SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              ____________________
                                   FORM 10-KSB
(Mark One)

[x]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE ACT OF
     1934

For the fiscal year ended September 30, 2001

[ ]  TRANSITIONAL  REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934
 For the transition period from ________ to ________

                           Commission File No. 0-25704
                                               -------

                          FIRST FEDERAL BANCORPORATION
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

        MINNESOTA                                                41-1796238
-------------------------------                              -------------------
(State or Other Jurisdiction of                                (I.R.S. Employer
Incorporation or Organization)                               Identification No.)

   214 5TH STREET, BEMIDJI, MINNESOTA                              56601
----------------------------------------                       --------------
(Address of principal executive offices)                         (Zip Code)

       Registrant's telephone number, including area code: (218) 751-5120

           Securities registered pursuant to Section 12(b) of the Act:
                                 NOT APPLICABLE

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

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                     --------------------------------------
                                (Title of Class)

Check  whether the issuer:  (1) has filed all reports  required by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter  period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for past 90 days. Yes X    No
                                                 ---      ---

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X]

State issuer's revenues for its most recent fiscal year: $10.67 million.

As of December 3, 2001,  the  aggregate  market  value of the 530,015  shares of
Common Stock of the registrant  issued and outstanding held by non-affiliates on
such date was approximately $5,512,156 based on the closing sale price of $10.40
per share of the registrant's  Common Stock on December 3, 2001 as listed on the
Nasdaq SmallCap Market. For purposes of this calculation, it is assumed that the
730,313 shares held by directors,  officers,  the Employee Stock  Ownership Plan
(unallocated shares only), the Stock Option Plan and Management Recognition Plan
Trusts,  and beneficial owners of more than 10% of the registrant's  outstanding
voting stock, are shares held by affiliates.

Number of shares of Common Stock outstanding as of December 3, 2001: 1,260,328

                       DOCUMENTS INCORPORATED BY REFERENCE

     The following lists the documents incorporated by reference and the Part of
the Form 10-KSB into which the document is incorporated:

     1.   Portions  of the Annual  Report to  Stockholders  for the fiscal  year
          ended September 30, 2001. (Parts II and IV)

     2.   Portions of Proxy  Statement for 2002 Annual Meeting of  Stockholders.
          (Part III)

<PAGE>
                                     PART I

ITEM 1.  BUSINESS
-----------------

GENERAL

     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 and 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").  The Conversion was completed on April 3, 1995.
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,
$500,000 of cash and cash  equivalents,  $499,000 in  securities  available  for
sale,  $250,000 in loans  receivable and $102,000 in other assets.  At September
30, 2001, the Company had total consolidated assets of $127.03 million, deposits
of  $98.82  million  and  stockholders'   equity  of  $14.03  million.   Because
substantially all of the Company's  operations  consist of the operations of the
Bank,  this Annual  Report on Form 10-KSB  largely is a discussion of the Bank's
operations.

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

     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 from "First  Federal  Banking and Savings,  FSB" to its current
name;  "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 has entered into an agreement with Wal-Mart  Stores,  Inc.,
with  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. The Bank is tentatively  scheduled to begin operations in February 2002
when the Wal-Mart  Supercenter  opens for  business.  The Bank's  market area is
located  approximately 200 miles north of Minneapolis,  Minnesota.  At September
30, 2001, First Federal had total assets of $125.77 million,  deposits of $98.84
million,  mortgage-backed  and  related  securities  and  investment  securities
totaling $28.83 million and stockholders' equity of $12.69 million.

     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  consumer  loans,  including  automobile and home
improvement  loans,  as well as other consumer  loans,  loans on commercial real
estate and  multi-family  real estate,  and commercial  business  loans.  Due to
limited loan demand in its market area,  First Federal has invested excess funds
in mortgage-backed  and related  securities and in other investment  securities,
and during  fiscal 2001  continued to be active in  originating  and  purchasing
participation interests in commercial real estate loans. First Federal has also,
in recent years, increased its consumer lending activities in its local markets.

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


                                       2
<PAGE>

MARKET AREA

     First Federal serves the Bemidji,  Minnesota marketplace,  which is located
in  northwestern  Minnesota   approximately  200  miles  north  of  Minneapolis,
Minnesota.  The  primary  market  area of  First  Federal  consists  of the five
counties  of  Beltrami,  Cass,  Hubbard,  Clearwater  and  Lake of the  Woods in
Minnesota. These counties are served by the Bank's main office and branch office
located in Bemidji and three  branch  offices  located in Bagley,  Baudette  and
Walker,  Minnesota.  These communities are the county seats and largest towns in
each of the counties where the branches are located. No branch office is located
in Hubbard County,  but the northern border of Hubbard County is only four miles
from the Bank's  main  office.  Bemidji is the largest  community  in the market
area,  while the balance of the Bank's market area  consists  primarily of rural
areas and small  towns.  The primary  market  area also  includes  three  Indian
reservations,  a portion of which  land is owned by the  federal  government  in
trust for the Native Americans. This portion of the area is not open to mortgage
lending, therefore, an enforceable lien is not possible. The Bank does receive a
limited  number of consumer loan  applications  from the area. In addition,  the
Bank's  primary  market area also includes large tracts of land covered by water
and national and state forests and, thus, not available for home building.

     In the Bank's most  critical  market,  Beltrami  County,  median  household
income of $29,851 was 71.8% of the median for the state of  Minnesota  and 80.7%
of the United  States at large.  National,  state and local  medians show modest
household  income  growth,  the result of projected  low inflation and continued
modest economic growth.

     The Bank's  limited  lending  opportunities  are  primarily  a function  of
Bemidji's  economy,  which exhibits moderate growth. For the period from 1990 to
1999, the population of the Bank's market area increased  14.04%, as compared to
an  increase of 9.14% for the State of  Minnesota,  and an increase of 9.61% for
the  United  States  as a  whole.  Lacking  growth  in  local  residential  loan
originations,  First  Federal has been forced to turn  toward  out-of-area  real
estate  lending,  multi-family  and  commercial  real  estate  lending,  and  to
investment in  mortgage-backed  and other securities.  Such  "out-of-area"  real
estate  lending  constituted  13.88%  of the  Bank's  gross  loan  portfolio  at
September  30,  2001 while  loans on  multi-family  and  commercial  real estate
constituted 20.21% of the Bank's gross loan portfolio at that date.

LENDING ACTIVITIES

     General.  First  Federal's  principal  lending  activity  consists  of  the
origination  of loans  secured  by first  mortgages  on owner  occupied  one- to
four-family  residences  in  the  Bank's  market  area,  which  consists  of the
Minnesota Counties of Beltrami, Cass, Hubbard, Clearwater and Lake of the Woods.
First Federal serves these counties  through its main office and a branch office
located in Bemidji and three  branch  offices  located in Bagley,  Baudette  and
Walker, Minnesota. The largest concentration of First Federal's loans are within
a ten mile  radius of the main  office in  Bemidji.  To a lesser  extent,  First
Federal  also  originates  loans  secured  by  multi-family  properties  such as
apartment   houses  and  commercial   properties   such  as  motels  and  retail
developments.  In recent years,  First Federal has become active in  originating
consumer loans,  including automobile loans and home equity and home improvement
loans. First Federal also makes a limited amount of commercial business loans.

     First  Federal  attempts to manage  interest rate risk by  emphasizing  the
origination of one-year  adjustable-rate mortgage loans and short-term (15 years
or less)  fixed-rate  mortgage loans.  Fixed-rate  mortgage loans continue to be
offered by the Bank, but substantially all such loans in excess of 15 year terms
are sold in the secondary  market.  To date,  such loan sale activities have not
been a significant contributor to the Bank's profitability. First Federal offers
a full range of mortgage products,  including  conventional  adjustable-rate and
fixed-rate mortgage loans,  short-term mortgages,  and FHA and VA insured loans.
First Federal has also  participated  in the Minnesota  Housing  Finance  Agency
("MHFA")  housing  program,  and  has  originated  and  purchased  participation
interests in multi-family and commercial mortgage loans.


                                       3
<PAGE>
     Loan Portfolio  Composition.  The following  table sets forth selected data
relating to the composition of First Federal's loan portfolio by type of loan at
the dates indicated.  At September 30, 2001, First Federal had no concentrations
of loans exceeding 10% of total loans other than as disclosed below.
<TABLE>
<CAPTION>
                                                           At September 30,
                                               -----------------------------------------
                                                         2001                2000
                                               ------------------      -----------------
                                               Amount        %         Amount        %
                                               ------      -----       ------      -----
                                                        (Dollars in thousands)
<S>                                           <C>           <C>       <C>          <C>
Type of Loan:
------------
Real estate loans --
  Construction loans......................... $  3,981      4.96%     $    620     0.87%
  One- to four-family residential............   25,980     32.35        29,660    41.37
  Multi-family residential...................    5,924      7.38         5,311     7.41
  Commercial.................................   10,310     12.84         8,877    12.38
Consumer loans --
  Automobiles................................   22,895     28.51        16,737    23.34
  Mobile home loans..........................      270      0.34           382     0.53
  Savings account loans......................      486      0.60           428     0.60
  Home improvement loans.....................    2,438      3.03         2,432     3.39
  Home equity lines of credit................      334      0.41           297     0.41
  Other consumer loans.......................    7,291      9.08         6,343     8.85
Commercial business loans....................      400      0.50           610     0.85
                                              --------     -----      --------    -----
                                              $ 80,309    100.00%     $ 71,697   100.00%
                                              ========    ======      ========   ======

Less:
  Loans in process...........................    2,428                     489
  Deferred fees and discounts (premiums).....      (47)                    (65)
  Allowance for loan losses..................      671                     519
                                              --------                --------
    Total.................................... $ 77,257                $ 70,754
                                              ========                ========
</TABLE>

     Loan  Maturity.  The  following  table sets forth  certain  information  at
September 30, 2001,  regarding the dollar amount of loans maturing in the Bank's
portfolio based on their contractual  terms to maturity.  Loans having no stated
schedule of repayments  and no stated  maturity,  and overdrafts are reported as
due in one year or less. Scheduled  contractual principal repayments of loans do
not  necessarily  reflect the actual life of such  assets.  The average  life of
long-term  loans is  substantially  less than their  contractual  terms,  due to
prepayments.  The average life of mortgage  loans tends to increase when current
mortgage  loan  market  rates are  substantially  higher  than rates on existing
mortgage loans and tends to decrease when current mortgage loan market rates are
substantially lower than rates on existing mortgage loans.
<TABLE>
<CAPTION>

                                     Due in the              Due after                  Due
                                     year ending         1 through 5 years         after 5 years
                                       9/30/02             after 9/30/01           after 9/30/01          Total
                                       -------             -------------           -------------          -----
                                                          (In thousands)
<S>                                  <C>                  <C>                       <C>                <C>
Real estate loans.................   $    4,850           $    13,625               $  27,728          $   46,203
Commercial........................          135                   174                      90                 399
Consumer..........................        1,847                25,930                   5,930              33,707
                                     ----------           -----------               ---------          ----------
     Total........................   $    6,832           $    39,729               $  33,748          $   80,309
                                     ==========           ===========               =========          ==========
</TABLE>

                                       4
<PAGE>
     Loan  Repricing.  The following table sets forth at September 30, 2001, the
dollar  amount of all loans due one year  after  September  30,  2001 which have
predetermined interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
                                                                       Predetermined             Floating or
                                                                             Rate            Adjustable Rates
                                                                       ----------------      ----------------
                                                                                  (In thousands)
                  <S>                                                  <C>                   <C>
                  Real estate mortgage...............................  $    14,817           $   26,536
                  Commercial.........................................           83                  181
                  Consumer...........................................       22,442                9,418
                                                                       -----------           ----------
                                                                       $    37,342           $   36,135
                                                                       ===========           ==========
</TABLE>

     Loan  Originations,  Purchases and Sales.  The  following  table sets forth
certain information with respect to First Federal's loan originations during the
periods indicated.
<TABLE>
<CAPTION>
                                                                  Year Ended September 30,
                                                              -------------------------------
                                                                2001                   2000
                                                              --------               --------
                                                                        (In thousands)
<S>                                                           <C>                   <C>
Loans originated:
  Real estate loans:
    Construction loans......................................  $    1,247            $   1,552
    One- to four-family residential.........................       3,423                3,659
    Multi-family residential................................          --                   --
    Commercial..............................................       1,107                  147
  Consumer loans............................................      23,802               20,638
  Commercial business.......................................         248                  348
                                                              ----------            ---------
                                                              $   29,827            $  26,344
                                                              ==========            =========
Loans purchased:
  Real estate loans:
    One-to-four-family residential..........................  $      953            $   2,902
    Multi-family residential................................       4,095                2,220
    Commercial..............................................       2,530                1,043
  Commercial business.......................................           8                   79
                                                              ----------            ---------
     Total loans purchased..................................  $    7,586            $   6,244
                                                              ==========            =========

Loans sold:
  Whole loans...............................................  $    1,185            $     164
  Participation loans.......................................          --                   --
                                                              ----------            ---------
     Total loans sold.......................................  $    1,185            $     164
                                                              ==========            =========
</TABLE>
     First  Federal's  primary  lending  activity  has been the  origination  of
residential  and  commercial  mortgages  as well as  consumer  loans  (including
automobile  and  home  equity  loans)  for its  loan  portfolio.  The  Bank  has
aggressively  pursued  mortgages in its market area in recent years but has been
constrained  in building  its  portfolio  by a  combination  of lack of economic
growth in the Bemidji area and prepayments,  which generally equaled or exceeded
loan originations.  First Federal sells substantially all long-term,  fixed-rate
mortgage loans it originates in the secondary  market.  For the five years ended
September 30, 2001, 32 fixed-rate mortgage loans, secured by single-family homes
totaling $2.63 million were sold in the secondary market,  with servicing rights
released.

     Due to limited demand for one- to four-family residential real estate loans
in its market area, First Federal has also purchased  participation interests in
multi-family and commercial mortgage loans in recent years. Specifically, during
the last five years,  First  Federal  purchased  participation  interests  in 62
commercial real estate and multi-family residential real estate loans originated
by other lenders  totaling  $20.04  million,  12 of these loans

                                       5
<PAGE>
totaling $2.69 million were  participation  interests in commercial  real estate
loans on properties  outside the Bank's primary  market area,  with a total loan
balance  at  September  30,  2001  of  $2.34  million.  Of the 33  participation
interests  in  commercial  real  estate  loans,  six loans  totaling  $2.53 were
purchased  during  the year  ended  September  30,  2001.  See  "Commercial  and
Multi-Family  Real  Estate  Lending."  First  Federal  has not sold any whole or
participation  interests in commercial real estate or multi-family  loans within
the past five years.

