SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
(Mark One)
 
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
  OF 1934
  For the fiscal year ended June 30, 1997
         
  TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934
For the transition period from  _____________ to _______________

                           Commission File No. 0-25700

                                QCF BANCORP, INC.
                 (Name of small business issuer in its charter)
           Minnesota                                          41-1796789       
 (State or other jurisdiction                              (I.R.S. employer
 of incorporation or organization)                        identification no.)

 501 Chestnut Street, Virginia, Minnesota                         55792        
 (Address of principal executive offices)                       (Zip Code)

       Registrant's telephone number, including area code: (218) 741-2040

           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 Securities  Exchange Act of 1934 during the preceding 12 months (or
such shorter  period that the  registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days. Yes X No

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-B 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 it's most recent fiscal year: $11,404,000.

As of August 25,  1997,  the  aggregate  market  value of the 432,696  shares of
Common Stock of the registrant  issued and outstanding held by non-affiliates on
such date was  approximately  $11,250,096  based on the  closing  sale  price of
$26.00 per share of the  registrant's  Common Stock on August 29, 1997 as listed
on the National  Association of Securities Dealers Automated  Quotation National
Market System.  For purposes of this calculation,  it is assumed that directors,
officers and beneficial  owners of more than 5% of the registrant's  outstanding
voting stock are affiliates.

Number of shares of Common Stock outstanding as of August 25, 1997:  1,426,200.

                       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 
   June 30, 1997.(Parts I, II and IV)
2. Portions of Proxy Statement for 1997 Annual Meeting of Stockholders(Part III)

Transitional Small Business Disclosure Format (Check one):Yes         No    X   


                                     
<PAGE>



                                     PART I

Item 1.  Description of Business

General

     QCF Bancorp,  Inc. QCF Bancorp, Inc. (the "Company") was incorporated under
the laws of the State of  Minnesota  in November  1994 at the  direction  of the
Board of  Directors  of Queen City  Federal  Savings  Bank (the  "Bank") for the
purpose of serving as the 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").  Prior to the Conversion, the
Company did not engage in any  material  operations.  Currently,  the  Company's
principal  business is the business of the Bank.  The Company has no significant
assets other than the  outstanding  capital stock of the Bank,  $10.0 million of
investment  securities and a note receivable  from the Company's  Employee Stock
Ownership  Plan (the "ESOP").  At June 30, 1997, the Company had total assets of
$155.2  million,  deposits of $103.7 million and  stockholders'  equity of $27.4
million.
 
     The  Company's  executive  offices  are  located  at 501  Chestnut  Street,
Virginia, Minnesota 55792, and its main telephone number is (218) 741-2040.

     Queen  City  Federal  Savings  Bank.  The Bank is a  federal  savings  bank
operating  through  three  offices  serving  north  central St.  Louis County in
Minnesota.  The Bank was  chartered  in 1960 under the name "Queen City  Federal
Savings and Loan  Association of Virginia." In February 1961, the Bank shortened
its name to "Queen City Federal Savings and Loan Association." In 1994, the Bank
amended  its  charter to become a federal  mutual  savings  bank and adopted its
current  name. On March 31, 1995,  the Bank  consummated  its  conversion to the
stock form of ownership as a wholly owned subsidiary of the Company. The Bank is
a member of the Federal  Home Loan Bank  ("FHLB")  System,  and its deposits are
insured up to applicable  limits by the Federal  Deposit  Insurance  Corporation
("FDIC") under the Savings Association Insurance Fund ("SAIF").

     The Bank's  principal  business  consists of  attracting  deposits from the
general public and investing those funds primarily in investment  securities and
loans secured by first mortgages on owner-occupied,  single-family residences in
the Bank's  market  area and  consumer  loans.  The Bank also  originates  first
mortgage loans on multi-family and commercial real estate and commercial loans.

     The Bank derives its income principally from interest earned on investments
and loans and, to a lesser  extent,  loan  servicing and other fees and gains on
the sale of investments.  The Bank's principal  expenses are interest expense on
deposits  and  borrowings  and  noninterest  expense  such as  compensation  and
employee benefits,  office occupancy expenses and other miscellaneous  expenses.
Funds for these activities are provided  principally by deposits,  repayments of
outstanding investments and loans and operating revenues.

     The Bank's executive offices are located at 501 Chestnut Street,  Virginia,
Minnesota 55792, and its main telephone number is (218) 741-2040.

Market Area

     The Bank  currently  conducts its business  through three  banking  offices
located in Virginia and Ely, which are located in north central St. Louis County
in  northeastern  Minnesota.  The  Bank's  primary  lending  area  includes  the
communities  located  within a  30-mile  radius  of the  Bank's  main  office in
Virginia.

     The economy in the Bank's  market area is dependent on the taconite  mining
industry  which  experienced  problems  in the late 1970s and early 1980s due to
foreign competition.  The Bank's market area experienced plant closings, layoffs
and extremely high levels of unemployment at that time. Since then, the taconite
mining  industry has stabilized,  and various  processors and others continue to
operate  taconite  mines and plants in the area.  However,  any  decline in that
industry could cause material losses to the Bank if local residents had to leave
the  area  to  find  employment  and   consequently   defaulted  on  their  debt
obligations. Due primarily to the economic factors discussed above, the Bank has
limited  lending  opportunities  in its market area and does not anticipate that
lending  opportunities will increase in the future because of the lack of growth
in the economy.  As a result,  the Bank has not been able to originate  loans to
the  extent  desired  and  consequently  has had to  invest  available  funds in
investment  securities.  Investment  securities typically earn lower yields than
single-family,  residential  mortgage  loans,  and the Bank's  need to  purchase
investment  securities  because of the lack of lending  opportunities has caused
the Bank's  interest rate spread to be below that of savings banks of comparable
size in more robust market areas.  Because of the limited lending  opportunities
in its market area,  the net proceeds of the  Conversion  have been  invested in
investment securities, making it difficult for the Bank to increase its interest
rate spread and further suppressing the return on equity.

     According to the Virginia Bureau of Economic Development, the population of
St. Louis County, Minnesota has decreased gradually




                                       1
<PAGE>

over the past  several  decades from 232,000 for the 1960 Census to 198,000
for the 1990 Census,  and the  population of Virginia has decreased  from 14,000
for the 1960 Census to 9,000 for the 1990 Census.

Lending Activities

     General.  The Bank's gross loan portfolio totaled $62.6 million at June 30,
1997,  representing  40.3% of total assets at that date. It is the Bank's policy
to  concentrate  its lending  within its market area.  At June 30,  1997,  $31.9
million,  or 50.9% of the gross  loan  portfolio,  consisted  of  single-family,
residential  mortgage  loans.  The Bank also originates  consumer  loans,  which
primarily  consist  of  automobile  loans,   recreation  loan  and  home  equity
loans. Consumer  loans  amounted to $18.3  million, or 29.2% of the Bank's gross
loan portfolio,  at June 30, 1997. To a lesser extent,  the Bank also originates
loans secured by multi-family  and commercial  properties and commercial  loans.
Included  in mortgage  loans are loans which are insured by the Federal  Housing
Administration  ("FHA") or partially guaranteed by the Veteran's  Administration
("VA").

     The Bank has not  actively  pursued  the  origination  of loans  secured by
multi-family  or commercial  properties.  Such loans have generally been made to
small  businesses  within the Bank's market area and are secured by  warehouses,
retail stores or other commercial property.  At June 30, 1997,  multi-family and
commercial  real estate loans  amounted to $2.3  million,  or 3.7% of the Bank's
gross loan  portfolio.  The Bank also engages in commercial  lending  within its
market area.  At June 30, 1997,  commercial  loans  amounted to $10.1 million or
16.1% of the Bank's gross loan portfolio.

     Loan Portfolio  Composition.  The following  table sets forth selected data
relating to the  composition of the Bank's loan portfolio by type of loan at the
dates  indicated.  At June 30,  1997,  the Bank  had no  concentration  of loans
exceeding 10% of total loans other than as disclosed below.

                                                        At June 30,            
                                               1997                 1996       
                                      Amount        %       Amount      %  
                                                (Dollars in thousands)

Type of Loan:
Real estate loans:
Single-family residential............ $ 31,888    50.95%      $ 28,208    52.48%
Multi-family residential.............      895     1.43          1,158     2.16
Nonresidential.......................    1,448     2.31            896     1.67

Commercial business loans............   10,067    16.08          7,183    13.36

Consumer loans:......................
Automobile...........................   10,192    16.29          9,185    17.09
Recreational.........................    1,455     2.32          1,587     2.95
Savings account......................      654     1.05            629     1.17
Second Mortgage .....................    2,948     4.71          2,543     4.73
Other...............................     3,042     4.86          2,361     4.39
                                        62,589   100.00%        53,750   100.00%
Less:
Loans in process....................       40                      25
Discounts...........................       33                      33
Allowance for loan losses...........    1,314                   1,331
Total...........................$      61,202                $ 52,361




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<PAGE>
                                                            

     The  following  table  sets  forth  certain  information  at June 30,  1997
regarding the dollar amount of loans maturing in the Bank's  portfolio  based on
their  contractual  terms  to  maturity,   including  scheduled   repayments  of
principal.  Demand loans,  loans having no stated  schedule of repayments and no
stated  maturity,  and  overdrafts  are reported as due in one year or less. The
table below does not include any  estimate of  prepayments  which  significantly
shorten  the  average  life of all  mortgage  loans  and may  cause  the  Bank's
repayment experience to differ from that shown below.
<TABLE>
 
                                                           One to          Five to          More than
                                    One Year or Less     Five Years        Ten Years         10 years          Total

                                                                       (In thousands)

Single-family residential
<S>                                      <C>              <C>              <C>               <C>            <C>     
  real estate...................         $  111           $  2,667         $  8,350          $ 20,750       $ 31,888
Multi-family residential
  and nonresidential
  real estate...................            142                111            1,098               992          2,343
Consumer........................          1,874             12,483            2,328              1606         18,291
Commercial business.............              0              2,080            3,078             3,449         10,067
     Total......................         $3,587           $ 17,351         $ 14,854          $ 26,797        $62,589

</TABLE>



     The following  table sets forth at June 30, 1997,  the dollar amount of all
loans due one year or more after June 30, 1997 which have predetermined interest
rates and have floating or adjustable interest rates.
                                                Predetermined      Floating or
                                                     Rate       Adjustable Rates
                                                         (In thousands)

Single-family residential real estate.........  $     7,571        $   24,716
Multi-family residential and
 nonresidential real estate...................        1,965               236
Consumer......................................       13,844             2,573
Commercial business...........................        4,500             4,107
 Total........................................  $    27,370        $   31,632




                                       3
<PAGE>
                                                             

     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.  In
addition,  due-on-  sale clauses on loans  generally  give the Bank the right to
declare a loan  immediately  due and payable in the event,  among other  things,
that the borrower  sells the real property  subject to the mortgage and the loan
is not repaid. 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.

     Originations,  Purchases and Sales of Loans.  The Bank's loan  originations
are  derived  from  a  number  of  sources,  including  referrals  by  realtors,
depositors and borrowers,  as well as walk-in customers.  In addition,  the Bank
originates  a portion  of its  automobile  loans on an  indirect  basis  through
various  automobile  dealerships  located in the Bank's market area.  The Bank's
solicitation  programs consist of  advertisements in local media, in addition to
occasional  participation in various community  organizations  and events.  Real
estate  loans  are  originated  by  the  Bank's  salaried  loan  officers.  Loan
applications  are  accepted  only at the Bank's  main  office and the Ely branch
office,  with the exception of applications  which are originated on an indirect
basis through various approved automobile dealerships in the Bank's market area.
In all cases, however, the Bank has final approval of the application.
     In the early 1980's,  the Bank adopted a policy of selling all  fixed-rate,
conventional  single-family mortgage loans in the secondary market to remove any
interest rate risk which would result from holding the loans in portfolio.  Such
loans are sold with  servicing  released.  Management  intends  to  continue  to
originate  fixed-rate  loans and to sell in the secondary  market all such loans
with terms in excess of 15 years or which are  insured by the FHA or  guaranteed
by the VA in the secondary market.

     Loan Underwriting  Policies.  The Bank's lending  activities are subject to
the  Bank's  written,  non-discriminatory  underwriting  standards  and to  loan
origination  procedures  prescribed  by the Bank's  Board of  Directors  and its
management.  Detailed loan applications are obtained to determine the borrower's
ability  to repay,  and the more  significant  items on these  applications  are
verified   through  the  use  of  credit  reports,   financial   statements  and
confirmations.  Property valuations, when required by the Bank, are performed by
appraisers approved by the Bank's Board of Directors. Individual officers of the
Bank have been granted  authority by the Board of Directors to approve  loans up
to varying  specified dollar amounts,  depending upon the type of loan. Loans in
excess of $250,000 must be approved by a committee of the Board of Directors.

     Applications   for   fixed-rate,   single-family   real  estate  loans  are
underwritten  and closed in  accordance  with the  standards  of FHLMC and FNMA.
Adjustable-rate  loans originated by the Bank for its portfolio are underwritten
and closed based on the Bank's own loan  guidelines,  which may exceed FHLMC and
FNMA  standards.  The Bank's loans are secured by a variety of properties in its
market area.  Included in its portfolio are loans secured by properties in rural
areas that may not conform to secondary  market  standards and  properties  that
serve as second or vacation homes. Generally, the Bank compensates for the added
risk of these loans through its pricing mechanism.

     The Bank is permitted to lend up to 100% of the appraised value of the real
property securing a mortgage loan.  However, if the amount of a residential loan
originated or refinanced  exceeds 80% of the appraised  value, the Bank's policy
is to obtain  private  mortgage  insurance  at the  borrower's  expense  on that
portion of the  principal  amount of the loan that exceeds 80% of the  appraised
value of the property.  The Bank will make a single-family  residential mortgage
loan  with up to a 95%  loan-to-value  ratio if the  required  private  mortgage
insurance is obtained.  The Bank  generally  limits the  loan-to-value  ratio on
commercial  real estate  mortgage  loans to 80%. The federal  banking  agencies,
including the OTS, have adopted  regulations that would establish  loan-to-value
ratio  requirements  for specific  categories of real estate  loans.  Management
believes  that  the  Bank's   current  lending  policies  conform  to  the
regulations adopted by the OTS.
 
     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  association'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: (i) the purchase price of each single-family dwelling in the
development  does not  exceed  $500,000;  (ii) the  savings  institution  is and
continues  to be in  compliance  with its  fully  phased-in  regulatory  capital
requirements; (iii) the loans comply with applicable loan-to-value requirements;
(iv) the  aggregate  amount of loans made under this  authority  does not exceed
150% of unimpaired  capital and surplus;  and (v) the Director of OTS, by order,
permits the savings  association  to avail  itself of this higher  limit.  Under
these  limits,  the Bank's loans to one borrower were limited to $2.5 million at
June 30, 1997. 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
$285,000 to $906,000. All of these loans were current as of June 30, 1997.
 
     Interest  rates  charged  by the  Bank  on  mortgage  loans  are  primarily
determined by  competitive  loan rates offered in its market area and the Bank'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


                                       4
<PAGE>
                                                            

monetary  policies  of the federal  government,  including  the Federal  Reserve
Board, the general supply of money in the economy, tax policies and governmental
budget matters.

