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, 2002
                          --------------------------------------------

                                     - 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 29,  2002,  was $ 35,577,969
(1,520,426 shares at $ 23.40 per share).                             -----------
                     -------

        As of  November  29, 2002 there were  issued and  outstanding  2,303,514
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, 2002. (Parts I,II and IV)
2.   Portions of the Proxy  Statement for the Annual Meeting of  Stockholders to
     be held January 21, 2003. (Part III)

<PAGE>

                                     PART I

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

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

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


ITEM 1.     BUSINESS

General

FSF Financial Corp. is a Minnesota corporation organized in May, 1994, and as of
October 6, 1994,  became the  holding  company  for First  Federal  fsb  ("First
Federal" or the "Bank"). Since becoming an operating subsidiary of the Bank, HMC
has become an integral part of the residential  construction  lending  function.
The  terms  "First  Federal",  "Bank",  and "HMC"  are  synonymous  when used in
conjunction with residential lending and residential  construction  lending. 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 a variety of loans. At September 30, 2002, First Federal operated
12  retail-banking  offices in  Minnesota.  On November 9, 2001,  First  Federal
completed its acquisition of the ING Bank branch facility in the St. Cloud area.
See "Item 2- Properties".

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

                                       1
<PAGE>

Competition

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

                                       2
<PAGE>

Lending Activities

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

<TABLE>
<CAPTION>
                                                                     At September 30,
                         -----------------------------------------------------------------------------------------------------------
                               2002                  2001                  2000                  1999                  1998
                         -----------------------------------------------------------------------------------------------------------

                             Amount       %        Amount       %        Amount       %        Amount       %        Amount       %
                         -----------------------------------------------------------------------------------------------------------
                                                                               (Dollars in Thousands)
<S>                       <C>         <C>      <C>          <C>      <C>          <C>      <C>          <C>      <C>          <C>
Residential real estate:
   One to four family (1)  $ 71,625     13.9     $ 81,790     19.1     $101,034     26.3     $120,884     38.8     $157,340     52.2
   Residential
     construction           239,155     46.3      142,035     33.2       82,408     21.5       42,937     13.8       21,960      7.3
   Multi-family               6,065      1.2        5,922      1.4        4,737      1.2        5,635      1.8        2,975      1.0
                         -----------------------------------------------------------------------------------------------------------

                            316,845     61.4      229,747     53.7      188,179     49.0      169,456     54.4      182,275     60.4

Agricultural loans           56,129     10.9       49,935     11.7       43,829     11.4       33,384     10.7       22,959      7.6
Land and commercial
  real estate                65,372     12.7       55,220     12.9       50,970     13.3       36,429     11.7       34,399     11.4
Commercial business          20,484      4.0       23,908      5.6       29,831      7.8       29,767      9.6       21,095      7.0
                         -----------------------------------------------------------------------------------------------------------

                            141,985     27.5      129,063     30.1      124,630     32.4       99,580     32.0       78,453     26.0
Consumer:
   Home equity and
     second mortgage         27,543      5.3       29,991      7.0       28,106      7.3       24,312      7.8       23,606      7.8
   Automobile loans           9,172      1.8       13,023      3.0       13,255      3.5        7,428      2.4        9,670      3.2
   Other                     20,757      4.0       26,292      6.1       29,943      7.8       10,898      3.5        7,605      2.5
                         -----------------------------------------------------------------------------------------------------------
Total consumer loans         57,472     11.1       69,306     16.2       71,304     18.6       42,638     13.7       40,881     13.6
                         -----------------------------------------------------------------------------------------------------------
          Total loans       516,302    100.0      428,116    100.0      384,113    100.0      311,674    100.0      301,609    100.0
                                    =========             =========             =========             =========             ========
Less:
   Loans in process        (101,854)              (73,235)              (36,864)              (26,156)              (16,658)
   Deferred fees               (835)                 (774)                 (711)                 (507)                 (641)
   Allowance for
     loan losses             (1,681)               (1,541)               (1,534)               (1,387)               (1,035)
                         -----------         -------------         -------------         -------------         -------------
          Net loans        $411,932              $352,566              $345,004              $283,624              $283,275
                         ===========         =============         =============         =============         =============
</TABLE>

(1)  Includes loans held for sale in the amount of $29.2 million, $12.1 million,
     $3.2 million, $5.3 million and $2.7 million as of September 30, 2002, 2001,
     2000, 1999 and 1998, respectively.

                                       3
<PAGE>



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

<TABLE>
<CAPTION>
                                                                   Years Ended September 30,
                                            ------------------------------------------------------------------------
                                                      2002          2001          2000          1999           1998
                                            ------------------------------------------------------------------------
                                                                        (In Thousands)
<S>                                           <C>           <C>           <C>           <C>            <C>
Total gross loans receivable at
    end of period                                $ 516,301     $ 428,116     $ 384,113     $ 311,674      $ 301,609
Loans originated:
  Residential real estate:
     One to four family                            142,661        99,017        56,400       130,461         56,768
     Residential construction                      233,716       150,254        94,929        55,700         23,007
     Multi-family                                        -             -             -             -            240
                                            ------------------------------------------------------------------------
       Total residential real estate               376,377       249,271       151,329       186,161         80,015
  Land                                               8,370        14,258         7,189         5,900          4,960
  Commercial business                               18,449        12,912        16,149        13,033          9,801
  Agricultural                                      55,328        42,040        38,204        28,081         27,049
  Consumer                                          22,486        29,471        49,804        27,503         25,740
                                            ------------------------------------------------------------------------
          Total loans originated                   481,010       347,952       262,675       260,678        147,565
Purchase of loans                                   19,298        27,337        32,417        40,883         10,832
Acquired in ING branch acquisition                  28,806             -             -             -              -
Sale of loan participation                               -        (1,600)         (851)       (3,000)             -
Sale of loans                                     (208,371)     (129,245)      (54,364)     (128,925)       (24,953)
Principal repayments                              (270,001)     (235,841)     (166,921)     (169,131)      (112,284)
Other (net)                                         37,443        35,400          (517)        9,560         (2,064)
                                            ------------------------------------------------------------------------
Net loan activity                                $  88,185     $  44,003     $  72,439     $  10,065      $  19,096
                                            ========================================================================
</TABLE>

