SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

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

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

For the fiscal year ended               September 30, 2000
                          --------------------------------------------

                                     - or -

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

For the transition period  __________________ to ____________________

Commission Number: 0-24648

                               FSF FINANCIAL CORP.
             (Exact name of Registrant as specified in its Charter)

        Minnesota                                              41-1783064
(State or other jurisdiction of incorporation               (I.R.S. Employer)
  or organization)                                         Identification No.)

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

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

Securities registered pursuant to Section 12(b) of the Act:       None

Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.10 per share
                     ---------------------------------------
                                (Title of Class)

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

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

        The aggregate market value of the voting stock held by non-affiliates of
the  Registrant,  based on the average  bid and asked price of the  Registrant's
Common Stock as quoted on the National Association of Securities Dealers,  Inc.,
Automated  Quotations  National  Market on November 28,  2000,  was $ 26,660,260
(1,706,257 shares at $ 15.625 per share).

        As of  November  30, 2000 there were  issued and  outstanding  2,386,455
shares of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions  of the Annual  Report to  Stockholders  for the Fiscal Year Ended
     September 30, 2000. (Parts I,II and IV)
2.   Portions of the Proxy  Statement for the Annual Meeting of  Stockholders to
     be held January 16, 2001. (Part III
<PAGE>

                                     PART I

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

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

The  Corporation  cautions  that  the  listed  factors  are not  exclusive.  The
Corporation does not undertake to update any forward-looking statement,  whether
written  or oral,  that may be made  from  time to time by or on  behalf  of the
Corporation.


ITEM 1. BUSINESS

General

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

First  Federal's  business  consists  primarily of attracting  deposits from the
general  public and using such  deposits,  together  with  borrowings  and other
funds,  to make mortgage  loans secured by  residential  real estate  located in
Minnesota.  At September  30, 2000,  First  Federal  operated 11  retail-banking
offices in Minnesota.

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

                                       1
<PAGE>

Competition

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

                                       2
<PAGE>

Lending Activities

The following  table sets forth the composition of the loan portfolio in dollars
and in percentages of total loans at the dates indicated:
<TABLE>
<CAPTION>
                                                                            At September 30,
                                   -------------------------------------------------------------------------------------------------
                                        2000                1999               1998                1997               1996
                                   -------------------------------------------------------------------------------------------------

                                      Amount      %       Amount      %       Amount     %        Amount     %       Amount      %
                                   -------------------------------------------------------------------------------------------------
<S>                               <C>          <C>     <C>         <C>     <C>         <C>     <C>         <C>    <C>         <C>
Residential real estate:                                                  (Dollars in Thousands)
   One to four family  (1)           $101,034    26.3    $120,884    38.8   $157,340    52.2    $170,422    60.3   $150,102    64.7
   Residential construction            82,408    21.5      42,937    13.8     21,960     7.3      20,796     7.4     19,676     8.5
   Multi-family                         4,737     1.2       5,635     1.8      2,975     1.0       3,370     1.2      3,753     1.6
                                   -------------------------------------------------------------------------------------------------
                                      188,179    49.0     169,456    54.4    182,275    60.4     194,588    68.9    173,531    74.8

Agricultural loans                     43,829    11.4      33,384    10.7     22,959     7.6           -       -          -       -
Land and commercial real estate        50,970    13.3      36,429    11.7     34,399    11.4      38,582    13.7     18,637     8.0
Commercial business                    29,831     7.8      29,767     9.6     21,095     7.0       8,114     2.9      6,089     2.6
                                   -------------------------------------------------------------------------------------------------
                                      124,630    32.4      99,580    32.0     78,453    26.0      46,696    16.5     24,726    10.7
Consumer:
   Home equity and second mortgage     28,106     7.3      24,312     7.8     23,606     7.8      20,812     7.4     17,692     7.6
   Automobile loans                    13,255     3.5       7,428     2.4      9,670     3.2      11,596     4.1     10,080     4.3
   Other                               29,943     7.8      10,898     3.5      7,605     2.5       8,821     3.1      6,075     2.6
                                   -------------------------------------------------------------------------------------------------
Total consumer loans                   71,304    18.6      42,638    13.7     40,881    13.6      41,229    14.6     33,847    14.6
                                   -------------------------------------------------------------------------------------------------
          Total loans                 384,113   100.0     311,674   100.0    301,609   100.0     282,513   100.0    232,104   100.0
                                              ========            ========           ========            ========           ========
Less:
   Loans in process                   (36,864)            (26,156)           (16,658)            (20,364)           (13,401)
   Deferred fees                         (711)               (507)              (641)               (703)              (757)
   Allowance for loan losses           (1,534)             (1,387)            (1,035)               (852)              (776)
                                   -----------        ------------        -----------        ------------        -----------
          Total loans, net           $345,004            $283,624           $283,275            $260,594           $217,170
                                   ===========        ============        ===========        ============        ===========
</TABLE>
-----------------------------------------
(1)  Includes  loans held for sale in the amount of $3.2 million,  $5.3 million,
     $2.7 million,  $204,000 and $443,000 as of September 30, 2000,  1999, 1998,
     1997 and 1996, respectively.

                                       3
<PAGE>

The following table sets forth the loan originations, loan purchases, loan sales
and principal payments for the periods indicated:
<TABLE>
<CAPTION>
                                                                   Years Ended September 30,
                                             -----------------------------------------------------------------------
                                                 2000           1999          1998          1997          1996
                                             -----------------------------------------------------------------------
                                                                         (In Thousands)
<S>                                             <C>            <C>           <C>           <C>           <C>
Total gross loans receivable at
    end of period                                $ 384,113      $ 311,674     $ 301,609     $ 282,513     $ 232,104
Loans originated:
  Residential real estate:
     One to four family                             56,400        130,461        56,768        55,144        53,801
     Residential construction                       94,929         55,700        23,007        12,968        12,975
     Multi-family                                        -              -           240           190             -
                                             -----------------------------------------------------------------------
       Total residential real estate               151,329        186,161        80,015        68,302        66,776
  Land                                               7,189          5,900         4,960        20,077         3,241
  Commercial business                               16,149         13,033         9,801         2,402           274
  Agricultural                                      38,204         28,081        27,049             -             -
  Consumer                                          49,804         27,503        25,740        28,465        27,270
                                             -----------------------------------------------------------------------
          Total loans originated                   262,675        260,678       147,565       119,246        97,561
Purchase of loans                                   32,417         40,883        10,832         8,528        17,447
Sale of loan participation                            (851)        (3,000)            -             -             -
Sale of loans                                      (54,364)      (128,925)      (24,953)       (6,661)       (3,509)
Principal repayments                              (166,921)      (169,131)     (112,284)      (72,035)      (63,813)
Other (net)                                           (517)         9,560        (2,064)        1,331        (3,031)
                                             -----------------------------------------------------------------------
Net loan activity                                $  72,439      $  10,065     $  19,096     $  50,409     $  44,655
                                             =======================================================================
</TABLE>

