EXHIBIT 13

<PAGE>

                                      FSF
         [LOGO]                    FINANCIAL
                                  CORPORATION
         ---------------------------------------------------------------
                       Financial Services Holding Company







                                  ANNUAL REPORT
                                      1999
<PAGE>


                               FSF FINANCIAL CORP.
                               1999 ANNUAL REPORT



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TABLE OF CONTENTS
--------------------------------------------------------------------------------


Corporate Profile and Stock Market Information...............................1


Selected Financial and Other Data............................................2


Letter to Stockholders.......................................................3

Management's Discussion and Analysis of
  Financial Condition and Results of Operations..............................4


Independent Auditors' Report................................................15


Consolidated Statements of Financial Condition..............................16


Consolidated Statements of Income...........................................17


Consolidated Statements of Changes in Stockholders' Equity..................18


Consolidated Statements of Cash Flows.......................................19


Notes to Consolidated Financial Statements..................................21


Selected Quarterly Financial Data...........................................41


Office Locations............................................................42


Corporate Information.......................................................43

<PAGE>

                            FSF FINANCIAL CORPORATION

Corporate Profile and Related Information

FSF Financial Corp. (the "Corporation") is a Minnesota  corporation organized in
1994 at the  direction  of First  Federal fsb (the "Bank") to acquire all of the
capital stock of the Bank upon its  conversion  from the mutual to stock form of
ownership.  The Bank resulted from the merger of First Federal  Savings and Loan
Association of Hastings, Hastings,  Minnesota, with and into First State Federal
Savings and Loan Association,  Hutchinson,  Minnesota, on September 30, 1994. On
October  6,   1994,   the  Bank   completed   its   mutual-to-stock   conversion
("Conversion")  and is currently  chartered by the Office of Thrift  Supervision
("OTS") as a  federally-chartered  stock  savings  bank.  The  Corporation  is a
unitary savings and loan holding company which,  under existing laws,  generally
is not  restricted  in the types of business  activities  in which it may engage
provided   that  the  Bank   retains  a  specified   amount  of  its  assets  in
housing-related investments.

The Corporation  purchased all of the capital stock of the Bank with one-half of
the net proceeds from the Conversion.  The  Corporation  also provided a loan to
the Bank's Employee Stock Ownership Plan ("ESOP") to enable the ESOP to purchase
shares of the  Corporation's  common stock in the initial public  offering.  The
note bears an interest rate and has terms and conditions  which prevailed in the
marketplace at the time it was  originated.  The  Corporation has not engaged in
any business activities to date other than the loan to the ESOP.

The Company  operates  three  wholly  owned  subsidiaries,  Insurance  Planners,
Homeowners Mortgage  Corporation and the Bank. Insurance Planners (the "Agency")
is an independent  property and casualty insurance agency located in Hutchinson,
MN. The Agency was  acquired  by the  Company on June 1, 1998.  Furthermore,  on
November 17, 1998, the Company acquired Homeowners Mortgage Corporation ("HMC"),
Vadnais Heights, MN. on November 17, 1998. HMC is a mortgage banking company.

The Bank  conducts its business from its main office in  Hutchinson,  Minnesota,
and ten additional  full service  offices  located in the Minnesota  counties of
McLeod,  Dakota,  Meeker,  Sibley,  Carver,  Stearns and  Wright.  The Bank also
operates ten automated teller machines  ("ATMs").  The Bank's deposits have been
federally  insured  since  1934  and are  currently  insured  up to the  maximum
allowable by law as administered by the Federal  Deposit  Insurance  Corporation
(the "FDIC").  The Bank is a community oriented savings  institution  offering a
variety of financial services to meet the needs of the communities it serves.

The Bank  attracts  deposits  from the  general  public and uses such  deposits,
together with  borrowings  and other funds,  primarily to originate and purchase
residential   real  estate,   commercial   real  estate,   multi-family   loans,
construction loans,  agricultural loans, commercial business loans, and consumer
loans.

Stock Market Information

Since its  issuance in October  1994,  the  Corporation's  common stock has been
traded  on the  Nasdaq  National  Market.  The  daily  stock  quotation  for FSF
Financial Corp. is listed in the Nasdaq  National  Market  published in The Wall
Street  Journal,  the St Paul  Pioneer  Press and  Dispatch,  and other  leading
newspapers under the trading symbol of "FFHH".  For a listing of the stock price
as published by the Nasdaq statistical report, see "Selected Quarterly Financial
Data."

The number of  stockholders  of record of common  stock as of the record date of
November 30, 1999,  was  approximately  511. This does not reflect the number of
persons or entities who held stock in nominee or "street"  name through  various
brokerage  firms. At November 30, 1999,  there were 2,805,887  shares issued and
outstanding.

The Corporation's ability to pay dividends to stockholders is dependent upon the
dividends  it  receives  from the Bank.  The Bank may not  declare or pay a cash
dividend  on any of its stock if the  effect  thereof  would  cause  the  Bank's
regulatory  capital  to be  reduced  below  (1)  the  amount  required  for  the
liquidation  account  established in connection with the Bank's  conversion from
mutual to stock form, or (2) the regulatory capital  requirements imposed by the
OTS.

                                       1
<PAGE>
<TABLE>
<CAPTION>
FSF FINANCIAL CORPORATION
----------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL AND OTHER DATA
Financial Condition (Dollars in Thousands)
----------------------------------------------------------------------------------------------------------------------
September 30,                                             1999         1998          1997          1996         1995
----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>           <C>          <C>          <C>
Total assets                                           $418,094      $416,232      $388,135     $354,636     $304,605
Loans held for sale                                       5,334         2,672           204          443          230
Loans receivable, net                                   278,290       280,603       260,390      216,727      170,921
Mortgage-backed securities                               27,587        36,418        38,539       38,557       37,110
Mortgage-backed securities available for sale            15,979        16,574        16,699       16,336       16,141
Debt securities                                          19,937        24,412        37,876       44,349       41,914
Debt securities available for sale                       12,794         3,010         1,000            -            -
Equity securities available for sale                     19,284        19,459        19,311       18,231       16,165
Cash and cash equivalents (1)                            19,265        22,597         6,135       11,756       14,855
Savings deposits                                        231,651       226,542       208,246      189,074      171,516
Other borrowings                                        140,967       144,177       133,817      114,693       73,807
Stockholders' equity                                     42,325        42,518        43,362       47,649       57,351

Summary of Operations (Dollars in Thousands)
----------------------------------------------------------------------------------------------------------------------
Year Ended September 30,                                  1999         1998          1997          1996         1995
----------------------------------------------------------------------------------------------------------------------

Interest income                                        $ 29,420      $ 29,981      $ 27,315     $ 23,244     $ 19,079
Interest expense                                         18,198        18,499        16,346       13,609        9,472
Net interest income                                      11,222        11,482        10,969        9,635        9,607
Provision for loan losses                                   456           302           120           42           24
Non-interest income                                       5,259         2,269         1,510        1,354        1,127
Non-interest expense (2)                                 11,826         8,395         7,130        8,178        6,966
Income before cummulative effect
    of change in accounting principle                     2,505         3,030         3,124        1,668        2,243
Net income (2)                                            2,505         3,030         3,124        1,668        2,625

Other Selected Data
----------------------------------------------------------------------------------------------------------------------
Year Ended September 30,                                  1999         1998          1997          1996         1995
----------------------------------------------------------------------------------------------------------------------

Return on average assets before cum. eff.                  0.59%         0.74%         0.84%        0.69%        0.82%
Return on average assets after cum. eff.                   0.59%         0.74%         0.84%        0.69%        0.95%
Return on average equity before cum. eff.                  5.74%         6.94%         6.87%        4.25%        3.83%
Return on average equity after cum. eff.                   5.74%         6.94%         6.87%        4.25%        4.48%
Average equity to average assets                          10.26%        10.70%        12.25%       15.93%       21.31%
Net interest rate spread (3)                               2.39%         2.44%         2.54%        2.36%        2.78%
Non-performing assets to total assets                      0.13%         0.19%         0.15%        0.06%        0.12%
Allowance for loan losses to total loans                   0.45%         0.34%         0.30%        0.33%        0.41%
Basic earnings per share before cum eff. (2)            $  0.94       $  1.14       $  1.13      $  0.49      $  0.57
Diluted earnings per share before cum eff. (2)          $  0.90       $  1.05       $  1.04      $  0.47      $  0.55
Basic earnings per share (2)                            $  0.94       $  1.14       $  1.13      $  0.49      $  0.67
Diluted earnings per share (2)                          $  0.90       $  1.05       $  1.04      $  0.47      $  0.65
Cash dividends declared per share                       $  0.50       $  0.50       $  0.50      $  0.50      $ 0.375
</TABLE>

-------------------------------------------------
(1)  Consists  of cash due from  banks,  interest-bearing  deposits,  and  other
     investments with original maturities of less than three months.
(2)  Includes a one-time  special  assessment of $1,030,000 to recapitalize  the
     SAIF for the year ended September 30, 1996.
(3)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   cost  of   interest-bearing
     liabilities

                                       2

<PAGE>
[LOGO]    FSF
          FINANCIAL
          CORP.
               -----------------------------------------------------------------
201 Main Street South Hutchinson, MN 55350-2573 Tele.320-234-4500
Fax 320-234-4542
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To Our Stockholders:

Fiscal  1999  provided  us  with a  variety  of  challenges  and  opportunities.
Refinance activity continued at a record pace and principal  repayments exceeded
$136 million during the year, an increase of almost 18% over the previous year's
level. Loan production  totaled more than $254 million,  with slightly more than
50% of the production in one-to-four family residential mortgages.  We continued
to  decrease  our  reliance  on  residential  lending  and  continue  to  seek a
reasonable  balance  between  residential   mortgages,   construction   lending,
commercial business loans,  agricultural loans and consumer loans. Single family
residential  loans  comprised 38.8% of our loan portfolio at September 30, 1999,
compared to 64.7% of all loans at September 30, 1996.

The change in composition of our loan portfolio required an increase in our loan
loss provision. Even though we increased the loan loss provision,  there was not
an increase in problem assets or non-performing  assets.  Non-performing  assets
were 0.13% of total  assets at the end of the fiscal year and all  construction,
agricultural and commercial loans were performing.

During the majority of the year,  liquidity continued to increase as a result of
the refinance activity.  Due to the uncertainty of the interest rate environment
we were unwilling to accept the interest rate risk associated  with  redeploying
the funds  throughout most of the year. As a result,  we accepted lower interest
earnings but as rates began to move upward, primarily during the fourth quarter,
we utilized alternative investments and began decreasing our liquidity position.

The  complete   integration  of  Insurance  Planners  and  Homeowners   Mortgage
Corporation continues. With more than 150 employees in 14 locations, working for
four  different  companies,   we  implemented  a  comprehensive   communications
solution.  Due to the  magnitude of the project  there was some  duplication  of
costs,  however the  operational  efficiencies  and  on-going  cost savings will
provide us with the  foundation  necessary  to  continue  to provide  additional
electronic  services  to  our  mortgage,   insurance,   investment  and  banking
customers.

We have dedicated  resources to the  implementation  of a sales culture - formal
service and sales  training,  hiring a retail sales manager,  implementation  of
profitability  based  incentive  programs  and  marketing  software  introducing
customer relationship profitability. During the past year we opened a new office
in Buffalo that allowed us to expand our drive-up needs,  and implement a "sales
relationship" office. However, the sales culture journey is far from over.

Our  ability to  maximize  the  potential  within our family of  companies  will
continue to provide challenges. From the traditional banking products offered by
the Bank, to investment and estate planning provided by Firstate Investments, to
residential  mortgage  services of HMC, to the full line of  insurance  services
provided by Insurance Planners, we can meet the financial needs of our customers
but we must leverage our strengths.

Enhancing  shareholder  value  is the  number  one  objective  of the  Board  of
Directors.  Plateaus  develop in earnings due to the  absorption of  businesses,
communications and technology upgrades,  Y2K issues, loan loss reserve increases
due to business diversification and internet development.  However we feel these
items are necessary in order to insure future growth in earnings.

Thank you for your confidence and investment in FSF Financial Corp. We hope that
you are using some of our many products and services.  If not,  please  consider
doing so. Our best sales people are our satisfied customers.

Sincerely,


/s/Donald A. Glas                                             /s/George B. Loban
-----------------                                             ------------------
Donald A. Glas                                                George B. Loban
Co-Chair/Chief Executive Officer                              Co-Chair/President

                                       3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

The  Private  Securities  Litigation  Reform Act of 1995  contains  safe  harbor
provisions regarding forward-looking  statements.  When used in this discussion,
the words  "believes",  "anticipates",  "contemplates",  "expects",  and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties  which could cause actual results
to differ materially from those projected. Those risks and uncertainties include
changes in interest rates, risks associated with the effect of integrating newly
acquired  businesses,  the ability to control  costs and  expenses,  and general
economic  conditions.  FSF Financial Corp.  undertakes no obligation to publicly
release the results of any revisions to those forward looking  statements  which
may be made to  reflect  events or  circumstances  after  the date  hereof or to
reflect the occurrence of unanticipated events.

General

The Corporation does not engage in any active  business.  In connection with the
conversion from the mutual to stock form of ownership,  the  Corporation  made a
loan to the Bank's employee stock ownership plan. The Corporation  also receives
interest income on its investments.

The  earnings of the  Corporation  depend  primarily  on the Bank's net interest
income and to a lesser extent,  income from its recently  acquired  wholly owned
subsidiaries:  Insurance Planners (June 1998) and Homeowners  Mortgage (November
1998).  Net  interest  income is  affected by the  interest  rates that the Bank
receives from its loans and  investments and by the interest rates that the Bank
must pay for its  sources of funds.  The  difference  between  average  rates of
interest earned on earning assets and the average rates paid on interest bearing
liabilities is the "interest rate spread". When interest earning assets equal or
exceed  interest  bearing  liabilities,  any positive  interest rate spread will
produce net interest income.

In addition,  the Bank receives income from service charges on deposit accounts,
other service  charges and fees,  commission  income and income from the sale of
loans to the secondary market.  The Bank incurs expenses in addition to interest
expense  in the form of  salaries  and  benefits,  deposit  insurance,  property
operations and maintenance, advertising and other related business expenses.

Earnings of the Bank are  significantly  affected by  economic  and  competitive
conditions,  particularly changes in interest rates,  government  policies,  and
regulations of various regulatory authorities.

Asset/Liability Management

The Bank,  like  other  financial  institutions,  is  vulnerable  to  changes in
interest  rates  to  the  extent  that   interest-bearing   liabilities   mature
differently than  interest-earning  assets.  The lending  activities of the Bank
have emphasized the origination of loans, the majority of which have a repricing
term which is substantially shorter than their amortization term, and the source
of funds has been deposits and borrowings.  Having  interest-earning assets that
reprice  more   frequently  than   interest-bearing   liabilities  is  generally
beneficial to net interest  income during periods of increasing  interest rates,
such an  asset/liability  mismatch is generally  detrimental  during  periods of
declining interest rates.

In an attempt to manage its  exposure to changes in interest  rates,  management
closely  monitors  interest rate risk.  Management  meets at least  quarterly to
review the interest rate risk position and projected  profitability of the Bank.
In addition,  management  reviews the Bank's  portfolio,  formulates  investment
strategies and oversees the timing and  implementation of transactions to assure
attainment of the Bank's objectives in the most effective  manner.  The Board of
Directors  reviews on a  quarterly  basis the Bank's  asset/liability  position,
including  simulations  of the effect of various  interest rate scenarios on the
Bank's capital.

Depending on the relationship  between long-term and short-term  interest rates,
market conditions and consumer  preferences,  the Bank, at times, may place more
emphasis on managing net interest  margin rather than matching the interest rate
sensitivity  of its assets and  liabilities in an effort to enhance net interest
income.  Management  believes that the increased net interest  income  resulting
from a mismatch  in the  maturity  of its assets and  liability  portfolios  can
provide  high  enough  returns to justify the  increased  exposure to sudden and
unexpected changes in interest rates.

Management  attempts  to  reduce  the  Bank's  interest  rate risk by the way it
structures its assets and liabilities. The Bank sells all fixed rate residential
mortgages  and  retains  for its  portfolio  residential  mortgages  with either
adjustable  interest rates or balloon  provisions.  These loans provide the Bank
with a repricing time frame which is substantially  shorter than the contractual
term.  During the 1999 fiscal year, the Bank  originated  $2.6 million of single
family  mortgage  loans which have  initial  fixed rates for terms of one to ten
years and then adjust  annually off a treasury index  thereafter.  The Bank also
originated  $3.3  million of single  family  mortgage  loans that have a balloon
payment  due in three to seven  years.  Originations  of  construction  and land
development loans,  which generally have a contractual  maturity of two years or
less,  totaled  $55.7  million.  At September 30, 1999,  $130.2

                                       4
<PAGE>
million  of real  estate  mortgages  were  adjustable  rate  mortgages,  balloon
mortgages,  or construction and land development  loans,  representing  41.8% of
total loans and 31.1% of total assets.

Interest  rate  sensitivity  is the result of  differences  in the  amounts  and
repricing dates of rate-sensitive assets and rate-sensitive  liabilities.  These
differences,  or interest  rate  repricing  "GAP,"  provide an indication of the
extent to which  the net  interest  income is  affected  by  future  changes  in
interest  rates.  A GAP is considered  positive when the amount of interest rate
sensitive  assets exceeds the amount of interest rate sensitive  liabilities.  A
GAP  is  considered   negative  when  the  amount  of  interest  rate  sensitive
liabilities  exceeds interest rate sensitive assets.  During a period of falling
interest  rates,  a  negative  GAP would  tend to result in an  increase  in net
interest  income,  while a positive GAP would tend to affect net interest income
adversely.  Conversely, during a period of rising interest rates, a negative GAP
would tend to result in a decrease in net interest income,  while a positive GAP
would tend to result in an increase in net interest income.