Maturity of Loans
The following table sets forth the maturity of the Bank's loans at September 30,
2002. The table does not include prepayments or scheduled principal  repayments.
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                       $  11,456        $    12,634      $  103,465       $    59,234     $  186,789
3 months to 1 year                       34,721             12,942         135,690            36,753        220,106
                                 -----------------------------------------------------------------------------------
Total due before one year                46,177             25,576         239,155            95,987        406,895
                                 -----------------------------------------------------------------------------------
After 1 year:
   1 to 3 years                           7,624             24,888               -            18,525         51,037
   3 to 5 years                           4,361              9,694               -            13,830         27,885
   5 to 10 years                            882              9,037               -             5,325         15,244
   10 to 20 years                         6,942              2,241               -               418          9,601
   Over 20 years                          5,639                  -               -                 -          5,639
                                 -----------------------------------------------------------------------------------
Total due after one year                 25,448             45,860               -            38,098        109,406
                                 -----------------------------------------------------------------------------------
Total amount due                      $  71,625        $    71,436      $  239,155       $   134,085     $  516,301
                                 ===================================================================================
</TABLE>

                                       4

<PAGE>

The following  table sets forth,  as of September 30, 2002, the dollar amount of
all loans due after  September  30,  2003,  based upon fixed rates of  interest,
balloon rates or adjustable rates.

<TABLE>
<CAPTION>
                                                                Fixed-        Balloon      Adjustable
                                                                Rates          Rates          Rates          Total
                                                           -------------  ------------- -------------- --------------
                                                                                (In Thousands)
<S>                                                          <C>            <C>            <C>            <C>
One to four family real estate and construction                $  8,719       $  4,876       $ 11,853       $ 25,448
Land, multi-family and commercial real estate                    37,464          4,355          4,041         45,860
Commercial business, agricultural and consumer                   14,396              -         23,702         38,098
                                                           -------------  ------------- -------------- --------------
     Total                                                     $ 60,579       $  9,231       $ 39,596       $109,406
                                                           =============  ============= ============== ==============
</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  originates  balloon,  adjustable rate mortgage loans
("ARM") and fixed rate mortgage loans secured by one-to-four  family  residences
with terms of up to 30 years.  FHA and VA loans are also  offered and then sold,
servicing  released,  in the  secondary  market.  Borrower  demand for ARM loans
versus fixed rate mortgage loans depends on various factors,  including, but not
limited to, interest rates offered, the expectations of changes in the short and
long term levels of interest rates and loan fees charged. The relative amount of
fixed rate,  balloon and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.  The majority of
fixed rate loans are sold in the secondary market,  some with servicing released
and some servicing retained.

The Bank  originates  three,  five and seven year balloon  mortgage  loans,  the
majority of which are the  three-year.  These  mortgages  contain no contractual
assurances  that the loan will be renewed.  At  maturity,  the loan is generally
re-written  and   re-recorded.   If  the  borrower's  loan  payment  history  is
satisfactory, a new appraisal is not required.  Management believes that balloon
loans have a pricing  characteristic  that helps offset the  detrimental  effect
that rising rates could have on net interest income because the balloon loans do
not contain  interest  rate  adjustment  caps.  At September  30, 2002,  balloon
mortgages were $11.0 million, or 2.9% of the Bank's loan portfolio.

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

Residential Construction Lending.
The Bank originates residential construction loans to qualified  owner-occupants
for  construction  of one- to-four  family  residential  properties  in multiple
states. Construction loans are also made to builders on a pre-sold,  speculative
and model home basis.  Residential  construction loans generally have terms from
six to twelve months.  Loans for speculative  housing  construction  are made to
area builders only after a thorough background check, which includes an analysis
of the builder's financial statements,  credit reports and reference checks with
sub-contractors  and  suppliers,  has been made.  The Bank  limits the number of
speculative  and/or  model  homes  made to  builders  based on a  review  of the
builders'  financial  statements.  Loan  proceeds are  disbursed,  through title
companies,  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.

                                       5
<PAGE>

The Bank has  expanded  residential  construction  lending  in recent  years and
currently  does  business  in 44  states.  The  following  table  indicates  the
percentage of construction loans outstanding by state.


                                                      % OF TOTAL
                   STATE                              OUTSTANDING
                 ------------------------------------------------

                 Minnesota                                 37.7%
                 Wisconsin                                 14.7%
                 Michigan                                   6.5%
                 Colorado                                   5.0%
                 40 Other States                      5% or less


The  majority of these  loans are  referred to the Bank by a network of national
home-builders and are made on a construction-permanent basis. The loans are made
to  the  owner-occupant  based  on  sworn  construction  statements.   Prior  to
disbursements  being made,  the  properties  are  inspected and lien waivers are
obtained by various title insurance companies. These loans generally have yields
that are higher than market interest  rates.  When  construction is complete,  a
final inspection is performed and a modification agreement is executed. The loan
is then sold in the secondary market, servicing released.