Maturity of Loans
The following table sets forth the maturity of the Bank's loans at September 30,
2000. The table does not include prepayments or scheduled principal  repayments.
Prepayments and scheduled  principal  repayments on loans totaled $166.9 million
for the year ended September 30, 2000.  Adjustable rate mortgage loans are shown
as maturing based on contractual maturities.
<TABLE>
<CAPTION>
                                            One to Four          Land,                          Commercial
                                              Family          Multi-Family                       Business,
                                            Real Estate      and Commercial                   Agriculture and
                                             Mortgages        Real Estate    Construction        Consumer          Total
                                       -----------------------------------------------------------------------------------
                                                                         (In Thousands)
<S>                                        <C>               <C>              <C>             <C>             <C>
Amounts Due:
Within 3 months                              $   8,615        $    17,786      $  22,976       $    48,056      $  97,433
3 months to 1 year                              28,917              8,789         55,389            17,284        110,379
                                       -----------------------------------------------------------------------------------
Total due before one year                       37,532             26,575         78,365            65,340        207,812
                                       -----------------------------------------------------------------------------------

After 1 year:
   1 to 3 years                                  7,211             15,821              -            31,685         54,717
   3 to 5 years                                  8,333             12,365              -            37,038         57,736
   5 to 10 years                                20,985              2,759              -             8,214         31,958
   10 to 20 years                               19,928              2,230              -             2,687         24,845
   Over 20 years                                 7,045                  -              -                 -          7,045
                                       -----------------------------------------------------------------------------------
Total due after one year                        63,502             33,175              -            79,624        176,301
                                       -----------------------------------------------------------------------------------
Total amount due                            $  101,034        $    59,750      $  78,365       $   144,964     $  384,113
                                       ===================================================================================
</TABLE>
                                       4
<PAGE>
The following  table sets forth,  as of September 30, 2000, the dollar amount of
all loans due after  September  30,  2001,  based upon fixed rates of  interest,
balloon rates or adjustable interest rates.
<TABLE>
<CAPTION>
                                                               Fixed-        Balloon       Adjustable
                                                               Rates          Rates          Rates           Total
                                                        --------------  --------------  --------------  -------------
                                                                              (In Thousands)
<S>                                                         <C>             <C>             <C>            <C>
One to four family real estate and construction              $ 16,559        $  9,857        $ 37,086       $ 63,502
Land, multi-family and commercial real estate                  22,445           5,400           5,330         33,175
Commercial business, agricultural and consumer                 34,244               -          45,380         79,624
                                                        --------------  --------------  --------------  -------------
     Total                                                   $ 73,248        $ 15,257        $ 87,796       $176,301
                                                        ==============  ==============  ==============  =============
</TABLE>
One to Four Family Mortgage Loans
The  largest  portion of  mortgage  loans are made for the  purpose of  enabling
borrowers  to purchase one to four family  residences  secured by first liens on
the properties.  The Bank and HMC originate  balloon,  adjustable rate mortgages
("ARM") and fixed rate mortgage  loans secured by one to four family  residences
with terms of up to 30 years.  FHA and VA loans are also  offered and then sold,
servicing  released,  in the  secondary  market.  Borrower  demand for ARM loans
versus fixed rate mortgage loans depends on various factors,  including, but not
limited to, interest rates offered, the expectations of changes in the short and
long-term levels of interest rates and loan fees charged. The relative amount of
fixed rate,  balloon and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive  environment.  All fixed rate
loans are sold to the secondary  market,  some with servicing  released and some
with  servicing  retained,  which are sold to the  Federal  Home  Loan  Mortgage
Corporation ("FHLMC").

The Bank  originates  three,  five and seven year balloon  mortgage  loans,  the
majority of which are the three year.  These  mortgages  contain no  contractual
assurances  that the loan will be renewed.  At  maturity,  the loan is generally
rewritten  and  re-recorded,  and if the  borrower's  loan  payment  history  is
satisfactory, a new appraisal is not required.  Management believes that balloon
loans have a pricing  characteristic  that helps offset the  detrimental  effect
that rising rates could have on net interest income because the balloon loans do
not contain  interest  rate  adjustment  caps.  At September  30, 2000,  balloon
mortgages were $25.0 million, or 7.2% of the Bank's loan portfolio.

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

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

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

                                       5
<PAGE>

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

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

Multi-family  residential  real  estate  loans are  permanent  loans  secured by
apartment buildings. Of primary concern in multi-family  residential real estate
lending is the borrower's creditworthiness,  feasibility and cash flow potential
of the project.  Loans  secured by income  properties  generally  are larger and
involve greater risk than  residential  mortgage loans because payments on loans
secured by income properties are often dependent on the successful  operation or
management  of the  properties.  As a  result,  repayment  of such  loans may be
subject to, more than residential real estate loans,  adverse  conditions in the
real  estate  market or the  economy.  In order to monitor  cash flows on income
properties,  the Bank requires borrowers and loan guarantors, if any, to provide
annual financial  statements and rent rolls on multi-family  loans. At September
30, 2000, the five largest land  acquisition  and  development,  commercial real
estate and multi-family loans ranged from $2.0 million to $4.8 million,  with an
average  committed  outstanding  balance  of $3.1  million.  All such  loans are
current and have performed in accordance with their terms.

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

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

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

The Bank  generally  obtains  annual  financial  statements  from  borrowers for
commercial  business loans. These statements are analyzed to monitor the quality
of the loan.  As of September  30, 2000,  the five largest  commercial  business
loans  ranged  from $2.5  million to $6.2  million,  with an  average  committed
balance  outstanding  of $3.5  million.  All such  loans  are  current  and have
performed in accordance with their terms.