     Single-Family  Residential  Lending.  The  Bank  historically  has been and
continues to be an  originator  of loans  secured by  single-family  residential
properties  located in its market area.  At June 30, 1997,  approximately  $31.9
million, or 50.9%, of the Bank's gross loan portfolio consisted of loans secured
by single-family residential properties.

     The Bank began originating  adjustable-rate  residential  mortgage loans in
1982. Since that time, substantially all single-family mortgage loans originated
by the Bank for  retention  in the Bank's  portfolio  have been  adjustable-rate
loans with an initial  fixed term of one or five years.  After the initial term,
the rate  adjustments  on the Bank's  adjustable-  rate loans are indexed to the
Contract  Interest  Rate  published by the Federal  Housing  Finance  Board (the
"Contract Rate"). The interest rates on these mortgages are adjusted either once
a year or every five years, with a ceiling rate of 18.75%.  The  adjustable-rate
mortgage  loans offered by the Bank do not provide for initial rates of interest
below the rates that would prevail when the index used for repricing is applied.
At  June  30,  1997,  the  Bank's  loan  portfolio  included  $24.7  million  in
adjustable-rate,  single-family  residential  mortgage loans,  which represented
39.5% of the Bank's gross loan portfolio.

     The retention of adjustable-rate loans in the Bank's portfolio helps reduce
the Bank's exposure to increases in prevailing  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 the Bank to increase
the sensitivity of its interest-earning assets to changes in interest rates, the
extent of this interest  sensitivity is limited by the initial fixed-rate period
before  the  first   adjustment  and  the  lifetime   interest  rate  adjustment
limitations.  Accordingly,  there can be no assurance  that yields on the Bank's
adjustable-  rate loans will fully  adjust to  compensate  for  increases in the
Bank's  cost of  funds.  Finally,  adjustable-rate  loans  increase  the  Bank's
exposure to decreases in prevailing market interest rates, although decreases in
the Bank's cost of funds tend to offset this effect.

     Multi-Family  and Commercial Real Estate Lending.  The Bank's  multi-family
residential  loan  portfolio  consists  primarily  of  loans  secured  by  small
apartment  buildings  with between five and 15 units,  and the  commercial  real
estate loan portfolio  includes loans to finance the acquisition of small office
buildings and warehouse  space.  Multi-family  and commercial  real estate loans
have terms of up to 20 years and are generally  underwritten with  loan-to-value
ratios of up to 80% of the lesser of the appraised  value or the purchase  price
of the property. Because of the inherently greater risk involved in this type of
lending,  the Bank generally  limits its multi-family and commercial real estate
lending to  borrowers  within its market area with which it has had  substantial
experience.  However,  from  time to time,  the Bank  reviews  opportunities  to
purchase   multi-family  and  commercial  real  estate  loans  and  occasionally
purchases such loans outside its market area.

     Commercial  Business Lending.  The Bank's commercial lending activities are
directed to small  Minnesota-based  businesses.  The Bank's commercial borrowers
consist  primarily of  manufacturing  and  distribution  firms,  retailers,  and
professionals  in  health  care,  accounting  and  law.  Generally,  the  Bank's
commercial  business  loans are secured by assets,  which may  include  accounts
receivable,  inventory,  equipment and other business assets, and are guaranteed
by  the  principals  of the  borrowers.  The  Bank's  commercial  business  loan
portfolio  includes loans which may be at least partially secured by real estate
but for which the  expected  source of  repayment  for the loan is the cash flow
produced by the borrower's  business.  At June 30, 1997,  the Bank's  commercial
business loans totaled $10.1 million, or 16.1%, of the total loan portfolio.

     The Bank  underwrites  its  commercial  business  loans on the basis of the
borrower's  cash flow and ability to service the debt from earnings  rather than
on the basis of underlying  collateral  value, and seeks to structure such loans
to have more than one source of  repayment.  The borrower is required to provide
the Bank  with  sufficient  information  to allow  the Bank to make its  lending
determination.  In most instances,  this information  consists of at least three
years of financial  statements,  a statement of  projected  cash flows,  current
financial  information  on any guarantor and any  additional  information on the
collateral. For loans with maturities exceeding one year, the Bank requires that
borrowers and guarantors provide updated financial information at least annually
throughout the term of the loan.

     The Bank's commercial  business loans may be structured as term loans or as
lines of  credit.  Commercial  term  loans are  generally  made to  finance  the
purchase of assets and have maturities of five years or less.  Commercial  lines
of credit are  typically  for the purpose of providing  working  capital and are
usually approved with a six month term. The Bank also offers both commercial and
standby letters of credit for its commercial  borrowers.  Commercial  letters of
credit are written for a maximum term of one year. The terms of standby  letters
of credit generally do not exceed one year. The Bank's commercial business loans
generally have interest rates which float at, or at some margin over, the Bank's
reference rate.

     Consumer  Lending.  The  consumer  loans  originated  by the  Bank  include
automobile loans,  recreational  loans,  home equity loans,  education loans and
loans secured by savings  deposits.  At June 30, 1997, the Bank's  consumer loan
balance totaled $18.3 million, or 29.2%



                                       5
<PAGE>
                                                            

of its total loan portfolio.

     The Bank's automobile loans are generally underwritten in amounts up to 80%
of the lesser of the  purchase  price or the retail  value as  published  by the
National Automobile Dealers Association.  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 originates a portion of its automobile loans on
an indirect basis through various  dealerships located in its market area. See "
-- Originations, Purchases and Sales of Loans."

     The Bank's  recreational  loans are loans to finance the purchase of boats,
snowmobiles,  motorcycles  and other  recreational  vehicles.  The terms of such
loans generally do not exceed 60 months.  At June 30, 1997,  recreational  loans
amounted to $1.5 million, or 2.3% of the Bank's total loan portfolio.

     The Bank's second  mortgage  loans are made on the security of  residential
real  estate  and  generally  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 15 years.  Second mortgage loans are on an  adjustable-rate  basis at a
rate which  generally is equal to the Contract Rate plus a margin of between .5%
and 1%. At June 30, 1997,  second  mortgage loans  amounted to $3.0 million,  or
4.9% of the Bank's total loan portfolio.

     Other consumer loans primarily consist of loans for consumer purposes.

     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.   In  such  cases,  any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the  outstanding  loan balance as a result of the greater
likelihood of damage, loss or depreciation.  The remaining deficiency often does
not warrant further  substantial  collection  efforts  against the borrower.  In
addition,  consumer loan collections are dependent on the borrower's  continuing
financial  stability,  and thus are more likely to be adversely  affected by job
loss, divorce, illness or personal bankruptcy.  Furthermore,  the application of
various  federal and state laws,  including  federal  and state  bankruptcy  and
insolvency laws, may limit the amount which can be recovered on such loans. Such
loans may also give rise to claims  and  defenses  by a consumer  loan  borrower
against an assignee of such loans such as the Bank,  and a borrower  may be able
to assert  against such  assignee  claims and defenses  which it has against the
seller of the underlying collateral.

     Nonperforming  Loans and Other Problem Assets. It is management's policy to
continually  monitor its loan portfolio to anticipate and address  potential and
actual  delinquencies.  When a borrower  fails to make a payment on a loan,  the
Bank takes immediate  steps to have the delinquency  cured and the loan restored
to current status.

     All loans  generally  are placed on  nonaccrual  status if the loan becomes
past due more than 90 days, or management  concludes that payment in full is not
likely. At June 30, 1997, the Bank had no loans which were past due more than 90
days and still on accrual status.  Consumer loans are generally  charged off, or
any  expected  loss is reserved  for,  after they become more than 120 days past
due.  All other loans are charged off when  management  concludes  that they are
uncollectible. See Note 2 of Notes to Consolidated Financial Statements.

     Real estate  acquired by the Bank as a result of  foreclosure is classified
as real estate acquired through  foreclosure until such time as it is sold. When
such property is acquired, it is recorded at the lower of cost or its fair value
less estimated  selling costs.  Any required  write-down of the loan to its fair
value less  estimated  selling  costs upon  foreclosure  is charged  against the
allowance  for loan  losses.  See  Note 2  of Notes  to  Consolidated  Financial
Statements.


     The  following  table sets  forth  information  with  respect to the Bank's
nonperforming assets at the dates indicated.

                                                        At June 30,             
                                                     1997               1996   
                                                      (Dollars in thousands)
Loans accounted for on a non-accrual basis: (1)
Real estate:
 Residential...............................       $   171            $    95
 Commercial................................            --                 --
Commercial business..........................          20                122
Consumer.....................................          34                 80
 Total.....................................       $   225            $   297
Percentage of total loans......................       .36%               .55%
Other nonperforming assets (2).................   $    38            $     6



                                       6
<PAGE>
                                                            

____________
(1) Nonaccrual status denotes loans on which, in the opinion of management,  the
collection of additional interest is unlikely. Payments received on a nonaccrual
loan are either  applied to the  outstanding  principal  balance or  recorded as
interest income, depending on assessment of the collectibility of the loan.
        
(2) Other nonperforming  assets represents property acquired by the Bank through
foreclosure or repossession or accounted for as a foreclosure in-substance. This
property is carried at the lower of its fair value less estimated  selling costs
or the principal balance of the related loan, whichever is lower.


     During the year ended June 30, 1997, gross interest income of $18,000 would
have been recorded on loans accounted for on a nonaccrual basis if the loans had
been  current  throughout  the year.  Interest on such loans  included in income
during such year amounted to $12,000, for the year ended June 30,  1997. At June
30, 1997, the Bank had no restructured loans.

     At June 30, 1997,  nonaccrual loans consisted of six mortgage loans secured
by residential properties, one commercial business loan, and six consumer loans.

     June  30,  1997,   the  Bank  had  no  loans   modified  in  troubled  debt
restructurings,  and there were no loans which are not  currently  classified as
nonaccrual,  90 days past due or restructured but where known  information about
possible credit problems of borrowers caused management to have serious concerns
as to the ability of the borrowers to comply with present loan  repayment  terms
and may result in disclosure as nonaccrual, 90 days past due or restructured.

     Federal regulations  require savings  institutions to classify their assets
on the  basis  of  quality  on a  regular  basis.  An asset  meeting  one of the
classification  definitions  set forth  below may be  classified  and still be a
performing loan. 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.  Such assets designated as special mention may include  nonperforming
loans consistent with the above definition.  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.  The Bank  regularly  reviews its
assets   to   determine   whether   any   assets   require   classification   or
re-classification.  At June 30, 1997, the Bank had no assets  classified as loss
or doubtful and $153,000 of assets classified as substandard,  all of which were
included in nonaccrual loans. The assets classified as substandard  consisted of
one consumer loan, one mortgage loan and one commercial  loan. At June 30, 1997,
assets  designated as special  mention  totaled  $110,000 and consisted of seven
loans secured by residential  property and seven consumer loans, all but four of
which were included in nonaccrual loans.

     Allowance for Loan Losses.  In originating  loans, the Bank recognizes that
credit  losses  will be  experienced  and that the risk of loss will vary  with,
among other things,  the type of loan being made,  the  creditworthiness  of the
borrower over the term of the loan, general economic conditions and, in the case
of a secured loan, the quality of the security for the loan. It is  management's
policy to maintain an adequate  allowance  for loan losses based on, among other
things,  the  Bank's  and  the  industry's   historical  loan  loss  experience,
evaluation of economic  conditions,  regular reviews of  delinquencies  and loan
portfolio quality and evolving standards imposed by federal bank examiners.  The
Bank increases its allowance for loan losses by charging provisions for possible
loan losses against the Bank's income.

     Management  will continue to actively  monitor the Bank's asset quality and
allowance  for loan  losses.  Management  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 methodology for establishing the allowance for losses takes into
consideration  probable  losses that have been  identified  in  connection  with
specific  assets as well as  losses  that  have not been  identified  but can be
expected to occur.  Management conducts regular reviews of the Bank's assets and
evaluates  the  need to  establish  allowances  on the  basis  of  this  review.
Allowances are  established by the Board of Directors on a quarterly basis based
on an  assessment of risk in the Bank's  assets  taking into  consideration  the
composition and quality of the portfolio, delinquency trends, current charge-off
and loss experience,  loan concentrations,  the state of the real estate market,
regulatory reviews conducted in the regulatory  examination process and economic
conditions generally.  Specific reserves will be provided for individual assets,
or portions of assets,  when ultimate  collection  is  considered  improbable by
management  based on the current payment status of the assets and the fair value
of the security. At the date of foreclosure or other repossession or at the date
the Bank determines a



                                       7
<PAGE>
                                                             

property is an "in-substance  foreclosed" property,  the Bank would transfer the
property to real estate  acquired in settlement of loans at the lower of cost or
fair value less estimated  selling costs.  Any portion of the  outstanding  loan
balance in excess of fair value less  estimated  selling  costs would be charged
off against the allowance for loan losses. If, upon ultimate  disposition of the
property,  net sales proceeds  exceed the net carrying value of the property,  a
gain on sale of real estate would be recorded.

     The level of the allowance for loan losses is recommended by management and
reviewed and  approved by the Board of  Directors on at least a quarterly  basis
based on an  assessment  of risk in the Bank's loan  portfolio as a whole taking
into  consideration  the composition  and quality of the portfolio,  delinquency
trends,  current  charge-off and loss  experience,  the state of the real estate
market and economic conditions  generally.  Additional  provisions for losses on
loans are made in order to bring the allowance to a level deemed adequate.

     In December  1993,  the banking  regulatory  agencies,  including  the OTS,
adopted a policy statement  regarding  maintenance of an adequate  allowance for
loan and lease losses and an effective loan review system.  This policy includes
an  arithmetic  formula for  checking  the  reasonableness  of an  institution's
allowance for loan loss estimate  compared to the average loss experience of the
industry as a whole.  Examiners will review an institution's  allowance for loan
losses  and  compare it against  the sum of:  (I) 50% of the  portfolio  that is
classified   doubtful;   (ii)  15%  of  the  portfolio  that  is  classified  as
substandard;  and (iii) for the  portions  of the  portfolio  that have not been
classified  (including  those loans  designated as special  mention),  estimated
credit losses over the upcoming 12 months given the facts and  circumstances  as
of the evaluation date. This amount is considered  neither a "floor" nor a "safe
harbor"  of the  level  of  allowance  for loan  losses  an  institution  should
maintain,  but  examiners  will view a  shortfall  relative  to the amount as an
indication  that they should  review  management's  policy on  allocating  these
allowances to determine whether it is reasonable based on all relevant factors.

     The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.