                                       6
<PAGE>

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

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

Multi-family  residential  real  estate  loans are  permanent  loans  secured by
apartment buildings. Of primary concern in multi-family  residential real estate
lending is the borrower's creditworthiness,  feasibility and cash flow potential
of the project.  Loans  secured by income  properties  generally  are larger and
involve greater risks than residential  mortgage loans because payments on loans
secured by income properties are often dependent on the successful  operation or
management  of the  properties.  As a  result,  repayment  of such  loans may be
subject to, more than residential real estate loans,  adverse  conditions in the
real  estate  market or the  economy.  In order to monitor  cash flows on income
properties,  the Bank requires borrowers and loan guarantors, if any, to provide
annual financial  statements and rent rolls on multi-family  loans. At September
30, 2002,  the  outstanding  balance for the five largest land  acquisition  and
development,  commercial  real estate and  multi-family  loans  ranged from $2.2
million to $6.3 million with an average  committed  outstanding  balance of $3.9
million.  All these loans were  current and have  performed in  accordance  with
their terms.

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

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

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

The Bank  generally  obtains  annual  financial  statements  from  borrowers for
commercial  business loans. These statements are analyzed to monitor the quality
of the loan.  As of September  30, 2002,  the  outstanding  balance for the five
largest commercial business loans ranged from $1.2 million to $6.1 million, with
an average  committed  balance  outstanding of $2.6 million.  All five loans are
current and have performed in accordance with their terms.

                                       7
<PAGE>

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

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

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

Weather  presents one of the greatest  risks as hail,  drought,  floods or other
conditions  can severely  limit crop yields and thus impair loan  repayments and
the  value  of  the  underlying  collateral.  This  risk  can  be  reduced  with
multi-peril crop insurance,  which can guarantee set yields to provide certainty
of repayment. Unless the circumstances of the borrower merit otherwise, the Bank
generally  does  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, 2002,  the  outstanding  balance on First  Federal's  five largest
agricultural borrowers ranged from $1.3 million to $2.9 million, with an average
committed outstanding balance of $1.9 million. All these loans are in the Bank's
market area, are current and have performed in accordance with their terms.

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

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

                                       8
<PAGE>

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

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

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.  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, 2002,  the
outstanding  balance  on First  Federal's  five  largest  lending  relationships
included a $4.9 million commercial line of credit, a $6.1 million line of credit
to an unaffiliated  mortgage  banking  company,  $2.9 million in an agricultural
loan,  a $3.5  million  commercial  real  estate  loan and $6.4  million in land
development loans to a local developer.  This is approximately 4.6% of the total
loans.  At September  30, 2002,  all of these loans were within the loans to one
borrower  limitations,  performing in accordance with their terms, and at market
rates of interest.

Loan Servicing
The  Bank  services  substantially  all of the  loans  that  it  retains  in its
portfolio.  However,  HMC does not engage in any loan servicing.  Loan servicing
includes  collecting and remitting  loan payments,  accounting for principal and
interest,  making advances to cover delinquent  payments,  making inspections of
mortgaged premises (as required), contacting delinquent mortgagors,  supervising
foreclosures and property  dispositions in the event of unremedied  defaults and
generally  administering  the loans.  Funds that have been escrowed by borrowers
for the payment of mortgage related expenses,  such as property taxes and hazard
and mortgage insurance premiums, are maintained in non-interest bearing accounts
at the Bank.  At September 30, 2002,  the Bank had $260,000  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,
                                          --------------------------------------
                                               2002           2001          2000
                                          --------------------------------------
                                                          (In Thousands)
Mortgage loan portfolios serviced for:
          FHLMC                            $ 36,024       $ 42,736      $ 45,002
          Other Investors
                                              9,930         10,232         7,126
                                          --------------------------------------
                                           $ 45,954       $ 52,968      $ 52,128
                                          ======================================

                                       9
<PAGE>

The Bank receives fees for servicing  mortgage loans, which generally amounts to
0.25% per annum on the declining  balance of mortgage loans.  Such fees serve to
compensate the Bank for the cost of performing the servicing functions.  Another
source of loan servicing  revenues is late fees.  For the years ended  September
30, 2002,  2001 and 2000,  the Bank earned gross fees of $303,000,  $276,000 and
$247,000,  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, 2002, the Bank had $122,000 of foreclosed real estate,  consisting
of a  one-to-four  family  residential  loan.  When  foreclosed  real  estate is
acquired,  it is  recorded at the lower of the unpaid  principal  balance of the
related loan or its fair market value less related  disposition costs. Any write
down of the property is charged to the allowance for losses.

Non-performing Assets
Loans are reviewed on a regular basis and are placed on non-accrual status when,
in the opinion of management, the collection of additional interest is doubtful.
Residential  mortgage  loans are  generally  placed on  non-accrual  status when
either  principal  or interest is 90 days or more past due.  Consumer  loans are
generally charged off when the loan becomes over 90 days delinquent.  Commercial
business and real estate loans are generally  placed on non-accrual  status when
the loan is 90 days or more past due.  Interest accrued and unpaid at the time a
loan is placed  on  non-accrual  status  is  charged  against  interest  income.
Subsequent  payments are either applied to the outstanding  principal balance or
recorded  as  interest  income,  depending  on the  assessment  of the  ultimate
collectibility  of the loan.  At  September  30,  2002,  there were no  interest
accruing loans that were contractually past due 90 days or more.