The table that  follows  sets forth the amounts of  interest-earning  assets and
interest-bearing  liabilities  at  September  30,  1999,  which are  expected to
reprice or mature in each of the future time periods shown.
<TABLE>
<CAPTION>
                                                 Analysis of Repricing Mechanisms

                                                                Over One       Over Five
                                                 Within         to Five          to Ten         Over Ten
                                                One Year         Years           Years           Years           Total
                                              -------------   -------------   -------------   -------------   -------------
Interest-earning assets:                                                 (Dollars in Thousands)
<S>                                              <C>            <C>              <C>             <C>             <C>
   Mortgage loans                                 $ 93,510        $ 62,911        $ 21,556        $ 27,908        $205,885
   Other loans                                      64,665          34,534           4,591           1,999         105,789
   Investment securities                            79,268          17,863           7,101           7,369         111,601
                                              -------------   -------------   -------------   -------------   -------------
Total interest-earning assets                      237,443         115,308          33,248          37,276         423,275
                                              -------------   -------------   -------------   -------------   -------------

Interest-bearing liabilities:
   Noninterest bearing deposits                          -               -               -               -               -
   NOW and Super now accounts                       15,140           3,449               -               -          18,589
   Savings accounts                                 58,350           7,204               -               -          65,554
   Money market deposit accounts                     1,732             214               -               -           1,946
   Certificates                                    108,565          21,983           2,597               -         133,145
   Other borrowed money                             24,467         106,000          10,500               -         140,967
                                              -------------   -------------   -------------   -------------   -------------
Total interest-bearing liabilities                 208,254         138,850          13,097               -         360,201
                                              -------------   -------------   -------------   -------------   -------------
Interest sensitivity gap                          $ 29,189       $(23,542)        $ 20,151        $ 37,276        $ 63,074
                                              =============   =============   =============   =============   =============
Cumulative interest sensitivity gap               $ 29,189        $  5,647        $ 25,798        $ 63,074
                                              =============   =============   =============   =============
Cumulative ratio of interest-earning assets
   to interest-bearing liabilities                    1.14%           1.02%           1.07%           1.18%
                                              =============   =============   =============   =============
Cumulative ratio of cumulative interest
   sensitivity gap to total assets.                   6.98%           1.35%           6.17%          15.09%
                                              =============   =============   =============   =============
</TABLE>
The table above indicates the time periods in which interest-earning  assets and
interest-bearing  liabilities  will mature or reprice in  accordance  with their
contractual  terms. The following  assumptions have been used in calculating the
values  in  the  table:  Adjustable-rate  and  balloon  loans  have  a  constant
prepayment  rate of 6%;  mortgages held for sale are all set to reprice in three
years or less; remaining mortgages have prepayment rates ranging from 4% to 10%;
consumer  loans have a  prepayment  rate that is constant  over time at 19%; NOW
checking,  core savings  deposits,  and money market deposits have an increasing
decay ranging from 6.0% to 30.0%.  Management utilizes its own assumptions,  and
feels that these assumptions provide a reasonable estimate of actual experience.

Certain  shortcomings  are  inherent in the method of analysis  presented in the
previous table.  For example,  although  certain assets and liabilities may have
similar maturities or periods of repricing,  they may react in different degrees
to changes in market interest  rates.  Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates,  while  interest  rates on other  types may lag behind  changes in market
rates.  Additionally,  certain assets,  such as adjustable-rate  mortgage loans,
have features  which restrict  changes in interest  rates on a short-term  basis
over the life of the assets.
                                       5
<PAGE>
Further, in the event of a change in interest rate,  prepayment levels and decay
rates  on  core  deposits  may  deviate  significantly  from  those  assumed  in
calculating the table.

Market Risk Management

Market risk is the risk of loss arising from  adverse  changes in market  prices
and rates.  The Bank's market risk is comprised  primarily of interest rate risk
resulting  from its core  banking  activities  of lending  and  deposit  taking.
Interest  rate risk is the risk that  changes  in market  interest  rates  might
adversely  affect the Bank's net interest  income or the  economic  value of its
portfolio of assets,  liabilities and off-balance  sheet  contracts.  Management
continually  develops and applies  strategies to mitigate this risk.  Management
does not believe that the Bank's  primary  market risk  exposures  and how those
exposures  are managed in fiscal 1999 have changed when compared to fiscal 1998.
Market risk limits have been  established by the Board of Directors based on the
Bank's tolerance for risk.

The Bank  primarily  relies on its Net  Portfolio  Value  Model  (the  Model) to
measure its  susceptibility to interest rate changes.  Net portfolio value (NPV)
is defined as the present  value of  expected  cash flows from  existing  assets
minus the present  value of expected  net cash flows from  existing  liabilities
plus or minus  the  present  value of net  expected  cash  flows  from  existing
off-balance  sheet  contracts.  The Bank does not currently  own any  derivative
financial instruments whose values are determined from underlying instruments or
market  indices,  and  whose  notional  or  contractual  amounts  would  not  be
recognized in the financial statements. The Model estimates the current economic
value of each type of asset,  liability,  and  off-balance  sheet contract after
various assumed instantaneous,  parallel shifts in the Treasury yield curve both
upward and downward.

The NPV Model uses an option-based  pricing approach to value one to four family
mortgages,  mortgages  serviced by others, and firm commitments to buy, sell, or
originate  mortgages.  This approach  makes use of an interest  rate  simulation
program to generate  numerous  random  interest rate paths that, in  conjunction
with a prepayment  model, are used to estimate  mortgage cash flows.  Prepayment
options  and  interest   rate  caps  and  floors   contained  in  mortgages  and
mortgage-related  securities introduce significant uncertainty in estimating the
timing  of cash  flows  for  these  instruments  that  warrants  the use of this
sophisticated  methodology.  All other financial  instruments are valued using a
static  discounted cash flow method.  Under this approach,  the present value is
determined by discounting  the cash flows the instrument is expected to generate
by the yields currently  available to investors from an instrument of comparable
risk and duration.

The  following  table  sets forth the  present  value  estimates  of the Bank at
September 30, 1999,  as calculated by its NPV Model.  The table shows the NPV of
the Bank under rate shock scenarios of -400 basis points to +400 basis points in
increments of 100 basis points.  As market rates  increase,  the market value of
the  Bank's  large   portfolio  of  mortgage  loans  and   securities   declines
significantly  and prepayments are slow. As rates decrease,  the market value of
mortgage  loans and  securities  increase only modestly due to prepayment  risk,
periodic rate caps, and other embedded  options.  Actual changes in market value
will differ from estimated  changes set forth in this table due to various risks
and uncertainties.
<TABLE>
<CAPTION>

      Changes in Interest
        Rates in Basis                          Net Portfolio Change                                 NPV as % of Assets
                               --------------------------------------------------------    ----------------------------------------
      Points (Rate Shock)          $ Amount           $ Change            Change %           NPV Ratio               Change
                               -----------------   ----------------   -----------------    ---------------    ---------------------
                                                     (Dollars in thousands)

<S>         <C>                <C>                  <C>                 <C>                   <C>                <C>
            +400 bp             $  29,145            (8,913)             (23.42) %             7.29               (194) bp
            +300 bp                31,217            (6,841)             (17.98)               7.75               (148) bp
            +200 bp                33,385            (4,673)             (12.28)               8.22               (101) bp
            +100 bp                35,661            (2,397)              (6.30)               8.72                (51) bp
             0 bp                  38,058                 -                   -                9.23                  -
            -100 bp                40,591             2,533                 6.66               9.76                 53  bp
            -200 bp                43,278             5,220                13.72              10.31                108 bp
            -300 bp                46,142             8,084                21.24              10.90                167 bp
            -400 bp                49,208            11,150                29.30              11.51                228 bp

</TABLE>

This table shows that the Bank's  economic  value of equity would  decrease with
rising  interest rates while  increasing with falling  interest rates.  However,
computations of prospective  effects of  hypothetical  interest rate changes are
based on numerous  assumptions,  including  relative  levels of market  interest
rates, loan repayments and deposit runoffs,  and may not be indicative of actual
results.  The  computations do not reflect any actions the Bank may undertake in
response to changes in interest rates although  management cannot always predict
future  interest  rates or their effect on the Bank.  Certain  shortcomings  are
inherent in the method of analysis  presented  in the  computation  of NPV.  For
example,  although certain assets and liabilities may have

                                       6
<PAGE>
similar maturities or periods to repricing,  they may react in differing degrees
to changes in market area interest rates. Additionally,  certain assets, such as
adjustable  rate loans,  have features that restrict  changes in interest  rates
during the initial term and over the remaining  life of the asset.  Further,  in
the event of a change in interest rates,  prepayment and early withdrawal levels
could  deviate  significantly  from those  assumed in the  table.  Finally,  the
ability of many borrowers to service their  adjustable rate debt may decrease in
the event of an interest rate increase.

Rate/Volume Analysis

The table below sets forth  certain  information  regarding  changes in interest
income and interest  expense of the Corporation for the periods  indicated.  For
each  category  of  interest-earning  assets and  interest-bearing  liabilities,
information  is  provided  on  changes  attributable  to (1)  changes  in volume
(changes  in  average  volume  multiplied  by old  rate);  (2)  changes in rates
(changes  in rate  multiplied  by old  average  volume);  (3) total  changes  in
rate-volume.  The  combined  effects of  changes  in both  volume and rate which
cannot be separately  identified,  have been  allocated  proportionately  to the
change due to volume and the change due to rate.
<TABLE>
<CAPTION>
                                                                                Increase (Decrease) Due To
                                                               --------------------------------------------------------------
                                                                   Rate           Volume         Rate/Volume       Total
                                                               --------------  --------------  ------------------------------
                                                                               (In Thousands)
<S>                                                               <C>             <C>               <C>           <C>
          Year Ended September 30, 1999 vs 1998:
          Interest income:
             Loans Receivable                                       $  (488)        $  (165)        $      2        $    (651)
             Mortgage-backed securities                                (279)           (454)              45             (688)
             Investment securities                                     (319)          1,210             (113)             778
                                                               --------------  --------------  --------------  --------------
                Total change in interest income                      (1,086)            591              (66)            (561)

          Interest expense:
             Savings accounts                                          (611)            796              (34)             151
             FHLB Borrowings                                           (460)             18              (10)            (452)
                                                               --------------  --------------  --------------  --------------
                Total change in interest expense                     (1,071)            814              (44)            (301)
                                                               --------------------------------------------------------------
          Net change in net interest income                         $   (15)        $  (223)        $    (22)       $    (260)
                                                               ==============  ==============  ==============  ==============

          Year Ended September 30, 1998 vs 1997:
          Interest income:
             Loans Receivable                                       $   109         $ 3,317         $     20        $   3,446
             Mortgage-backed securities                                (350)            (25)              (3)            (378)
             Investment securities                                     (308)            (87)              (7)            (402)
                                                               --------------  --------------  --------------  --------------
                Total change in interest income                        (549)          3,205               10            2,666

          Interest expense:
             Savings accounts                                           151             583                9              743
             FHLB Borrowings                                            (59)          1,479              (10)           1,410
                                                               --------------  --------------  --------------  --------------
                Total change in interest expense                         92           2,062               (1)           2,153
                                                               --------------  --------------  --------------  --------------
          Net change in net interest income                         $  (641)        $ 1,143          $    11         $    513
                                                               ==============  ==============  ==============  ==============
</TABLE>

                                       7

<PAGE>


         Average Balances

         The   following   table  sets  forth   information   relating   to  the
         Corporation's  average yield on assets and average cost of  liabilities
         for the  periods  indicated.  The  yields  and  costs are  computed  by
         dividing income or expense by the average  balance of  interest-earning
         assets and interest-bearing liabilities,  respectively, for the periods
         indicated.  Average  balances  are  derived  from  month-end  balances.
         Management  does not believe  that the use of  month-end  balances  has
         caused any material difference in the information presented.
<TABLE>
<CAPTION>
                                                                    Years Ended September 30,
                                           -----------------------------------------------------------------------------------------
                                             1999                            1998                           1997
                                           -----------------------------------------------------------------------------------------
                                                                 Average                         Average                     Average
                                            Average      Income/  Yield/    Average      Income/  Yield/   Average  Income/   Yield/
                                            Balance      Expense   Cost     Balance      Expense   Cost    Balance  Expense    Cost
                                           -----------------------------------------------------------------------------------------
                                                 (in thousands)                 (in thousands)                (In thousands)
<S>                                         <C>         <C>      <C>    <C>           <C>        <C>   <C>        <C>        <C>
Interest-Earning Assets
   Loans receivable (1)                      $ 274,676   $22,861  8.32%  $ 276,730     $ 23,512   8.50% $ 237,475  $20,066    8.45%
   Mortgage-backed securities                   46,398     2,318  5.00%     54,657        3,006   5.50%    55,062    3,384    6.15%
   Investment securities (2)                    87,987     4,241  4.82%     65,238        3,463   5.31%    66,734    3,865    5.79%
                                           ----------------------       ------------------------        -------------------
      Total interest-earning assets            409,061    29,420  7.19%    396,625       29,981   7.56%   359,271   27,315    7.60%
                                           ----------------------       ------------------------        -------------------
Interest-Bearing Liabilities
   NOW and money market accounts             $  31,670       289  0.91%   $ 28,626          407   1.42%  $ 27,463      389    1.42%
   Passbook savings                                               3.24%                           3.33%                       3.15%
                                                58,463     1,896  5.64%     50,699        1,690   3.33%    48,381    1,524    3.15%
   Certificates of deposit                     142,811     8,048  5.64%    136,407        7,985   5.85%   127,211    7,426    5.84%
                                           ----------------------       ------------------------        -------------------
      Total deposits                           232,944    10,233  4.39%    215,732       10,082   4.67%   203,055    9,339    4.60%
   FHLB advances and other borrowed funds      145,690     7,965  5.47%    145,459        8,417   5.79%   120,093    7,007    5.83%
                                           ----------------------       ------------------------        -------------------
      Total interest-bearing liabilities       378,634    18,198  4.81%    361,191       18,499   5.12%   323,148   16,346    5.06%
                                           ----------------------       ------------------------        -------------------
Net Interest Income                                      $11,222                       $ 11,482                    $10,969
                                                       ==========                  =============                  =========
Net Interest Rate Spread  (3)                                     2.39%                           2.44%                       2.54%
Net Interest Rate Margin  (4)                                     2.74%                           2.89%                       3.05%
Ratio of average interest-earning assets
  to average interest-bearing liabilities         1.08x                       1.10x                          1.11x
                                           ============                 ===========                     ==========
</TABLE>

(1)  Average balances include non-accrual loans and loans held for sale.
(2)  Includes interest-bearing deposits in other financial institutions.
(3)  Net interest  rate spread  represents  the  difference  between the average
     yield on  interest-earning  assets and the average cost of interest-bearing
     liabilities.
(4)  Net interest rate margin  represents net interest income as a percentage of
     average interest-earning assets

                                      -8-

<PAGE>
Changes in Financial Condition

             General.  Total assets  increased  from $416.2 million at September
30, 1998,  to $418.1  million at September 30, 1999, an increase of $1.9 million
or 0.5%.  The Bank and HMC  continued  to  experience  good demand for loans and
supplemented the internal loan  originations  ($255.7 million) with purchases of
other loans  ($45.9  million)  that met the  interest  rate risk and credit risk
criteria established by management.

             Securities    Available   for   Sale.    Equity    securities   and
mortgage-backed and related securities  available for sale decreased by $175,000
and $595,000 respectively during the 1999 fiscal year as a result of a reduction
in market value.  The net  unrealized  losses on  securities  available for sale
increased  from  $661,000 at September 30, 1998 to $1.3 million at September 30,
1999. This increase was primarily due to the market rate of interest  increasing
compared to the contractual  rate. Debt securities  available for sale increased
$9.8 million due to the purchase of such securities for liquidity purposes.

             Securities  Held to  Maturity.  Debt  securities  held to  maturity
decreased from $24.4 million to $19.9 million due to maturities and the exercise
of  call  options  by  issuers.  Mortgage-backed  securities  held  to  maturity
decreased  from $36.4  million  to $27.6  million  during  fiscal  1999,  due to
principal  repayments.  The net unrealized losses on securities held to maturity
increased  from $1.5 million at September  30, 1998 to $2.2 million at September
30, 1999.  These  increases  were  primarily  due to the market rate of interest
increasing compared to the contractual rate.

             Loans Held for Sale.  Net loans held for sale  increased  from $2.7
million at September 30, 1998,  to $5.3 million at September 30, 1999.  The Bank
and HMC had firm  commitments  to sell $5.2  million  of the loans held for sale
that were closed by September, 1999.

             Loans  Receivable.  Net  Loans  receivable  decreased  due  to  the
continued sale of long term fixed-rate  loans,  from $280.6 million at September
30, 1998, to $278.3 million at September 30, 1999, a decrease of $2.3 million or
0.8%.  The decrease was  comprised of a decline in  one-to-four  family loans of
$39.1  million,  which was  partially  offset by  increases in other real estate
mortgages ($3.6 million),  net  construction  loans ($12.6 million) , commercial
business loans ($8.7 million) and agricultural loans ($10.4 million).

             Deposits.  Total deposits increased by $5.1 million, or 2.3% during
the 1999 fiscal year.  The increase in deposits can be attributed to an increase
in savings  accounts  ($11.6  million),  an  increase in demand  deposits  ($2.7
million) and a decrease in certificates of deposit ($9.1 million).  The increase
in total deposits was accompanied by a decrease in the weighted  average cost of
funds  from  4.67% to 4.39% for the years  ended  September  30,  1998 and 1999,
respectively.  The decrease in cost is primarily  attributable  to the change in
the composition of deposits.

             Borrowings.  In addition to growth in deposits,  borrowings  may be
utilized to fund the growth in assets.  Management utilizes a least cost, at the
margin,  approach to fund  assets.  As a result,  borrowings  are  utilized as a
funding source when it provides the least cost, at the margin. FHLB advances are
used to  fund  lending  and  investment  activities,  withdrawals  from  deposit
accounts and other  ordinary  business  activity.  Borrowings  decreased by $3.2
million dollars during fiscal 1999 due to principal payments.  The Bank was able
to fund lending and investments with loan repayments and deposit growth.

             Stockholders'  Equity.  Stockholders'  equity  decreased from $42.5
million at  September  30,  1998,  to $42.3  million at  September  30,  1999, a
decrease of $0.2 million.  The  Corporation  repurchased  204,754  shares of its
common stock  during the year at an average  price of $14.53,  thereby  reducing
stockholders'  equity  and  the  total  number  of  shareholders.   Furthermore,
unrealized   losses  on  securities   available   for  sale  further   decreased
stockholders'  equity.  Book value per share  increased from $16.22 at September
30, 1998, to $16.32 at September 30, 1999.