     One- to Four-Family Residential Lending. The Bank historically has been and
continues to be an originator of owner occupied, one- to four-family residential
properties  located in its market  area.  At September  30, 2001,  approximately
$25.98 million or 32.35% of the Bank's loan portfolio consisted of loans secured
by one- to four-family residential properties.

     First Federal began originating  adjustable-rate residential mortgage loans
in 1980. Since that time,  substantially all one- to four-family  mortgage loans
originated  by  the  Bank  for  retention  in the  Bank's  portfolio  have  been
adjustable-rate  loans which provide for annual interest rate  adjustments,  and
have  terms to  maturity  of from 15 to 30  years.  While  the Bank  does  offer
"teaser" or reduced interest rates for the initial one-year  adjustment  period,
all  borrowers  are  qualified at the  fully-indexed  interest  rate.  After the
initial  one-year  period,  the rate  adjustments on the Bank's  adjustable-rate
loans are indexed to the rate paid on one-year U.S. Treasury Bills. The interest
rates on these  mortgages  include  limitations on adjustments of two percentage
points per adjustment period, and a lifetime cap of six percentage points.

     At September 30, 2001, the Bank's loan portfolio included $11.28 million in
adjustable-rate one- to four-family residential mortgage loans, or 14.01% of the
Bank's loan portfolio.

     The  retention  of  adjustable-rate  loans  in  First  Federal's  portfolio
mitigates  First  Federal's  exposure to  increases  in market  interest  rates.
However,   there  are  unquantifiable  credit  risks  resulting  from  potential
increases  in  costs  to   borrowers  in  the  event  of  upward   repricing  of
adjustable-rate  loans.  It is possible that during  periods of rising  interest
rates,  the  risk of  default  on  adjustable-rate  loans  may  increase  due to
increases in interest  costs to  borrowers.  Further,  although  adjustable-rate
loans allow First Federal to increase the  sensitivity  of its  interest-earning
assets to changes in interest rates, the extent of this interest  sensitivity is
limited by the repricing  frequency and the periodic and lifetime  interest rate
adjustment  limitations.  Accordingly,  there can be no assurance that yields on
First  Federal's  adjustable-rate  loans will  fully  adjust to  compensate  for
increases  in First  Federal's  cost of funds.  Finally,  adjustable-rate  loans
increase  First  Federal's  exposure  to  decreases  in market  interest  rates,
although decreases in First Federal's cost of funds tend to offset this effect.

     In  general,  First  Federal  originates  residential  mortgage  loans with
loan-to-value  ratios of up to 95%, with private mortgage insurance required for
loans with  loan-to-value  ratios greater than 80%. The Bank also originates FHA
and VA loans and  participates  in the MHFA  housing  programs.  The majority of
these loans are long-term,  fixed-rate loans, which are primarily originated for
sale in the secondary market or sold to the MHFA.

     Construction and Land Lending.  First Federal offers  construction loans to
qualified borrowers for construction of one- to four-family  residences in First
Federal's market area. Typically,  First Federal limits its construction lending
to single-settlement, construction-permanent loans to individuals building their
primary  residences and second homes or vacation  homes.  These loans  generally
have adjustable  interest rates and are underwritten in accordance with the same
standards as First Federal's mortgages on existing properties,  except the loans
generally provide for disbursement in stages during a construction  period of up
to twelve  months,  during which period the borrower is required to make monthly
payments of accrued interest on the outstanding loan balance. Construction loans
generally have a maximum  loan-to-value ratio of 80%. Borrowers must satisfy all
credit requirements which would apply to First Federal's permanent mortgage loan
financing for the subject property.

     Construction  lending is  considered  to involve a higher degree of risk of
loss than long-term financing on improved, occupied real estate. Risk of loss on
a  construction  loan is  dependent  largely  upon the  accuracy  of the initial
estimate of the property's  value at completion of  development or  construction
and the estimated cost (including  interest)  thereof.  During the  construction
phase,  a number of factors  could  result in delays and cost  overruns.  If the
estimate of  construction  costs proves to be  inaccurate,  First Federal may be
required  to advance  funds  beyond the amount  originally  committed  to permit
completion  of the project.  If the  estimate of value proves

                                       6
<PAGE>
to be inaccurate,  First Federal may be confronted,  at or prior to the maturity
of the loan,  with a project having a value which is insufficient to assure full
repayment.  The ability of a developer  to sell  developed  lots or a builder to
sell  completed  dwelling  units will  depend on,  among other  things,  demand,
pricing,  availability of comparable  properties and economic conditions.  First
Federal has sought to minimize  this risk by  limiting  construction  lending to
qualified borrowers in First Federal's market area and by limiting the aggregate
amounts of outstanding construction loans.

     Commercial and Multi-Family Real Estate Lending.  The Bank is active in the
origination  and purchase of commercial and  multi-family  real estate loans, in
part due to limited residential lending opportunities in the Bank's market area.
The Bank's  primary  emphasis in its  commercial  and  multi-family  real estate
lending has been loans on motel  properties  which  totaled  $3.45  million,  or
4.29%,  of gross loans at  September  30, 2001,  and loans on apartment  houses,
which constituted $5.92 million, or 7.38%, of gross loans at September 30, 2001.
Commercial real estate loans (including motel loans) totaled $10.31 million,  or
12.84%,  of gross loans at September  30,  2001,  an increase of 16.14% from the
balance  of  $8.88  million  at  September  30,  2000.   Mortgages   secured  by
multi-family  real estate  (including  apartment  houses) had a balance of $5.92
million at  September  30, 2001,  compared to $5.31  million at the same date in
2000.

     As discussed above, in recent years, the Bank has become more active in the
origination  and purchase of  multi-family  and commercial  real estate lending.
During the year ended September 30, 2001, the Bank  originated  $1.11 million in
commercial real estate loans, and purchased participation interests in six loans
secured by commercial  real estate  projects or properties,  in amounts  ranging
from $250,000 to $750,000 and totaling $2.53 million. These loans are secured by
a retail center,  auto mall,  nursing home, motel,  office complex and a fitness
center.  These  projects are located in Minnesota,  South Dakota,  Wisconsin and
Texas.  The lead lenders on each of these loans are  institutions  with whom the
Bank is familiar,  and has done  business in the past.  While the Bank  believes
that in purchasing these participation  interests,  it has taken the appropriate
steps  consistent  with lending  policies and  procedures it uses in originating
loans, there are significant  additional risks attendant to loan purchases,  and
to this type of lending.

     At September  30,  2001,  the Bank's  portfolio  includes  both  originated
mortgages and purchased  loan  participations  on  commercial  and  multi-family
properties  generally located in the State of Minnesota.  On both participations
and on loan  originations,  the Bank lends  based on a  project's  cash flow and
ability to meet debt service requirements. Each property is appraised by a Board
of Directors-approved appraiser. Credit verification on the borrower is obtained
and  personal  guarantees  are  generally  required  of  all  borrowers.  Annual
financial statements or tax returns are required on the securing property.

     As of September 30, 2001, the Bank's largest loan was for $900,000  secured
by a motel located in Bemidji, Minnesota.

     Included in the Bank's $10.31  million in  commercial  real estate loans at
September 30, 2001 were 14 loans on motel properties,  with balances outstanding
totaling  $3.45  million at  September  30,  2001.  The higher loan  amounts and
dependence on income and cash flow of the property to cover  operating  expenses
and debt service means these loans involve  significantly  more credit risk than
loans on one- to four-family properties.  While the Bank has not in recent years
experienced  losses  from  its  loans  secured  by  motel  properties  or  other
commercial real estate, such losses are possible, and if incurred,  could have a
significant  effect on the Bank's net income and  capital  position.  All of the
Bank's loans secured by  multi-family  and commercial real estate are performing
within their terms, except one in the amount of $247,000.

     Commercial  and  multi-family  real  estate  lending  entails   significant
additional  risks compared with one- to  four-family  residential  lending.  For
example,  commercial and multi-family  real estate loans typically involve large
loan balances to single  borrowers or groups of related  borrowers,  the payment
experience on such loans  typically is dependent on the successful  operation of
the real estate project, and these risks can be significantly impacted by supply
and  demand  conditions  in the market for  multi-family  residential  units and
commercial office,  retail and warehouse space, and for motel loans, tourism and
general  economic  conditions.  While the Bank has not  experienced  significant
losses from its  multi-family  residential  and  commercial  real estate lending
activities  in recent  years,  the higher  loan  balances on each of these loans
means that if the Bank experiences problems with any one of these loans, its net
income and financial condition could be severely impacted.

                                       7
<PAGE>

     The  aggregate   amount  of  loans  which   federally   chartered   savings
institutions may make on the security of liens on commercial real estate may not
exceed 400% of the institution's capital; however, the limits on commercial real
estate  lending do not require  divestiture  of any loan or investment  that was
lawful when made. See "-- Loan Solicitation and Processing."

     Consumer  Lending.  First Federal offers  consumer loans as part of a broad
commitment to be a  full-service  consumer-oriented  banking  institution.  Such
lending  activities  have  increased  in  recent  years as the Bank has used its
excess funds to increase its consumer loan origination activities.  The consumer
loans originated by the Bank include automobile loans, savings account loans and
mobile home loans, as well as home equity loans and home improvement  loans, and
unsecured  consumer  loans.  At September  30, 2001,  the Bank's  consumer  loan
balance totaled $33.71 million,  or 41.98%, of its total loan portfolio.  Of the
consumer  loan balance at September  30, 2001,  $22.90  million were  automobile
loans,  $334,000  were home  equity  lines of credit,  $2.44  million  were home
improvement  loans,  $270,000  were mobile home loans and $486,000  were savings
account loans. The Bank has more aggressively pursued consumer loans outside its
customer base but within the markets it serves.

     In addition,  included in the Bank's  consumer loan  portfolio at September
30, 2001 were $7.29  million in other  consumer  loans,  which  included:  $5.92
million in home equity loans; $611,000 in loans secured by recreational vehicles
such as RVs, boats, motorcycles or snowmobiles; $150,000 in other secured loans;
$176,000 in unsecured overdraft protection; and $431,000 in unsecured loans.

     The Bank's automobile loans are generally underwritten in amounts up to 90%
of the  purchase  price  or the  N.A.D.A.  book  value.  The  terms  of the loan
generally  do not  exceed  60 months  for new  vehicles  or 48  months  for used
vehicles.  The Bank requires that the vehicles be insured and the Bank be listed
as loss payee on the insurance policy.

     The  Bank's  home  equity  lines  of  credit  are made on the  security  of
residential  real  estate,  do not  exceed  80% of the  estimated  value  of the
property,  less the outstanding principal of the first mortgage,  and have terms
of up to fifteen years.  The Bank makes loans secured by savings accounts for up
to 90% of the depositor's savings account balance. The interest rate is normally
three  percentage  points  above the rate paid on the savings  account,  and the
account must be pledged as collateral to secure the loan.

     Consumer loans generally  entail greater risk than do residential  mortgage
loans, particularly in the case of consumer loans which are unsecured or secured
by rapidly depreciable assets, such as automobiles. Consumer loans are generally
priced  relative to the Bank's  assessment of the risk associated with the loan.
Virtually all consumer loans in the Bank's portfolio are either  adjustable-rate
or of short or intermediate term.  Adjustable-rate consumer loans are priced off
the prime rate and increments  are added based on risk  assessment as determined
by the Bank's senior lending and executive officers.

     Commercial Business Lending. The Bank maintains in portfolio a small amount
of commercial  business loans as an additional  service to its already  existing
banking relationships.  At September 30, 2001, these loans amounted to $400,000,
or .50%, of gross loans.  These loans are for a variety of  commercial  purposes
and are  secured by  inventories,  receivables  and other  business  assets from
companies in the Bemidji area, including retail  establishments and restaurants.
The Bank underwrites  commercial business loans based on the financial condition
of the  business  and the  creditworthiness  of the  borrower.  The  Bank  seeks
personal    guarantees    whenever   possible   and,   as   appropriate,    will
cross-collateralize business loans with other assets tied to the business.

     Commercial  business  loans  generally  involve more credit risk than first
mortgage loans.  Repossessed  collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding credit obligation as a result of
damage, loss or depreciation.  In such circumstances,  the remaining  deficiency
often does not  warrant  further  substantial  collection  efforts  against  the
obligor.  In addition,  collections  are dependent on the  obligor's  continuing
financial  stability,  and thus are more likely to be adversely  affected by job
loss,  divorce,  illness or personal  bankruptcy.  Further,  the  application of
various  federal and state laws,  including  federal  and state  bankruptcy  and
insolvency  laws, may limit the amount which can be recovered.  These financings
may also give rise to claims and defenses by an obligor  against First  Federal,
and an obligor may be able to assert  against First Federal  claims and defenses
which it has against the seller of the underlying  collateral.  First  Federal's
risks  associated  with  commercial  loans have been minimized by the immaterial
amount of such loans made by First Federal.

                                       8
<PAGE>

     Loan  Solicitation  and Processing.  First Federal's loan  originations are
derived from a number of sources,  including promotional  activity,  real estate
brokers, walk-in customers and current customers of the Bank. Construction loans
are often originated through existing customers.

     The Bank's Loan  Committee  is  responsible  for review and approval of all
loans  originated  or purchased by the Bank.  Loans in excess of $250,000 may be
approved by the Bank's  President,  but usually  receive the  pre-approval  of a
committee  consisting  of four  members of the Board of  Directors or the entire
Board of Directors.  The list of outside  appraisers is approved annually by the
Board of Directors.  All  appraisers  are fee  appraisers and not members of the
Bank's staff.

     Under the Bank's loan policy, the loan officer processing an application is
responsible for ensuring that all  documentation is obtained prior to submission
of the application to the Loan Committee. In addition, the loan officer verifies
that the application  meets the underwriting  guidelines of the Bank. All of the
Bank's  lending is subject to its  written  underwriting  standards  and to loan
origination procedures.  Decisions on loan applications are made on the basis of
detailed  applications  and  property  valuations.  The  loan  applications  are
designed  primarily to determine the borrower's  ability to repay the loan. More
significant items on the application are verified through use of credit reports,
financial statements, tax returns and written confirmations.

     Each  individual  loan  officer is subject to a maximum  lending  authority
established  by the  Board of  Directors.  Loans in  excess  of an  individual's
lending authority are submitted to an officer with sufficient lending authority,
or the Loan Committee for approval.  After a loan is closed, it is assigned to a
reviewing officer who reviews the file to assure its accuracy and completeness.

     The Bank  generally  relies  on  attorneys'  opinions  of title in its loan
processing. Title insurance is required on all mortgage loans closed for sale in
the secondary  market.  The Bank also requires title insurance for loans secured
by properties  exhibiting  unique title conditions which may involve  additional
risk. The Bank requires fire and extended coverage casualty insurance in amounts
at least equal to the principal  amount of the loan or the value of improvements
on the property,  depending on the type of loan.  The Bank also  requires  flood
insurance  to protect the property  securing  its interest  when the property is
located on a flood plain,  although  generally the Bank's primary market area is
not within a designated flood plain.