                                                       Year Ended June 30,      
                                                    1997               1996    
                                                       (Dollars in thousands)

Balance at beginning of year                 $     1,331           $  1,375

Consumer loan charge-offs                             44                 54
 
Consumer loan recoveries                              27                 10
Net loan charge-offs                                  17                 44
Provision for loan losses                             --                 --
Balance at end of year                       $     1,314           $  1,331
Ratio of net charge-offs to average loans
 outstanding, net during the year                    .03%               .09%

     The  following  table  allocates  the  allowance  for loan  losses by asset
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>


                                                                                       June 30
                                                                    1997                                1996            
 
                                                                     Percent of                            Percent of
                                                                    Loans in Each                         Loans in Each
                                                                     Category to                           Category to
                                                          Amount     Total Loans                   Amount   Total Loans 
 
                                                                            (Dollars in thousands)

<S>                                                          <C>        <C>               <C>                  <C>   
Real estate                                                  360        54.69%            $           498      56.31%
Commercial business..........................                379        16.08                         287      13.36
Consumer.....................................                575        29.23                         546      30.33
Total allowance for loan losses                    $       1,314        100.00%           $         1,331      100.00%

</TABLE>

                                       8
<PAGE>

Investment Activities

     The  Bank 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
deposit in federally  insured  institutions,  certain  bankers'  acceptances and
federal  funds.  The Bank may also invest,  subject to certain  limitations,  in
commercial  paper  having  one  of  the  two  highest  investment  ratings  of a
nationally recognized credit rating agency, and certain other types of corporate
debt  securities  and mutual  funds.  Federal  regulations  require  the Bank to
maintain  an  investment  in FHLB of Des  Moines  stock and a minimum  amount of
liquid assets which may be invested in cash and specified  securities.  The Bank
is also permitted to invest in mortgage-related  securities.  From time to time,
the OTS adjusts the percentage of liquid assets which savings  associations  are
required  to  maintain.  For  additional  information,  see " --  Regulation  --
Regulation of the Bank -- Liquidity Requirements."

     The Bank makes investments in order to maintain the levels of liquid assets
required by regulatory  authorities and manage cash flow,  diversify its assets,
obtain yield and to satisfy  certain  requirements  for favorable tax treatment.
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 U.S.  government
or agencies thereof.  Typical  investments  include  federally  sponsored agency
mortgage  pass-through  and  federally  sponsored  agency  and  mortgage-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 mortgage  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.  Under the Bank's
current investment policy,  securities  purchases must be approved by the Bank's
Treasurer.  The Board of Directors reviews all securities purchased on a monthly
basis.

     The Bank adopted SFAS No. 115 as of July 1, 1994.  Securities designated as
"held to maturity" are those assets which the Bank has the ability and intent to
hold to maturity.  Upon acquisition,  securities are classified as to the Bank's
intent  and a sale  would  only  be  effected  due to  deteriorating  investment
quality.  The investment  portfolio is not used for speculative  purposes and is
carried at  amortized  cost.  In the event the Bank sells  securities  from this
portfolio  for other than credit  quality  reasons,  all  securities  within the
investment portfolio with matching characteristics may be reclassified as assets
available for sale.  Securities  designated  as  "available  for sale" are those
assets  which the Bank may not hold to  maturity  and thus are carried at market
value with unrealized gains or losses, net of tax effect, recognized in retained
earnings.  At June 30, 1997,  investment  securities with an aggregate amortized
cost of $25.4  million  and an  aggregate  market  value of $25.0  million  were
included in the portfolio of securities available for sale. The aggregate impact
on retained earnings was an after-tax decrease of $223,000 as of June 30, 1997.

     The following table sets forth the carrying value of the Bank's  investment
portfolio at the dates indicated. At June 30, 1997 1996
 
                                                     (Dollars in thousands)
Securities available for sale:
 U.S. government and agency securities.           $  7,916          $12,792
 Corporate obligations. . . . . . . . . . . .        2,431            4,964
 Collateralized mortgage obligations . . . . . . .  14,638           16,466
Securities held to maturity:
 U.S. government and agency securities. . . . .. .  26,414           21,314
 Corporate obligations. . . . . . . . . . . . . .    1,960            2,174
 Collateralized mortgage obligations . . . . . . .  26,140           29,309
 Mortgage-backed securities. . . . . . . . . .       3,599            4,164
Total investment securities . . . . . . . . . .    $83,098          $89,183


     The Bank  invests in various  types of liquid  assets that are  permissible
investments  for federally  chartered  savings banks,  including  U.S.  Treasury
obligations,  securities of various federal  agencies,  certain  certificates of
deposit of insured banks and savings  institutions and federal funds. Subject to
various  restrictions  applicable to all federally  chartered savings banks, the
Bank also invests its assets in investment grade corporate debt securities.

     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
pass-through  securities,  which are used to collateralize the  mortgage-related
securities.  Once  combined,  the cash flows can be divided into  "tranches"  or
"classes" of individual  securities,  thereby creating more predictable  average
lives for each security than the  underlying  pass-through  pools.  Accordingly,
under this security structure, all principal pay downs from the various mortgage
pools  are  allocated  to  a  mortgage-related   securities'  class  or  classes
structured  to have  priority  until  it has been  paid  off.  These  securities
generally have fixed interest rates, and, as a result, changes in interest rates
generally  would affect the market value and  possibly the  prepayment  rates of
such securities.


                                       9
<PAGE>

                                                           


     Some  mortgage-related  securities  instruments are like  traditional  debt
instruments  due to their stated  principal  amounts and  traditionally  defined
interest rate terms.  Purchasers of certain  other  mortgage-related  securities
instruments  are entitled to the excess,  if any, of the issuer's  cash inflows.
These mortgage-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.
The Bank does not purchase residual interests in mortgage-related securities.

     At June 30, 1997,  the Bank had $40.8  million in CMOs,  which  amounted to
26.3% of total assets. As of June 30, 1997, the securities in the Bank's private
mortgage-backed  securities  portfolio were rated AAA by at least one nationally
recognized investment rating service.

     Prepayments  in the Bank's  mortgage-related  securities  portfolio  may be
affected  by  declining  and rising  interest  rate  environments.  In a low and
falling interest rate environment, prepayments would be expected to increase. In
such an event,  the Bank's  fixed-rate  CMO/REMICs  purchased at a premium price
could  result in actual  yields  to the Bank  that are  lower  than  anticipated
yields.  The Bank's floating rate CMO/REMICs would be expected to generate lower
yields as a result of the effect of falling  interest  rates on the  indexes for
determining payment of interest.  Additionally, the increased principal payments
received may be subject to reinvestment at lower rates. Conversely,  in a period
of rising  rates,  prepayments  would be expected to decrease,  which would make
less  principal  available for  reinvestment  at higher rates.  In a rising rate
environment,  floating  rate  instruments  would  generate  higher yields to the
extent that the indexes for  determining  payment of interest did not exceed the
life-time  interest rate caps. Such prepayment may subject the Bank's CMO/REMICs
to yield and price volatility.

     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 FHLMC, FNMA and
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  or
adjustable-rate  mortgage  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 accredited  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  prepayments of the
underlying mortgages depend on many factors, including the type of mortgage, the
coupon  rate,  the  age of  the  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, and, conversely,  during periods
of rising mortgage interest rates, prepayments generally decrease. 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  and  mortgage-related
securities.  At June 30,  1997,  the Bank had $3.6  million  in  mortgage-backed
securities (2.3% of total assets) insured or guaranteed by FNMA, FHLMC or GNMA.


                                       10
<PAGE>



                                                            


     The  following  table  sets  forth   information   regarding  the  expected
maturities,  market value and weighted average yields for the Bank's  investment
securities at June 30, 1997.
<TABLE>


                            One Year or Less   One to Five Years  Five to Ten Years  More than Ten Years Total Investment Portfolio 
                            Carrying Average   Carrying  Average   Carrying Average  Carrying  Average   Carrying  Market   Average
                             Value    Yield      Value    Yield      Value   Yield    Value     Yield     Value     Value    Yield 
                                                                (Dollars in thousands)

Securities available for sale:
  U.S. government and
<S>                         <C>       <C>    <C>          <C>     <C> <C>           <C>        <C>     <C>         <C>        <C>   
    agency securities...... $  5,966  4.80%  $   1,950    5.23%   $     --     -- % $     --     -- %  $  7,916    $  7,916   4.915%
  Corporate obligations....      502  9.62         646     7.50         --     --      1,283    7.75      2,431       2,431    8.06
  Collateralized mortgage
    obligations............    6,278  5.79       8,360     6.01         --     --         --      --     14,638      14,638    5.91

Securities held to maturity:
  U.S. government and agency
   securities..............    4,067  6.49      19,356     6.52       2,991  6.85         --      --     26,414      26,448    6.55
  Corporate obligations....       --    --       1,960     7.50          --    --         --      --      1,960       2,008    7.50
  Collateralized mortgage
    obligations............    5,004  6.82      21,136     6.96          --    --         --      --     26,140      26,268    6.94
  Mortgage-backed
    securities.............      956  7.54       1,822    7.48          821  8.09         --      --      3,599       3,611    7.63
      Total................ $ 22,773         $  55,230            $   3,812        $   1,283           $ 83,098     $83,320
</TABLE>


     For  additional  information,  see  Notes 3 and 4 of Notes to  Consolidated
Financial Statements.



                                       11
<PAGE>

                                                     


     The Bank is required to maintain  average  daily  balances of liquid assets
(cash, deposits maintained pursuant to Federal Reserve Board requirements,  time
and savings deposits in certain institutions, obligations of state and political
subdivisions thereof,  shares in mutual funds with certain restricted investment
policies,  highly rated corporate  debt, and mortgage loans and  mortgage-backed
securities  with less than one year to maturity or subject to repurchase  within
one year)  equal to a monthly  average of not less than a  specified  percentage
(currently  5%)  of  its  net  withdrawable  savings  deposits  plus  short-term
borrowings.  Savings  associations  are also required to maintain  average daily
balances of short- term liquid assets at a specified  percentage  (currently 1%)
of the total of their net withdrawable  savings accounts and borrowings  payable
in one year or less.  Monetary  penalties  may be  imposed  for  failure to meet
liquidity   requirements.   The  Bank  was  in  compliance  with  all  liquidity
requirements throughout the year.

Deposit Activity and Other Sources of Funds

     General.  Deposits  are the primary  source of the Bank's funds for lending
and other investment activities and general operational purposes. In addition to
deposits,  the Bank derives funds from loan 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  the  Bank's
available  funds.  The Bank obtains  short-term  borrowings  through the sale of
securities  under agreement to repurchase.  In addition,  the Bank has access to
borrow from the FHLB of Des Moines and the Federal Reserve Bank of Minneapolis.

     Deposits.  The Bank attracts  deposits  principally  from within its market
area by offering a variety of deposit instruments,  including checking accounts,
savings  accounts,  money  market  accounts,  retirement  savings  accounts  and
certificates  of deposit  which range in term from three to 120 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 does not accept brokered deposits.


     The  following  table sets forth the average  balances and  interest  rates
based on  month-end  balances for  interest-  bearing  demand  deposits and time
deposits as of the dates indicated.

                                             Year Ended June 30,           
                                     1997                   1996         
                                Interest-              Interest-
                                Bearing                Bearing
                                Demand        Time     Demand       Time
                                Deposits    Deposits   Deposits    Deposits
                                           (Dollars in thousands)

Average balance............$     41,539    $ 52,008   $ 44,537    $  52,208
Average rate..............         2.26%       5.62%      2.28%        5.55%

     The following table shows maturities for certificates of deposit of $100,00
or more at June 30, 1997.

                Three months or less                         $               0
                Over three months to six months                        243,698
                Over six months to twelve months                       321,561
                Over twelve months                                   1,297,972
                                                                   $ 1,863,231



                                       12
<PAGE>
                                                      


     In the  unlikely  event  the  Bank  is  liquidated  after  the  Conversion,
depositors  will be entitled to full payment of their deposit  accounts prior to
any payment being made to stockholder of the Bank, which is the Company.

     Borrowings.  Savings deposits  historically have been the primary source of
funds for the Bank's lending,  investment and general operating activities.  The
Bank 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, the Bank 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 of  Minneapolis.  The Bank had $8.1 million in outstanding
borrowings  from  either  the  FHLB  of Des  Moines  at  June  30,  1997  and no
outstanding borrowings from the Federal Reserve.

     From time to time the Bank borrows utilizing  repurchase  agreements issued
to high balance  customers.  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.  The  Bank  utilizes  the  funds it  receives  from the
repurchase  agreements to purchase investment  securities with the same maturity
date as the repurchase agreements.

 
     The  following  table sets forth certain  information  regarding the Bank's
short-term borrowings at the dates and for the periods indicated:

                                                            At or for the
                                                          Year Ended June 30    
                                                       1997               1996  
                                                         (Dollars in thousands)

Amounts outstanding at end of period.......         $ 22,140          $  29,264
Maximum amount of borrowings outstanding
 at any month end.........................            22,140             29,264
Approximate average short-term borrowings outstanding 21,956             11,980
Average cost of borrowings (1)...............          3.68%               5.60%
                                   
(1)    Based on month-end balances.


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 June 30, 1997, the
Bank was authorized to invest up to  approximately  $4.3 million in the stock of
or loans to  subsidiaries,  including the additional 1% investment for community
inner-city  and  community  development  purposes.  Institutions  meeting  their
applicable minimum regulatory capital requirements may invest up to 50% of their
regulatory  capital in conforming  first mortgage loans to subsidiaries in which
they own 10% or more of the capital stock.

     The Bank has one wholly owned  subsidiary:  Queen City Service  Corporation
("Queen City Service").  Queen City Service, a Minnesota corporation,  currently
owns part of a commercial  condominium  building located in Ely,  Minnesota that
houses the Bank's Ely branch.  A portion of the property is also leased to three
tenants.  Queen City Service is also engaged in the sale of tax deferred annuity
contracts and credit life and disability insurance. At June 30,



                                       13
<PAGE>
                                                      


1997 the Bank's total investment in Queen City Service was $67,000.

     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 Queen City Service are not permissible for national banks.


Competition

     The Bank faces strong competition both in originating real estate and other
loans and in  attracting  deposits.  The Bank competes for real estate and other
loans  principally  on the basis of interest rates and the loan fees it charges,
the types of loans it  originates  and the  quality of  services  it provides to
borrowers. Its competition in originating real estate loans comes primarily from
other savings  institutions,  commercial banks and mortgage bankers making loans
secured by real estate  located in the Bank's  market  area.  Commercial  banks,
credit unions and finance  companies  provide  vigorous  competition in consumer
lending.  Competition  may increase as a result of the  continuing  reduction of
restrictions on the interstate operations of financial institutions.

     The Bank  attracts all its deposits  through its branch  offices  primarily
from  the  communities  in  which  those  offices  are  located.   Consequently,
competition  for  deposits  is  principally  from  other  savings  institutions,
commercial  banks,  credit  unions and  brokers in these  communities.  The Bank
competes  for  deposits  and loans by offering a variety of deposit  accounts at
competitive rates, a wide array of loan products,  convenient business hours and
branch   locations,   a  commitment  to  outstanding   customer  service  and  a
well-trained  staff.  In addition,  the Bank  believes it has  developed  strong
relationships with local businesses, realtors, and the public in general.

 
Employees

     As of June 30, 1997, the Bank had 25 full-time and 12 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. The lending activities and other investments of
the Bank must comply with various federal regulatory  requirements,  and the OTS
periodically   examines  the  Bank  for  compliance   with  various   regulatory
requirements.  The FDIC also has the authority to conduct special  examinations.
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.

Regulation of the Bank

     Federal  Home Loan Bank  System.  The Bank is a member of the FHLB  System,
which consists of 12 district Federal Home Loan Banks subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB").  The Federal Home Loan
Banks 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



                                       14
<PAGE>
                                                      


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 June 30, 1997
of $554,000.

