<PAGE> 1


                                   UNITED STATES
                        SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D.C. 20549

                                     FORM 10-Q

               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OF THE
                          SECURITIES EXCHANGE ACT OF 1934


                 For the quarterly period ended December 31, 1996


              Securities and Exchange Commission File Number 0-25722



                                 HF BANCORP, INC.

              (Exact name of registrant as specified in its charter)

DELAWARE                                                    33-0576146
(State or other jurisdiction                         (I.R.S. Employer I.D. No.)
Of incorporation or organization)


                  445 E. Florida Avenue, Hemet, California 92543
                     (Address of principal executive offices)


        Registrant's telephone number, including area code: (909) 658-4411






     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
filing requirements for the past 90 days.         Yes x      No
                                                     ---        ---



                       APPLICABLE ONLY TO CORPORATE ISSUERS:



      Indicate the number of shares  outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

      There were 6,281,875 shares of the Registrant's  common stock  outstanding
as of February 10, 1997.



<PAGE> 2




HF BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
INDEX

PART I - FINANCIAL INFORMATION                                             PAGE
         ---------------------                                             ----

ITEM 1.              FINANCIAL STATEMENTS

            Consolidated Statements of Financial Condition as of
            December 31, 1996, (unaudited) and June 30, 1996                 3

            Consolidated Statements of Operations (unaudited) for the
            Three and Six Months ended December 31, 1996, and 1995         4-5

            Changes in Stockholders Equity (unaudited)                       6

            Consolidated Statements of Cash Flows (unaudited) for the
            Six Months ended December 31, 1996 and 1995                    7-8

            Notes to Consolidated Financial Statements (unaudited)        9-15

ITEM 2.              MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                     ---------------------------------------
                     FINANCIAL CONDITION AND RESULTS OF OPERATIONS       16-31
                     ---------------------------------------------

PART II - OTHER INFORMATION
          -----------------

Item 1.              Legal Proceedings                                      32

Item 2.              Changes in Securities                                  32

Item 3.              Defaults Upon Senior Securities                        32

Item 4.              Submission of Matters to a Vote of Security Holders    32

Item 5.              Other Information                                      33

Item 6.              Exhibits and Reports on Form 8-K                       33

           Signature Page                                                   34






                                                 2

<PAGE> 3

<TABLE>
<CAPTION>

                                        HF BANCORP, INC. AND SUBSIDIARY
                                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                                                   Dec. 31            June 30,
                                                                                      1996                1996
                                                                                      ----                ----
                                                                                   (unaudited)

                                                                                       (Dollars in thousands)

<S>                                                                                 <C>                 <C>     
ASSETS

Cash and cash equivalents                                                           $100,396            $100,633
Investment securities held to maturity (estimated fair value of $27,072
 and $ 33,842 at  December  31,  1996 and June 30,  1996,  respectively)              27,317              34,666
Investment securities available for sale (amortized cost of $166,381
 and $ 177,487 at December  31, 1996 and June 30,  1996,  respectively               164,451             173,171
Loans receivable (net of allowance for estimated loan losses of $5,710
 and $3,068 at December  31, 1996 and June 30,  1996,  respectively)                 453,547             225,161
Mortgage-backed securities held to maturity (estimated fair value of $159,738
 and $152,521 at December 31, 1996 and June 30, 1996, respectively)                  162,466             159,262
Mortgage-backed securities available for sale (amortized cost of $54,088
 and $99,888 at December 31, 1996 and June 30, 1996, respectively)                    54,561             100,259
Accrued interest receivable                                                            7,154               6,260
Investment in capital stock of the Federal Home Loan Bank, at cost                     6,044               4,436
Premises and equipment, net                                                            8,607               6,578
Real estate owned, net
 Acquired through foreclosure                                                          3,422               1,079
 Acquired for sale or investment                                                         418                 996
Other assets                                                                          24,416              14,415
                                                                                  ----------           ---------

Total assets                                                                      $1,012,799            $826,916
                                                                                  ==========           =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Deposit accounts                                                                   $ 846,117          $ 669,725
Advances from the Federal Home Loan Bank                                              70,000             70,000
Accounts payable and other liabilities                                                 8,063              5,278
Income taxes                                                                           7,418                842
                                                                                  ----------           --------

Total liabilities                                                                    931,598            745,845

Stockholders' equity
Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued                 --                 --
 Common stock, $.01 par value; 15,000,000 shares authorized; 6,612,500 issued
  and 6,281,875 outstanding at December 31, 1996 and June 30, 1996                        66                 66
Additional paid-in capital                                                            51,188             51,113
Retained earnings, substantially restricted                                           39,320             40,957
Net unrealized loss on securities available for sale, net of taxes                      (855)            (2,309)
Deferred stock compensation                                                           (5,170)            (5,408)
Treasury stock, 330,625 shares                                                        (3,348)            (3,348)
                                                                                  ----------           --------

     Total stockholders' equity                                                       81,201             81,071
                                                                                  ----------           --------

     Total liabilities and stockholders' equity                                   $1,012,799           $826,916
                                                                                  ==========           ========

</TABLE>


See notes to consolidated financial statements





                                                           3
<PAGE> 4

<TABLE>
<CAPTION>
 
               
                                 HF BANCORP,  INC. AND  SUBSIDIARY
                               CONSOLIDATED STATEMENTS OF OPERATIONS
                                            (Unaudited)

                                                     FOR THE THREE MONTHS         FOR THE SIX MONTHS
                                                      ENDED DECEMBER 31,          ENDED DECEMBER 31,
                                                     --------------------         ------------------
                                                      1996          1995          1996          1995
                                                      ----          ----          ----          ----
                                                                   (Dollars in thousands)

<S>                                                  <C>           <C>           <C>           <C>   
INTEREST INCOME:
Interest on loans                                    $9,078        $4,273        $14,088       $8,446
Interest on mortgage-backed securities                4,357         4,972          9,012        9,755
Interest and dividends on investment securities       4,459         3,228          9,193        5,390
                                                     ------        ------        -------       ------

     Total interest income                           17,894        12,473         32,293       23,591

INTEREST EXPENSE:
Interest on deposit accounts                          9,988         5,914         18,127       11,777
Interest on advances from the Federal Home Loan
 Bank and other borrowings                              915         1,684          1,830        2,602
Net interest expense of hedging transactions            777           817          1,556        1,642
                                                     ------        ------        -------       ------

     Total interest expense                          11,680         8,415         21,513       16,021
                                                     ------        ------        -------       ------

NET INTEREST INCOME BEFORE PROVISION
 FOR ESTIMATED LOAN LOSSES                            6,214         4,058         10,780        7,570

PROVISION FOR ESTIMATED LOAN LOSSES                      29            58            208          203
                                                     ------        ------        -------       ------

NET INTEREST INCOME AFTER PROVISION
 FOR ESTIMATED LOAN LOSSES                            6,185         4,000         10,572        7,367

OTHER INCOME (EXPENSE):
Loan and other fees                                      96            45            148           93
Loss from real estate operations, net                  (135)         (189)          (187)        (268)
Gain on sale of mortgage-backed and investment
 securities available for sale                          664            --          1,030           --
Gain on sale of loans held for sale                      10            --             10           --
Savings fees                                            412           166            582          313
Other income                                             30            55            151           80
Amortization of intangible assets                      (575)           --           (812)          --
                                                     ------         -----        -------       ------

     Total other income (expense)                       502            77            922          218



</TABLE>







See notes to consolidated financial statements






                                                  4

<PAGE> 5

<TABLE>
<CAPTION>


                                 HF BANCORP, INC. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
                                           (Unaudited)

                                                        FOR THE THREE MONTHS      FOR THE SIX MONTHS
                                                         ENDED DECEMBER 31,       ENDED DECEMBER 31,
                                                        --------------------      ------------------     
                                                         1996         1995         1996        1995
                                                         ----         ----         ----        ----
                                                      (Dollars in thousands except earnings per share)

<S>                                                     <C>          <C>          <C>          <C>   
GENERAL AND ADMINISTRATIVE
EXPENSES:
Salaries and employee benefits                          $2,654       $1,656       $4,651       $3,304
Occupancy and equipment expense                            906          481        1,536          991
FDIC insurance and other assessments                       504          357          824          694
SAIF special assessment                                      0            0        4,759            0
Legal and professional services                            240          125          408          237
Data processing service costs                              461          179          753          395
Marketing                                                  150          103          308          170
Savings expense                                            141           63          243          124
Other                                                      433          182          783          369
                                                        ------       ------       ------       ------

     Total general and administrative expenses           5,489        3,146       14,265        6,284

EARNINGS(LOSS) BEFORE INCOME TAXES
EXPENSE (BENEFIT)                                        1,198          931       (2,771)       1,301

INCOME TAX EXPENSE (BENEFIT)                               496          386       (1,134)         543
                                                        ------       ------       ------       ------

NET EARNINGS (LOSS)                                        702          545       (1,637)         758
                                                        ======       ======       ======       ======

Net earnings (loss) per share                           $ 0.12       $ 0.09      ($ 0.29)      $ 0.12

Weighted average common shares outstanding           5,773,874    6,180,484    5,722,405    6,168,912



</TABLE>


See notes to consolidated financial statements






                                                          5



<PAGE> 6
<TABLE>
<CAPTION>


                                                           HF BANCORP, INC.
                                   CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
                                                  Six Months Ended December 31, 1996
                                                             (Unaudited)

                                        Common     Additional     Retained     Unrealized   Deferred stock   Treasury       Total
                                        stock      paid-in        earnings     loss on      compensation     stock
                                                   capital                     securities
                                                                               available
                                                                               for sale
                                   -------------------------------------------------------------------------------------------------
                                                                  (In Thousands)