     The Bank makes up to a 90-day loan  commitment for each loan  approved.  If
the borrower  desires a longer  commitment,  the  commitment may be extended for
good cause and upon written approval. No fees are charged in connection with the
issuance of a commitment letter.

     Under applicable law, with certain limited exceptions, loans and extensions
of credit by a savings institution to a person outstanding at one time shall not
exceed  15% of the  institution's  unimpaired  capital  and  surplus.  Loans and
extensions of credit fully secured by readily marketable collateral may comprise
an additional 10% of unimpaired capital and surplus. Applicable law additionally
authorizes savings institutions to make loans to one borrower,  for any purpose,
in an amount not to exceed  $500,000 or in an amount not to exceed the lesser of
$30,000,000  or 30% of  unimpaired  capital and  surplus to develop  residential
housing,  provided (1) the purchase price of each single-family  dwelling in the
development  does  not  exceed  $500,000,  (2) the  savings  institution  is and
continues to be in compliance with its capital requirements as prescribed by OTS
regulations,  (3) the loans comply with applicable  loan-to-value  requirements,
(4) the aggregate amount of loans made under this authority does not exceed 150%
of  unimpaired  capital  and  surplus,  and (5) the  Director  of OTS, by order,
permits the savings  institution  to avail  itself of this higher  limit.  Under
these limits,  the Bank's loans to one borrower were limited to $3.17 million at
September  30,  2001.  At that date,  the Bank had no lending  relationships  in
excess of the OTS's  loans-to-one-borrower  limit. The Bank's five largest loans
ranged from $583,000 to $900,000 at September 30, 2001.  All of these loans were
current as of September 30, 2001.

     Interest  Rates and Loan Fees.  Interest  rates charged by First Federal on
mortgage loans are primarily determined by competitive loan rates offered in its
market area and First  Federal's yield  objectives.  Mortgage loan rates reflect
factors such as  prevailing  market  interest  rate levels,  the supply of money
available to the savings  industry and the demand for such loans.  These factors
are in turn  affected by general  economic  conditions,  the monetary and fiscal
policies of the federal  government,  including the Federal  Reserve Board,  the
general  supply of money in the economy,  tax policies and  governmental  budget
matters.

                                       9
<PAGE>

     First Federal  receives fees in connection  with loan  modifications,  late
payments and for  miscellaneous  services  related to its loans.  Such loan fees
have not been significant in recent years.

     Asset  Classification,  Allowances  for Losses and  Non-Performing  Assets.
Federal regulations require savings institutions to classify their assets on the
basis of quality on a regular basis. An asset is classified as substandard if it
is determined to be  inadequately  protected by the current net worth and paying
capacity  of the  obligor  or of the  collateral  pledged,  if any.  An asset is
classified as doubtful if full collection is highly  questionable or improbable.
An asset is  classified  as loss if it is  considered  uncollectible,  even if a
partial  recovery could be expected in the future.  The regulations also provide
for a special  mention  designation,  described as assets which do not currently
expose  a  savings  institution  to a  sufficient  degree  of  risk  to  warrant
classification,  but do possess  credit  deficiencies  or  potential  weaknesses
deserving  management's  close  attention.  Assets  classified as substandard or
doubtful require a savings  institution to establish general allowances for loan
losses. If an asset or portion thereof is classified loss, a savings institution
must either establish a specific allowance for loss in the amount of the portion
of the asset classified loss, or charge off such amount.  Federal  examiners may
disagree with a savings institution's classifications.  If a savings institution
does not agree with an examiner's classification of an asset, it may appeal this
determination to the OTS Regional Director.  First Federal regularly reviews its
assets   to   determine   whether   any   assets   require   classification   or
reclassification.   The   Board  of   Directors   reviews   and   approves   all
classifications.  At September 30, 2001, First Federal had no assets  classified
as loss,  $885,000  of  assets  classified  as  doubtful  and  $2,000  of assets
classified  as  substandard.  At  September  30,  2001,  there  were  no  assets
designated as special mention.

     Management will continue to actively  monitor First Federal's asset quality
and will  establish  loan loss reserves and will charge off loans and properties
acquired in settlement of loans against the  allowances 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  allowances  for losses,
future adjustments may be necessary if economic conditions differ  substantially
from the  economic  conditions  in the  assumptions  used in making the  initial
determinations.

     The Bank's allowance for loan losses is established through a provision for
loan losses  charged to earnings  based on  management's  evaluation of the risk
inherent in it's entire loan  portfolio  and changes in the nature and volume of
its loan  activity.  Such  evaluation,  which  includes a review of all loans of
which full  collectibility  may not be reasonably  assured,  considers  specific
occurrences,  general and local economic conditions, loan portfolio composition,
historical and local  experience  and other factors that warrant  recognition in
providing for an adequate  allowance for loan losses. In determining the general
reserves under these policies, historical charge-offs and recoveries, changes in
the mix and levels of the various types of loans,  net  realizable  values,  the
current loan  portfolio and current  economic  conditions  are  considered.  The
Bank's Asset Classification  Policy establishes rates for establishing a general
valuation  allowance on risk assets.  Each risk asset  receives a percentage  of
asset  rate,  which is then the  multiplier  used in  determining  the  required
reserve for that  specific  asset in the  composition  of the general  valuation
reserve. These reserve rates vary from 0.05% to 5.00% in establishing the amount
of reserve  necessary for  unclassified  assets.  Special  mention assets have a
reserve  rate of 2.00%.  Substandard  assets have a 15.0%  reserve  rate,  while
doubtful assets  currently have a 50.00% reserve rate. The Bank may also require
additional or specific reserves for certain classified assets.

     The above reserve rates establish a minimum general valuation allowance. As
of September 30, 2001, the Bank  maintained a general  valuation  allowance that
the reserve rates  dictated.  Reserves  determined  by using the reserve  rating
system were $609,183. The general valuation allowance on September 30, 2001, was
in the amount of  $609,183.  The increase in the  provision  for losses on loans
relates primarily to an increase in reservable assets. At September 30, 2001 the
Bank had a $61,991  specific  reserve  established  on a commercial  real estate
loan.

     Real  estate  acquired as a result of  foreclosure  or by  deed-in-lieu  of
foreclosure is classified as real estate  in-judgment  for the six months or one
year redemption  period,  and thereafter,  as real estate owned until sold. When
property is  acquired  through the  foreclosure  process,  it is recorded at the
lower of cost or estimated fair value,  less the estimated cost of  disposition.
After acquisition,  all costs incurred in maintaining the property are expensed.
Costs relating to improvement of the property,  however,  are capitalized to the
extent of fair value, less estimated costs of disposition.

                                       10
<PAGE>
     The following table sets forth an analysis of First Federal's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                                   Year Ended September 30,
                                                              -------------------------------
                                                                2001                  2000
                                                              --------              --------
                                                                    (Dollars in thousands)
<S>                                                           <C>                   <C>
Balance at beginning of period..............................  $        519          $     555
                                                              ------------          ---------

Loans charged-off:
  Real estate -- mortgages:
    Residential.............................................            (1)               (43)
    Commercial..............................................            --                 --
  Real estate -- construction...............................            --                 --
  Commercial business.......................................            --                 --
  Consumer..................................................          (162)               (63)
                                                              ------------          ---------
Total charge-offs...........................................          (163)              (106)
                                                              ------------          ---------

Recoveries:
  Real estate -- mortgages:
    Residential.............................................            --                 11
    Commercial..............................................            --                 --

  Real estate -- construction...............................            --                 --

  Commercial business.......................................            --                 --

  Consumer..................................................            47                 14
                                                              ------------          ---------
Total recoveries............................................            47                 25
                                                              ------------          ---------
Net loans charged-off.......................................          (116)               (81)
                                                              ------------          ---------
Provision for loan losses...................................           268                 45
                                                              ------------          ---------
Balance at end of period....................................  $        671          $     519
                                                              ============          =========

Ratio of net charge-offs to average
  loans outstanding during the period.......................          0.15%              0.13%
                                                              ============          =========
</TABLE>


                                       11
<PAGE>
     The  following  table  allocates  the  allowance  for loan  losses  by loan
category  at the  dates  indicated.  The  allocation  of the  allowance  to each
category is not  necessarily  indicative  of future losses and does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
                                                          September 30,
                                          ------------------------------------------------
                                                 2001                       2000
                                          ----------------------    ----------------------
                                                      Percent of                Percent of
                                                       Loans in                  Loans in
                                                    Category to                Category to
                                          Amount    Total Loans     Amount     Total Loans
                                          ------    -----------     ------     -----------
                                                        (Dollars in thousands)
<S>                                       <C>           <C>         <C>           <C>
Real estate - mortgage:
  Residential...........................  $     89      39.72%      $   133       48.78%
  Commercial............................       144      12.84            78       12.38
Real estate - construction..............        26       4.96             3        0.87
Commercial business.....................         3       0.50             6        0.85
Consumer................................       409      41.98           299       37.12
                                          --------     ------       -------      ------
    Total allowance for loan losses.....  $    671     100.00%      $   519      100.00%
                                          ========     ======       =======      ======
</TABLE>
     While  management  believes First Federal has established its existing loss
allowances in accordance with generally accepted  accounting  principles,  there
can be no assurance that regulators,  in reviewing First Federal's assets,  will
not make First Federal increase its loss allowance, thereby negatively affecting
First Federal's reported financial condition and results of operations.

     The following table sets forth  information with respect to First Federal's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
                                                                                  September 30,
                                                                       -------------------------------
                                                                         2001                   2000
                                                                       --------               --------
                                                                             (Dollars in thousands)
<S>                                                                    <C>                    <C>
Loans accounted for on a non-accrual basis: (1)
  Real estate:
     Residential.....................................................  $      --              $    17
     Commercial......................................................        247                  290
  Commercial business................................................         --                   --
  Consumer...........................................................         --                   --
                                                                       ---------              -------
       Total.........................................................  $     247              $   307
                                                                       =========              =======

Accruing loans which are contractually past due 90 days or more:
  Real Estate:
     Residential.....................................................  $      --              $    --
     Commercial......................................................         --                   --
  Commercial business................................................         45                   23
  Consumer...........................................................        136                   73
                                                                       ---------              -------
       Total.........................................................  $     181              $    96
                                                                       =========              =======
       Total of non-accrual and 90 days past due loans...............  $     428              $   403
                                                                       =========              =======

Percentage of total loans............................................      0.53%                 0.56%
                                                                       ========               =======
Other non-performing assets (2)......................................  $     170              $   208
                                                                       =========              =======
<FN>
_____________
(1)  Non-accrual  status  denotes loans on which,  in the opinion of management,
     the collection of additional  interest is unlikely.  Payments received on a
     non-accrual loan are either applied to the outstanding principal balance or
     recorded as interest income,  depending on assessment of the collectibility
     of the loan.  Generally,  loans  contractually past due 90 days or more are
     placed on non-accrual except for loans insured for credit loss.
(2)  Other  non-performing  assets represents property acquired by First Federal
     through  foreclosure  or  repossession  or accounted  for as a  foreclosure
     in-substance.  These  properties  are  carried at the lower of fair  market
     value, less estimated costs of disposition, or the principal balance of the
     related loan, whichever is lower.
</FN>
</TABLE>

                                       12
<PAGE>

     At September 30, 2001, First Federal's  non-performing assets included, one
commercial real estate loans, with a balance  outstanding of $247,000,  consumer
loans (secured primarily by automobiles) with balances  outstanding ranging from
$34 to $25,750 and two commercial leases, with balances outstanding of $45,000.

     The one commercial real estate loan accounted for on a non-accrual basis is
a gaming  establishment  located in  Colorado.  The  outstanding  balance of the
Bank's participation  interest is $246,751.  The Bank has established a specific
reserve against this loan in the amount of $61,991, resulting in a book value of
$184,760.

     At  September  30,  2001,  the Bank had no loans  which were not  currently
classified  as  non-accrual,  90 days past due or  restructured  but where known
information  about possible  credit problems of borrowers  causes  management to
have serious  concerns as to the ability of the borrowers to comply with present
loan repayment terms.

INVESTMENT ACTIVITIES

     General.  First  Federal is  permitted  under  federal law to make  certain
investments,  including  investments  in  securities  issued by various  federal
agencies  and  state  and  municipal  governments,  deposits  at the FHLB of Des
Moines,  certificates  of deposits in federally  insured  institutions,  certain
bankers'  acceptances and federal funds. First Federal may also invest,  subject
to certain  limitations,  in  commercial  paper  having one of the four  highest
investment ratings of a nationally  recognized credit rating agency, and certain
other types of corporate debt  securities  and mutual funds.  As a member of the
FHLB of Des Moines,  First Federal is required to maintain an investment in FHLB
of Des Moines stock. The Bank is also permitted to invest in related securities.

     First Federal makes  investments  in order to diversify its assets,  manage
cash flow,  obtain  yields and  maintain  the  minimum  levels of liquid  assets
required by regulatory authorities.  Under the Bank's current investment policy,
the amount invested with any one issuer may not exceed the lesser of $500,000 or
the net worth of the  issuing  corporation,  except for U.S.  Treasury  and U.S.
Government Agency Securities and mutual fund investments. The Board of Directors
reviews all securities purchased on a monthly basis.

     The investment  activities of the Bank consist  primarily of investments in
mortgage-backed   and  related  securities  and  other  investment   securities,
consisting  primarily of  securities  issued or  guaranteed by the United States
Government or agencies thereof.  Typical investments include federally sponsored
agency  mortgage  pass-throughs,  and  federally  sponsored  agency and  related
securities.  Investment and aggregate investment  limitations and credit quality
parameters of each class of investment are  prescribed in the Bank's  investment
policy.  The Bank performs analyses on related  securities prior to purchase and
on an ongoing  basis to determine  the impact on earnings and market value under
various interest rate and prepayment  conditions.  First Federal also invests in
mortgage-related  products,  which include  collateralized  mortgage obligations
("CMOs") and real estate mortgage investment conduits  ("REMICs").  The CMOs and
REMICs  purchased  by  the  Bank  comply  fully  with  regulatory   requirements
concerning  this type of investment.  Both the REMICs and CMOs owned by the Bank
are of short- or intermediate-term  targeted amortization class securities rated
AA or better.

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, the Bank  categorizes the securities it purchases as "Trading  Securities,"
"Available for Sale  Securities" and "Held to Maturity  Securities."  Securities
that are  categorized as "Held to Maturity" are securities that the Bank has the
ability  and  intent  to hold to  maturity.  Upon  acquisition,  securities  are
classified as to the Bank's intent.  Securities  "Held to Maturity" are held for
investment purposes and are carried at amortized cost. Securities categorized as
"Available for Sale" are  securities  that the Bank may not hold to maturity and
thus are carried at aggregate market value with unrealized gains and losses, net
of taxes, recognized in stockholders' equity.