     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 a national
bank; (ii) the branching powers of the institution  shall be restricted to those
of a national bank;  (iii) the  institution  shall not be eligible to obtain any
advances from its FHLB; and (iv) payment of dividends by the  institution  shall
be subject to the rules regarding  payment of dividends by a national bank. 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 a
national bank and immediately  repay any outstanding  FHLB advances  (subject to
safety and soundness considerations).

     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.  Failure  to
qualify as a QTL results in a number of sanctions,  including the  imposition of
certain  operating  restrictions  imposed on national banks and a restriction on
obtaining  additional  advances from the FHLB System. At June 30, 1997, the Bank
qualified as a QTL.

     Regulatory  Capital  Requirements.  Under OTS  capital  standards,  savings
associations  must maintain  "tangible"  capital equal to 1.5% of adjusted total
assets, "core" capital equal to 3% of adjusted total assets and a combination of
core and  "supplementary"  capital  equal to 8% of  "risk-weighted"  assets.  In
addition,  the OTS has adopted regulations which impose certain  restrictions on
savings  associations  that have a total  risk-based  capital ratio that is less
than 8%, a ratio of Tier 1 capital to risk-weighted  assets of less than 4% or a
ratio of Tier 1 capital to adjusted  total  assets of less than 4% (or 3% if the
institution is rated Composite 1 under the OTS examination  rating system).  See
"-- Prompt  Corrective  Regulatory  Action." The Bank is in compliance  with all
currently applicable capital requirements.
 
     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.  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.

     The table below provides  information with respect to the Bank's compliance
with its regulatory capital requirements at June 30, 1997.
 

                                       15
<PAGE>
 
                                                                   Percent of
                                                           Amount   Assets (1)
                                                        (Dollars in thousands)
                                                      

Tangible capital . . . . . . . . . . . . . . . . . .       $16,917   11.7%
Tangible capital requirement . . . . . . . . ..              2,172    1.5   
   Excess (deficit) . . . . . . . . . . . . . . . . ..     $14,745   10.2%
                                                                     
Core capital (2) . . . . . . . . . . . . . . . . . .       $16,917    1.7%
Core capital requirement . . . . . . . . . . . .             4,345    3.0
Excess (deficit) . . . . . . . . . . . . . . . . . . .     $12,572    8.7%
                                                                     
Risk-based capital . . . . . . . . . . . . . . . .         $17,727   27.6%
Risk-based capital requirement . . . . . . .                 5,142    8.0   
Excess (deficit) . . . . . . . . . . . . . . . . . .       $12,585   19.6%
                                                                     



(1) Based on adjusted total assets for purposes of the tangible capital and core
capital  requirements  and  risk-weighted  assets for purpose of the  risk-based
capital requirement.
(2)  Reflects  the  capital  requirement  which the Bank must  satisfy  to avoid
regulatory restrictions that may be imposed pursuant to prompt corrective action
regulations.




                                       16
<PAGE>
                                                     


     Prompt Corrective  Regulatory  Action.  Under the Federal Deposit Insurance
Corporation  Improvement Act of 1991 ("FDICIA"),  the federal banking regulators
are  required  to  take  prompt  corrective  action  if  an  insured  depository
institution  fails  to  satisfy  certain  minimum  capital   requirements.   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
did 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 could also
be required to divest the  institution or the  institution  could be required to
divest subsidiaries.

     The  federal  banking   regulators  will  generally  measure  a  depository
institution's   capital  adequacy  on  the  basis  of  the  institution's  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). Under the regulations, a savings institution that is not
subject to an order or written  directive to meet or maintain a specific capital
level will be deemed "well  capitalized" if it also has: (i) a total  risk-based
capital ratio of 10% or greater;  (ii) a Tier 1 risk-based capital ratio of 6.0%
or  greater;  and (iii) a  leverage  ratio of 5.0% or  greater.  An  "adequately
capitalized" savings institution is a savings institution that does not meet the
definition of well capitalized and has: (I) a total risk-based  capital ratio of
8.0% or greater;  (ii) a Tier 1 capital risk-based ratio of 4.0% or greater; and
(iii) a  leverage  ratio of 4.0% or greater  (or 3.0% or greater if the  savings
institution has a composite 1 CAMEL rating). An  "undercapitalized  institution"
is a savings institution that has (I) a total risk-based capital ratio less than
8.0%;  or (ii) a Tier 1 risk-based  capital  ratio of less than 4.0%; or (iii) a
leverage ratio of less than 4.0% (or 3.0% if the  institution  has a composite 1
CAMEL rating).  A "significantly  undercapitalized"  institution is defined as a
savings  institution that has: (I) a total risk-based capital ratio of less than
6.0%;  or (ii) a Tier 1 risk-based  capital  ratio of less than 3.0%; or (iii) a
leverage  ratio of less  than  3.0%.  A  "critically  undercapitalized"  savings
institution  is defined as a savings  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.  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.  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 under- capitalized) 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 CAMEL
rating  category.  The Bank is  classified  as "well  capitalized"  under  these
regulations.

     Deposit  Insurance.  The Bank is  required  to pay  assessments  based on a
percent of its insured deposits to the FDIC for insurance of its deposits by the
SAIF.  The SAIF  assessment  rate  will be a rate  determined  by the FDIC to be
appropriate  to  maintain  the  reserve  ratio of the  SAIF to 1.25% of  insured
deposits or such higher percentage as the FDIC



                                       17
<PAGE>
                                                     


determines to be appropriate.

     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 in  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
assessment  rate currently  ranges from 0.063% of deposits for well  capitalized
institutions   in  Subgroup  A  to  0.333%  of  deposits  for   undercapitalized
institutions in Subgroup C.

     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.  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  associations,  the FDIC will  take into  account  whether  the  savings
association 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 thrift  institution must maintain average daily reserves equal to 3% on
the first $49.3 million of transaction accounts, 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
require  ment is to  reduce  the  amount of the  institution's  interest-earning
assets. As of June 30, 1997, the Bank met its reserve requirements.

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

     Federal  regulations  impose  additional  limitations  on  the  payment  of
dividends and other capital distributions  (including stock repurchases and cash
mergers)  by the Bank.  Under these  regulations,  a savings  institution  that,
immediately  prior to,  and on a pro  forma  basis  after  giving  effect  to, a
proposed capital distribution,  has total capital (as defined by OTS regulation)
that is equal to or greater than the amount of its capital requirements (a "Tier
1 Association") is generally  permitted,  without OTS approval,  to make capital
distributions  during a calendar year in the amount equal to the greater of: (I)
75% of its net income for the previous four quarters;  or (ii) up to 100% of its
net income to date during the calendar  year plus an amount that would reduce by
one-half the amount by which its  capital-to-assets  ratio  exceeded  regulatory
requirements at the beginning of the calendar year. A savings  institution  with
total capital in excess of current minimum capital ratio requirements (a "Tier 2
Association") is permitted to make capital



                                       18
<PAGE>
                                                      


distributions  without  OTS  approval  of up to 75% of its  net  income  for the
previous four quarters,  less dividends  already paid for such period. A savings
institution  that fails to meet current minimum capital  requirements (a "Tier 3
Association")  is prohibited from making any capital  distributions  without the
prior  approval of the OTS. A Tier 1  Association  that has been notified by the
OTS that its is in need of more  than  normal  supervision  will be  treated  as
either a Tier 2 or Tier 3 Association.  The Bank is a Tier 1 Association.  Under
the OTS' prompt corrective action regulations,  the Bank is also prohibited from
making any capital  distributions  if after  making the  distribution,  the Bank
would have: (I) a total risk-based  capital ratio of less than 8.0%; (ii) a Tier
1 risk-based  capital ratio of less than 4.0%; or (iii) a leverage ratio of less
than 4.0%. The OTS, after  consultation  with the FDIC,  however,  may permit an
otherwise prohibited stock repurchase if made in connection with the issuance of
additional  shares in an equivalent  amount and the  repurchase  will reduce the
institution's  financial  obligations  or  otherwise  improve the  institution's
financial condition. See "-- Prompt Corrective Regulatory Action."

     Furthermore,  earnings of the Bank  appropriated  to bad debt  reserves for
federal  income tax purposes are not available for payment of cash  dividends or
other  distributions to the Company without payment of taxes at the then current
tax rate by 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,
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.

     Savings  institutions  are also  subject to the  restrictions  contained in
Section  22(h)  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 interests of such persons, may not exceed,  together with
all  other  outstanding  loans to such  person  and  affiliated  interests,  the
institution's  loans-to-one-  borrower  limit  (generally  equal  to  15% of the
institution's  unimpaired capital and surplus) and all loans to such persons may
not exceed the institution's  unimpaired capital and unimpaired surplus. 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  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.




                                       19
<PAGE>
                                                     


     Savings  institutions are also subject to the requirements and restrictions
of Section 22(g) of the Federal  Reserve Act on loans to executive  officers and
the restrictions of 12 U.S.C. 1972 on certain tying  arrangements and extensions
of credit by  correspondent  banks.  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 a depository  institution for extension 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.  Section 1972 (I) prohibits a depository  institution
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,  and (ii)  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  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 go 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.

     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.  On July 10, 1995, the
federal banking agencies, including the OTS, issued proposed guidelines relating
to asset  quality  and  earnings.  Under  the  proposed  guidelines,  a  savings
institution  should 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,  in the form
proposed by the banking agencies, would not have a material effect on the Bank's
operations.


Regulation of the Company

     General.  The Company is a savings and loan  holding  company as defined by
the 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.




                                       20
<PAGE>
                                                     


     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 of a unitary savings and
loan holding company.  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  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  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
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
holding company.

     Restrictions  on  Acquisitions.  Savings  and loan  holding  companies  are
prohibited  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.
Under certain  circumstances,  a registered  savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the voting  shares of an  under-capitalized  savings  institution  pursuant to a
"qualified  stock  issuance"  without  that  savings  institution  being  deemed
controlled  by the  holding  company.  In  order  for  the  shares  acquired  to
constitute a "qualified  stock  issuance," the shares must consist of previously
unissued  stock or treasury  shares,  the shares must be acquired for cash,  the
savings and loan holding company's other subsidiaries must have tangible capital
of at least  6-1/2% of total  assets,  there  must not be more  than one  common
director or officer between the savings and loan holding company and the issuing
savings  institution,  and transactions  between the savings institution and the
savings and loan  holding  company  and any of its  affiliates  must  conform to
Sections 23A and 23B of the Federal  Reserve Act. Except with the prior approval
of the Director of the OTS, no director or officer of a savings and loan holding
company or person owning or  controlling  by proxy or otherwise more than 25% of
such company's stock, may also acquire control of any savings institution, other
than a subsidiary savings institution,  or of any other savings and loan holding
company.

     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



                                       21
<PAGE>
                                                     


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 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).

     Under the Bank  Holding  Company Act of 1956,  bank holding  companies  are
specifically authorized to acquire control of any savings association.  Pursuant
to rules  promulgated  by the Federal  Reserve  Board,  owning,  controlling  or
operating a savings  institution  is a  permissible  activity  for bank  holding
companies, if the savings institution engages only in deposit-taking  activities
and  lending  and  other  activities  that  are  permissible  for  bank  holding
companies.  A bank holding company that controls a savings institution may merge
or consolidate  the assets and liabilities of the savings  institution  with, or
transfer assets and liabilities to, any subsidiary bank which is a member of the
BIF with the approval of the appropriate  federal banking agency and the Federal
Reserve  Board.  The  resulting  bank  will  be  required  to  continue  to  pay
assessments to the SAIF at the rates prescribed for SAIF members on the deposits
attributable to the merged savings  institution plus an annual growth increment.
In addition,  the  transaction  must comply with the  restrictions on interstate
acquisitions of commercial banks under the Bank Holding Company Act.

Taxation
     General.  The Company and its subsidiaries will file a consolidated federal
income tax return on a June 30 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.  Thrift institutions are subject to the provisions
of the  Internal  Revenue  Code of 1986,  as  amended  (the  "Code") in the same
general manner as other corporations.

     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.

Item 2.  Description of Properties

     The following table sets forth information  regarding the Company's offices
at June 30, 1997.


                      Year Owned or Book Value at  Approximate    Deposits at
                     Opened Leased  June 30, 1997 Square Footage June 30, 1997
                                        (Deposits in thousands)

Main Office:
501 Chestnut Street    1969    Owned     $ 280,123      12,600       $ 79,879
Virginia, Minnesota
55792

Branch Offices:
Thunderbird Mall       1976   Leased           N/A         500           --  (1)
Virginia, Minnesota 
55792

102 E. Sheridan Street 1974    Owned         63,422       9,900         8,679
Ely, Minnesota  55731

                                       22
<PAGE>

             
(1) The Bank does not separately  track deposits at the Thunderbird Mall office.
Deposits received at this facility are included in deposits of the main office.

     The book value of the Bank's  investment in premises and equipment  totaled
$425,000  at June  30,  1997.  See Note 8 of  Notes  to  Consolidated  Financial
Statements.

Item 3. Legal Proceedings.

     From  time to  time,  the  Bank is a party  to  various  legal  proceedings
incident to its business.  At June 30, 1997, there were no legal  proceedings to
which the Company or the Bank 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. In addition,  there were no pending regulatory  proceedings
to which the Company or the Bank 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 a Vote of Security Holders.

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended June 30, 1997.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

     The  information  contained  under the  sections  captioned  "Stockholders'
Information" in the Company's  Annual Report to Stockholders for the Fiscal Year
Ended June 30, 1997 (the "Annual Report") filed as Exhibit 13 hereto is
incorporated herein by reference.

Item 6.  Management's Discussion and Analysis of Plan of Operation

     The information contained in the section captioned "Management's Discussion
and  Analysis  of  Financial  Condition  and Results of  Operations"  on pages 2
through 13 in the Annual Report is incorporated herein by reference.

Item 7.  Financial Statements

     The  Consolidated  Financial  Statements,  Notes to Consolidated  Financial
Statements, Independent Auditors' Report contained on pages 14 through 39 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

     The current report on Form 8-K is incorporated herein by reference.






                                       23
<PAGE>
                                                      


                                    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  1997  Annual  Meeting of  Stockholders  (the  "Proxy  Statement")  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.

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.

Item 13.  Exhibits 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 7 hereof (see Exhibit 13):

     Independent Auditors' Report

     Consolidated Statements of Financial Condition - June 30, 1997 and 1996

     Consolidated  Statements  of Income - Years ended June 30,  1997,  1996 and
     1995



                                       24
<PAGE>
                                                      



     Consolidated  Statements  of  Stockholders'  Equity - Years  ended June 30,
     1997, 1996 and 1995

     Consolidated Statements of Cash Flows - Years ended June 30, 1997, 1996 and
     1995

     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-KSB and is also the Exhibit Index.
 