Comparison of Years Ended September 30, 1999 and 1998

             Net Income. Net income decreased to $2.5 million for the year ended
September 30, 1999, from $3.0 million for the year ended September 30, 1998. The
decrease  was  primarily  due  to  an  increase  in  non-interest   expense  and
non-interest  income,  the majority of which was attributable to the acquisition
of the Agency and HMC.

             Interest Income.  Total interest income decreased $561,000 to $29.4
million for the year ended  September 30, 1999,  from $30.0 million for the year
ended  September 30, 1998.  Interest  income on loans decreased by $651,000 from
$23.5  million for the year ended  September  30, 1998, to $22.9 million for the
year ended  September  30, 1999,  as a result of a $2.0 million  decrease in the
average  balance of loans  receivable from $276.7 million at September 30, 1998,
to $274.7  million  at  September  30,  1999.  Furthermore,  the  average  yield
decreased  from 8.50% at  September  30, 1998,  to 8.32% at September  30, 1999.
Interest income on  mortgage-backed  securities  decreased from $3.0 million for
the year ended  September 30, 1998, to $2.3 million for the year ended September
30, 1999.  The decrease was  primarily  the result of a decrease in average rate
from  5.50% for the 1998  fiscal  year to 5.00% for the 1999  fiscal  year and a
decrease  in the  average  balance  of $8.3  million.  The  average  balance  of
investment  securities increased by $22.7 million during the fiscal year and the
yield  decreased  from  5.31% to 4.82%.
                                      -9-
<PAGE>
The  decrease  in yield for  investment  securities  was  primarily  impacted by
maturities  and  the  exercise  of  call  options  by  issuers.   The  yield  on
interest-earning  assets  decreased from 7.56% for the year ended  September 30,
1998, to 7.19% for the year ended September 30, 1999.  Interest income increased
by $591,000 as a result of increased volume during the year while the changes in
rates caused  interest  income to decrease by $1.1  million and the  rate/volume
change decreased interest income by $66,000.

             Interest Expense. Total interest expense decreased to $18.2 million
for 1999 from $18.5  million for 1998 as the average  balance of total  interest
bearing  liabilities  increased  but the average  cost of funds  decreased.  The
increased cost of deposits attendant to the growth of balances was approximately
$796,000  while the  decrease  associated  with a change in  interest  rates was
approximately  $611,000.  The cost  associated  with interest  bearing  deposits
decreased  from 4.67% for the year ended  September  30, 1998,  to 4.39% for the
same period ended  September 30, 1999. The cost  associated  with borrowed funds
decreased to 5.47% for fiscal 1999  compared to 5.79% for fiscal 1998.  $460,000
of the  decrease  in the cost of  borrowed  funds was a result of  decreases  in
rates,  while increased volumes added $18,000 in interest expense and $10,000 of
the decrease was rate/volume related.

             Net  Interest  Income.  Net  interest  income  decreased  $260,000.
Changes in interest  rates caused a decrease in net interest  income of $15,000,
volumes  accounted  for a  decrease  in net  interest  income  of  $223,000  and
rate/volume differences decreased $22,000.

             Provision  For Loan Losses.  The  allowance  for losses on loans is
maintained at a level which is considered by management to be adequate to absorb
probable  losses on  existing  loans that may become  uncollectible  based on an
evaluation of the  collectibility,  prior loss experience and market conditions.
The evaluation  takes into  consideration  such factors as changes in the nature
and volume of the loan portfolio,  overall portfolio quality, review of specific
problem loans,  and current  economic  conditions that may affect the borrower's
ability to pay. The allowance for loan losses is established through a provision
for loan losses charged to expense.

The  Bank's  loan loss  provision  increased  from  $302,000  for the year ended
September  30, 1998, to $456,000 for the year ended  September 30, 1999,  due to
the change in composition of the loan portfolio.  The Bank's  allowance for loan
losses was  $1,387,000  at September  30, 1999.  The  allowance  for loan losses
represents .45% of total loans  outstanding  and 252.2% of total  non-performing
assets.  While the Bank maintains its allowance for loan losses at a level which
it considers to be adequate,  there can be no assurance  that further  additions
will not be made to the loss  allowances or that such losses will not exceed the
estimated amounts.

             Non-interest  Income.  Non-interest income and non-interest expense
were  impacted  by  acquisitions  in two ways:  (1) only 4 months of income  and
expense for the Agency were  included in fiscal 1998 and (2) 11 months of income
and expense for HMC are included in fiscal 1999,  that were not present in 1998.
Total non-interest income increased by $3.0 million to $5.3 million for the year
ended  September  30, 1999,  from $2.3 million for the year ended  September 30,
1998.  The  Agency  and HMC  accounted  for  approximately  $2.7  million of the
increase. Gains on loans sold increased from $360,000 in the 1998 fiscal year to
$2.3  million  in the 1999  fiscal  year.  The gains are a result of  fixed-rate
mortgages  that were sold in the  secondary  market  because they do not fit the
interest  rate risk  profile  of the Bank and also the  addition  of HMC.  Other
service  charges and fees increased  from $457,000 for the year ended  September
30, 1998 to $801,000 for the year ended  September 30, 1999.  Service charges on
deposit accounts  increased  $146,000 during the periods compared as a result of
an  increase  in the number of accounts  affected  and to a lesser  degree by an
increase  in the  fees  associated  with  deposit  accounts.  Commission  income
increased  from  $543,000 for the year ended  September 30, 1998 to $946,000 for
the year ended  September  30,  1999.  $381,000 of the  increase was a result of
having the Agency for a full year.

             Non-interest Expense. Total non-interest expense increased to $11.8
million for the year ended  September  30, 1999,  from $8.4 million for the year
ended  September  30,  1998,  or  40.5%.   The  Agency  and  HMC  accounted  for
approximately $2.6 million of the increase.  Compensation and benefits increased
from $5.4 million to $7.4 million or 37.0%,  due to the acquisition of HMC ($1.6
million),  a full year's expense for the Agency  ($278,000) and merit increases,
which averaged 4.5%. Occupancy and equipment expense increased $467,000. Deposit
insurance premiums  increased $3,000.  Professional fees increased from $258,000
for fiscal year 1998 to $276,000 for fiscal year 1999. Data processing increased
$152,000 to $644,000 for the period ended  September 30, 1999, due to processing
expense associated with increased delivery of electronic  services to customers,
the introduction of agricultural lending and the expansion of commercial lending
and  to a  lesser  extent,  as  a  result  of  the  costs  associated  with  the
Corporation's Year 2000 compliance  program.  Goodwill  amortization  during the
year was $79,000 for HMC and $26,000 for the Agency.

             Income Tax  Expense.  Income tax expense  decreased to $1.7 million
for the year ended  September  30,  1999,  from $2.0  million for the year ended
September  30, 1998.  The decrease  was  primarily  due to a decrease in pre-tax
income of $855,000.

                                      -10-
<PAGE>
Comparison of Years Ended September 30, 1998 and 1997

             Net Income. Net income decreased to $3.0 million for the year ended
September 30, 1998, from $3.1 million for the year ended September 30, 1997. The
decrease was primarily due to an increase in non-interest expense.

             Interest  Income.  Total interest income  increased $2.7 million to
$30.0 million for the year ended  September 30, 1998, from $27.3 million for the
year ended  September  30,  1997.  Interest  income on loans  increased  by $3.4
million  from $20.1  million for the year ended  September  30,  1997,  to $23.5
million for the year ended  September  30, 1998,  as a result of a $39.3 million
increase  in the average  balance of loans  receivable  from  $237.5  million at
September 30, 1997, to $276.7  million at September 30, 1998.  Furthermore,  the
average yield  increased from 8.45% at September 30, 1997, to 8.50% at September
30, 1998.  Interest  income on  mortgage-backed  securities  decreased from $3.4
million for the year ended  September  30,  1997,  to $3.0  million for the year
ended September 30, 1998. The decrease was primarily the result of a decrease in
average  rate from 6.15% for the 1997  fiscal  year to 5.50% for the 1998 fiscal
year.  The average  balance of investment  securities  decreased by $1.5 million
during the fiscal year and the yield decreased from 5.79% to 5.31%. The decrease
in yield for investment  securities was primarily impacted by maturities and the
exercise  of call  options  by  issuers.  The yield on  interest-earning  assets
decreased  from 7.60% for the year ended  September  30, 1997,  to 7.56% for the
year ended September 30, 1998.  Interest  income  increased by $3.2 million as a
result of  increased  volume  during the year while the changes in rates  caused
interest  income to decrease by $549,000 and the  rate/volume  change  increased
interest income by $10,000.

             Interest Expense. Total interest expense increased to $18.5 million
for 1998  from  $16.3  million  for 1997 as both the  average  balance  of total
interest  bearing  liabilities  and the  average  cost of funds  increased.  The
increased cost of deposits attendant to the growth of balances was approximately
$583,000  while the  increase  associated  with a change in  interest  rates was
approximately  $151,000.  The cost  associated  with interest  bearing  deposits
increased  from 4.60% for the year ended  September  30, 1997,  to 4.67% for the
same period ended  September 30, 1998. The cost  associated  with borrowed funds
decreased to 5.79% for fiscal 1998 compared to 5.83% for fiscal 1997. $59,000 of
the  decrease in the cost of borrowed  funds was a result of increases in rates,
$1.5 million of the  increase  was  attributable  to the  increased  volumes and
$10,000 of the decrease was rate/volume related.

             Net  Interest  Income.  Net  interest  income  increased  $513,000.
Changes in interest rates caused a decrease in net interest  income of $641,000,
volumes  accounted  for an increase in net  interest  income of $1.1 million and
rate/volume differences increased $11,000.

             Provision  For Loan Losses.  The  allowance  for losses on loans is
maintained at a level which is considered by management to be adequate to absorb
probable  losses on  existing  loans that may become  uncollectible  based on an
evaluation of the  collectibility,  prior loss experience and market conditions.
The evaluation  takes into  consideration  such factors as changes in the nature
and volume of the loan portfolio,  overall portfolio quality, review of specific
problem loans,  and current  economic  conditions that may affect the borrower's
ability to pay. The allowance for loan losses is established through a provision
for loan losses charged to expense.

The  Bank's  loan loss  provision  increased  from  $120,000  for the year ended
September  30, 1997, to $302,000 for the year ended  September 30, 1998,  due to
the change in composition of the loan portfolio.  The Bank's  allowance for loan
losses was  $1,035,000  at September  30, 1998.  The  allowance  for loan losses
represents .34% of total loans  outstanding  and 127.6% of total  non-performing
assets.  While the Bank maintains its allowance for loan losses at a level which
it considers to be adequate,  there can be no assurance  that further  additions
will not be made to the loss  allowances or that such losses will not exceed the
estimated amounts.

             Non-interest   Income.   Total  non-interest  income  increased  by
$759,000  to $2.3  million  for the year ended  September  30,  1998,  from $1.5
million for the year ended  September  30, 1997.  Gains on loans sold  increased
from  $48,000 in the 1997 fiscal year to $360,000 in the 1998 fiscal  year.  The
gains  are a result of  fixed-rate  mortgages  that  were sold in the  secondary
market because they do not fit the interest rate risk profile of the Bank. Other
service  charges and fees increased  from $422,000 for the year ended  September
30, 1997 to $457,000 for the year ended  September 30, 1998.  Service charges on
deposit accounts  increased  $105,000 during the periods compared as a result of
an  increase  in the number of accounts  affected  and to a lesser  degree by an
increase in the fees associated with deposit accounts.

Commission  income increased from $227,000 for the year ended September 30, 1997
to $543,000 for the year ended September 30, 1998.  $214,000 of the increase was
a result of the  acquisition  of  Insurance  Planners,  $50,000  was a result of
increased  investment  sales and  $45,000  was due to the sale of  federal  crop
insurance (an ancillary activity to our agricultural lending).

             Non-interest Expense.  Total non-interest expense increased to $8.4
million for the year ended  September  30, 1998,  from $7.1 million for the year
ended  September 30, 1997, or 18.3%.  Compensation  and benefits  increased from
$4.5  million to $5.4  million or 20.2%,  due to the  acquisition  of  Insurance
Planners  ($122,000),  the hiring of critical  management  and

                                      -11-
<PAGE>
related support positions,  including Agricultural Lending, Marketing, Community
Banking,  internal audit  ($400,000) and merit  increases,  which averaged 4.5%.
Occupancy and equipment expense increased $46,000. The Company expects increased
compensation  and  property  costs in fiscal  1999,  due to the  acquisition  of
Homeowners  Mortgage in November,  1998.  Deposit insurance  premiums  decreased
$36,000.  Professional  fees  increased  from  $235,000  for fiscal year 1997 to
$258,000 for fiscal year 1998. Data processing increased $99,000 to $492,000 for
the period ended September 30, 1998, due to processing  expense  associated with
increased  delivery of electronic  services to customers,  the  introduction  of
agricultural  lending and the  expansion of  commercial  lending and to a lesser
extent,  as a result of the costs  associated with the  Corporation's  Year 2000
compliance program.

Furthermore,  due to the  acquisitions  of  Insurance  Planners  and  Homeowners
Mortgage,  the Company will experience  approximately $115,000 in annual expense
due to the amortization, over a 25 year period, of goodwill associated with such
acquisitions.

             Income Tax  Expense.  Income tax expense  decreased to $2.0 million
for the year ended  September  30,  1998,  from $2.1  million for the year ended
September  30, 1997.  The decrease  was  primarily  due to a decrease in pre-tax
income of $175,000.

Liquidity and Capital Resources

The  liquidity of a  Corporation  reflects its ability to provide  funds to meet
loan requests,  accommodate possible outflows in deposits, and take advantage of
interest  rate market  opportunities.  Funding of loan  requests,  providing for
liability  outflows,  and  management  of interest rate  fluctuations  require a
continuous  analysis in order to match the maturities of specific  categories of
short-term loans and investments with specific types of deposits and borrowings.
The  Corporation's  liquidity,  represented by cash and cash  equivalents,  is a
product of its  operating,  investing  and  financing  activities.  The  primary
sources of cash were net income and cash derived from investing activities.

Operating  activities  provided  cash of $7.0  million,  $1.3  million  and $3.8
million during the years ended September 30, 1999, 1998, and 1997, respectively.
In fiscal 1998 and 1997,  the cash flow in operating  activities  was  primarily
influenced by the changes in accrued liabilities  associated with the accrual of
the SAIF special  assessment in fiscal 1997,  which was paid out in fiscal 1998.
In fiscal 1999, the cash flow in operating  activities was influenced  primarily
by the change in loans held for sale and other liabilities.

Investing  activities used $2.4 million,  $8.0 million, and $39.5 million during
the years ended September 30, 1999,  1998, and 1997,  respectively.  The primary
activity  of the  Bank  is  originating  and  purchasing  loans  and  purchasing
investment  and  mortgage-backed  securities.  The  primary  activity  of HMC is
originating and selling loans in the secondary mortgage market. During the years
ended September 30, 1999, 1998 and 1997, the Corporation originated loans in the
amount of $260.7 million ($104.8 million were originated by HMC), $147.6 million
and $119.2  million,  respectively.  The net loan  origination's  and  principal
payments on loans provided $40.0 million in 1999 and used $9.9 million and $41.2
million  in 1998 and 1997  respectively.  The  increase  in 1999 was a result of
prepayment on mortgage loans refinancing  elsewhere.  The purchase of loans used
$40.9  million,  $10.8  million and $2.4 million in fiscal  1999,  1998 and 1997
respectively  and were  largely  comprised  of  commercial  business  loans that
represented  participation interest with other financial institutions.  The Bank
also sold a participation in a non-residential loan in fiscal year 1999 for $3.0
million. Purchase of investment and mortgage-backed  securities held to maturity
used $1.2 million, $0 and $3.0 million and maturities, principal payments or the
exercise of call  provisions by the issuers of such  securities  provided  $14.5
million,  $15.6 million and $9.5 million for the years ended September 30, 1999,
1998 and 1997 respectively. Purchase of investment securities available for sale
used $13.0 million, $3.7 million and $2.0 million and maturities or the exercise
of call provision by the issuers of such securities provided $3.0 million,  $1.0
million  and  $0  for  the  years  ended  September  30,  1999,  1998  and  1997
respectively.  Other  investment  activities  included  sale  of  REO  property,
purchase of equipment and property  improvements and the net cash acquisition of
HMC.  For the fiscal year 1999,  the Bank  acquired  corporate  owned  insurance
policies in the amount of $5.5 million.

For the year ended  September  30, 1999,  $5.1 million in cash was provided as a
result of an  increase  in  deposits  and $3.2  million in cash was paid on FHLB
advances. The purchase of treasury stock and dividends on common stock used $2.9
million and $1.3 million,  respectively.  During the fiscal year ended September
30,  1998,  $18.3  million in cash was  provided  as a result of an  increase in
deposits  and  $10.4  million  was  provided  as a  result  of  an  increase  in
borrowings.  The purchase of treasury  stock used $5.5 million and  dividends on
common  stock used $1.4 million  during the 1998 fiscal year.  Basic and diluted
earnings per share for the year ended  September 30, 1999, were $0.94 and $0.90,
respectively.  A portion of the  earnings per share was a result of the purchase
of treasury stock during the fiscal year. Financing activities used $7.9 million
during the year ended  September 30, 1999 and provided $23.2 million,  and $30.0
million  in  cash  during  the  years  ended   September   30,  1998  and  1997,
respectively.  Financing  activities in the  foreseeable  future are expected to
primarily include changes in deposits and advances from FHLB of Des Moines,  and
to a lesser  extent,  the  repurchase  of  treasury  shares  and the  payment of
dividends.  See Consolidated Statements of Cash Flow for FSF Financial Corp. and
Subsidiary.
                                       12
<PAGE>
The Bank's  liquidity is a measure of its ability to fund loans, pay withdrawals
of deposits, and other cash outflows in an efficient, cost effective manner. The
Bank's  primary  source of funds are deposits  and  scheduled  amortization  and
prepayments  of loan and  mortgage-backed  security  principal.  During the past
several  years,  the Bank has used such funds  primarily to fund  maturing  time
deposits,  pay savings  withdrawals,  fund  lending  commitments,  purchase  new
investments,  and increase liquidity.  The Bank funds its operations  internally
and as needed with borrowed funds from the FHLB. As of September 30, 1999,  such
borrowed  funds  totaled  $141.0  million.  While loan  repayments  and maturing
investments and mortgage-backed securities are relatively predictable sources of
funds,  deposit  flows and loan and  mortgage-backed  security  prepayments  are
greatly   influenced  by  general  interest  rates,   economic   conditions  and
competition.