     As of September  30,  2001,  in  accordance  with SFAS No. 115, the Company
classified  $4.19 million of its investment  securities and $8.42 million of its
mortgage-backed   and  related   securities  as  "Available   for  Sale".   Such
classification  gives the  Company  the  ability  to sell these  securities.  At
September  30,  2001  the  Company   classified  $16.59  million  of  investment
securities and $138,000 of its  mortgage-backed  and related securities as "held
to maturity." The Company has no "Trading Securities."

                                       13
<PAGE>

     Investment Securities. The following table sets forth the carrying value of
the  Company's  investment  securities  portfolio,  other  than  mortgage-backed
securities, at the dates indicated.
<TABLE>
<CAPTION>
                                                                             At September 30,
                                                                       -------------------------------
                                                                         2001                   2000
                                                                       --------               --------
                                                                               (In thousands)
<S>                                                                    <C>                    <C>
Investment securities:
  U.S. government and agency securities..............................  $  16,592              $42,216
  Corporate bonds and notes..........................................      3,203                3,801
  Municipal obligations..............................................         --                  248
  Mutual funds.......................................................        983                  944
                                                                       ---------              -------
     Total investment securities.....................................  $  20,778              $47,209
                                                                       =========              =======
</TABLE>

                                       14
<PAGE>

     The  following  table  sets  forth  information   regarding  the  scheduled
maturities,  market  value and  weighted  average  yields  for  First  Federal's
investments, other than mortgage-backed securities, at September 30, 2001.
<TABLE>
<CAPTION>
                                       One Year or Less           One to Five Years        Five to Ten Years
                                    -----------------------     ----------------------  -----------------------
                                    Carrying         Average    Carrying      Average   Carrying      Average
                                     Value            Yield      Value          Yield     Value         Yield
                                    -------          -------    -------       --------  ---------     ---------
<S>                                 <C>               <C>       <C>             <C>     <C>            <C>
Investment securities:
   U.S. government and
       agency  securities (1)......  $    --           --  %    $    3          6.19%   $16,589        6.26%
   Corporate bonds and
        notes......................    1,183          6.33       1,742          6.63        262        5.99
                                     -------                    ------                  -------
      Total........................  $ 1,183          6.33      $1,745          6.63    $16,851        6.26
                                     =======                    ======                  =======
Securities with no stated
  maturity.........................

Total investment
   securities......................

<CAPTION>
                                     More than Ten Years       Total Investment Portfolio
                                     --------------------    ------------------------------
                                      Carrying    Average    Carrying    Market     Average
                                        Value      Yield       Value     Value       Yield
                                      --------    -------    --------    ------      ------
<S>                                  <C>           <C>       <C>        <C>         <C>
Investment securities:
   U.S. government and
       agency  securities (1)......   $    --       -- %     $16,592    $16,673     6.26%
   Corporate bonds and
        notes......................        16      6.67        3,203      3,203     6.47
                                      -------                -------    -------
      Total........................   $    16      9.26      $19,795    $19,876     6.30%
                                      =======                =======    =======
Securities with no stated
  maturity.........................                          $   983    $   983     4.77
                                                             -------    -------
Total investment
   securities......................                          $20,778    $20,859     6.23
                                                             =======    =======
<FN>
---------------
(1)  All U.S. government and agency securities have call features which give the
     option to prepay the debt in one year or less.
</FN>
</TABLE>


                                       15
<PAGE>
     Mortgage-Backed   Securities.   Mortgage-backed   securities   represent  a
participation interest in a pool of single-family or multi-family mortgages, the
principal  and  interest   payments  on  which  are  passed  from  the  mortgage
originators  through  intermediaries  that pool and repackage the  participation
interest  in the  form  of  securities  to  investors  such  as the  Bank.  Such
intermediaries may include quasi-governmental agencies such as Federal Home Loan
Mortgage Corporation  ("FHLMC"),  Federal National Mortgage Association ("FNMA")
and  Government  National  Mortgage  Association  ("GNMA")  which  guarantee the
payment of  principal  and  interest to  investors.  Mortgage-backed  securities
generally  increase the quality of the Bank's assets by virtue of the guarantees
that back them, are more liquid than  individual  mortgage loans and may be used
to collateralize borrowings or other obligations of the Bank.

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

     The actual maturity of a mortgage-backed security varies, depending on when
the  mortgagors  prepay or repay the  underlying  mortgages.  Prepayments of the
underlying  mortgages may shorten the life of the investment,  thereby adversely
affecting   its  yield  to  maturity  and  the  related   market  value  of  the
mortgage-backed  security.  The yield is based upon the interest  income and the
amortization  of the  premium  or  accretion  of  the  discount  related  to the
mortgage-backed security.  Premiums and discounts on mortgage-backed  securities
are  amortized or accreted  over the estimated  term of the  securities  using a
level  yield  method.   The  prepayment   assumptions   used  to  determine  the
amortization  period for premiums and  discounts  can  significantly  affect the
yield  of the  mortgage-backed  security  and  these  assumptions  are  reviewed
periodically to reflect the actual prepayment.  The actual prepayment experience
of the underlying  mortgages,  the geographical  location of the underlying real
estate  collateralizing  the  mortgages  and general  levels of market  interest
rates. The difference between the interest rates on the underlying mortgages and
the prevailing  mortgage interest rates is an important  determinant in the rate
of prepayments.  During periods of falling mortgage interest rates,  prepayments
generally increase. If the coupon rate of the underlying mortgage  significantly
exceeds  the  prevailing  market  interest  rates  offered for  mortgage  loans,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages.   Prepayment   experience   is  more   difficult   to  estimate   for
adjustable-rate mortgage-backed securities.

     The Bank's  mortgage-backed  securities  portfolio  consists  primarily  of
seasoned fixed-rate and adjustable-rate mortgage-backed securities. At September
30, 2001, the Bank had $6.32 million in mortgage-backed securities (representing
99.83% of the Bank's  gross  mortgage-backed  securities  portfolio  or 4.98% of
total assets)  insured or  guaranteed  by FNMA,  FHLMC or GNMA. At September 30,
2001, $11,000 (representing .17% of the Bank's gross mortgage-backed  securities
portfolio,  or .009% of total assets)  consisted of privately issued  securities
which  are  not  guaranteed  by  FHLMC,   FNMA,  GNMA  or  any  governmental  or
quasi-governmental agency.

     The Bank's  mortgage-backed  securities  portfolio contains  fixed-rate and
floating rate securities. Certain of the Bank's mortgage-backed securities yield
above-market  rates of interest  and are subject to  prepayment.  In a declining
interest  rate  environment,   the  Bank  may  experience  prepayments  of  both
fixed-rate and  adjustable-rate  mortgage-backed  and related  securities.  In a
rising interest rate  environment,  the prepayments may cease,  market yields of
these  securities  may be less  attractive,  and the market  value of the Bank's
mortgage-backed securities may decline.

     Mortgage-Related  Securities.  CMOs and  REMICs are  typically  issued by a
special purpose entity, which may be organized in a variety of legal forms, such
as a trust,  a corporation  or a  partnership.  The entity  aggregates  pools of
mortgage loans or pass-through  securities,  which are used to collateralize the
related securities. Once combined, the cash flows can be divided into "tranches"
or "classes" of individual securities, thereby creating more predictable average
lives for each security than the  underlying  pass-through  pools.  Accordingly,
under this security  structure all principal  paydowns from the various mortgage
pools are allocated to a related securities' class or classes structured to have
priority  until it has been paid off.  These  securities  generally  have  fixed


                                       16
<PAGE>

interest  rates,  and as a result,  changes in interest  rates  generally  would
affect the market value and possibly the prepayment rates of such securities.

     Some related  securities  instruments are like traditional debt instruments
due to their stated principal  amounts and  traditionally  defined interest rate
terms.  Purchasers of certain other related securities  instruments are entitled
to the excess,  if any, of the issuer's cash inflows.  These related  securities
instruments  may include  instruments  designated  as residual  interest and are
riskier  in that they  could  result in the loss of a  portion  of the  original
investment. Cash flows from residual interests are very sensitive to prepayments
and, thus, contain a high degree of interest rate risk.

     At  September  30, 2001,  the Bank had $2.22  million in CMOs and REMICs or
1.75% of total assets.  The Bank's CMOs and REMICs had a weighted  average yield
of 6.14% at September 30, 2001.  The Bank's  current  policy is to purchase CMOs
and REMICs rated AA or better at the time of purchase by  nationally  recognized
rating services or issued by U.S. government agencies. As of September 30, 2001,
$11,000 of the securities in the Bank's  mortgage-backed  and related securities
portfolio were privately issued securities, $11,000 were rated as AAA.

     The  following   table  sets  forth  the  carrying   value  of  the  Bank's
mortgage-backed and related securities at the dates indicated.
<TABLE>
<CAPTION>
                                                                              At September 30,
                                                                       -------------------------------
                                                                         2001                   2000
                                                                       --------               --------
                                                                               (In thousands)
<S>                                                                    <C>                    <C>
GNMA.................................................................  $     609              $   749
FNMA.................................................................      2,871                3,719
FHLMC................................................................      2,841                3,569
FHA..................................................................         11                   21
Collateralized mortgage obligations..................................      2,223                3,678
                                                                       ---------              -------
     Total...........................................................  $   8,555              $11,736
                                                                       =========              =======
</TABLE>

                                       17
<PAGE>

     The following table sets forth the scheduled  maturities,  carrying values,
market  values and  average  yields for the Bank's  mortgage-backed  and related
securities at September 30, 2001.
<TABLE>
<CAPTION>
                                     One Year or Less       One to Five Years     Five to Ten Years    More than Ten Years
                                    --------------------    ------------------  --------------------   -------------------
                                    Carrying     Average    Carrying   Average  Carrying     Average   Carrying    Average
                                     Value        Yield      Value      Yield    Value        Yield      Value      Yield
                                    -------      -------    -------    -------  --------     -------   --------    -------
<S>                                 <C>           <C>       <C>         <C>     <C>           <C>       <C>         <C>
GNMA........................        $     --       -- %     $      6    7.66%   $   120       7.25%     $   483     6.28%
FNMA........................              --       --            469    6.67        720       6.07        1,682     6.01
FHLMC.......................              --       --            802    6.34        687       6.48        1,352     6.19
FHA.........................              --       --             11   10.39         --         --          --       --
Collateralized mortgage
    obligations.............              --       --             --      --        594       6.13        1,629     6.14
                                    --------                --------            -------                 -------
      Total.................        $     --       -- %     $  1,288    6.50%   $ 2,121       6.29%     $ 5,146     6.12
                                    ========                ========            =======                 =======
<CAPTION>
                                        Total Investment Portfolio
                                      ------------------------------
                                      Carrying    Market     Average
                                       Value      Value        Yield
                                      --------    ------     --------
<S>                                   <C>         <C>          <C>
GNMA........................          $   609     $   609      6.48%
FNMA........................            2,871       2,871      6.13
FHLMC.......................            2,841       2,842      6.30
FHA.........................               11          11     10.39
Collateralized mortgage
    obligations.............            2,223       2,225      6.14
                                      -------     -------
      Total.................          $ 8,555     $ 8,558      6.22
                                      =======     =======
</TABLE>

                                       18
<PAGE>

DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

     General.  Deposits  are the  primary  source of First  Federal's  funds for
lending and other investment  activities and general  operational  purposes.  In
addition to deposits,  First Federal derives funds from loan and mortgage-backed
and related securities principal repayments, maturities of investment securities
and interest  payments.  Loan repayments and interest  payments are a relatively
stable  source of funds,  while deposit  inflows and outflows are  significantly
influenced  by prevailing  market  interest  rates and money market  conditions.
Borrowings may be used to supplement  First  Federal's  available  funds.  First
Federal has access to borrow from the FHLB of Des Moines and the Federal Reserve
Bank.

     Deposits.  First  Federal  attracts  deposits  principally  from within its
market  area by  offering a variety of deposit  instruments,  including  savings
accounts, money market accounts, retirement savings accounts and certificates of
deposit  which  range  in term  from  three to 60  months.  Deposit  terms  vary
principally on the basis of the minimum balance required, the length of time the
funds must remain on deposit and the interest rate.  Maturities,  terms, service
fees and withdrawal  penalties for its deposit  accounts are  established by the
Bank on a periodic  basis.  The Bank  reviews  its deposit mix and pricing on an
ongoing basis. In determining the  characteristics of its deposit accounts,  the
Bank considers the rates offered by competing  institutions,  funds  acquisition
and liquidity requirements, growth goals, and federal regulations.

     The Bank competes for deposits,  including  individual  retirement accounts
("IRA")  and Keogh Plan  funds,  with other  institutions  in its market area by
offering  deposit  instruments  that are  competitively  priced and by providing
customer service through  convenient and attractive  offices,  knowledgeable and
efficient  staff  and hours of  service  that meet  customers'  needs.  The Bank
generally does not use premiums to attract savings deposits.

                                       19
<PAGE>

     The  following  table sets forth the average  balances and  interest  rates
based on daily  balances for  interest-bearing  demand and savings  deposits and
time deposits as of the dates indicated.
<TABLE>
<CAPTION>
                                                                     September 30,
                     ----------------------------------------------------------------------------------------------------------
                                            2001                                                    2000
                     ----------------------------------------------------  ----------------------------------------------------
                     Interest-Bearing  Interest-Bearing  Interest-Bearing  Interest-Bearing  Interest-Bearing  Interest-Bearing
                     Demand Deposits   Savings Deposits    Time Deposits    Demand Deposits  Savings Deposits   Time Deposits
                     ---------------   ----------------  ----------------  ----------------  ----------------- ---------------
                                                                 (Dollars in thousands)
<S>                    <C>                <C>              <C>              <C>                   <C>             <C>
Average Balance......  $  21,738          $   7,901        $  59.336        $  22,579             $   8,238       $    53,745
Average Rate.........       2.29%              1.70%            5.77%            2.92%                 1.89%             5.51%
</TABLE>

                                       20
<PAGE>

     The following table indicates the amount of the  certificates of deposit of
$100,000 or more in First Federal by time remaining  until maturity at September
30, 2001.

                                                     Certificates
      Maturity Period                                 of Deposits
      ---------------                                 -----------
                                                    (In thousands)

       Three months or less.......................  $      1,501
       Over three through six months..............         4,414
       Over six through 12 months.................         3,891
       Over 12 months.............................         3,367
                                                    ------------
             Total................................  $     13,173
                                                    ============


     Borrowings.  Savings deposits  historically have been the primary source of
funds for First Federal's lending,  investment and general operating activities.
First  Federal is  authorized,  however,  to use  advances  from the FHLB of Des
Moines to supplement its supply of lendable funds and to meet deposit withdrawal
requirements.  The  FHLB of Des  Moines  functions  as a  central  reserve  bank
providing  credit for savings  institutions  and certain other member  financial
institutions.  As a member of the FHLB System,  First Federal is required to own
stock  in the FHLB of Des  Moines  and is  authorized  to  apply  for  advances.
Advances are made pursuant to several different programs,  each of which has its
own interest rate and range of  maturities.  The Bank is also eligible to borrow
from the Federal Reserve Bank. At September 30, 2001, the Bank had $9.76 million
in advances outstanding with the FHLB.