                                       6
<PAGE>

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

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

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

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

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

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

Finally,  many farms are dependent on a limited number of key individuals  whose
injury or death may result in an inability to successfully  operate the farm. At
September 30, 2000, the five largest agricultural loans ranged from $1.1 million
to $2.1 million,  with an average committed outstanding balance of $1.5 million.
All such loans are in the Bank's market area,  are current and have performed in
accordance with their terms.

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

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

                                       7
<PAGE>

divorce,  illness or personal  bankruptcy.  Finally,  the application of various
federal and state laws,  including  federal and state  bankruptcy and insolvency
laws,  may limit the amount which can be recovered on such loans in the event of
a default.

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

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

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

Loans to One Borrower
Under federal law,  federally  chartered savings banks have,  subject to certain
exemptions,  aggregate  lending  limits  to one  borrower  equal to 15.0% of the
institution's  unimpaired  capital and surplus.  As of September 30, 2000, First
Federal's five largest lending relationships  included a $3.5 million commercial
line of  credit,  a $6.2  million  line of  credit to an  unaffiliated  mortgage
banking  company,  a $2.9  million  commercial  real estate loan, a $4.9 million
commercial  real estate  loan and $2.9  million in land  development  loans to a
local developer. This is approximately 5.3% of the total loans. At September 30,
2000,  all of these  loans were  within the loans to one  borrower  limitations,
performing in accordance with their terms and at market rates of interest.

Loan Servicing
The  Bank  services  substantially  all of the  loans  that  it  retains  in its
portfolio.  However,  HMC does not engage in any loan servicing.  Loan servicing
includes  collecting and remitting  loan payments,  accounting for principal and
interest,  making advances to cover delinquent  payments,  making inspections as
required of mortgaged premises,  contacting delinquent  mortgagors,  supervising
foreclosures and property  dispositions in the event of unremedied  defaults and
generally  administering  the loans.  Funds that have been escrowed by borrowers
for the payment of mortgage related expenses,  such as property taxes and hazard
and mortgage insurance premiums, are maintained in non-interest bearing accounts
at the Bank.  At September 30, 2000,  the Bank had $318,000  deposited in escrow
accounts for its loans serviced for others.

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

                                                         September 30,
                                              ----------------------------------
                                                   2000       1999      1998
                                              ----------------------------------
                                                         (In Thousands)
Mortgage loan portfolios serviced for:
     FHLMC                                       $45,002    $48,219   $42,038
     Other Investors                               7,126      7,269     4,418
                                              ----------------------------------
                                                 $52,128    $55,488   $46,456
                                              ==================================

The Bank receives fees for servicing  mortgage loans, which generally amounts to
0.25% per annum on the declining  balance of mortgage loans.  Such fees serve to
compensate the Bank for the cost of performing the servicing functions.  Another
source of loan servicing  revenues is late fees.  For the years ended  September
30, 2000, 1999 and 1998, the Bank earned gross fees of $247,000, $236,000 and

                                       8
<PAGE>

$234,000,  respectively from loan servicing. The Bank retains a portion of funds
received  from  borrowers  on the loans it services for others in payment of its
servicing fees received on loans serviced for others.

Non-Performing and Problem Assets

Loan Collections and Delinquent Loans
The Bank's  collection  procedures  provide  that when a loan is 30 days or more
delinquent,  the  borrower is  contacted  by mail and  telephone  and payment is
requested.  If the  delinquency  continues,  subsequent  efforts will be made to
contact  the  borrower.  In certain  instances,  the Bank may modify the loan or
grant a limited moratorium on loan payments to enable the borrower to reorganize
his financial affairs. Once a loan delinquency exceeds 60 days, it is classified
as special  mention and the Bank attempts to work with the borrower to establish
a repayment schedule to cure the delinquency.  If the borrower is unable to cure
the delinquency,  the Bank will institute  foreclosure actions. If a foreclosure
action is taken and the loan is not reinstated,  paid in full or refinanced, the
property is sold at a judicial  sale at which the Bank may be the buyer if there
are no offers to satisfy  the debt.  Any  property  acquired  as the result of a
foreclosure or by deed in lieu of  foreclosure is classified as foreclosed  real
estate  until such time as it is sold or otherwise  disposed of by the Bank.  At
September 30, 2000, the Bank had $321,000 of foreclosed real estate,  consisting
of two, one to four family residential loans.

Non-performing Assets
Loans are reviewed on a regular basis and are placed on non-accrual status when,
in the opinion of management, the collection of additional interest is doubtful.
Residential  mortgage  loans are  generally  placed on  non-accrual  status when
either  principal  or interest is 90 days or more past due.  Consumer  loans are
generally charged off when the loan becomes over 90 days delinquent.  Commercial
business and real estate loans are generally  placed on non-accrual  status when
the loan is 90 days or more past due.  Interest accrued and unpaid at the time a
loan is placed  on  non-accrual  status  is  charged  against  interest  income.
Subsequent  payments are either applied to the outstanding  principal balance or
recorded  as  interest  income,  depending  on the  assessment  of the  ultimate
collectibility  of the loan. At September 30, 2000, there were no accruing loans
which were contractually past due 90 days or more.

                                       9
<PAGE>
The  following  table  sets  forth   information  with  respect  to  the  Bank's
non-performing  assets for the periods indicated.  During the periods indicated,
the Bank had no  restructured  loans within the meaning of SFAS No. 15 and there
were no impaired loans within the meaning of SFAS 114, as amended by SFAS 118.
<TABLE>
<CAPTION>
                                                                           At September 30,
                                                   -----------------------------------------------------------------
                                                       2000         1999         1998         1997         1996
                                                   -----------------------------------------------------------------
                                                                         (Dollars in Thousands)
<S>                                                    <C>          <C>          <C>          <C>          <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
   Residential construction loans                       $   323      $     -      $     -      $   393      $     -
   Permanent loans secured by one to
      four family units                                      55          205          240           25          129
   Permanent loans secured by non-
      residential real estate                                 -            -            -            -            -
   Other                                                      -            -            -            -            -
Non-mortgage loans:
   Commercial and agricultural                              452            -            -            -            -
   Consumer                                                 159           22           69           82           90
                                                   -----------------------------------------------------------------
Total non-accrual loans                                     989          227          309          500          219
Foreclosed real estate and real estate
   held for investment                                      321          323          502           72            -
                                                   -----------------------------------------------------------------
Total non-performing assets                            $  1,310      $   550      $   811      $   572      $   219
                                                   =================================================================
Total non-performing loans to net loans                    0.29%        0.08%        0.11%        0.19%        0.10%
                                                   =================================================================
Total non-performing loans to total assets                 0.21%        0.05%        0.07%        0.13%        0.06%
                                                   =================================================================
Total non-performing assets to total assets                0.28%        0.13%        0.19%        0.15%        0.06%
                                                   =================================================================
</TABLE>
Interest  income  that  would have been  recorded  on loans  accounted  for on a
non-accrual  basis  under the  original  terms of such  loans was  approximately
$48,000 for the year ended September 30, 2000.