The Bank is required  under federal  regulations to maintain  certain  specified
levels of "liquid  investments,"  which include certain United States government
obligations and other approved investments. In December of 1997, the OTS reduced
the  requirement for banks to maintain liquid assets from 5% to not less than 4%
of its  net  withdrawable  accounts  plus  short  term  borrowings.  The  Bank's
regulatory  liquidity was 13.3%,  6.05%,  and 5.12% at September 30, 1999, 1998,
and 1997,  respectively.  The options from the previous  method were used in the
current period, which are more restrictive.

The amount of  certificate  accounts  which are  scheduled to mature  during the
twelve months ending September 30, 2000, is approximately $108.6 million. To the
extent  that these  deposits do not remain at the Bank upon  maturity,  the Bank
believes  that  it  can  replace  these  funds  with  deposits,  current  excess
liquidity,  FHLB  advances  or  outside  borrowings.  It  has  been  the  Bank's
experience  that a substantial  portion of such maturing  deposits remain at the
Bank.

At September  30, 1999,  the Bank and HMC had  commitments  to extend  credit of
$39.3 million.  Funds required to fill these  commitments are derived  primarily
from FHLB borrowings,  current excess liquidity,  deposit inflows, loan sales or
loan and security repayments.

OTS  regulations  require the Bank to maintain core capital of 4% of assets,  of
which 2.0% must be tangible equity capital, excluding goodwill. The Bank is also
required to maintain  risk-based capital equal to 8% of total risk-based assets.
The Bank's regulatory capital exceeded its tangible equity, tier 1 (risk based),
tier 1 (core) and risk-based capital requirements by 7.5%, 5.0%, 10.2% and 6.3%,
respectively.

Management  believes that under current  regulations,  the Bank will continue to
meet its minimum capital  requirements in the foreseeable future.  Events beyond
the control of the Bank,  such as increased  interest rates or a downturn in the
economy  in areas in which the Bank  operates,  could  adversely  affect  future
earnings  and as a result,  the  ability of the Bank to meet its future  minimum
capital requirements.

Year 2000

The Year 2000 problem  exists  because many computer  programs use only the last
two  digits to refer to a year.  This  convention  could  affect  date-sensitive
calculations  that treat "00" as the year 1900,  rather than 2000. An additional
issue is that 1900 was not a leap  year,  whereas  the year 2000 is.  Therefore,
some programs may not properly provide for February 29, 2000. This anomaly could
result in miscalculations  when processing critical  date-sensitive  information
after December 31, 1999.

The following  discussion of the  implications  of the Year 2000 problem for the
Bank, contains numerous forward looking statements based on inherently uncertain
information.  The cost of the  project  and the date on which the Bank  plans to
complete the internal Year 2000  modifications  are based on  management's  best
estimates,  which are derived utilizing a number of assumptions of future events
including the continued  availability of internal and external resources,  third
party modifications and other factors.  However,  there can be no guarantee that
these  statements  will be achieved and actual  results could differ.  Moreover,
although management believes it will be able to make the necessary modifications
in advance,  there can be no guarantee  that failure to modify the systems would
not have a material adverse effect on the Bank.

Year 2000 issues expose the Company to a number of risks,  any one of which,  if
realized,  could  have a  material  adverse  effect on the  Company's  business,
results  of  operations  or  financial   condition.   These  risks  include  the
possibility that, to the extent certain vendors fail to adequately  address Year
2000 issues,  the Company may suffer  disruptions in important services on which
the  Company  depends,  such as  telecommunications,  electrical  power and data
processing.  Year 2000 issues could affect the  Company's  liquidity if customer
withdrawals in anticipation of the Year 2000 are greater than expected or if the
Company's  lenders  are unable to  provide  the  Company  with funds when and as
needed by the Company.  Year 2000 issues also create  additional  credit risk to
the Company insofar as the failure of the Company's customers and counterparties
to adequately  address Year 2000 issues could increase the likelihood that these
customers and counterparties  become delinquent or default on the obligations to
the Company.  In addition to increasing  the Company's  risk exposure to problem
loans, credit losses and liquidity problems, Year 2000 issues expose the Company
to increased risk of litigation  losses and expenses  relating to the foregoing.
There are other Year 2000 risks  besides those  described  above that may impact
the Company's business, results of operations and financial condition.

                                       13
<PAGE>
The Bank places a high degree of reliance on computer  systems of third parties,
such as customers, suppliers, and other financial and governmental institutions.
Although  the Bank is  assessing  the  readiness  of  these  third  parties  and
preparing contingency plans, there can be no guarantee that the failure of these
third  parties to modify their systems in advance of December 31, 1999 would not
have a material adverse affect on the Bank.

During fiscal 1998,  the Bank adopted a Year 2000  Compliance  Plan (the "Plan")
and  established  a  Year  2000  Compliance  Committee  (the  "Committee").  The
objectives  of the Plan and the  Committee  are to prepare  the Bank for the new
millennium.  As  recommended  by the  Office  of  Thrift  Supervision,  the Plan
encompasses the following phases: Awareness, Assessment,  Renovation, Validation
and Implementation. These phases will enable the Bank to identify risks, develop
an action  plan,  perform  adequate  testing and complete  affirmation  that its
processing  systems will be Year 2000 ready.  Execution of the Plan is currently
on target. The Bank has completed Phase 4, Validation, which involved testing of
changes to hardware and software,  accompanied  by  monitoring  and testing with
vendors. The Bank is currently in Phase 5,  Implementation,  which will continue
into  calendar  year 2000.  Systems have been  certified and customer and public
education efforts continue.

Monitoring  and managing the Year 2000 project will result in additional  direct
and indirect costs to the Bank.  Direct costs include potential charges by third
party  software  vendors for  product  enhancements,  costs  involved in testing
software  products  for  Year  2000  compliance,  and any  resulting  costs  for
developing and implementing  contingency  plans for critical  software  products
which are not  enhanced.  Indirect  costs will  principally  consist of the time
devoted by existing  employees in managing  software  vendor  progress,  testing
enhanced  software  products and implementing any necessary  contingency  plans.
Total direct costs are  estimated  not to exceed  $50,000.  Actual costs will be
charged to earnings over the next five quarters, as incurred.

The Bank has developed  business  resumption  contingency  plans specific to the
Year 2000. Business resumption  contingency plans address the actions that would
be taken if  critical  business  functions  can not be carried out in the normal
manner upon entering the next century due to system or supplier failure.

Despite the best efforts of management to address this issue, the vast number of
external entities that have direct and indirect business  relationships with the
Bank, such as customers,  vendors,  payment system providers and other financial
institutions, makes it impossible to assure that a failure to achieve compliance
by one or more of these entities  would not have material  adverse impact on the
operations of the Bank.

Impact of Inflation and Changing Prices

The financial  statements and related data have been prepared in accordance with
generally  accepted  accounting  principles  which  require the  measurement  of
financial position and operating results in terms of historical dollars, without
consideration  for changes in the relative  purchasing  power of money over time
caused by inflation.

Unlike  industrial  companies,  nearly all of the assets  and  liabilities  of a
financial institution are monetary in nature. As a result, interest rates have a
more significant  impact of a financial  institution's  performance than general
levels  of  inflation.  Interest  rates  do not  necessarily  move  in the  same
direction  or in the same  magnitude as the price of goods and  services,  since
goods and services  are  affected by  inflation.  In the current  interest  rate
environment,  liquidity  and the  maturity  structure  of the Bank's  assets and
liabilities are critical to the maintenance of acceptable performance levels.


                                       14
<PAGE>

                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders
FSF Financial Corp. and Subsidiaries
Hutchinson, MN  55350

We have audited the accompanying  consolidated statements of financial condition
of FSF Financial Corp. and  Subsidiaries  (the  Corporation) as of September 30,
1999, and 1998, and the related  consolidated  statements of income,  changes in
stockholders'  equity,  and cash flows for each of the three fiscal years in the
period  ended   September  30,  1999.   These   financial   statements  are  the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion the financial statements referred to above present fairly, in all
material  respects,  the consolidated  financial position of FSF Financial Corp.
and  Subsidiaries  as of September  30,  1999,  and 1998,  and the  consolidated
results of their operations and their cash flows for each of the fiscal years in
the  three-year  period ended  September 30, 1999, in conformity  with generally
accepted accounting principles.




Bertram Cooper & Co., LLP
Waseca, Minnesota
October 25, 1999



                                       15
<PAGE>

                      FSF FINANCIAL CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
                                                                                                         September 30,
                                                                                                    ------------------------
                                                                                                     1999             1998
                                                                                                    ------------------------
                                                                                                        (In thousands)
                                     ASSETS
                                     ------
<S>                                                                                          <C>              <C>
             Cash and cash equivalents                                                         $     19,265     $    22,597
             Securities available for sale, at fair value:
                Equity securities                                                                    19,284          19,459
                Mortgage-backed and related securities                                               15,979          16,574
                Debt securities                                                                      12,794           3,010
             Securities held to maturity, at amortized cost:
                Debt securities (Fair value of $18,999 and $23,953)                                  19,937          24,412
                Mortgage-backed and related securities (Fair value of $26,338 and $35,369)           27,587          36,418
             Loans held for sale                                                                      5,334           2,672
             Loan receivable, net                                                                   278,290         280,603
             Foreclosed real estate
                                                                                                        323             502
             Accrued interest receivable                                                              3,328           3,089
             Premises and equipment                                                                   5,314           4,111
             Other assets                                                                            10,659           2,785
                                                                                             -------------------------------
                       Total Assets                                                            $    418,094     $   416,232
                                                                                             ===============================

                                            LIABILITIES AND STOCKHOLDERS' EQUITY
                                            ------------------------------------
              Liabilities:
                  Demand deposits                                                              $     32,952     $    30,299
                  Savings accounts                                                                   65,554          53,984
                  Certificates of deposit                                                           133,145         142,259
                                                                                             -------------------------------
                       Total deposits                                                               231,651         226,542
                  Federal Home Loan Bank borrowings                                                 140,967         144,177
                  Advances from borrowers for taxes and insurance                                       669             819
                  Other liabilities                                                                   2,482           2,176
                                                                                             -------------------------------
                       Total liabilities                                                            375,769         373,714

             Stockholders' equity:
                  Serial preferred stock, no par value 5,000,000 shares
                       authorized, no shares issued
                                                                                                          -               -
                  Common stock, $.10 par value 10,000,000 shares authorized,
                       4,501,277 and 4,501,277 shares issued                                            450             450
                  Additional paid in capital                                                         43,292          43,382
                  Retained earnings, substantially restricted                                        26,627          25,451
                  Treasury stock at cost (1,695,390 and 1,603,663 shares)                           (24,575)        (23,298)
                  Unearned ESOP shares at cost (162,798 and 198,773 shares)                          (1,628)         (1,988)
                  Unearned MSP stock grants at cost (49,825 and 77,214 shares)                         (528)           (818)
                  Accumulated other comprehensive income (loss)                                      (1,313)           (661)
                                                                                             -------------------------------
                       Total stockholders' equity                                                    42,325          42,518
                                                                                             -------------------------------
                       Total Liabilities and Stockholders' Equity                              $    418,094     $   416,232
                                                                                             ===============================

</TABLE>

         The accompanying notes are an integral part of these statements

                                       16
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                         Years Ended September 30,
                                                                  ---------------------------------------
                                                                     1999           1998            1997
                                                                  ---------------------------------------
                                                                               (In thousands)
<S>                                                              <C>            <C>           <C>
   Interest income:
        Loans receivable                                          $  22,861      $  23,512     $  20,066
        Mortgage-backed and related securities                        2,318          3,006         3,384
        Investment securities                                         4,241          3,463         3,865
                                                                  ---------------------------------------
             Total interest income                                   29,420         29,981        27,315
                                                                  ---------------------------------------
   Interest expense:
        Deposits                                                     10,233         10,082         9,339
        Borrowed funds                                                7,965          8,417         7,007
                                                                  ---------------------------------------
             Total interest expense                                  18,198         18,499        16,346
                                                                  ---------------------------------------
             Net interest income                                     11,222         11,482        10,969
        Provision for loan losses                                       456            302           120
                                                                  ---------------------------------------
             Net interest income after provision for loan losses     10,766         11,180        10,849
                                                                  ---------------------------------------
   Non-interest income:
        Gain (loss) on loans - net                                    2,341            360
                                                                                                      48
        Other service charges and fees                                  801            457           422
        Service charges on deposit accounts                             968            822           717
        Commission income                                               946            543           227
        Other                                                           203             87            96
                                                                  ---------------------------------------
             Total non-interest income                                5,259          2,269         1,510
                                                                  ---------------------------------------
   Non-interest expense:
        Compensation and benefits                                     7,390          5,393         4,487
        Occupancy and equipment                                       1,313            846           800
        Deposit insurance premiums                                      134            131           167
        Data processing                                                 644            492           393
        Professional fees                                               276            258           235
        Other                                                         2,069          1,275         1,048
                                                                  ---------------------------------------
             Total non-interest expense                              11,826          8,395         7,130
                                                                  ---------------------------------------
             Income before provision for income taxes                 4,199          5,054         5,229
   Income tax expense                                                 1,694          2,024         2,105
                                                                  ---------------------------------------
             Net income                                               2,505          3,030         3,124
                                                                  =======================================

   Basic earnings per share                                       $    0.94      $    1.14     $    1.13
   Diluted earnings per share                                     $    0.90      $    1.05     $    1.04
</TABLE>
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
<S>                                                               <C>            <C>           <C>
 Net Income                                                        $  2,505       $  3,030       $ 3,124
 Other comprehensive income, net of tax:
        Unrealized gains (losses) on securities                           -              -             -
           Unrealized holding gains (losses) arising during period     (652)          (182)          328
            Less:  reclassification adjustment
               for gains included in net income                            -           (11)            -
                                                                   -------------------------------------
 Other comprehensive income (loss)                                     (652)          (193)          328
                                                                   -------------------------------------
 Comprehensive income                                              $  1,853       $  2,837      $  3,452
                                                                   =====================================
</TABLE>
         The accompanying notes are an integral part of these statements

                                       17
<PAGE>


                      FSF FINANCIAL CORP. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                           Unallocated                          Accumulated
                                                                 Retained    Common     Unearned                  Other
                                                   Additional    Earnings    Stock       Stock                 Comprehensive
                                        Common      Paid-in    Substantially Held by   Acquired by  Treasury      Income
                                        Stock       Capital     Restricted    ESOP         MSP       Stock        (Loss)     Total
                                      ----------------------------------------------------------------------------------------------
<S>                                    <C>        <C>         <C>         <C>         <C>         <C>         <C>         <C>
Balance, September 30, 1996             $   450    $ 43,150    $ 22,068    $ (2,719)   $ (1,398)   $(13,095)   $   (807)   $ 47,649
  Net earnings                             --          --         3,124        --          --          --          --         3,124
  Treasury stock acquired                  --          --          --          --          --        (7,245)       --        (7,245)
  Stock issued for stock options           --           (12)       --          --          --            73                      61
  Amortization of MSP shares               --            40        --          --           290        --          --           330
  Common stock dividends
  ($0.50 per share)                        --          --        (1,413)       --          --          --          --        (1,413)
  Allocated ESOP shares                    --           156        --           372        --          --          --           528
  Other comprehensive income               --          --          --          --          --          --           328         328
                                       ---------------------------------------------------------------------------------------------
Balance September 30, 1997                  450      43,334      23,779      (2,347)     (1,108)    (20,267)       (479)     43,362
  Net earnings                             --          --         3,030        --          --          --          --         3,030
  Treasury stock acquired                  --          --          --          --          --        (5,492)       --        (5,492)
  Stock issued for stock options           --          (341)       --          --          --         1,911        --         1,570
  Common stock dividends
  ($0.50 per share)                        --          --        (1,358)       --          --          --          --        (1,358)
  Purchase of subsidiary                   --           106        --          --          --           550        --           656
  Allocated ESOP shares                    --           183        --           359        --          --          --           542
  Other comprehensive (loss)               --          --          --          --          (182)       (182)
                                       ---------------------------------------------------------------------------------------------
Balance September 30, 1998                  450      43,382      25,451      (1,988)       (818)    (23,298)       (661)     42,518
  Net earnings                             --          --         2,505        --          --          --          --         2,505
  Treasury stock acquired                  --          --          --          --          --        (2,912)       --        (2,912)
  Stock issued for stock options           --          (145)       --          --          --           509        --           364
  Amortization of and tax on MSP shares    --            54        --          --           290        --          --           344
  Common stock dividends
  ($0.50 per share)                        --          --        (1,329)       --          --          --          --        (1,329)
  Purchase of subsidiary                   --          (109)       --          --          --         1,126        --         1,017
  Allocated ESOP shares                    --           110        --           360        --          --          --           470
  Other comprehensive (loss)               --          --          --          --          --          --          (652)       (652)
                                       ---------------------------------------------------------------------------------------------
Balance September 30, 1999              $   450 $    43,292    $ 26,627    $ (1,628)   $   (528)   $(24,575)   $ (1,313)   $ 42,325
                                       ---------------------------------------------------------------------------------------------
</TABLE>

         The accompanying notes are an integral part of these statements

                                       18
<PAGE>

                      FSF FINANCIAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                      Years Ended September 30,
                                                       ---------------------------------------------
                                                                     1999        1998        1997
                                                       ---------------------------------------------
                                                                              In thousands)
<S>                                                             <C>          <C>          <C>
Cash flows from operating activities:
     Net income                                                  $   2,505    $   3,030    $   3,124
     Adjustments to reconcile net income to net cash
        provided by operating activities:
     Depreciation                                                      490          359          329
     Net amortization of discounts and premiums on
        securities held to maturity                                    (37)         (42)         (31)
     Provision for loan losses                                         456          302          120
     Net market value adjustment on ESOP shares                        104          185          141
     Tax benefit on stock options                                       24          254           10
     Amortization of ESOP and MRP stock compensation                   656          650          669
     Amortization of intangibles                                       105           10           --
     Net gain on sale of assets                                        (11)         (18)          --
     Net loan fees deferred and amortized                             (134)        (194)         214
     Loans originated for sale                                    (131,586)     (27,625)      (2,263)
     Loans sold                                                    134,539       25,156        2,103
     (Increase) decrease in:
        Accrued interest receivable                                   (234)        (653)        (111)
        Other assets                                                   (95)        (142)         132
     Increase (decrease) other liabilities                             216           67         (589)
                                                       ----------------------------------------------
Net cash provided by operating activities                            6,998        1,339        3,848