     From time to time the Bank utilizes repurchase  agreements issued primarily
to local  government  units.  The form of repurchase  agreement used by the Bank
involves  the  sale  of  securities  owned  by the  Bank  with a  commitment  to
repurchase  the same or  substantially  the same  securities at a  predetermined
price at a future date,  typically one to 180 days thereafter.  At September 30,
2001, the Bank had $3.10 million in repurchase agreements outstanding.

     The following table presents a summary of the Bank's borrowings, which were
greater than 30% of stockholders' equity as of September 30, 2001 and 2000.
<TABLE>
<CAPTION>
                                                                        September 30,
                                                                 ----------------------------
                                                                   2001                2000
                                                                 --------            --------
                                                                    (Dollars in thousands)
<S>                                                              <C>                <C>
Federal Home Loan Bank advances
  outstanding at period end...................................   $   9,760          $  31,363
Weighted average rate at period end...........................        4.31               6.66
Daily average outstanding for the period......................   $  26,445          $  26,466
  Weighted average rate for the period........................        5.72               6.10
Highest outstanding at any month end..........................   $  36,838          $  31,365
Repurchase agreements
  outstanding at period end...................................   $   3,102          $   5,562
  Weighted average rate at period end.........................        4.52               6.34
Daily average outstanding for the period......................   $   3,636          $   7,415
  Weighted average rate for the period........................        5.72               5.76
Highest outstanding at any month end..........................   $   6,275          $  12,246
</TABLE>

     For more information on borrowings, see "Note 12 - Borrowings" of the Notes
to Consolidated  Financial Statements included under Item 7, and part of Exhibit
13 to this Form 10-KSB.

                                       21
<PAGE>

SUBSIDIARY ACTIVITIES

     As a federally  chartered  savings bank, the Bank is permitted to invest an
amount equal to 2% of its assets in subsidiaries,  with an additional investment
of 1% of assets where such investment serves primarily community, inner-city and
community  development  purposes.  Under such  limitations,  as of September 30,
2001, the Bank was authorized to invest up to approximately $3.77 million in the
stock of or loans to  subsidiaries,  including the  additional 1% investment for
community inner-city and community development purposes.

     The Bank has one wholly owned subsidiary: First Federal Service Corporation
("First Federal Service"). First Federal Service, a Minnesota corporation, sells
credit,  life  and  disability  insurance  and  retail  non-deposit   investment
products.  At September 30, 2001,  the Bank's total  investment in First Federal
Service was $157,000.

     SAIF-insured savings institutions must give the FDIC and OTS 30 days' prior
notice before establishing or acquiring a new subsidiary,  or commencing any new
activity through an existing subsidiary. Both the FDIC and OTS have authority to
order  termination  of  subsidiary  activities  determined to pose a risk to the
safety or  soundness  of the  institution.  In  addition,  capital  requirements
require  savings  institutions  to  deduct  from  capital  the  amount  of their
investments  in and extensions of credit to  subsidiaries  engaged in activities
not permissible to national banks in determining  regulatory capital compliance.
The activities of First Federal  Service are not permissible for national banks.
See "-- Regulation of the Bank -- Regulatory Capital Requirements."

COMPETITION

     First  Federal  faces strong  competition  for  deposits  and loans.  First
Federal's  principal  competitors  for deposits are other banking  institutions,
such as commercial banks, credit unions and other savings institutions,  as well
as mutual funds and other investments.  First Federal  principally  competes for
deposits by offering a variety of deposit  accounts,  convenient  business hours
and branch locations,  customer service and a well trained staff, in addition to
a  substantial  ATM  network.  First  Federal  competes  for  loans  with  other
depository  institutions,  as well as specialty mortgage lenders and brokers and
consumer finance companies.  First Federal principally competes for loans on the
basis of  interest  rates  and the loan fees it  charges,  the types of loans it
originates and the  convenience  and quick service it provides to borrowers.  In
addition,  First Federal believes it has developed strong relationships with the
businesses,  realtors,  builders and general  public in its market  area.  First
Federal is the fourth largest financial institution in its market area, based on
deposit  and asset  information  at  September  30,  2001.  Of the three  larger
institutions, two are located in Bemidji, Minnesota.

EMPLOYEES

     As of September 30, 2001,  the Company and the Bank had 39 full-time and 10
part-time  employees,  none of whom was  represented by a collective  bargaining
agreement.

REGULATION

     General.  As a federally  chartered  savings  bank,  the Bank is subject to
extensive  regulation by the OTS and FDIC and to OTS regulations  governing such
matters  as  capital  standards,  mergers,   establishment  of  branch  offices,
subsidiary  investments  and activities and general  investment  authority.  The
lending  activities  and other  investments of the Bank must comply with various
federal  regulatory  requirements.  The OTS  periodically  examines the Bank for
compliance with various regulatory requirements. The FDIC also has the authority
to conduct special  examinations of the Bank because its deposits are insured by
the SAIF.  The Bank must file reports with OTS  describing  its  activities  and
financial  condition  and  is  also  subject  to  certain  reserve  requirements
promulgated by the Federal  Reserve Board.  This  supervision  and regulation is
intended primarily for the protection of depositors. Certain of these regulatory
requirements are referred to below or appear elsewhere herein.

     Financial Modernization Legislation.  The Gramm-Leach-Bliley ("G-L-B") Act,
which was enacted in November 1999,  authorizes  affiliations  between  banking,
securities  and  insurance  firms and  authorizes  bank  holding  companies  and
national banks to engage in a variety of new financial activities. Among the new
activities  that will be permitted to bank holding  companies are securities and
insurance  brokerage,   securities  underwriting,   insurance

                                       22
<PAGE>

underwriting  and merchant  banking.  The Federal Reserve Board, in consultation
with the Secretary of the Treasury, may approve additional financial activities.
The G-L-B Act,  however,  prohibits  future  acquisitions  of  existing  unitary
savings and loan holding companies, like the Company, by firms which are engaged
in  commercial  activities  and limits  the  permissible  activities  of unitary
savings and loan holding companies formed after May 4, 2000.

     The G-L-B Act imposes  new  requirements  on  financial  institutions  with
respect to customer  privacy.  The G-L-B Act generally  prohibits  disclosure of
customer  information  to  non-affiliated  third parties unless the customer has
been given the  opportunity  to object and has not objected to such  disclosure.
Financial  institutions  are further required to disclose their privacy policies
to customers  annually.  Financial  institutions,  however,  will be required to
comply  with state law if it is more  protective  of customer  privacy  than the
G-L-B Act.  The G-L-B Act directs the federal  banking  agencies,  the  National
Credit Union Administration,  the Secretary of the Treasury,  the Securities and
Exchange  Commission and the Federal Trade Commission,  after  consultation with
the National Association of Insurance Commissioners,  to promulgate implementing
regulations  within six  months of  enactment.  The  privacy  provisions  became
effective in July 2001.

     The G-L-B Act contains significant  revisions to the FHLB System. The G-L-B
Act imposes new capital  requirements  on the FHLBs and authorizes them to issue
two classes of stock with differing dividend rates and redemption  requirements.
The G-L-B Act deletes the current requirement that the FHLBs annually contribute
$300 million to pay interest on certain government obligations in favor of a 20%
of net  earnings  formula.  The G-L-B Act expands the  permissible  uses of FHLB
advances by community  financial  institutions (under $500 million in assets) to
include   funding   loans  to  small   businesses,   small   farms   and   small
agri-businesses.  The G-L-B  Act  makes  membership  in the FHLB  voluntary  for
federal savings associations.

     The  G-L-B  Act  contains  a  variety  of  other  provisions   including  a
prohibition  against ATM surcharges  unless the customer has first been provided
notice of the  imposition  and  amount of the fee.  The  G-L-B Act  reduces  the
frequency of Community  Reinvestment Act  examinations for smaller  institutions
and imposes certain reporting requirements on depository  institutions that make
payments  to   non-governmental   entities  in  connection  with  the  Community
Reinvestment  Act.  The  G-L-B  Act  eliminates  the SAIF  special  reserve  and
authorizes a federal  savings  association  that converts to a national or state
bank charter to continue to use the term "federal" in its name and to retain any
interstate branches.

     The  Company  is  unable  to  predict  the  impact  of the G-L-B Act on its
operations at this time.

REGULATION OF THE BANK

     Federal  Home Loan Bank  System.  The Bank is a member of the FHLB  System,
which consists of 12 district FHLBs subject to supervision and regulation by the
Federal  Housing  Finance Board  ("FHFB").  The FHLBs  provide a central  credit
facility  primarily  for  member  institutions.  As a member  of the FHLB of Des
Moines,  the Bank is required to acquire and hold shares of capital stock in the
FHLB of Des  Moines in an amount at least  equal to 1% of the  aggregate  unpaid
principal of its home  mortgage  loans,  home  purchase  contracts,  and similar
obligations at the end of each year, or 1/20 of its advances  (borrowings)  from
the FHLB of Des Moines,  whichever is greater.  The Bank was in compliance  with
this requirement with an investment in FHLB of Des Moines stock at September 30,
2001 of $1.84 million.

     The FHLB of Des Moines  serves as a reserve or central  bank for its member
institutions within its assigned district.  It is funded primarily from proceeds
derived from the sale of consolidated  obligations of the FHLB System.  It makes
advances to members in accordance  with policies and  procedures  established by
the  FHFB and the  Board  of  Directors  of the  FHLB of Des  Moines.  Long-term
advances  may only be made for the purpose of  providing  funds for  residential
housing finance,  small businesses,  small farms and small  agri-businesses.  At
September 30, 2001, the Bank had $9.76 million in advances  outstanding from the
FHLB of Des  Moines.  See "--  Deposit  Activity  and Other  Sources of Funds --
Borrowings."

     Qualified Thrift Lender Test. A savings  institution that does not meet the
Qualified  Thrift Lender  ("QTL") test must either  convert to a bank charter or
comply with the following  restrictions on its  operations:  (i) the institution
may not  engage in any new  activity  or make any new  investment,  directly  or
indirectly,  unless  such  activity  or  investment  is  permissible  for both a
national  bank and a  savings  institution;  (ii) the  branching  powers  of

                                       23
<PAGE>

the  institution  shall be  restricted  to those of a national  bank;  and (iii)
payment of dividends by the institution  shall be subject to the rules regarding
payment of dividends by a national bank. In addition,  any company that controls
a  savings  institution  that  fails to  qualify  as a QTL will be  required  to
register  as, and to be deemed,  a bank  holding  company  subject to all of the
provisions  of the Bank  Holding  Company  Act of 1956  (the  "BHCA")  and other
statutes  applicable  to bank holding  companies.  Upon the  expiration of three
years  from the date the  institution  ceases  to be a QTL,  it must  cease  any
activity and not retain any investment not  permissible for both a national bank
and a savings institution.

     To  qualify  as a QTL,  a savings  institution  must  either  qualify  as a
"domestic  building and loan  association"  under the  Internal  Revenue Code or
maintain at least 65% of its "portfolio assets" in Qualified Thrift Investments.
Portfolio  assets are  defined as total  assets less  intangibles,  the value of
property used by a savings institution in its business and liquidity investments
in an amount not exceeding  20% of assets.  All of the following may be included
as Qualified  Thrift  Investments:  investments in residential  mortgages,  home
equity loans, loans made for educational purposes,  small business loans, credit
card loans and shares of stock issued by an FHLB.  Subject to a 20% of portfolio
assets  limit,  savings  institutions  are also able to treat the  following  as
Qualified  Thrift  Investments:  (i) 50% of the  dollar  amount  of  residential
mortgage loans subject to sale under certain conditions, (ii) investments,  both
debt and equity,  in the capital stock or  obligations of and any other security
issued by a service  corporation  or operating  subsidiary,  provided  that such
subsidiary  derives at least 80% of its annual gross  revenues  from  activities
directly  related  to  purchasing,  refinancing,   constructing,   improving  or
repairing domestic  residential housing or manufactured  housing,  (iii) 200% of
their investments in loan to finance "starter homes" and loans for construction,
development or improvement  of housing and community  service  facilities or for
financing small businesses in "credit-needy" areas, (iv) loans for the purchase,
construction,  development or improvement of community service  facilities,  (v)
loans for personal,  family,  household or educational purposes, and (vi) shares
of stock issued by FNMA or FHLMC.

     A savings  institution must maintain its status as a QTL on a monthly basis
in nine out of every 12 months.  A savings  institution  that fails to  maintain
Qualified  Thrift Lender status will be permitted to requalify  once,  and if it
fails the QTL test a second  time,  it will  become  immediately  subject to all
penalties as if all time limits on such penalties had expired.  At September 30,
2001,  approximately  72.29% of the Bank's  assets were  invested  in  Qualified
Thrift Investments.

     Uniform Lending Standards. Under OTS regulations, savings institutions must
adopt and  maintain  written  policies  that  establish  appropriate  limits and
standards  for  extensions  of credit that are secured by liens or  interests in
real estate or are made for the purpose of financing  permanent  improvements to
real estate.  These  policies  must  establish  loan  portfolio  diversification
standards, prudent underwriting standards,  including loan-to-value limits, that
are clear and  measurable,  loan  administration  procedures and  documentation,
approval and  reporting  requirements.  The real estate  lending  policies  must
reflect  consideration  of the  Interagency  Guidelines  for Real Estate Lending
Policies (the  "Interagency  Guidelines")  that have been adopted by the federal
bank regulators.

     The  Interagency  Guidelines,  among  other  things,  call upon  depository
institutions to establish  internal  loan-to-value  limits for real estate loans
that are not in  excess  of the  following  supervisory  limits:  (i) for  loans
secured by raw land, the supervisory  loan-to-value limit is 65% of the value of
the collateral;  (ii) for land development loans (i.e., loans for the purpose of
improving  unimproved  property  prior  to  the  erection  of  structures),  the
supervisory  limit is 75%; (iii) for loans for the  construction  of commercial,
multifamily or other nonresidential property, the supervisory limit is 80%; (iv)
for  loans  for  the  construction  of  one-  to  four-family  properties,   the
supervisory  limit is 85%; and (v) for loans secured by other improved  property
(e.g.,  farmland,  completed  commercial  property  and  other  income-producing
property including non-owner-occupied,  one- to four-family property), the limit
is 85%.  Although no supervisory  loan-to-value  limit has been  established for
owner-occupied,  one- to  four-family  and home equity  loans,  the  Interagency
Guidelines  state that for any such loan with a loan-to-value  ratio that equals
or exceeds 90% at origination,  an institution should require appropriate credit
enhancement  in the form of either  mortgage  insurance  or  readily  marketable
collateral.