                                       10
<PAGE>

The  following  table  sets  forth   information  with  respect  to  the  Bank's
non-performing  assets for the periods indicated.  During the periods indicated,
the Bank had no restructured  loans within the meaning of Statement of Financial
Accounting Standards (SFAS) No. 15.

<TABLE>
<CAPTION>
                                                                             At September 30,
                                                   -----------------------------------------------------------------
                                                           2002         2001         2000         1999         1998
                                                   -----------------------------------------------------------------
                                                                          (Dollars in Thousands)
<S>                                                  <C>          <C>           <C>          <C>          <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
   Residential construction loans                      $  3,133     $  1,043      $   323      $     -      $     -
   Permanent loans secured by one to
      four family units                                     482           78           55          205          240
   Non-residential loans                                     74            -            -            -            -
Non-mortgage loans:
   Commercial and agricultural                              647        1,195          452            -            -
   Consumer                                                 537          637          159           22           69
                                                   -----------------------------------------------------------------
Total non-accrual loans                                   4,873        2,953          989          227          309
Foreclosed real estate and real estate
   held for investment                                      122          126          321          323          502
                                                   -----------------------------------------------------------------
Total non-performing assets                            $  4,995     $  3,079     $  1,310      $   550      $   811
                                                   =================================================================
Total non-performing loans to net loans                    1.18%        0.84%        0.29%        0.08%        0.11%
                                                   =================================================================
Total non-performing loans to total assets                 0.92%        0.62%        0.21%        0.05%        0.07%
                                                   =================================================================
Total non-performing assets to total assets                0.94%        0.65%        0.28%        0.13%        0.19%
                                                   =================================================================
</TABLE>

There were twenty residential  construction loans accounted for on a non-accrual
basis.  The  borrower's  in six of the loans lost their jobs  subsequent  to the
start of construction,  one loan was brought current subsequent to September 30,
2002,  negotiations  continue  with the title company  associated  with one loan
where the title  company  failed to identify a life-estate  in the  property,  a
flood  determination  company  failed to identify a property  that is in a flood
plain and they are attempting to rectify the error,  four  properties are listed
for sale and the remainder  should be resolved in a satisfactory  manner.  There
were four permanent loans that should be resolved in a satisfactory  manner. The
non-residential loan is a participation,  with another financial institution, on
a  manufacturing  facility which was  paid-in-full  in November 2002. One of the
four commercial loans is a participation with another financial institution that
is guaranteed by the US Department of Agricultural. The loan has been liquidated
and the  remaining  balance  will be paid as part of the  guarantee.  The  three
remaining  commercial loans should be resolved in a satisfactory  manner.  Loans
that  are in the  liquidation  process  are  evaluated  for  impairment  and the
balances are written down to fair value,  if necessary,  in accordance with SFAS
114.

Interest  income  that  would have been  recorded  on loans  accounted  for on a
non-accrual  basis  under the  original  terms of such  loans was  approximately
$264,000 for the year ended September 30, 2002.

Classified Assets
Management, in compliance with regulatory guidelines, has instituted an internal
loan  review  program,   whereby  loans  are  classified  as  special   mention,
substandard,  or impaired. As part of the classification  process, all loans are
divided into two  categories,  homogenous  loans and  non-homogenous  loans.  In
general,  homogenous  loans are one-four family  residential  loans and consumer
loans.  All other loans are  considered to be  non-homogenous.  The Bank's Asset
Quality Committee reviews all non-homogenous loans that have exhibited weakness.
These loans are subjected to the impairment  testing  requirements  of SFAS 114,
"Accounting by creditors for impairment of a loan".

Management  has  established a watch list for loans that do not warrant  adverse
classification,  but  nonetheless  may possess  potential  weaknesses  deserving
management's   close  attention.   Assets  classified  as  special  mention  are
homogenous loans that are not substandard.  Assets classified as substandard are
characterized  by the  possibility  that the Bank may  sustain  some loss if the
deficiencies are not corrected.

                                       11
<PAGE>

Loans are evaluated for  impairment in accordance  with SFAS 114,  including all
loans that are in a troubled  debt  restructuring  involving a  modification  of
terms,  are  measured  at the  present  value  of  expected  future  cash  flows
discounted at the loan's initial effective  interest rate. The fair value of the
collateral of an impaired  collateral  dependent  loan or an  observable  market
price,  if one exists,  may be used as an  alternative  to  discounting.  If the
measure of the impaired  loan is less than the recorded  investment in the loan,
impairment  is  recognized  through a charge to earnings  and a reduction to the
loan balance. 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.

Management's  evaluation of the classification of assets and the adequacy of the
reserve for loan losses is reviewed by the regulatory  agencies as part of their
periodic  examinations.  At September  30, 2002,  the Bank had total  classified
assets of $6.1 million, of which $4.9 million were considered substandard and no
assets  were  classified  as  doubtful  or  loss.  All of the  loans  classified
sub-standard are accounted for on a non-accrual basis. For additional discussion
see-  Non-Performing  and Problem  Assets.  Special  mention assets totaled $1.2
million at September 30, 2002.

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

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 increase its allowance for loan losses or that a  deteriorating  real
estate  market or other  unforeseen  economic  changes  may cause an increase in
allowance  for loan  losses.  This may  negatively  affect the Bank's  financial
condition and earnings.