<S>                                        <C>       <C>           <C>          <C>           <C>           <C>            <C>    
Balance at June 30, 1996                   $66       $51,113       $40,957      ($2,309)      ($5,408)      ($3,348)       $81,071

Net loss for the six months ended
December 31, 1996                           --            --        (1,637)          --            --            --         (1,637)

Change in net unrealized loss on
securities available for sale, net
of taxes                                    --            --            --        1,454            --            --          1,454

Deferred stock compensation                 --            75            --           --           238            --            313

                                   -------------------------------------------------------------------------------------------------
Balance at December 31, 1996               $66       $51,188       $39,320        ($855)      ($5,170)      ($3,348)       $81,201
                                   =================================================================================================


</TABLE>

See notes to consolidated financial statements










                                                                 6

<PAGE> 7

<TABLE>
<CAPTION>


                                           HF BANCORP, INC. AND SUBSIDIARY
                                        CONSOLIDATED STATEMENT OF CASH FLOWS
                                                     (UNAUDITED)

                                                                                              FOR THE SIX MONTHS
                                                                                               ENDED DECEMBER 31,
                                                                                               ------------------
                                                                                             1996              1995
                                                                                             ----              ----
                                                                                             (Dollars in thousands)

<S>                                                                                         <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings (loss)                                                                         (1,637)           $ 758
Adjustments to reconcile net earnings (loss)
 to net cash provided by (used in) operating activities:
Origination of loans held for sale                                                            (457)              --
Proceeds of sale of loans held for sale                                                        467               --
Provisions for estimated loan and real estate losses                                           317              320
Direct write-offs from real estate operations                                                   49               42
Depreciation and amortization                                                                  551              382
Amortization of deferred loan fees                                                            (347)            (161)
(Accretion) amortization of (discounts) premiums on loans
  and investment and mortgage-backed securities, net                                           (64)             (8)
Amortization of intangible assets                                                              812              --
Federal Home Loan Bank stock dividend                                                         (199)           (131)
Gain on sales of loans held for sale                                                           (10)             --
Loss (gain) on sales of real estate, net                                                       (59)            (69)
Gain on sale of mortgage-backed and investment securities, available for sale               (1,030)             --
Gain on sale of premises and equipment                                                         (14)             --
Increase in accrued interest receivable                                                       (894)         (1,945)
Increase (decrease) in accounts payable and other liabilities                                2,250         (26,520)
(Increase) decrease in other assets                                                             42          (2,141)
Other, net                                                                                     445             397
                                                                                           -------         -------
Net cash provided by (used in) operating activities                                            222         (29,076)

CASH FLOWS FROM INVESTING ACTIVITIES:

Net increase in loans receivable                                                           (66,362)        (14,938)
Purchases of mortgage-backed securities held to maturity                                   (15,039)             --
Purchases of mortgage-backed securities available for sale                                 (14,272)        (16,154)
Principal repayments on mortgage-backed securities held to maturity                          9,379          12,928
Principal repayments on mortgage-backed securities available for sale                        6,148           5,836
Purchases of investment securities held to maturity                                             --         (90,800)
Purchases of investment securities available for sale                                      (37,968)        (50,000)
Principal repayments on investment securities held to maturity                                 363             310
Principal repayments on investment securities available for sale                             2,992           3,491
Proceeds from sales of mortgage-backed and investment securities
 available for sale                                                                         71,381              --
Matured/called investment securities held to maturity                                        9,535           6,000
Maturities of investment securities available for sale                                      35,428              --
Proceeds from sales of real estate owned                                                     2,301           1,803
Additions to real estate owned                                                                  62             (93)
Proceeds from sale of premises and equipment                                                    (3)              4
Additions to premises and equipment                                                         (1,406)           (150)

Cash payment for acquisition, net of cash received                                         (14,707)             --
Purchase of FHLB stock                                                                          --          (1,618)
                                                                                           -------         -------

Net Cash used in investing activities                                                      (12,168)       (143,381)

</TABLE>





                                                          7


<PAGE> 8


<TABLE>
<CAPTION>


                                           HF BANCORP, INC. AND SUBSIDIARY
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                                     (UNAUDITED)


                                                                                          FOR THE SIX MONTHS
                                                                                          ENDED DECEMBER 31,
                                                                                          ------------------
                                                                                        1996              1995
                                                                                        ----              ----
                                                                                        (Dollars in thousands)

<S>                                                                                  <C>              <C>    
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from FHLB                                                                           --          $50,000
Proceeds from other borrowings                                                               --           49,438
(Decrease)increase in certificate accounts                                                  (43)           9,808
Net Increase (decrease) in NOW, passbook, money market investment and      
 non-interest -bearing accounts                                                          11,752           (2,635)
                                                                                      ----------          -------

Net cash provided by financing activities                                                11,709          106,611
                                                                                      ----------         --------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                                  (237)         (65,846)

CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD                                       100,633           88,642
                                                                                      ----------         --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                              100,396         $ 22,796
                                                                                      ==========         ========


SUPPLEMENTAL CASH FLOW DISCLOSURES-

Cash paid during the period for:
Interest on deposit accounts and other borrowings                                       $ 3,648         $  3,942
                                                                                      ==========        =========

Income taxes paid                                                                            --              303
                                                                                      ==========        =========

SUPPLEMENTAL DISCLOSURES OF NON CASH
 INVESTING AND FINANCING ACTIVITIES:
Real estate acquired through foreclosure                                             $    1,022       $    1,628

Loans to facilitate sale of real estate through foreclosure                             $   481         $     91

Purchase of  Palm Springs Savings Bank:
Fair value of assets purchased, excluding cash                                         $184,321               --
Fair value of liabilities assumed                                                       169,614               --
                                                                                       ---------

     Cash payment for acquisition, net of cash received                                $ 14,707               --
                                                                                       =========
Transfer of investment securities held to maturity to
  available for sale classification                                                                      $59,022

Transfer of mortgage backed securities held to maturity to
  available for sale classification                                                                      $24,321

</TABLE>

  See notes to consolidated financial statements








                                                       8


<PAGE> 9



HF BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

(UNAUDITED)



1.        Company Description and Basis of Presentation
          ---------------------------------------------

          HF Bancorp, Inc. is a savings and loan holding company incorporated in
the State of Delaware that was organized for the purpose of acquiring all of the
capital stock of Hemet Federal Savings and Loan  Association  (the  Association)
upon its conversion from a federally  chartered mutual savings  association to a
federally  chartered  stock savings  association.  On June 30, 1995, HF Bancorp,
Inc.  completed  its  sale of  6,612,500  shares  of its  common  stock  through
subscription and community offerings to the Association's  depositors,  Board of
Directors,  management,  employees and the public and used  approximately 50% of
the net  proceeds  from such sales to purchase all of the  Association's  common
stock issued in the Association's  conversion to stock form. Net proceeds of the
initial  offering  were $51.1 million and $25.5 million was used for purchase of
the Association's  common stock. Such business  combination was accounted for at
historical cost in a manner similar to a pooling of interests.

          On September  27, 1996,  Hemet  Federal  Savings and Loan  Association
consummated  the  acquisition  of Palm Springs  Saving Bank (PSSB) by purchasing
their 1,131,446 shares of common stock for $16.3 million.  The purchase included
acquiring a net loan portfolio of $160.7  million with an average  weighted rate
of 8.47% and savings account deposits of $164.7 million with an average weighted
rate of 4.09%.

          The  consolidated  financial  statements  include  the  accounts of HF
Bancorp,  Inc. and its  wholly-owned  subsidiary  Hemet Federal Savings and Loan
Association  and  its  wholly-owned  subsidiaries,   HF  Financial  Corporation,
Coachella  Valley  Financial  Services  Corporation  ("CVFSC"),  PSSB  Insurance
Services, Inc. ("PSSBI") and HF Financial Corporation's subsidiary,  First Hemet
Corporation (collectively, the Company). CVFSC served as the trustee on deeds of
trust  held  by  Palm  Springs  Savings  Bank  ("PSSB").  This  service  will be
transferred to First Hemet Corporation. PSSBI was formed to offer life insurance
and other investment  products to customers of PSSB. In September of 1994, PSSBI
discontinued  marketing debt and equity  securities,  including mutual funds, to
the general public and the PSSB customer base. First Hemet Corporation  provides
trustee services for the Association, is engaged in real estate development, and
receives  commissions  from the sale of mortgage life insurance,  fire insurance
and annuities. All material intercompany transactions, profits and balances have
been eliminated.

          The  Company  is  subject  to  regulation  by  the  Office  of  Thrift
Supervision ("OTS"), the Federal Deposit Insurance  Corporation ("FDIC") and the
Securities and Exchange Commission ("SEC").  Headquartered in Hemet, California,
the Association  conducts business from its main office and three branch offices
located in Hemet, California,  three branches in Riverside,  California and from
its other twelve branch offices  located in Sun City, San Jacinto,  Canyon Lake,
Idyllwild,


                                        9

<PAGE> 10


HF BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

(UNAUDITED)

Murrieta,  Vista, Oceanside,  Rancho Bernardo, Palm Springs, Desert Hot Springs,
Cathedral City and Rancho Mirage, California. Its deposits are insured up to the
applicable limits under the Savings  Association  Insurance Fund ("SAIF") of the
FDIC.  The  Association  is also a member of the  Federal  Home Loan Bank of San
Francisco  ("FHLB").  The  Association  is primarily  engaged in the business of
attracting  funds in the form of deposits and  supplementing  such deposits with
FHLB and other  borrowing,  and  investing  such funds in loans  secured by real
estate, primarily one-to-four family residential mortgage loans. The Association
has, in recent  years,  invested  in  mortgage-backed  and  related  securities,
including   collateralized  mortgage  obligations.   To  a  lesser  extent,  the
Association  invests in  multi-family  mortgage  loans,  commercial  real estate
loans,  construction loans,  acquisition,  development and land loans,  consumer
loans,  and commercial  business loans. The  Association's  revenues are derived
principally  from interest on its mortgage  loans,  consumer  loans,  commercial
loans,  mortgage-backed  securities  portfolio and interest and dividends on its
investment securities.  The Association's primary sources of funds are deposits,
principal  and  interest  payments  on  loans,  investment  securities  and  and
mortgage-backed securities, FHLB advances, and other borrowings.