    No.         Description

    3.1         Articles of Incorporation *
    3.2         Bylaws *
    4           Form of Common Stock Certificate of QCF Bancorp, Inc.         **
   10.1         QCF Bancorp, Inc. 1995 Stock Option and Incentive Plan         *
   10.2         QCF Bancorp, Inc. 1995 Management Recognition Plan             *
   10.3(a)      Employment Agreement between QCF Bancorp, Inc.
                  and Kevin E. Pietrini                                        *
   10.3(b)      Employment Agreement between Queen City Federal Savings
                  Bank and Kevin E. Pietrini                                   *
   10.4(a)      Severance Agreements between QCF Bancorp, Inc.
                  and Daniel F. Schultz, Gerald D. McKenna, Judith K.
                  Kauchick and Linda Myklebust                                 *
   10.4(b)      Severance Agreements between Queen City Federal
                  Savings Bank and Daniel F. Schultz, Gerald D. McKenna,
                  Judith K. Kauchick and Linda Myklebust                       *
 
   10.5         Queen City Federal Savings Bank Deferred
                  Compensation Plan                                            *
   10.6         Queen City Federal Savings Bank Supplemental
                  Executive Retirement Agreements with Kevin E. Pietrini
                  and Daniel F. Schultz                                        *
   10.7         Queen City Federal Savings Bank Grantor Trust Agreement
                  Relating to Employment Agreements, Severance Agreements,
                  Supplemental Executive Retirement Agreements and Deferred    *
                  Compensation Plan
   13           Annual Report to Stockholders
   21           Subsidiaries of the Registrant
   23           Consent of KPMG Peat Marwick LLP
                Consent of Mcladrey & Pullen, LLP
   27           Financial Data Schedule
                  



                                       25
<PAGE>
                                                     


  (*)    Incorporated  herein by reference from  Registration  Statement on Form
         S-1 filed December 6, 1994 (File No. 33- 87044).
 (**)    Incorporated  herein by reference from  Registration Statement on Form 
         8-A filed March 15, 1995 (File No. 0- 25700).


     (b)  Reports on Form 8-K.  During the  quarter  ended  June 30,  1997,  the
Registrant did not file any Current Reports on Form 8-K.

     (c)  Exhibits.  The  exhibits  required by Item 601 of  Regulation  S-K 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.



                                       26
<PAGE>
                                                  
                                   SIGNATURES

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

                                           QCF BANCORP, INC.

September 12, 1997
                                           By:                                  
                                           Kevin E.Pietrini
                                           President and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


                                                              September 23, 1997
Kevin E. Pietrini
President, Chief Executive Officer
  and Director
(Principal Executive Officer)

                                                              September 23, 1997
Daniel F. Schultz
Vice President and Treasurer
(Principal Financial and Accounting Officer)

                                                              September 23, 1997
Philip K. Schumacher
Chairman of the Board

                                                              September 23, 1997
Peter J. Johnson
Director

                                                              September 23, 1997
Craig W. Nordling
Director

                                                              September 23, 1997
Robert L. Muhich
Director

                                                              September 23, 1997
John C. Pearsall
Director

                                                              September 23, 1997
John A. Trenti
Director



                                       27
<PAGE>
                                                     

                                   EXHIBIT 13







To Our Shareholders, Customers and Friends:

The  directors,  officers and staff of QCF Bancorp,  Inc. and Queen City Federal
Savings  Bank proudly  present our annual  report to  shareholders.  This report
represents  an  exciting  and a  productive  year at Queen  City  Federal  and a
significant  year in terms of  earnings.  We ended the year with a net income of
$2,011,000.  This  represents a return on average assets of 1.34%. We also ended
the year with record earnings per share of $1.57.

The  significance  of this years  earnings  lies in the fact that these  results
include a "one time" special FDIC  assessment of $686,000  pre-tax.  Without the
special assessment, Queen City Federal would have enjoyed another record year in
terms of earnings.  We encourage  you to read  the"Management's  Discussion  and
Analysis"  section  of  this  report  for a more  complete  explanation  of your
Company's financial performance.

In the ensuing year,  Queen City Federal will continue to pursue its  philosophy
of being our region's "local" financial  institution.  Although we will continue
providing  traditional  thrift services,  we will move ahead with our plan to be
more "bank like".  This trend is  evidenced by a 12% increase in consumer  loans
over the last year and a 40%  increase in  commercial  business  loans.  We will
continue our commitment to the local  community bank concept by promoting  local
involvement in the community. I would also like to thank our employees for their
hard work and  dedication in making this another  successful  year at Queen City
Federal.

The directors, officers and staff of Queen City Federal want to thank all of our
stockholders  and customers for their confidence and support in our organization
as we endeavor to enhance shareholder value in the year to come.
                                   Sincerely,


                                   Kevin E. Pietrini
                                   President and
                                   Chief Executive officer                 

<PAGE>


                             FINANCIAL HIGHLIGHTS
                 (Dollars in Thousands, Except Per Share Data)

                                          At or For the Year Ended
                                                June 30, 1997
                                         --------------------------

                                              1997      1996

Operating Results
   Net interest income                $       6,029    6,073
   Non interest income                          566      480
   Non interest expense                       3,276    2,687
   Net Income                                 2,011    2,333

Per Share Data
   Net income                         $        1.57     1.44
   Book value                                 19.23    18.47


Balance Sheet Data
   Total assets                       $     156,727  150,430
   Investment Securities                     83,098   89,183
   Net loans                                 61,202   52,361
   Deposits                                 103,681   88,832
   Short-term borrowings                     22,140   29,264
   Stockholders' equity                      27,423   29,685

Financial Ratios
   Return on average assets                    1.34%    1.56%
   Return on average equity                    7.44     8.06
   Net interest margin                         4.12     4.25
   Average equity to average assets           18.03    19.33
   Non-performing assets to total assets        .17      .20
   Total regulatory capital to risk-adjusted assets27.5838.51


Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

The following discussion is provided to assist readers in their understanding of
the  consolidated   financial  statements  of  QCF  Bancorp,  Inc.  (QCF).  This
discussion  should  be read  in  conjunction  with  the  consolidated  financial
statements and other financial information presented elsewhere in this report.

QCF is the unitary  savings  and loan  holding  company  for Queen City  Federal
Savings Bank (the Bank).  The Bank converted from a federally  chartered  mutual
savings bank to a federally chartered stock savings bank on March 31, 1995.





                                      1
<PAGE>

                    FIVE-YEAR SELECTED FINANCIAL SUMMARY(1)

(Dollars in Thousands,                      Year Ended June 30
  Except per Share Data)

Operating Results
                                1997     1996   1995    1994    1993

  Interest income            $10,703   10,658  8,867   7,558   8,245
  Interest expense             4,674    4,585  4,018   3,947   4,322
  Net interest income          6,029    6,073  4,849   3,611   3,923
  Provision for loan losses        0        0      0      60     240
  Non-interest income            566      480    411     416     638
  Non-interest expense         3,276    2,687  2,378   2,164   2,014
  Income tax expense           1,308    1,533  1,166     734     953
  Income before cumulative effect
     of change in accounting principle2,0112,3331,715  1,069   1,354
  Net income                   2,011    2,333  1,715   1,588   1,354

Per Share Data
  Net income (1995 - March 31-June 30)$  1.57   1.44    0.35
  Pro forma net income                          1.04
  Book value                   19.23    18.47  17.17

Balance Sheet Data
  Total Assets               $156,727 150,430146,548 133,135 135,333
  Investment securities       83,098   89,183 88,503  85,412  86,950
  Net loans                   61,202   52,361 45,964  40,810  39,699
  Deposits                   103,681   88,832113,544 113,091 104,197
  Short-term borrowings       22,140   29,264      0   4,190  16,742
  Stockholders' equity        27,423   29,685 30,602  13,991  12,404

Financial Ratios
  Return on average assets      1.34%    1.56   1.27    0.80(2) 1.04
  Return on average equity      7.44     8.06  10.09    8.02   11.54
 Average equity to average assets18.03  19.33  12.62    9.94    9.04

(1) QCF Bancorp,  Inc. (QCF) completed a public stock offering on March 31,
1995,  which  generated net proceeds of $17.0 million.  QCF purchased all of the
stock of Queen  City  Federal  Savings  Bank (the  Bank)  with a portion  of the
conversion  proceeds.  The information  reflected above represents the financial
condition  and the  results  of  operations  for the  consolidated  QCF for 1995
through 1997 and only the Bank for 1993 and 1994.

(2)  Ratio is  based on  income  before  cumulative  effect  of  change  in
accounting principle.  After including cumulative effect of change in accounting
principle, the return on average assets would be 1.18%.

Results of Operations

QCF's net income of $2.0 million,  or $1.57 per share,  in fiscal 1997 decreased
$322,000, or 13.8%, below fiscal 1996 net income. The decrease in net income for
fiscal 1997 was attributable to a special assessment by the FDIC of $416,000 net
of taxes offset by an increase is non-interest income.

Return on average  assets was 1.34% for fiscal 1997 compared to 1.56% for fiscal
1996 and 1.27% for fiscal 1995.

Net Interest Income

QCF's net income is dependent primarily on its net interest income, which is the
difference   between   interest   earned   on   securities,   loans   and  other
interest-earning assets (interest income) and interest paid on deposits

                                     2
<PAGE>

and short-term borrowings (interest expense).  Net interest margin is calculated
by dividing net interest  income by the average  interest-earning  assets and is
normally expressed as a percentage.  Net interest income and net interest margin
are  affected  by  changes  in  interest  rates,  the  volume  and  the  mix  of
interest-earning  assets and  interest-  bearing  liabilities,  and the level of
non-performing assets.

The  following  table  presents the total dollar  amount of interest  income and
expense from average  interest-  earning assets and  liabilities and the results
and yields.


<TABLE>
                                                                        Year Ended June 30

                                                   1997                         1996                       1995

                                        Average            Rate/     Average            Rate/   Average             Rate/
                                        Balance Interest  Yield      Balance  Interest  Yield   Balance  Interest   Yield
(Dollars in Thousands)
Interest-Earning Assets (1)

<S>                                    <C>        <C>     <C>       <C>         <C>      <C>   <C>        <C>        <C>  
     Loans receivable, net (2)         $57,087    5,144   9.01%     $48,671     4,439    9.12% $ 43,091   3,840      8.91%
     Investment securities              84,388    5,385   6.38       90,373     6,011    6.65    82,112   4,842       5.90

     Other including cash equivalents    4,749      174   3.66        4,408       208    4.72     5,351     185       3.46

     Total interest-earning assets    $146,244   10,703   7.32     $142,909    10,658    7.4    130,554   8,867       6.79


Interest-Bearing Liabilities
     NOW accounts                       $8,835      118   1.34        9,255       127    1.37    10,418     139       1.33
     Passbooks                          23,939      598   2.50       26,084       652    2.50    28,439     711       2.50
     Money market accounts               8,765      224   2.55        9,228       235    2.55    10,629     271       2.55
     Certificate accounts               52,008    2,925   5.62       52,208     2,900    5.55    55,464   2,624       4.73
     Short-term borrowings              21,956      809   3.68       11,980       671    5.60     7,979     273       3.42

Total interest-bearing liabilities   $ 115,503    4,674   4.05      108,755     4,585    4.22   112,929   4,018       3.56

Net Interest Income                             $ 6,029            $  6,073                     $ 4,849

Net Earning Assets                    $ 30,721                    $  34,154                    $ 17,625

Net Yield on Interest-Earning Assets                      4.12%                          4.25%                        3.71%

  Average Interest-Earning Assets to
  Average Interest-Bearing Liabilities                  126.60%                        131.40%                      115.61%

<FN>
(1)  Tax exempt income was not significant; therefore, was not presented on a tax equivalent basis.
(2) Calculated net of deferred loan fees, loan discounts, loans in process and allowance for loan losses.
   Average balance includes non-performing loans.
</FN>
</TABLE>

Net  interest  income was $6.0  million for the fiscal year ended June 30, 1997,
down from $6.1 million in fiscal 1996.  This  represents a decrease of 0.7% from
fiscal 1996. The decrease in net interest income was due to a slight decrease in
the Bank's net interest margin and average net-earning assets.

The following  schedule  presents the dollar amount of change in interest income
and  interest  expense  for major  components  of  interest-earning  assets  and
interest- bearing liabilities.  It distinguishes  between the  increase/decrease
related to higher outstanding balances and that due to the levels and volatility
of  interest   rates.   For  each  category  of   interest-earning   assets  and
interest-bearing liabilities, information is provided on changes attributable to
(i)  change  in volume  multiplied  by old rate and (ii)  change in rate  (i.e.,
changes in rate  multiplied  by old volume) . The change in interest due to both
volume and rate has been  allocated to volume and rate changes in  proportion to
the relationship of the absolute dollar amounts of the change in each.








                                      3
<PAGE>


                                       Year Ended June 30

                                  1997 vs 1996                 1996 vs 1995

(Dollars in thousands)                    Increase(Decrease) Due to
                             Volume    Rate     Total  Volume Rate   Total

Interest-earning assets:
Loans receivable, net        $   760    (55)    705     507     92     599
Investment securities           (388)  (238)   (626)    514    654    1168
Other including cash              15    (49)   (34)    (37)     60      23
     equivalents
Total interest-earning assets   $387   (342)     45     984   806    1,790
Interest-bearing liabilities:
NOW accounts                    $(6)      (3)   (9)    (16)      4    (12)
Passbooks                       (54)       0   (54)    (59)      0    (59)
Money market accounts           (11)       0   (11)    (36)      0    (36)
Certificate accounts            (11)      36    25    (160)    436     276
Short-term borrowings           424     (286)  138     175     223     398
  Total interest-bearing
  liabilities                  $342     (253)   89     (96)    663     567

Change in net interest income$    45      89    44    1,080    143   1,223


In fiscal  1997 the yield on average  interest-earning  assets  decreased  by 14
basis points which reduced  interest income as compared to fiscal 1996. This was
offset in part by a $ 3.3 million increase in average  interest-  earning assets
between fiscal years 1997 and 1996. The combined impact  (interest rate decrease
and volume  increase) caused interest income for fiscal 1997 to increase $45,000
or 0.4%.  Interest  expense  increased  $89,000  from fiscal  1996 to 1997.  The
increase was due to an increase in average interest-bearing  liabilities of $6.7
million or  6.2%,offset  by a 17 basis point  decrease in  interest  rates.  The
increase in average  interest-  bearing  liabilities  was due to a $10.0 million
increase in average  short-term  borrowings offset by a $3.2 million increase in
deposit accounts.

Provision for Loan Losses

The Bank made no provision for loan losses in fiscal 1997 or 1996. Provision for
loan losses are charged to earnings  to maintain  the total  allowance  for loan
losses at a level considered adequate by management to provide for probable loan
losses, based on prior loss experience,  volume and type of lending conducted by
the Bank, past due loans in the Bank's loan portfolio and national, regional and
local economic conditions.

Non-interest Income

Non-interest income was $566,000 for fiscal 1997 compared to $480,000 for fiscal
1996. The following table presents major components of non-interest income.
                                Year Ended June 30

(Dollars in thousands)        1997       1996

Fees and service charges    $   489      438
Other                            77       42
Total non-interest income       566      480

                                      4
<PAGE>


The increase of $86,000 or 19.6% in total  non-interest  income  between  fiscal
year 1997 and 1996 was primarily due to increased  checking and loan fees due to
increased volume in these two areas.
Non-interest Expense

Non-interest  expense was $3.4 million for fiscal 1997  compared to $2.7 million
for  fiscal  1996.  The  following  table  presents  the  major   components  of
non-interest expense.
                                                    Year Ended June 30

(Dollars in thousands)                                1997      1996

Compensation and benefits                            $1,865    1,712
Occupancy                                               214      226
Federal deposit insurance premiums                      675      240
Advertising                                              74       76
Other                                                   448      433
  Total non-interest expense                         $3,276    2,687

Total  non-interest  expense  increased  $589,000  or 21.9% from  fiscal 1996 to
fiscal  1997.  The  primary  cause of the  increase  was a $435,000  increase in
Federal  deposit  insurance  premiums.  Such  increase  was  due  to  a  special
assessment by the FDIC.

