnesota in
August 1983 and is engaged in the sale,  on an agency  basis,  of  property  and
casualty insurance products. As of September 30, 2001, the net book value of the
Corporation's  investment in stock,  unsecured loans and conforming loans in its
subsidiary  was  $680,658.  For the fiscal year ended  September  30, 2001,  the
Agency had net income of $47,901.

On November 17, 1998,  the  Corporation  acquired,  in a transaction  that was a
combination  of stock  and cash,  all of the  outstanding  shares of  Homeowners
Mortgage  Corporation  ("HMC").  As of June 1,  2000,  HMC  became an  operating
subsidiary of the Bank following  regulatory  approval.  The transfer of HMC was
recorded as a non-cash capital contribution from the Corporation to the Bank.

                                       18
<PAGE>
Personnel

As of September 30, 2001,  the Bank had 143 full time employees and 53 part time
employees,  representing a total of 170.5 full time  equivalents.  The employees
are not represented by a collective  bargaining  agreement and the Bank believes
its relationship with their employees is satisfactory.

Regulation

Set forth below is a brief description of certain laws related to the regulation
of the Corporation and the Bank. The description does not purport to be complete
and  is  qualified  in  its  entirety  by  reference  to  applicable   laws  and
regulations.

Regulation of the Corporation

General
The  Corporation  is a unitary  savings  and loan  holding  company  subject  to
regulatory  oversight  by the OTS.  As such,  the  Corporation  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
Corporation  and  its   non-savings   association   subsidiaries,   should  such
subsidiaries  be formed,  which also  permits  the OTS to  restrict  or prohibit
activities  that are determined to be a serious risk to the  subsidiary  savings
association.  This  regulation  and  oversight  is  intended  primarily  for the
protection of the depositors of the Bank and not for the benefit of stockholders
of the Corporation.

As a unitary savings and loan holding company, the Corporation  generally is not
subject   to  any   restrictions   on  its   business   activities.   While  the
Gramm-Leach-Bliley Act (the "GLB Act"), enacted in November 1999, terminated the
"unitary  thrift  holding  company"  exemption from activity  restrictions  on a
prospective  basis,  the  Corporation  enjoys  grandfathered  status  under this
provision of the GLB Act because it acquired the Bank prior to May 4, 1999. As a
result,  the GLB Act did not  affect the  Corporation's  freedom  from  activity
restrictions  as a unitary  savings and loan holding  company.  However,  if the
Corporation were to acquire control of an additional  savings  association,  its
business  activities would be subject to restriction under the Home Owners' Loan
Act.  Furthermore,  if the Corporation were in the future to sell control of the
Bank to any other company,  such company would not succeed to the  Corporation's
grandfathered status under the GLB Act and would be subject to the same activity
restrictions.  The continuation of the Corporation's exemption from restrictions
on business  activities  as a unitary  savings and loan holding  company is also
subject to the  Corporations  continued  compliance  with the  Qualified  Thrift
Lender  ("QTL") test.  See  "-Regulation  of the Bank-  Qualified  Thrift Lender
Test."

Regulation of the Bank

General
Set forth  below is a brief  description  of  certain  laws  that  relate to the
regulation of the Bank. The  description  does not purport to be complete and is
qualified in its entirety be reference to applicable laws and regulations.  As a
federally chartered,  SAIF-insured  savings association,  the Bank is subject to
extensive  regulation  by the OTS and the  FDIC.  Lending  activities  and other
investments   must  comply  with  various   federal   statutory  and  regulatory
requirements.   The  Bank  is  also  subject  to  certain  reserve  requirements
promulgated by the Federal Reserve Board.

The OTS, in conjunction with the FDIC,  regularly examines the Bank and prepares
reports  for  the  consideration  of  the  Bank's  Board  of  Directors  on  any
deficiencies that are found in the Bank's  operations.  The Bank's  relationship
with its  depositors  and  borrowers  is also  regulated,  to a great  extent by
federal and state law,  especially  in such matters as the  ownership of savings
accounts and the form and content of the Bank's mortgage documents.