          The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements.  In the opinion of management,  all necessary adjustments,
consisting  only  of  normal  recurring   adjustments,   necessary  for  a  fair
presentation  have been  included.  The results of operations  for the six month
period ended  December 31, 1996, are not  necessarily  indicative of the results
that may be expected for the entire fiscal year.

          These consolidated  financial statements and the information under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of  Operations"  should be read in  conjunction  with the  audited  consolidated
financial  statements  and notes thereto of HF Bancorp,  Inc. for the year ended
June 30,  1996  included  in the  Company's  Annual  Report on Form 10-K for the
fiscal year ended June 30, 1996.








                                       10

<PAGE> 11


HF BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

(UNAUDITED)



2.        Earnings Per Share
          ------------------

          Earnings per  share("EPS") for the three and six months ended December
31, 1996 are based on weighted average common shares  outstanding  calculated as
follows:

<TABLE>
<CAPTION>

                                                                         3 Months        6 Months
                                                                         Ended           Ended
                                                                         12/31/96        12/31/96
                                                                         --------        --------

     <S>                                                                <C>              <C> 
     Total shares issued                                                6,612,500        6,612,500

     Less:
        Weighted average unallocated shares under the ESOP plan           366,030          373,253
         Reduction in shares for the stock compensation plan              189,155          196,092
         Shares of treasury stock                                         330,625          330,625

     Plus:
          Increase in shares for the Stock Option Plan                     47,184            9,875

     Weighted  average shares outstanding for EPS calculations          5,773,874        5,722,405
(See Note 6)

</TABLE>


3.        Termination of Swap Agreements
          ------------------------------

          On July 10,  1995,  the Company  terminated  four  interest  rate swap
agreements with an aggregate outstanding notional amount of $60,000,000. At June
30, 1995, the weighted  average fixed payment rate and variable payment received
rate were 9.53% and 6.11%,  respectively.  The Company paid a termination fee of
$4,856,000  which has been  deferred and is being  amortized  over the remaining
terms of the respective swap agreements. The expected future annual amortization
is as follows:  $1,811,000,  $798,000  and $272,000 for the years ended June 30,
1997, 1998 and 1999 respectively. As of December 31, 1996 the remaining deferred
amount was $1,864,000.

4.        Loans Receivable
          ----------------

          The Association  adopted Statement of Financial  Accounting  Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by
SFAS  No.  118,  "Accounting  by  Creditors  for  Impairment  of a Loan - Income
Recognition and  Disclosures",  as of July 1, 1995. These  statements  generally
require all creditors to account for impaired loans, except those loans that are
accounted  for at fair  value  or at the  lower  of cost or fair  value,  at the
present  value of the  expected  future  cash  flows  discounted  at the  loan's
effective interest rate or, as a practical  expedient,  at the loan's observable
market price or the fair value of the collateral if the loan is




                                       11


<PAGE> 12


HF BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

(UNAUDITED)


collateral dependent. SFAS No. 114 indicates that a creditor should evaluate the
collectability  of both  contractual  interest and  contractual  principal  when
assessing the need for loss recognition.

          The Association applies the provisions of SFAS No. 114 to all loans in
its  portfolio.  In applying the  provisions  of SFAS No. 114,  the  Association
considers a loan to be impaired when it is probable that the Association will be
unable to collect all contractual  principal and interest in accordance with the
terms of the loan agreement.  However,  in determining  when a loan is impaired,
management also considers the loan documentation,  current loan to value ratios,
and the borrowers'  current financial  position.  The Association  considers all
loans  delinquent  90 days or more  and all  loans  that  have a  specific  loss
allowance applied to adjust the loan to fair value as impaired.

          As of December 31, 1996, the Association had impaired loans totaling $
9.7 million which have related  specific  reserves of $1.4  million;  there were
$10.2  million of impaired  loans as of December  31, 1996 for which no specific
reserves  had been  recorded.  Impaired  loans at June 30,  1996  totalled  $8.9
million. The average recorded investment in impaired loans during the six months
ended December 31, 1996 was $15.9  million.  The accrual of interest on impaired
loans is discontinued when, in management's  opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued,  all
unpaid accrued interest is reversed.  Interest income is subsequently recognized
to the extent of full cash payments  received and  accepted.  As of December 31,
1996 accrued interest on impaired loans was $95,000 and interest of $363,000 was
received in cash for the six months then ended.  Interest not  recognized due to
non-accrual  status was  $121,000  for the six months  ended  December 31, 1996,
compared to $64,000 for the six months  period  ended  December  31, 1995 Of the
$9.7 million of impaired loans which have specific  reserves  established in the
amount of $1.4 million,  60.3 %, or $5.8 million are paid current.  Of the $10.2
million of impaired loans for which no specific reserves had been recorded as of
December 31, 1996, 32.7% or $3.3 million are paid current.

5.        Change in Accounting Principles
          -------------------------------

          During  1995,  the FASB  issued  SFAS  No.  121,  "Accounting  for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
SFAS No. 122,  "Accounting for Mortgage  Servicing  Rights." The Company adopted
both of these  statements  beginning July 1, 1996 with no material impact on the
financial condition or results of operations of the Company.

          In October  1995,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting  Standards  (SFAS) No. 123,  "Accounting  for
Stock-Based  Compensation,"  which became  effective  for the Company  beginning
January 1, 1996.  SFAS No. 123  requires  expanded  disclosures  of  stock-based
compensation  arrangements  with employees and encourages (but does not require)
compensation  cost  to be  measured  based  on the  fair  value  of  the  equity
instrument awarded.  Companies are permitted,  however, to continue to apply APB
Opinion No. 25, which


                                       12


<PAGE> 13


HF BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

(UNAUDITED)


recognizes  compensation  cost  based  on the  intrinsic  value  of  the  equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to its
stock based compensation  awards to employees and will disclose the required pro
forma effect on net income and earnings per share. (See note 6)
 
        In June 1996 the FASB issued SFAS No. 125,  "Accounting  for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125") which was amended by SFAS No. 127. This Statement provides  accounting and
reporting  standards  for  transfers  and  servicing  of  financial  assets  and
extinguishments   of   liabilities   based  on  consistent   application   of  a
financial-components   approach  that  focuses  on  control.   It  distinguishes
transfers of  financial  assets that are sales from  transfers  that are secured
borrowings.  Under  the  financial-components  approach,  after  a  transfer  of
financial  assets,  an entity  recognizes all financial and servicing  assets it
controls and liabilities it has incurred and derecognizes financial assets it no
longer   controls   and   liabilities   that   have   been   extinguished.   The
financial-components  approach  focuses on the assets and liabilities that exist
after the  transfer.  Many of these assets and  liabilities  are  components  of
financial assets that existed prior to the transfer. If a transfer does not meet
the criteria for a sale,  the transfer is accounted  for as a secured  borrowing
with  pledge of  collateral.  The  Statement  is  effective  for  transfers  and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996.  Retroactive  application of this Statement is not permitted.
The Company does not  anticipate  that the  implementation  of SFAS No. 125 will
have a material impact on its results of operations or financial condition.

6.        Stock Plans
          -----------

          The Company  established  for  eligible  employees  an Employee  Stock
Ownership Plan and Trust ("ESOP") which became  effective upon the conversion of
the Association  from a mutual to a stock  association (the  "Conversion").  The
ESOP  subscribed  for 7% of the shares of common stock issued in the  Conversion
pursuant to the  subscription  rights  granted  under the ESOP plan. On June 30,
1995,  the  ESOP  borrowed  $3,703,000  from  the  Company  in order to fund the
purchase of common stock.  The loan to the ESOP will be repaid  principally from
the  Company's  contributions  to the ESOP  over a period  of ten  years and the
collateral for the loan is the common stock  purchased by the ESOP. The interest
rate for the ESOP loan is 9%. As of December 31, 1996 a total of 104,069  shares
of common  stock was  allocated  to employee  accounts,  leaving a remainder  of
358,806 shares to be allocated over the next eight years.

          At the Company's  Annual Meeting of  Shareholders on January 11, 1996,
the  shareholders  approved the HF Bancorp,  Inc.  1995 Master Stock Option Plan
("Stock Option Plan") and the Hemet Federal Savings and Loan Association  Master
Stock  Compensation  Plan (the  "Stock  Compensation  Plan")  (collectively  the
"Plans").  These Plans became  effective  as of the date of approval.  The Stock
Compensation  Plan was  authorized to acquire  198,375 shares of common



                                       13


<PAGE> 14

HF BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

(UNAUDITED)


stock  in the open  market.  The  Association  contributed  funds  to the  Stock
Compensation Plan to enable the Stock  Compensation Plan trustees to acquire the
necessary  shares of the common  stock.  On February 28, 1996,  the  Association
acquired 198,375 shares in the open market at a price of $10.00 per share. Stock
shares are held in trust. The plan allocated 34,700 shares to directors with the
remaining shares allocated to employees as follows:  75% as a base grant and 25%
as a  performance  grant to employees  (provided  goals are met) which will vest
over a 5 year period.  The total shares authorized were awarded to directors and
employees  in  key  management  positions  in  order  to  provide  them  with  a
proprietary  interest in the  Company in a manner  designed  to  encourage  such
employees  to remain  with the  Company.  The  amount  contributed  to the Stock
Compensation Plan will be amortized to compensation expense as the Association's
employees  and directors  become  vested in those shares.  During the six months
ended December 31, 1996, $209,000 was amortized to expense.

