[FIRST FEDERAL BANCORPORATION LOGO]








                                ANNUAL REPORT FOR

                                 THE YEAR ENDED

                               SEPTEMBER 30, 2000

<PAGE>


                      [FIRST FEDERAL BANCORPORATION LETTER]


December 18, 2000




To Our Stockholders:

It gives me great pleasure to give you our progress and profitability report for
First Federal  Bancorporation and its principal subsidiary,  First Federal Bank.
This report represents an exciting and productive year at First Federal.

Total  consolidated  net  earnings  for the year ended  September  30,  2000 was
$889,642.  Net income  increased  15.48%  over 1999 levels  primarily  due to an
increase  in  net  interest  income  and  increased   reliance  on  fee  income.
Consolidated  stockholders'  equity was  $12,813,341 at September 30, 2000 which
represents 9.14% of total assets.

We are  pleased  to  report  the  following  positive  changes  during  the  new
millennium:

o    Our banking  subsidiary,  First Federal  Bank,  completed the change to the
     year 2000 without any problems.

o    In late 1999,  First  Federal Bank  introduced  our new  website,  customer
     Internet banking products and transactional website.

o    First Federal Bank  announced its agreement  with WalMart to open a banking
     office in Bemidji at the WalMart Supercenter in late 2001.

o    First Federal Bancorporation  completed its previously announced repurchase
     of its common stock with 1,280,152 shares outstanding.

Thank you for your support and we pledge our continuing  effort toward enhancing
shareholder value.



Sincerely,

/s/ William R. Belford

William R. Belford
President

<PAGE>

                              FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
                                                                 AT SEPTEMBER 30,                 CHANGE
                                                            --------------------------     --------------------
                                                              2000              1999       AMOUNT       PERCENT
                                                            --------          --------     ------       -------
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                       <C>              <C>             <C>            <C>
FINANCIAL POSITION:
  Total assets.........................................   $  140,218       $   132,290     $   7,928      5.99%
  Loans receivable, net................................       70,754            57,257        13,497     23.57
  Securities available for sale........................       25,211            31,272        (6,061)   (19.38)
  Securities held to maturity..........................       33,735            33,809           (74)    (0.22)
  Deposits.............................................       88,900            88,111           789      0.90
  Stockholders' equity.................................       12,813            13,061          (248)    (1.90)
  Number of common shares issued.......................    1,280,152         1,431,069      (150,917)   (10.55)

</TABLE>
<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED
                                                                AT SEPTEMBER 30,                  CHANGE
                                                            --------------------------     --------------------
                                                              2000              1999       AMOUNT       PERCENT
                                                            --------          --------     ------       -------
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                       <C>              <C>             <C>            <C>
RESULTS OF OPERATIONS:
  Interest income......................................   $    9,575       $     8,756     $     819      9.35%
  Interest expense.....................................        5,816             5,133           683     13.31
  Net interest income..................................        3,759             3,623           136      3.75
  Provision for loan losses............................           45                98           (53)   (54.08)
  Net interest income after provision
    for loan losses....................................        3,714             3,525           189      5.36
  Non-interest income..................................          782               567           215     37.92
  Non-interest expense.................................        3,067             2,849           218      7.65
  Earnings before income taxes.........................        1,429             1,243           186     14.96
  Net earnings.........................................          890               770           120     15.58


</TABLE>

                                       1
<PAGE>
                         SELECTED FINANCIAL INFORMATION


SUMMARY OF FINANCIAL CONDITION
<TABLE>
<CAPTION>

                                                                        AT SEPTEMBER  30,
                                                  -----------------------------------------------------------
                                                    2000        1999         1998         1997        1996
                                                    -----      ------       ------       ------      -----
                                                                  (DOLLARS IN THOUSANDS)
<S>                                             <C>         <C>           <C>          <C>         <C>
Total amount of:
  Assets.....................................   $  140,218  $ 132,290     $125,251     $111,492    $ 107,256
  Loans receivable, net......................       70,754     57,257       56,064       53,589       51,003
Investment securities:
  Available for sale.........................       13,633     16,071       19,732       28,757       25,750
  Held to maturity...........................       33,576     33,574       22,992           --           --

Mortgage-backed and related securities:
  Available for sale.........................       11,578     15,201       17,101       18,834       19,903
  Held to maturity...........................          159        234          307          530          846
Deposit accounts.............................       88,900     88,111       85,866       83,003       81,047
Advances from FHLB...........................       31,363     24,957       20,457        9,534        6,943
Other borrowings.............................        5,562      4,701        4,435        4,697        4,955
Stockholders' equity.........................       12,813     13,061       13,082       11,941       12,323

</TABLE>

<TABLE>
<CAPTION>

SUMMARY OF OPERATIONS
                                                                  YEAR ENDED SEPTEMBER 30,
                                                -----------------------------------------------------------------
                                                    2000        1999         1998         1997        1996
                                                    -----      ------       ------       ------      -----
                                                                  (DOLLARS IN THOUSANDS)

<S>                                             <C>         <C>           <C>          <C>         <C>
Interest income..............................   $    9,575  $   8,756     $  8,520     $  7,891    $   7,429
Interest expense.............................        5,816      5,133        4,906        4,457        4,016
                                                ----------  ---------     --------     --------    ---------
Net interest income before
  provision for loan losses..................        3,759      3,623        3,614        3,434        3,413
Provision for loan losses....................           45         98          153           --           --
Non-interest income..........................          782        567          651          571          533
Non-interest expense.........................        3,067      2,849        2,811        2,805        3,414
                                                ----------  ---------     --------     --------    ---------
Income before income tax expense.............        1,429      1,243        1,301        1,200          532
Income tax expense...........................          539        473          487          492          216
                                                ----------  ---------     --------     --------    ---------
Net income...................................   $      890  $     770     $    814     $    708    $     316
                                                ==========  =========     ========     ========    =========
Per Share Data:
   Basic earnings per share..................   $     .83   $     .66     $    .70     $    .58    $     .20
   Diluted earnings per share................         .82         .64          .65          .56          .19
Book value...................................       12.10       10.56        10.09         9.05         8.25

</TABLE>

                                       2
<PAGE>

KEY OPERATING RATIOS
<TABLE>
<CAPTION>

                                                                  YEAR ENDED SEPTEMBER 30,
                                                -------------------------------------------------------------------
                                                    2000        1999         1998         1997        1996
                                                    -----      ------       ------       ------      -----
                                                                  (DOLLARS IN THOUSANDS)

<S>                                                  <C>       <C>          <C>         <C>           <C>
Return on assets (net earnings divided
  by average total assets)...................        .65%      0.60%        0.69%       0.65%         0.31%
Return on equity (net earnings
  divided by average equity).................       6.95       5.85         6.60        5.87          2.31
Tangible-equity-to-assets ratio
  (average equity divided by
  average total assets)......................       9.42      10.22        10.44       11.10         13.25
Interest rate spread.........................       2.47       2.61         2.87        2.94          3.02
Net interest margin (1)......................       2.90       2.94         3.23        3.32          3.51
Non-performing loans to total loans (2)......        .56       0.75         0.90        0.17          0.41
Non-performing assets to total assets (3)....        .48       0.53         0.53        0.32          0.38
Allowance for loan losses to total loans.....        .72       0.95         0.86        0.78          0.87
Allowance for loan losses to
  non-performing loans.......................     128.78     126.14        96.14      464.13        214.93
Net charge-offs to average loans.............        .13       0.07         0.15        0.05          0.08
Non-interest expense to average assets.......       2.26       2.21         2.38        2.58          3.30
Average interest-earning assets to
  average interest-bearing
  liabilities................................     109.57     107.83       108.32      108.73        111.96
<FN>
____________
(1)      Net interest income/average interest earning assets.
(2)      Includes non-accruing loans and loans delinquent 90 days or more.
(3)      Includes non-performing loans and real estate owned.
</FN>
</TABLE>


Note:  The  following   discussion  is  provided  to  assist  readers  in  their
understanding  of  the  consolidated   financial  statements  of  First  Federal
Bancorporation.   This  discussion  should  be  read  in  conjunction  with  the
consolidated  financial  statements and other  financial  information  presented
elsewhere in this report.


                                       3
<PAGE>


                      BUSINESS OF THE COMPANY AND THE BANK

FIRST FEDERAL BANCORPORATION

         First Federal Bancorporation (the "Company") was incorporated under the
laws of the State of Minnesota in September  1994 at the  direction of the Board
of Directors of First  Federal  Banking & Savings,  FSB ("First  Federal" or the
"Bank") for the purpose of serving as a savings and loan holding  company of the
Bank upon the  acquisition  of all of the capital  stock issued by the Bank upon
its   conversion   from  the  mutual  to  the  stock  form  of  ownership   (the
"Conversion").  On April 3, 1995,  the Bank  completed  the  Conversion  and the
Company  completed its offering of Common Stock through the sale and issuance of
1,940,625  shares of Common Stock at a price of $4.44 per share  realizing gross
proceeds  of  $8.63  million  and net  proceeds  of  $7.96  million.  Since  the
Conversion,  the Company has repurchased 660,473 shares of its Common Stock, and
as of September 30, 2000, there were 1,280,152 shares of Common Stock issued and
959,814 shares of Common Stock outstanding. Prior to the Conversion, the Company
did not engage in any material  operations.  Currently,  the Company's principal
business is the  business of the Bank.  The  Company has no  significant  assets
other than the outstanding  capital stock of the Bank, $366,000 of cash and cash
equivalents and $998,000 in securities available for sale, and $181,000 in other
assets.

FIRST FEDERAL BANK

         First  Federal was  originally  chartered  in 1910 as  Beltrami  County
Savings and Building  Association,  a state-chartered  savings institution,  and
commenced  operations in that same year.  First Federal has been a member of the
Federal Home Loan Bank ("FHLB") of Des Moines since 1933,  and its deposits have
been federally  insured since 1938. In August 1997, the Bank changed its name to
"First Federal Bank." First Federal currently operates as a federally  chartered
savings  bank  through its main office  located in Bemidji,  Minnesota  and four
branch  offices,  which are located in  Bemidji,  Bagley,  Baudette  and Walker,
Minnesota.  The Bank's market area is located  approximately  200 miles north of
Minneapolis, Minnesota.

         First  Federal is  primarily  engaged  in the  business  of  attracting
deposits  from  the  general  public  and  originating  loans  secured  by first
mortgages on owner  occupied one- to four-family  residences in First  Federal's
market area.  First Federal also  originates  loans on  commercial  real estate,
multi-family real estate,  home equity lines of credit and other consumer loans,
and commercial  business  loans.  Due to limited loan demand in its market area,
First  Federal has  increased  its consumer  lending  activities in recent years
(primarily  automobile  and home equity loans) and has invested  excess funds in
mortgage-backed and related securities and in other investment  securities,  and
during  fiscal  2000  continued  to be  active  in  originating  and  purchasing
participation interests in commercial real estate loans.

         The Bank is subject to examination and comprehensive  regulation by the
Office of Thrift  Supervision  ("OTS"),  and the  Bank's  savings  deposits  are
insured  up to  applicable  limits by the  Savings  Association  Insurance  Fund
("SAIF"),  which is administered by the Federal  Deposit  Insurance  Corporation
("FDIC").  The Bank is a member  of, and owns  capital  stock in the FHLB of Des
Moines,  which  is one of 12  regional  banks in the  FHLB  System.  The Bank is
further  subject to regulations of the Board of Governors of the Federal Reserve
System (the "Federal  Reserve  Board")  governing  reserves to be maintained and
certain other matters.

         The Company's and the Bank's  executive  offices are located at 214 5th
Street,  Bemidji,  Minnesota  56601,  and the  main  telephone  number  is (218)
751-5120.


                                       4
<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL:

     The Bank is primarily  engaged in the business of attracting  deposits from
the general public and originating  loans secured by mortgages on owner occupied
one- to  four-family  residences in the Bank's  market area.  First Federal also
originates  loans on  commercial  real estate,  multi-family  real estate,  home
equity lines of credit and other consumer loans. In recent years, due to limited
loan demand in the Bank's market area, First Federal has significantly increased
its origination of consumer loans,  including  automobile and home equity loans,
and has invested excess funds in  mortgage-backed  and related securities and in
other investment securities.

     The Bank's net income is dependent  primarily  on its net interest  income,
which is the difference  between interest earned on loans and  investments,  and
the interest  paid on  interest-bearing  liabilities,  primarily  deposits.  Net
interest income is determined by (i) the difference  between the yield earned on
interest  earning  assets  and  rates  paid  on   interest-bearing   liabilities
("interest  rate  spread")  and (ii) the  relative  amounts of interest  earning
assets and interest-bearing liabilities. The Bank's interest rate spread is also
affected by regulatory, economic and competitive factors that influence interest
rates,  loan demand and deposit flows. The Bank's net income is also affected by
the generation of  non-interest  income,  which  primarily  consists of fees and
service charges.  In addition,  net income is affected by the level of operating
expenses and provisions for loan losses.

     The  operations  of  financial   institutions,   including  the  Bank,  are
significantly   affected  by  prevailing   economic   conditions,   competition,
regulatory policies, and the monetary and fiscal policies of the U.S. Government
and government  agencies.  Lending  activities are influenced by the demand for,
and supply of housing,  competition  among lenders,  the level of interest rates
and the  availability of funds.  Deposit flows and costs of funds are influenced
by  prevailing  market rates of interest  primarily  on  competing  investments,
account  maturities and the levels of personal  income and savings in the market
area of the Bank.

ASSET AND LIABILITY MANAGEMENT:

     General.  The interest rate  sensitivity of assets and  liabilities  may be
analyzed  by  examining  the extent to which such  assets and  liabilities  will
mature or reprice within the same period.  The interest rate  sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing  within a specific  time period and the amount of  interest-bearing
liabilities  maturing or repricing  within that time period. A gap is considered
positive  within a particular  period when the amount of interest rate sensitive
assets  exceeds  the  amount  of  interest  rate  sensitive  liabilities  and is
considered  negative  when the amount of  interest  rate  sensitive  liabilities
exceeds the amount of interest rate sensitive assets. Generally, during a period
of rising  interest  rates, a negative gap would  adversely  affect net interest
income while a positive gap would result in an increase in net interest  income.
Conversely,  during a period of falling  interest  rates,  a negative  gap would
result in an increase in net interest  income and a positive gap would adversely
affect net interest income.