The Bank must file reports with the OTS and the FDIC  concerning  its activities
and financial condition,  in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with or acquisitions of other
savings   institutions.   This   regulation   and   supervision   establishes  a
comprehensive  framework of activities in which an institution can engage and is
intended primarily for the protection of the SAIF and depositors. This structure
also gives the regulatory  authorities  extensive  discretion in connection with
their supervisory and enforcement activities and examination policies, including
policies

                                       19
<PAGE>

with respect to the  classification  of assets and the establishment of adequate
loan loss reserves for regulatory purposes.

Insurance of Deposit Accounts
The  deposit  accounts  held by the Bank are insured by the SAIF to a maximum of
$100,000 or each insured member (as defined by law and regulation). Insurance of
deposits may be terminated by the FDIC upon a finding that the  institution  has
engaged in unsafe or unsound practices,  is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation,  rule, order
or condition imposed by the FDIC or the institution's primary regulator.

The Bank is required to pay  insurance  premiums  based on a  percentage  of its
insured deposits to the FDIC for insurance of its deposits by the SAIF. The FDIC
also maintains  another  insurance fund, the Bank Insurance Fund ("BIF"),  which
primarily  insures  commercial  bank  deposits.  The  FDIC  has set the  deposit
insurance assessment rates for SAIF-member institutions for the first six months
of 2001 at 0% to 0.27% of insured  deposits  on an  annualized  basis,  with the
assessment rate for most savings institutions set at 0%.

In addition,  all FDIC insured  institutions  are required to pay assessments to
the FDIC at an annual rate of approximately  0.0212% of insured deposits to fund
interest  payments on bonds issued by the  Financing  Corporation  ("FICO"),  an
agency of the Federal Government  established to recapitalize the predecessor to
the SAIF. These assessments will continue until the FICO bonds mature in 2017.

Regulatory Capital Requirements
OTS capital  regulations  require  savings  institutions  to meet three  capital
standards:  (1) tangible capital equal to 1.5% of total adjusted  assets,  (2) a
leverage ratio (core  capital)  equal to at least 3.0% of total adjusted  assets
and (3) a risk-based  capital  requirement equal to 8.0% of total  risk-weighted
assets.

Dividend and Other Capital Distribution Limitations
The OTS imposes  various  restrictions or requirements on the ability of savings
institutions to make capital distributions, including cash dividends.

A  savings  association  that is a  subsidiary  of a  savings  and loan  holding
company,  such as the Bank, must file an application or a notice with the OTS at
least 30 days before making a capital distribution. Savings associations are not
required to file an application  for  permission to make a capital  distribution
and need only file a notice if the  following  conditions  are met: (1) they are
eligible for expedited  treatment under OTS  regulations,  (2) they would remain
adequately capitalized after the distribution,  (3) the annual amount of capital
distribution  does not exceed net income for that year to date added to retained
net income for the two preceding  years and (4) the capital  distribution  would
not violate any  agreements  between the OTS and the savings  association or any
OTS regulations. Any other situation would require an application to the OTS.

The  OTS may  disapprove  an  application  or  notice  if the  proposed  capital
distribution   would:  (1)  make  the  savings   association   undercapitalized,
significantly undercapitalized or critically undercapitalized,  (2) raise safety
or soundness concerns or (3) violate a statute, regulation or agreement with the
OTS (or with the FDIC), or a condition imposed in an OTS approved application or
notice.  Further,  a  federal  savings  association,  like  the  Bank,  can  not
distribute regulatory capital that is needed for its liquidation account.

Qualified Thrift Lender Test
Federal  savings  institutions  must  meet one or two  Qualified  Thrift  Lender
("QTL")  tests.  To qualify as a QTL, a savings  institution  must either (1) be
deemed a "domestic  building and loan  association"  under the Internal  Revenue
Code by  maintaining  at least 60% of its total  assets  in  specified  types of
assets,  including cash,  certain  government  securities,  loans secured by and
other  assets  related  to  residential  real  property,  educational  loans and
investments in premises of the institution or (2) satisfy the statutory QTL test
set  forth  in the Home  Owner's  Loan Act by  maintaining  at least  65% of its
"portfolio assets" in certain "Qualified Thrift Investments" (defined to include
residential mortgages and related equity investments,  certain  mortgage-related
securities, small business loans, student loans and credit card loans and 50% of
certain community  development  loans).  For purposes of the statutory QTL test,
portfolio assets are defined as total assets minus intangible  assets,  property
used by the  institution  in conducting  its business and liquid assets equal to
10% of total assets. A savings  institution must maintain its status as a QTL on
a monthly  basis in at least  nine out of every  twelve  months.  A  failure  to

                                       20
<PAGE>

qualify as a QTL results in a number of sanctions,  including the  imposition of
certain  operating  restrictions  and  a  restriction  on  obtaining  additional
advances from its FHLB. At September 30, 2001,  the Bank was in compliance  with
its QTL requirement.