          The Stock Option Plan  provides for the grant of up to 661,250  shares
of Common Stock to employees  in key  management  positions  and  directors  and
similar to the Stock Compensation Plan, it is intended to provide key management
and  directors  with a  proprietary  interest in the Company  and  therefore  an
incentive  to  remain  with  the  Company.  As  of  December  31,1996,   options
representing  a total of 618,250  shares had been granted.  The first vesting of
such options will occur on January 11, 1997, when options  representing  112,850
shares will become exercisable at an exercise price of $10.05.

7.        Recent Developments
          -------------------

Thrift Rechartering Legislation.
-------------------------------

          The Deposit  Insurance  Funds Act provides  that the BIF and SAIF will
merge on January 1, 1999 if there are no more  savings  associations  as of that
date.  That  legislation  also requires that the Department of Treasury submit a
report to  Congress  by March 31,  1997 that makes  recommendations  regarding a
common financial  institutions charter,  including whether the separate charters
for thrifts and banks should be  abolished.  Various  proposals to eliminate the
federal thrift  charter,  create a uniform  financial  institutions  charter and
abolish  the OTS have been  introduced  in  Congress.  The bills  would  require
federal savings institutions to convert to a national bank or some type of state
charter by a specified  date (January 1, 1998 in one bill,  June 30, 1998 in the
other) or they would  automatically  become  national banks.  Converted  federal
thrifts  would  generally  be  required  to conform  their  activities  to those
permitted for the charter selected and divestiture of nonconforming assets would
be required over a two year period, subject to two possible one year extensions.
State chartered  thrifts would become subject to the same federal  regulation as
applies to state commercial banks.  Holding  companies for savings  institutions
would become  subject to the same  regulation as holding  companies that control
commercial banks, with a limited  grandfather  provision for unitary savings and
loan  holding  company  activities.  The Company is unable to 



                                       14


<PAGE> 15


HF BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

(UNAUDITED)

predict  whether  such  legislation  would be  enacted,  the extent to which the
legislation would restrict or disrupt its operations or whether the BIF and SAIF
funds will eventually merge.

Economic Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA")
-------------------------------------------------------------------------

          On  November  27,  1996,   the  OTS  issued  an  interim   final  rule
implementing the provisions of the EGRPRA.  Among other actions,  EGRPRA expands
and clarifies  federal thrifts' lending and investment  authority and amends the
Qualified  Thrift Lender  ("QTL") test. In general the  provisions of the EGRPRA
provide greater  lending and marketing  flexibility and enhanced market scope to
federal thrifts such as the Association.


Deposit Insurance Funds Act of 1996
-----------------------------------

          On  September  30,  1996,  the  President  signed into law the Deposit
Insurance Funds Act of 1996 (the "Funds Act") which, among other things, imposes
a  special  one-time  assessment  on SAIF  member  institutions,  including  the
Association,  to  recapitalize  the SAIF. As required by the Funds Act, the FDIC
imposed a special  assessment of 65.7 basis points on SAIF  assessable  deposits
held as of March 31, 1995, payable November 27, 1996. The special assessment was
recognized as an expense in the third quarter of 1996 and is tax deductible. The
Association  took a  pre-tax  charge  of $4.8  million  as a result  of the FDIC
special assessment during the fiscal quarter ended September 30, 1996.

          The  Funds  Act  also  spreads  the  obligations  for  payment  of the
Financing  Corporation  ("FICO")  bonds across all SAIF and Bank  Insurance Fund
("BIF") members. Beginning on January 1, 1997, BIF deposits will be assessed for
FICO payments at a rate of 20% of the rate assessed on SAIF  deposits.  Based on
current  estimates by the FDIC,  BIF deposits will be assessed a FICO payment of
1.3 basis points,  while SAIF deposits will pay an estimated 6.5 basis points on
the FICO bonds.  Full pro rata sharing of the FICO payments between BIF and SAIF
members  will  occur on the  earlier  of January 1, 2000 or the date the BIF and
SAIF are merged. The Funds Act specifies that the BIF and SAIF will be merged on
January 1, 1999 provided no savings associations remain as of that time.

          As  a  result  of  the  Funds  Act,  the  FDIC  lowered  SAIF  general
assessments  to 0 to  27  basis  points  effective  January  1,  1997,  a  range
comparable to that of BIF members.  However,  SAIF members will continue to make
the higher FICO payments  described  above. The  Association's  invoice for FDIC
deposit insurance for the quarter  commencing  January 1, 1997 was assessed at a
rate of 6.5 basis points (FICO related) on SAIF assessable deposits.  Management
cannot  predict the level of FDIC insurance  assessments  on an on-going  basis,
whether the savings association  charter will be eliminated,  or whether the BIF
and SAIF will eventually be merged.






                                       15

<PAGE> 16



Item 2.  Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------

General
-------

          HF Bancorp,  Inc.  ("Bancorp" or the "Company") was organized by Hemet
Federal Savings and Loan Association  ("Association" or "Hemet Federal") for the
purpose of acquiring all of the capital stock of the Association to be issued in
connection with the  Association's  conversion from mutual to stock form,  which
was  consummated  on  June  30,  1995,  (the  "Conversion").   The  Company  was
incorporated  under  Delaware  law.  The Company is a savings  and loan  holding
company  and is  subject  to  regulation  by the  Office of  Thrift  Supervision
("OTS"),  the Federal Deposit Insurance  Corporation ("FDIC") and the Securities
and Exchange Commission ("SEC"). Headquartered in Hemet, California, the Company
conducts  business  from its main  office and three  branch  offices  located in
Hemet,  California,  three branches in Riverside,  California and from its other
twelve branch offices located in Sun City, San Jacinto,  Canyon Lake, Idyllwild,
Murrieta,  Vista,  Oceanside,  Rancho  Bernardo,  Palm Springs,  Cathedral City,
Rancho Mirage and Desert Hot Springs,  California.  The Association is regulated
by the OTS and the FDIC and its deposits are insured up to the applicable limits
under  the  Savings  Association  Insurance  Fund  ("SAIF")  of  the  FDIC.  The
Association  is also a member of the  Federal  Home  Loan Bank of San  Francisco
("FHLB").

          On September  27, 1996,  Hemet  Federal  Savings and Loan  Association
consummated  the  acquisition  of Palm Springs  Saving Bank (PSSB) by purchasing
their 1,131,446 shares of common stock for $16.3 million.  The purchase included
acquiring a net loan portfolio of $160.7  million with an average  weighted rate
of 8.47% and savings account deposits of $164.7 million with an average weighted
rate of 4.09%.

          The Company is primarily  engaged in the business of attracting  funds
in the form of deposits  and  supplementing  such  deposits  with FHLB and other
borrowing,  and investing such funds in loans secured by real estate,  primarily
one to four family  residential  mortgage loans.  The Company had in past recent
years,  when  mortgage  demand  was  not  as  high  as  presently  exists,  made
investments in U.S. agency backed investment  securities and mortgage-backed and
related securities,  including collateralized mortgage obligations ("CMOs") that
generally are either  guaranteed  by a Federal  agency,  a government  sponsored
entity,  or are private issuer  securities that have an investment grade of AAA.
The current  direction is to serve the loan demand in our expanded  market areas
that have grown with the branch  acquisitions  in northern San Diego County from
Hawthorne  Savings,  F.S.B.  and through the acquisition of Palm Springs Savings
Bank that serves the  Coachella  Valley  communities.  To a lesser  extent,  the
Company  invests in multi-family  mortgage loans,  commercial real estate loans,
construction loans, acquisition, development and land loans, commercial business
loans and consumer loans.

          The Company's  revenues are derived  principally  from interest on its
loan and mortgage-backed securities portfolios and interest and dividends on its
investment  securities.  The Company's primary sources of funds are deposits and
principal  and  interest   payments  on  investment   securities,   loans,   and
mortgage-backed  securities,  FHLB  advances,  and  other  borrowings.   Through
subsidiaries,  the Company also engages in residential  real estate  development
and  receives  commissions  from  the  sale of  mortgage  life  insurance,  fire
insurance, annuities, mutual funds and



                                       16


<PAGE> 17



derives income from trustee services.

Changes in Financial Condition from June 30, 1996 to December 31, 1996
----------------------------------------------------------------------

          Total assets of the Company increased $185.9 million,  or 22.5 %, from
$826.9  million  at June 30,  1996 to  $1.013  billion  at  December  31,  1996,
primarily as a result of the  acquisition  of Palm Springs  Savings Bank (PSSB).
Loans receivable net increased $228.3 million,  or 101.4% from $225.2 million at
June 30, 1996 to $453.5  million at December  30, 1996  primarily as a result of
net loans  acquired in the PSSB  acquisition  totalling  $160.7  million and the
remainder as a result of increased  lending activity by the  Association,  which
included  $36.9  million  in  whole  loan,  adjustable  rate  residential  loans
purchased  in  the  secondary  market.   Mortgage-backed  and  other  investment
securities  decreased by $58.6 million,  from $467.4 million at June 30, 1996 to
$408.8 million at December 31, 1996,  primarily as a result of the December sale
of  $34.0  million  in  long  term,  fixed  rate,  U.S.  Agency  mortgage-backed
securities  and  $15.6  million  in  shares   associated   with  a  mutual  fund
concentrated  in shorter  duration  mortgage backed  securities.  The sales were
conducted  to build  liquidity  for loan funding and for  prepaying  (in January
1997) $20  million in  borrowings  carrying an  interest  rate of 5.78%;  and to
moderate the company's  exposure to increases in general market  interest rates.
Investment  in capital  stock of the FHLB  increased  from $4.4  million to $6.0
million  when  comparing  the  balances at June 30, 1996 to December  31,  1996;
primarily as a result of acquiring  $1.4  million in stock  previously  owned by
PSSB and dividends credited as stock for $0.2 million.