Cash flows from investing activities:
     Loan originations and principal payments on loans, net         40,038       (9,928)     (41,245)
     Purchase of loans                                             (40,883)     (10,832)      (2,445)
     Loan participations sold                                        3,000           --           --
     Principal payments on securities held to maturity              10,002        2,125           19
     Purchase of mortgage-related securities held to maturity       (1,161)          --           --
     Purchase of securities available for sale                     (12,987)      (3,671)      (1,956)
     Purchase of  securities held to maturity                           --           --       (3,000)
     Proceeds from securities available for sale                        --          411           --
     Proceeds from maturities of securities available for sale       3,000        1,000           --
     Proceeds from maturities of securities held to maturity         4,500       13,500        9,500
     Investment in foreclosed real estate                              (38)         (12)          (2)
     Proceeds from sale of REO                                         500           24           22
     Purchase paid up life insurance policies                       (5,495)
     Proceeds from sale of fixed assets                                 --           --            5
     Acquisition of Homeowners, net of cash acquired                (1,245)          --           --
     Purchase of equipment and property improvements                (1,677)        (666)        (373)
                                                       ----------------------------------------------
Net cash (used in) investing activities                          $  (2,446)   $  (8,044)   $ (39,480)

</TABLE>

         The accompanying notes are an integral part of these statements

                                       19
<PAGE>

                      FSF FINANCIAL CORP. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
                                                                           Years Ended September 30,
                                                                       ---------------------------------
                                                                          1999        1998        1997
                                                                       ---------------------------------
                                                                                  (In thousands)
<S>                                                                   <C>          <C>         <C>
Cash flows from financing activities:
     Net increase in deposits,                                          $  5,109    $ 18,297    $ 19,171
     FHLB Advances                                                          --        10,500      19,250
     Payments on FHLB Advances                                            (3,210)       (141)       (126)
     Net short term borrowings                                            (5,726)       --          --
     Net increase (decrease) in mortgage escrow funds                       (152)         46         305
     Treasury stock purchased                                             (2,912)     (5,492)     (7,245)
     Dividends on common stock                                            (1,329)     (1,358)     (1,413)
     Proceeds from exercise of stock options                                 336       1,315          69
                                                                 ----------------------------------------
Net cash provided by financing activities                                 (7,884)     23,167      30,011
                                                                 ----------------------------------------
Net increase in cash and cash equivalents                                 (3,332)     16,462      (5,621)

Cash and cash equivalents:
     Beginning of year                                                    22,597       6,135      11,756
                                                                 ----------------------------------------
     End of period                                                      $ 19,265    $ 22,597    $  6,135
                                                                 ========================================

Supplemental disclosures of cash flow information: Cash payments for:
        Interest on advances and other borrowed money                   $  7,980    $  8,464    $  6,976
        Interest on deposits                                               9,588      10,220       9,188
        Income taxes                                                       1,443       1,850       1,999

Supplemental schedule of noncash investing and financing activities:
     Reinvested amounts of capital gains and dividends
           from mutual fund investments                                 $     80    $    121    $     22
     Foreclosed real estate                                                  197         449
                                                                                                      20
     Stock acquisition of Insurance Planners                                --           656
     Acquisition of Homeowners Mortgage Corporation non-cash
           asset, net of assumed liabilities                               1,037        --          --


</TABLE>
         The accompanying notes are an integral part of these statements

                                       20
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        SEPTEMBER 30, 1999, 1998 AND 1997

     (1) Description of Business and Summary of Significant Accounting Policies

The  consolidated  financial  statements  include the accounts of FSF  Financial
Corp. ("the Corporation") and its wholly owned subsidiaries, Homeowners Mortgage
Corporation  ("HMC"),  Insurance  Planners of Hutchinson,  Inc. ("the  Agency"),
First Federal fsb ("the Bank") and Firstate Services,  a wholly owned subsidiary
of the Bank. All significant  inter-company  accounts and transactions have been
eliminated  in  consolidated  financial  statements  which have been prepared in
conformity with generally accepted accounting principles.

Nature of Business
The  Corporation  is a holding  company  whose  subsidiaries  provide  financial
services. The Bank is a community financial institution attracting deposits from
the general public and using such deposits,  together with  borrowings and other
funds,  to make  mortgage,  consumer,  commercial  and  agricultural  loans.  At
September 30, 1999,  the Bank operated 11 retail  banking  offices in Minnesota.
The  Bank  is  subject  to   significant   competition   from  other   financial
institutions,  and is also subject to regulation by certain federal agencies and
undergoes periodic examinations by those regulatory authorities. The Agency is a
property  and  casualty  insurance  company.  HMC is a mortgage  banking  entity
located in Vadnais Heights,  MN., that originates and sells residential mortgage
loans.

Use of Estimates
In preparing the consolidated  financial  statements,  management is required to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  as  of  the  date  of  the  consolidated  statements  of  financial
condition,  and income and expenses for the period.  Actual results could differ
from those estimates.  Material  estimates that are particularly  susceptible to
significant  change relate to the  determination  of the allowance for losses on
loans and the valuation of real estate acquired in connection with  foreclosures
or in  satisfaction  of  loans.  In  connection  with the  determination  of the
allowances for losses on loans and foreclosed  real estate,  management  obtains
independent  appraisals  for  significant  properties.   While  management  uses
available  information to recognize  losses on loans and foreclosed real estate,
future  additions to the allowances  may be necessary  based on changes in local
economic conditions.  In addition,  regulatory agencies,  as an integral part of
their examination  process,  periodically review the Bank's allowance for losses
on loans and  foreclosed  real  estate.  Such  agencies  may require the Bank to
recognize  additions to the allowance based on their judgments about information
available to them at the time of their examination.

Cash Equivalents (In thousands)
For  purposes of the  consolidated  statements  of cash flows,  the  Corporation
considers all highly liquid debt instruments  with original  maturities of three
months  or less and money  market  funds to be cash  equivalents.  Cash and cash
equivalents  include  interest  bearing  deposits  of  $16,020  and  $15,299  at
September 30, 1999, and 1998, respectively.

Debt and Equity Securities
The  Corporation   classifies  its  investments,   including  marketable  equity
securities,  mortgage-backed securities, and mortgage-related securities, in one
of three categories:

        Trading Account Securities
        Securities held  principally for resale in the near term, are classified
        as  trading  account  securities  and  recorded  at their  fair  values.
        Unrealized  gains and losses on trading account  securities are included
        in other income.  The  Corporation  did not hold any trading  securities
        during the three fiscal years ended September 30, 1999.

        Securities Held to Maturity
        Debt  securities  which the  Corporation  has the  positive  intent  and
        ability to hold to maturity are reported at cost,  adjusted for premiums
        and discounts that are recognized in interest  income using the interest
        method  over  the  period  to  maturity.  Unrealized  losses  on held to
        maturity  securities  reflecting  a decline in value  judged to be other
        than temporary are charged to income.

        Securities Available for Sale
        Available for sale securities  consist of equity  securities and certain
        debt  securities  not  classified as trading  securities  nor as held to
        maturity securities.  Unrealized holding gains and losses, net of income
        taxes,  on available for sale securities are reported as a net amount in
        a separate component of shareholders'  equity until realized.  Gains and
        losses on the sale of available for sale securities are determined using
        the specific  identification  method. Any decision to sell available for
        sale securities would be based on various factors,

                                       21
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

        including  movements in interest  rates,  changes in the maturity mix of
        the Corporation's assets and liabilities,  liquidity demands, regulatory
        capital  considerations,   and  other  similar  factors.   Premiums  and
        discounts are  recognized in interest  income using the interest  method
        over the period to maturity.  Unrealized  losses on  available  for sale
        securities  reflecting  a  decline  in value  judged  to be  other  than
        temporary are charged to income.

The Bank,  as a member of the  Federal  Home Loan Bank  System,  is  required to
maintain an  investment  in capital  stock of the Federal  Home Loan Bank of Des
Moines ("FHLB") in varying  amounts based on balances of outstanding  home loans
and on amounts  borrowed from the FHLB.  Because no ready market exists for this
stock, and it has no quoted market value, the Bank's investment in this stock is
carried at cost.

Loans Held for Sale
Mortgage  loans  originated  and intended for sale in the  secondary  market are
carried at the lower of cost or  estimated  market value in the  aggregate.  Net
unrealized  losses are  recognized  through a valuation  allowance by charges to
income.

Loans Receivable
Loans  receivable  that  management  has the intent and  ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
principal  adjusted by any charge-offs,  the allowance for loan losses,  and any
deferred fees or costs on originated loans and unamortized premiums or discounts
on purchased  loans.  Discounts and premiums on purchased  real estate loans are
amortized  to income  using the  interest  method over the  remaining  period to
contractual  maturity,  adjusted  for  anticipated  prepayments.  Discounts  and
premiums on purchased  consumer loans are recognized  over the expected lives of
the loans using the level yield method.

The allowance for loan losses is increased by charges to income and decreased by
charge-offs  (net  of  recoveries).  Management's  periodic  evaluation  of  the
adequacy  of the  allowance  is based on the Bank's  past loan loss  experience,
known and inherent risks in the portfolio,  adverse  situations  that may affect
the borrower's ability to repay,  estimated value of any underlying  collateral,
and current economic conditions. Loans are considered impaired if full principal
or interest payments are not anticipated in accordance with the contractual loan
terms.  Impaired loans are carried at the present value of expected  future cash
flows discounted at the loan's  effective  interest rate or at the fair value of
the collateral if the loan is collateral  dependent.  A portion of the allowance
for loan losses is  allocated  to  impaired  loans if the value of such loans is
deemed  to be less  than the  unpaid  balance.  If these  allocations  cause the
allowance  for loan losses to require an increase,  such an increase is reported
as a component of the provision for loan losses.

Uncollectible interest on loans that are contractually past due for three months
is charged off or an allowance is established,  based on  management's  periodic
evaluation. The allowance is established by a charge to interest income equal to
all interest previously accrued,  and income is subsequently  recognized only to
the extent cash  payments are received  until,  in  management's  judgment,  the
borrower's  ability to make periodic interest and principal  payments returns to
normal, in which case the loan is returned to accrual status.

Loan origination fees and certain direct  origination costs are capitalized with
the net fee or cost  recognized as an  adjustment  to interest  income using the
interest method.

Foreclosed Real Estate
Real estate  properties  acquired  through,  or in lieu of, loan foreclosure are
initially  recorded at fair value at the date of foreclosure  establishing a new
cost  basis.  After  foreclosure,   valuations  are  periodically  performed  by
management  and the real  estate is carried at the lower of  carrying  amount or
fair value minus estimated  costs to sell.  Revenue and expenses from operations
and changes to the valuation allowance are included in operations.

Income Taxes
The Corporation calculates income taxes on the liability method, under which the
net deferred tax asset or  liability is  determined  based on the tax effects of
the  differences  between  the book  and tax  bases of the  various  assets  and
liabilities  of the  Corporation  giving  current  recognition to changes in tax
rates and laws.

Premises and Equipment
Land is carried at cost.  Buildings,  leasehold  improvements  and equipment are
carried at cost, less accumulated  depreciation and amortization.  Buildings and
equipment  are  depreciated  using the  straight-line  method over the estimated
useful  lives  of the  assets.  The  cost of  leasehold  improvements  is  being
amortized using the  straight-line  method over the terms of the related leases.
Net gains and losses on disposal or  retirement  of premises and  equipment  are
included in other income.

                                       22

<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Mortgage Loan-Servicing Rights
The Bank has  established  accounting and reporting  standards for transfers and
servicing of financial assets and  extinguishments  of liabilities  based on the
consistent  application  of the  financial-components  approach.  This  approach
requires the  recognition  of  financial  assets and  servicing  assets that are
controlled  by  the  Bank,  and  the   derecognition  of  financial  assets  and
liabilities when control is extinguished.  Liabilities and derivatives  incurred
or obtained in conjunction with the transfer of financial assets are measured at
fair value,  if  practicable.  Servicing  assets and other retained  interest in
transferred  assets are measured by allocating  the carrying  amount between the
assets sold and the interest retained, based on their relative fair value.

Mortgage  servicing  rights are amortized in proportion  to, and over the period
of, estimated net servicing revenues. Impairment of mortgage servicing rights is
assessed  based on the fair value of those  rights.  Fair  values are  estimated
using  discounted  cash flows based on a current market  interest rate. The Bank
evaluates the mortgage  servicing rights strata for impairment by estimating the
fair value based on anticipated future net cash flows, taking into consideration
prepayment  predictions.  The predominant  characteristics used as the basis for
stratifying  are loan types,  period of  origination,  and interest  rates.  The
amount of impairment  recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceed their fair value.

Earnings Per Share
Basic  income per share  amounts are  computed by dividing the net income by the
weighted average number of common shares  outstanding.  Diluted income per share
amounts were computed by dividing net income, adjusted for the effect of assumed
conversions,  by the weighted  average number of common shares  outstanding plus
dilutive potential common shares calculated for stock options  outstanding using
the treasury stock method.

Treasury Stock
Treasury  stock is recorded at cost.  In the event of  subsequent  reissue,  the
treasury  stock account will be reduced by the cost of such stock on the average
cost basis with any excess  proceeds  credited to  additional  paid-in  capital.
Treasury stock is available for general corporate purposes.

Stock-Based Compensation
Effective for the year ended  September 30, 1998,  the  Corporation  has adopted
SFAS No. 123, "Accounting for Stock-Based  Compensation." As allowed by SFAS No.
123,  the  Corporation  has elected to  continue  using the  accounting  methods
prescribed  by  Accounting  Principles  Board  (APB)  Opinion No. 25 and related
interpretations,  which  measure  compensation  cost using the  intrinsic  value
method.  See Note 10 for the  impact of the fair value of  employee  stock-based
compensation plans on net income and earnings per share on a pro forma basis for
awards granted after October 1, 1995.

Comprehensive Income
Effective  October 1, 1998,  the  Corporation  adopted  SFAS No. 130,  Reporting
Comprehensive  Income.  The  statement  establishes  standards for reporting and
display  of   comprehensive   income  and  its  components  in  a  full  set  of
general-purpose financial statements. The statement requires that all items that
are  required to be  recognized  under  accounting  standards as  components  of
comprehensive income to be disclosed in the financial statements.  Comprehensive
income is defined as the change in equity during a period from  transactions and
other events from non-owner  sources.  Comprehensive  income is the total of net
income and other  comprehensive  income,  which for the Corporation is comprised
entirely of unrealized gains and losses on securities available for sale.

Fair Values of Financial Instruments
The following methods and assumptions were used by the Corporation in estimating
fair values of financial instruments as disclosed herein:

     Cash and cash equivalents - The carrying value of cash and cash
          equivalents approximate fair value.
     Debt and equity securities - Fair values of debt and equity securities have
          been estimated using quoted market prices.
     Loans receivable - For variable-rate  loans, loans with balloon maturities,
          loans  with  relatively   near-term   maturities   (such  as  consumer
          installment  loans) carrying values  approximate fair values. The fair
          value of long-term  fixed rate loans has been estimated  using present
          value cash flows,  discounted at a rate  approximating  current market
          rates and giving consideration to estimated prepayment risk and credit
          loss factors. The estimated fair value of loans held for sale is based
          on  quoted  market  prices  of  similar  instruments  trading  in  the
          secondary market.
     Originated mortgage servicing rights - The carrying amounts of
          originated mortgage servicing rights approximate fair values.
     Accrued  interest - The  carrying  amounts of accrued  interest  receivable
          approximate their fair values
     Life  Insurance  Policies - Cash value of the  policies  approximates  fair
          value.
     Deposit   liabilities  -  The  fair  values  of  demand  deposits  are,  by
          definition,  equal to the amount  payable  on demand at the  reporting
          date  (that is,  their  carrying  amounts).  The  carrying  amounts of
          variable-rate,  fixed-term  money market accounts and  certificates of
          deposits  approximate  their fair values at the reporting  date.  Fair
          values for fixed-rate  certificates  of deposit are estimated  using a
          discounted cash flow calculation that applies interest rates currently
          being

                                       23
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

               offered on  certificates  to a schedule  of  aggregated  expected
               monthly maturities on time deposits.
        Short-term  borrowings  - The  carrying  amounts  of  advances  from the
               Federal  Home Loan Bank (FHLB) of Des Moines  maturing  within 90
               days approximate their fair values.
        Long-term  borrowings - The  carrying amounts  of amounts of  long-term
               borrowings  are  estimated  using  discounted  cash flow analyses
               based on the  Bank's  current  incremental  borrowing  rates  for
               similar types of borrowing arrangements.
        Off-balance-sheet  items - Fair   value  for  off-balance-sheet  lending
               commitments  are based on fees  currently  charged  to enter into
               similar  agreements,  taking into account the remaining  terms of
               the  agreements and the  counterparties'  credit  standings.  The
               carrying value and fair value of commitments to extend credit are
               not considered material for disclosure.

   (2)      Business Combination

On June 1, 1998, the Corporation  acquired 100% of the outstanding  common stock
of the Agency. The business combination was accounted for by the purchase method
and the financial statements reflect the operating results of the Agency for the
four month period ended September 30, 1998. The Corporation issued 38,961 shares
of common  stock  held as  treasury  shares to  complete  the  acquisition.  The
acquisition  price of $750,000,  resulted in an acquired  identifiable  customer
based intangible  asset of $674,628,  which will be amortized using the straight
line method over twenty  five  years.  The  acquisition  did not have a material
pro-forma  effect on the  results of  operations  for the twelve  month  periods
ending September 30, 1998, 1997 and 1996.