Federal Home Loan Bank System
The Bank is a member of the FHLB of Des Moines,  which is one of twelve 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.

As a member,  the Bank is required to purchase and maintain stock in the FHLB of
Des Moines.  This amount  must be equal to at least 1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year.

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)  and
non-personal  time  deposits.  The  balances  maintained  to  meet  the  reserve
requirements  imposed by the  Federal  Reserve  Board may be used to satisfy the
liquidity  requirements  that are imposed by the OTS. At September 30, 2001, the
Bank was in compliance with these Federal Reserve Board requirements.

                                       21
<PAGE>
ITEM 2.     PROPERTIES

The Bank  operates  from its  main  office  located  at 201 Main  Street  South,
Hutchinson,  Minnesota.  The Bank owns this 20,000  square foot office  facility
which it built in 1985/86. The total investment in property and equipment at 201
Main Street South had a net book value of $1.6 million at September 30, 2001.

Additional  offices,  either  owned or leased by the Bank and HMC, are set forth
below with information regarding net book value of the premises and equipment at
such facilities at September 30, 2001.

<TABLE>
<CAPTION>
                                                         Year
                                                      Acquired or             Net Book
                                                      Date Lease              Value at               Square
Location                                               Expires           September 30, 2000          Footage
-------------------------------------------      -------------------------------------------------------------------
                                                                       (Dollars in thousands)
<S>                                                   <C>                    <C>                   <C>
14994 Glazier Avenue
Apple Valley, MN  55124                                  1989                   $274                  3,000

305 10th Avenue S
Buffalo, MN  55313                                       1999                  1,050                  5,620

1002 Greeley Avenue
Glencoe, MN  55336                                       2000                   438                   1,980

1320 South Frontage Road
Hastings, MN  55033                                      1984                   988                   15,000

905 Highway 15 South,
Frontage Road
Hutchinson, MN  55350                                    1980                   183                   1,400

6505 Cahill Avenue
Inver Grove Heights, MN  55075                           1979                   251                   3,000

501 North Sibley Avenue
Litchfield, MN  55355                                    1978                   156                   2,400

200 East Frontage Road,
Highway 5
Waconia, MN  55387                                       1985                   298                   2,400

122 East Second Street
Winthrop, MN  55396                                    2002 (1)                  22                    950

113 Waite Avenue South
Waite Park, MN  56387                                  2003 (2)                  63                    700

135 3rd Avenue SW
Hutchinson, MN  55350                                  2002 (3)                  13                   1,200

1001 Labore Industrial Court Suite E
Vadnais Heights, MN  55110                             2003 (4)                 105                   7,748

1113 West Saint Germain Street
Saint Cloud, MN  56302                                 2001 (5)                 440                   8,360
</TABLE>


1.   Lease  expires in July 2002 with option to renew for  one-year  terms.  The
     Bank expects to renew the lease.
2.   Lease  expires in September  2003 with an option to renew for an additional
     five-year term.
3.   Lease expires in March 2002 with an option to renew for one-year terms. The
     Company expects to renew the lease.
4.   Lease expires in January 2003.
5.   Property acquired on November 9, 2001.

                                       22
<PAGE>
The Bank leases  approximately  3,600  square feet of the  property in Hastings,
Minnesota under two, three year operating lease.  These leases will expire April
14, 2003, and August 7, 2002,  with combined  annual rents  totaling  $22,797 in
addition to their proportionate share of the operating expenses.

The Agency  operates from its main office  located at 135 3rd Avenue  Southeast,
Hutchinson,  Minnesota  and also has an office  within  the Bank's  building  in
Buffalo, Minnesota. Those facilities are covered by a month to month lease under
the terms of an expense sharing agreement.