          The total investment in REO, net of valuation reserves, increased from
$1.1 million at June 30, 1996 to $3.4 million at December 31, 1996 primarily due
to an inflow of foreclosed  properties  and loans in the process of  foreclosure
from Palm Springs Savings Bank. Management anticipated this increase as a result
of its due diligence process in conjunction with the acquisition, requiring Palm
Springs  Savings Bank to record  additional loan and real estate loss provisions
totalling $2.2 million prior to the consummation of the acquisition.

          Other assets increased $14.4 million at June 30, 1996 to $24.4 million
at  December  31,  1996  primarily  due to the loan  premium  and  core  deposit
intangible  recorded in conjunction with the acquisition of Palm Springs Savings
Bank (see "Acquisition Of Palm Springs Savings Bank").

          Deposit  account  balances  increased  $176.4  million or 26.3%,  from
$669.7  million  at June 30,  1996 to  $846.1  million  at  December  31,  1996,
primarily  due to the PSSB  acquisition  that added  accounts  totalling  $164.7
million in deposit  accounts.  Total  equity  increased  $0.1 million from $81.1
million at June 30, 1996 to $81.2  million at December 31, 1996, or 0.2%, as the
$1.6 million net loss for the six months ended December 31, 1996 (which includes
a $2.8 million after tax impact of the one-time SAIF  assessment)  was offset by
improvement in the net unrealized  loss  position,  net of taxes,  on securities
available for sale.

Managing Interest Rate Risk and Hedging Activities
--------------------------------------------------

          In an effort to manage the  Company's  vulnerability  to interest rate
changes, management closely monitors interest rate risk on an ongoing basis.



                                       17



<PAGE> 18

          The Company has limited its exposure to interest  rate risk,  in part,
through the  origination and purchase of ARM loans and  shorter-term  fixed-rate
loans.  Management  believes that,  although  investment in ARM loans may reduce
short-term  earnings below amounts obtainable through  investments in fixed-rate
mortgage loans, an ARM loan portfolio reduces the Company's  exposure to adverse
interest rate fluctuations and enhances longer term profitability.

          During the quarter ended September 30, 1996 the Association  purchased
adjustable rate residential  whole loans in the secondary market totalling $36.9
million  with a net  weighted  average  coupon of 7.0% . Within this group $22.8
million are indexed to the one year constant  maturity  treasury index adjusting
on an annual basis and $14.1  million were  structured  as three/one  adjustable
rate loans  whereby  the rate is fixed for the first  three  years of the loan's
life and then reverts to a one year  adjustable  based on the one year  constant
maturity treasury index.  There can be no assurance that any substantial  amount
of ARM loans meeting the Association's  underwriting standards will be available
for origination in the future.  The overall  investment policy of the Company is
designed to manage the  interest  rate  sensitivity  of its  overall  assets and
liabilities,  to generate a favorable  return without  incurring  undue interest
rate risk, to supplement the Company's  lending  activities,  and to provide and
maintain  liquidity.  The Company's  objective is to control  interest rate risk
through  investments  in  instruments  with shorter terms to maturity or average
lives to better match the repricing of liabilities.

          During the quarter  ended  December  31,  1996 the Company  sold $34.0
million in long term, fixed rate, U.S. Agency mortgage backed securities held as
"available  for sale" in order to reduce the Company's  exposure to increases in
general market interest rates.

          The Company has also utilized a variety of financial  instruments  and
strategies  to manage the interest rate risk  associated  with its interest rate
sensitive assets and liabilities, including off-balance sheet transactions, such
as interest rate agreements, including swaps, caps and floors, which the Company
originally  entered into to  synthetically  adjust the duration of the Company's
liabilities to more closely match that of its assets.  At December 31, 1996, the
Company had two interest swap  agreements  with an aggregate  notional amount of
$35.0 million. One swap will mature on January 6, 1999 in the notional amount of
$20.0  million,  and the other will mature on January  30, 1999 in the  notional
amount  of $15.0  million.  On July 10,  1995 the  Association  terminated  four
interest rate swap contracts with an aggregate  notional amount of $60.0 million
invoking a termination  fee of $4.9 million which is being  amortized to expense
over the individual  remaining contract lives of each swap. At December 31, 1996
the deferred loss for termination  fees was $1.9 million.  During the six months
ended December 31, 1996 the  Association  amortized $1.0 million of the deferred
loss to interest  expense and charged interest expense for $0.5 million relating
to the $35.0 million of current existing interest rate swaps.



                                       18



<PAGE> 19


Acquisitions
------------

          The following tables provides  information  concerning the acquisition
of three  branches  from  Hawthorne  Savings,  FSB and the  acquisition  of Palm
Springs Savings Bank. Each of these  transactions  generated  intangible  assets
which reduce regulatory capital and which are being amortized against income, as
detailed below.

<TABLE>
<CAPTION>

Acquisition of Three Hawthorne Savings Branches
-----------------------------------------------


<S>                                                             <C>    
Transaction Date                                                         06/21/96
Deposits Acquired                                                      $185,189,446
Core Deposit Intangible Created                                         $6,642,079
Book Amortization Method / Term                                  Straight Line / 7 Years
Tax Return amortization Method / Term                           Straight Line / 15 Years
Monthly Pre-Tax Charge To Book Income                                     $79,072
Monthly Book Amortization Reported As                             Non Operating Expense
Core Deposit Intangible Balance As Of 12/31/96                           $6,167,644
Reduction in Regulatory Capital As Of 12/31/96                           $6,167,644
Reduction in Tangible Book Value As Of 12/31/96                          $6,167,644

</TABLE>


























                                               19



<PAGE> 20

<TABLE>
<CAPTION>

Acquisition of Palm Springs Savings Bank ("PSSB")
-------------------------------------------------

     Transaction Date                                                          09/27/96
     Nature of Transaction                                             Non Taxable Acquisition
     Accounting Methodology Employed                                     Purchase Accounting

<S>                                                          <C>                      <C>
Total Purchase Price                                         $16,264,536
   Less: Net Book Value of Assets & Liabilities Acquired     $ 9,287,912
                                                             -----------
Premium Paid Over Net Book Value                             $ 6,976,624

Accounting For The Acquisition                                  Debits                  Credits
                                                                ------                  -------
     Loan Premium Created                                     $2,441,000
     Core Deposit Intangible Created                          $9,445,475
     Deferred Tax Liability On Loan Premium                                            $1,008,284
     Deferred Tax Liability On Core Deposit Intangible                                 $3,901,567
     Cash Payment For PSSB Shares Above Net Book Value                                 $6,976,624
                                                             -----------              -----------
          Total                                              $11,886,475              $11,886,475
                                                             -----------              -----------

Book Amortization Method/Term
     Loan Premium                                                Effective Yield / Life Of Loans Acquired
     Core Deposit Intangible                                            Straight Line / Seven Years


Tax Return Amortization Method / Term
     Loan Premium                                            Not Tax Deductible Due To Non Taxable Acquisition
     Core Deposit Intangible                                 Not Tax Deductible Due To Non Taxable Acquisition
Monthly Pre-Tax Charge To Book Income
     Loan Premium                                            variable based upon loan amortization
     Core Deposit Intangible: Gross / Net                              $112,446 / $65,999

Monthly Book Amortization Reported As
     Loan Premium                                            Reduction In Interest Income
     Core Deposit Intangible                                 Non Operating Expense

                                                             Nominal             Deferred
Balances As Of 12/31/96                                      Assets              Tax Liabilities     Net
                                                             ------              ---------------     ---
     Loan Premium                                            $ 2,331,244         $  962,948          $1,368,296
     Core Deposit Intangible                                 $ 9,108,137         $3,762,225          $5,345,912
                                                             -----------         ----------          ----------
          Total                                              $11,439,381         $4,725,173          $6,714,208

Reduction In Regulatory Capital As Of 12/31/96
     Loan Premium                                            None
     Core Deposit Intangible, Net                            $5,345,912

Reduction in Tangible Book Value As Of 12/31/96
     Loan Premium                                            None
     Core Deposit Intangible, Net                            $5,345,912

</TABLE>
                                                     20

<PAGE> 21



Liquidity and Capital Resources
-------------------------------

          The Company's  primary  sources of funds are  deposits,  principal and
interest payments on loans, mortgage-backed and investment securities,  retained
earnings and FHLB advances and other borrowings.  While maturities and scheduled
amortization  of loans  are  predictable  sources  of funds,  deposit  flows and
prepayments  from  mortgage  related  assets are greatly  influenced  by general
interest  rates,  economic  conditions,  and  competition.  The  Association has
continued to maintain the required minimum levels of liquid assets as defined by
OTS regulations.  This requirement,  which may be varied at the direction of the
OTS  depending  upon  economic  conditions  and deposit  flows,  is based upon a
percentage  of  deposits  and  short-term  borrowings.  The  required  ratio  is
currently 5%. The  Association's  liquidity ratio was 14.3% at December 31, 1996
compared to 12.0 % at June 30, 1996. It is the Association's  intent to maintain
liquidity  in  a  5-6%  range  to  take  advantage  of  higher  interest  income
opportunities from mortgage,  commercial, and consumer related investments.  The
ratio at June 30, 1996  appeared high because the  Association  was still in the
process of deploying  funds on a more permanent  basis that were acquired in the
purchase of three branch offices from Hawthorne Savings, F.S.B. on June 21, 1996
that  provided cash in the amount of $177.9  million.  The ratio at December 31,
1996 appeared high due to the settlement  from the sale of $34.0 million in long
term,  fixed rate  mortgage-backed  securities  on December  11,  1996,  held as
available for sale,  and from the December 4, 1996  settlement  from the sale of
$15.6 million on mutual fund shares, also held as available for sale.