Income Taxes

QCF recorded  income tax expense of $1.3 million in fiscal 1997 compared to $1.5
million in fiscal 1996. The decrease in income tax expense between 1996 and 1997
is primarily the result of changes in taxable income between the years.

Financial Condition

QCF's  total  assets at June 30,  1997 were  $156.7  million  compared to $150.4
million  at June 30,  1996.  The  increase  of $6.3  million  from  1997 to 1996
reflects fluctuations in levels of deposits and short-term borrowings, which are
responsive to market conditions.

Investment Securities

Investment  securities  decreased  by $6.1  million or 6.8% from  fiscal 1996 to
fiscal 1997.  The decrease was due to an increase in loan demand.  During fiscal
1997,  QCF  purchased  $23.8  million of  investment  securities  and  collected
principal from maturities or repayments of $30.5 million.

Cash and Cash Equivalents

Cash and cash  equivalents  increased  by $3.0 million from $4.7 million at June
30, 1996 to $7.8 million at June 30, 1997. The Bank's cash and cash  equivalents
fluctuate from period to period  depending on liquidity  needs and the timing of
purchases of investment securities.

Loans Receivable, Net

Net loans receivable, increased $8.8 million or 16.9% from $52.4 million at June
30, 1996 to $61.2  million at June 30, 1997.  The increase  reflected  increased
mortgage demand,  consumer demand for installment  loans and business demand for
commercial loans.
                                      5
<PAGE>



Allowance for Loan Losses

In originating loans, the Bank recognizes that credit losses will be experienced
and that the risk of loss will vary with, among other things,  the type of loans
being made,  the  creditworthiness  of the  borrower  over the term of the loan,
general  economic  conditions and, in the case of a secured loan, the quality of
the security  for the loan.  It is  management's  policy to maintain an adequate
allowance  for loan losses based on, among other things,  the Bank's  historical
loan loss  experience,  evaluation of economic  conditions,  regular  reviews of
delinquencies and loan portfolio  quality.  The Bank increases its allowance for
loan losses by charging provisions for loan losses against the Bank's income.

Management  will  continue to  actively  monitor  the Bank's  asset  quality and
allowance  for loan  losses.  Management  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  allowance  for losses,
future adjustments may be necessary if economic conditions differ  substantially
from the  economic  conditions  in the  assumptions  used in making the  initial
determinations.

Non-Performing Assets

Non-performing  assets totaled $262,000 at June 30, 1997 compared to $303,000 at
June 30, 1996.

Non-performing assets are summarized in the following table.

                                                     June 30

(Dollars in thousands)                   1997   1996    1995    1994   1993

Non-accrual loans                       $ 225    297     182      43    323
Foreclosed assets                          38      6       0       4     44
  Total non-performing assets         $   263    303     182      47    367

  Non-performing assets to year-end assets .17%  .20     .13     .04    .27
  Non-performing loans to year-end loans   .43   .58     .40     .11    .81
  Allowance for loan losses to
  Non-performing assets                    501   439     755   2,955    358


The  non-performing  assets  reflected  above  primarily  consist of one-to-four
family mortgage loans or consumer loans.

Deposits and Short-term Borrowings

The Bank's  deposits  increased $14.8 million,  or 16.7%,  from $88.8 million at
June 30, 1996 to $103.7 million at June 30, 1997. Short-term  borrowings,  which
consist  of  sales  of  securities  under  agreements  to  repurchase  identical
securities,  decreased  from $26.3  million at June 30, 1996 to $14.0 million at
June  30,  1997.  These  changes  were  primarily  due to a  switch  in  funding
liabilities from repurchase agreements to regular deposits.

Capital Adequacy

Stockholders'  equity was $27.4 million at June 30, 1997 down from $29.7 million
at June 30,  1996.  The  decrease  was due to the  repurchase  of stock  for the
treasury of $2.8 million and for the stock  option trust of $1.9 million  offset
primarily by earnings of $2.0 million.

Federal savings institutions are required to satisfy their capital requirements:
(I) a requirement that "tangible capital" equal or exceed 1.5% of adjusted total
assets, (ii) a requirement that core capital" equal or exceed 3.0%
                                      6
<PAGE>

of adjusted  total assets,  and (iii) a requirement  that  "risk-based  capital"
equal or exceed 8.0% of  risk-weighted  assets.  At June 30, 1997 and 1996,  the
Bank met each of the three capital requirements.

Liquidity Management

The Bank is required to maintain  average daily  balances of liquid assets equal
to 5% of its net withdrawable savings deposits plus short-term  borrowings.  The
Bank must also maintain average daily balances of short-term liquid assets equal
to 1% of its net withdrawable savings deposits plus short-term  borrowings.  The
Bank  has  maintained  an  average  daily  liquidity  ratio in  excess  of these
requirements.

The primary  investing  activities are the origination of loans and the purchase
of  securities.  During the year ended June 30, 1997,  net loans  increased $8.8
million while maturities and principal collected on investment  securities,  net
of purchases totaled $6.7 million.

The primary  financing  activity is the  attraction  of deposits and  short-term
borrowings.  During the year ended June 30, 1997,  net  deposits and  short-term
borrowings increased $7.7 million.

QCF's most liquid assets are cash and cash equivalents,  represented by cash and
interest-bearing  deposits with banks. The level of these assets is dependent on
the operating, financing, and investing activities during any given period. Cash
and cash  equivalents  increased  $3.0 million to $7.8  million  during the year
ended June 30, 1997.

Asset/Liability Management

Net interest income,  the primary component of the Bank's net income, is derived
from the difference or "spread" between the yield on interest-earning assets and
the cost of  interest-bearing  liabilities.  The Bank has  sought to reduce  its
exposure to changes in  interest  rate by matching  more  closely the  effective
maturities  or re-pricing  characteristics  of its  interest-earning  assets and
interest-bearing  liabilities. The matching of the Bank's assets and liabilities
may be analyzed by examining the extent to which its assets and  liabilities are
interest rate sensitive and by monitoring the expected  effects of interest rate
changes on net portfolio value.

An asset or liability is interest rate  sensitive  within a specific time period
if it will mature or  re-price  within that time  period.  If the Bank's  assets
mature or re-price more quickly or to a greater extent than its liabilities, the
Bank's net portfolio value and net interest income would tend to increase during
periods of rising interest rates but decrease during periods of falling interest
rates.  If the Bank's assets mature or reprice more slowly or to a lesser extent
than its  liabilities,  the Bank's net portfolio  value and net interest  income
would tend to decrease  during  periods of rising  interest  rates but  increase
during periods of falling interest rates. The Bank's policy has been to mitigate
the interest rate risk inherent in the historical savings  institution  business
of originating long term loans funded by short term deposits by pursuing certain
strategies  designed to decrease the  vulnerability  of its earnings to material
and prolonged  changes in interest rates.  The Bank has established an Asset and
Liability  Management  Committee  which  currently is comprised of the executive
officers of the Bank. This Committee reviews the maturities of the Bank's assets
and liabilities and establishes policies and strategies designed to regulate the
Bank's flow of funds and to  coordinate  the  sources,  uses and pricing of such
funds.  The first  priority  in  structuring  and  pricing the Bank a assets and
liabilities is to maintain an acceptable interest rate spread while reducing the
effects of changes in interest rates.

Management's  principal  strategy in managing the Bank's  interest rate risk has
been to maintain short- and intermediate-term assets in its portfolio, including
locally originated  adjustable rate mortgage loans. In addition, in managing its
portfolio  of  investment  securities,  the Bank  seeks to  purchase  investment
securities  that mature on a basis that  approximates as closely as possible the
estimated maturities of the Bank's liabilities.

In addition to shortening the average  re-pricing period of its assets, the Bank
has sought to lengthen the average  maturities of its  liabilities by adopting a
tiered pricing  program for its  certificates  of deposits which provides higher
rates of  interest  on its  longer  term  certificates  in  order  to  encourage
depositors to invest in them.



                                      7
<PAGE>


Dividends

QCF has not paid any  dividends to  stockholders  since its  incorporation.  The
Board  of  Directors  may  consider  a  policy  of  paying  cash   dividends  to
stockholders  in the future.  The  declaration of dividends are subject to among
other  things,  QCF's  financial  condition and  earnings,  tax  considerations,
economic conditions, regulatory restrictions and other factors.

Effects of Inflation

Because QCF's asset and  liabilities  are, for the most part,  liquid in nature,
they are not  significantly  affected by inflation.  Interest  rates have a more
significant  impact  on Queen  City  Federal's  performance  than the  effect of
inflation.  However,  the rate of inflation affects operating expenses,  such as
employee  salaries and  benefits,  occupancy and  equipment  changes,  and other
overhead expenses.




                                      8



                  INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
QCF Bancorp, Inc.
Virginia, Minnesota


We have audited the accompanying  consolidated  statement of financial condition
of QCF Bancorp,  Inc. and subsidiary  (the Company) as of June 30, 1997, and the
related consolidated statements of income,  stockholders' equity, and cash flows
for the year then ended.  These financial  statements are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial  statements based on our audit. The consolidated  financial statements
of QCF Bancorp,  Inc. and  subsidiary for the years ended June 30, 1996 and 1995
were audited by other auditors whose report, dated August 20, 1996, expressed an
unqualified opinion on those statements.

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

We believe that our audit  provides a reasonable  basis for our opinion.  In our
opinion,  the 1997 consolidated  financial  statements referred to above present
fairly, in all material respects,  the financial  position of QCF Bancorp,  Inc.
and  subsidiary as of June 30, 1997,  and the results of its  operations and its
cash  flows  for the year  then  ended in  conformity  with  generally  accepted
accounting principles.

 

MCGLADREY & PULLEN, LLP





                            
Duluth, Minnesota
August 18, 1997

























































                                      9
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
                Consolidated Statements of Financial Condition


Assets                                             June 30, 1997  June 30, 1996

Cash                                                $   747,733          379,098
Interest-bearing deposits with banks                  7,026,683        4,355,895
   Cash and cash equivalents                          7,774,416        4,734,993
Securities available for sale
  (amortized cost of $25,359,674 and
  $33,283,046 at June 30, 1997 and 1996 respectively)24,985,627       32,221,800
Securities held to maturity
 (estimated market value of $58,334,591 and
 $56,811,210 at June 30, 1997  and 1996 respectively)58,112,799       56,961,040
Loans receivable, net                                61,202,301       52,361,221
Federal Home Loan Bank stock, at cost                   553,900          553,900
Accrued interest receivable                           1,310,779        1,223,713
Premises and equipment                                  424,609          440,736
Deferred tax asset                                      519,300          731,396
Prepaid expenses and other assets                     1,843,672        1,200,724

      Total Assets                                 $156,727,403      150,429,523

Liabilities and Stockholders' Equity

Deposits                                           $103,681,490       88,832,424
Short-term borrowings                                14,039,794       26,263,736
Federal Home Loan Bank advances                       8,100,000        3,000,000
Accrued interest payable                              1,071,313        1,013,368
Advance payments made by borrowers
  for taxes and insurance                                61,675           56,576
Accrued expenses and other liabilities                2,349,845        1,578,622

      Total Liabilities                             129,304,117      120,744,726

Commitments and Contingencies

Stockholders' equity:
  Serial preferred stock; authorized 1,000,000 shares;
     issued and outstanding none                              0                0
  Common stock ($.01 par value): authorized 
     7,000,000 shares; issued 1,782,750; outstanding
     1,426,200 shares in 1997                            17,828           17,828
     and 1,606,906 in 1996.
  Additional paid-in capital                         16,665,625       17,003,711
  Retained earnings, subject to certain restrictions 20,051,443       18,040,190
  Net unrealized loss on securities available for sale (222,745)       (636,750)
  Unearned employee stock ownership plan shares      (1,080,710)     (1,183,330)
  Unearned management recognition plan shares          (746,292)       (944,177)
  Shares in stock option trust, at exercise price    (1,872,071)               0
  Treasury stock, at cost, 356,550 shares in 1997 
   and 175,844 at June 30, 1996                      (5,389,792)     (2,612,675)

      Total Stockholders' Equity                     27,423,286       29,684,797

      Total Liabilities and Stockholders' Equity   $156,727,403      150,429,523
See accompanying notes to consolidated financial statements.

                                      10
<PAGE>

                        QCF BANCORP, INC. AND SUBSIDIARY
                       Consolidated Statements of Income



                                                   Year Ended June 30
                                          1997           1996            1995


Interest income:
 Loans                                $5,143,815       4,438,865       3,839,927
 Securities                            5,558,735       6,218,603       5,027,075

    Total interest income            10,702,550       10,657,468       8,867,002
Interest expense:
 Deposits                             3,864,147        3,914,016       3,744,536
 Short-term borrowings                  809,248          670,600         273,451

    Total interest expense            4,673,395        4,584,616       4,017,987

    Net interest income               6,029,155        6,072,852       4,849,015

Provision for loan losses                     0                0               0

    Net interest income after provision
         for loan losses              6,029,155        6,072,852       4,849,015

Non-interest income:
  Fees and service charges              489,517          437,961         348,887
  Other                                  76,584           42,352          61,646

    Total non-interest income           566,101          480,313         410,533

Non-interest expense:
  Compensation and benefits           1,865,372        1,711,540       1,423,142
  Occupancy                             213,910          225,752         224,329
  Federal deposit insurance premiums    675,361          240,000         267,537
  Advertising                            73,683           76,118          60,955
  Other                                 447,676          433,092         402,438

     Total non-interest expense       3,276,002        2,686,502       2,378,401

  Income before income tax expense and
   cumulative effect of change
   in accounting principle            3,319,254        3,866,663       2,881,147

Income tax expense                    1,308,000        1,533,000       1,166,000

  Net income                         $2,011,254        2,333,663       1,715,147

Earnings per common share                 $1.57             1.44            0.35

Pro forma earnings per common share                                         1.04

Weighted average number of shares     1,284,263        1,617,885       1,646,170

See accompanying notes to consolidated financial statements.