HMC  operates  from its main  office  located at 1001 Labore  Industrial  Court,
Vadnais Heights,  Minnesota and also has an office within the bank's building in
Hastings,  Minnesota.  These  facilities  are  covered by a month to month lease
under the terms of an expense sharing agreement.

ITEM 3.     LEGAL PROCEEDINGS

The  Corporation  and  First  Federal,  from  time to time,  is a party to legal
proceedings  in the  ordinary  course  of  business  when it  enforces  security
interests in loans made by it. The Corporation and First Federal are not engaged
in any legal proceedings of a material nature at the present time.


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

None.


                                     PART II


ITEM 5.     MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
            STOCKHOLDERS MATTERS

For additional  information  relating to the market for the Corporation's common
equity and related stockholder  matters, see "Corporate Profile and Stock Market
Information" in the  Registrant's  2001 Annual Report to Stockholders on page 1,
and is incorporated herein by reference.


ITEM 6.     SELECTED FINANCIAL DATA

The above captioned  information  appears under "Selected Financial Data" in the
Corporation's  2001 Annual Report to  Stockholders on page 2 and is incorporated
herein by reference.


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

The above  captioned  information  appears under  "Management's  Discussion  and
Analysis of Financial  Condition and Results of Operations" in the  Registrant's
2001 Annual  Report to  stockholders  on pages 4 through 15 and is  incorporated
herein by reference.


ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The above  information  appears under  "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations" in the Registrant's  2001 Annual
Report  to  Stockholders  on pages 4  through  7 and is  incorporated  herein by
reference.

                                       23
<PAGE>
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated  Financial  Statements of the Corporation and its subsidiaries,
together with the report  thereon by Larson Allen Weishair & Co., LLP appears in
the  2001  Annual  Report  to  Stockholders  on  pages  16  through  41 and  are
incorporated herein by reference.

Quarterly  Results of Operations on page 42 of the Annual Report is incorporated
herein by reference.


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

Effective November 1, 2001, the Corporation's independent public accountants for
the year ended  September  30, 2001,  Bertram  Cooper & Co., LLP merged with the
public accounting firm of Larson Allen Weishair & Co., LLP.


                                    PART III

ITEM 10.   DIRECTORS AND OFFICERS OF THE REGISTRANT

The information contained under the sections captioned "Section 16(a) Beneficial
Ownership  Reporting  Compliance"  and "Proposal  I--Election  of Directors" and
"Biographical  Information" in the 2001 Proxy Statement (the "Proxy  Statement")
are incorporated herein by reference.

ITEM 11.   EXECUTIVE COMPENSATION

The information  contained under the section  captioned  "Director and Executive
Compensation" in the Proxy Statement is incorporated herein by reference.


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           (a)    Security Ownership of Certain Beneficial Owners

                  Information  required by this item is  incorporated  herein by
                  reference  to the section  captioned  "Voting  Securities  and
                  Principal  Holders  Thereof--Security   Ownership  of  Certain
                  Beneficial Owners" of the Proxy Statement.

           (b)    Security Ownership of Management

                  Information  required by this item is  incorporated  herein by
                  reference to the sections  captioned  "Voting  Securities  and
                  Principal  Holders  Thereof--Security   Ownership  of  Certain
                  Beneficial Owners" and "Proposal ! - Election of Directors" of
                  the Proxy Statement.

           (c)    Management of the Company knows of no arrangements,  including
                  any  pledge by any person of  securities  of the  Company,  in
                  which the  operation  may,  at a  subsequent  date result in a
                  change in control of the Corporation.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference to the
section captioned "Certain Relationships and Related Transactions".

                                       24
<PAGE>
                                     PART IV


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

(a)  The following documents are filed as a part of this report:

     (1)  The consolidated  statements of financial condition of the Corporation
          and subsidiaries as of September 30, 2001 and the related consolidated
          statements   of   operations,   comprehensive   income,   changes   in
          stockholders'  equity and cash flows for the year ended  September 30,
          2001,  together with the related notes and the  independent  auditors'
          report of Larson  Allen  Weishair  & Co.,  LLP  independent  certified
          public  accountants are  incorporated by reference to pages 16 through
          41 of the 2001 Annual Report to Stockholders.