     Interest  Rate Risk.  The Bank seeks to maximize  its net  interest  margin
within an  acceptable  level of interest  rate risk.  Interest  rate risk can be
defined as the change in the Bank's net portfolio value resulting from favorable
or unfavorable  movements in interest rates. Interest rate risk, or sensitivity,
arises  when  the  maturity  or  repricing   characteristics  of  assets  differ
significantly from the maturity or repricing characteristics of liabilities.



                                       5
<PAGE>


     The following  table sets forth the Bank's interest rate repricing gaps for
selected maturity periods at September 30, 2000 (in thousands):
<TABLE>
<CAPTION>
                                                              RATE SENSITIVE PERIOD
                                          ------------------------------------------------------------------------
                                          1-180            181-365             1-2            OVER 2
                                          DAYS              DAYS              YEARS            YEARS       TOTAL
                                          ------------------------------------------------------------------------
<S>                                       <C>             <C>              <C>               <C>          <C>
Earning assets:
  Loans
    Fixed-rate..........................  $  3,089        $  2,856         $   5,971         $ 19,910     $ 31,826
    Variable-rate.......................    19,602           7,003             2,718            9,605       38,928
  Securities
    Fixed-rate (1)......................       669             368               805           11,915       13,757
    Variable-rate.......................    46,839             232                --               --       47,071
                                          --------        --------         ---------         --------     --------
    Total earning assets................    70,199          10,459             9,494           41,430      131,582
                                          --------        --------         ---------         --------     --------

Interest-bearing liabilities:
  Time deposits.........................    20,885          14,375             9,094           10,477       54,831
  NOW and money market deposits (2).....     2,399           2,383                --           17,152       21,934
  Savings deposits (2)..................       552             552                --            7,314        8,418
  Borrowings............................    36,087             638                --              200       36,925
                                          --------        --------         ---------         --------     --------
    Total interest-bearing liabilities..    59,923          17,948             9,094           35,143      122,108
                                          --------        --------         ---------         --------     --------
  Incremental asset (liability) gap.....    10,276          (7,489)              400            6,287        9,474
                                          --------        --------         ---------         --------     --------
  Cumulative asset (liability) gap......    10,276           2,787             3,187            9,474        9,474
                                          --------        --------         ---------         --------     --------
<FN>
--------------
(1)  Maturity of mortgage-backed and asset-backed securities are presented based
     on the current estimated cash flows.
(2)  Historically  the  Bank's  NOW  accounts  and  savings  deposits  have been
     relatively  insensitive  to  interest  rate  changes.   However,  the  Bank
     considers  a portion  of savings  deposits  to be rate  sensitive  based on
     historical growth trends and management's expectations.
</FN>
</TABLE>

     While the gap analysis provides an indication of interest rate sensitivity,
experience  has  shown  that it does not  fully  capture  the true  dynamics  of
interest  rate  changes.  Essentially,  the  analysis  presents  only  a  static
measurement of asset and liability volumes based on contractual  maturity,  cash
flow estimates or repricing opportunity.  It fails to reflect the differences in
the timing and degree of  repricing  of assets and  liabilities  due to interest
rate changes. In analyzing interest rate sensitivity, management considers these
differences and  incorporates  other  assumptions  and factors,  such as balance
sheet growth and prepayments, to better measure interest rate risk.

     A principal objective of the Bank's asset/liability management effort is to
balance  the  various  factors  that  generate   interest  rate  risk,   thereby
maintaining  the interest rate  sensitivity of the Bank within  acceptable  risk
levels.  To manage  interest  rate risk,  the Bank  assesses  its  current  risk
position  in light of  interest  rate  forecasts  and  develops  and  implements
specific  lending,  funding  and  investment  strategies.  The Bank may also use
derivative financial  instruments,  including interest rate swaps, caps, floors,
futures and options, to manage interest rate risk. To date such instruments have
not been utilized.

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Financial Condition. The Company's total assets increased by $7.93 million,
or 5.99%,  from  $132.29  million at  September  30, 1999 to $140.22  million at
September  30, 2000.  The increase in total assets  resulted  primarily  from an
increase in loans receivable, net, of $13.50 million, which was partially offset
by a decrease in investment securities of $6.14 million.

     Investment  securities and  mortgage-backed and related securities totaling
$58.95 million at September 30, 2000,  consisted of $25.21 million in securities
classified as available for sale and $33.74 million in securities  classified as
held to maturity. Loans receivable,  net increased $13.50 million as a result of
an excess of new loan originations and purchases over repayments and refinances.


                                       6
<PAGE>


     The Company  experienced  an increase  in  deposits  during  fiscal 2000 of
$789,000,  or 0.90%, from $88.11 million at September 30, 1999 to $88.90 million
at September 30, 2000. Repurchase agreements increased $860,000, or 18.31%, from
$4.70 million at September 30, 1999 to $5.56 million at September 30, 2000.

     The Company has made  extensive  use of the Federal  Home Loan Bank Advance
program  during the twelve months ended  September  30, 2000.  Federal Home Loan
Bank advances have increased from $24.96 million at September 30, 1999 to $31.36
million at  September  30,  2000.  These  borrowings  have been used to generate
income on the spread  between the yield on the loans  originated  and  purchased
with the borrowings and the rate on the borrowings.

COMPARISON  OF  OPERATING  RESULTS  FOR THE YEARS ENDED  SEPTEMBER  30, 2000 AND
SEPTEMBER 30, 1999.

     Net  Earnings.  The Company had net earnings of $890,000 for the year ended
September  30, 2000,  as compared to $770,000 for the year ended  September  30,
1999. As discussed below, the increase in net earnings of $119,000 was primarily
the result of a $215,000 increase in non-interest income, a $135,000 increase in
net interest  income,  and a $53,000  decrease in the provision for loan losses,
partially offset by a $218,000 increase in non-interest expense.

     Net Interest Income.  Net interest income increased by $135,000,  or 3.74%,
from $3.62  million for the year ended  September  30, 1999 to $3.76 million for
the year ended September 30, 2000.  Average  interest-earning  assets  increased
$6.40 million, or 5.19%, while average  interest-bearing  liabilities  increased
$4.03  million,  or 3.52%.  During this same period,  the  interest  rate spread
decreased from 2.61% for the year ended September 30, 1999 to 2.47% for the year
ended September 30, 2000.

     Interest  Income.  Interest income  increased by $819,000,  or 9.36%,  from
$8.76  million for the year ended  September  30, 1999 to $9.58  million for the
year ended September 30, 2000. This increase was due primarily to an increase in
the  average  outstanding  balance of  interest-earning  assets.  Total  average
interest-earning  assets increased $6.40 million during the year ended September
30,  2000.  At the  same  time the  overall  yield  on  interest-earning  assets
increased  28 basis points from 7.10% for the year ended  September  30, 1999 to
7.38% for the year ended September 30, 2,000.

     Interest Expense.  Interest expense increased by $684,000,  or 13.33%, from
$5.13  million for the year ended  September  30, 1999 to $5.82  million for the
year ended  September 30, 2000. The increase was primarily the result of a $3.91
million increase in the average  outstanding  balances of Federal Home Loan Bank
advances and a $2.58  million  increase in the average  outstanding  balances of
repurchase  agreements.  At the same time,  the average cost of the Federal Home
Loan Bank  Advances  increased  94 basis  points,  from 5.16% for the year ended
September 30, 1999 to 6.10% for the year ended September 30, 2000.

     Provision  for Losses on Loans.  The Bank  decreased its provision for loan
losses by $53,000 during the year ended September 30, 2000, from $98,000 for the
year ended  September 30, 1999 to $45,000 for the year ended September 30, 2000.
The Bank  continues to monitor and modify its allowance for losses as conditions
dictate.  Although the Bank  maintains  its  allowance  for losses at a level it
considers  adequate to provide for  probable  losses,  there can be no assurance
that such  losses  will not exceed  the  estimated  amounts  or that  additional
provisions for loan losses will not be required in future periods.

     Non-interest  Income.  Total non-interest income increased by $215,000,  or
37.97%,  from $567,000 for the year ended September 30, 1999 to $782,000 for the
year ended  September  30, 2000.  This  increase was  primarily due to a $67,000
increase in fees and service charges,  and a $83,000 increase in deposit related
fees,  partially  offset by an $18,000  decrease  in loan  related  fees;  and a
$23,000 increase in income on non-deposit  related  services.  In addition,  the
gain on the sales of securities and foreclosed  real estate  increased  $56,000,
from a loss of $4,000 for the year ended  September 30, 1999 to gains of $52,000
for the year ended September 30, 2000.  There was also a $70,000 decrease in the
provision for loss on securities,  from $83,000 for the year ended September 30,
1999 to $13,000 for the year ended September 30, 2000.

     Non-interest  Expense.  Non-interest  expense increased $218,000,  or 7.65%
from $2.85  million for the year ended  September  30, 1999 to $3.07 million for
the year ended  September 30, 2000. This increase was primarily due

                                       7
<PAGE>
to a $78,000 increase in compensation and employee benefits;  a $60,000 increase
in occupancy expense;  a $41,000 increase in advertising  expense to promote the
internet banking product; and a $63,000 increase in other non-interest  expense,
primarily  due to a  decrease  in income on the sale of  foreign  currency,  and
professional  services.  These  increases  were  partially  offset  by a $24,000
decrease in federal deposit insurance.

     Income Tax Expense.  Income tax expense  increased  by $66,000,  or 14.09%,
from  $473,000  for the year ended  September  30, 1999 to $539,000 for the year
ended September 30, 2000.

COMPARISON  OF  OPERATING  RESULTS  FOR THE YEARS ENDED  SEPTEMBER  30, 1999 AND
SEPTEMBER 30, 1998.

     Net  Earnings.  The Company had net earnings of $770,000 for the year ended
September  30, 1999,  as compared to $814,000 for the year ended  September  30,
1998. As discussed  below, the decrease in net earnings of $44,000 was primarily
the result of a decrease  in  non-interest  income of $84,000 and an increase in
non-interest  expenses of $38,000,  partially offset by a $9,000 increase in net
interest income and a $55,000 decrease in the provision for loan losses.

     Net Interest  Income.  Net interest income  increased by $9,000,  or 0.26%,
from $3.61  million for the year ended  September  30, 1998 to $3.62 million for
the year ended September 30, 1999.  Average  interest-earning  assets  increased
$11.37 million, or 10.15%, while average interest-bearing  liabilities increased
$11.01  million,  or 10.65%.  During this same period,  the interest rate spread
decreased from 2.86% for the year ended September 30, 1998 to 2.61% for the year
ended September 30, 1999.

     Interest  Income.  Interest income  increased by $236,000,  or 2.77%,  from
$8.52  million for the year ended  September  30, 1998 to $8.76  million for the
year ended September 30, 1999. This increase was due primarily to an increase in
the  average  outstanding  balance of  interest-earning  assets.  Total  average
interest-earning  assets  increased  10.15% during the year ended  September 30,
1999. At the same time the overall yield on interest-earning assets decreased 51
basis points from 7.61% for the year ended  September  30, 1998 to 7.10% for the
year ended September 30, 1999.

     Interest Expense.  Interest expense  increased by $226,000,  or 4.61%, from
$4.91  million for the year ended  September  30, 1998 to $5.13  million for the
year ended  September 30, 1999. The increase was primarily the result of a $6.88
million increase in the average  outstanding  balances of Federal Home Loan Bank
advances,  a $2.60  million  increase in average  outstanding  balances of money
market  deposit  accounts and a $1.42  million  increase in average  outstanding
balances of repurchase agreements.

     Provision  for Losses on Loans.  The Bank  decreased its provision for loan
losses by $55,000  during the year ended  September 30, 1999,  from $153,000 for
the year ended  September  30, 1998 to $98,000 for the year ended  September 30,
1999.  The Bank  continues  to monitor  and modify its  allowance  for losses as
conditions  dictate.  Although the Bank  maintains its allowance for losses at a
level it  considers  adequate to provide for  probable  losses,  there can be no
assurance  that such  losses  will not  exceed  the  estimated  amounts  or that
additional provisions for loan losses will not be required in future periods.

     Non-interest  Income.  Total non-interest  income decreased by $84,000,  or
12.90%,  from $651,000 for the year ended September 30, 1998 to $567,000 for the
year ended  September  30, 1999.  This  decrease was primarily due to an $83,000
provision  for loss on  investment  securities,  a $21,000  decrease in fees and
service charges,  primarily loan processing fees,  individual retirement account
fees and ATM access fees, and a $5,000  decrease in other  non-interest  income.
These  decreases  were offset by a $25,000  decrease in the loss on the sales of
foreclosed real estate.

     Non-interest  Expense.  Non-interest  expense increased $38,000,  or 1.36%,
from $2.81  million for the year ended  September  30, 1998 to $2.85 million for
the year ended  September 30, 1999. This increase was primarily due to a $27,000
increase in occupancy expense,  an $8,000 increase in advertising  expense and a
$3,000 increase in other non-interest expenses.

     Income Tax Expense.  Income tax expense decreased  $14,000,  or 2.86%, from
$487,000  for the year ended  September  30, 1998 to $473,000 for the year ended
September 30, 1999.

                                       8
<PAGE>

ALLOWANCE FOR LOAN LOSSES

     In originating  loans,  the Company  recognizes  that credit losses will be
experienced  and that the risk of loss will vary with,  among other things,  the
type of loan being made, the  creditworthiness  of the borrower over the term of
the loan,  general  economic  conditions and, in the case of a secured loan, the
quality of the security for the loan. It is  management's  policy to maintain an
adequate  allowance for loan losses based on, among other things,  the Company's
historical  loan loss  experience,  evaluation of economic  conditions,  regular
reviews of delinquencies and loan portfolio  quality.  The Company increases its
allowance  for loan losses by charging  provisions  for loan losses  against the
Company's  income.  Management  will continue to actively  monitor the Company's
asset quality and allowance  for loan losses.  Management  will charge off loans
and properties  acquired in settlement of loans against the allowance for losses
on such loans and such  properties when  appropriate  and will provide  specific
loss allowances when necessary.  Although  management  believes it uses the best
information  available to make  determinations with respect to the allowance for
losses,  future  adjustments  may be  necessary  if economic  conditions  differ
substantially from the economic conditions in the assumptions used in making the
initial determination.