                                       12
<PAGE>

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

<TABLE>
<CAPTION>
                                                                               At September 30,
                                                   -----------------------------------------------------------------
                                                           2002         2001         2000         1999         1998
                                                   -----------------------------------------------------------------
                                                                        (Dollars in Thousands)
<S>                                                 <C>          <C>          <C>          <C>          <C>
Average loans outstanding                             $ 383,892    $ 344,470    $ 308,721    $ 274,676    $ 276,730
                                                   =================================================================
Allowance balance (beginning of period)                $  1,541     $  1,534     $  1,387     $  1,035      $   852
                                                   -----------------------------------------------------------------
ING branch acquisition                                  $   274      $     -      $     -      $     -      $     -
                                                   -----------------------------------------------------------------
Provision (credit):
   Residential and construction                             283           85            -            -            -
   Land and Commercial real estate                            -           30           60           20            2
   Commercial/agricultural business                         220          772          156          418          293
   Consumer                                                 308          190            -           18            7
                                                   -----------------------------------------------------------------
       Total provision                                      811        1,077          216          456          302
Charge off:
   Residential and construction                             174            -            -            -           45
   Commercial/agricultural business                         282          756            -            -            -
   Consumer                                                 532          371           98          142           87
                                                   -----------------------------------------------------------------
       Total charge offs                                    988        1,127           98          142          132
Recoveries:
   Residential and construction                               -            -            -            -            -
   Commercial real estate                                     -           35            -            -            -
   Consumer                                                  43           22           29           38           13
                                                   -----------------------------------------------------------------
       Total recoveries                                      43           57           29           38           13
                                                   -----------------------------------------------------------------
Net charge offs                                             945        1,070           69          104          119
                                                   -----------------------------------------------------------------
Allowance balance (at end of period)                   $  1,681     $  1,541     $  1,534     $  1,387     $  1,035
                                                   =================================================================
Allowance as percent of net loans                          0.41%        0.44%        0.44%        0.48%        0.36%
Net loans charged off as a percent of
   average loans                                           0.25%        0.31%        0.02%        0.04%        0.04%
</TABLE>

To further  monitor and assess the risk  characteristics  of the loan portfolio,
loan delinquencies are reviewed to consider any developing loan problems.  Based
upon the procedures in place, the Bank's  experience  regarding  charge-offs and
recoveries and the current risk elements in the portfolio,  management  believes
the  allowance  for loan  losses at  September  30, 2002 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 of the allowance for loan losses by
loan category:

<TABLE>
<CAPTION>
                                                                         September 30,
                                   ------------------------------------------------------------------------------------------
                                         2002              2001              2000              1999              1998
                                   ------------------------------------------------------------------------------------------
                                            Percent           Percent           Percent           Percent           Percent
                                            of Loans          of Loans          of Loans          of Loans          of Loans
                                            in Each           in Each           in Each           in Each           in Each
                                            Category          Category          Category          Category          Category
                                            to Total          to Total          to Total          to Total          to Total
                                    Amount   Loans    Amount   Loans    Amount   Loans    Amount   Loans    Amount   Loans
                                   ------------------------------------------------------------------------------------------
                                                                    (Dollars in Thousands)
<S>                               <C>        <C>    <C>        <C>    <C>        <C>    <C>        <C>     <C>       <C>
Real Estate:
     One-to-four family             $    37    13.9%  $    49    19.1%  $    59    26.3%  $    73    38.8%   $   94    52.2%
     Residential construction           206    46.3%      117    33.2%       59    21.5%       25    13.8%       11     7.3%
     Multi-family                        44     1.2%       48     1.4%       47     1.2%       56     1.8%       30     1.0%
     Land and commercial real estate    535    12.7%      390    12.9%      473    13.2%      486    11.7%      347    11.4%
Agricultural loans                      319    10.9%      318    11.7%      245    11.4%      200    10.7%      138     7.6%
Commercial business                     205     4.0%      239     5.6%      298     7.8%      297     9.6%      211     7.0%
Consumer loans                          335    11.0%      380    16.1%      353    18.6%      250    13.6%      204    13.5%
                                   ------------------------------------------------------------------------------------------
                                    $ 1,681   100.0%  $ 1,541   100.0%  $ 1,534   100.0%  $ 1,387   100.0%  $ 1,035   100.0%
</TABLE>

                                       13

<PAGE>

Investment and Mortgage-Backed Securities Activities

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

Mortgage-Backed and Related Securities
First Federal invests in residential  mortgage-backed  securities  guaranteed by
participation  certificate issues by the Federal Home Loan Mortgage  Corporation
("FHLMC"), the Federal National Mortgage Association ("FNMA") and the Government
National Mortgage Association ("GNMA"). The mortgage-backed securities portfolio
as of  September  30, 2002  consisted of $36.9  million in Real Estate  Mortgage
Investment  Conduits  ("REMICs"),  $7.5 million in a FNMA  certificate  and $5.5
million in FHLMC certificates.

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

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

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

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

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

                                       14
<PAGE>

The REMICs held by the Bank at September  30, 2002  consisted  of floating  rate
tranches.  The  interest  rate of all of the  Bank's  floating  rate  securities
adjusts monthly and provides the institution with net interest margin protection
in an increasing market rate environment. The securities are backed by mortgages
on one-to-four family residential real estate and have contractual maturities up
to 30 years.  None of the securities  are deemed to be "high risk"  according to
OTS guidelines.  The securities are primarily  companion  tranches to "PACs" and
"TACs". PACs and TACs (Planned and Targeted  Amortization  Classes) are designed
to provide a specific principal and interest cash flow.  Principal payments that
are received in excess of the amount  needed for the PACs and TACs are allocated
to the  companion  tranches.  When the PACs and  TACs are  repaid  in full,  all
principal  is then used to pay the  companion  tranches.  Although the timing of
principal  payments may be impacted by the amount of prepayments (the higher the
level of  prepayments,  the sooner the principal  will be received),  all of the
principal and interest payments are guaranteed.