          The   Company's   cash   flows   are   comprised   of  three   primary
classifications:  cash flows from operating activities, investing activities and
financing activities. See Statements of Cash Flows in the Consolidated Financial
Statements  included herein.  The Company's  primary sources of funds during the
six months ended December 31, 1996 were its excess liquidity at the beginning of
the period,  principal  repayments on loans and  mortgage-backed  and investment
securities,  and proceeds from the sales of available  for sale  mortgage-backed
and investment securities.
 
          The Company has other  sources of liquidity  if a need for  additional
funds arises including FHLB advances.  At December 31, 1996, the Association had
$70.0 million in advances  outstanding  from the FHLB; no change from the amount
outstanding  at June 30,  1996.  The  Company had no other debt  outstanding  at
December 31, 1996.  The  Association  has  available  collateral  in the form of
mortgage  loans,  mortgage  backed and related  securities  and U.S.  Government
Agency Notes and Bonds that may be used as collateral in securing  financing for
cash needs.






                                       21

<PAGE> 22



          The  Association  must  maintain  capital  standards  as set  forth by
federal  regulations.  As of  December  31,  1996,  these  requirements  are: 1)
tangible capital of 1.5 % of adjusted assets;  2) core capital of 3% of adjusted
assets; and 3) risk-based capital of 8.0 % of risk-weighted  assets. At December
31, 1996, the Association  exceeded all minimum regulatory capital  requirements
as shown in the table below:

<TABLE>
<CAPTION>

                                                             PERCENT OF
                                                               ADJUSTED
                                         AMOUNT            TOTAL ASSETS
                                         ------            ------------

                                    (DOLLARS IN THOUSANDS)


<S>                                     <C>                    <C>  
Tangible Capital
----------------

Actual capital                          $56,582                5.71%

Minimum required                         14,858                1.50
                                         ------                -----
Excess                                  $41,724                4.21%
                                        =======                =====
Core Capital
------------

Actual capital                          $56,582                5.71%

Minimum required                         29,716                3.00
                                        -------                -----
Excess                                  $26,866                2.71%
                                        =======                =====

                                                        PERCENT OF RISK- 
                                         AMOUNT          WEIGHTED ASSETS
                                         ------          ---------------

Risk-based Capital
------------------

Actual capital                          $60,928              16.18%

Minimum required                         30,123               8.00
                                        -------              ------
Excess                                  $30,805               8.18%
                                        =======               =====

</TABLE>


          The Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991
("FDICIA")  contains "prompt  corrective  action" provisions under which insured
depository  institutions  are to be classified into one of five categories based
primarily upon capital adequacy. The categories range from "well capitalized" to
"critically  under  capitalized."  OTS  guidelines  define a "well  capitalized"
institution as follows: A savings  institution is "well capitalized" if it has a
total  risk-based  capital  ratio  of 10% or  greater,  has a Tier 1  risk-based
capital  ratio  (Tier 1 capital to total  assets) of 6% or  greater,  has a core
capital  ratio of 5% or greater and is not subject to any written  capital order
or  directive  to meet and  maintain a  specific  capital  level of any  capital
measure.  The  Association's  Tier 1 risk based capital ratio as of December 31,
1996 was 15.03%.  At December 31, 1996,  the  Association's  regulatory  capital
levels exceed the thresholds  required to be classified as a "well  capitalized"
institution.



                                       22

<PAGE> 23



          On January 10, 1997, the Office Of Thrift  Supervision  ("OTS") issued
Thrift Bulletin #69: "REVISED RATING SYSTEM;  DISCLOSURE OF COMPONENT  RATINGS".
This Bulletin  presented the adoption by the OTS of an updated Uniform Financial
Institutions Rating System ("UFIRS"). The revised rating system is effective for
all  examinations  that begin after January 31, 1997. The OTS will also commence
disclosing individual component ratings for safety and soundness examinations to
thrift  management  and directors at the same time.  The UFIRS has  historically
been referred to as the CAMEL rating system,  which produced a composite  rating
of an institution's  overall  condition and performance by assessing five rating
components:   Capital  adequacy,  Asset  quality,   Management,   Earnings,  and
Liquidity.  The revised rating system places additional emphasis on management's
effectiveness  in identifying,  measuring,  monitoring,  and controlling risk by
adding a sixth rating component:  "Sensitivity to market risk", thereby changing
the common  acronym to CAMELS.  The new "S"  component  rating will  address the
degree that changes in interest rates, commodity prices, and equity prices could
adversely  affect an  institution's  earnings  or economic  capital.  Management
believes that the new rating system will not materially  impact the Company,  as
the primary market price sensitivity  maintained by the Company is interest rate
risk,  which has been previously and regularly  reviewed in conjunction with OTS
examinations.


          Management   believes  that,  under  the  current   regulations,   the
Association will continue to meet its minimum capital requirements in the coming
year.  However,  events beyond the control of the Association,  such as changing
interest  rates or a further  downturn  in the  economy  in the areas  where the
Association has most of its loans,  could adversely  affect future earnings and,
consequently,  the ability of the Association to meet its future minimum capital
requirements.







                                       23



<PAGE> 24




Nonperforming and Classified Assets
-----------------------------------

          The following table sets forth information regarding non-accrual loans
delinquent 90 days or more and real estate acquired through foreclosure (REO).

<TABLE>
<CAPTION>


                                                      DECEMBER 31, 1996         JUNE 30, 1996
                                                      -----------------         -------------
                                                                (DOLLARS IN THOUSANDS)

<S>                                                              <C>                   <C>   
Non-accrual mortgage loans delinquent 90 days or
more                                                             $5,519                $1,301

Non-accrual consumer loans delinquent 90 days or
more                                                                 --                    --
                                                               --------             ---------
Total nonperforming loans                                         5,519                 1,301

Total investment in REO before valuation reserves                 4,301                 1,460
                                                               --------             ---------
Total nonperforming assets                                       $9,820                $2,761
                                                               ========             =========
Nonperforming loans to gross loans                                1.16%                  .56%

Non performing assets to total assets                             0.97%                  .33%


</TABLE>


          The  Association  adopted SFAS 114, as amended by SFAS 118, as of July
1, 1995 and  recognized no impact upon adoption.  A loan is considered  impaired
when  it is  probable  that  the  Association  will be  unable  to  collect  all
contractual  principal  and  interest in  accordance  with the terms of the loan
agreement,  when a loan is ninety  days or more  past due,  or when the loan has
been classified as "substandard" by an internal review process.

          At December 31, 1996 the Association had impaired loans totalling $9.7
million,  which have  related  specific  reserves of $1.4 million and there were
$10.2  million of impaired  loans as of December  31, 1996 for which no specific
reserves had been  recorded.  Total impaired loans as of June 30, 1996 were $8.9
million.  The average recorded investment in impaired loans during the six month
period ended December 31, 1996 was $15.9  million.  The  Association's  impaired
loans  increased by $11.0 million during the six months ended December 31, 1996,
primarily  due  to  $11.2  million  in  impaired  loans  obtained   through  the
acquisition of PSSB. The impaired  credits  obtained  through the acquisition of
PSSB  include  concentrations  on  residential  construction,  land / lots,  and
commercial  real  estate  loans.  As a result of its due  diligence  process  in
conjunction with the acquisition of PSSB,  management required PSSB to recognize
$2.2 million in  additional  loan and real estate loss  provisions  prior to the
consummation of the acquisition.

          Interest is accrued on impaired  loans on a monthly  basis  except for
those loans that are 90 days or more delinquent (non-accrual loans). When a loan
becomes  90 days or more  delinquent,  the  accrual of  interest  ceases and all
previously accrued interest is reversed. For the six months


                                       24



<PAGE> 25



ended  December 31,  1996,  accrued  interest on impaired  loans was $95,000 and
interest of $363,000 was received in cash.

          If all non-accrual  loans had been performing in accordance with their
original loan terms and had been  outstanding  from the earlier of the beginning
of the period or  origination,  the  Association  would have  recorded  interest
income of $121,000 during the six month period ended December 31, 1996.

          The allowance for loan losses is  established  through a provision for
loan losses based on  management's  evaluation of the risks inherent in its loan
portfolio and the general economy.  Management  reviews the  Association's  loan
loss allowance on a monthly basis.  In  determining  levels of risk,  management
considers  a variety  of  factors,  including  asset  classifications,  economic
trends,  industry experience and trends,  geographic  concentrations,  estimated
collateral  values,  management's  assessment of the credit risk inherent in the
portfolio,  historical loan loss experience,  and the Association's underwriting
policies.  The allowance  for loan losses is maintained at an amount  management
considers adequate to cover losses in loans receivable which are deemed probable
and estimable.

          In addition, various regulatory agencies, as an integral part of their
examination  process,  periodically review the Association's  allowance for loan
losses.  Such agencies may require the Association to recognize additions to the
allowance based on judgments different from those of management.

          While  management  uses the best  information  available to make these
estimates,  future  adjustments  to  the  allowances  may  be  necessary  due to
economic,  operating,  regulatory  and other  conditions  that may be beyond the
Association's control.
