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

An asset is considered  substandard if the paying  capacity and net worth of the
obligor or the collateral  inadequately  protects it. Substandard assets include
those  characterized  by the  distinct  possibility  that the  institution  will
sustain some loss if the  deficiencies are not corrected.  Assets  classified as
doubtful have all of the weaknesses  inherent in those  classified  substandard,
with the added  characteristic  that the weaknesses  present make  collection or
liquidation  in  full,  highly  questionable  and  improbable,  on the  basis of
currently existing facts,  conditions and values.  Assets classified as loss are
those considered  uncollectible  and of such little value that their continuance
as assets without the establishment of a specific loss reserve is not warranted.
Assets which do not  currently  expose the insured  institution  to a sufficient
degree of risk and are not  classified in one of the  aforementioned  categories
but possess credit  deficiencies  or potential  weaknesses,  including all loans
over 60 days  delinquent,  are  required  to be  designated  special  mention by
management.   The  OTS  has  promulgated   regulations   that   discontinue  the
classification  of assets as special  mention.  However,  the Bank  continues to
utilize this category.

Management's  evaluation of the classification of assets and the adequacy of the
reserve  for loan losses is  reviewed  by  regulatory  agencies as part of their
periodic  examinations.  At September  30, 2000,  the Bank had total  classified
assets of $4.4 million,  of which  $973,000 was  considered  substandard  and no
assets were classified as doubtful or loss.  Special mention assets totaled $3.4
million at September 30, 2000.
                                       10
<PAGE>

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

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

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

The following table sets forth  information with respect to the Bank's allowance
for loan losses at the dates indicated.
<TABLE>
<CAPTION>
                                                                           At September 30,
                                                   -----------------------------------------------------------------
                                                       2000         1999         1998         1997         1996
                                                   -----------------------------------------------------------------
                                                                        (Dollars in Thousands)
<S>                                                  <C>          <C>          <C>          <C>          <C>
Average loans outstanding                             $ 308,721    $ 274,676    $ 276,730    $ 237,475    $ 193,202
                                                   =================================================================
Allowance balance (beginning of period)                $  1,387     $  1,035      $   852      $   776      $   764
                                                   -----------------------------------------------------------------
Provision (credit):
   Residential                                                -            -            -            -            -
   Land and commercial real estate                           60           20            2           40            -
   Commercial/agricultural business                         156          418          293            -            -
   Consumer                                                   -           18            7           80           42
                                                   -----------------------------------------------------------------
       Total provision                                      216          456          302          120           42
Charge-off:
   Residential                                                -            -           45           13            -
   Commercial real estate                                     -            -            -            -            -
   Consumer                                                  98          142           87           37           34
                                                   -----------------------------------------------------------------
       Total charge-offs                                     98          142          132           50           34
Recoveries:
   Residential                                                -            -            -            -            -
   Commercial real estate                                     -            -            -            -            -
   Consumer                                                  29           38           13            6            4
                                                   -----------------------------------------------------------------
       Total recoveries                                      29           38           13            6            4
                                                   -----------------------------------------------------------------
Net charge-offs                                              69          104          119           44           30
                                                   -----------------------------------------------------------------
Allowance balance (at end of period)                   $  1,534     $  1,387     $  1,035      $   852      $   776
                                                   =================================================================
Allowance as percent of total loans                        0.44%        0.48%        0.36%        0.33%        0.36%
                                                   =================================================================
Net loans charged off as a percent of
   average loans                                           0.02%        0.04%        0.04%        0.02%        0.01%
                                                   =================================================================
</TABLE>

                                       11
<PAGE>
To further  monitor and assess the risk  characteristics  of the loan portfolio,
loan delinquencies are reviewed to consider any developing loan problems.  Based
upon the procedures in place, the Bank's  experience  regarding  charge-offs and
recoveries and the current risk elements in the portfolio,  management  believes
the  allowance  for loan losses at  September  30, 2000,  is adequate.  However,
assessment of the adequacy of the allowance for loan losses involves  subjective
judgments  regarding  future  events  and thus  there can be no  assurance  that
additional provisions for loan losses will not be required in future periods.

The  following  table sets forth the breakdown by loan category of the allowance
for loan losses:
<TABLE>
<CAPTION>
                                                                            September 30,
                                  ------------------------------------------------------------------------------------------------
                                    2000                1999                1998                1997                1996
                                  ------------------------------------------------------------------------------------------------
                                           Percent             Percent              Percent             Percent            Percent
                                           of Loans            of Loans             of Loans            of Loans           of Loans
                                           in Each             in Each              in Each             in Each            in Each
                                           Category            Category             Category            Category           Category
                                           to total            to total             to total            to total           to total
                                  Amount     Loans     Amount    Loans     Amount    Loans     Amount    Loans     Amount    Loans
                                  ------------------------------------------------------------------------------------------------
<S>                              <C>       <C>        <C>      <C>        <C>      <C>        <C>      <C>        <C>      <C>
Real Estate:
  One to four family              $   59     26.3%     $   73    38.8%     $   94    52.2%     $ 103     60.3%     $  90     64.7%
  Residential construction            59     21.5%         25    13.8%         11     7.3%         5      7.4%         6      8.5%
  Multi-family                        47      1.2%         56     1.8%         30     1.0%        34      1.2%        38      1.6%
  Land and commercial real estate    473     13.2%        486    11.7%        347    11.4%       380     13.7%       396      8.0%
Agricultural loans                   245     11.4%        200    10.7%        138     7.6%         -      0.0%         -      0.0%
Commercial business                  298      7.8%        297     9.6%        211     7.0%       124      2.9%        61      8.0%
Consumer loans                       353     18.6%        250    13.6%        204    13.5%       206     14.5%       185      9.2%
                                  ------------------------------------------------------------------------------------------------
                                  $1,534    100.0%     $1,387   100.0%     $1,035   100.0%     $ 852    100.0%     $ 776    100.0%
                                  ================================================================================================
</TABLE>
Investment and Mortgage-backed Securities Activities

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

Mortgage-backed and Related Securities
First Federal invests in residential  mortgage-backed  securities  guaranteed by
participation certificate issues by FHLMC, Federal National Mortgage Association
("FNMA")  and   Government   National   Mortgage   Association   ("GNMA").   The
mortgage-backed  securities  portfolio  as of September  30, 2000,  consisted of
$43.0 million in Real Estate Mortgage  Investment Conduits ("REMICs") and a $1.0
million FNMA certificate.