                                      11
<PAGE>
<TABLE>
                                                              QCF BANCORP, INC. AND SUBDIDIARY
                                                          Consolidated Statement of Stockholders' Equity

                                                                                   Unearned
                                                                    Net Unrealized Employee  Unearned
                                                                     Gain(loss) on   Stock  Management
                                                   Additional          Securities Ownership Recognition Stock             Total
                                            Common  Paid-in Retained   Available     Plan      Plan    Option Treasury Stockholders'
                                            Stock   Capital Earnings   for Sale     Shares    Shares    Trust    Stock   Equity
                                        --------------------------------------------------------------------------------------

                                                                                                   
Balance, June 30, 1994                                     13,991,380                                                     13,991,380
<S>                                      <C>        <C>    <C>       <C>          <C>       <C>        <C>     <C>        <C>     

 Cumulative effect of change in accounting
 for securities available for sale at July 1, 1994                    (1,332,311)                                        (1,332,311)

 Net Income                                                 1,715,147                                                      1,715,147

 Change in net unrealized loss on
 securities available for sale                                           523,922                                             523,922

 Sale of common  stock                   17,828 16,980,172                                                                16,998,000

 Adoption of employee stock ownership plan                                       (1,426,200)                             (1,426,200)

 Earned employee stock ownership plan shares       12,009                          120,080                                   132,089
                                         --------------------------------------------------------------------------------------

Balance, June 30, 1995                   17,828 16,992,181 15,706,527  (808,389)(1,306,120)                               30,602,027

 Net income                                                  2,333,663                                                     2,333,663

 Purchase of treasury stock                                                                                   (3,746,557)(3,746,557)

 Adoption of management recognition plan           (41,291)                                 (1,092,591)       1,133,882            0
 
 Amortization of  management recognition plan                                                   148,414                      148,414

 Change in net unrealized loss on securities available for sale          171,639                                             171,639

 Earned employee stock ownership plan shares        52,821                        122,790                                    175,611
                                         --------------------------------------------------------------------------------------

Balance, June 30, 1996                   17,828 17,003,711 18,040,190  (636,750)(1,183,330)(944,177)          (2,612,675) 29,684,797

 Net income                                                  2,011,253                                                     2,011,253
 
 Purchase of treasury stock                                                                                   (2,777,117)(2,777,117)

 Purchase of stock for stock option trust         (366,969)                                           (1,872,071)        (2,239,040)

 Amortization of  management recognition plan                                                197,885                         197,885

 Change in net unrealized loss on securities available for sale          414,005                                             414,005

 Earned employee stock ownership plan shares        28,883                        102,620                                    131,503
                                         --------------------------------------------------------------------------------------

Balance, June 30, 1997                 $17,828  16,665,625 20,051,443  (222,745)(1,080,710)(746,292)(1,872,071)(5,389,792)27,423,286

See accompanying notes to consolidated financial statements
                          </TABLE>
                 
                                                        12


<PAGE>


<TABLE>
                         QCF BANCORP, INC. AND SUBSIDIARY
                       Consolidated Statements of Cash Flows

                                                                                Year ended June 30
                                                                        1997         1996            1995
Operating activities:
<S>                                                                 <C>             <C>           <C>      
Net income                                                          $ 2,011,254     2,333,663     1,715,147
Adjustments to reconcile net income to net cash
  provided by operating activities:
   Depreciation                                                          91,524        95,931       110,081
   Federal Home Loan Bank stock dividend                                      0       (10,900)            0
   Amortization of net premiums on securities                            52,777        16,572       281,039
   (Increase)decrease in accrued interest receivable                    (87,066)       36,187      (347,377)
   Increase in accrued interest payable                                  57,945       119,501       153,985
   Increase(decrease) in accrued expenses and other liabilities         229,422      (205,767)     (221,470)
   (Decrease)increase in deferred income taxes                         (105,100)       23,300        15,500
   Amortization of unearned ESOP shares                                 175,503       175,611       132,089
   Amortization of MRP                                                  197,885       148,414             0
  ( Increase)decrease in other assets                                   (68,842)     (105,376       673,610

      Net cash provided by operating activities                       2,555,302     2,627,136     2,512,604

Investing activities:
 Proceeds from maturities and principal collected
  on securities held to maturity                                     22,597,122    51,083,659    34,800,123
 Proceeds from maturities and principal collected
  on securities available for sale                                    7,873,050     3,784,710     2,900,813
 Purchases of securities held to maturity                           (23,751,337   (55,272,070)  (41,138,736)
 Purchases of securities available for sale                                   0             0    (1,287,717)
 Net increase in loans                                               (8,841,080)   (6,396,974)   (5,153,856)
 Net (increase)decrease in real estate owned                            (32,302)       (6,085)        4,112
 Purchases of premises and equipment                                    (75,397        (40,131)     (31,701)

   Net cash used in investing activities                             (2,229,944)    (6,846,891)  (9,906,962)

Financing activities:
  Net increase (decrease)in deposits                                 14,849,066    (24,711,547)     453,424
  Net (decrease)increase in short-term borrowings                   (12,223,942)    26,263,736   (4,189,819)
  Net increase in Federal Home Loan Bank advances                     5,100,000      3,000,000            0
  Adoption of ESOP                                                            0              0   (1,426,200)
  Proceeds from sale of common stock                                          0              0   16,998,000
  Purchase of treasury stock                                         (2,777,117)    (3,746,557)           0
  Adoption of stock option trust                                     (2,239,040)             0            0
  Increase (decrease)in advance payments made by
  borrowers for taxes and insurance                                       5,098         (4,606)      (5,405)

  Net cash provided by financing activities                           2,714,065        801,026   11,830,000

  Increase(decrease) in cash and cash equivalents                     3,039,423     (3,418,729    4,435,642

Cash and cash equivalent at beginning of year                         4,734,993      8,153,722    3,718,080

Cash and cash equivalents at end of year                             $7,774,416      4,734,993    8,153,722

Supplemental disclosures of cash flow information:
  Cash paid during the year for:
   Income taxes                                                      $1,311,807      1,678,667      985,000
   Interest                                                           4,615,450      4,465,115    3,864,002

Supplemental schedule of non-cash investing activities:
 Securities transferred to securities available for sale                      0              0   38,702,799

See accompanying notes to consolidated financial statements.

</TABLE>



                                      13
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
                  Notes to Consolidated Financial Statements

(1) Description of the Business

QCF Bancorp,  Inc. (the Company) was incorporated under the laws of the State of
Minnesota  for the purpose of becoming the savings and loan  holding  company of
Queen  City  Federal  Savings  Bank (the  Bank) in  connection  with the  Bank's
conversion  from a  federally  chartered  mutual  savings  bank  to a  federally
chartered  stock  savings  bank.  The Company  commenced on February 10, 1995, a
Subscription  and  Community  Offering  of its  stock  in  connection  with  the
conversion of the Bank (the Offering). The Offering was closed on March 17, 1995
and the conversion was consummated on March 31, 1995.

The consolidated  financial  statements included herein are for the Company, the
Bank and the Bank's wholly- owned  subsidiary,  Queen City Service  Corporation.
All significant  inter-company accounts and transactions have been eliminated in
consolidation.  All  financial  information  prior to March 31,  1995  contained
herein relates solely to the Bank and its subsidiary.
(2) Significant Accounting Policies

The accounting and reporting  policies of the Company and its subsidiary conform
to generally accepted  accounting  principles and to general practice within the
savings  and  loan  industry.  The  following  is  a  description  of  the  more
significant  of those  policies  which the  Company  follows  in  preparing  and
presenting its consolidated financial statements.

Material Estimates

In preparing the financial statements,  management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance  sheet and revenues and expenses for the period.  Actual
results could differ  significantly  from those estimates.  A material  estimate
that is particularly  susceptible to significant change in the near-term relates
to the determination of the allowance for loan losses.

Management  believes  that the  allowance  for loan  losses is  adequate.  While
management  used  available  information  to recognize  losses on loans,  future
additions  to the  allowance  may be  necessary  based on  changes  in  economic
conditions.  In addition,  various regulatory  agencies,  as an integral part of
their examination  process,  periodically  review the allowance for loan losses.
Such  agencies may require  additions to the allowance  based on their  judgment
about information available to them at the time of their examination. Securities
Securities  available  for sale are carried at market value at June 30, 1997 and
1996.  Net  unrealized  gains and  losses,  net of tax effect,  are  credited or
charged to  stockholders  equity.  Securities  held to  maturity  are carried at
amortized  cost.  Gains and losses on sales of securities  are recognized at the
time of sale and are calculated based on the specific identification method.

Premiums and discounts are amortized  using the interest method over the term of
the securities.

Loans Receivable

Loans are considered  long-term  investments  and,  accordingly,  are carried at
historical cost.

Discounts on loans  originated  or purchased  are  amortized to income using the
interest method over the estimated average loan life.

The allowance for loan losses is maintained at an amount considered  adequate to
provide for probable losses.  The allowance for loan losses is based on periodic
analysis  of the loan  portfolio  by  management.  In this  analysis  management
considers factors including,  but not limited to, specific occurrences,  general
economic conditions, loan portfolio composition and historical experience. Loans
are charged off to the extent they are deemed to be uncollectible.

                                      14
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

Loan  origination  and commitment  fees are recorded as income when received and
loan origination  costs are expensed as incurred.  The Bank has not adapted SFAS
No.  91,  "Accounting  for   Non-refundable   Fees  and  Costs  Associated  with
originating or Acquiring Loans and Initial Direct costs of Leases",  because the
effect of adoption is not material to the consolidated financial statements.

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

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

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

Land  is  carried  at  cost.  Office  buildings,  improvements,  furniture,  and
equipment are carried at cost less accumulated depreciation.

Depreciation  is computed on a  straight-line  basis over the  estimated  useful
lives of 7 to 33 years for office buildings and  improvements,  and 5 to 7 years
for furniture and equipment.
Cash Equivalents and Cash Flows

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

Earnings per Share

Earnings per share are based upon the weighted  average  number of common shares
and common stock  equivalents,  if dilutive,  outstanding during the period. The
only common stock equivalents are stock options.  The weighted average number of
common stock equivalents is calculated using the treasury stock method.

The earnings per share for 1995 were computed by dividing net income  ($571,604)
from the date of  conversion,  March 31, 1995, to the end of the year,  June 30,
1995, by the weighted  average common stock shares  outstanding  (1,646,170) for
the period.  Pro forma  earnings per common share were  computed by dividing net
income  ($1,715,147)  for the year ended June 30, 1995, by the weighted  average
common stock shares  outstanding  (1,646,170) for the period.  This  computation
does not reflect the pro forma effects of the investment  income that would have
been received had the net proceeds from the stock  offering been received at the
beginning of the year.



                                      15
<PAGE>

Income taxes

Deferred taxes are provided on an asset and liability  method  whereby  deferred
tax assets are  recognized for deductible  temporary  differences  and operating
loss or tax credit carry  forwards and deferred tax  liabilities  are recognized
for taxable  temporary  differences.  Temporary  differences are the differences
between  the  amounts  of assets  and  liabilities  recorded  for income tax and
financial  reporting  purposes.  Deferred  tax assets are reduced by a valuation
allowance when  management  determines that it is more likely than not that some
portion or all of the  deferred  tax assets will not be  realized.  Deferred tax
assets and  liabilities  are adjusted for the effects of changes in tax laws and
rates on the date of enactment.

Impact  on Recently Issued Statements of Financial Accounting Standards

The   Financial   Accounting   Standards   Board  (FASB)  has  issued  SFAS  No.
125."Accounting   for   Transfers   and   Servicing  of  Financial   Assets  and
Extinguishment  of Liabilities" and SFAS No. 127 "Deferral of the Effective Date
of Certain  Provisions of Statement No. 125.  "SFAS No. 123 provides  accounting
and reporting  standards  for  transfers  and servicing of financial  assets and
extinguishment  of  liabilities  based on  control of the  underlying  financial
assets.  The  provisions  of SFAS No.  125  including  those  applicable  to the
servicing of financial  assets were  effective as of January 1, 1997. The impact
of these provisions on the consolidated  financial  statements was not material.
Other  provisions of SFAS No. 125,  including  those  applicable to transfers of
financial assets and extinguishment of liabilities,  are effective as of January
1, 1999. The impact of these provisions on the consolidated financial statements
is not expected to be material.

SFAS No. 128, "Earnings per Share",  was issued in February 1997.  Effective for
QCF Bancorp,  Inc. as of December  31,  1997,  SFAS No. 128 replaces the primary
earnings per share ("EPS") disclosures with basic and diluted EPS disclosures to
simplify the calculation and improve international comparability.  Statement No.
128 requires the  presentation  of earnings per share by all entities  that have
common  stock  or  potential  common  stock,  such  as  options,   warrants  and
convertible  securities,  outstanding  that  trade  in a  public  market.  Those
entities that have only common stock  outstanding  are required to present basic
EPS amounts.  All other  entities are required to present  basic and diluted EPS
amounts. Diluted EPS amounts assume the conversion,  exercise or issuance of all
potential  common  stock  instruments  unless  the effect is to reduce a loss or
increase the income per common share from  continuing  operations.  All entities
required to present per-share amounts must initially apply Statement No. 128 for
annual and interim periods ending after December 15, 1997.  Earlier  application
is not permitted.  The adoption of the is standard is not expected to effect the
historical trends in reported earnings per share.

In June 1997, the FASB issued  Statement of Financial  Accounting  Standards No.
130,  "Reporting  Comprehensive  Income"  ("SFAS No. 130") SFAS No. 130 requires
that all items that are  components  of  comprehensive  income  (defined as "the
change in equity  {net  assets} of a business  enterprise  during a period  from
transactions  and other  events and  circumstances  from  nonowner  sources.  It
includes  all changes in equity  during a period  except  those  resulting  from
investments by owners and  distributions to owners",  be reported in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements.   Companies  will  be  required  to  (a)  classify  items  of  other
comprehensive  income by this nature in a financial statement and (b)display the
accumulated  balance of other  comprehensive  income  separately  from  retained
earnings and additional  paid-in capital in the equity section of a statement of
financial  position.  SFAS No. 130 is effective for fiscal years beginning after
December 13, 1997. and requires  reclassification of prior periods presented. As
the requirements of SFAS No. 130 are disclosure-related, its implementation will
have no impact on the Company's financial condition or results of operations.

In June 1997, the FASB issued  Statement of Financial  Accounting  Standards No.
131,  "Disclosure  about  Segments of an Enterprise and Related  Information.  "
("SFAS  No.  131")  requires  that  enterprises  report  certain  financial  and
descriptive  information about operating  segments in complete sets of financial
statements  of the  Company and in  condensed  financial  statements  of interim
periods issued to  shareholders.  It also requires that a Company report certain
information  about their products and services,  geographic  areas in which they
operate,  and their major customers.  SFAS No. 131 is effective for fiscal years
beginning  after  December 15,  1997.  As the  requirements  of SFAS No. 131 are
disclosure  related,  its  implementation  will have no impact on the  Company's
financial condition or results of operations.





                                      16
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued



Reclassifications

Certain  prior year  amounts  have been  reclassified  to conform  with the 1997
presentation.
(3) Securities Available for Sale

Securities  available for sale at June 30, 1997 and June 30, 1996 are summarized
as follows:


                                              June 30, 1997
                                            Gross      Gross
                             Amortized  unrealized  unrealized     Fair
                                 Cost      gains      losses       value
                          ------------------------------------------------

Collateralized mortgage
      obligations          $14,969,882      11,397   (343,326)  14,637,953
U.S. government and
      agency securities      8,000,000           0    (83,700)   7,916,300
Corporate bonds and
      notes                  1,152,410       2,365     (6,526)   1,148,249
Preferred stocks             1,237,382      46,993     (1,250)   1,283,125
                          $25, 359,674      60,755   (434,802)  24,985,627



                                        June 30, 1996

                                            Gross      Gross
                             Amortized   Unrealized Unrealized     Fair
                               cost         gains     losses       value
                          ------------------------------------------------


Collateralized mortgage
   obligations             $17,279,701       1,791   (815,297)  16,466,201
U.S. government and 
   agency securities        13,000,000           0   (208,375)  12,791,625
Corporate bonds and
   notes                     1,727,476           0    (31,002)   1,696,474
Preferred stocks             1,275,863         518     (8,881)   1,267,500
                          $ 33,283,046       2,309 (1,063,555)  32,221,800


Collateralized  mortgage obligations presented in the table above aggregating to
$992,361 and $1,194,356(cost) at June 30, 1997 and 1996,  respectively have been
issued  by  private  issuers  and are not  guaranteed  or  insured  by the  U.S.
government.