                                        25



<PAGE> 26


          The  following   tables  set  forth  activity  in  the   Association's
allowances for estimated loan losses and estimated real estate losses during the
six months ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>


                                                          1996            1995
                                                          ----            ----

                                                              (IN THOUSANDS)

<S>                                                      <C>             <C>
Allowance for loan losses:
-------------------------  

   Balance at June 30                                    $3,068          $2,694

   Allowance Acquired from PSSB                           2,963              --

    Net Chargeoffs:

     One to four family                                    (345)           (250)

     Commercial real estate                                 (69)           (304)

     Construction loans                                     (16)            (10)

     Land/acquisition and development                      (119)            (20)

     Consumer                                                20              --
                                                         ------         -------
     Total chargeoffs                                      (529)           (584)

   Provision for estimated loan losses                      208             203
                                                         ------         -------
   Balance at December 31                                $5,710         $ 2,313
                                                         ======         =======
</TABLE>




                                          26



<PAGE> 27


<TABLE>
<CAPTION>
                                                          1996           1995
                                                          ----           ----
                                                            (IN THOUSANDS)

<S>                                                      <C>            <C>   
Allowance for Losses: Real Estate Foreclosure
---------------------------------------------

   Balance at June 30                                    $  381         $  532

   Allowance acquired from PSSB                             491              0

      Net Chargeoffs                                        (53)           (23)

     Provision for estimated real estate losses              60             11
                                                         ------         ------

   Balance at December 31                                $  879         $  520


Allowance for Losses: Real Estate-Development
---------------------------------------------
   Balance at June 30                                    $1,536         $1,395

   Allowance acquired from PSSB                               0              0

   Net Chargeoffs                                        (1,008)             0

   Provision for estimated losses                            49            107
                                                         ------         ------

Balance at December 31                                     $577         $1,502

Total Allowances For Real Estate Losses                  $1,456         $2,022
                                                         ======         ======
</TABLE>


The ratio of allowance for estimated  loan losses to gross loans  decreased from
1.33% at June 30, 1996 to 1.20% at December 31, 1996 due to an increase in gross
loans over the six month  period as a result of increased  fundings,  whole loan
purchases,  and the acquisition of $175.9 million in gross loans associated with
Palm Springs  Savings Bank.  The ratio of allowance for estimated loan losses to
gross  non-performing  loans decreased from 235.75% at June 30, 1996, to 103.46%
at December 31, 1996 due primarily to an increase in non performing  loans, from
$1.3 million at June 30, 1996 to $5.5 million at December 31, 1996. The increase
in  non-performing  loans was largely  attributable  to loans acquired from Palm
Springs  Savings  Bank;  as $3.3 million of the $5.5  million in non  performing
loans as of December 31, 1996 were originated by Palm Springs Savings Bank prior
to its acquisition by Hemet Federal.

The ratio of allowance for total estimated losses to total non-performing assets
decreased from 94.18% at June 30, 1996 to 67.10% at December 31, 1996, primarily
due to an increase in the level of non-performing  assets of $7.1 million.  Such
increase is primarily a result of higher levels of non-performing  loans of $4.2
million and real estate owned from foreclosure of $2.9 million.  At December 31,
1996,  41.4%  of the net (of  valuation  reserves)  real  estate  owned  through
foreclosure  balance  consisted of raw land and developed  lots. The Association
accounts for real estate owned through  foreclosure (REO-F) at fair market value
upon acquisition, and management believes that


                                        27



<PAGE> 28


adequate valuation reserves have been established.

Comparison of  Operating  Results for  the Three  Months  and  Six  Months Ended
--------------------------------------------------------------------------------
December 31, 1996 and 1995
--------------------------

GENERAL:  The Company  reported  net earnings of $702,000 or $0.12 per share for
-------
the three months ended December 31, 1996 compared to net earnings of $545,000 or
$0.09 per share for the same quarter last year.  The quarter ended  December 31,
1996  represents  the first full quarter in which the Company  realized the full
benefit of the increased  asset base which  resulted from both the September 27,
1996  acquisition of Palm Springs Savings Bank and the June 21, 1996 acquisition
of three Hawthorne Savings,  F.S.B.  branches.  While net interest income, other
income and  expense,  and general and  administrative  expenses  increased  as a
result of both acquisitions, certain non recurring expenses were realized during
the most recent two quarters  attributable  to  incorporating  acquired  assets,
liabilities, employees, and customers into the Association.

For the six months ended December 31, 1996,  the Company  reported a net loss of
$1.6 million or ($0.29) per share. This loss stems primarily from a $4.8 million
pre-tax charge,  or $2.8 million charge on an after-tax  basis,  associated with
the one-time SAIF  assessment  realized by the Company  during the quarter ended
September 30, 1996. Exclusive of this charge, the Company's earnings for the six
months ended  December 31, 1996 would have been $1.2 million or $0.20 per share.
For the six months ended  December  31, 1995,  net earnings of $758,000 or $0.12
per share were realized. With the expanded asset base experienced during the two
most recent  quarters,  net interest income increased $3.2 million or 42.4% from
$7.6 million for the six months ended December 31, 1995 to $10.8 million for the
six months ended  December 31,  1996.  During this same time frame,  general and
administrative  expenses,  exclusive of the one-time SAIF assessment,  rose $3.2
million or 51.3%.

NET INTEREST  INCOME:  Net interest income  increased $2.2 million or 53.1% from
--------------------
$4.1  million for the quarter  ended  December  31, 1995 to $6.2 million for the
quarter ended December 31, 1996. The quarterly  increase in net interest  income
is primarily due to the increase in average  interest  earning assets which rose
$263.6  million or 38.8% from $679.1  million for the quarter ended December 31,
1995 to $942.7  million for the quarter ended  December 31, 1996. In addition to
the Company's  expanding asset base, the net interest margin  increased 25 basis
points  from 2.39% for the  quarter  ended  December  31,  1995 to 2.64% for the
quarter  ended  December 31, 1996.  While the net interest  margin (which is the
ratio of net  interest  income to average  interest  earning  assets) rose by 25
basis  points,  the interest  rate spread  (which is the average yield earned on
interest earning assets less the average cost of interest bearing  liabilities )
increased by 55 basis points from the quarter  ended  December 31, 1995 to 2.30%
for the quarter ended December 31, 1996. The Company's ratio of interest earning
assets to interest bearing liabilities declined from 1.13x for the quarter ended
December 31, 1995 to 1.07x for the quarter ended  December 31, 1996, in part due
to the acquisition of branches from Hawthorne  Savings,  FSB and the purchase of
Palm Springs Savings Bank.

For the six months ended December 31, 1996 net interest income rose $3.2 million
or 42.4% from $7.6 million for the six months  ended  December 31, 1995 to $10.8
million for the six months ended  December 31, 1996.  The increase was primarily
attributed to a 32.3% increase in the average



                                        28


<PAGE> 29



balance of interest  earning  assets during the 1996 period.  In addition,  on a
semiannual  basis,  the net interest  margin rose 18 basis points from 2.31% for
the six  months  ended  December  31,  1995 to 2.49%  for the six  months  ended
December 31, 1996.

INTEREST  INCOME:  Interest income  increased $5.4 million,  or 43.5% from $12.5
----------------
million for the quarter ended Decmeber 31, 1995 to $17.9 million for the quarter
ended  December  31, 1996.  Interest on loans  increased by $4.8 million or over
100%  combined  with  an  increase  in  interest  and  dividends  on  investment
securities which rose $1.2 million or 38.1% from the second quarter last year to
the second quarter of the current  fiscal year.  Offsetting the rise in loan and
investment  interest and dividends,  mortgage-backed  securities interest income
fell $615,000 or 12.4% from $5.0 million for the three months ended December 31,
1995 to $4.4 million for the quarter  ended  December 31, 1996.  For the quarter
ended December 31, 1996 the average balance of interest  earning assets exceeded
the average balances for the same quarter of the prior year by $263.6 million or
38.8% The  weighted  average  yield on interest  earning  assets for the quarter
ended  December 31, 1996 rose 24 basis  points from 7.35% for the quarter  ended
December 31, 1995 to 7.59% for the quarter ended December 31, 1996.

For the six months ended December 31, 1996,  interest  income is $8.7 million or
36.9% more than the same period of the prior year with $23.6 million of interest
income  realized  in the first six  months of the prior year  compared  to $32.3
million  realized in the same period of the current year. On a semiannual  basis
for the six months ended  December 31, 1996 the trend of  significant  increases
experienced in interest income related to loans and investment  securities being
offset by reductions in interest  income related to  mortgage-backed  securities
continued as had been  experienced on a quarterly  basis. The average balance of
interest earning assets rose $211.4 million or 32.3% from $654.5 million for the
six months ended  December 31, 1995 to $865.9 for the six months ended  December
31, 1996.  Over this same time period,  yields on these interest  earning assets
rose 25 basis points from 7.21% to 7.46%.

INTEREST  EXPENSE:   Interest paid or accrued on deposit accounts increased $4.1
-----------------
million,  or 68.9 % from $5.9 million for the three  months  ended  December 31,
1995 to $10.0 million for the same period in the current year,  primarily due to
the increase in quarterly  balances of deposit accounts which increased over 70%
from the quarter ended  December 31, 1995 to the same quarter in 1996.  Interest
on  advances  from the FHLB and other  borrowings  decreased  $769,000  from the
quarter  ended  December  31, 1995 to the same  quarter in the current  year due
primarily to the  reduction in average FHLB advances and other  borrowings  from
$132.2  million for the quarter ended December 31, 1995 to $70.0 million for the
quarter  ended  December  31,  1996.  Interest  expense of hedging  transactions
decreased  $40,000 or 4.9% from $817,000 for the quarter ended December 31, 1995
to $777,000 for the quarter ended December 31, 1996.  The average  weighted cost
of all interest bearing liabilities decreased 31 basis points from 5.60% for the
three months ended December 31, 1995 to 5.29% for the quarter ended December 31,
1996.

As was the  trend in the  quarterly  period,  the trend  continued  into the six
months  ended  December  31,  1996  with  deposit  account  balances  increasing
significantly  over comparable  period of the prior year due to the acquisitions
while at the same time FHLB advances and other borrowings were repaid. Combining
the rise in interest expense due to liability  balance increases with decreasing
interest  expense due to lower interest rates paid on liabilities  results in an
overall net  increase in

                                        29


<PAGE> 30

interest expense of $5.5 million or 34.3% from the six months ended December 31,
1995 to the six months ended  December 31,  1996.  The weighted  average cost of
funds was 5.34% and 5.59% for the six month period  ended  December 31, 1996 and
1995, respectively.