On November 17, 1998, the Corporation  acquired 100% of the  outstanding  common
stock of HMC,  an  originator  and seller of  residential  mortgage  loans.  The
business  combination was accounted for by the purchase method and the financial
statements  reflect the  operating  results of HMC for the ten and a half months
ended September 30, 1999. The  Corporation  issued 77,839 shares of common stock
held as treasury  shares and $1.25 million in cash to complete the  transaction.
In addition,  options for 50,000  common stock shares,  at an exercise  price of
$15.00,  were also issued.  The  acquisition  price of $2.5 million  resulted in
goodwill  of  approximately  $2.3  million,  which will be  amortized  using the
straight line method over twenty-five years.

The following unaudited pro forma supplemental information is presented based on
historical  financial  statements of the  Corporation and HMC. The unaudited pro
forma  supplemental  information  for the three years ended  September 30, 1999,
were  prepared as if the  acquisition  had  occurred as of the  beginning of the
respective periods.
<TABLE>
<CAPTION>
                                                                           For the Three Years Ended
                                                                                  September 30,
                                                                 ----------------------------------------------
                                                                      1999             1998           1997
                                                                 ----------------------------------------------
                                                                                 (In thousands)
<S>                                                                <C>              <C>            <C>
      Interest income                                               $   29,434       $   30,208     $   27,565
      Interest Expense                                                  18,230           18,611         16,384
                                                                 ----------------------------------------------
                Net interest income                                     11,204           11,597         11,181
           Provision for loan losses                                       456              302            120
                                                                 ----------------------------------------------
                Net interest income after provision
                 for loan losses                                        10,748           11,295         11,061
                                                                 ----------------------------------------------
      Non-interest income                                                6,173            5,831          3,619
      Non-interest expense                                              12,470           11,198          9,296
                                                                 ----------------------------------------------
                Income before provision for income taxes                 4,451            5,928          5,384
      Income tax expense                                                 1,796            2,378          2,168
                                                                 ----------------------------------------------
      Net income                                                    $    2,655       $    3,550     $    3,216
                                                                 ==============================================
      Basic earnings per share                                      $     0.99       $     1.30     $     1.14
      Diluted earnings per share                                    $     0.95       $     1.20     $     1.06
</TABLE>
                                       24
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     (3) Debt and Equity Securities (in thousands)

Debt and equity  securities  have been  classified in the  consolidated  balance
sheets according to management's  intent.  The carrying amount of securities and
their approximate fair values at September 30 are presented as follows:
<TABLE>
<CAPTION>

                                                            September 30, 1999

                                         ---------------------------------------------------------
                                                            Gross           Gross
                                           Amortized      Unrealized      Unrealized          Fair
                                             Cost           Gains          Losses            Value
                                         -------------   -----------------------------------------
<S>                                        <C>           <C>            <C>             <C>
  Available for sale securities:
       Equity securities
             Fund Investments               $  12,522     $     -        $    601        $  11,921
             Stock in FHLB                      7,363           -               -            7,363
                                         -------------   ---------   -------------    -------------
                        Total               $  19,885     $     -        $    601        $  19,284
                                         =============   =========   =============    =============
       Mortgage backed securities:
             REMICs                         $  16,981     $     -        $  1,002        $  15,979
                                         =============   =========   =============    =============

       Debt Securities:                     $  12,988     $    22        $    216        $  12,794
                                         =============   =========   =============    =============
  Held to maturity securities:
       Debt securities:
             U.S. Government and Agency     $  18,367     $    92        $  1,037        $  17,422
             Other Debt Securities          $   1,570     $     7        $      -        $   1,577
                                         ----------------------------------------------------------
                          Total             $  19,937     $    99        $  1,037        $  18,999
                                         ==========================================================
       Mortgage backed securities:
             REMICs                         $  26,415     $   162        $  1,414        $  25,163
             FNMA certificates                  1,142                                    $   1,144
                                                                2               -
             Other certificates                    30           2               -        $      31
                                         -------------   ---------   -------------    -------------
                        Total               $  27,587     $   165        $  1,414        $  26,338
                                         =============   =========   =============    =============
</TABLE>

The amortized cost of debt and mortgage-backed  securities at September 30, 1999
included  unamortized  premiums  of  $214  and  unaccreted  discounts  of  $337,
respectively.

                                       25
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
                                                               September 30, 1998
                                        ----------------------------------------------------------------------------
                                                                Gross                Gross
                                         Amortized            Unrealized           Unrealized            Fair
                                           Cost                 Gains                Losses             Value
                                        -----------------    ------------------   ------------------   -------------
<S>                                           <C>                    <C>                 <C>               <C>
   Available for sale securities:
        Equity securities
              Fund Investments                 $  12,522              $      -             $    426         $12,096
              Stock in FHLB                        7,363                     -                    -           7,363
                         Total                 $  19,885              $      -             $    426         $19,459
                                        =================    ==================   ==================   =============
        Mortgage backed securities:
              REMICs                           $  16,980              $      -             $    406         $16,574
                                        =================    ==================   ==================   =============
        Debt Securities:                       $   3,000              $     10             $      -         $ 3,010
                                        =================    ==================   ==================   =============
   Held to maturity securities:
        Debt securities:
              U.S. Government and Agency       $  22,844              $    613            $   1,105         $22,352
              Other Debt Securities            $   1,568              $     33                    -         $ 1,601
                                        ----------------------------------------------------------------------------
                         Total                 $  24,412              $    646            $   1,105         $23,953
                                        ============================================================================
        Mortgage backed securities:
              REMICs                           $  36,363              $     65            $   1,120         $35,308
              GNMA certificates                       49                     6                    -              55
              FHLMC certifiactes                       6                     -                    -               6
                                        -----------------    ------------------   ------------------   -------------
                         Total                 $  36,418              $     71            $   1,120         $35,369
                                        =================    ==================   ==================   =============
</TABLE>
The amortized cost of debt and mortgage backed securities at September 30, 1998,
includes  unamortized  premiums  of  $232  and  unaccreted  discounts  of  $392,
respectively.

Gross realized  gains on sales of available for sale  securities was $11 for the
year ended  September 30, 1998 There were no sales of securities  during the two
years ended September 30, 1999 and 1997.

The scheduled  maturities of securities  held-to-maturity  and securities (other
than equity  securities)  available-for-sale  at  September  30,  1999,  were as
follows:
<TABLE>
<CAPTION>
                                           Held-to-Maturity            Available-for-Sale
                                             Securities                   Securities
                                      ------------------------    ---------------------------
                                        Amortized      Fair         Amortized         Fair
                                          Cost         Value           Cost          Value
                                      ------------  ------------  ---------------  ----------
<S>                                    <C>           <C>              <C>           <C>
   Due in one year or less               $    570      $    570         $      -      $    -
   Due from one to five years               6,069         5,815           12,988      12,794
   Due from five to ten years               7,103         6,327
                                                                               -           -
   Due after ten years                     33,782        32,625           16,981      15,979
                                      ------------  ------------  ---------------  ----------
                               Total    $  47,524     $  45,337        $  29,969     $28,773
                                      ============  ============  ===============  ==========
</TABLE>
For purposes of the maturity table,  mortgage-backed  securities,  which are not
due at a single maturity date, have been allocated over maturity groupings based
on the weighted-average  contractual  maturities of underlying  collateral.  The
mortgage-backed  securities  may  mature  earlier  than  their  weighted-average
contractual   maturities   because   of   principal   prepayments.    Debt   and
mortgage-backed  securities carried at approximately  $20.0 million at September
30, 1999 and $26.7 million at September 30, 1998,  were pledged to secure public
deposits and for other purposes required or permitted by law.

                                       26
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     (4) Loans Receivable (in thousands)

Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
                                                                                                   September 30,
                                                                                          ----------------------------
                                                                                                1999             1998
                                                                                          --------------    ----------
<S>                                                                                          <C>             <C>
   First mortgage loans:
        Secured by one-to-four family residences                                              $ 115,550       $ 154,668
        Secured by other properties                                                              28,824          25,235
        Construction and land development loans                                                  56,177          34,098
                                                                                          --------------    ------------
                                                                                                200,551         214,001
        Less:
              Undisbursed portion of construction
                 and land development loans                                                     (26,156)        (16,658)
              Net deferred loan origination fees                                                   (744)           (850)
                                                                                          --------------    ------------
                          Sub-total first mortgage loans                                        173,651         196,493
   Consumer and other loans:
        Consumer loans                                                                           18,326          17,275
        Home equity and second mortgages                                                         24,312          23,606
        Commercial                                                                               29,767          21,095
        Agricultural loans                                                                       33,384          22,960
                                                                                          --------------    ------------
                                                                                                105,789          84,936
        Add:  net deferred loan origination costs                                                   237             209
                                                                                          --------------    ------------
                          Sub-total consumer and other loans                                    106,026          85,145
                                                                                          --------------    ------------
                                     Sub-total all loans                                        279,677         281,638
        Less: allowance for loan losses                                                          (1,387)         (1,035)
                                                                                          --------------    ------------
                                                Total                                         $ 278,290       $ 280,603
                                                                                          ==============    ============
</TABLE>

A summary of the activity in the allowance for loan losses is as follows:

<TABLE>
<CAPTION>
                                                                                 Years Ended September 30,
                                                                   -----------------------------------------------
                                                                        1999              1998             1997
                                                                   ------------      ------------      -----------
<S>                                                                  <C>                <C>           <C>
   Balance, beginning of period                                       $  1,035           $   852       $     776
   Provision for losses                                                    456               302             120
   Charge-offs                                                            (142)             (132)            (50)
   Recoveries                                                               38                13               6
                                                                   ------------      ------------      -----------
   Balance, end of period                                             $  1,387           $ 1,035       $     852
                                                                   ============      ============      ==========
</TABLE>

The Bank had no loans classified as impaired at September 30, 1999, and 1998.

Loans having  carrying  values of $197 and $449 were  transferred  to foreclosed
real estate in 1999 and 1998, respectively.

The Bank is not committed to lend  additional  funds to debtors whose loans have
been modified.

The  aggregate  amount  of loans to  executive  officers  and  directors  of the
Corporation  were $366, and $489 at September 30, 1999, and 1998,  respectively.
During 1999 repayments on loans to executive  officers and directors  aggregated
$259 and $136 was advanced.


                                       27

<PAGE>

                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     (5) Loan Servicing (in thousands)

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated statements of financial condition. The unpaid principal balances of
these loans  serviced for others was $55,488 and $46,456 at  September  30, 1999
and 1998, respectively.

Custodial  escrow  balances  maintained  in connection  with the foregoing  loan
servicing,  and included in demand deposits, were $296 and $274 at September 30,
1999 and 1998, respectively.

Capitalized  mortgage  servicing  rights and excess  servicing  receivables  are
summarized as follows:
<TABLE>
<CAPTION>
                                                              Years Ended September 30,
                                                          --------------------------------
                                                           1999        1998       1997
                                                          --------  ----------  ----------
<S>                                                       C>         <C>        <C>
     Beginning balance, net of accumulated amortization   $   201     $   148    $    157
     Amounts capitalized                                      132          98          20
     Amortization                                             (80)        (42)        (30)
     Valuation adjustments                                      -          (3)          1
                                                          --------  ----------  ----------
     Balance, end of period                               $   253     $   201    $    148
                                                          ========  ==========  ==========
</TABLE>

     6) Foreclosed Real Estate (In thousands)

Gain on foreclosed real estate, including net revenues from operations,  was not
material for the three years ended  September 30, 1999. The Bank held foreclosed
real  estate  at  September  30,  1999 and  1998  amounting  to $323  and  $502,
respectively.

     (7) Premises and Equipment (in thousands)

Premises and equipment are summarized as follows:

                                                    September 30,
                                              -----------------------
                                                   1999       1998
                                              -----------  ---------
   Land                                          $   669    $    685
   Buildings and improvements                      4,597       3,787
   Furniture, equipment and automobiles            3,582       2,818
   Leasehold improvements                             40          40
                                              -----------  ----------
      Total costs                                  8,888       7,330
   Less accumulated depreciation                   3,574       3,219
                                              -----------  ----------
      Total                                     $  5,314   $   4,111
                                              ===========  ==========

At September  30, 1999,  the  Corporation  was  obligated  under  non-cancelable
operating  leases for office  space and  equipment.  Net  rental  expense  under
operating  leases,  included in occupancy and equipment,  was $275, $51, and $58
for the years ended  September  30,  1999,  1998,  and 1997,  respectively.  The
projected  minimum lease  commitments under the terms of the leases at September
30, 1999, are as follows:
                             Rental Income      Rental Expense
              Fiscal          as Lessor           as Lessee
                             ------------      ---------------
              2000                  19                    435
              2001                   7                    341
              2002                   -                    289
              2003                   -                    147
                              ---------         --------------
                               $    26              $   1,212
                              =========         ==============

                                       28
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     (8) Deposits (in thousands)

The aggregate amount of short-term  jumbo CDs, each with a minimum  denomination
of $100,000, was $20,681 and $24,311 in 1999 and 1998 respectively.

                                        September 30, 1999
                              -------------------------------------
                                1999           1998           1997
                              -------        -------        -------
Savings accounts              $ 1,896        $ 1,690        $ 1,548
Demand deposits                   289            407            389
Certificates of deposit         8,048          7,985          7,402
                              -------        -------        -------
                              $10,233        $10,082        $ 9,339
                              =======        =======        =======

Interest expense on deposits is summarized as follows:
At September 30, 1999, the scheduled  maturities of  certificates of deposit are
as  follows:

Years Ending September 30,
--------------------------
     2000                               108,565
     2001                                17,766
     2002                                 2,890
     2003                                 1,327
     2004 and thereafter                  2,597
                                       --------
                                       $133,145
                                       ========

     (9) Federal Home Loan Bank Borrowings (in thousands)

Borrowings  by the Bank from the Federal Home Loan Bank of Des Moines (FHLB) are
summarized as follows:
<TABLE>
<CAPTION>
                                                                September 30,
                                      ----------------------------------------------------------------
                                                   1999                             1998
                                      ------------------------------    ------------------------------
Fiscal Year of Maturity - Advances                        Weighted                           Weighted
                                           Amount           Rate              Amount          Rate
                                      ----------------------------------------------------------------
<S>                                    <C>                    <C>          <C>                <C>
1999                                   $                          - %       $   3,000          6.55 %
2000                                         24,467            5.89            24,677          5.89
2001                                         24,000            5.80            24,000          5.80
2002                                              -               -                 -             -
2003 and thereafter                          92,500            5.15            92,500          5.15
                                      --------------    ------------    --------------   -----------
     Total                                 $140,967            5.39 %       $ 144,177          5.42 %
                                      ==============    ============    ==============   ===========
</TABLE>


At September 30, 1999,  borrowed funds are  collateralized by stock in the FHLB,
first   mortgage   loans  with   carrying   value  of  $119,262   and  debt  and
mortgage-backed  securities  with carrying  values of $49,722 under a collateral
agreement.

                                       29
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     (10) Employee and Stock Benefit Plans (in thousands except shares)

Salary Continuation Plans
The Bank has  adopted  insured  salary  continuation  plans for the  benefit  of
selected  members of  management  by providing  them with  retirement  and death
benefits. The estimated liability under the agreements is charged to income over
the expected  remaining  years of  employment.  The Bank's policy is to fund the
costs accrued with insurance contracts.  Salary continuation expense amounted to
$119, $151, and $142 for the three years ended September 30, 1999, respectively.

Deferred Compensation 401(k) Plans
The Corporation  provides 401(k) plans which cover  substantially  all employees
meeting age and length of service requirements.  The plan maintained by the Bank
covers  employees of both the Bank and the Agency.  Employees  participating  in
this plan are eligible to contribute up to 15% of their annual compensation. The
plan  maintained by HMC for the benefit of its  employees  provides for employee
contribution  up  to  15%  of  annual  compensation.   Both  plans  provide  for
discretionary  contributions  by  the  employers  which  are  allocated  to  the
participants'  accounts  in  proportion  to  employee   contributions.   Company
contributions  to these plans for the three years ended  September 30, 1999 were
$0, $601 and $0, respectively.

Supplemental Life Insurance
In addition to group term  insurance  benefits  provided  to  substantially  all
employees,  the Bank maintains  investments  in insurance  policies that provide
either split-dollar or survivor benefits for certain key employees.

Employee Stock Ownership Plan
The Corporation established an Employee Stock Ownership Plan (ESOP) covering all
employees, over the age of 21, with at least one year of service and who work at
least  1,000  hours  during  a plan  year.  The  ESOP  borrowed  funds  from the
Corporation  to purchase a total of 359,720 shares of the  Corporation's  Common
Stock,   the  loan  being   collateralized   by  the  Common   Stock.   Employer
contributions,  along with dividends  received on unallocated  shares, are being
used to repay the loan with shares being  released from the  Corporation's  lien
proportional  to the loan  repayments.  Annually,  on September 30, the released
shares are allocated to the participants in the same proportion that their wages
bear to the  total  compensation  of all of the  participants.  Unreleased  ESOP
shares are not considered outstanding in calculating earnings per share.

The Corporation presents these financial statements in accordance with the AICPA
Statement of Position (SOP) No. 93-6,  "Employers' Accounting for Employee Stock
Ownership  Plans." The price of the shares issued and  unreleased are charged to
unearned compensation, a contra-equity account, and shares released are reported
as compensation  expense equal to the current market value price of the released
shares.  Dividends paid on allocated shares are charged to retained earnings and
those on unallocated shares are charged to expense.  The total amount charged to
expense in the fiscal year ended  September  30,  1999,  1998 and 1997 was $442,
$668 and $549, respectively.