     The Interagency  Guidelines  state that it may be appropriate in individual
cases to originate or purchase loans with loan-to-value  ratios in excess of the
supervisory  loan-to-value limits, based on the support provided by other credit
factors.   The  aggregate   amount  of  loans  in  excess  of  the   supervisory
loan-to-value limits,  however,  should not exceed 100% of total capital and the
total of such loans secured by commercial,  agricultural,  multifamily

                                       24
<PAGE>
and other non-one-to-four family residential properties should not exceed 30% of
total  capital.  The  supervisory  loan-to-value  limits do not apply to certain
categories of loans including loans insured or guaranteed by the U.S. government
and its agencies or by financially capable state, local or municipal governments
or agencies,  loans  backed by the full faith and credit of a state  government,
loans that are to be sold  promptly  after  origination  without  recourse  to a
financially   responsible   party,   loans  that  are  renewed,   refinanced  or
restructured  without  the  advancement  of new funds,  loans that are  renewed,
refinanced or  restructured  in connection  with a workout,  loans to facilitate
sales of real  estate  acquired by the  institution  in the  ordinary  course of
collecting a debt  previously  contracted and loans where the real estate is not
the primary collateral.

     Management believes that the Bank's current lending policies conform to the
Interagency  Guidelines and does not anticipate that the Interagency  Guidelines
will have a material effect on its lending activities.

     Regulatory  Capital  Requirements.   Under  the  OTS's  regulatory  capital
requirements,  savings  institutions must maintain  "tangible"  capital equal to
1.5% of adjusted total assets, "core" capital equal to at least 4.0% (or 3.0% if
the  institution is rated  composite 1 CAMELS under the OTS  examination  rating
system) of adjusted  total assets and "total"  capital (a  combination of "core"
and "supplementary" capital) equal to 8.0% of risk-weighted assets. In addition,
the OTS has adopted  regulations  which impose certain  restrictions  on savings
institutions that have a total risk-based  capital ratio that is less than 8.0%,
a ratio of Tier 1 capital to  risk-weighted  assets of less than 4.0% or a ratio
of Tier 1 capital  to  adjusted  total  assets of less than 4.0% (or 3.0% if the
institution  is  rated  composite  1 CAMELS  under  the OTS  examination  rating
system).  For  purposes  of  these  regulations,  Tier 1  capital  has the  same
definitions as core capital. See "-- Prompt Corrective Regulatory Action."

     Core capital is defined as common  stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity  accounts of fully  consolidated  subsidiaries,  certain
nonwithdrawable  accounts  and  pledged  deposits  and  "qualifying  supervisory
goodwill."  Core  capital is  generally  reduced  by the  amount of the  savings
institution's  intangible assets for which no market exists.  Limited exceptions
to the  deduction  of  intangible  assets are provided  for  purchased  mortgage
servicing rights and qualifying supervisory goodwill.  Tangible capital is given
the same  definition  as core  capital  but does not  include an  exception  for
qualifying  supervisory goodwill and is reduced by the amount of all the savings
institution's  intangible  assets with only a limited  exception  for  purchased
mortgage servicing rights. Both core and tangible capital are further reduced by
an amount  equal to a  savings  institution's  debt and  equity  investments  in
subsidiaries engaged in activities not permissible to national banks (other than
subsidiaries  engaged in  activities  undertaken  as agent for  customers  or in
mortgage  banking  activities and subsidiary  depository  institutions  or their
holding companies). Investments in and extensions of credit to such subsidiaries
are required to be fully netted against tangible and core capital.  At September
30, 2001, the Bank had no such investments.

     Adjusted  total  assets  are  a  savings   institution's  total  assets  as
determined under generally accepted accounting  principles  increased by certain
goodwill  amounts  and by a pro rated  portion of the  assets of  unconsolidated
includable  subsidiaries  in which  the  savings  institution  holds a  minority
interest.  Adjusted  total  assets are reduced by the amount of assets that have
been deducted from capital, the portion of savings institution's  investments in
unconsolidated  includable  subsidiaries,  and,  for purpose of the core capital
requirement,  qualifying supervisory goodwill. At September 30, 2001, the Bank's
adjusted  total  assets  for the  purposes  of the  core  and  tangible  capital
requirements were approximately $125.51 million.

         In determining compliance with the risk-based capital requirement, a
savings institution is allowed to include both core capital and supplementary
capital in its total capital provided the amount of supplementary capital
included does not exceed the savings institution's core capital. Supplementary
capital is defined to include certain preferred stock issues, nonwithdrawable
accounts and pledged deposits that do not qualify as core capital, certain
approved subordinated debt, certain other capital instruments, a portion of the
savings institution's general loss allowances and up to 45% of unrealized gains
on equity securities. Total core and supplementary capital are reduced by the
amount of capital instruments held by other depository institutions pursuant to
reciprocal arrangements, all equity investments and that portion of the
institution's land loans and non-residential construction loans in excess of an
80% loan-to-value ratio. As of September 30, 2001, the Bank had no high ratio
land or non-residential construction loans and no equity investments for which
OTS regulations require a deduction from total capital.

                                       25
<PAGE>

     The risk-based capital requirement is measured against risk-weighted assets
which  equal  the sum of each  asset  and the  credit-equivalent  amount of each
off-balance sheet item after being multiplied by an assigned risk weight.  Under
the OTS risk-weighting system, one- to four-family first mortgages not more than
90 days past due with loan-to-value  ratios under 80% are assigned a risk weight
of 50%. Consumer and residential  construction  loans are assigned a risk weight
of 100%.  Mortgage-backed securities issued, or fully guaranteed as to principal
and interest, by the FNMA or FHLMC are assigned a 20% risk weight. Cash and U.S.
Government securities backed by the full faith and credit of the U.S. Government
are given a 0% risk weight.  As of September 30, 2001, the Bank's  risk-weighted
assets were approximately $76.40 million.

     The table below provides  information with respect to the Bank's compliance
with its regulatory capital requirements at September 30, 2001.
<TABLE>
<CAPTION>
                                                                                     To Be Well Capitalized
                                                                 For Capital               Under Prompt
                                          Actual               Adequacy Purposes    Corrective Action Provisions
                                    -------------------       ------------------    ----------------------------
                                    Amount       Ratio        Amount      Ratio       Amount            Ratio
                                    ------       -----        ------      -----       ------            -----
                                                                  (Dollars in thousands)
<S>                                 <C>            <C>        <C>          <C>          <C>             <C>
As of September 30, 2001:

  Total capital (to risk-
      weighted assets)...........   $ 13,147       17.21%     $   6,112    8.00%        $   7,640       10.00%
  Tier 1 capital (to risk-
     weighted assets)............     12,538       16.41          3,056    4.00             4,584        6.00
  Tier 1 capital (to average
     assets).....................     12,538        9.17          5,466    4.00             6,833        5.00
</TABLE>
     The risk-based  capital  standards of the OTS require savings  institutions
with more than a "normal"  level of interest  rate risk to  maintain  additional
total capital. A savings  institution's  interest rate risk is measured in terms
of the  sensitivity of its "net portfolio  value" to changes in interest  rates.
Net portfolio value is defined, generally, as the present value of expected cash
inflows from existing  assets and  off-balance  sheet contracts less the present
value of expected cash outflows from existing liabilities. A savings institution
will be  considered  to have a "normal"  level of interest rate risk exposure if
the  decline in its net  portfolio  value  after an  immediate  200 basis  point
increase or decrease in market interest rates (whichever  results in the greater
decline)  is less  than  2.0% of the  current  estimated  economic  value of its
assets.

     The OTS calculates the sensitivity of a savings institution's net portfolio
value based on data submitted by the  institution in a schedule to its quarterly
Thrift  Financial  Report and using the  interest  rate risk  measurement  model
adopted by the OTS. The amount of the interest rate risk  component,  if any, to
be  deducted  from  a  savings  institution's  total  capital  is  based  on the
institution's  Thrift  Financial  Report  filed two  quarters  earlier.  Savings
institutions  with less than $300  million  in assets and a  risk-based  capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their  Thrift  Financial  Reports.  However,  the OTS  requires  any exempt
savings  institution  that it determines  may have a high level of interest rate
risk exposure to file such  schedule on a quarterly  basis and may be subject to
an additional capital  requirement based upon its level of interest rate risk as
compared to its peers.  The Bank has  determined  that,  on the basis of current
financial data, it will not be deemed to have more than normal level of interest
rate risk under the rule and  believes  that it will not be required to increase
its total capital as a result of the rule.

     In addition to requiring generally applicable capital standards for savings
institutions,  the OTS is  authorized  to establish the minimum level of capital
for a savings  institution at such amount or at such ratio of  capital-to-assets
as the OTS  determines to be necessary or  appropriate  for such  institution in
light of the particular  circumstances  of the institution.  Such  circumstances
would include a high degree of exposure to interest rate risk,  prepayment risk,
credit  risk,  concentration  of credit  risk and  certain  risks  arising  from
non-traditional  activities.  The OTS  may  treat  the  failure  of any  savings
institution  to maintain  capital at or above such level as an unsafe or unsound
practice and may issue a directive requiring any savings institution which fails
to maintain  capital at or above the minimum level required by the OTS to submit
and adhere to a plan for  increasing  capital.  Such an order may be enforced in
the same manner as an order issued by the FDIC.

     At September 30, 2001,  the Bank exceeded all  regulatory  minimum  capital
requirements.

                                       26
<PAGE>

     Prompt  Corrective  Regulatory  Action.  Under FDICIA,  the federal banking
regulators  are  required  to  take  prompt  corrective  action  if  an  insured
depository  institution  fails to satisfy certain minimum capital  requirements,
including a leverage  limit,  a risk-based  capital  requirement,  and any other
measure deemed  appropriate by the federal banking  regulators for measuring the
capital  adequacy  of  an  insured  depository  institution.  All  institutions,
regardless  of their  capital  levels,  are  restricted  from making any capital
distribution or paying any management fees if the institution  would  thereafter
fail to satisfy  the  minimum  levels for any of its  capital  requirements.  An
institution  that  fails to meet the  minimum  level  for any  relevant  capital
measure (an  "undercapitalized  institution")  may be: (i) subject to  increased
monitoring by the appropriate federal banking regulator; (ii) required to submit
an acceptable  capital  restoration  plan within 45 days; (iii) subject to asset
growth  limits;  and (iv)  required  to obtain  prior  regulatory  approval  for
acquisitions,  branching and new lines of  businesses.  The capital  restoration
plan must  include a guarantee  by the  institution's  holding  company that the
institution  will comply with the plan until it has been adequately  capitalized
on average for four consecutive quarters,  under which the holding company would
be liable up to the lesser of 5% of the institution's total assets or the amount
necessary to bring the  institution  into capital  compliance  as of the date it
failed  to  comply  with  its  capital   restoration   plan.  A   "significantly
undercapitalized"  institution, as well as any undercapitalized institution that
does not  submit an  acceptable  capital  restoration  plan,  may be  subject to
regulatory demands for recapitalization,  broader application of restrictions on
transactions  with  affiliates,  limitations on interest rates paid on deposits,
asset  growth  and other  activities,  possible  replacement  of  directors  and
officers,  and restrictions on capital distributions by any bank holding company
controlling the institution. Any company controlling the institution may also be
required  to divest the  institution  or the  institution  could be  required to
divest   subsidiaries.   The  senior  executive   officers  of  a  significantly
undercapitalized   institution   may  not  receive   bonuses  or   increases  in
compensation  without prior  approval and the  institution  is  prohibited  from
making  payments of principal  or interest on its  subordinated  debt.  In their
discretion,  the  federal  banking  regulators  may also  impose  the  foregoing
sanctions on an  undercapitalized  institution if the regulators  determine that
such actions are  necessary  to carry out the purposes of the prompt  corrective
provisions.  If an institution's ratio of tangible capital to total assets falls
below the  "critical  capital  level"  established  by the  appropriate  federal
banking  regulator,  the  institution  will be  subject  to  conservatorship  or
receivership within specified time periods.

     Under  the  implementing  regulations,   the  federal  banking  regulators,
including the OTS,  generally  measure an institution's  capital adequacy on the
basis of its total  risk-based  capital ratio (the ratio of its total capital to
risk-weighted  assets),  Tier 1 risk-based  capital ratio (the ratio of its core
capital  to  risk-weighted  assets)  and  leverage  ratio (the ratio of its core
capital to adjusted total assets).  The following table shows the capital ratios
required for the various prompt corrective action categories.
<TABLE>
<CAPTION>
                                                     Adequately                                     Significantly
                           Well Capitalized          Capitalized         Undercapitalized        Undercapitalized
                           ----------------          -----------         ----------------        ----------------
<S>                        <C>                       <C>                 <C>                     <C>
Total risk-based
    capital ratio           10.0% or more            8.0% or more        Less than 8.0%          Less than 6.0%
Tier 1 risk-based
    capital ratio            6.0% or more            4.0% or more        Less than 4.0%          Less than 3.0%
Leverage ratio               5.0% or more            4.0% or more *      Less than 4.0% *        Less than 3.0%
<FN>
-----------
*  3.0% if institution has a composite 1 CAMELS rating.
</FN>
</TABLE>

     A  "critically  undercapitalized"  savings  institution  is  defined  as an
institution  that has a ratio of "tangible  equity" to total assets of less than
2.0%.  Tangible  equity is defined as core  capital  plus  cumulative  perpetual
preferred stock (and related surplus) less all intangibles other than qualifying
supervisory  goodwill and certain purchased  mortgage  servicing rights. The OTS
may reclassify a well capitalized savings institution as adequately  capitalized
and may require an adequately  capitalized  or  undercapitalized  institution to
comply with the supervisory actions applicable to institutions in the next lower
capital  category  (but  may not  reclassify  a  significantly  undercapitalized
institution as critically  undercapitalized) if the OTS determines, after notice
and an opportunity for a hearing,  that the savings  institution is in an unsafe
or unsound  condition or that the  institution  has received and not corrected a
less-than-satisfactory rating for any CAMELS rating category.

                                       27
<PAGE>

     Deposit  Insurance.  The Bank is  required to pay  assessments,  based on a
percentage of its insured deposits, to the FDIC for insurance of its deposits by
the FDIC through the SAIF. Under the Federal Deposit  Insurance Act, the FDIC is
required to set semi-annual assessments for SAIF-insured institutions at a level
necessary  to  maintain  the  designated  reserve  ratio of the SAIF at 1.25% of
estimated  insured  deposits,  or at a higher  percentage  of estimated  insured
deposits that the FDIC determines to be justified for that year by circumstances
indicating a significant risk of substantial future losses to the SAIF.