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

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

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

Investment Activities
Current regulatory and accounting  guidelines  regarding  investment  securities
(including  mortgage-backed  securities)  require the  Corporation to categorize
securities as held to maturity,  available for sale or trading.  As of September
30, 2002,  the  Corporation  had  securities  classified as held to maturity and
available for sale in the amounts of $33.1 million and $41.2 million. There were
no securities classified as trading. Securities classified as available for sale
are reported for financial purposes at the fair market value with net changes in
the market  value from  period to period  included  as a separate  component  of
stockholders'   equity,  net  of  income  taxes.  At  September  30,  2002,  the
Corporation's  securities  available  for  sale had an  amortized  cost of $41.4
million  and a market  value of $41.2  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.

                                       15

<PAGE>

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

                                                           September 30,
                                              ----------------------------------
                                                  2002         2001       2000
                                              -----------  ----------  ---------
                                                         (In Thousands)
Investment securities:
   Debt securities                            $  12,447    $  12,420   $  18,393
   Debt securities available for sale                 -        3,055      12,728
   FHLB Stock                                     5,925        5,925       6,375
   Equity securities available for sale          12,046       12,021      11,871
                                              ----------   ----------  ---------
Total investment securities                      30,418       33,421      49,367
Interest bearing deposits                        11,018        9,767       5,552
Mortgage-backed and related securities:
   Mortgage-backed and related securities        20,679       25,731      26,986
   Mortgage-backed and related securities
       available for sale                        29,196       27,481      15,369
                                              ----------   ----------  ---------
Total mortgage-backed and related securities     49,875       53,212      42,355
                                              ----------   ----------  ---------
Total investments                             $  91,311    $  96,400   $  97,274
                                              ==========   ==========  =========


                                       16
<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, 2002:

<TABLE>
<CAPTION>
                                                     One to         Five to          More than         Total Investment
                 Adjustable    One Year or Less    Five Years       Ten Years        Ten Years            Securities
              ---------------- ---------------- ---------------- ---------------- ---------------- -----------------------
              Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
               Value    Yield   Value    Yield   Value    Yield   Value    Yield   Value    Yield   Value    Yield   Value
               -----    -----   -----    -----   -----    -----   -----    -----   -----    -----   -----    -----   -----
                                                               (Dollars in Thousands)
<S>           <C>       <C>     <C>      <C>    <C>      <C>      <C>      <C>    <C>      <C>    <C>       <C>   <C>
U. S.
  Government
  and Federal
Agency
  Obligations
  held to
  maturity      $     -     -%    $5,092  6.44%  $ 4,163  7.11%    $2,000   6.03%  $ 1,192  7.11%  $12,447   6.55% $13,150
Equity
  Securities
  available
  for sale       12,046  3.09          -     -               -          -      -         -     -   $12,046   3.09   12,046
FHLB Stock          N/A   N/A        N/A   N/A       N/A   N/A        N/A    N/A       N/A   N/A   $ 5,925   3.00    5,925
Mortgage-
  backed
  and
  related
  securities
  held to
  maturity       20,154  3.86          -     -         6  7.60          9  15.68       510  7.04   $20,679   3.94   20,724
Mortgage-
  backed
  and
  related
  securities
  available
  for sale       16,759  4.07          -     -         -     -          -      -    12,437  5.25   $29,196   4.83   29,196
Interest-
  bearing
  deposits       11,018  1.00          -     -         -     -          -      -         -     -   $11,018   1.00   11,018
                -------           ------         -------           ------         --------         -------         -------
    Total       $59,977  3.17%    $5,092  6.44%  $ 4,169  7.12%    $2,009   6.04%  $14,139  5.91%  $91,311   4.05% $92,059
                =======           ======         =======           ======         ========         =======         =======
</TABLE>

                                       17
<PAGE>

Deposits and Other Sources of Funds

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

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

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

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

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

The following table  indicates the amount of the Bank's  certificates of deposit
of $100,000 or more by time remaining until maturity as of September 30, 2002:

            Maturity Period                     Certificates of Deposit
                                                -------------------------
                                                     (In Thousands)
            Within three months                       $   13,266
            Three through six months                      10,258
            Six through twelve months                     33,496
            Over twelve months                             5,580
                                                      -----------
                                                      $   62,600
                                                      ===========

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

                                       18
<PAGE>

Advances have been  utilized when adequate  spreads can be obtained and the risk
(credit risk,  interest rate risk and market risk) in the  transaction  has been
maintained.  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 dates indicated:

                                             As of and for the Years Ended
                                                    September 30,
                                    --------------------------------------------
                                         2002           2001           2000
                                    --------------------------------------------
                                             (Dollars in Thousands)

      Maximum balance                $  113,500    $  127,500      $  140,967
      Average balance                   100,871       117,957         138,213
      Balance at end of period           98,000       113,500         127,500
      Weighted average rate:
           at end of period                5.56%         5.87%           5.89%
           during the period               5.72%         5.99%           5.89%


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, 2002, 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, 2002, the Bank
was  authorized  to invest up to  approximately  $10.6  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").  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.  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, 2002,  the
net book  value of First  Federal's  investment  in stock,  unsecured  loans and
conforming loans in FSI was $100,000 and HMC was $2.5 million.