A summary of the ESOP share allocation is as follows:

                                            September 30,
                                   ------------------------------
                                     1999      1998       1997
                                   --------- ---------   --------
Shares allocated beginning of year  160,947    124,975    87,870
Shares allocated during year         35,975     35,972    37,105
Unreleased shares                   162,798    198,773   234,745
                                   --------- ----------  --------
Total ESOP                          359,720    359,720   359,720
                                   ========= ==========  ========
Management Stock Plan
The Bank established the Management Stock Plan (MSP) for key officers during the
year ended  September  30, 1995.  Following  shareholder  approval of the MSP in
January 1995, the Bank  purchased  179,860  shares of the  Corporation's  common
stock in the open  market  at $10.59  per share to be  awarded  to  officers  in
accordance  with the provisions of the MSP. The cost of the shares awarded under
these plans is recorded as unearned  compensation,  a contra equity account, and
is recognized as an expense in accordance with the vesting  requirements defined
by the MSP.  For each of the three fiscal years ended  September  30, 1999,  the
amount  included  in  compensation  expense  related  to the MSP was  $290.  The
following summarizes the activity in the MSP for the three years ended September
30, 1999.
                                       30
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                   Unawarded       Awarded
                                     Shares         Shares
                                   ---------      ---------
At September 30, 1996                42,964        109,517
       Vested                             -        (27,379)
                                   ---------      ---------
At September 30, 1997                42,964         82,138
       Vested                             -        (27,379)
                                   ---------      ---------
At September 30, 1998                42,964         54,759
       Vested                             -        (27,379)
                                   ---------      ---------
At September 30, 1999                42,964         27,380
                                   =========      =========

Director's Stock Compensation Plan
In  January  1998,  the  shareholders  of  the  Corporation   approved  a  stock
compensation plan for its non-employee directors.  The plan granted 6,000 shares
of common stock issued from  treasury  that vests over a four year period,  with
1,200 shares awarded in January 1998. The compensation cost associated with this
plan is the fair  value  of the  stock  ($19.42/share)  on the date the plan was
approved  by  shareholders.  Compensation  cost  included  in  the  accompanying
financial statements for the year ended September 30, 1999 and 1998 were $23,292
and $40,814 respectively. During the year ended September 30, 1999, 1,200 shares
of the total grant were vested to the plan recipients.

Stock Option Plans
The  Corporation   maintains  the  1994  stock  option  plan,  approved  by  the
Corporation's  stockholders  on January 17,  1995 (the 1994 Plan);  and the 1998
stock option plan,  approved by the  Corporation's  stockholders  on January 20,
1998 (the 1998 Plan). These plans permit the granting of stock options,  with an
exercise price equal to the fair value of the Corporation's stock on the date of
the option grant.  All options granted under these plans may be exercised over a
ten-year period  beginning on the date the option is granted.  Awards made under
the Plans may be incentive  stock plans (ISO's) as defined by Section 422 of the
Internal Revenue Code or options that do not qualify. Those options granted that
qualify as ISO's are generally  exercisable on the date of the grant while those
not qualifying  (non-incentive stock options granted to executives and directors
of the Corporation)  vest over 3-5 years. The following  summarizes the activity
in the two Plans for the three years ended September 30, 1999: [OBJECT OMITTED]


The following table summarizes  information  about stock options  outstanding at
September 30, 1999:
<TABLE>
<CAPTION>


                                       Shares Available      Options Shares      Weighted Average
                                           for Grant           Outstanding        Exercise Price
                                       ------------------   ------------------   ------------------
<S>                                            <C>                  <C>         <C>
At September 30, 1996                              7,488              433,158     $
           Exercised                                   -               (5,405)                9.50
           Cancelled                               1,500               (1,500)                9.50
                                       ------------------   ------------------   ------------------
At September 30, 1997                              8,988              426,253                    -
           1998 Plan Created                     300,000                    -                    -
           Granted                              (145,601)             145,601                19.18
           Exercised                                   -             (135,957)                9.50
                                       ------------------   ------------------   ------------------
At September 30, 1998                            163,387              435,897                12.73
           Granted                               (90,074)              90,074                14.34
           Exercised                                   -              (33,988)                9.50
           Cancelled                               6,582               (6,582)               19.13
                                       ------------------   ------------------   ------------------
At September 30, 1999                             79,895              485,401              $ 13.40
                                       ==================   ==================   ==================

Shares available for future grants
           1994 Plan                               7,988
           1998 Plan                              71,907

</TABLE>

                                       31
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------
                            Options Outstanding                                  Options Exercisable
--------------------------------------------------------------------------------------------------
                                             Weighted average
           Exercise          Number       remaining contractual
            Price          Outstanding        life in years          Number             Price
--------------------------------------------------------------------------------------------------
<S>        <C>             <C>                     <C>                <C>                <C>
            $ 9.500         256,308                 5.3                190,861            $ 9.500
             20.000           1,000                 8.3                    400             20.000
             19.125          96,019                 8.3                 50,457             19.125
             19.416          12,000                 8.3                  4,800             19.416
             19.250          30,000                 8.7                 15,000             19.250
             15.000          50,000                 9.2                 10,000             15.000
             14.750          19,387                 9.2                 19,387             14.750
             12.375          20,687                 10.0                20,687             12.375
                        ------------
                            485,401
                        ============
</TABLE>

The  Corporation  elected  to  follow  APB 25  and  related  interpretations  in
accounting for its employee  stock  options.  The exercise price of the employee
stock  options  equal the market  price of the  underlying  stock on the date of
grant and,  therefore,  no  compensation  expense is  recognized,  under APB 25.
Proforma information  regarding net income and earnings per share is required by
SFAS No. 123, and has been  determined as if the  Corporation  had accounted for
its employee stock option under the fair value method of that statement.

Proforma net income and earnings per share for fiscal years 1999 and 1998
follow:

                                   1999                 1998
                             ------------------   ------------------
Net Income
           As reported          $ 2,505              $ 3,030
           Pro forma              2,322                2,943
Earnings per common share
           As reported
                  Basic         $  0.94              $  1.14
                  Diluted          0.90                 1.05
           Pro forma
                  Basic         $  0.87              $  1.10
                  Diluted          0.83                 1.02

The above  disclosed pro forma effects of applying SFAS No. 123 to  compensation
costs may not be  representative of the effects on reported pro forma net income
for future years.

The fair value for each option grant is estimated on the date of the grant using
the Black Scholes Model. The Model  incorporates  the following  assumptions for
the grants:
                                  1999          1998
                               -----------------------
   Risk free interest rate         5.22%        5.32%
   Expected life                10 years     10 years
   Expected volatility            27.00%       62.65%
   Expected dividends                 -            -

The weighted  average fair value of the options  granted in fiscal 1999 and 1998
were $8.64 and $11.33 per option, respectively.

                                       32

<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     (11) Income Taxes (in thousands)

The Corporation files a consolidated  federal income tax return. The Corporation
and its subsidiaries entered into a tax-sharing  agreement that provides for the
allocation  and payment of federal and state income  taxes.  The  provision  for
income  taxes of each  corporation  is  computed  on a separate  company  basis,
subject to certain  adjustments.  Income tax expense  (benefit) is summarized as
follows:

<TABLE>
<CAPTION>
                                                                         September 30,
                                                         ---------------------------------------------
                                                             1999            1998            1997
                                                         -------------   -------------   -------------
Current
<S>                                                           <C>             <C>             <C>
      Federal                                                 $   936         $ 1,650         $ 1,494
      State                                                       308             534             498
                                                         -------------   -------------   -------------
             Subtotal                                           1,244           2,184           1,992
Deferred
      Federal                                                     338            (120)             85
      State                                                       112             (40)             28
                                                         -------------   -------------   -------------
             Subtotal                                             450            (160)            113
                                                         -------------   -------------   -------------
                         Total income tax provision           $ 1,694         $ 2,024         $ 2,105
                                                         =============   =============   =============
</TABLE>

The State of Minnesota  follows the Internal Revenue Code for the  determination
of taxable income, in connection with temporary  differences.  The State portion
of deferred tax assets and liabilities is  approximately  25 percent.  Temporary
differences  between the financial  statement carrying amounts and the tax basis
of assets and  liabilities  that can create  deferred tax assets and liabilities
are as follows:

                                                             September 30,
                                                       ----------------------
                                                            1999        1998
                                                       ---------    ---------
Deferred tax assets:
      Deferred compensation                              $   693     $    866
      Deferred net loan fees                                 205          265
      Securities unrealized loss                             719          324
      Allowance for loan losses                              562          419
                                                      -----------   ----------
           Subtotal                                        2,179        1,874
      Less:  Valuation allowance                             243          172
                                                      -----------   ----------
                        Total                              1,936        1,702
Deferred tax liabilities:
      FHLB Stock                                             241          241
      Tax bad debt reserve                                   213          256
      Premises and equipment                                 375          337
      Installment obligation sale of former building          28           29
      Mortgage servicing rights                               74           43
      Discount on loans                                        6
                                                                            7
      Section 475 "For Sale Assets"                          484          161
                                                      -----------   ----------
                        Total                              1,421        1,074
                                                      -----------   ----------
Net deferred tax asset                                   $   515     $    628
                                                      ===========   ==========



The valuation allowance was established to reduce the deferred tax asset related
to the unrealized loss on equity securities because management is uncertain that
more likely than not it will be realized.  The  Corporation  has paid sufficient
taxes in prior  carryback  years  which will enable it to recover the balance of
the net deferred tax assets, and therefore,  no additional  valuation  allowance
was required at September 30, 1999 and 1998.

                                       33
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


The actual income tax expense varied from the expected tax expense  (computed by
applying the United States  federal  corporate  income tax rate of 34 percent to
earnings before income taxes) as follows:
<TABLE>
<CAPTION>
                                                             Years Ended September 30,
                                                         1999          1998          1997
                                                    -------------   ------------   ----------
<S>                                                    <C>           <C>           <C>
Computed "expected" tax expense                         $  1,333      $   1,718     $  1,778
Exempt dividends                                               -            (5)          (8)
State income taxes, net of federal tax benefit               278            322          336
Other, net                                                    83           (11)          (1)
                                                    -------------   ------------   ----------
Total income tax provision                              $  1,694      $   2,024     $  2,105
                                                    =============   ============   ==========
</TABLE>

Retained  earnings at September 30, 1999,  includes $6,492 for which no deferred
federal  income tax liability  has been  recognized.  This amount  represents an
allocation of income to bad-debt  deductions for tax purposes only that arose in
tax years beginning before September 30, 1988, (that is, the base-year  amount).
Reduction of the amount so allocated for purposes other than tax bad-debt losses
or adjustments  arising from this carryback of net operating losses would create
income  for tax  purposes  only,  which  would be  subject  to the  then-current
corporate  income-tax rate. The unrecorded deferred income-tax  liability on the
above amount was approximately $2,600 at September 30, 1999.

     (12) Earnings per Share

The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
                                                                   For the Years ended
                                                                      September 30,
                                                       ------------------------------------------
                                                            1999          1998           1997
                                                       ------------------------------------------
<S>                                                    <C>            <C>            <C>
    Numerator:
       Net income - Numerator for basic earnings
          per share and diluted earnings per share--
          income available to common stockholders      $  2,505,000   $  3,030,000   $  3,124,000
                                                       ===========================================

    Denominator:
       Denominator for basic earnings per share--
          weighted-average shares                         2,663,691      2,669,586      2,763,481

       Effect of dilutive securities:
          Stock - based compensation plans                  108,713        222,598        230,656
                                                       -------------------------------------------

          Denominator for diluted earnings per share--
             adjusted weighted-average shares and
             assumed conversions                          2,772,404      2,892,184      2,994,137
                                                       ===========================================
    Basic earnings per share                             $     0.94     $     1.14     $     1.13
    Diluted earnings per share                           $     0.90     $     1.05     $     1.04

</TABLE>

     (13) Contingencies (in thousands)

Loans Sold During 1982, the Bank sold loans subject to recourse provisions.  The
balance  of these  loans at  September  30,  1999,  and 1998 was $208 and  $238,
respectively.  The loans had interest rates ranging from 9.50% to 9.875% with an
original balance of $3,400 and were sold to FHLMC.


                                       34
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     (14) Stockholders' Equity and Regulatory Capital (in thousands)

On October 6, 1994, the Bank converted from a federally chartered mutual savings
and loan  association to a federally  chartered stock savings bank pursuant to a
Plan of Conversion (the  Conversion) via the issuance of common stock.  Upon the
Conversion,  the  preexisting  liquidation  rights of the depositors of the Bank
were  unchanged.  Such rights are  accounted  for by the Bank for the benefit of
such  depositors  in  proportion  to  their  liquidation  interests  as  of  the
Eligibility Record Date or the Supplemental Eligibility Record Date, as defined,
in the Conversion.

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  1  capital  (as  defined  in the  regulations)  to
risk-weighted  assets  (as  defined),  and of  tangible  and Tier 1 capital  (as
defined) to adjusted  total  assets (as  defined).  Management  believes,  as of
September 30, 1999,  that the Bank meets all capital  adequacy  requirements  to
which it is subject.

As of September 30, 1999,  and 1998, the most recent  notification  from the OTS
categorized the Bank as "well  capitalized"  under the regulatory  framework for
prompt  corrective  action.  To be categorized as well capitalized the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table below.  There are no  conditions  or events since that
notification that management believes have changed the institution's category.

The  Bank's  actual  regulatory  capital  amounts,  with  reconciliation  to the
Corporation's  investment in the Bank  determined in accordance  with  Generally
Accepted  Accounting  Principles  (GAAP),  and ratios, are also presented in the
table below.
<TABLE>
<CAPTION>
                                                                                                          To Be Well
                                                                                                      Capitalized Under
                                                                                  For Capital         Prompt Corrective
                                                              Actual           Adequacy Purposes      Action Provisions
                                                        --------------------  --------------------   --------------------
<S>                                                      <C>         <C>        <C>         <C>       <C>         <C>
GAAP capital, September 30, 1999                          $ 36,534
Add:  Unrealized losses on debt
        securities held for sale                               712
                                                        -----------
Tangible equity capital and ratio to
        adjusted total assets                             $ 37,246     9.0%       $ 6,201    1.5%       $ 8,268     2.0%
                                                        --------------------  --------------------   --------------------
Tier 1 (Core) capital and ratio to
        adjusted total assets                             $ 37,246     9.0%      $ 16,536    4.0%      $ 20,670     5.0%
                                                        --------------------  --------------------   --------------------
Total risk-based capital and ratio to
        risk-weighted assets                              $ 37,246    14.2%      $ 10,528    4.0%      $ 15,793     6.0%
                                                                   ---------  --------------------   --------------------
Tier 2 risk-based capital, net adjustment                      383
                                                        -----------
Total risk-based capital and ratio to
        risk-weighted assets, September 30 , 1999         $ 37,629    14.3%      $ 21,057    8.0%      $ 26,321    10.0%
                                                        ====================  ====================   ====================
</TABLE>




                                       35
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
                                                                                                         To Be Well
                                                                                                      Capitalized Under
                                                                                  For Capital         Prompt Corrective
                                                              Actual           Adequacy Purposes      Action Provisions
                                                        --------------------  --------------------   --------------------
<S>                                                      <C>         <C>         <C>        <C>       <C>         <C>
GAAP capital, September 30, 1998                          $ 37,220
Add:  Unrealized losses on debt
        securities held for sale                               236
                                                        -----------
Tangible equity capital and ratio to
        adjusted total assets                             $ 37,456     9.1%       $ 6,168    1.5%       $ 8,229     2.0%
                                                        --------------------  --------------------   --------------------
Tier 1 (Core) capital and ratio to
        adjusted total assets                             $ 37,456     9.1%      $ 16,457    3.0%      $ 20,560     5.0%
                                                        --------------------  --------------------   --------------------
Tier 1 capital and ratio to
        risk-weighted assets                              $ 37,456    15.5%       $ 9,645    4.0%      $ 14,467     6.0%
                                                                   ---------  --------------------   --------------------
Tier 2 capital, allowance for loan losses                    1,035
                                                        -----------
Total risk-based capital and ratio to
        risk-weighted assets, September 30 , 1998         $ 38,491    16.0%       $ 1,920    8.0%      $ 24,112    10.0%
                                                        ====================  ====================   ====================
</TABLE>
The Bank may not declare or pay cash dividends to the  Corporation if the effect
would be to reduce GAAP capital below applicable regulatory capital requirements
or  if  such  declaration  and  payment  would  otherwise   violate   regulatory
requirements.

     (15) Concentration of Credit Risk (in thousands)

The  Corporation is primarily  engaged in originating  mortgage,  consumer,  and
business  loans in the Minnesota  counties of McLeod,  Dakota,  Meeker,  Wright,
Carver,  Washington and Sibley.  The Bank offers fixed and  adjustable  rates of
interest  on these  loans  which have  amortization  terms  ranging up to thirty
years.

The  Corporation  had cash on deposit in a  financial  institution  in excess of
Federal deposit insurance limits of approximately $15,841 at September 30, 1999.

     (16) Financial Instruments (in thousands)

The Corporation is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the  financing  needs of its customers and
to reduce its own exposure to fluctuations  in interest  rates.  These financial
instruments  include  commitments  to extend credit and forward  commitments  to
purchase securities.  Those instruments involve, to varying degrees, elements of
credit  and  interest-rate  risk  in  excess  of the  amount  recognized  in the
statement  of  financial  position.  The  contract or  notional  amount of those
instruments  reflect the extent of the Bank's  involvement in particular classes
of financial instruments.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters of credit is represented  by the  contractual  notional  amount of those
instruments.  The Bank uses the same credit  policies in making  commitments and
conditional obligations as it does for on-balance sheet instruments.

Commitments  to extend  credit are unused  lines of credit and loan  commitments
which are  agreements  to lend to a customer as long as there is no violation of
any condition established in the contract.  Since some of the commitments may be
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral  obtained,  if it
is deemed necessary,  upon extension of credit, is based on management's  credit
evaluation of the counter-party. Collateral held varies but may include accounts
receivable,  inventory,  property,  plant and  equipment,  and income  producing
commercial  properties.  Standby letters of credit are  conditional  commitments
issued by the Bank to guarantee the  performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending  loan  facilities to customers.  Typically,  the Bank
issues  letters  of credit to  municipalities  and  generally  does not  require
collateral for standby letters of credit.
                                       36
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Forward  commitments to purchase  securities and mortgages  involve an agreement
whereby  the seller  agrees to make  delivery  at a  specified  future date of a
specified  instrument,  at a  specified  price or yield.  Risks  arise  from the
possible  inability of  counterparties  to meet the terms of their contracts and
from movements in securities values and interest rates.

Forward  commitments  to sell  mortgages  involve an agreement  whereby the Bank
and/or HMC agrees to make  delivery  at a  specified  future date of a specified
loan, at a specified price or yield.  Risks arise from the possible inability on
counterparties  to meet the terms of their  contracts and from movements in loan
values and interest rates.