     The following table reflects the activity in the allowance for loan losses.
<TABLE>
<CAPTION>
                                                                                AT OR FOR THE
                                                                           YEAR ENDED SEPTEMBER 30,
                                                                       -------------------------------
                                                                          2000               1999
                                                                          ----               ----
                                                                           (DOLLARS IN THOUSANDS)

         <S>                                                           <C>                 <C>
         Balance at beginning of the year............................  $     555           $     498
         Provision for losses........................................         45                  98

         Charge-offs.................................................       (106)                (51)
         Recoveries..................................................         25                  10
                                                                       ---------           ---------
              Net charge-offs........................................        (81)                (41)
                                                                       ---------           ---------
         Balance at end of the year..................................  $     519           $     555

         Ratio of net charge-offs to average loans
            outstanding during the period............................       0.13%               0.07%
                                                                       ---------           ----------
         Ratio of allowance for loan losses to total loans...........       0.72%               0.95%
                                                                       ---------           ----------
</TABLE>
NON-PERFORMING ASSETS

         Non-performing  assets totaled  $611,000 at September 30, 2000 compared
to $628,000 at September 30, 1999.

         Non-performing assets are summarized in the following table.
<TABLE>
<CAPTION>
                                                                             YEAR ENDED SEPTEMBER 30,
                                                                       -----------------------------------
                                                                          2000                     1999
                                                                          ----                     ----
                                                                               (DOLLARS IN THOUSANDS)

         <S>                                                           <C>                       <C>
         Non-performing loans........................................  $     403                 $     440
         Foreclosed assets...........................................        208                       188
                                                                       ---------                 ---------
              Total non-performing assets............................  $     611                 $     628

         Non-performing assets to total assets.......................      0.48%                      0.53%
                                                                       --------                  ---------
         Non-performing assets to total loans........................      0.86%                      1.10%
                                                                       --------                  ---------
         Allowance for loan losses to non-performing loans...........    128.78%                    126.14%
                                                                       --------                  ---------
</TABLE>

         The non-performing  loans reflected above consist of non-accruing loans
and accruing loans 90 days or more past due.



                                       9
<PAGE>
AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES

         The  following  table sets forth  certain  information  relating to the
Company's average  interest-earning assets and interest-bearing  liabilities and
reflects  the average  yield on assets and average cost of  liabilities  for the
periods  indicated.  Such  yields and costs are  derived by  dividing  income or
expense by the average balance of assets or liabilities,  respectively,  for the
periods presented. Average balances are derived from daily balances.

         The table also  presents  information  for the periods  indicated  with
respect  to  the  difference  between  the  weighted  average  yield  earned  on
interest-earning  assets  and  weighted  average  rate paid on  interest-bearing
liabilities,   or  "interest  rate  spread,"  which  savings  institutions  have
traditionally  used as an indicator of  profitability.  Another  indicator of an
institution's net interest income is its "net yield on interest-earning assets,"
which  is  its  net  interest   income   divided  by  the  average   balance  of
interest-earning  assets  or "net  interest  margin."  Net  interest  income  is
affected  by  the  interest   rate  spread  and  by  the  relative   amounts  of
interest-earning assets and interest-bearing  liabilities. When interest-earning
assets approximate or exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.
<TABLE>
<CAPTION>
                                                                                  FOR THE YEAR ENDED SEPTEMBER 30,
                                                                   ----------------------------------------------------------------
                                            AT SEPTEMBER 30, 2000              2000                               1999
                                            ---------------------  -----------------------------      -----------------------------
                                                         AVERAGE                         AVERAGE                            AVERAGE
                                                          YIELD/   AVERAGE                YIELD/      AVERAGE                YIELD/
                                            BALANCE        COST    BALANCE    INTEREST     COST       BALANCE    INTEREST     COST
                                            -------      -------   -------    --------   -------      -------    --------   -------
                                                                                        (DOLLARS IN THOUSANDS)
<S>                                         <C>            <C>     <C>        <C>           <C>       <C>       <C>           <C>
INTEREST-EARNING ASSETS:
    Loans receivable (1)..................  $   70,754     8.26%   $  62,045  $   5,386     8.68%     $ 55,216  $   4,637     8.40%
    Marketable securities (2).............      47,209     6.50       48,044      3,119     6.49        46,237      2,978     6.44
    MBS and related securities............      11,736     6.55       13,433        860     6.40        16,541      1,021     6.17
    Other.................................       4,606     6.56        6,255        210     3.36         5,385        120     2.23
                                            ----------    -----    ---------  ---------    -----      --------  ---------    -----
        Total interest-earning assets.....     134,305     7.43      129,777      9,575     7.38       123,379      8,756     7.10
                                                                              ---------                         ---------
Non-interest-earning assets...............       5,913                 6,164                             5,527
                                            ----------             ---------                          --------
        Total assets......................  $  140,218             $ 135,941                          $128,906
                                            ==========             =========                          ========

INTEREST-BEARING LIABILITIES:
  Deposits:
    NOW accounts..........................  $    8,672     1.68    $   9,116        150     1.65      $ 11,809        131     1.11
    Passbook accounts.....................       8,418     2.09        8,238        155     1.88         7,877        130     1.65
    Money market accounts.................      13,261     4.01       13,463        510     3.79        11,588        378     3.26
    Certificate accounts..................      54,831     5.91       53,745      2,959     5.51        55,757      3,081     5.53
  Borrowings:
    FHLB advances.........................      31,363     6.66       26,466      1,615     6.10        22,554      1,163     5.16
    Other borrowed money..................       5,562     6.34        7,415        427     5.76         4,831        249     5.15
                                            ----------    -----    ---------  ---------    -----      --------  ---------   ------
        Total interest-bearing
          liabilities.....................     122,107     5.35      118,443      5,816     4.91       114,416      5,132     4.49
                                                                              =========                         =========
Non-interest-bearing liabilities..........       5,298                 4,699                             1,319
                                            ----------             ---------                          --------
        Total liabilities.................     127,405               123,142                           115,735
Stockholders' equity......................      12,813                12,799                            13,171
                                            ----------             ---------                          --------
        Total liabilities and stockholders'
             equity.......................  $  140,218             $ 135,941                          $128,906
                                            ==========             =========                          ========

Net interest income.......................                                    $   3,759                         $   3,624
                                                                              =========                         =========

Interest rate spread......................                 2.08%                            2.47%                             2.61%
                                                         ======                           ======                            ======
Net interest margin.......................                 2.57%                            2.90%                             2.94%
                                                         ======                           ======                            ======
Ratio of average interest-earning
   assets  to average interest-bearing
   liabilities............................               109.99%                          109.57%                           107.83%
                                                         ======                           ======                            ======
<FN>
__________
(1)  Average balance of  non-accruing  loans are included in the average balance
     of loans receivable. Loan fees included in interest income is not material.
(2)  Interest on tax exempt  investments  is not presented at the tax equivalent
     yield.
</FN>
</TABLE>



                                       10
<PAGE>

RATE/VOLUME ANALYSIS

         The table below sets forth  certain  information  regarding  changes in
interest income and interest  expense of the Company for the periods  indicated.
For each  category of  interest-earning  asset and  interest-bearing  liability,
information  is  provided  on changes  attributable  to:  (i)  changes in volume
(change in volume multiplied by the old rate); and (ii) changes in rates (change
in  rate  multiplied  by old  volume).  For  purposes  of  this  table,  changes
attributable  to both  rate and  volume  which  cannot be  segregated  have been
allocated proportionately to the change due to volume and change due to rate.
<TABLE>
<CAPTION>
                                                           Year Ended September 30,
                                     -----------------------------------------------------------------
                                      2000        vs.         1999      1999         vs.         1998
                                     -----------------------------      -----------------------------
                                            Increase (Decrease)              Increase (Decrease)
                                                 Due to                             Due to
                                     -----------------------------      -----------------------------
                                     Volume      Rate        Total      Volume      Rate        Total
                                     ------      ----        -----      ------      ----        -----
                                                              (In thousands)
<S>                                 <C>       <C>          <C>        <C>         <C>        <C>
Interest income:
  Loans receivable...............   $   590   $     159    $ 749      $      4    $ (285)    $  (281)
  Marketable securities..........       118          23      141           850      (169)        681
  MBS and related securities.....      (198)         37     (161)         (143)      (22)       (165)
  Other..........................        21          69       90            13       (12)          1
                                    -------   ---------    -----      --------    ------     -------
       Total interest-earning
         assets..................       531         288      819           724      (488)        236

Interest expense:
  Deposits:
    NOW accounts.................       (35)         54       19             8       (46)        (38)
    Passbook accounts............         6          19       25            --       (27)        (27)
    Money market accounts........        66          66      132            83        27         110
    Certificate accounts.........      (111)        (11)    (122)          (26)     (147)       (173)

  Borrowings:
    FHLB advances................       221         231      452           359       (74)        285
    Other borrowed money.........       146          32      178            76        (7)         69
                                    -------   ---------    -----      --------    ------     -------
      Total interest-bearing
        liabilities..............       293         391      684           500      (274)        226
                                    -------   ---------    -----      --------    ------     -------
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

     The Company's primary sources of funds for operations are deposits from its
market area; principal and interest payments on loans,  securities available for
sale and  securities  held to maturity;  proceeds from the sale or maturation of
securities  and  advances  from the FHLB of Des  Moines.  While  maturities  and
scheduled amortization of loans and securities are predictable sources of funds,
deposit  flows and  mortgage  prepayments  are  greatly  influenced  by  general
interest rates, economic conditions, and competition.

     The primary  lending  activities of the Company are the origination of one-
to  four-family  loans,  the  origination  of consumer loans and the purchase of
securities.  During the years ended September 30, 2000 and 1999, the Bank's loan
originations  totaled  $26.34  million  and $19.82  million,  respectively.  The
Company  purchased   investment   securities  and  mortgage-backed  and  related
securities during the years ended September 30, 2000, and 1999 of $13.01 million
and $47.85 million, respectively.


                                       11
<PAGE>

     The  primary  financing  activity  of  the  Company  is the  attraction  of
deposits.  During the year ended September 30, 2000, the Bank  experienced a net
increase in deposits of $789,000.  During the year ended September 30, 1999, the
Bank experienced a net increase in deposits of $2.24 million.

     During the year ended  September 30, 2000,  the Bank continued to be active
in the area of  repurchase  agreements.  Repurchase  agreements at September 30,
2000 totaled $5.56 million compared to a total of $4.70 million at September 30,
1999.

     At September 30, 2000,  the FHLB advances are secured by the FHLB stock and
a blanket pledge of residential loans, and government agency  securities.  Under
the agreement,  the Bank must maintain eligible  collateral in amounts exceeding
130 percent of the  outstanding  advances.  At September 30, 2000,  the Bank had
$31.36 million in advances outstanding with the FHLB.

     The Bank is required to maintain  levels of liquid assets as defined by OTS
regulations.  This  requirement,  which may be varied by the OTS depending  upon
economic  conditions and deposit  flows,  is based upon a percentage of deposits
and short-term  borrowings.  The required  minimum  liquidity ratio is currently
4.0%. The Bank's average daily  liquidity  ratio for the month of September 2000
was 15.36%.

     The  Company's  most  liquid  assets are cash and cash  equivalents,  which
consist of short-term highly liquid investments with original maturities of less
than three  months that are  readily  convertible  to known  amounts of cash and
interest-bearing  deposits.  The  level  of these  assets  is  dependent  on the
Company's operating, financing and investing activities during any given period.
At September 30, 2000 and 1999, cash and cash equivalents  totaled $4.53 million
and $4.54 million, respectively.

     The Bank  anticipates  that it will have sufficient funds available to meet
its current  commitments.  At September 30, 2000,  the Bank had  commitments  to
originate/purchase  loans  of  $161,000.  Certificates  of  deposits  which  are
scheduled to mature in one year or less at September  30, 2000,  totaled  $34.38
million.  Management  believes that a significant  portion of such deposits will
remain with the Bank.

     At  September  30, 2000,  the Bank  exceeded  each of the three  regulatory
capital requirements.

IMPACT OF INFLATION AND CHANGING PRICES

     The Consolidated  Financial  Statements and Notes thereto  presented herein
have been prepared in accordance with generally accepted accounting  principles,
which require the  measurement  of financial  position and operating  results in
terms of  historical  dollars  without  considering  the change in the  relative
purchasing  power of  money  over  time  and due to  inflation.  The  impact  of
inflation is reflected in the increased  cost of the Bank's  operations.  Unlike
most industrial companies,  nearly all the assets and liabilities of the Company
are monetary. As a result, interest rates have a greater impact on the Company's
performance  than do the effects of general levels of inflation.  Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.


                                       12
<PAGE>
                        CONSOLIDATED FINANCIAL STATEMENTS
                  FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

                                                                            PAGE

Independent Auditors' Report.................................................14

Consolidated Statements of Financial Condition
  September 30, 2000 and 1999................................................15

Consolidated Statements of Income for the years ended
  September 30, 2000 and 1999................................................16

Consolidated Statements of Stockholders' Equity for the years ended
  September 30, 2000 and 1999................................................17

Consolidated Statements of Cash Flows for the years ended
  September 30, 2000 and 1999................................................19

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


                                       13
<PAGE>


                    [LETTERHEAD OF MCGLADREY & PULLEN, LLP]



                          INDEPENDENT AUDITORS' REPORT



The Board of Directors
First Federal Bancorporation
Bemidji, Minnesota


We have audited the accompanying  consolidated statements of financial condition
of First Federal  Bancorporation  and subsidiaries (the Company) as of September
30,  2000  and  1999,  and  the  related  consolidated   statements  of  income,
stockholders'   equity,   and  cash  flows  for  the  years  then  ended.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of First  Federal
Bancorporation  and  subsidiaries  as of  September  30, 2000 and 1999,  and the
results  of their  operations  and their  cash flows for the years then ended in
conformity with generally accepted accounting principles.