     Under the  FDIC's  risk-based  deposit  insurance  assessment  system,  the
assessment rate for an insured depository  institution depends on the assessment
risk classification assigned to the institution by the FDIC, which is determined
by the  institution's  capital level and supervisory  evaluations.  Based on the
data reported to regulators  for the date closest to the last day of the seventh
month preceding the semi-annual assessment period,  institutions are assigned to
one of three  capital  groups -- well  capitalized,  adequately  capitalized  or
undercapitalized  -- using the same  percentage  criteria  as under  the  prompt
corrective action  regulations.  See " -- Prompt Corrective  Regulatory Action."
Within each capital group,  institutions  are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority,  and such other  information as the FDIC determines to be relevant to
the  institution's  financial  condition  and  the  risk  posed  to the  deposit
insurance fund.  Subgroup A consists of financially sound institutions with only
a few minor  weaknesses.  Subgroup B consists of institutions  that  demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the  institution  and  increased  risk of loss to the  deposit  insurance  fund.
Subgroup C consists of institutions that pose a substantial  probability of loss
to the deposit insurance fund unless effective corrective action is taken.

     The FDIC has adopted an  assessment  schedule  for SAIF  deposit  insurance
premiums where the assessment rate for well  capitalized  institutions  with the
highest  supervisory  ratings is zero and  institutions in the worst  assessment
category  are  assessed  at a rate of 0.27% of insured  deposits.  In  addition,
FDIC-insured  institutions  are required to pay  assessments to the FDIC to help
fund  interest  payments on certain  bonds issued by the  Financing  Corporation
("FICO"),  an agency of the federal government  established to finance takeovers
of insolvent thrifts.  Until December 31, 2000,  SAIF-insured  institutions were
required to pay FICO  assessments at five times the rate at which Bank Insurance
Fund ("BIF")  members were assessed.  After December 31, 2000, both BIF and SAIF
members are assessed at the same rate for FICO payments.

     The  FDIC  has  adopted  a  regulation  which  provides  that  any  insured
depository  institution  with a ratio of Tier 1 capital to total  assets of less
than 2% will be deemed to be operating in an unsafe or unsound condition,  which
would constitute  grounds for the initiation of termination of deposit insurance
proceedings.  The FDIC,  however,  would not initiate  termination  of insurance
proceedings if the depository  institution has entered into and is in compliance
with a written agreement with its primary regulator,  and the FDIC is a party to
the  agreement,  to increase  its Tier 1 capital to such level as the FDIC deems
appropriate.  Tier 1  capital  is  defined  as the sum of  common  stockholders'
equity,  noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible assets
other  than  mortgage  servicing  rights  and  qualifying  supervisory  goodwill
eligible  for  inclusion  in  core  capital  under  OTS  regulations  and  minus
identified losses and investments in certain  securities  subsidiaries.  Insured
depository institutions with Tier 1 capital equal to or greater than 2% of total
assets  may also be deemed to be  operating  in an unsafe or  unsound  condition
notwithstanding  such capital  level.  The regulation  further  provides that in
considering  applications that must be submitted to it by savings  institutions,
the FDIC will take into account whether the savings  institution is meeting with
the Tier 1 capital  requirement for state non-member banks of 4% of total assets
for all but the most highly rated state non-member banks.

     Federal  Reserve  System.  Pursuant to regulations  of the Federal  Reserve
Board, a savings institution must maintain average daily reserves equal to 3% on
net transaction  accounts up to $42.8 million,  plus 10% on the remainder.  This
percentage  is subject to  adjustment  by the  Federal  Reserve  Board.  Because
required  reserves  must  be  maintained  in the  form  of  vault  cash  or in a
non-interest  bearing  account  at a Federal  Reserve  Bank,  the  effect of the
reserve   requirement   is  to   reduce   the   amount   of  the   institution's
interest-earning  assets.  As of September  30,  2001,  the Bank met its reserve
requirements.

     Dividend Restrictions.  Under the OTS prompt corrective action regulations,
the Bank would be  prohibited  from making any capital  distributions  if, after
making the distribution,  it 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 Tier 1  leverage  ratio  of  less

                                       28
<PAGE>

than  4.0%.  See  "Prompt   Corrective   Regulatory   Action."  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 in an
equivalent  amount and the repurchase  will reduce the  institution's  financial
obligations or otherwise improve the institution's  financial  condition.  Under
OTS regulations, the Bank is not permitted to 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 the Bank at the time of its conversion to stock form.

     Savings  institutions  must  submit  notice  to the OTS  prior to  making a
capital  distribution  if (a)  they  would  not be  well-capitalized  after  the
distribution,  (b) the distribution would result in the retirement of any of the
institution's  common  or  preferred  stock or debt  counted  as its  regulatory
capital,  or (c) the institution is a subsidiary of a holding company. A savings
institution  must make  application to the OTS to pay a capital  distribution if
(x)  the  institution  would  not  be  adequately   capitalized   following  the
distribution,  (y) the institution's  total  distributions for the calendar year
exceeds the  institution's net income for the calendar year to date plus its net
income (less distributions) for the preceding two years, or (z) the distribution
would  otherwise  violate  applicable  law or regulation or an agreement with or
condition imposed by the OTS.

     In addition to the foregoing, earnings of the Bank appropriated to bad debt
reserves  and deducted 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 the Bank on the  amount  of  earnings
removed from the reserves for such  distributions.  See  "Taxation." The Company
intends to make full use of this  favorable tax  treatment  afforded to the Bank
and the Company and does not contemplate use of any post-Conversion  earnings of
the Bank in a manner which would limit either  institution's  bad debt deduction
or create federal tax liabilities.

     Transactions   with   Related   Parties.   Transactions   between   savings
institutions  and any  affiliate  are  governed by  Sections  23A and 23B of the
Federal  Reserve Act. An affiliate  of a savings  institution  is any company or
entity which  controls,  is  controlled  by or is under common  control with the
savings institution. In a holding company context, the parent holding company of
a  savings  institution  (such  as the  Company)  and any  companies  which  are
controlled  by  such  parent  holding  company  are  affiliates  of the  savings
institution.  Generally,  Sections 23A and 23B (i) limit the extent to which the
savings  institution or its  subsidiaries  may engage in "covered  transactions"
with any one affiliate to an amount equal to 10% of such  institution's  capital
stock and surplus,  and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus,  and
(ii) require that all such  transactions be on terms  substantially the same, or
at least as favorable,  to the  institution or subsidiary as those provided to a
non-affiliate.  The term  "covered  transaction"  includes  the making of loans,
purchase  of  assets,  issuance  of a  guarantee  and  similar  other  types  of
transactions.  In addition to the restrictions  imposed by Sections 23A and 23B,
OTS  regulations  provide  that no  savings  institution  may (i) make a loan or
otherwise extend credit to an affiliate,  except for any affiliate which engages
only in activities  which are  permissible for bank holding  companies,  or (ii)
purchase  or  invest  in  any  stocks,  bonds,  debentures,   notes  or  similar
obligations of any affiliate,  except for affiliates  which are  subsidiaries of
the  savings  institution.  Section  106 of the BHCA which  applies to the Bank,
prohibits the Bank from extending  credit to or offering any other services,  or
fixing or varying the consideration for such extension of credit or service,  on
the  condition  that  the  customer  obtain  some  additional  service  from the
institution or certain of its affiliates or not obtain  services of a competitor
of the institution, subject to certain exceptions.

     Loans to Directors, Executive Officers and Principal Stockholders.  Savings
institutions are also subject to the restrictions contained in Section 22(h) and
Section  22(g)  of the  Federal  Reserve  Act on loans  to  executive  officers,
directors and principal stockholders.  Under Section 22(h), loans to a director,
executive officer and to a greater than 10% stockholder of a savings institution
and certain affiliated entities of such persons,  may not exceed,  together with
all  other  outstanding  loans  to such  person  and  affiliated  entities,  the
institution's  loans-to-one-borrower  limit  (generally  equal  to  15%  of  the
institution's  unimpaired  capital  and surplus  and an  additional  10% of such
capital and surplus for loans fully secured by readily  marketable  collateral).
Section 22(h) also prohibits loans,  above amounts prescribed by the appropriate
federal banking agency,  to directors,  executive  officers and greater than 10%
stockholders of a savings institution,  and their respective affiliates,  unless
such loan is approved in advance by a majority of the board of  directors of the
institution with any "interested"  director not participating in the voting. The
Federal  Reserve Board has prescribed the loan amount (which  includes all other
outstanding  loans to such  person)  as to which such  prior  board of  director
approval  is  required,  as being the  greater of  $25,000 or 5% of capital  and
surplus  (up to  $500,000).  Further,  Section  22(h)  requires  that  loans  to
directors,  executive  officers

                                       29
<PAGE>

and principal stockholders be made on terms substantially the same as offered in
comparable transactions to other persons. Section 22(h) also generally prohibits
a depository  institution  from paying the  overdrafts  of any of its  executive
officers or directors.

     Section  22(g) of the Federal  Reserve Act requires that loans to executive
officers of depository  institutions  not be made on terms more  favorable  than
those afforded to other borrowers,  requires  approval by the board of directors
of the  depository  institution  for such  extensions  of  credit  to  executive
officers  of  the  institution,  and  imposes  reporting  requirements  for  and
additional  restrictions  on the  type,  amount  and  terms of  credits  to such
officers. In addition, Section 106 of the BHCA prohibits extensions of credit to
executive officers, directors, and greater than 10% stockholders of a depository
institution  by  any  other  institution  which  has  a  correspondent   banking
relationship  with the  institution,  unless  such  extension  of  credit  is on
substantially  the same  terms as those  prevailing  at the time for  comparable
transactions  with other  persons and does not involve more than the normal risk
of repayment or present other unfavorable features.

     Safety and  Soundness  Standards.  Under  FDICIA,  as amended by the Riegle
Community  Development and Regulatory  Improvement Act of 1994 (the "CDRI Act"),
each  federal  banking  agency is required  to  establish  safety and  soundness
standards for depository institutions under its authority. On July 10, 1995, the
federal banking  agencies,  including the OTS, released  Interagency  Guidelines
Establishing  Standards  for Safety and  Soundness  and  published  a final rule
establishing  deadlines  for  submission  and  review  of safety  and  soundness
compliance  plans.  The final rule and the guidelines went into effect on August
9, 1995.  The  guidelines  require  savings  institutions  to maintain  internal
controls and information systems and internal audit systems that are appropriate
for the size,  nature and scope of the  institution's  business.  The guidelines
also  establish   certain  basic  standards  for  loan   documentation,   credit
underwriting,  interest rate risk  exposure,  and asset growth.  The  guidelines
further provide that savings  institutions should maintain safeguards to prevent
the payment of compensation,  fees and benefits that are excessive or that could
lead to material  financial  loss, and should take into account  factors such as
comparable  compensation  practices  at  comparable  institutions.  If  the  OTS
determines  that a savings  institution is not in compliance with the safety and
soundness  guidelines,  it may require the  institution  to submit an acceptable
plan to achieve  compliance  with the  guidelines.  A savings  institution  must
submit an acceptable  compliance  plan to the OTS within 30 days of receipt of a
request for such a plan.  Failure to submit or implement a  compliance  plan may
subject the institution to regulatory  sanctions.  Management  believes that the
Bank already meets  substantially  all the standards  adopted in the interagency
guidelines,  and  therefore  does  not  believe  that  implementation  of  these
regulatory standards will materially affect the Bank's operations.

     Under federal banking regulations, savings institutions must also adopt and
maintain  written policies that establish  appropriate  limits and standards for
extensions  of credit that are secured by liens or  interests  in real estate or
are made for the purpose of  financing  permanent  improvements  to real estate.
These policies must establish loan portfolio diversification standards,  prudent
underwriting  standards,  including  loan-to-value  limits,  that are  clear and
measurable,  loan  administration  procedures  and  documentation,  approval and
reporting requirements.  A savings institution's real estate lending policy must
reflect  consideration  of the  Interagency  Guidelines  for Real Estate Lending
Policies (the "Real Estate  Lending  Guidelines")  that have been adopted by the
federal  banking  regulators.  The Real Estate Lending  Guidelines,  among other
things,  call upon  savings  institutions  to establish  internal  loan-to-value
limits  for  real  estate  loans  that  are  not  in  excess  of  the  specified
loan-to-value limits for the various types of real estate loans. The Real Estate
Lending  Guidelines  state,  however,  that it may be  appropriate in individual
cases to originate or purchase loans with loan-to-value  ratios in excess of the
supervisory loan-to-value limits.

     Additionally, under FDICIA, as amended by the CDRI Act, the federal banking
agencies are required to establish  standards  relating to the asset quality and
earnings  that the agencies  determine to be  appropriate.  The federal  banking
agencies,  including the OTS,  issued  guidelines  relating to asset quality and
earnings.  Under these guidelines,  a savings institution must maintain systems,
commensurate  with its size  and the  nature  and  scope of its  operations,  to
identify problem assets and prevent  deterioration in those assets as well as to
evaluate  and  monitor  earnings  and ensure that  earnings  are  sufficient  to
maintain  adequate  capital and  reserves.  Management  believes  that the asset
quality and earnings  standards,  would not have a material effect on the Bank's
operations.

                                       30
<PAGE>
REGULATION OF THE COMPANY

     General.  The  Company is a unitary  savings  and loan  holding  company as
defined  by the  Home  Owners'  Loan  Act  ("HOLA").  As such,  the  Company  is
registered  with  the  OTS  and  is  subject  to  OTS  regulation,  examination,
supervision  and reporting  requirements.  As a subsidiary of a savings and loan
holding  company,  the Bank is subject to certain  restrictions  in its dealings
with the Company and affiliates thereof. The Company is required to file certain
reports  with,  and  otherwise  comply  with the  rules and  regulations  of the
Securities and Exchange Commission under federal securities laws.

     Activities  Restrictions.  The Board of Directors of the Company  presently
intends to operate the Company as a unitary  savings and loan  holding  company.
There are generally no  restrictions  on the  activities on the Company since it
became a unitary savings and loan holding company prior to May 4, 1999. However,
if the Director of the OTS determines that there is reasonable  cause to believe
that the  continuation  by a savings  and loan  holding  company of an  activity
constitutes  a serious risk to the financial  safety,  soundness or stability of
its  subsidiary  savings  institution,  the  Director of the OTS may impose such
restrictions as deemed  necessary to address such risk including  limiting:  (i)
payment of dividends by the savings  institution;  (ii) transactions between the
savings institution and its affiliates;  and (iii) any activities of the savings
institution that might create a serious risk that the liabilities of the savings
and loan  holding  company  and its  affiliates  may be imposed  on the  savings
institution.   Notwithstanding  the  above  rules  as  to  permissible  business
activities  of  unitary  savings  and loan  holding  companies,  if the  savings
institution  subsidiary  of such a holding  company  fails to meet the QTL test,
then such unitary savings and loan holding  company shall also presently  become
subject to the activities  restrictions applicable to multiple holding companies
and,  unless  the  savings  institution  requalifies  as a QTL  within  one year
thereafter, register as, and become subject to, the restrictions applicable to a
bank holding company.  See "-- Regulation of the Bank -- Qualified Thrift Lender
Test."