PROVISION FOR  ESTIMATED  LOAN LOSSES:  The provision for estimated  loan losses
-------------------------------------
decreased by $29,000 or 50% from $58,000 for the quarter ended December 31, 1995
to $29,000 for the quarter ended  December 31, 1996. The provision for estimated
loan losses for the six month period ended December 31, 1996 increased $5,000 or
2.5% from $203,000 to $208,000 when  comparing the six month periods of 1995 and
1996, respectively. The balance of allowance for estimated loan losses increased
from $2.3  million at  December  31, 1995 to $5.7  million at December  31, 1996
primarily  due to the  acquisition  of Palm  Springs  Savings  Bank  whereby the
acquired  allowance for  estimated  loan losses of $3.0 million was added to the
Company's  allowances.  Such allowances  include valuation reserves provided for
specifically  identified loan losses as well as general valuation allowances for
loan losses.  Total non-performing loans increased from $1.7 million at December
31, 1995 to $5.5 million at December 31,  1996.  Non-performing  loans (gross of
the  allowance  of  estimated  loss)  acquired  from Palm  Springs  Savings Bank
totalled $3.3 million at December 31, 1996. The ratio of non-performing loans to
gross loans  receivable  increased from .79% at December 31, 1995 to 1.16% as of
December 31, 1996 while the ratio of  allowances  for  estimated  loan losses to
non-performing  loans  decreased from 132.55% at December 31, 1995 to 103.46% at
December 31, 1996.

OTHER INCOME AND EXPENSE:  Other  income and expense  increased  from $77,000 to
------------------------
$502,000  due  to  gains  on  sale  of  $664,000   realized  from  the  sale  of
mortgage-backed securities and a mutual fund investment during the quarter ended
December 31, 1996 for which no comparable  amounts were realized during the same
quarter of the prior year. The Company sold long term fixed rate mortgage-backed
securities,  with the intent to repay certain FHLB advances and  reinvesting the
remainder of the proceeds in adjustable rate loans or other assets that are more
responsive to changes in general market interest rates.  Fee revenues  generated
from  deposit  accounts  rose  $246,000 or 148.2% from  $166,000 for the quarter
ended December 31, 1995 to $412,000 for the quarter ended December 31, 1996. The
increase in savings  fees is  primarily  attributable  to deposit  related  fees
earned on the expanded  deposit  base.  The  increases in gains from the sale of
securities  and  deposit  related  fees  is  partially  offset  by the  $575,000
amortization  of intangible  assets for the quarter ended  December 31, 1996 for
which no amount was incurred  during the same quarter of the previous  year. The
intangible  assets  and the  resultant  periodic  amortization  were  created in
conjunction with the branch acquisition from Hawthorne  Savings,  F.S.B. and the
acquisition of Palm Springs Savings Bank.

For the cumulative six months ended December 31, 1996,  other income and expense
rose  $701,000  or more  than  300% from the  prior  year to the  current  year.
Mortgage-backed  and  investment  securities  sales  generated net gains of $1.0
million  during the first and second  quarter of the current fiscal year whereas
no activity  occurred during the same period of the prior year. The amortization
of intangible assets was $812,000 for the six months ended December 31, 1996 for
which no comparable amount existed during the same period of the prior year. The
amortization of intangible  assets on a semiannual  basis  represents six months
amortization resulting from the Hawthorne Savings, F.S.B. branch acquisition and
three  months  amortization   resulting  from  the  Palm  Springs  Savings  Bank
acquisition.


                                        30


<PAGE> 31


GENERAL  AND  ADMINISTRATIVE  EXPENSES:   General  and  administrative  expenses
--------------------------------------
increased  by $2.3  million or 74.4% from $3.1  million to $5.5  million for the
quarters ended December 31, 1995 and 1996,  respectively.  Salaries and employee
benefits  increased  from $1.7  million to $2.7  million for the  quarter  ended
December 31, 1995 and 1996,  respectively,  and  represented  48.4% of the total
general and  administrative  expenses for the three  months  ended  December 31,
1996.  Occupancy and equipment expenses also increased from $0.5 million to $0.9
million for the quarter  ended  December  31,  1995 and 1996,  respectively  The
primary  reason  for the 74.4%  increase  in total  general  and  administrative
expenses is an increase in  employees,  facilities,  and other costs  related to
incorporating and servicing the assets, liabilities, and customer bases acquired
from both Hawthorne  Savings F.S.B.  and Palm Springs Savings Bank.  General and
administrative  expenses stated as a percentage of average assets were 2.18% and
1.79% for the three  months  ended  December  31,  1996 and 1995,  respectively.
Certain non recurring expenses, such as employee and data processing costs, were
incurred  during the most recent  quarter as a result of the  September 27, 1996
Palm  Springs  Savings  Bank  acquisition  and  the  resulting  data  processing
conversion associated with this acquisition.

General and  administrative  expenses for the six months ended December 31, 1996
are  significantly  higher  due to an  increase  in  FDIC  insurance  and  other
assessments as the result of the one-time  assessment to  recapitalize  the SAIF
which amounted to $4.8 million . This charge was incurred at September 30, 1996.
Excluding the one-time SAIF assessment,  total general and administrative  costs
were $9.5 million and $6.3  million for the six months  ended  December 31, 1996
and 1995,  respectively.  General and  administrative  expenses  (excluding  the
one-time SAIF  assessment)  stated as a percentage of average  assets were 2.08%
and 1.85% for the six months ended December 31, 1996 and 1995, respectively. The
ratio of general and administrative expense to average assets,  inclusive of the
one-time SAIF assessment, is 3.12% for the six months ended December 31, 1996.

INCOME  TAXES:  Income tax expense  increased  by $110,000 due to an increase of
-------------
$267,000  pre- tax  earnings  from the quarter  ended  December  31, 1995 to the
quarter  ended  December 31, 1996.  For the six month period ended  December 31,
1996,  the income tax benefit of $1.1  million was a primary  result of the $2.0
million tax benefit  associated with the $4.8 million  one-time SAIF assessment.
Exclusive of the tax benefit from the one time SAIF assessment,  the tax expense
for the six months ended December 31, 1996 would have been $830,000.






                                       31



<PAGE> 32



PART II - OTHER INFORMATION

Item 1. Legal Proceedings
        -----------------

        The Company is not involved in any material  pending  legal  proceedings
        other than routine legal proceedings occurring in the ordinary course of
        business.  Such other  routine  legal  proceedings  in the aggregate are
        believed by  management  to be  immaterial  to the  Company's  financial
        condition or results of operations.

Item 2. Changes in Securities
        ---------------------

        None.

Item 3. Defaults Upon Senior Securities
        -------------------------------

        Not applicable.

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

        a) The Company's Annual Meeting of Stockholders was  held on October 28,
           1996.
          
        b) Not Applicable.

        c) At such meeting its stockholders approved the following:

        1.  The election of the following individuals as Directors for the  term
        of three years each

<TABLE>
<CAPTION>

                                                 For                   Withheld
                                                 ---                   --------

                <S>                               <C>                  <C>   
                Leonard E. Searl                  5,653,343            42,458

                Norman M. Coulson                 5,652,118            43,683

</TABLE>

        The following individuals are continuing as Directors:

          J. Robert Eichinger
          Harold L. Fuller
          Robert K. Jabs
          Patricia A. Larson


        2.  The appointment of Deloitte & Touche, L.L.P. as independent auditors
        of  the Company  for  the fiscal year ending  June 30, 1997 was ratified
        and approved in all respects.

<TABLE>
<CAPTION>
     
                For                      Against                   Abstain            Not Voted
                ---                      -------                   -------            ---------

                <C>                      <C>                       <C>                   <C>
                5,649,257                25,448                    20,749                347 


</TABLE>

                                       32



<PAGE> 33


Item 5. Other Information
        -----------------

        Not applicable.


Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

         A.  Exhibits

                (3) (I) Articles of Incorporation*

                    (ii) By-laws*

                (4) Stock Certificate*

         B.  Reports on Form 8-K

             (1) A report on Form 8-K was filed with the Securities and Exchange
             Commission  on  September  4, 1996  under  commission  file  number
             0-25722 reflecting the pro forma financial  information required by
             Article  11 of  Regulation  S-X  regarding  the  purchase  of three
             branches  with  deposit  accounts  totalling  $185.2  million  from
             Hawthorne Savings F.S.B. which was consummated on June 21,1996.

             (2) A report on form 8-K was filed with the Securities and Exchange
             Commission on October 1, 1996 under  commission file number 0-25722
             stating in summary that as of September  27, 1996 the  consummation
             of the  acquisition of Palm Springs  Savings Bank was completed and
             noting that pro forma financial  statements  would be filed as soon
             as practicable.

             (3) A report on Form 8-K was filed with the Securities and Exchange
             Commission  on  November  8, 1996,  under  commission  file  number
             0-25722 reflecting the pro forma financial  information required by
             Article 11 of  Regulation  S-X regarding  the  acquisition  of Palm
             Springs  Savings  Bank  which  was  completed  as of the  close  of
             business on September 27, 1996.

------------------------------------
*Incorporated  herein by reference  into this document from the Exhibits to Form
S-1  Registration  Statement and any amendments  thereto,  filed March 14, 1994,
Registration No. 33-90286.




                                       33


<PAGE> 34









                                   SIGNATURES



           Pursuant to the  requirements  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.



                                                      HF BANCORP INC.
                                                        (Registrant)

Date: February 10, 1997                      By:   /s/ J. Robert Eichinger
                                                   -----------------------
                                                   J. Robert Eichinger
                                                   Chairman/President
                                                   Chief Executive Officer



Date: February 10, 1997                      By:   /s/ Mark R. Andino
                                                   ------------------    
                                                   Mark R. Andino
                                                   Vice President/Treasurer