                                            /s/ McGladrey & Pullen, LLP

                                            McGLADREY & PULLEN, LLP





Duluth, Minnesota
October 27, 2000




                                       14
<PAGE>

FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2000 and 1999
<TABLE>
<CAPTION>
                                                                                        2000               1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                  <C>
ASSETS
Cash                                                                             $   1,495,072         $  2,194,436
Interest-Bearing Deposits with Banks                                                 3,037,224            2,344,936
                                                                                 ----------------------------------
         CASH AND CASH EQUIVALENTS                                                   4,532,296            4,539,372
                                                                                 ----------------------------------

Available-for-Sale Securities                                                       25,210,541           31,272,121
                                                                                 ----------------------------------
Held-to-Maturity Securities                                                         33,734,853           33,808,632
                                                                                 ----------------------------------
Loans Receivable, less allowance for loan losses
  $519,083 in 2000 and $555,388 in 1999                                             70,753,934           57,256,941
Federal Home Loan Bank Stock, at cost                                                1,568,400            1,248,000
Foreclosed Real Estate, net                                                            207,781              188,300
Accrued Interest Receivable                                                          1,112,226            1,075,399
Premises and Equipment, net                                                          2,165,511            2,123,863
Other Assets                                                                           932,955              777,687
                                                                                 ----------------------------------
                                                                                 $ 140,218,497         $132,290,315
                                                                                 ==================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits                                                                            88,899,733           88,110,758
Borrowings                                                                          36,925,367           29,658,337
Advance Payments by Borrowers for Taxes and Insurance                                  201,624              186,123
Accrued Interest Payable                                                               629,902              577,585
Accrued Expenses and Other Liabilities                                                 748,529              696,151
                                                                                 ----------------------------------
        TOTAL LIABILITIES                                                          127,405,155          119,228,954
                                                                                 ----------------------------------
Commitments and Contingencies

Stockholders' Equity
  Common stock ($.01 par value); authorized 4,000,000 shares;
    issued 1,280,152 and 1,431,069 shares in 2000 and 1999                              12,802               14,311
  Additional paid-in capital                                                         5,342,404            5,971,251
  Retained earnings, subject to certain restrictions                                 9,677,265            9,260,477
  Accumulated other comprehensive income (loss)                                       (335,392)            (335,848)
  Unearned employee stock ownership plan shares                                       (276,000)            (345,000)
  Unearned management recognition plan shares                                                -              (94,444)
  Treasury stock, at cost, 320,338 and 289,605 shares in
    2000 and 1999                                                                   (2,213,893)          (1,989,226)
  Deferred compensation payable in common stock                                        606,156              579,840
                                                                                 ----------------------------------
         TOTAL STOCKHOLDERS' EQUITY                                                 12,813,342           13,061,361
                                                                                 ----------------------------------
                                                                                 $ 140,218,497         $132,290,315
                                                                                 ==================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       15
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>

                                                                                      2000                1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                  <C>
Interest Income
  Loans receivable                                                                   $ 5,385,699          $ 4,637,348
  Mortgage-backed and related securities                                                 861,290            1,020,602
  Other marketable securities                                                          3,117,598            2,978,192
  Interest-bearing deposits with banks                                                   114,184               42,991
  Dividends                                                                               96,397               76,594
                                                                                     --------------------------------
                                                                                       9,575,168            8,755,727
                                                                                     --------------------------------

Interest Expense
  Deposits                                                                             3,774,510            3,720,298
  Borrowings                                                                           2,041,827            1,412,073
                                                                                     --------------------------------
                                                                                       5,816,337            5,132,371
                                                                                     --------------------------------
      NET INTEREST INCOME                                                              3,758,831            3,623,356


Provision for Loan Losses                                                                 44,804               97,970
                                                                                     --------------------------------
      NET INTEREST INCOME AFTER PROVISION FOR
        LOAN LOSSES                                                                    3,714,027            3,525,386
                                                                                     --------------------------------
Noninterest Income
  Fees and service charges                                                               652,738              585,923
  Provision for loss on securities available-for-sale                                    (13,167)             (83,129)
  Gain on sales of securities                                                              9,453                    -
  Gain (loss) on sales of foreclosed real estate                                          42,421               (4,004)
  Other income                                                                            90,784               68,176
                                                                                     --------------------------------
                                                                                         782,229              566,966
                                                                                     --------------------------------
Noninterest Expense
  Compensation and employee benefits                                                   1,660,662            1,583,406
  Occupancy                                                                              575,561              515,309
  Federal deposit insurance premiums                                                      26,720               51,246
  Data processing                                                                         77,152               77,094
  Advertising                                                                            162,979              121,517
  Other expenses                                                                         564,249              500,670
                                                                                     --------------------------------
                                                                                       3,067,323            2,849,242
                                                                                     --------------------------------
      INCOME BEFORE INCOME TAX EXPENSE                                                 1,428,933            1,243,110

Income Tax Expense                                                                       539,291              472,704
                                                                                     --------------------------------
      NET INCOME                                                                     $   889,642          $   770,406
                                                                                     ================================

Earnings per Common Share
  Basic                                                                              $      0.83          $      0.66
                                                                                     ================================
  Diluted                                                                            $      0.82          $      0.64
                                                                                     ================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       16
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>


                                                                                         Additional
                                                           Comprehensive     Common       Paid-In
                                                              Income         Stock        Capital
------------------------------------------------------------------------------------------------------
<S>                                                         <C>             <C>        <C>
Balance, September 30, 1998                                                $  9,933    $ 6,173,130

  Comprehensive income:
    Net income                                                $ 770,406             -              -
    Change in net unrealized gain (loss) on
      securities available for sale, net of
      tax effect                                               (556,414)            -              -
                                                              ---------
          Comprehensive income                                $ 213,992
                                                              =========

  Increase in deferred compensation payable
    in common stock                                                                 -              -
  Stock split                                                                   4,835         (5,633)
  Settlement of deferred compensation
    payable in common stock                                                         -          4,500
  Purchase and retirement of common stock                                        (457)      (260,934)
  Amortization of management recognition plan                                       -         23,500
  Earned employee stock ownership plan shares                                       -         36,688
                                                                             ---------------------------
Balance, September 30, 1999                                                    14,311      5,971,251

  Comprehensive income:
    Net income                                                $ 889,642             -              -
    Change in net unrealized gain (loss) on
      securities available for sale, net of
      tax effect                                                    456             -              -
                                                              ---------
          Comprehensive income                                $ 890,098
                                                              =========

  Increase in deferred compensation
    payable in common stock                                                         -              -
  Settlement of deferred compensation
    payable in common stock                                                         -              -
  Purchase of treasury stock                                                        -              -
  Purchase and retirement of common stock                                      (1,509)      (668,561)
  Amortization of management recognition plan                                       -          3,000
  Earned employee stock ownership plan shares                                       -         36,714
                                                                             ---------------------------
Balance, September 30, 2000                                                  $ 12,802    $ 5,342,404
                                                                             ===========================
</TABLE>
See Notes to Consolidated Financial Statements.

                                       17
<PAGE>
<TABLE>
<CAPTION>
                                       Unearned                                            Deferred
                    Accumulated        Employee        Unearned                              Comp
                       Other            Stock         Management                          Payable in
   Retained        Comprehensive      Ownership       Recognition        Treasury           Common
   Earnings        Income (Loss)     Plan Shares      Plan Shares          Stock             Stock             Total
--------------------------------------------------------------------------------------------------------------------------
<S>                  <C>              <C>            <C>               <C>                <C>               <C>
 $ 8,691,092         $ 220,566        $(414,000)     $ (188,887)       $ (1,939,384)      $ 529,998         $ 13,082,448


     770,406                 -                -               -                   -               -              770,406


           -          (556,414)               -               -                   -               -             (556,414)



           -                 -                -               -             (78,500)         78,500                    -
           -                 -                -               -                   -               -                 (798)

           -                 -                -               -              28,658         (28,658)               4,500
    (201,021)                -                -               -                   -               -             (462,412)
           -                 -                -          94,443                   -               -              117,943
           -                 -           69,000               -                   -               -              105,688

--------------------------------------------------------------------------------------------------------------------------
   9,260,477          (335,848)        (345,000)        (94,444)         (1,989,226)        579,840           13,061,361


     889,642                 -                -               -                   -               -              889,642


           -               456                -               -                   -               -                  456



           -                 -                -               -             (76,546)         76,546                    -

           -                 -                -               -              50,230         (50,230)                   -
           -                 -                -               -            (198,351)              -             (198,351)
    (472,854)                -                -               -                   -               -           (1,142,924)
           -                 -                -          94,444                   -               -               97,444
           -                 -           69,000               -                   -               -              105,714
--------------------------------------------------------------------------------------------------------------------------
 $ 9,677,265        $ (335,392)       $(276,000)     $        -        $ (2,213,893)      $ 606,156         $ 12,813,342
==========================================================================================================================
</TABLE>


                                       18
<PAGE>

FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>

                                                                                              2000                1999
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>                 <C>
Cash Flows from Operating Activities
  Net income                                                                               $   889,642         $   770,406
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Provisions for loan losses                                                                  44,804              97,970
    Gain (loss) on sale of foreclosed real estate                                              (42,421)              4,004
    Depreciation and amortization                                                              291,745             270,677
    Amortization of premium and discount, net                                                  (72,069)            (73,254)
    Increase in accrued interest receivable                                                    (36,827)            (83,892)
    Increase in accrued interest payable                                                        52,317              33,699
    (Gain) loss on sale of securities and provisions
       for loss on securites available-for-sale                                                  3,714              83,129
    Increase in other assets                                                                  (155,268)            (18,097)
    Increase (decrease) in accrued expenses and other liabilities                               52,378              (6,184)
    Increase in deferred compensation payable in common stock                                   76,546              78,500
    Earned ESOP shares priced above original cost                                               39,714              64,688
    Decrease in unearned ESOP shares                                                            69,000              69,000
    Decrease in unamortized restricted stock                                                    94,444              94,443
                                                                                           -------------------------------
        NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES                                      1,307,719           1,385,089
                                                                                           -------------------------------

Cash Flows from Investing Activities
  Net increase in loans receivable                                                         (13,541,797)         (1,290,960)
  Purchase of securities available for sale                                                (16,152,350)        (23,855,750)
  Purchase of securities held to maturity                                                            -         (24,081,719)
  Purchase of Federal Home Loan Bank stock                                                    (320,400)           (100,000)
  Purchase of premises and equipment                                                          (333,393)           (296,009)
  Proceeds from maturities/sales of securities available-for-sale                           18,626,823          20,387,235
  Proceeds from maturities of securities held to maturity                                            -          13,500,011
  Principal payments on mortgage-backed and related
     securities available for sale                                                           3,655,919           8,077,004
  Principal payments on mortgage-backed and related
     securities held to maturity                                                                73,779              72,284
  Net (increase) decrease in foreclosed real estate                                             22,939             (39,550)
                                                                                           -------------------------------
        NET CASH FLOWS USED IN INVESTING ACTIVITIES                                         (7,968,480)         (7,627,454)
                                                                                           -------------------------------
Cash Flows from Financing Activities
  Net increase in deposits                                                                     788,975           2,244,494
  Increase in advance payments by borrowers for taxes and insurance                             15,501              23,101
  Net increase in repurchase agreements                                                        860,677           1,566,004
  FHLB long-term advances                                                                            -          22,069,000
  Repayment of long-term FHLB advances                                                     (24,036,845)        (18,489,340)
  Net increase in short-term FHLB advances                                                  30,443,198             920,000
  Decrease in Federal funds purchased                                                                -          (1,300,000)
  Purchase of treasury stock                                                                  (274,897)            (78,500)
  Purchase of fractional shares on stock split                                                       -                (798)
  Purchase and retirement of common stock                                                   (1,142,924)           (462,412)
                                                                                           -------------------------------
        NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES                                      6,653,685           6,491,549
                                                                                           -------------------------------
</TABLE>

                                                      (Continued)



                                       19
<PAGE>

FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>

                                                                                         2000               1999
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                  <C>
        NET INCREASE (DECREASE) IN CASH
            AND CASH EQUIVALENTS                                                     $    (7,076)         $   249,184

Cash and Cash Equivalents
  Beginning of year                                                                    4,539,372            4,290,188
                                                                                     --------------------------------
  End of year                                                                        $ 4,532,296          $ 4,539,372
                                                                                     ================================
Supplemental Disclosures of Cash Flow Information
  Cash paid during the year for:

      Interest                                                                       $ 5,764,020          $ 5,098,672
                                                                                     ================================
      Income taxes                                                                   $   585,000          $   677,750
                                                                                     ================================
Supplemental Schedule of Noncash Investing and
  Financing Activities
  Net change in unrealized gain (loss) on securities
    available for sale                                                               $       456          $  (556,414)
                                                                                     ================================
Real estate acquired in settlement of loan                                           $   198,981          $   261,196
                                                                                     ================================
Stock issued in settlement of deferred compensation obligation                       $    50,230          $    28,658
                                                                                     ================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                       20
<PAGE>

FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1.  DESCRIPTION OF THE BUSINESS

First Federal Bancorporation (the Company) is the unitary thrift holding company
for First Federal Bank (the Bank) with its main office in Bemidji, Minnesota and
four branch offices located in Bemidji, Bagley, Baudette and Walker,  Minnesota.
The Bank provides retail and commercial loan and deposit services principally to
customers within a 30-mile radius of the Bank's locations.

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS  OF  FINANCIAL  STATEMENT  PRESENTATION  AND  ACCOUNTING  ESTIMATES:   The
consolidated   financial  statements  have  been  prepared  in  conformity  with
generally accepted accounting principles. In preparing the financial statements,
management  is  required  to make  estimates  and  assumptions  that  affect the
reported  amounts of assets and  liabilities  as of the date of the statement of
financial  condition  and revenues and expenses for the period.  Actual  results
could differ  significantly  from those estimates.  A material  estimate that is
particularly  susceptible to significant  change in the near-term relates to the
determination of the allowance for loan losses.

PRINCIPLES OF  CONSOLIDATION:  The consolidated  financial  statements  included
herein are for the Company,  the Bank, and the Bank's  wholly-owned  subsidiary,
First Federal Service  Corporation.  All significant  intercompany  accounts and
transactions have been eliminated in consolidation.

CASH EQUIVALENTS AND CASH FLOWS: Cash equivalents primarily represent amounts on
deposit at other financial  institutions and highly liquid financial instruments
with original  maturities at the date of purchase of three months or less.  Cash
flows from loans, deposits, short-term borrowings and FHLB advances are reported
net.

AVAILABLE-FOR-SALE SECURITIES: Securities classified as available-for-sale (AFS)
are debt and marketable  equity  securities that the Company intends to hold for
an indefinite  period of time, but not necessarily to maturity.  Any decision to
sell an AFS security would be based on factors  including  movements in interest
rates,  changes in the maturity  mix of the  Company's  assets and  liabilities,
liquidity needs,  regulatory capital  considerations,  and similar factors.  AFS
securities  are carried at fair value.  Unrealized  gains or losses,  net of the
related  deferred  tax  effect,  are  reported  as  increases  or  decreases  in
stockholders' equity.  Realized gains or losses,  determined on the basis of the
cost  of  specific  securities  sold,  and  provisions  for  impairment  of  AFS
securities are included in earnings.