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

Mortgage-backed  securities  typically are issued with stated principal amounts,
and pools of  mortgages  that have loans with  interest  rates that are within a
range and have varying  maturities back the  securities.  The underlying pool of
mortgages  is primarily  composed of either  fixed rate  mortgages or ARM loans.
Mortgage-backed  securities are generally referred to as mortgage  participation
certificates or pass-through  certificates.  As a result, the interest rate risk
characteristics  of the  underlying  pool  of  mortgages,  (i.e.  fixed  rate or
adjustable  rate) as well as prepayment  risk, are passed on to the  certificate
holder.  The life of a  mortgage-backed,  pass-through  security is equal to the
life of the underlying  mortgages.
                                       12
<PAGE>
Mortgage-backed  securities issued by FHLMC, FNMA and GNMA make up a majority of
the pass-through market.

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

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

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

The REMICs held by the Bank at September  30, 2000,  consisted of floating  rate
tranches.  The  interest  rates of all of the Bank's  floating  rate  securities
adjust monthly and provide the institution  with net interest margin  protection
in an increasing market rate environment. The securities are backed by mortgages
on one to four family residential real estate and have contractual maturities up
to 30 years.  None of the securities  are deemed to be "high risk"  according to
OTS guidelines.  The securities are primarily  companion  tranches to "PACs" and
"TACs". PACs and TACs (Planned and Targeted  Amortization  Classes) are designed
to provide a specific principal and interest cash flow.  Principal payments that
are received in excess of the amount  needed for the PACs and TACs are allocated
to the  companion  tranches.  When the PACs and  TACs are  repaid  in full,  all
principal  is then used to pay the  companion  tranches.  Although the timing of
principal  payments may be impacted by the amount of prepayments (the higher the
level of  prepayments,  the sooner the principal  will be received),  all of the
principal and interest payments are guaranteed.

Investment Securities
The Bank is required  under federal  regulations to maintain a minimum amount of
liquid  assets that may be  invested  in  specified  short-term  securities  and
certain  other  investments.  Liquidity  levels may be increased  or  decreased,
depending  upon the  yields on  investment  alternatives  and upon  management's
judgment as to the  attractiveness  of the yields then available in relationship
to other opportunities. Also its expectations of future yield levels, as well as
management's  projections as to the short-term demand for funds, are used in the
Bank's loan originating and other activities. These securities consist mainly of
U.S. Government Securities and U.S. Government Agency obligations. The Bank also
invests in debt and equity securities.

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

The  amount  of  short-term  securities  in excess  of  regulatory  requirements
reflects   management's  strategy  to  provide  interest  rate  adjustments  for
securities  that  are  shorter  than  their  maturity.  It is the  intention  of
management to maintain a repricing structure in the Bank's investment  portfolio
that  better  matches  the  interest  rate   sensitivities  of  its  assets  and
liabilities.  However,  during periods of rapidly declining interest rates, such
investments  also  decline  at a faster  rate  than  the  yields  on fixed  rate
investments.  Investment
                                       13
<PAGE>

decisions  are  made  within  policy  guidelines  established  by the  Board  of
Directors.  Unless  loan demand  increases,  the Bank  intends to  maintain  its
investments at current levels.

Investment Activities
Current regulatory and accounting  guidelines  regarding  investment  securities
(including  mortgage-backed  securities)  require the  Corporation to categorize
securities  as "held to  maturity,"  "available  for sale" or  "trading."  As of
September  30, 2000,  the  Corporation  had  securities  classified  as "held to
maturity"  and  "available  for sale" in the amounts of $45.4  million and $46.3
million, respectively, and had no securities classified as "trading." Securities
classified as "available for sale" are reported for financial reporting purposes
at the fair  market  value with net  changes in the market  value from period to
period included as a separate  component of stockholders'  equity, net of income
taxes. At September 30, 2000, the  Corporation's  securities  available for sale
had an  amortized  cost of $48.9  million  and a market  value of $46.3  million
(unrealized  loss, net of tax of $1.7  million).  Changes in the market value of
securities  available  for  sale do not  affect  the  Corporation's  income.  In
addition,  changes in the market value of  securities  available for sale do not
affect the Bank's  regulatory  capital  requirements or its loan to one borrower
limit.

Investment and Mortgage-backed Securities Portfolio
The following table sets forth the carrying value of First Federal's  investment
securities portfolio, short-term investments, FHLB stock and mortgage-backed and
related securities at the dates indicated.
<TABLE>
<CAPTION>
                                                              September 30,
                                             ----------------------------------------------
                                                 2000              1999             1998
                                             -----------   ---------------  ---------------
                                                              (In Thousands)
Investment securities:
<S>                                          <C>               <C>              <C>
   Debt securities                            $  18,393         $  19,937        $  24,412
   Debt securities available for sale            12,728            12,794            3,010
   FHLB Stock                                     6,375             7,363            7,363
   Equity securities available for sale          11,871            11,921           12,096
                                             -----------   ---------------  ---------------
Total investment securities                      49,367            52,015           46,881
Interest bearing deposits                         5,552            16,020           17,370
Federal funds sold                                    -                 -                -
Mortgage-backed and related securities:
   Mortgage-backed and related securities        26,986            27,587           36,418
   Mortgage-backed and related securities
       available for sale                        15,369            15,979           16,574
                                             -----------   ---------------  ---------------
Total mortgage-backed and related securities     42,355            43,566           52,992
                                             -----------   ---------------  ---------------
Total investments                             $  97,274         $ 111,601        $ 117,243
                                             ===========   ===============  ===============