Insurance  Planners (the "Agency") was incorporated in the State of Minnesota in
August 1983 and is engaged in the sale,  on an agency  basis,  of  property  and
casualty insurance products. As of September 30, 2002, the net book value of the
Corporation's  investment in stock,  unsecured loans and conforming loans in its
subsidiary was $749,000.

                                       19
<PAGE>

Personnel

As of September 30, 2002,  the Bank had 174 full time employees and 49 part time
employees representing a total of 196.6 full time equivalents. The employees are
not represented by a collective  bargaining  agreement and the Bank believes its
relationship with their employees is satisfactory.

Regulation

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

Regulation of the Corporation

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

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

Regulation of the Bank

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

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

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

                                       20
<PAGE>

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

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

The Bank is required to pay  insurance  premiums,  based on a percentage  of its
insured  deposits,  to the FDIC for  insurance of its deposits by the SAIF.  The
FDIC also  maintains  another  insurance  fund, the Bank Insurance Fund ("BIF"),
which primarily insures  commercial bank deposits.  The FDIC has set the deposit
insurance assessment rates for SAIF-member institutions for the first six months
of 2002 at 0% to 0.27% of insured  deposits  on an  annualized  basis,  with the
assessment rate for most savings institutions set at 0%.

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

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

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

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

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

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

                                       21
<PAGE>

qualify as a QTL results in a number of sanctions,  including the  imposition of
certain  operating  restrictions  and  a  restriction  on  obtaining  additional
advances from its FHLB. At September 30, 2002,  the Bank was in compliance  with
its QTL requirement.

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

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

Federal Reserve System
The Federal  Reserve  Board  requires all  depository  institutions  to maintain
non-interest  bearing  reserves at specified  levels  against their  transaction
accounts  (primarily  checking,   NOW  and  Super  NOW  checking  accounts)  and
non-personal  time  deposits.  The  balances  maintained  to  meet  the  reserve
requirements  imposed by the Federal  Reserve Board might be used to satisfy the
liquidity  requirements  that are imposed by the OTS. At September 30, 2002, the
Bank was in compliance with these Federal Reserve Board requirements.

                                       22

<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, 2002.

Additional offices, either owned or leased by the Bank, are set forth below with
information  regarding  net book value of the  premises  and  equipment  at such
facilities at September 30, 2002.

<TABLE>
<CAPTION>
                                                         Year
                                                      Acquired or             Net Book
                                                      Date Lease              Value at                Square
Location                                               Expires           September 30, 2002          Footage
-------------------------------------------      -------------------------------------------------------------------
                                                                       (Dollars in thousands)
<S>                                                  <C>                    <C>                   <C>
14994 Glazier Avenue
Apple Valley, MN  55124                                  1989                   $248                  3,000

305 10th Avenue S
Buffalo, MN  55313                                       1999                   985                   5,620

1002 Greeley Avenue
Glencoe, MN  55336                                       2000                   414                   1,980

1320 South Frontage Road
Hastings, MN  55033                                      1984                   945                  15,000

905 Highway 15 South,
Frontage Road
Hutchinson, MN  55350                                    1980                   176                   1,400

6505 Cahill Avenue
Inver Grove Heights, MN  55075                           1979                   227                   3,000

501 North Sibley Avenue
Litchfield, MN  55355                                    1978                   141                   2,400

200 East Frontage Road,
Highway 5
Waconia, MN  55387                                       1985                   275                   2,400

122 East Second Street
Winthrop, MN  55396                                      2002 (1)                18                     950

113 Waite Avenue South
Waite Park, MN  56387                                    2003 (2)                51                     700

135 3rd Avenue SW
Hutchinson, MN  55350                                    2002 (3)                6                    1,200

1001 Labore Industrial Court Suite E
Vadnais Heights, MN  55110                               2003 (4)               160                   7,748

1113 West Saint Germain Street
Saint Cloud, MN  56302                                   2001 (5)               780                   8,360

</TABLE>

1.   Lease  expires in July 2003 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 October 2003 with an option to renew for one-year  terms.
     The Company expects to renew the lease.
4.   Lease expires in January 2003.
5.   Property acquired on November 9, 2001.

                                       23
<PAGE>

The Bank leases  approximately  3,600  square feet of the  property in Hastings,
Minnesota  under two, three year operating  leases.  One lease will expire April
14,  2003 and the other  lease is month to month,  with  combined  annual  rents
totaling  $22,785 in  addition  to their  proportionate  share of the  operating
expenses.

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

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

ITEM 3.     LEGAL PROCEEDINGS

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


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

None.


                                     PART II


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

For additional  information  relating to the market for the Corporation's common
equity and related stockholder  matters, see "Corporate Profile and Stock Market
Information"  in the  Registrant's  2002 Annual Report to Stockholders on page 1
and is incorporated herein by reference.

ITEM 6.     SELECTED FINANCIAL DATA

The above captioned  information  appears under "Selected Financial Data" in the
Corporation's  2002 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
2002 Annual  Report to  stockholders  on pages 4 through 15 and is  incorporated
herein by reference.


ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The above  information  appears under  "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations" in the Registrant's  2002 Annual
Report  to  Stockholders  on pages 4  through  7 and is  incorporated  herein by
reference.