HELD-TO-MATURITY SECURITIES: Securities classified as held to maturity are those
debt  securities the Company has both the intent and ability to hold to maturity
regardless  of  changes in market  conditions,  liquidity  needs,  or changes in
general economic  conditions.  These securities are carried at cost adjusted for
amortization  of premiums and  discounts,  computed by the interest  method over
contractual  lives.  The sale of a security  within three months of its maturity
date or  after  at  least  85  percent  of the  principal  outstanding  has been
collected  is  considered  a  maturity  for  purposes  of   classification   and
disclosure.

LOANS,  ALLOWANCE  FOR LOAN  LOSSES:  Loans are  stated at the  amount of unpaid
principal, reduced by an allowance for loan losses.

Discounts  and  premiums on loans  purchased  are  amortized to income using the
interest  method over the  estimated  average loan life.  Loan  origination  and
commitment  fees and certain  direct loan  origination  costs are  deferred  and
amortized over the life of the related loans using the interest method.


                                       21
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The allowance for loan losses is maintained at an amount considered  adequate to
provide for probable losses.  The allowance for loan losses is based on periodic
analysis of the loan  portfolio  by  management.  In this  analysis,  management
considers factors including,  but not limited to, specific occurrences,  general
economic  conditions,  loan portfolio  composition,  and historical  experience.
Loans are charged against the allowance for loan losses when management believes
that  collectibility of the principal is unlikely.  Management believes that the
allowance  for  loan  losses  is  adequate.   While  management  used  available
information to recognize losses on loans,  future additions to the allowance may
be  necessary  based on changes in economic  conditions.  In  addition,  various
regulatory  agencies,   as  an  integral  part  of  their  examination  process,
periodically  review the  allowance  for loan losses.  Such agencies may require
additions to the allowance based on their judgment about  information  available
to them at the time of their examination.

The Company  defines a loan as impaired when it is probable it will be unable to
collect  principal and interest payments due in accordance with the terms of the
loan  agreement.  Impaired  loans  that  have  been  separately  identified  for
evaluation are measured based on the present value of expected future cash flows
or, alternatively, the observable market price of the loans or the fair value of
the collateral. However, for those loans that are collateral dependent (that is,
if repayment of those loans is expected to be provided  solely by the underlying
collateral) and for which management has determined foreclosure is probable, the
measure  of  impairment  of those  loans is to be based on the fair value of the
collateral.

Interest on loans is  recognized  over the terms of the loans and is  calculated
using the simple interest method on principal amounts outstanding.  For impaired
loans,  accrual of interest is  generally  stopped  when a loan is greater  than
three months past due.  Interest on these loans is recognized only when actually
paid by the borrower if collection of the principal is likely to occur.  Accrual
of interest is generally  resumed when the customer is current on all  principal
and  interest  payments  and has been  paying on a timely  basis for a period of
time.

FORECLOSED  REAL  ESTATE:  Real estate  acquired in the  settlement  of loans is
carried  at the  lower of the  unpaid  loan  balance  plus  settlement  costs or
estimated fair market value less selling costs at the time of  foreclosure.  The
carrying value of individual properties is periodically evaluated and reduced to
the extent  cost  exceeds  estimated  fair value less  selling  costs.  Costs of
developing and improving such properties are  capitalized.  Expenses  related to
holding such real estate,  net of rental and other income,  are charged  against
income as incurred.

PREMISES AND EQUIPMENT:  Land is carried at cost.  Bank premises,  improvements,
furniture,  and  equipment  are carried at cost less  accumulated  depreciation.
Depreciation  is computed on a  straight-line  basis over the  estimated  useful
lives of 20 to 40 years for bank premises and improvements and 3 to 10 years for
furniture and equipment.

INCOME  TAXES:  Deferred  taxes are  provided on an asset and  liability  method
whereby deferred tax assets are recognized for deductible temporary differences,
operating  loss or tax credit  carryforwards  and deferred tax  liabilities  are
recognized for taxable  temporary  differences.  Temporary  differences  are the
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.  Deferred tax assets are reduced
by a valuation allowance when management  determines that it is more likely than
not that some  portion or all of the  deferred  tax assets will not be realized.
Deferred tax assets and  liabilities  are adjusted for the effects of changes in
tax rates on the date of enactment.


                                       22
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

EARNINGS PER COMMON  SHARE:  Earnings per common share data has been computed on
the basis of the  weighted-average  number of common shares  outstanding  during
each period  presented.  Following is information  about the  computation of the
earnings per share data for the years ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>

                                                         Year Ended September 30,
                          --------------------------------------------------------------------------------------
                                          2000                                          1999
                          ----------------------------------------      ----------------------------------------
                                                        Net Income                                    Net Income
                          Numerator     Denominator      Per Share      Numerator     Denominator     Per Share
----------------------------------------------------------------------------------------------------------------
<S>                      <C>             <C>              <C>          <C>            <C>               <C>
Basic earnings
  per share,
  income available
  to common
  stockholders           $889,642        1,067,526        $ 0.83       $770,406       1,159,547         $ 0.66
Effect of dilutive
  securities:
  Stock options                 -           19,866          0.01              -          39,602           0.02
  Management
  recognition plan              -            2,359             -              -           8,898              -
                         --------------------------------------------------------------------------------------
Diluted earnings
  per share,
  income available
  to common
  stockholders           $889,642        1,089,751        $ 0.82       $770,406       1,208,047         $ 0.64
                         =====================================================================================

</TABLE>

OTHER  ACCOUNTING  POLICIES:  The  Company's  accounting  policies  for employee
benefit plans, retirement plans and the methods and assumptions used to estimate
fair  values of  financial  instruments  are  disclosed  in Notes 15, 16 and 19,
respectively.

NEW ACCOUNTING STANDARDS: In June 1998, the Financial Accounting Standards Board
issued  Statement No. 133,  Accounting  for Derivative  Instruments  and Hedging
Activities,  which as amended by Statement  No. 137 is required to be adopted in
years beginning after June 15, 2000. The statement  permits early adoption as of
the  beginning  of any  fiscal  quarter  after its  issuance.  The  Company  has
determined not to adopt the new statement  early. The statement will require the
Company to recognize all derivatives on the  consolidated  balance sheet at fair
value.  Derivatives  that are not hedges must be adjusted to fair value  through
income.  If the  derivative  is a hedge,  depending  in the nature of the hedge,
changes in the fair  value of  derivatives  will  either be offset  against  the
change in fair  value of the  hedged  assets,  liabilities  or firm  commitments
through  earnings or recognized in other  comprehensive  income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings.

Because  of the  Company's  minimal  use of  derivatives,  management  does  not
anticipate that the adoption of the new statement will have a significant effect
on the Company's earnings or financial position.

                                       23
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 3.  SECURITIES AVAILABLE FOR SALE

Summaries of  securities  available  for sale at September 30, 2000 and 1999 are
presented below:
<TABLE>
<CAPTION>

                                                                          2000
                                           -----------------------------------------------------------------------
                                                                Gross              Gross
                                           Amoritized         Unrealized         Unrealized
                                              Cost              Gains              Losses           Fair Value
------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                    <C>              <C>              <C>
Mortgage-Backed Securities                 $ 8,116,003            $ 9,649          $ 157,666        $ 7,967,986
Collateralized Mortgage
  Obligations and REMICS                     3,714,407                  -            104,652          3,609,755
                                           --------------------------------------------------------------------
     Total mortgage-backed
       and related securities               11,830,410              9,649            262,318         11,577,741
                                           --------------------------------------------------------------------
Other Marketable Securities
  U.S. government and agency
    securities                               8,888,243                  -            248,508          8,639,735
  Corporate bonds and notes                  3,815,806              4,692             19,988          3,800,510
  Municipal bonds                              244,543              3,569                  -            248,112
  Mutual funds                               1,000,000                  -             55,557            944,443
                                           --------------------------------------------------------------------
     Total other marketable
       securities                           13,948,592              8,261            324,053         13,632,800
                                           --------------------------------------------------------------------
                                           $25,779,002           $ 17,910          $ 586,371        $25,210,541
                                           ====================================================================

                                                                              1999
                                           --------------------------------------------------------------------
Mortgage-Backed Securities                 $ 9,819,412           $ 14,377          $ 199,183        $ 9,634,606
Collateralized Mortgage
  Obligations and REMICS                     5,666,265              1,572            101,398          5,566,439
                                           --------------------------------------------------------------------
     Total mortgage-backed
       and related securities               15,485,677             15,949            300,581         15,201,045
                                           --------------------------------------------------------------------
Other Marketable Securities
  U.S. government and agency
    securities                               9,670,238              5,706            213,704          9,462,240
  Corporate bonds and notes                  5,178,836             11,391             48,314          5,141,913
  Municipal bonds                              498,791              5,984                  -            504,775
  Mutual funds                               1,007,812              6,125             51,789            962,148
                                           --------------------------------------------------------------------
     Total other marketable
       securities                           16,355,677             29,206            313,807         16,071,076
                                           --------------------------------------------------------------------
                                           $31,841,354           $ 45,155          $ 614,388        $31,272,121
                                           ====================================================================
</TABLE>


                                       24
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The amortized cost and fair value of other marketable  securities  available for
sale at September  30, 2000 by  contractual  maturity is shown  below.  Expected
maturities may differ from contractual  maturities because obligors may have the
right  to  call  or  prepay  obligations  with or  without  call  or  prepayment
penalties:
<TABLE>
<CAPTION>

                                                                                                 2000
                                                                                  ---------------------------------
                                                                                    Amortized
                                                                                       Cost              Fair Value
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                  <C>
Due in one year or less                                                           $  1,215,893         $  1,215,931
Due after one year through five years                                                4,696,366            4,658,225
Due after five years through ten years                                               6,751,790            6,526,425
Due after ten years                                                                    284,543              287,776
Mortgage-backed securities                                                          11,830,410           11,577,741
Mutual funds with no stated maturity                                                 1,000,000              944,443
                                                                                  ---------------------------------
                                                                                  $ 25,779,002         $ 25,210,541
                                                                                  =================================
</TABLE>

Anticipated   maturities   on   mortgage-backed   securities   are  not  readily
determinable  since they may be prepaid  without penalty and mutual funds do not
have stated maturity dates.

Proceeds from  maturities of securities  available for sale during 2000 and 1999
were  $18,110,858  and  $20,387,235,   respectively.   Proceeds  from  sales  of
securities available for sale during 2000 were $515,965. There were no available
for sale securities sold 1999.

Securities are pledged under various borrowing arrangements as discussed in Note
12.

Changes in the unrealized gain (loss) on available-for-sale securities:
<TABLE>
<CAPTION>
                                                                                        Year Ended September 30,
                                                                                    --------------------------------
                                                                                       2000                  1999
--------------------------------------------------------------------------------------------------------------------

<S>                                                                                 <C>                   <C>
Balance, beginning                                                                  $ (335,848)           $ 220,566
  Unrealized gain (loss) during the year                                                   772             (943,074)
  Deferred tax effect related to unrealized gain (loss)                                   (316)             386,660
                                                                                    --------------------------------
Balance, ending                                                                     $ (335,392)          $ (335,848)
                                                                                    ================================
</TABLE>

                                       25
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 4.  SECURITIES HELD TO MATURITY

Summaries  of  securities  held to maturity at  September  30, 2000 and 1999 are
presented below:
<TABLE>
<CAPTION>

                                                                               2000
                                               -------------------------------------------------------------------
                                                                    Gross              Gross
                                               Amoritized         Unrealized         Unrealized
                                                  Cost              Gains              Losses           Fair Value
------------------------------------------------------------------------------------------------------------------

<S>                                           <C>                   <C>            <C>                <C>
Mortgage-Backed Securities                    $    90,654           $ 986          $       390        $    91,250
Collateralized Mortgage
  Obligations and REMICS                           68,126               -                2,854             65,272
                                              --------------------------------------------------------------------
    Total mortgage-backed
      and related securities                      158,780             986                3,244            156,522

Other Marketable Securities
  U.S. government and agency
    securities                                 33,576,073               -            1,876,888         31,699,185
                                              --------------------------------------------------------------------
    Total securities held to
      maturity                                $33,734,853           $ 986          $ 1,880,132        $31,855,707
                                              ====================================================================


                                                                               1999
------------------------------------------------------------------------------------------------------------------
Mortgage-Backed Securities                      $ 166,161            $ 1,905            $ 1,092          $ 166,974
Collateralized Mortgage
  Obligations and REMICS                           68,136                  -              2,982             65,154
                                              --------------------------------------------------------------------
    Total mortgage-backed
      and related securities                      234,297              1,905              4,074            232,128

Other Marketable Securities
  U.S. government and agency
    securities                                 33,574,335                  -          1,634,025         31,940,310
                                              --------------------------------------------------------------------
    Total securities held to
      maturity                                $33,808,632            $ 1,905        $ 1,638,099        $32,172,438
                                              ====================================================================
</TABLE>


All of the securities held to maturity that are not  mortgage-backed  are due in
five to ten years.  The securities may be subject to call before their scheduled
maturity.

Securities are pledged under various borrowing arrangements as discussed in Note
12.


                                       26
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 5.  LOANS RECEIVABLE

Loans receivable consisted of the following:
<TABLE>
<CAPTION>

                                                                                            September 30,
                                                                                   --------------------------------
                                                                                       2000                 1999
-------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                  <C>
One-to-four family residential loans                                               $29,660,113          $26,432,098
Commercial real estate and multifamily residential loans                            14,187,997           12,349,043
Consumer loans                                                                      26,619,062           17,524,276
Construction loans                                                                     619,750            1,130,083
Commercial business loans                                                              609,932              935,795
                                                                                   --------------------------------
                                                                                    71,696,854           58,371,295
Less:
  Loans in process                                                                    (488,873)            (630,548)
  Unamortized loan origination fees/costs and
    iscounts/premiums, net                                                              65,036               71,582
  Allowance for loan losses                                                           (519,083)            (555,388)
                                                                                   --------------------------------
                                                                                   $70,753,934          $57,256,941
                                                                                   ================================
</TABLE>

Nonaccrual loans, totaling $307,487 and $361,189 at September 30, 2000 and 1999,
respectively are considered by management as impaired. The related allowance for
credit  losses was $46,123 at September  30, 2000 and $54,178 at  September  30,
1999.  The average  investment in impaired loans during fiscal 2000 and 1999 was
$394,755 and $153,903, respectively.