</TABLE>
                                       14
<PAGE>



The  following  table sets forth  certain  information  regarding  the  carrying
values,  weighted  average  yields  and  maturities  of  the  Bank's  investment
portfolio at September 30, 2000:
<TABLE>
<CAPTION>
                                                        September 30, 2000
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Total
                   Adjustable       One Year or Less One to Five Years Five to Ten Years More than Ten Years  Investment Securities
                 -----------------  ---------------- ----------------- ----------------- ------------------- -----------------------
                 Carrying  Average  Carrying Average Carrying Average  Carrying  Average Carrying  Average   Carrying Average Market
                  Value     Yield    Value    Yield   Value    Yield    Value     Yield   Value    Yield      Value    Yield   Value
                  -----     -----    -----    -----   -----    -----    -----     -----   -----    -----      -----    -----   -----
                                                       (Dollars in Thousands)
<S>             <C>        <C>    <C>         <C>    <C>       <C>    <C>        <C>    <C>        <C>      <C>       <C>   <C>
U. S.
  Government
  and Federal
  Agency
  Obligations
  held to        $     -       -%      $   -   0.00%  $ 9,188   4.10%  $ 3,000    3.89%  $ 6,205    7.47%    $18,393   5.20% $16,974
  maturity
Federal
  Agency
  Obligations
  available
  for sale             -       -           -      -    12,728   6.27         -       -         -       -     $12,728   6.27   12,728
Equity
  Securities
  available
  for sale        11,871    5.74                  -         -      -         -       -         -       -     $11,871   5.74   11,871
FHLB Stock           N/A     N/A         N/A    N/A       N/A    N/A       N/A     N/A       N/A     N/A     $ 6,375   6.82    6,375
Mortgage-
  backed
  and
  related
  securities
  held to
  maturity
                  25,992    5.44           -      -         1   6.50        16    7.59       977    7.37     $26,986   5.98   25,145
Mortgage-
  backed
  and
  related
  securities
  available
  for sale
                  15,369    5.87           -      -         -      -         -       -         -       -     $15,369   5.87   15,369
Interest-
  bearing
  deposits
                   5,552    5.05           -      -         -      -         -       -         -       -     $ 5,552   5.05    5,552
                  ------           ---------          -------          -------           -------             -------         -------
   Total         $58,784    5.83%  $       -   0.00%  $21,917   5.36%  $ 3,016    3.90%  $ 7,182    7.45%    $97,274   5.82% $94,014
                  ======           =========          =======          =======           =======             =======         =======
</TABLE>

                                       15
<PAGE>

Deposits and Other Sources of Funds

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

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

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

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

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

The following table  indicates the amount of the Bank's  certificates of deposit
of $100,000 or more by time remaining until maturity as of September 30, 2000:

                                             Certificates of
          Maturity Period                        Deposits
          ---------------                    ---------------
                                              (In Thousands)
          Within three months                $      15,734
          Three through six months                  13,975
          Six through twelve months                 10,142
          Over twelve months                        18,972
                                             --------------
                                             $      58,823
                                             ==============

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

                                       16
<PAGE>

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

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

                                         As of and for the Years Ended
                                                 September 30,
                                  --------------------------------------------
                                       2000           1999            1998
                                  --------------------------------------------
                                           (Dollars in Thousands)
   Maximum balance                 $  140,967      $  144,177      $  147,234
   Average balance                    138,213         143,123         145,459
   Balance at end of period           127,500         140,967         144,177
   Weighted average rate:
        at end of period                 5.89%           5.39%           5.42%
        during the period                5.88%           5.47%           5.79%


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

Subsidiary Activity

As of September 30, 2000, the Corporation  had two directly owned  subsidiaries:
the Bank and the Agency.

The Bank is permitted  to invest up to 2% of its assets in the capital  stock of
subsidiary corporations in the form of secured or unsecured loans. An additional
investment  of 1% of assets is  permitted  when such  investments  are  utilized
primarily for community  development  purposes.  As of September 30, 2000, under
such  limitations,  the Bank was authorized to invest up to  approximately  $9.3
million in the stock of service corporations (based upon the 2% limitation). The
Bank has two wholly owned  subsidiaries,  Firstate  Services,  Inc.  ("FSI") and
Homeowners Mortgage  Corporation  ("HMC").  FSI was incorporated in the State of
Minnesota in August 1983,  and is engaged in the sale,  on an agency  basis,  of
mutual funds, annuities and life, credit life and disability insurance products.
HMC  was  incorporated  in  the  State  of  Minnesota  in  1988  and  originates
residential mortgage loans from two locations in Minnesota.  As of September 30,
2000, the net book value of First Federal's investment in stock, unsecured loans
and  conforming  loans in FSI was  $290,000  and HMC was $2.9  million.  For the
fiscal year ended  September 30, 2000, FSI had net income of $35,030 and HMC had
net loss of $333,487.

Insurance  Planners  ("Agency")  was  incorporated  in the State of Minnesota in
August 1983,  and is engaged in the sale,  on an agency  basis,  of property and
casualty insurance products. As of September 30, 2000, the net book value of the
Corporation's  investment in stock,  unsecured loans and conforming loans in its
subsidiary was $732,757. For the fiscal year ended September 30, 2000 the Agency
had net income of $30,607.

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

Personnel

As of September 30, 2000,  the Bank had 126 full time employees and 48 part time
employees,  representing a total of 135 full time equivalents. The employees are
not represented by a collective  bargaining  agreement and the Bank believes its
relationship with their employees is satisfactory.

                                       17
<PAGE>

Regulation

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

Recent Regulation

The  Gramm-Leach-Bliley  Act (the "Act") became  effective March 11, 2000, which
permits  qualifying bank holding companies to become financial holding companies
and thereby  affiliate with securities firms and insurance  companies and engage
in other activities that are financial in nature.  The Act defines "financial in
nature"  to  include  securities   underwriting,   dealing  and  market  making,
sponsoring  mutual funds and investment  companies,  insurance  underwriting and
agency,  merchant  banking  activities,   and  activities  that  the  Board  has
determined to be closely related to banking. A qualifying national bank also may
engage,  subject to limitations on investment,  in activities that are financial
in nature,  other  than  insurance  underwriting,  insurance  company  portfolio
investment,  real  estate  development  and real  estate  investment,  through a
financial subsidiary of the bank.