A summary of the notional amounts of the Corporation's  financial instruments at
September 30, 1999 follows:

   Commitments to extend credit                $ 39,263
   Standby letters of credit                         17
   Commitments to sell loans                      5,238


The  carrying  value and fair value of the  Corporation's  financial  assets and
financial liabilities are as follows:
<TABLE>
<CAPTION>
                                                                   September 30,
                                            ---------------------------------------------------
                                                         1999                       1998
                                            ---------------------------     -------------------
                                                 Carrying         Fair       Carrying      Fair
                                                  Value           Value       Value       Value
                                            ---------------------------     -------------------
Financial assets:
<S>                                            <C>           <C>           <C>          <C>
     Cash & cash equivalents                    $ 19,265      $ 19,265      $  22,597    22,597
     Investment securities                        52,015        51,077         46,881    46,422
     Mortgage-backed and related securities       43,566        42,315         52,992    51,943
     Loans held for sale                           5,334         5,334          2,672     2,672
     Loans receivable, net                       278,290       278,977        280,603   282,857
     Accrued interest receivable                   3,328         3,328          3,089     3,089
     Life Insurance Policies                       6,835         6,835          1,178     1,178
Financial liabilities:
     Deposits                                    231,651       232,608        226,542   226,909
     Borrowings                                  140,967       138,239        144,177   146,042

</TABLE>

     (17) Effects of New Financial Accounting Standards

SFAS No. 133,  "Accounting For Derivative  Instruments and Hedging Activities" -
issued June 1998,  establishes accounting and reporting standards for derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts, (collectively referred to as derivatives) and for hedging activities.
It  requires  that an entity  recognize  all  derivatives  as  either  assets or
liabilities in the statement of financial position and measure those instruments
at fair value.  SFAS No. 137 issued on July 7, 1999,  deferred  Statement  133's
effective date until the fiscal year  beginning  October 1, 2000. On the date of
adoption,  the Corporation  may transfer any held to maturity  security into the
available  for sale  category  and  then be able to  designate  the  transferred
security as a hedge item.  Any  unrealized  holding gain or loss on  transferred
securities  will be reported in net income or  accumulated  other  comprehensive
income. Management has not determined its strategy for the adoption of Statement
No. 133 or its effect on the financial statements.  If the Corporation elects to
apply hedge  accounting,  it is required to  establish,  at the inception of the
hedge,  the method it will use for  assessing the  effectiveness  of the hedging
activities and the measurement  approach for determining the ineffective  aspect
of the hedge.


                                       37
<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     (18) Parent Only Condensed Financial Information (in thousands)

This  information  should  be  read in  conjunction  with  the  other  Notes  to
Consolidated  Financial  Statements.   Stockholders'  equity  differs  from  the
consolidated statements by the amount of consolidating ESOP and MSP adjustments.
The  investment in the Bank  subsidiary is carried net of the Banks'  unrealized
loss on securities available for sale.
<TABLE>
<CAPTION>
                        STATEMENT OF FINANCIAL CONDITION

                                                                                         September 30,
                                                                                     ---------------------
 ASSETS                                                                                1999        1998
                                                                                     ---------    --------
<S>                                                                                   <C>         <C>
             Cash and cash equivalents                                                $    278    $  2,809
             Investment securities held to maturity                                      1,570       1,568
             Investment in subsidiaries                                                 40,461      37,904
             Loan to Bank ESOP                                                           1,628       1,988
             Other assets                                                                  282          67
                                                                                      --------    --------
                                                                                      $ 44,004    $ 44,551
                                                                                      ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY
             Other liabilities                                                        $     51    $     45

             Stockholders' equity:
                                 Common stock                                              450         450
                                 Additional paid-in capital                             43,292      43,382
                                 Treasury stock                                        (24,575)    (23,298)
                                 Unearned MSP stock                                       (528)       (818)
                                 Retained earnings                                      25,314      24,790
                                                                                      --------    --------
                                               Total stockholders' equity               43,953      44,506
                                                                                      --------    --------
                                                                                      $ 44,004    $ 44,551
                                                                                      ========    ========
</TABLE>

                              STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                                                         Years Ended September 30,
                                                                                        1999        1998        1997
                                                                                      --------    --------    --------

<S>                                                                                  <C>         <C>         <C>
 Income:
 Dividends from Bank Subsidiary                                                       $  3,000    $  4,500    $  4,202
 Interest From:
             Bank's ESOP Plan                                                              159         193         222
             Investments                                                                   180         309         343
                                                                                      --------    --------    --------
                                                                                         3,339       5,002       4,767
 Expense:
        Non-Interest Expense                                                               462         615         566
                                                                                      --------    --------    --------
 Income before income taxes and equity in undistributed
    net income of subsidiaries                                                           2,877       4,387       4,201
 Income tax (benefit) expense                                                              (48)        (54)         (1)
                                                                                      --------    --------    --------
                                                                                         2,925       4,441       4,202
 Subsidiaries dividends received in excess of subsidiaries net income                     (420)     (1,423)     (1,078)
                                                                                      --------    --------    --------
 Net income                                                                           $  2,505    $  3,018    $  3,124
                                                                                      ========    ========    ========
</TABLE>


                                       38

<PAGE>
                      FSF FINANCIAL CORP. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


     (18) Parent Only Condensed Financial Information - Continued (in thousands)


                             STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                            Years Ended September 30,
                                                                                         1999            1998          1997
                                                                                    ---------------  ----------   ------------
 Cash flows from operating activities:
<S>                                                                                <C>                <C>           <C>
             Net Income                                                             $     2,505        $  3,030      $  3,124
             Adjustments:
                                Subsidiaries dividends received in excess
                                   of subsidiaries net income                               420           1,423         1,078
                                (Increase) decrease in other assets                         215            (123)           10
                                Increase in other liabilities                                 6              82            27
                                Other                                                        80             356           115
                                                                                    ------------     -----------   -----------
 Net cash provided by operations                                                          3,226           4,768         4,354

 Cash flows from investing activities:
             Proceeds from maturities of investments                                          -           1,500         1,500
             Investment in Homeowners                                                   (2,267)               -             -
             Proceeds from securities available for sale                                      -             411             -
                                                                                    ------------     -----------   -----------
 Net cash provided by investing activities                                              (2,267)           1,911         1,500

 Cash flows from financing activities:
             Payments received on ESOP bank loan                                            360             360           371
             Purchases of treasury stock                                                 (2,912)         (5,492)       (7,245)
             Proceeds from exercise of stock options                                        336           1,315            73
             Payments of cash dividends                                                  (1,381)         (1,358)       (1,413)
                                                                                    ------------     -----------   -----------
 Net cash used in financing activities                                                   (3,597)         (5,175)       (8,214)
                                                                                    ------------     -----------   -----------

 Increase (decrease) in cash and cash equivalents                                        (2,638)           1,504       (2,360)

 Cash and cash equivalents:
             Beginning of year                                                            2,916           1,412         3,772
                                                                                    ------------     -----------   -----------
             End of year                                                            $     278          $  2,916      $  1,412
                                                                                    ============     ===========   ===========
</TABLE>

     (19) Business Segments

 The  Corporation's  reportable  business segments are business units that offer
 different  products and services that are marketed through different  channels.
 In accordance  with SFAS No. 131,  "Disclosure  about Segments of an Enterprise
 and Related  Information".  The  Corporation  has identified  its  wholly-owned
 subsidiaries First Federal, fsb, (the Bank) and Homeowners Mortgage Corporation
 (HMC) as reportable  business  segments.  Both segments operate and are managed
 independently.  Additionally,  HMC is not  regulated  by the  Office  of Thrift
 Supervision.

 The  accounting  policies  and the nature of  business  of these  segments  are
 described  in  the  summary  of  significant   accounting  policies  (Note  1).
 Management evaluates segment performance based on segment profit or loss before
 income taxes and nonrecurring  gains and losses,  and returns on average assets
 and average  equity.  Transfers  between  segments are  accounted for at market
 value.

 Firstate  Services,  the  Agency and FSF  Financial  Corporation  (the  holding
 company),  did not meet the quantitative  thresholds for determining reportable
 segments and therefore are included in the "Other" category.

                                       39
<PAGE>
<TABLE>
<CAPTION>
                                                         First          Homeowners                                    Consolidated
                                                      Federal fsb     Mortgage Corp.       Other       Eliminations       Total
                                                   ---------------------------------------------------------------------------------

<S>                                                   <C>              <C>             <C>           <C>             <C>
As of and for the year ended September 30, 1999
   From Operations
        Interest income from external sources          $  29,061         $   171        $      8      $       -       $  29,240
        Non-interest income from external sources          2,189           2,180             890              -           5,259
        Inter-segment interest income                        183               -           3,152         (3,335)              -
        Interest expense                                  18,079             301               -           (182)         18,198
        Provision for loan loss                              456               -               -              -             456
        Depreciation and Amortization                        454              99              42              -             595
        Other non-interest expense                         8,683           2,333           1,214           (404)         11,826
        Net Income                                     $   2,563         $   (64)       $  3,006      $  (3,000)      $   2,505
                                                   =============================================================================
   Total Assets                                        $ 413,391         $ 6,210        $ 43,058      $ (44,565)      $ 418,094
                                                   =============================================================================

As of and for the year ended September 30, 1998
   From Operations
        Interest income from external sources          $  29,667               -        $    314      $       -       $  29,981
        Non-interest income from external sources          1,758               -             511              -           2,269
        Inter-segment interest income                          5               -           4,692         (4,697)              -
        Provision for loan loss                              302               -               -              -             302
        Depreciation and Amortization                        355               -              14              -             369
        Other non-interest expense                         7,574               -           1,014           (193)          8,395
        Income tax expense (benefit)                       2,036               -             (12)             -           2,024
        Net Income                                     $   3,013               -        $  4,517      $  (4,500)      $   3,030
                                                   =============================================================================
   Total Assets                                        $ 411,753               -        $ 42,614      $ (38,135)      $ 416,232
                                                   =============================================================================

As of and for the year ended September 30, 1997
   From Operations
        Interest income from external sources          $  26,969               -        $    346      $       -       $  27,315
        Non-interest income from external sources          1,284               -             226              -           1,510
        Inter-segment interest income                          4               -           4,426         (4,430)              -
        Interest expense                                  16,346               -               -              -          16,346
        Provision for loan loss                              120               -               -              -             120
        Depreciation and Amortization                        329               -               -              -             329
        Other non-interest expense                         6,594               -             759           (223)          7,130
        Income tax expense (benefit)                       2,091               -              14              -           2,105
        Net Income                                     $   3,102               -        $  4,224      $  (4,202)      $   3,124
                                                   =============================================================================
   Total Assets                                        $ 384,390               -        $ 26,916      $ (23,171)      $ 388,135
                                                   =============================================================================
</TABLE>
                                       40

<PAGE>




                  Selected Quarterly Financial Data (Unaudited)
                    For Three Years Ended September 30, 1999
<TABLE>
<CAPTION>
                                     First      Second    Third   Fourth
                                     Quarter    Quarter   Quarter Quarter      Year
                                   -------------------------------------------------
 Fiscal 1999
<S>                                 <C>       <C>       <C>       <C>       <C>
 Interest income                     $ 7,503   $ 7,242   $ 7,267   $ 7,408   $29,420
 Interest expense                      4,704     4,522     4,526     4,446    18,198
                                   -------------------------------------------------
 Net Interest Income                   2,799     2,720     2,741     2,962    11,222
 Provision for loan losses               114       114       114       114       456
 Gain on sale of assets                  700       573       624       444     2,341
 Net income                          $   842   $   693   $   525   $   445   $ 2,505
 Basic earnings per share               0.32      0.26      0.20      0.17      0.94
 Diluted earnings per share             0.30      0.25      0.19      0.17      0.90
 Cash dividends declared per share   $ 0.125   $ 0.125   $ 0.125   $ 0.125   $  0.50
 Market range:
      High bid (1)                   $ 15.75   $ 15.50   $ 14.44   $ 14.13   $ 15.75
      Low bid (1)                    $ 14.25   $ 13.56   $ 13.50   $ 11.75   $ 11.75

Fiscal 1998
 Interest income                     $ 7,364   $ 7,518   $ 7,554   $ 7,545   $29,981
 Interest expense                      4,548     4,591     4,657     4,703    18,499
                                   -------------------------------------------------
 Net Interest Income                   2,816     2,927     2,897     2,842    11,482
 Provision for loan losses                45        75       107        75       302
 Gain on sale of assets                   15       107       130       108       360
 Net income                          $   746   $   810   $   767   $   707   $ 3,030
 Basic earnings per share               0.28      0.30      0.29      0.27   $  1.14
 Diluted earnings per share             0.26      0.28      0.27      0.25   $  1.05
 Cash dividends declared per share   $ 0.125   $ 0.125   $ 0.125   $ 0.125   $  0.50
 Market range:
      High bid (1)                   $ 20.94   $ 20.88   $ 20.75   $ 18.50   $ 20.94
      Low bid (1)                    $ 19.00   $ 19.50   $ 18.00   $ 13.38   $ 13.38

Fiscal 1997
 Interest income                     $ 6,564   $ 6,728   $ 6,933   $ 7,090    27,315
 Interest expense                      3,886     4,011     4,104     4,345    16,346
                                   -------------------------------------------------
 Net Interest Income                   2,678     2,717     2,829     2,745    10,969
 Provision for loan losses                30        30        30        30       120
 Gain on sale of assets                    5        13        15        15        48
 Net income                          $   722   $   725   $   823   $   854   $ 3,124
 Basic earnings per share               0.25      0.26      0.31      0.32   $  1.13
 Diluted earnings per share             0.24      0.24      0.28      0.29   $  1.04
 Cash dividends declared per share   $ 0.125   $ 0.125   $ 0.125   $ 0.125   $  0.50
 Market range:
      High bid (1)                   $ 15.13   $ 18.25   $ 18.13   $ 21.00   $ 21.00
      Low bid (1)                    $ 12.75   $ 14.75   $ 16.38   $ 17.25   $ 12.75
</TABLE>

------------------------
(1)  As reported by the Nasdaq Stock Market. Such over-the-counter quotations do
     not reflect  inter-dealer  prices,  without  retail  mark-up,  mark-down or
     commission and may not necessarily represent actual transactions.


                                       41
<PAGE>
--------------------------------------------------------------------------------

                            FSF Financial Corporation
                            -------------------------

                                Corporate Office

                              201 Main Street South
                            Hutchinson, MN 55350-2573
                                 (320) 234-4500
--------------------------------------------------------------------------------
                                FIRST FEDERAL fsb
                                -----------------
                                Office Locations
<TABLE>
<CAPTION>

<S>                                                <C>
 Hutchinson Main Office                               Hastings Office
 201 Main Street South                                1320 South Frontage Road
 Hutchinson, MN  55350-2573                           Hastings, MN  55033-2426
 (320) 234-4500                                       (651) 437-6169


 Hutchinson South Office                              Apple Valley Office
 905 Hwy. 15 South Frontage Road                      14994 Glazier Avenue
 Hutchinson, MN  55350                                Apple Valley, MN  55124-7498
 (320) 234-4563                                       (651) 432-6840


 Buffalo Office                                       Glencoe Office
 305 10th Avenue S, PO Box 338                        1002 Greeley Avenue
 Buffalo, MN  55313-0338                              Glencoe, MN  55336-2128
 (320) 682-3035                                       (320) 864-5541


 Inver Grove Heights Office                           Litchfield Office
 6505 Cahill Avenue East                              501 North Sibley Avenue, PO Box 577
 Inver Grove Heights, MN  55076-2022                  Litchfield, MN  55355-0577
 (651) 455-1553                                       (320) 693-2861


 Waconia Office                                       Waite Park Office
 200 East Frontage Road, Hwy 5, PO Box 287            113 Waite Avenue South, PO Box 641
 Waconia, MN  55387-0287                              Waite Park, MN  56387-0641
 (612) 442-2141                                       (320) 656-1133

                                 Winthrop Office
                           122 East Second Street, PO
                              Box 424 Winthrop, MN
                                   55396-0424
                                 (507) 647-5356
--------------------------------------------------------------------------------
                               Insurance Planners
                               ------------------


Hutchinson Office                                     Buffalo Office
135 3rd Avenue Southeast                              305 10th Avenue S, P.O. Box 338
Hutchinson, MN  55350                                 Buffalo, MN  55313
(320) 587-2299                                        (612) 682-3035

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

                         Homeowners Mortgage Corporation
                         -------------------------------

Vadnais Heights Office                                Hastings Office
1001 Labore Industrial Court, Suite E                 1320 South Frontage Road
Vadnais Heights, MN  55110                            Hastings, MN  55033
(651) 415-1020
--------------------------------------------------------------------------------

</TABLE>

                                       42
<PAGE>

                   Our Board of Directors and Management Team

      Board of Directors of FSF Financial Corporation and First Federal fsb
<TABLE>
<CAPTION>

<S>                                                           <C>
  Donald A. Glas, Co-Chair of the Board                         George B. Loban, Co-Chair of the Board

  Richard H. Burgart                                            James J. Caturia

  Jerome R. Dempsey                                             Sever B. Knutson

  Roger R. Stearns


</TABLE>

                 Executive Officers of FSF Financial Corporation
                              and First Federal fsb
<TABLE>
<CAPTION>

<S>                                                         <C>
  Donald A. Glas                                                George B. Loban
  Chief Executive Officer                                       President

  Richard H. Burgart
  Chief Financial Officer & Corporate Secretary

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

  Corporate Counsel                                             Special Counsel
  Mackall Crounse & Moore                                       Malizia, Spidi & Fisch, P.C.
  1400 AT&T Tower                                               One Franklin Square
  901 Marquette Avenue                                          1301 K Street NW, Ste. 700 East
  Minneapolis, MN  55402                                        Washington, DC  20005

  Independent Auditors                                          Transfer Agent and Registrar
  Bertram Cooper & Co. LLP                                      American Securities Transfer, Inc.
  110 Second Avenue SE                                          1825 Lawrence
  Waseca, MN  56093                                             Denver, CO  80202

</TABLE>

<PAGE>

















                                      FSF
         [LOGO]                    FINANCIAL
                                  CORPORATION
         ---------------------------------------------------------------
                       Financial Services Holding Company






201 Main Street South, Hutchinson, MN 55350-2573                    320-234-4500