The aggregate amount of loans to directors, executive officers and their related
interests  was  $1,339,536  and  $1,143,358  at  September  30,  2000 and  1999,
respectively.  Activity  with respect to these loans during fiscal 2000 included
net  decreases of $196,178.  Activity  with respect to these loans during fiscal
1999 included net decreases of $16,836. In the opinion of management, such loans
were made in the ordinary  course of business on normal credit terms,  including
interest rate and collateralization,  and do not represent more than normal risk
of collection.

The Bank grants  residential and commercial real estate loans and consumer loans
primarily  to  customers  in  northern  Minnesota.   Although  the  Bank  has  a
diversified loan portfolio,  a substantial  portion of its debtors' abilities to
honor their loans is dependent upon the local economy in northern Minnesota.

At  September  30, 2000 and 1999 the Bank was  servicing  real estate  loans for
others with aggregate  unpaid principal  balances of approximately  $351,717 and
$370,110, respectively.

Certain loans are pledged under various  borrowing  arrangements as discussed in
Note 12.

                                       27
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 6.  ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>

                                                          September 30,
                                                  ------------------------------
                                                     2000                 1999
--------------------------------------------------------------------------------
<S>                                               <C>                 <C>
Balance, beginning                                $ 555,388           $ 498,340
  Provision for losses                               44,804              97,970
  Charge-offs                                      (106,375)            (50,925)
  Recoveries                                         25,266              10,003
                                                  -----------------------------
Balance, ending                                   $ 519,083           $ 555,388
                                                  =============================

</TABLE>

NOTE 7.  FORECLOSED REAL ESTATE

Foreclosed real estate consisted of the following:
<TABLE>
<CAPTION>

                                                          September 30,
                                                  ------------------------------
                                                     2000                 1999
--------------------------------------------------------------------------------
<S>                                                <C>                 <C>
Real estate acquired through foreclosure
 or deed in lieu of foreclosure                    $     --            $ 21,914
Real estate in judgment (subject to redemption)     207,781             166,386
                                                   ----------------------------
                                                   $207,781            $188,300
                                                   ============================
</TABLE>

NOTE 8.  ACCRUED INTEREST RECEIVABLE

Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>

                                                          September 30,
                                                  ------------------------------
                                                     2000                 1999
--------------------------------------------------------------------------------
<S>                                               <C>               <C>
Mortgage-backed and related securities            $    52,513       $    66,774
Other marketable securities                           658,717           673,120
Loans receivable                                      400,996           335,505
                                                  -----------------------------
                                                  $ 1,112,226       $ 1,075,399
                                                  =============================
</TABLE>


NOTE 9.  PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:
<TABLE>
<CAPTION>

                                                          September 30,
                                                  ------------------------------
                                                     2000               1999
--------------------------------------------------------------------------------
<S>                                                 <C>              <C>
Land and improvements                               $  235,172      $  235,172
Office buildings                                     1,673,495       1,581,285
Furniture and equipment                              2,171,318       2,101,605
Leasehold improvements                                 187,930         187,930
Automobile                                              26,153          26,153
                                                    --------------------------
                                                     4,294,068       4,132,145
Less accumulated depreciation and amortization       2,128,557       2,008,282
                                                    --------------------------
                                                    $2,165,511      $2,123,863
                                                    ==========================
</TABLE>

                                       28
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 10. DEPOSITS

Deposits consisted of the following:
<TABLE>
<CAPTION>
                                                             September 30,
                           --------------------------------------------------------------------------------------
                                           2000                                         1999
                           --------------------------------------       -----------------------------------------
                           Weighted                                      Weighted
                           Average                       Percent         Average                        Percent
                           Rate            Amount       of Total         Rate            Amount        of Total
-----------------------------------------------------------------------------------------------------------------
<S>                        <C>            <C>                <C>         <C>              <C>               <C>
Noninterest NOW               - %        $ 3,717,596        4.18 %           - %         $3,538,689        4.02%
NOW                        1.68            8,671,599        9.75          1.61            9,267,299       10.52
Passbook                   2.09            8,417,654        9.47          1.80            8,264,464        9.38
Money Market               4.01           13,261,495       14.92          3.56           12,701,780       14.42
                           --------------------------------------------------------------------------------------
                           2.51           34,068,344       38.32          2.22           33,772,232       38.33
                           --------------------------------------------------------------------------------------
Certificates
  4-4.99%                  4.73            5,509,312        6.20          4.65           21,775,975       24.71
  5-5.99%                  5.58           21,737,609       24.45          5.50           19,679,859       22.34
  6-6.99%                  6.35           25,534,209       28.72          6.30           11,365,181       12.90
  7-7.99%                  7.07            2,050,259        2.31          7.19            1,517,511        1.72
                           --------------------------------------------------------------------------------------
                           5.91           54,831,389       61.68          5.37           54,338,526       61.67
                           --------------------------------------------------------------------------------------
                           4.60 %         88,899,733      100.00 %        4.16 %        $88,110,758      100.00%
                           ======================================================================================
</TABLE>

At  September  30,  2000 and 1999,  the Bank had  $13,945,514  and  $12,449,947,
respectively,  of deposit  accounts with balances of $100,000 or more.  The Bank
did not have any brokered deposits at September 30, 2000 or 1999.

Certificates had the following remaining maturities:
<TABLE>
<CAPTION>

                                                                            September 30,
                                                -----------------------------------------------------------------
                                                             2000                                  1999
                                                ---------------------------           ---------------------------
                                                                   Weighted                              Weighted
                                                                    Average                               Average
                                                    Amount            Rate                Amount            Rate
-----------------------------------------------------------------------------------------------------------------

<S>                                             <C>                  <C>              <C>                  <C>
0-6 months                                      $ 18,396,089         5.71 %           $ 21,194,931         5.32%
7-12 months                                       15,984,357         5.99               13,461,902         5.29
13-36 months                                      14,893,941         5.96               15,244,041         5.48
Over 36 months                                     5,557,002         6.19                4,437,652         5.52
                                                ---------------------------------------------------------------
                                                $ 54,831,389         5.91 %           $ 54,338,526         5.37%
                                                ================================================================
</TABLE>


Mortgage-backed  securities  with a fair value of $2,453,184  and  $3,032,124 at
September  30,  2000 and 1999,  respectively,  were  pledged as  collateral  for
certain deposits.

                                       29
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>

                                                   Year Ended September 30,
                                                --------------------------------
                                                   2000                 1999
--------------------------------------------------------------------------------
<S>                                             <C>                   <C>
NOW                                             $  150,284            $  131,393
Passbook                                           155,329               130,441
Money Market                                       509,980               377,711
Certificates                                     2,958,917             3,080,753
                                                --------------------------------
                                                $3,774,510            $3,720,298
                                                ================================
</TABLE>

NOTE 11. INCOME TAXES

Federal and state income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>

                                                  Year Ended September 30,
                                               ---------------------------------
                                                  2000                  1999
--------------------------------------------------------------------------------
<S>                                            <C>                    <C>
Current
  Federal                                      $ 428,637              $ 366,080
  State                                          138,144                118,090
                                               ---------------------------------
                                                 566,781                484,170
                                               ---------------------------------
Deferred
  Federal                                        (20,833)                (8,689)
  State                                           (6,657)                (2,777)
                                               ---------------------------------
                                                 (27,490)               (11,466)
                                               ---------------------------------
                                               $ 539,291              $ 472,704
                                               =================================
</TABLE>

The actual  effective  tax rate  differs  from the  "expected"  income tax rate,
computed at the statutory federal corporate tax rate, as follows:
<TABLE>
<CAPTION>

                                                  Year Ended September 30,
                                               ---------------------------------
                                                  2000                  1999
--------------------------------------------------------------------------------
<S>                                              <C>                   <C>
Statutory federal rate                            34.0%                34.0%
State tax, net of federal benefit                  6.5                  6.5
Other                                             (2.8)                (2.5)
                                                 -------------------------------
                                                  37.7%                38.0%
                                                 ===============================
</TABLE>



                                       30
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The tax effects of  temporary  differences  that give rise to the  deferred  tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>

                                                          September 30,
                                                     -----------------------
                                                        2000         1999
----------------------------------------------------------------------------
<S>                                                  <C>         <C>
Deferred Tax Assets
  Allowance for loan losses                          $ 173,778   $ 159,851
  Deferred compensation                                316,886     298,622
  Deferred loan fees                                        --       6,301
  Unrealized loss on securities available for sale     233,069     233,385
  Other                                                 46,742       9,860
                                                     -----------------------
      Total gross deferred tax assets                  770,475     708,019
                                                     -----------------------
Deferred Tax Liabilities
  Premises and equipment                                85,487      55,345
  FHLB stock                                           102,627     102,627
  Accrued real estate taxes                             25,345      22,599
  Prepaid insurance                                        706      (1,690)
                                                     -----------------------
      Total deferred tax liabilities                   214,165     178,881
                                                     -----------------------
      Net deferred tax assets                        $ 556,310   $ 529,138
                                                     =======================
</TABLE>

No valuation allowance was required as of September 30, 2000 or 1999.

In prior  years the  Company  was  permitted  to deduct an annual  addition to a
reserve for bad debts.  Bad debt deductions for income tax purposes are included
in  taxable  income of later  years only if the bad debt  reserves  are used for
purposes other than to absorb bad debt losses.  Because the Bank does not intend
to use the reserve for purposes other than to absorb losses,  no deferred income
taxes have been  provided.  Retained  earnings at  September  30,  2000  include
approximately $2,860,000 for which no deferred taxes have been provided.

NOTE 12. BORROWINGS

<TABLE>
<CAPTION>

                                                          September 30,
                                                     -----------------------
                                                        2000         1999
----------------------------------------------------------------------------
<S>                                                  <C>           <C>
Repurchase agreements                                $ 5,562,169   $ 4,701,492
Borrowing from the Federal Home Loan Bank             31,363,198    24,956,845
                                                     -------------------------
                                                     $36,925,367   $29,658,337
                                                     =========================
</TABLE>

Repurchase  agreements  consist  of  sales of  securities  under  agreements  to
repurchase the identical securities.  The agreements generally mature within 180
days and bear a weighted average interest rate of approximately 6.34 percent and
5.10 percent at September 30, 2000 and 1999,  respectively.  The  agreements are
treated as financings with the obligations to repurchase securities reflected as
a  liability  and  the  dollar  amount  of the  securities  collateralizing  the
agreements remaining in the asset accounts.  The securities  collateralizing the
agreements are in safekeeping at the Federal Home Loan Bank of Des Moines in the
Bank's  account.  At September 30, 2000, the agreements were  collateralized  by
securities totaling approximately $7,525,291.


                                       31
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Advances  from the Federal  Home Loan Bank (FHLB) of Des Moines as of  September
30, 2000 mature within one year and bear interest  rates of 6.24 percent to 6.78
percent with an average of approximately 6.66 percent.

At  September  30, 2000,  the FHLB  advances are secured by the FHLB stock and a
blanket pledge of residential  mortgage loans, and government agency securities.
Under the  agreement,  the Bank must  maintain  eligible  collateral  in amounts
exceeding 125 percent of the outstanding advances.

NOTE 13. CAPITAL STOCK

On May 20, 1999 the  Company  issued  additional  shares  necessary  to affect a
3-for-2  common  stock  split  in the form of a 50  percent  stock  dividend  to
shareholders  of  record  on May 5,  1999.  The  share  and per  share  amounts,
including  shares  held in  treasury  and shares to be issued  under the various
stock-based compensation plans, have been retroactively restated.

NOTE 14. RETAINED EARNINGS AND REGULATORY CAPITAL

The Bank, as a member of the Federal Home Loan Bank System,  is required to hold
a specified  number of shares of capital  stock in the Federal Home Loan Bank of
Des Moines  which is carried  at cost.  In  addition,  the Bank is  required  to
maintain  cash and other  liquid  assets in an amount  equal to 5 percent of its
deposit accounts and other obligations due within one year.  Management believes
the Bank has met these requirements.

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company's  Subsidiary Bank to maintain  minimum ratios (set forth in
the  following  table)  of total and Tier I  capital  and of Tier I  capital  to
average  assets (as  defined in the  regulations).  Management  believes,  as of
September  30,  2000,  that the  Company's  Subsidiary  Bank  meets all  capital
adequacy requirements to which it is subject.

As of September 30, 2000, the most recent  notification from the Federal Deposit
Insurance  Corporation  categorized  the Bank as "well  capitalized"  under  the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I  leverage  ratios  as set  forth in the  table  below.  There  are no
conditions  or events since that  notification  that  management  believes  have
changed the Bank's category.


                                       32
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Bank's actual capital amounts and ratios are also presented in the table:
<TABLE>
<CAPTION>

                                                                                              To Be Well Capitalized
                                                                                                  Under Prompt
                                                                  For Capital Adequacy          Corrective Action
                                               Actual                  Purposes                    Provisions
                                       -------------------       --------------------        -----------------------
                                       Amount                    Amount                      Amount
                                       (000's)      Ratio        (000's)       Ratio         (000's)         Ratio
--------------------------------------------------------------------------------------------------------------------
<S>                                      <C>          <C>          <C>            <C>            <C>           <C>
As of September 30, 2000:
  Total capital (to risk-
    weighted assets)                     $ 12,108     16.7%        $ 5,811 =>     8.0%           $7,264 =>     10.0%
  Tier I capital (to risk-
    weighted assets)                       11,632     16.0%          2,906 =>     4.0%            4,359 =>      6.0%
  Tier I capital (to
    average assets)                        11,632      8.3%          5,584 =>     4.0%            6,980 =>      5.0%

As of September 30, 1999:
  Total capital (to risk-
    weighted assets)                       11,302     18.0%          5,011 =>     8.0%            6,264 =>     10.0%
  Tier I capital (to risk-
    weighted assets)                       10,790     17.2%          2,506 =>     4.0%            3,758 =>      6.0%
  Tier I capital (to
    average assets)                        10,790      8.5%          5,084 =>     4.0%            6,356 =>      5.0%

</TABLE>

NOTE 15. EMPLOYEE BENEFITS

EMPLOYEE STOCK  OWNERSHIP  PLAN: The Company adopted an Employee Stock Ownership
Plan (the  ESOP),  which meets the  requirements  of Section  4975(e)(7)  of the
Internal Revenue Code and Section  407(d)(6) of the Employee  Retirement  Income
Security Act of 1974, as amended (ERISA), and, as such, the ESOP is empowered to
borrow in order to finance  purchases of the common  stock of the  Company.  The
ESOP  borrowed  $690,000 from the Company to purchase  155,250  shares of common
stock of the Company on the date of the  Conversion.  The Bank has  committed to
make annual  contributions  to the ESOP  necessary to repay the loan,  including
interest.