The Act also  prohibits new unitary  thrift  holding  companies from engaging in
non-financial  activities or from affiliating with an non-financial entity. As a
grandfathered  unitary thrift holding  company,  the Corporation will retain its
authority to engage in non-financial activities.  However, the Act will have few
direct effects on the operations or powers of federal savings associations or of
savings and loan holding companies.

The Act imposes  significant  new financial  privacy  obligations  and reporting
requirements   on  all  financial   institutions,   including   federal  savings
associations.  Specifically,  the  statute,  among other  things,  will  require
financial  institutions  (a) to establish  privacy policies and disclose them to
customers both at the  commencement of a customer  relationship and on an annual
basis  and  (b) to  permit  customers  to opt out of a  financial  institution's
disclosure of financial  information to  nonaffiliated  third  parties.  The Act
requires the federal financial regulators to promulgate regulations implementing
these  provisions  within six months of  enactment,  and the  statute's  privacy
requirements will take effect one year after enactment.

Regulation of the Corporation

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

As a unitary savings and loan holding company, the Corporation  generally is not
subject to activity  restrictions,  provided the Bank  satisfies  the  Qualified
Thrift Lender  ("QTL") test.  The Act  terminated  the "unitary  thrift  holding
company   exemption"  for  all  companies   that  applied  to  acquire   savings
associations  after May 4, 1999.  Since the Corporation is  grandfathered  under
this provision of the Act, its unitary  holding  company powers and  authorities
were not affected.  However,  if the  Corporation  were to acquire control of an
additional  savings  association,  its business  activities  would be subject to
restriction  under the Home Owners' Loan Act.  Furthermore,  if the  Corporation
were in the  future  to sell  control  of the Bank to any  other  company,  such
company would not succeed to the Corporation 's  grandfathered  status under the
Act and would be  subject to the same  business  activity  restrictions.  See "-
Regulation of the Bank - Qualified Thrift Lender Test."

                                       18
<PAGE>

Regulation of the Bank

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

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

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

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

The Bank is required to pay  insurance  premiums  based on a  percentage  of its
insured deposits to the FDIC for insurance of its deposits by the SAIF. The FDIC
also maintains  another  insurance fund, the Bank Insurance Fund ("BIF"),  which
primarily  insures  commercial  bank  deposits.  The  FDIC  has set the  deposit
insurance assessment rates for SAIF-member institutions for the first six months
of 2000 at 0% to .027% of insured  deposits  on an  annualized  basis,  with the
assessment rate for most savings institutions set at 0%.

In addition,  all  FDIC-insured  institutions are required to pay assessments to
the FDIC at an annual rate of  approximately  .0212% of insured deposits to fund
interest  payments on bonds issued by the  Financing  Corporation  ("FICO"),  an
agency of the Federal government  established to recapitalize the predecessor to
the SAIF. These assessments will continue until the FICO bonds mature in 2017.

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

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

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

                                       19
<PAGE>

between the OTS and the savings  association or any OTS  regulations.  Any other
situation would require an application to the OTS.

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

Qualified Thrift Lender Test
Federal  savings  institutions  must  meet one of two  Qualified  Thrift  Lender
("QTL")  tests.  To qualify as a QTL, a savings  institution  must either (i) be
deemed a "domestic  building and loan  association"  under the Internal  Revenue
Code by  maintaining  at least 60% of its total  assets  in  specified  types of
assets,  including cash,  certain  government  securities,  loans secured by and
other  assets  related  to  residential  real  property,  educational  loans and
investments  in premises of the  institution  or (ii) satisfy the  statutory QTL
test set forth in the Home Owner's Loan Act by  maintaining  at least 65% of its
"portfolio assets" in certain "Qualified Thrift Investments" (defined to include
residential mortgages and related equity investments,  certain  mortgage-related
securities, small business loans, student loans and credit card loans and 50% of
certain community  development  loans).  For purposes of the statutory QTL test,
portfolio assets are defined as total assets minus intangible  assets,  property
used by the  institution  in conducting  its business and liquid assets equal to
10% of total assets. A savings  institution must maintain its status as a QTL on
a monthly basis in at least nine out of every 12 months. A failure to qualify as
a QTL results in a number of  sanctions,  including  the  imposition  of certain
operating  restrictions and a restriction on obtaining  additional advances from
its  FHLB.  At  September  30,  2000,  the Bank was in  compliance  with its QTL
requirement.

Federal Home Loan Bank System
The Bank is a  member  of the FHLB of Des  Moines,  which is one of 12  regional
FHLBs  that   administers   the  home  financing   credit  function  of  savings
associations.  Each FHLB  serves as a reserve  or central  bank for its  members
within its assigned  region.  It is funded  primarily from proceeds derived from
the sale of  consolidated  obligations  of the FHLB  System.  It makes  loans to
members (i.e.,  advances) in accordance with policies and procedures established
by the Board of Directors of the FHLB.

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

Liquidity Requirements
All savings  associations  are required to maintain an average  daily balance of
liquid  assets  equal to a certain  percentage  of the sum of its average  daily
balance of net withdrawable  deposit accounts and borrowings payable in one year
or less.  The liquidity  requirement  may vary from time to time (between 4% and
10%)  depending  upon  economic  conditions  and  savings  flows of all  savings
associations.

Federal Reserve System
The Federal  Reserve  Board  requires all  depository  institutions  to maintain
non-interest  bearing  reserves at specified  levels  against their  transaction
accounts  (primarily  checking,  NOW,  and  Super  NOW  checking  accounts)  and
non-personal  time  deposits.  The  balances  maintained  to  meet  the  reserve
requirements  imposed by the  Federal  Reserve  Board may be used to satisfy the
liquidity  requirements  that are imposed by the OTS. At September 30, 2000, the
Bank was in compliance with these Federal Reserve Board requirements.

                                       20
<PAGE>

ITEM 2.     PROPERTIES

The Bank  operates  from its  main  office  located  at 201 Main  Street  South,
Hutchinson,  Minnesota.  The Bank owns this 20,000  square foot office  facility
which it built in 1985/86. The total investment in property and equipment at 201
Main Street South had a net book value of $1.6 million at September 30, 2000.