          The consolidated  statements of financial condition of the Corporation
          and subsidiaries as of September 30, 2000 and the related consolidated
          statements   of   operations,   comprehensive   income,   changes   in
          stockholders'  equity  and cash flows for each of the years in the two
          year period ended September 30, 2000,  together with the related notes
          were audited by Bertram Cooper & Co., LLP independent certified public
          accountants, whose report  is  presented  as  exhibit 99.0 of the Form
          10-K.

     (2)  All schedules are omitted because they are not required or applicable,
          or the required  information  is shown in the  consolidated  financial
          statements or the notes thereto.

     (3)  Exhibits

          (a)  The following exhibits are files as part of this report.
<TABLE>
<CAPTION>
        <S>           <C>
                3.1      Articles of Incorporation of FSF Financial Corporation *
                3.2      Bylaws of FSF Financial Corporation *
                4.0      Stock Certificate of FSF Financial Corporation *
               10.1      Form of Employment Agreement with Donald A. Glas, George B. Loban and
                           Richard H. Burgart *
               10.2      First Federal fsb Management Stock Plan **
               10.3      FSF Financial Corporation 1996 Stock Option Plan **
               10.4      FSF Financial Corporation 1998 Stock Compensation Plan ***
               13.0      2001 Annual Report to Stockholders
               21.0      Subsidiary Information (See "Item 1 - Business")
               22.0      Consent of Accountant
               99.0      Independent accountants report of Bertram Cooper & Co., LLP as of
                           September 30, 2000 and for the two year period then ended.

</TABLE>

          (b)  On July 26, 2001, the Corporation  filed a Form 8-K (Item 7) that
               disclosed  (1)  quarterly  dividend;  (2) intention to repurchase
               110,000  shares  of  the  Corporation's  stock;  and  (3)  branch
               acquisition agreement.

--------------------------------------------------------------------------------
*    Incorporated  herein by reference  into this  document from the Exhibits to
     Form S-1, Registration Statement,  initially filed with the Commission,  on
     June 1, 1994, Registration No. 33-79570.
**   Incorporated  herein by reference into this document from the  Registrant's
     Proxy Statement for the Annual Meeting of Stockholders  held on January 17,
     1996 and filed with the Commission on December 13, 1995.
***  Incorporated  herein by reference into this document from the  Registrant's
     proxy statement for the Annual Meeting of Stockholders  held on January 20,
     1998 and filed with the Commission on December 10, 1997.

<PAGE>
Signatures

Pursuant to the  requirements of Section 13 of 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.

                                           FSF Financial Corp.


Dated:  December 10, 2001                  By:  /s/ Donald A. Glas
                                                --------------------------------
                                                Donald A. Glas
                                                Co-Chair of the Board and Chief
                                                Executive Officer
                                                (Duly Authorized Representative)

Pursuant to the requirement of the Securities  Exchange Act of 1934, this Report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated,

<TABLE>
<CAPTION>
<S>                                                                  <C>

By:       /s/ Donald A. Glas                                       By:     /s/ Richard H. Burgart
          -------------------------------------------------                --------------------------------------------
          Donald A. Glas                                                   Richard H. Burgart
          Co-Chair of the Board and Chief Executive Officer                   Chief Financial Officer and Treasurer
          (Principal Executive Officer)                                    (Principal Financial and Accounting Officer)
                                                                           Director

Date:     December 10, 2001                                        Date:   December 10, 2001



By:       /s/ George B. Loban                                      By:     /s/ Sever B. Knutson
          -------------------------------------------------                --------------------------------------------
          George B. Loban                                                  Sever B. Knutson
          Co-Chair of the Board and President                              Director

Date:     December 10, 2001                                        Date:   December 10, 2001



By:       /s/ Roger R. Stearns                                     By:     /s/James J. Caturia
          -------------------------------------------------                --------------------------------------------
          Roger R. Stearns                                                 James J. Caturia
          Director                                                         Director

Date:     December 10, 2001                                        Date:   December 10, 2001



By:       /s/ Jerome R. Dempsey
          -------------------------------------------------
          Jerome R. Dempsey
          Director

Date:     December 10, 2001


</TABLE>