As the debt is repaid, ESOP shares that were initially pledged as collateral for
its debt are released from collateral and allocated to active employees based on
the  proportion of debt service paid in the year.  The Company  accounts for its
ESOP in accordance  with Statement of Position 93-6,  Employers'  Accounting for
Employee Stock Ownership  Plans.  Accordingly,  the shares pledged as collateral
are  reported as unearned  ESOP shares in  stockholders'  equity.  As shares are
determined  to  be  ratably  released  from  collateral,   the  Company  reports
compensation  expense equal to the current  market price of the shares,  and the
shares become outstanding for earnings per share computations. ESOP compensation
benefit expense was $108,714 and $133,688 for 2000 and 1999, respectively.


                                       33
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

All employees of the Company are eligible to  participate in the ESOP after they
attain age 21 and complete one year of service during which they worked at least
1,000 hours. In 2000 and 1999, the Company committed to release 15,525 (adjusted
for a 3-for-2 stock split) shares of common stock each year which were allocated
to eligible participants subject to the restrictions of the ESOP.

                                                                          Amount
--------------------------------------------------------------------------------
Shares Released and Allocated                                             93,150
Unreleased Shares                                                         62,100
                                                                        --------
  Total ESOP shares                                                      155,250
                                                                        ========
  Fair Value of Unreleased Shares at September 30, 2000                 $481,275
                                                                        ========


MANAGEMENT  RECOGNITION PLAN: The Management Recognition Plan (MRP) provides for
the grant of shares of stock to eligible  directors and employees in the form of
restricted  stock,  which vest over a five-year period at the rate of 20 percent
per year.  Under the MRP,  77,625 shares of restricted  stock were granted.  MRP
expense was $94,444 and $94,443 in 2000 and 1999, respectively.

STOCK  OPTION  PLANS:  The stock  option  plans  provide for granting of 344,063
options  for the  purpose of  attracting  and  retaining  key  personnel  and to
facilitate their purchase of a stock interest in the Company. The options become
exercisable  over a  five-year  period at the rate of 20 percent per year except
for the 1998 plan which  vests 50  percent at the grant date and 50 percent  one
year from the grant  date.  If unused,  the options  expire in October  2005 and
January  2009 for 1998  plan.  A summary of the  status of the  Company's  stock
option plans as of  September  30, 2000 and 1999,  and changes  during the years
ending on those dates is presented below:
<TABLE>
<CAPTION>
                                                          2000                                    1999
                                              ----------------------------------------------------------------------
                                                                   Weighted-                               Weighted-
                                                                    Average                                 Average
                                                                   Exercise                                Exercise
                                                Shares               Price              Shares               Price
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                  <C>                <C>                  <C>
Outstanding at beginning
  of year                                        312,008              $ 7.84             158,512              $ 6.49
  Granted                                              -                   -             157,125                8.58
  Exercised                                            -                   -                   -                   -
  Forfeited                                       (5,315)               8.53              (3,629)               6.87
                                                ---------------------------------------------------------------------
Outstanding at end of year                       306,693              $ 7.52             312,008              $ 7.84
                                                ---------------------------------------------------------------------
Exercisable at end of year                       297,315                                 191,851
                                                ========                                ========
Weighted-average fair value
  per option of options
  granted during the year                                             $    -                                  $ 4.32
                                                                      ======                                  ======
</TABLE>


                                       34
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

At September 30, 2000, the options  outstanding under the stock option plan have
exercise  prices  from  $6.083  to  $12.50  and  a  weighted-average   remaining
contractual  life of 6.2 years. The shares and prices were 128,092.50 at $6.083,
1,379.25 at $6.778, 18,154.50 at $7.778, 3,066 at $12.50 and 156,000 at $8.5833.
All of the nonvested options are expected to eventually vest.

As permitted under generally accepted  accounting  principles,  grants under the
plan are accounted  for  following the  provisions of APB Opinion No. 25 and its
related interpretations.  Accordingly,  no compensation cost has been recognized
for grants made to date. Had compensation cost been determined based on the fair
value method  prescribed in the FASB Statement No. 123,  reported net income and
earnings per share would have been reduced to the proforma amounts shown below:

<TABLE>
<CAPTION>

                                                       Year Ended September 30,
                                                    ------------------------------
                                                         2000               1999
----------------------------------------------------------------------------------
<S>                                                 <C>                <C>
Net income:
  As reported                                       $   889,642        $   770,406
  Proforma                                              541,480            483,275

Basic earnings per share:
  As reported                                              0.83               0.66
  Proforma                                                 0.51               0.42

Diluted earnings per share:
  As reported                                              0.82               0.64
  Proforma                                                 0.50               0.40
</TABLE>

In  determining  the pro forma  amounts  above,  the fair value of each grant is
estimated at the grant date using the Black-Scholes  option-pricing  model, with
the  following  weighted-average  assumptions  for grants in 1999: No dividends;
risk-free  interest  rate of 6.0  percent,  expected  life of 10 years and price
volatility of 34.48 percent.

NOTE 16. RETIREMENT PLANS

The  Company  has a 401(k)  plan that  covers all  full-time  employees  meeting
certain minimum employment service  requirements.  The Company's expense for the
years ended September 30, 2000 and 1999 was $54,215 and $53,547, respectively.

The Company has individual  deferred  compensation and  supplemental  retirement
agreements  with certain  directors  and officers.  The cost of such  individual
agreements is being  accrued over the period of actual  service from the date of
the respective  agreement.  The cost of such  agreements was $72,099 and $72,083
for the years ended  September 30, 2000 and 1999,  respectively.  The agreements
are  funded  through a grantor  trust with  assets  which  match the  investment
options selected by the directors and officers.

Under the stock  investment  option,  funds are  invested in common stock of the
Company. Investment elections are irrevocable. In accordance with the provisions
of the FASB Emerging  Issues Task Force Issue No. 97-14 the cost of common stock
held in the  grantor  trust is  classified  as treasury  stock and the  deferred
compensation  obligation payable in common stock is classified as a component of
stockholders' equity.

                                       35
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 17. STOCKHOLDERS' EQUITY

The Company was  incorporated  for the purpose of becoming  the savings and loan
holding  company of the Bank in  connection  with the Bank's  conversion  from a
federally  chartered mutual savings bank to a federally  chartered stock savings
bank.

In order to grant a priority to eligible  account holders in the event of future
liquidation,  the Bank,  at the time of  conversion,  established  a liquidation
account equal to its regulatory capital as of December 31, 1994. In the event of
future  liquidation  of the Bank,  eligible  account  holders  who  continue  to
maintain their deposit accounts shall be entitled to receive a distribution from
the liquidation  account.  The total amount of the  liquidation  account will be
decreased as the balance of eligible  account  holders is reduced  subsequent to
the conversion, based on an annual determination of such balance.

The Bank may not declare or pay a cash dividend to the Company in excess of 100%
of its net income to date during the current  calendar year plus the amount that
would reduce by one-half the Bank's  surplus  capital  ratio at the beginning of
the  calendar  year  without  prior  notice to the Office of Thrift  Supervision
(OTS).  Additional  limitations on dividends declared or paid on, or repurchases
of, the Bank's capital stock are tied to the Bank's level of compliance with its
regulatory capital requirements.

NOTE 18. COMMITMENT

The Company has entered into an agreement with Wal-Mart Stores, Inc., subject to
regulatory  approval,  for an in-store banking facility. A full service in-store
banking  facility  will be located in the new  Wal-Mart  Supercenter  in Bemidji
located at the  current  Beltrami  Electric  Cooperative  site.  Operations  are
scheduled to begin in late 2001 when the Wal-Mart  Supercenter  opens. The terms
of the agreement call for a five-year  lease term with monthly  rental  payments
starting at $2,000.

NOTE 19. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal  course of business  to meet the  financing  needs of its  customers.
These  financial   instruments  include  commitments  to  extend  credit.  These
instruments  involve,  to varying degrees,  elements of credit and interest rate
risk in excess of the amount  recognized in the balance sheet.  The  contractual
amount of these instruments reflects the extent of involvement by the Company.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented by the contractual amount of these commitments. The Company uses the
same  credit  policies  in making  commitments  as it does for  on-balance-sheet
instruments.

The contractual amount of these financial  instruments at September 30, 2000 and
1999 is as follows (in 000's):
<TABLE>
<CAPTION>
                                                              2000         1999
--------------------------------------------------------------------------------

<S>                                                          <C>          <C>
Unused lines of credit                                       $1,358       $1,425
Commitments to originate and purchase loans                     161        1,172
                                                             -------------------
                                                             $1,519       $2,597
                                                             ===================
</TABLE>

                                       36
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Commitments to extend credit are agreements to lend to a customer provided there
is no  violation  of any  condition  established  in the  contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since a portion of the commitments may expire without
being drawn upon, the total  commitment  amount does not  necessarily  represent
future cash requirements. The Company evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained,  if deemed necessary
by the  Company  upon  extension  of  credit,  is based on the loan  type and on
management's credit evaluation of the borrower. Collateral consists primarily of
residential real estate and personal property.

NOTE 20. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, Disclosures About Fair Values of Financial  Instruments,  requires
disclosures  of estimated  fair values of the Company's  financial  instruments,
including  assets,  liabilities,  and  off-balance  sheet  items for which it is
practicable  to estimate  fair value.  The fair value  estimates  are made as of
September  30,  2000  and  1999  based  upon  relevant  market  information,  if
available, and upon the characteristics of the financial instruments themselves.
Because no market  exists for a significant  portion of the Company's  financial
instruments,  fair value  estimates are based upon  judgments  regarding  future
expected loss experience,  current economic conditions,  risk characteristics of
various financial  instruments,  and other factors. The estimates are subjective
in nature and involve  uncertainties  and matters of  significant  judgment and,
therefore,  cannot be determined  with precision.  Changes in assumptions  could
significantly affect the estimates.

Fair value estimates are based only on existing  financial  instruments  without
attempting to estimate the value of anticipated  future business or the value of
assets  and  liabilities  that  are not  considered  financial  instruments.  In
addition,  the tax  ramifications  related to the  realization of the unrealized
gains and losses can have a significant  effect on the fair value  estimates and
have not been considered in any of the estimates.

The estimated fair value of the Company's financial  instruments as of September
30, 2000 and 1999 are shown below.  Following the table, there is an explanation
of the methods and assumptions  used to estimate the fair value of each class of
financial instruments.
<TABLE>
<CAPTION>
                                                                      September 30,
                                            ----------------------------------------------------------------------
                                                       2000                                  1999
                                            ----------------------------------------------------------------------
                                               Carrying          Estimated           Carrying          Estimated
                                                Amount           Fair Value           Amount           Fair Value
------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>                <C>                <C>
Financial Assets
  Cash and cash equivalents                   $ 4,532,296        $ 4,532,296        $ 4,539,372        $ 4,539,372
  Securities available for sale                25,210,541         25,210,541         31,272,121         31,272,121
  Securities held to maturity                  33,734,853         31,855,707         33,808,632         32,172,438
  Loans receivable                             70,753,934         70,420,000         57,256,941         57,416,000
  Federal Home Loan
    Bank stock                                  1,568,400          1,568,400          1,248,000          1,248,000
  Accrued interest receivable                   1,112,226          1,112,226          1,075,399          1,075,399

Financial Liabilities
  Deposits                                     88,899,733         88,649,000         88,110,758         87,837,000
  Borrowings                                   36,925,367         36,920,000         29,658,337         29,609,000
  Accrued interest payable                        629,902            629,902            577,585            577,585
</TABLE>

                                       37
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

CASH AND CASH  EQUIVALENTS:  The  carrying  amount of cash and cash  equivalents
approximates their fair value.

SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY: The fair value of
securities is based upon quoted market prices.

LOANS RECEIVABLE:  The fair values of loans receivable were estimated for groups
of loans with similar characteristics.  The fair value of the loan portfolio was
calculated  by  discounting  the  scheduled  cash flows  through  the  estimated
maturity  using  anticipated  prepayment  speeds and using  discount  rates that
reflect the credit and interest rate risk inherent in each loan  portfolio.  The
fair value of the adjustable  loan portfolio was estimated by grouping the loans
with similar  characteristics and comparing the characteristics of each group to
the prices quoted for similar types of loans in the secondary market.

FEDERAL HOME LOAN BANK STOCK: The carrying amount of FHLB stock approximates its
fair value.

ACCRUED INTEREST RECEIVABLE:  The carrying amount of accrued interest receivable
approximates  its fair  value  since it is  short-term  in  nature  and does not
present unanticipated credit concerns.

DEPOSITS:  Under  SFAS No.  107,  the  fair  value of  deposits  with no  stated
maturity, such as checking,  savings, and money market accounts, is equal to the
amount payable on demand.  The fair value of certificates of deposit is based on
the discounted value of contractual cash flows using as discount rates the rates
that were offered by the Company as of September  30, 2000 and 1999 for deposits
with maturities similar to the remaining maturities of the existing certificates
of deposit.

The fair value  estimate for deposits  does not include the benefit that results
from the low cost  funding  provided  by the  Company's  existing  deposits  and
long-term  customer  relationships  compared to the cost of obtaining  different
sources of funding.  This  benefit is commonly  referred to as the core  deposit
intangible.

BORROWINGS:  The fair value of  borrowings is based on the  discounted  value of
contractual  cash flows using as discount rates the rates that were available to
the Company as of September  30, 2000 and 1999 for  borrowings  with  maturities
similar to the remaining maturities of the existing borrowings.

ACCRUED  INTEREST  PAYABLE:  The  carrying  amount of accrued  interest  payable
approximates its fair value since it is short-term in nature.