                                       24
<PAGE>

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated  Financial  Statements of the Corporation and its subsidiaries,
together with the report  thereon by Larson Allen Weishair & Co., LLP appears in
the  2002  Annual  Report  to  Stockholders  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 REGISTRANT

The information contained under the sections captioned "Section 16(a) Beneficial
Ownership  Reporting  Compliance"  and "Proposal  I--Election  of Directors" and
"Biographical  Information" in the 2002 Proxy Statement (the "Proxy  Statement")
are incorporated herein by reference.

ITEM 11.   EXECUTIVE COMPENSATION

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


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a)               Security Ownership of Certain Beneficial Owners

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

(b)               Security Ownership of Management

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

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


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

                                       25
<PAGE>

                                     PART IV


ITEM 14.   CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures.  Based on their evaluation
    ------------------------------------------------
as of a date within 90 days of the filing date of this Quarterly  Report on Form
10-QSB,  the Registrant's  principal  executive officer and principal  financial
officer have concluded that the Registrant's  disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c)  under the Securities  Exchange Act
of 1934 (the "Exchange Act")) are effective to ensure that information  required
to be  disclosed  by the Company in reports  that it files or submits  under the
Exchange Act is recorded,  processed,  summarized  and reported  within the time
periods specified in Securities and Exchange Commission rules and forms.

(b)  Changes in  internal  controls.  There were no  significant  changes in the
     ------------------------------
Registrant's  internal  controls or in other  factors  that could  significantly
affect these controls subsequent to the date of their evaluation,  including any
corrective  actions  with  regard  to  significant   deficiencies  and  material
weaknesses.

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

     (1)  The consolidated  statements of financial condition of the Corporation
          and  subsidiaries  as of  September  30, 2002 and 2001 and the related
          consolidated  statements of operations,  comprehensive income, changes
          in  stockholders'  equity  and cash flows for the three  fiscal  years
          ended  September  30, 2002,  together  with the related  notes and the
          independent  auditors'  report of Larson  Allen  Weishair  & Co.,  LLP
          independent certified public accountants are incorporated by reference
          to pages 16 through 42 of the 2002 Annual Report to Stockholders.

     (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.

               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 2002 Annual Report to Stockholders
               21.0 Subsidiary Information (See "Item 1-Business")
               22.0 Consent of Accountant
               99.0 Certification pursuant to 18 U.S.C. Section 1350, as adopted
                      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

--------------------------------------------------------------------------------
*    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.

                                       26
<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 16, 2002                   By: /s/ Donald A. Glas
                                                --------------------------------
                                                Donald A. Glas
                                                Co-Chair of the Board and Chief
                                                Executive Officer
                                                (Duly Authorized Representative)

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


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

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

Date: December 16, 2002                                        Date: December 16, 2002



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 16, 2002                                        Date: December 16, 2002



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

Date: December 16, 2002                                        Date: December 16, 2002



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

Date: December 16, 2002

</TABLE>
                                       27
<PAGE>

                            SECTION 302 CERTIFICATION


         I, Donald A. Glas, certify that:

1.       I have reviewed this annual report on Form 10-K of FSF Financial Corp.;

2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this annual report;

4.       The registrant's  other  certifying  officers and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         (a)      designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this annual report is being prepared;

         (b)      evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         (c)      presented  in  this  annual  report our conclusions  about the
                  effectiveness  of  the  disclosure  controls  and   procedures
                  based on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee  of  registrant's   board  of  directors  (or  persons
         performing the equivalent functions):

         (a)      all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

         (b)      any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and

6.       The registrant's  other certifying officer and I have indicated in this
         annual  report  whether  there were  significant  changes  in  internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.


Date:  December 16, 2002                             /s/Donald A. Glas
       -----------------------------                 ---------------------------
                                                     Donald A. Glas
                                                     Chief Executive Officer

                                       28
<PAGE>

                            SECTION 302 CERTIFICATION


         I, Richard H. Burgart, certify that:

1.       I have reviewed this annual report on Form 10-K of FSF Financial Corp.;

2.       Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this annual report;

4.       The registrant's  other  certifying  officers and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         (a)      designed  such  disclosure  controls and  procedures to ensure
                  that  material   information   relating  to  the   registrant,
                  including its consolidated  subsidiaries,  is made known to us
                  by others  within  those  entities,  particularly  during  the
                  period in which this annual report is being prepared;

         (b)      evaluated the  effectiveness  of the  registrant's  disclosure
                  controls and  procedures  as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         (c)      presented  in  this  annual  report our conclusions  about the
                  effectiveness  of  the  disclosure  controls  and   procedures
                  based on our evaluation as of the Evaluation Date;

5.       The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee  of  registrant's   board  of  directors  (or  persons
         performing the equivalent functions):

         (a)      all  significant  deficiencies  in the design or  operation of
                  internal   controls   which   could   adversely   affect   the
                  registrant's ability to record, process,  summarize and report
                  financial  data  and  have  identified  for  the  registrant's
                  auditors any material weaknesses in internal controls; and

         (b)      any fraud,  whether or not material,  that involves management
                  or  other  employees  who  have  a  significant  role  in  the
                  registrant's internal controls; and

6.       The registrant's  other certifying officer and I have indicated in this
         annual  report  whether  there were  significant  changes  in  internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.


Date:  December 16, 2002                             /s/Richard H. Burgart
       -----------------------------                 ---------------------------
                                                     Richard H. Burgart
                                                     Chief Financial Officer

                                       29