     If the  Company  were to acquire  control of another  savings  institution,
other than  through  merger or other  business  combination  with the Bank,  the
Company  would  thereupon  become a multiple  savings and loan holding  company.
Except where such acquisition is pursuant to the authority to approve  emergency
thrift  acquisitions and where each subsidiary savings institution meets the QTL
test, the activities of the Company and any of its subsidiaries  (other than the
Bank or other subsidiary  savings  institutions)  would thereafter be subject to
further  restrictions.  Among other things, no multiple savings and loan holding
company or subsidiary thereof which is not a savings  institution shall commence
or continue for a limited period of time after  becoming a multiple  savings and
loan holding company or subsidiary  thereof,  any business activity,  upon prior
notice  to,  and no  objection  by,  the OTS,  other  than:  (i)  furnishing  or
performing  management  services  for a  subsidiary  savings  institution;  (ii)
conducting an insurance agency or escrow business;  (iii) holding,  managing, or
liquidating assets owned by or acquired from a subsidiary  savings  institution;
(iv) holding or managing  properties  used or occupied by a  subsidiary  savings
institution;  (v) acting as trustee under deeds of trust;  (vi) those activities
previously  directly  authorized by regulation as of March 5, 1987 to be engaged
in by multiple  holding  companies;  or (vii)  unless the Director of the OTS by
regulation  prohibits  or limits such  activities  for savings and loan  holding
companies,   those  activities  authorized  by  the  Federal  Reserve  Board  as
permissible  for bank holding  companies.  Those  activities  described in (vii)
above must also be approved by the Director of the OTS prior to being engaged in
by a multiple savings and loan holding company.

     Restrictions on Acquisitions. The HOLA generally prohibits savings and loan
holding companies from acquiring, without prior approval of the Director of OTS,
(i) control of any other savings institution or savings and loan holding company
or  substantially  all the  assets  thereof,  or (ii) more than 5% of the voting
shares  of a savings  institution  or  holding  company  thereof  which is not a
subsidiary.  In  addition,  no director or officer of a savings and loan holding
company or individual  owning or controlling  the power to vote more than 25% of
such savings and loan holding  company's  stock, may also acquire control of any
savings  institution,  that  is not a  subsidiary  savings  institution  of such
savings and loan holding company, except with the prior approval of the Director
of the OTS.

     The  Director of the OTS may only  approve  acquisitions  resulting  in the
formation of a multiple  savings and loan holding company which controls savings
institutions  in more than one  state  if:  (i) the  multiple  savings  and loan
holding company involved controls a savings institution which operated a home or
branch  office in the state of the  institution  to be  acquired  as of March 5,
1987;  (ii) the  acquiror  is  authorized  to  acquire  control  of the  savings
institution  pursuant to the  emergency  acquisition  provisions  of the Federal
Deposit  Insurance  Act;  or (iii)  the  statutes

                                       31
<PAGE>
of the state in which the  institution  to be acquired  is located  specifically
permit  institutions to be acquired by  state-chartered  institutions or savings
and loan holding  companies  located in the state where the acquiring  entity is
located (or by a holding  company that  controls  such  state-chartered  savings
institutions).

     OTS regulations permit federal savings  institutions to branch in any state
or states of the United States and its territories.  Except in supervisory cases
or when  interstate  branching  is  otherwise  permitted  by state  law or other
statutory  provision,  a  federal  savings  institution  may  not  establish  an
out-of-state  branch unless (i) the federal savings  institution  qualifies as a
QTL or as a "domestic building and loan institution" under ss.7701(a)(19) of the
Internal  Revenue Code and the total assets  attributable to all branches of the
savings  institution  in the state would qualify such branches  taken as a whole
for treatment as a QTL or for a domestic  building and loan association and (ii)
such  branch  would not  result in (a)  formation  of a  prohibited  multi-state
multiple  savings  and loan  holding  company,  or (b) a  violation  of  certain
statutory  restrictions  on branching  by savings  institution  subsidiaries  of
banking  holding  companies.  Federal  savings  institutions  generally  may not
establish new branches unless the savings  institution  meets or exceeds minimum
regulatory  capital  requirements.  The  OTS  will  also  consider  the  savings
institution's  record  of  compliance  with the  Community  Reinvestment  Act in
connection with any branch application.

TAXATION

     General.  The  Company  and its  subsidiaries  (including  the Bank) file a
consolidated  federal  income tax return on a fiscal  year  basis.  Consolidated
returns have the effect of  eliminating  intercompany  distributions,  including
dividends,  from the computation of taxable income for the taxable year in which
the distributions occur.

     Federal Income Taxation.  Included in the Small Business Job Protection Act
of 1996 are  provisions  which  repeal the special bad debt  reserve  method for
savings and loan  associations  for taxable years  beginning  after December 31,
1995. The legislation requires  institutions to recapture the portion of the tax
bad debt  reserves  that exceeds the pre-1988 tax bad debt reserve over a period
of six to eight years. The recapture can be deferred for one to two years if the
institution meets a residential loan origination requirement.

     For taxable years  beginning  after  December 31, 1995, the bad debt method
for savings and loan  associations  is conformed to that of banks.  Institutions
that  qualify as a "small  bank" will be able to use the reserve  method for bad
debts.  Reasonable  additions to the reserve for bad debts are calculated  using
the experience method. A small bank is an institution with assets less than $500
million. Institutions that do not qualify as a small bank will not be allowed to
use the reserve method for bad debts.

     Earnings appropriated to an institution's bad debt reserve and claimed as a
tax  deduction  are not  available  for the  payment  of cash  dividends  or for
distribution to  shareholders  (including  distributions  made on dissolution or
liquidation),  unless such amount is included in taxable income,  along with the
amount deemed necessary to pay the resulting federal income tax.

     The Bank's  federal  corporate  income tax returns have not been audited in
the last five years.

     State Income Taxation. The State of Minnesota imposes a corporate franchise
tax at the rate of 9.8% on income which is considered  Minnesota taxable income.
Taxable income for the State of Minnesota is  substantially  the same as federal
taxable income.

     For  additional  information  regarding  taxation,  see Note 11 of Notes to
Consolidated Financial Statements.

                                       32
<PAGE>
ITEM 2.  PROPERTIES
-------------------

     The following table sets forth information  regarding the Company's offices
at September 30, 2001.
<TABLE>
<CAPTION>
                               Year          Owned or     Book Value at          Approximate         Deposits at
                               Opened         Leased   September 30, 2001      Square Footage    September 30, 2001
                               ------         ------   ------------------      --------------    ------------------
                                                          (In thousands)                            (In thousands)
<S>                              <C>           <C>        <C>                     <C>              <C>
MAIN OFFICE:
214 5th Street                   1910          Owned      $     1,192,000         10,990           $    60,758
Bemidji, Minnesota  56601

BRANCH OFFICES:
22 First Street, NE              1977          Owned              257,000          1,789                19,458
Bagley,  Minnesota  56621

109 Main Street West             1983          Owned              265,000          3,083                11,562
Baudette, Minnesota  56623

527 Minnesota Avenue             1987          Owned               87,000          1,700                 4,188
Walker, Minnesota  56484

550 Paul Bunyan Drive, N.W.      1995         Leased              194,000          2,158                 2,855
Bemidji, Minnesota  56601
</TABLE>


     The Bank has entered into an agreement  with Wal-Mart  Stores,  Inc.,  with
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. The
Bank is  tentatively  scheduled to begin  operations  in February  2002 when the
Wal-Mart Supercenter opens for business.

     The book  value of the  Company's  investment  in  premises  and  equipment
totaled $1.99 million at September 30, 2001. See Note 2 of Notes to Consolidated
Financial Statements.

ITEM 3. LEGAL PROCEEDINGS.
-------------------------

     At September 30, 2001, there were no legal proceedings to which the Company
or First  Federal was a party,  or to which any of their  property  was subject,
which were expected by management to result in a material loss to the Company or
the Bank.

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended September 30, 2001.


                                     PART II

ITEM 5. MARKET FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDERS'
--------------------------------------------------------------------------------
MATTERS
-------

     The information contained under the sections captioned "Market and Dividend
Information" in the Company's  Annual Report to Stockholders for the Fiscal Year
Ended  September  30, 2001 (the "Annual  Report")  filed as Exhibit 13 hereto is
incorporated herein by reference.

                                       33
<PAGE>


ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------

     The information contained in the section captioned "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations"  in the Annual
Report is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

     The  Consolidated  Financial  Statements,  Notes to Consolidated  Financial
Statements and  Independent  Auditors'  Report in the Annual  Report,  which are
listed under Item 13 herein, are incorporated herein by reference.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

     None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
--------------------------------------------------------------------------------
WITH SECTION 16(A) OF THE EXCHANGE ACT
--------------------------------------

     For information concerning the Board of Directors and executive officers of
the Company,  the information  contained under the section captioned "Proposal I
-- Election of Directors" in the Company's  definitive  proxy  statement for the
Company's  2002  Annual  Meeting of  Stockholders  (the  "Proxy  Statement")  is
incorporated herein by reference.

     For information  regarding  delinquent  filers,  as required by Item 405 of
Regulation S-B,  reference is made to "Security  Ownership of Management" in the
Proxy Statement, which is incorporated herein by reference.

ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

     The  information  contained  under the  sections  captioned  "Proposal I --
Election of Directors -- Executive Compensation" "-- Director Compensation," "--
Employment  Agreements" and "-- Supplemental  Executive Retirement Agreement" in
the Proxy Statement is incorporated herein by reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------

     (a)  Security Ownership of Certain Beneficial Owners

          Information  required by this item is incorporated herein by reference
          to the section  captioned  "Voting  Securities  and Principal  Holders
          Thereof" in the Proxy Statement.

     (b)  Security Ownership of Management

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

     (c)  Changes in Control

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


                                       34
<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the section  captioned  "Proposal I -- Election of Directors --  Transactions
with Management" in the Proxy Statement.

                                     PART IV

ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K.
-----------------------------------------------

     (a)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
          ----------------------------------------------

     (1) Financial Statements.  The following  consolidated financial statements
are incorporated by reference from Item 8 hereof (see Exhibit 13):

               Independent Auditors' Report

               Consolidated  Statements  of Financial  Condition - September 30,
               2001 and 2000

               Consolidated  Statements  of Income - Years ended  September  30,
               2001 and 2000

               Consolidated  Statements  of  Stockholders'  Equity - Years ended
               September 30, 2001 and 2000

               Consolidated Statements of Cash Flows - Years ended September 30,
               2001 and 2000

               Notes to Consolidated Financial Statements

     (2) Financial  Statement  Schedules.  All schedules for which  provision is
made in the  applicable  accounting  regulations  of the Securities and Exchange
Commission are omitted because of the absence of conditions under which they are
required or because the  required  information  is included in the  consolidated
financial statements and related notes thereto.

     (3)  Exhibits.  The  following is a list of exhibits  filed as part of this
Annual Report on Form 10-K and is also the Exhibit Index.

      No.         Description
      ---         -----------

       3.1     Articles of Incorporation of First Federal Bancorporation    *
       3.2     Bylaws of First Federal Bancorporation                       *
       4       Form of Common Stock Certificate of First Federal
               Bancorporation                                               **
       10.1    First Federal Bancorporation 1995 Stock Option and
               Incentive Plan                                               **
       10.2    First Federal Bancorporation Management Recognition Plan     *
       10.3(a) Employment Agreement between First Federal Bancorporation
               and William R. Belford                                       *
       10.3(b) Employment Agreement between First Federal Banking &
               Savings, FSB and William R. Belford                          *+
       10.4    First Federal Banking & Savings, FSB Retirement Plan
               for Non-Employee Directors                                   *+
       10.5    First Federal Banking & Savings, FSB Deferred
               Compensation Plan, as Amended and Restated                   *+
       10.6    First Federal Banking & Savings, FSB Supplemental
               Retirement Plan                                              *+
       10.7    First Federal Bancorporation 1998 Stock Option Plan          ***+
       13      Annual Report to Stockholders
       21      Subsidiaries of the Registrant
       23      Consent of McGladrey & Pullen LLP


                                       35
<PAGE>
__________
(*)  Incorporated  herein by reference from  Registration  Statement on Form S-1
     filed February 8, 1995 (File No. 33-86964).
(**) Incorporated  herein by reference from  Registration  Statement on Form 8-A
     filed March 15, 1995 (File No. 0-25704).
(***)Incorporated  herein by reference  from Annual  Report on Form 10-KSB filed
     December 23, 1999 (File No. 0-25704).
+    Management contract or compensatory arrangement.

     (b) REPORTS ON FORM 8-K.  During the quarter ended  September 30, 2001, the
         -------------------
Registrant did not file any Current Reports on Form 8-K.

     (c)  EXHIBITS.  The  exhibits  required by Item 601 of  Regulation  S-B are
          --------
either  filed as part of this Annual  Report on Form 10-KSB or  incorporated  by
reference herein.

     (d) FINANCIAL  STATEMENTS AND SCHEDULES EXCLUDED FROM ANNUAL REPORT.  There
         ---------------------------------------------------------------
are no other financial  statements and financial  statement schedules which were
excluded from the Annual Report to Stockholders  pursuant to Rule 14a-3(b) which
are required to be included herein.


                                       36
<PAGE>

                                   SIGNATURES

     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        FIRST FEDERAL BANCORPORATION


December 19, 2001
                                        By:/s/ William R. Belford
                                           -------------------------------
                                           William R. Belford
                                           President and Chief Executive Officer

     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.


/s/ William R. Belford                                         December 19, 2001
-----------------------------------------------------
William R. Belford
President, Chief Executive Officer
  and Director
(Principal Executive Officer)

/s/ Dennis M. Vorgert                                          December 19, 2001
-----------------------------------------------------
Dennis M. Vorgert
Vice President and Treasurer
(Principal Financial and Accounting Officer)

/s/ Ralph T. Smith                                             December 19, 2001
-----------------------------------------------------
Ralph T. Smith
Chairman of the Board

/s/ Martin R. Sathre                                           December 19, 2001
-----------------------------------------------------
Martin R. Sathre
Vice Chairman of the Board

/s/ Walter R. Fankhanel                                        December 19, 2001
-----------------------------------------------------
Walter R. Fankhanel
Director

                                                               December __, 2001
-----------------------------------------------------
James R. Sharp
Director

/s/ Dean J. Thompson                                           December 19, 2001
-----------------------------------------------------
Dean J. Thompson
Director