                                       38
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


NOTE 21. FIRST FEDERAL  BANCORPORATION  FINANCIAL  INFORMATION  (PARENT  COMPANY
ONLY)

The following are the condensed financial statements for the parent company only
as of September 30, 2000 and 1999:
<TABLE>
<CAPTION>

                                                                                       2000                 1999
--------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<S>                                                                                 <C>                  <C>
Assets
  Cash and cash equivalents                                                         $    365,850         $    280,598
  Securities available for sale                                                          997,562            2,095,688
  Investment in subsidiary                                                            11,293,820           10,472,719
  Other assets                                                                           181,263              235,503
                                                                                    ---------------------------------
     Total assets                                                                   $ 12,838,495         $ 13,084,508
                                                                                    =================================

Liabilities and Stockholders' Equity
  Accrued expenses                                                                  $     25,153         $     23,147
  Stockholders' equity                                                                12,813,342           13,061,361
                                                                                    ---------------------------------
     Total liabilities and stockholders' equity                                     $ 12,838,495         $ 13,084,508
                                                                                    =================================

CONDENSED STATEMENTS OF INCOME
Interest Income                                                                     $    161,462         $    160,264
Gain on Sale of Investments                                                                9,688                    -
Equity in Earnings of Subsidiary                                                         843,127              738,442
Noninterest Expense                                                                      (92,311)            (106,090)
                                                                                    ---------------------------------
     Income before income tax expense                                                    921,966              792,616

Income Tax Expense                                                                        32,324               22,210
                                                                                    ---------------------------------
     Net income                                                                     $    889,642         $    770,406
                                                                                    =================================

</TABLE>

                                       39
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                      2000                 1999
--------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
<S>                                                                                <C>                 <C>
Operating Activities
  Net income                                                                         $   889,642         $    770,406
  Decrease in other assets                                                                54,240              402,693
  Increase in accrued expenses                                                             2,006               12,775
  Equity in earnings of subsidiary                                                      (843,127)            (738,442)
  Cash dividend from subsidiary                                                                -            1,000,000
  Increase in deferred compensation payable in common stock                               76,546               78,500
  Earned ESOP shares priced above original cost                                           39,714               64,688
  Decrease in unamortized restricted stock                                                94,444               94,443
  Decrease in unearned ESOP shares                                                        69,000               69,000
  Amortization of premium and discount, net                                              (55,324)             (50,831)
                                                                                     ---------------------------------
      Net cash provided by operating activities                                          327,141            1,703,232
                                                                                     ---------------------------------
Investing Activities
  Purchase of securities available for sale                                          (11,514,111)         (10,096,514)
  Proceeds from sales of securities available for sale                                12,690,043            8,549,000
                                                                                     ---------------------------------
      Net cash provided by (used in) investing activities                              1,175,932           (1,547,514)
                                                                                     ---------------------------------
Financing Activities
  Purchase and retirement of common stock                                             (1,142,924)            (462,412)
  Purchase of treasury stock                                                            (274,897)             (78,500)
  Purchase of fractional shares                                                                -                 (798)
                                                                                     ---------------------------------
      Net cash used in financing activities                                           (1,417,821)            (541,710)
                                                                                   ---------------------------------

      Increase (decrease) in cash and cash equivalents                                    85,252             (385,992)

Cash and cash equivalents:
  Beginning of period                                                                    280,598              666,590
                                                                                     ---------------------------------
  End of period                                                                      $   365,850         $    280,598
                                                                                     ================================
</TABLE>

                                       40
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 22. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized  quarterly  selected  operations data for fiscal 2000 and 1999 are as
follows:
<TABLE>
<CAPTION>

                                                                       Three Months Ended
                                             ----------------------------------------------------------------------
                                             September 30,         June 30,          March 31,         December 31,
                                                  2000               2000               2000               1999
------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>                <C>                <C>
Interest income                               $ 2,547,993        $ 2,389,302        $ 2,347,638        $ 2,290,235
Interest expense                                1,599,649          1,467,513          1,406,812          1,342,363
                                              --------------------------------------------------------------------
  Net interest income                             948,344            921,789            940,826            947,872

Provision for loan losses                          40,404              1,565                  -              2,835
Noninterest income                                184,204            194,707            179,209            224,108
Noninterest expense                               746,048            750,141            853,031            718,102
Income tax expense                                130,176            137,814             98,123            173,178
                                              --------------------------------------------------------------------
  Net income                                  $   215,920        $   226,976        $   168,881        $   277,865
                                              ====================================================================

Earnings per common share
  Basic                                       $      0.21        $      0.23        $      0.15        $      0.24
                                              ====================================================================
  Diluted                                     $      0.21        $      0.22        $      0.15        $      0.24
                                              ====================================================================

<CAPTION>

                                                                       Three Months Ended
                                             ----------------------------------------------------------------------
                                             September 30,         June 30,           March 31,        December 31,
                                                  1999               1999               1999              1998
------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>                <C>                <C>
Interest income                               $ 2,225,755        $ 2,206,990        $ 2,144,083        $ 2,178,899
Interest expense                                1,279,061          1,281,637          1,276,968          1,294,705
                                              --------------------------------------------------------------------
  Net interest income                             946,694            925,353            867,115            884,194

Provision for loan losses                          78,627             13,549             47,086            (41,292)
Noninterest income                                192,098             83,497            137,962            153,409
Noninterest expense                               724,040            700,853            737,051            687,298
Income tax expense                                126,061            108,974             78,903            158,766
                                              --------------------------------------------------------------------
  Net income                                  $   210,064        $   185,474        $   142,037        $   232,831
                                              ====================================================================
Earnings per common share
  Basic                                       $      0.18        $      0.16        $      0.12        $      0.20
                                              ====================================================================
  Diluted                                     $      0.18        $      0.16        $      0.12        $      0.19
                                              ====================================================================

</TABLE>

                                       41
<PAGE>
FIRST FEDERAL BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

SELECTED FINANCIAL CONDITION DATA

<TABLE>
<CAPTION>
                                             September 30,         June 30,          March 31,         December 31,
                                                  2000               2000               2000               1999
------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                <C>                <C>                <C>
Total Assets                                 $140,218,497       $137,313,013       $136,591,018       $134,600,290

Securities                                     58,945,394         59,278,497         62,075,167         61,999,162

Net Loans                                      70,753,934         66,601,900         60,518,847         57,950,950

Deposits                                       88,899,733         87,952,619         88,650,099         86,650,388

Stockholders' Equity                           12,813,342         12,516,127         13,142,271         13,165,367

<CAPTION>
                                             September 30,         June 30,          March 31,         December 31,
                                                  1999               1999               1999               1998
                                             ---------------------------------------------------------------------
<S>                                           <C>                <C>                <C>                <C>
Total Assets                                 $132,290,315       $130,498,858       $129,823,204       $129,488,405

Securities                                     65,080,753         64,451,261         65,492,661         62,487,070

Net Loans                                      57,256,941         55,130,832         54,340,918         55,028,329

Deposits                                       88,110,758         87,743,805         85,873,776         88,106,321

Stockholders' Equity                           13,061,361         13,065,266         13,178,073         13,222,040


</TABLE>


                                       42
<PAGE>

                         MARKET AND DIVIDEND INFORMATION

TRADING IN THE COMMON STOCK

         The  Company's  Common Stock is traded on the Nasdaq  SmallCap  Market.
There were,  as of  September  30,  2000,  1,280,152  shares of the Common Stock
outstanding,  and  approximately  220 holders of record of the Common Stock (not
including  shares held in "street name") as of December 1, 2000. The December 6,
2000 closing sale price of the Common Stock as traded on the SmallCap Market was
$7.50 per share.

         The following  table sets forth certain  information as to the range of
the high and low bid  prices for the  Company's  Common  Stock for the  calendar
quarters indicated during the most recent two fiscal years.
<TABLE>
<CAPTION>
                                    HIGH (1)         LOW (1)           DIVIDENDS PAID
                                    --------         -------           --------------
         <S>                         <C>              <C>                  <C>
         FISCAL 1999:
            First Quarter            10.166           9.000                 --
            Second Quarter            9.167           7.833                 --
            Third Quarter            10.500           7.833                 --
            Fourth Quarter            8.500           7.250                 --

         FISCAL 2000:
            First Quarter             7.750           5.000                 --
            Second Quarter            7.750           6.125                 --
            Third Quarter             8.000           7.063                 --
            Fourth Quarter            8.000           7.063                 --
<FN>
____________
(1)      Quotations  reflect   inter-dealer   price,   without  retail  mark-up,
         mark-down or commissions, and may not represent actual transactions.
</FN>
</TABLE>

DIVIDEND RESTRICTIONS

         Under OTS  regulations,  First  Federal  may not pay  dividends  on its
capital  stock if its  regulatory  capital  would  thereby be reduced  below the
amount then required for the liquidation  account established for the benefit of
certain depositors of First Federal at the time of the Conversion.  In addition,
savings  institution  subsidiaries  of savings and loan  holding  companies  are
required to give the OTS 30 days' prior  notice of any proposed  declaration  of
dividends to the holding company.

         OTS  regulations  impose  additional  limitations  on  the  payment  of
dividends and other capital distributions  (including stock repurchases and cash
mergers) by First Federal. Under these regulations,  a savings institution that,
immediately  prior to,  and on a pro  forma  basis  after  giving  effect  to, a
proposed capital distribution,  has total capital (as defined by OTS regulation)
that is equal to or greater than the amount of its capital requirements (a "Tier
1 Association") is generally  permitted,  without OTS approval,  to make capital
distributions  during a calendar year in the amount equal to the greater of: (i)
75% of its net income for the previous four quarters;  or (ii) up to 100% of its
net income to date during the calendar  year plus an amount that would reduce by
one-half the amount by which its  capital-to-assets  ratio  exceeded  regulatory
requirements at the beginning of the calendar year. A savings  institution  with
total capital in excess of current minimum capital ratio requirements (a "Tier 2
Association") is permitted to make capital distributions without OTS approval of
up to 75% of its net income  for the  previous  four  quarters,  less  dividends
already paid for such period.  A savings  institution that fails to meet current
minimum capital  requirements (a "Tier 3 Association") is prohibited from making
any  capital  distributions  without  the prior  approval  of the OTS.  A Tier 1
Association  that has been  notified  by the OTS that it is in need of more than
normal  supervision  will be treated  as either a Tier 2 or Tier 3  Association.
First Federal is a Tier 1 Association.  Under the OTS' prompt  corrective action
regulations,   First  Federal  is  also   prohibited  from  making  any  capital
distribution if after making the  distribution,  First Federal would have: (i) a
total  risk-based  capital  ratio of less than  8.0%;  (ii) a Tier 1  risk-based
capital  ratio of less than 4.0%;  or (iii) a leverage  ratio of less than 4.0%.
The OTS,  after  consultation  with the FDIC,  however,  may permit an otherwise
prohibited  stock  repurchase  if  made  in  connection  with  the  issuance  of
additional  shares



                                       43
<PAGE>
in an  equivalent  amount  and the  repurchase  will  reduce  the  institution's
financial   obligations  or  otherwise  improve  the   institution's   financial
condition.

         Furthermore, earnings of the Bank appropriated to bad debt reserves for
federal  income tax purposes are not available for payment of cash  dividends or
other  distributions to the Company without payment of taxes at the then current
tax rate by First  Federal on the amount of earnings  removed  from the reserves
for such  distributions.  The Company intends to make full use of this favorable
tax treatment afforded to First Federal and the Company and does not contemplate
use of any  post-Conversion  earnings of First  Federal in a manner  which would
limit either the Bank's bad debt deduction or create federal tax liabilities.

                                       44
<PAGE>
<TABLE>
<CAPTION>
                                                    BOARD OF DIRECTORS

<S>                                              <C>                                    <C>
RALPH T. SMITH                                   WILLIAM R. BELFORD                     WALTER R. FANKHANEL
Chairman of the Board of the Company and the     President and Chief Executive          Director of the Company and the
Bank                                             Officer of the Company and the Bank    Bank


MARTIN R. SATHRE                                 JAMES R. SHARP                         DEAN J. THOMPSON
Vice Chairman and Director of the Company and    Director of Company and the Bank       Director of the Company and the
the Bank                                                                                Bank


                                                    EXECUTIVE OFFICERS

RALPH T. SMITH                                   MARTIN R. SATHRE                       WILLIAM R. BELFORD
Chairman of the Board of the Company and the     Vice Chairman and Director of the      President and Chief Executive
Bank                                             Company and the Bank                   Officer of the Company and the Bank

DENNIS M. VORGERT                                KAREN JACOBSON                         WARREN MEISSNER
Treasurer of the Company and the Bank            Secretary of the Company and the Bank  Vice President of the Bank

                                                 MIKE SHERWOOD
                                                 Vice President of the Bank

                                                     OFFICE LOCATIONS

MAIN OFFICE:                                     BRANCH OFFICES:
214 5th Street                                   22 First Street, N.E.                  109 Main Street West
Bemidji, Minnesota  56601                        Bagley, Minnesota  56621               Baudette, Minnesota  56623

                                                 550 Paul Bunyan Drive, N.W.            527 Minnesota Avenue
                                                 Bemidji, Minnesota  56601              Walker, Minnesota 56484


                                                    GENERAL INFORMATION

INDEPENDENT  PUBLIC  ACCOUNTANTS                  ANNUAL  MEETING                 ANNUAL  REPORT ON FORM 10-KSB
McGladrey & Pullen LLP                    The 2001 Annual Meeting of              A copy of the Company's Annual
Certified Public Accountants              Stockholders will be held on January    Report on Form 10-KSB for the
Duluth,  Minnesota                        16, 2001 at 2:30 p.m. at the main       fiscal year ended September 30,
                                          office, 214 5th Street, Bemidji,        2000 as filed with the Securities
GENERAL COUNSEL                           Minnesota 56601.                        and Exchange Commission will be
Smith Law Firm                                                                    furnished without charge to
Bemidji, Minnesota  56601                 TRANSFER AGENT AND REGISTRAR            stockholders as of the record date
                                          Stock Transfer Department               for the 2000 Annual Meeting upon
SPECIAL COUNSEL                           Norwest Bank, N.A.                      written request to Karen Jacobson,
Stradley Ronon Housley Kantarian          P.O. Box 119                            214 5th Street, Bemidji, Minnesota
& Bronstein, LLP                          So. St. Paul, Minnesota 55075-9988      56601
1220 19th Street, N.W.  Suite 700
Washington, D.C.  20036

</TABLE>