Additional  offices,  either  owned or leased by the Bank and HMC, are set forth
below with information regarding net book value of the premises and equipment at
such facilities at September 30, 2000.

<TABLE>
<CAPTION>
                                                         Year
                                                      Acquired or            Net Book
                                                      Date Lease              Value at                Square
Location                                               Expires           September 30, 2000          Footage
-------------------------------------------      -------------------------------------------------------------------
                                                                       (Dollars in thousands)
<S>                                                     <C>                  <C>                   <C>
14994 Glazier Avenue
Apple Valley, MN  55124                                  1989                     265                  3,000

305 10th Avenue S
Buffalo, MN  55313                                       1999                   1,109                  5,620

1002 Greeley Avenue
Glencoe, MN  55336                                       2000                     453                  1,980

1320 South Frontage Road
Hastings, MN  55033                                      1984                     934                 15,000

905 Highway 15 South,
Frontage Road
Hutchinson, MN  55350                                    1980                     189                  1,400

6505 Cahill Avenue
Inver Grove Heights, MN  55075                           1979                     309                  3,000

501 North Sibley Avenue
Litchfield, MN  55355                                    1978                     169                  2,400

200 East Frontage Road,
Highway 5
Waconia, MN  55387                                       1985                     314                  2,400

122 East Second Street
Winthrop, MN  55396                                      2000 (1)                  19                    950

113 Waite Avenue South
Waite Park, MN  56387                                    2003 (2)                  41                    550

135 3rd Avenue SW
Hutchinson, MN  55350                                    2001 (3)                  25                  1,200

1001 Labore Industrial Court Suite E
Vadnais Heights, MN  55110                               2001 (4)                  77                  7,748
</TABLE>

1.   Lease  expires in July 2001 with  option to renew for one year  terms.  The
     Bank expects to renew the lease.
2.   Lease  expires in September  2003 with an option to renew for an additional
     five year term.
3.   Lease expires in September 2001 with an option to renew for one year terms.
4.   Lease  expires in January 2001 with the option to renew for two  additional
     years.

                                       21
<PAGE>

The Bank leases  approximately  3,600  square feet of the  property in Hastings,
Minnesota under two, three year operating leases. These leases will expire April
14, 2003,  and May 10, 2001,  with  combined  annual rents  totaling  $22,797 in
addition to their proportionate share of the operating expenses.

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

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


ITEM 3. LEGAL PROCEEDINGS

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


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

None.


                                     PART II


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

For additional  information  relating to the market for the Corporation's common
equity and related stockholder  matters, see "Corporate Profile and Stock Market
Information" in the Registrant's 2000 Annual Report to Stockholders (the "Annual
Report") on page 1, and is incorporated herein by reference.


ITEM 6. SELECTED FINANCIAL DATA

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


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

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


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

                                       22

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated  Financial  Statements of the Corporation and its subsidiaries,
together  with the report  thereon by Bertram  Cooper & Co.,  LLP appears in the
Annual Report on pages 16 through 42 and are incorporated herein by reference.

Quarterly  Results of Operations on page 43 of the Annual Report is incorporated
herein by reference.


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

None.


                                    PART III


ITEM 10. DIRECTORS AND OFFICERS OF THE CORPORATION

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


ITEM 11. EXECUTIVE COMPENSATION

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


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         (a)      Security Ownership of Certain Beneficial Owners

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

         (b)      Security Ownership of Management

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

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


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                       23

<PAGE>

                                     PART IV


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

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

     (1)  Consolidated  Financial  Statements  of the Bank are  incorporated  by
          reference to the following  indicated  pages of the 2000 Annual Report
          to Stockholders.
<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----
<S>                                                                                                      <C>
         Independent Auditors' Report......................................................................16
         Consolidated Statements of Financial Condition as of
                  September 30, 2000 and 1999..............................................................17
         Consolidated Statements of Income for the Years
                  Ended September 30, 2000, 1999 and 1998..................................................18
         Consolidated Statements of Changes in Stockholders' Equity for the
                  Years Ended September 30, 2000, 1999 and 1998............................................19
         Consolidated Statements of Cash Flows for the Years Ended
                  September 30, 2000, 1999 and 1999........................................................20
         Notes to Consolidated Financial Statements........................................................22
</TABLE>

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

     (3)  Exhibits
          (a) The following exhibits are files as part of this report.
<TABLE>
<CAPTION>
<S>               <C>
          3.1      Articles of Incorporation of FSF Financial Corporation *
          3.2      Bylaws of FSF Financial Corporation *
          4.0      Stock Certificate of FSF Financial Corporation *
         10.1      Form of Employment Agreement with Donald A. Glas, George B. Loban and
                     Richard H. Burgart *
         10.2      First Federal fsb Management Stock Plan **
         10.3      FSF Financial Corporation 1996 Stock Option Plan **
         10.4      FSF Financial Corporation 1998 Stock Compensation Plan ***
         13.0      Portions of the 2000 Annual Report to Stockholders
         21.0      Subsidiary Information (see Item 1- "Subsidiary Activities")
         23.0      Consent of Accountant
         27.0      Financial Data Schedule ****
</TABLE>
--------------------------------------------------------------------------------
*    Incorporated  herein by reference  into this  document from the Exhibits to
     Form S-1, Registration Statement,  initially filed with the Commission,  on
     June 1, 1994, Registration No. 33-79570.
**   Incorporated  herein by reference into this document from the  Registrant's
     Proxy Statement for the Annual Meeting of Stockholders  held on January 17,
     1996 and filed with the Commission on December 13, 1995.
***  Incorporated  herein by reference into this document from the  Registrant's
     proxy statement for the Annual Meeting of Stockholders  held on January 20,
     1998 and filed with the Commission on December 10, 1997.
**** Included with electronic filing only.

                                       24
<PAGE>

Signatures

Pursuant to the  requirements of Section 13 of 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                            FSF Financial Corp.

Dated:  December 11, 2000                   By: /s/ Donald A. Glas
                                                --------------------------------
                                                Donald A. Glas
                                                Co-Chair of the Board and Chief
                                                Executive Officer
                                                (Duly Authorized Representative)

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

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

Date:     December 11, 2000                                         Date:  December 11, 2000



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

Date:     December 11, 2000                                         Date:  December 11, 2000



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

Date:     December 11, 2000                                         Date:  December 11, 2000



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

Date:     December 11, 2000

</TABLE>

                                       25