                                      17
<PAGE>


                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

The amortized  cost and fair value of securities  available for sale at June 30,
1997,  by  maturity,  are shown  below.  Expected  maturities  will  differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations  with or without call or  prepayment  penalties.  The  allocation of
Collateralized  mortgage obligations is based upon the anticipated average lives
of the securities using estimated mortgage prepayment speeds.

                           June 30, 1997

                        Amortized
                          cost    Fair value
                               (in thousands)

  Due within one year          $ 12,965     12,747
  Due after one year
      through five years         11,158     10,956
   Due after five years
      through ten years               0          0
  No stated maturity              1,237      1,283
                                $25,360     24,986


There were no sales of  securities  available  for sale  during the three  years
ended June 30, 1997.

Accrued  interest  receivable  on securities  available  for sale  aggregated to
$201,005 and $261,084 at June 30, 1997 and 1996, respectively.

(4) Securities Held to Maturity

   Securities held to maturity at June 30, 1997 and June 30, 1996 are summarized
   as follows:


                                                    June 30, 1997
                                                  Gross        Gross
                                      Amortized unrealized   unrealized  Fair
                                        cost       gains       losses    value
                              ------------------------------------------------

  Mortgage-backed
    securities                       $3,598,753    27,836    (16,054)  3,610,535
  Collateralized mortgage
    obligations                      26,139,503   195,842    (66,947) 26,268,389
  U.S. government and
    agency obligations               26,413,704    91,188    (56,733) 26,448,159
  Corporate bonds
    and notes                         1,960,839    46,669         (0)  2,007,508
                                    $58,112,799   361,535   (139,743) 58,334,591









                                      18
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

                                                June 30, 1996
                                              Gross         Gross
                                Amortized  unrealized     unrealized    Fair
                                   cost       gains         losses      value
                                ------------------------------------------

  Mortgage-backed
    securities                  $4,164,043    34,733       (35,106)  4,163,669
  Collateralized mortgage
    obligations                 29,308,904   128,105      (210,009) 29,227,000
   U.S. government and
      agency obligations        21,314,009    72,445      (170,093) 21,216,362
   Corporate bonds
      and notes                  2,174,084    33,951        (3,856)  2,204,179

                               $56,961,040   269,234      (419,064) 56,811,210


Collateralized mortgage obligations presented in the tables above aggregating ot
$2,022,092 and  $2,385,994  (cost) at June 30, 1997 and 1996  respectively  have
been  issued by private  issuers and are not  guaranteed  or insured by the U.S.
government.

The carrying  amount and fair value of  securities  held to maturity at June 30,
1997,  by  maturity,  are shown  below.  Expected  maturities  will  differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations  with or without call or  prepayment  penalties.  The  allocation of
mortgage-backed securities and collateralized mortgage obligations is based upon
the  anticipated  average  lives  of the  securities  using  estimated  mortgage
prepayment speeds.


                               June 30, 1997

                           Amortized    Fair
                             cost       value
                          (in thousands)

Due within one year       $10, 027    10,042
Due after one year through
  five years                44,274    44,471
Due after five years
  through ten years          3,812     3,822
Due after ten years             0          0

                           $58,113    58,335


There were no sales of securities  held to maturity during the three years ended
June 30, 1997.

Accrued interest  receivable on securities held to maturity  aggregated $661,685
and $574,785 at June 30, 1997 and 1996, respectively.








                                      19
<PAGE>


                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

(5) Loans Receivable

   Loans receivable at June 30, 1997 and 1996 are summarized as follows:


                                                    June 30
                                          1997                 1996

   Residential one-to-four family
      mortgage loans                 $31,888,499            28,207,901
   Multifamily mortgage loans            895,364             1,157,815
   Commercial real estate loans        1,447,834               896,630
   Consumer loans                     18,291,160            16,304,510
   Commercial loans                   10,066,789             7,183,197
                                      62,589,646            53,750,053
   Less:
      Allowance for losses           (1,314,174)            (1,331,352)
      Loans in process                  (73,171)               (57,480)
                                     $61,202,301            52,361,221

The weighted  average annual  contractual  interest rate for all loans was 8.82%
and 8.80% at June 30, 1997 and 1996, respectively.

Non-accrual  loans  totaled  $224,842  and  $297,268  at June 30, 1997 and 1996,
respectively. There were no restructured loans at June 30, 1997 and 1996.

Non-accrual  loans are the only loans that are  considered to be impaired  under
the criteria established by SFAS No. 114 and SFAS No. 118. The related allowance
for credit  losses as of June 30, 1997 was $30,621.  The average  investment  in
impaired loans during fiscal 1997 was $281,500.

The effect of  impaired  loans on  interest  income for the years ended June 30,
1997, 1996 and 1995 were:

There are no material  commitments to lend  additional  funds to customers whose
loans were classified as non- accrual.

The aggregate  amount of loans to directors  and executive  officers of the Bank
were  $50,329 and $32,433 at June 30,  1997 and 1996,  respectively.  Such loans
were made in the ordinary  course of business on normal credit terms,  including
interest rate and  collateralization  and do not represent more than normal risk
of collection.

Accrued  interest  receivable on loans  receivable at June 30, 1997 and 1996 was
$448,089 and $387,844, respectively.

The Bank grants loans to customers who live primarily in northeastern Minnesota.
Although the Bank has a diversified loan portfolio a substantial  portion of its
debtors'  ability to honor their contracts is dependent upon local economy which
is concentrated in the iron mining and wood products industries.










                                      20
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

At June 30, 1997 and 1996 Bank was  servicing  loans for others  with  aggregate
unpaid principal balances of approximately $2,899,003 and $166,458 respectively.

(6) Allowance for Loan Losses

    Activity in the allowance for loan losses is summarized as follows:


   Balance at June 30, 1994                                    $1,389,474

      Provision for losses                                              0
      Charge-offs                                                (18,446)
      Recoveries                                                    3,931

   Balance at June 30, 1995                                     1,374,959

      Provision for losses                                              0
      Charge-offs                                                (53,562)
      Recoveries                                                    9,955

   Balance at June 30, 1996                                     1,331,352

    Provision for losses                                                0
    Charge-offs                                                  (44,013)
    Recoveries                                                     26,835

Balance at June 30, 1997                                       $1,314,174

(7) Foreclosed Real Estate

  Foreclosed real estate, included in other assets, consisted of the following:

                                                             June 30

                                                         1997        1996

   Real estate in judgment                             $38,387       6,085

   Less allowance for losses                                 0           0

                                                       $38,387       6,085

(8) Premises and Equipment

   A summary of premises and equipment at June 30, 1997 and 1996 is as follows:

                                               June 30
                                           1997        1996

   Land                                 $90,800       0,800
   Office buildings and improvements  1,085,715   1,088,090
   Furniture and equipment              873,724     822,530
                                      2,050,239   2,001,420
  Less accumulated depreciation      (1,625,630) (1,560,684)

                                      $ 424,609     440,736

                                      21
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

(9) Deposits

   Deposits and weighted-average interest rates at June 30, 1997 and 1996 are
   summarized as follows (dollar amounts in thousands)


                                        June 30
                                1997              1996

                                   Weighted           Weighted
                                    Average           Average
                           Amount    Rate      Amount    Rate

   Passbook               $25,317    2.50%    23,562   2.50%
   Demand deposits         13,506    0.61     11,908   0.63
   Money market             9,320    2.55      8,066   2.55
   Certificates            55,538    5.28     45,296   5.25

                         $103,681           $ 88,832

At June 30, 1997 and 1996,  the Bank had  $5,023,000  and $0,  respectively,  of
deposit  accounts with balances of $100,000 or more.  Deposit  balances  greater
than  $100,000 are not insured.  The Bank did not have any brokered  deposits at
June 30, 1997 or 1996.
   Interest expense on deposits is summarized as follows:

                              Year ended June 30
                      1997           1996        1995

   Passbook        $598,475       652,217     710,492
   Demand deposits  117,637       126,888     139,000
   Money market     223,508       235,323     271,000
   Certificates   2,924,527     2,899,588   2,624,044

                    $3,864,147  3,914,016   3,744,536

Certificates  had  the  following   remaining   maturities  (dollar  amounts  in
thousands)
                                June 30, 1997
                                          Weighted
                                          Average
                                 Amount     rate

   Less than 3 months           $10,433    4.12%
   3-12 months                   16,383     4.78
   13-36 months                  22,380     6.01
   Over 36 months                 6,342     5.91

                                $55,538     5.28

At June 30, 1997 and 1996 no securities were pledged as collateral for deposits.







                                      22
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued


(10) Short-term Borrowings

Short-term  borrowings  consist  of  sales of  securities  under  agreements  to
repurchase the identical securities.  The agreements generally mature within 180
days and bear a weighted average interest rate of 3.56% at June 30, 1997.

The  agreements  are treated as financings  with the  obligations  to repurchase
securities  reflected  as a liability  and the dollar  amount of the  securities
collateralizing the agreements  remaining in the asset accounts.  The securities
collateralizing  the agreements are in safekeeping at the Federal Home Loan Bank
of Des Moines in the Bank's  account.  At June 30,  1997,  the  agreements  were
collateralized  by  securities  with a  carrying  value  of  $15,631,513  and an
approximate  market value of  $15,670,527.  At June 30, 1996 the agreements were
collateralized  by  securities  with a  carrying  value  of  $29,332,063  and an
approximate market value of $28,977,122.

Federal Home Loan Bank advances  totaled  $8,100,000  and $3,000,000 at June 30,
1997 and 1996, respectively.  The advances have an average maturity of 14 months
and 5 months and an average  rate of 5.81% and 5.80% at June  30,1997  and 1996,
respectively.  The advances are  collateralized  by the Bank's Federal Home Loan
Bank stock, mortgage loans and government agency securities.

(11) Income Taxes

    Federal and state income tax expense is as follows:


                                        Year ended June 30


                                1997           1996           1995

    Current:
        Federal             $1,075,100      1,149,400      878,022
        State                  338,000        360,300      272,478
            Total current    1,413,100      1,509,700    1,150,500

    Deferred:
        Federal                (78,900)        17,400       11,820
        State                  (26,200)         5,900        3,680
             Total deferred   (105,100)        23,300       15,500

                            $1,308,000      1,533,000    1,166,000


The actual  income tax expense  differs from the  "expected"  income tax expense
computed by applying the U.S. federal  corporate tax rate to income before taxes
as follows:












                                      23
<PAGE>



                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

                                                        Year Ended June 30
                                                   1997        1996       1995

     Federal "expected" income tax expense      $1,128,546  1,314,665   979,590
     Items affecting federal income tax:
        Preferred stock dividends                  (22,696)   (24,317)         0
        State income taxes, net of federal
           income tax benefit                      206,010    241,692    182,258
        Other, net                                  (3,860)       960      4,152

                                                $1,308,000  1,533,000  1,166,000

    Effective income tax rate                         39.4%      39.6       40.5

The tax effects of  temporary  differences  that give rise to the  deferred  tax
assets and deferred tax liabilities at June 30, 1997 and 1996 are as follows:
                                      
                                                     Year Ended June, 30
                                                   1997            1996
   Deferred tax assets:
      Allowance for unrealized losses on securities
         available for sale                     $ 151,191       $424,496
      Allowance for loan losses                    86,793         98,246
      Deferred compensation                       205,985        189,748
      Supplemental executive retirement plan      183,172        104,326
      Other                                             0         32,114
                                                $ 627,141       $848,930

   Deferred tax liabilities:
      Federal Home Loan Bank stock              $  76,225         70,815
      Premises and equipment                       18,847         19,879
      Other                                        12,769         26,840
                                                  107,841        117,534

           Net deferred tax asset               $ 519,300        731,396

No valuation  allowance was required for deferred tax assets at June 30, 1997 or
1996.

Retained earnings at June 30, 1997 includes  approximately  $2,270,000 for which
no  provision  for  federal  income tax has been made.  This  amount  represents
allocations of income to bad debt deductions for tax purposes.  Reduction of the
amount so allocated for purposes  other than to absorb losses will create income
for tax purposes,  which will be subject to the then- current  corporate  income
tax rate.

(12) Commitments and Contingencies

The Bank is a party to financial  instruments with off balance sheet risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial  instruments  include commitments to extend credit and standby letters
of credit.  These instruments  involve. to varying degrees,  elements of credit,
interest  rate and  liquidity  risk in excess of the  amount  recognized  in the
accompanying statements of financial condition.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters of credit  written is  represented  by the  contractual  amount of those
instruments.  The Bank uses the same credit  policies in making  commitments and
conditional obligations as it does for on-balance sheet instruments.

                                      24
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

Commitments to extend credit are agreements to lend to a customer provided there
is no  violation  of any  condition  established  in the  contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since certain of the  commitments  may expire without
being drawn upon,  the total  commitment  amounts do not  necessarily  represent
future cash requirements. The Bank evaluates each customers' creditworthiness on
a case-by-case basis. The amount of collateral obtained,  if deemed necessary by
the Bank upon extension of credit, is based on the loan type and on management's
evaluation of the borrower.  Collateral  consists  primarily of residential real
estate and personal  property.  The Bank had  outstanding  commitments to extend
credit of $2,113,765 and $136,250 at June 30, 1997 and 1996, respectively.

Standby  letters  of  credit  are  conditional  commitments  issued  by the Bank
guaranteeing the performance of a customer to a third party. The standby letters
of credit are primarily issued to support private  borrowing  arrangements,  and
expire within the next fiscal year. The credit risk involved in issuing  standby
letters of credit is  essentially  the same as that  involved in making loans to
customers.  The amount of collateral the Bank obtains to support standby letters
of credit is based on management's credit evaluation of the borrower.  Since the
conditions  under which the Bank is required to fund  standby  letters of credit
may not  materialize,  the cash  requirements  are  expected to be less than the
total  outstanding  commitments.  The Bank had  outstanding  standby  letters of
credit of $247,000 and $157,400 at June 30, 1997 and 1996, respectively.

(13)  Regulatory Capital Requirements

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

Federal savings institutions are required to satisfy three capital requirements:
(i) a requirement that "tangible capital" equal or exceed 1.5% of adjusted total
assets,  (ii) a requirement that  "core-capital"  equal or exceed 3% of adjusted
total assets,  and (iii) a risk-based  capital standard of 8% of  "risk-adjusted
assets".  Failure to meet these requirements can initiate mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material affect on the Bank's  financial  statements.  The Bank's capital
amounts and  classification  are also subject to  qualitative  judgements by the
regulators about components,  risk weighting,  and other factors. As of June 30,
1997,  the  most  recent   notification   from  the  Federal  Deposit  Insurance
Corporation  categorized  the  Bank as well  capitalized  under  the  regulatory
framework for prompt corrective action.  There are no conditions or events since
that notification that management believes have changed the Bank's category.

The  following  table sets forth the Bank's  calculation  of tangible,  core and
risk-based  capital and applicable  percentages  of adjusted  assets at June 30,
1997 together with the excess over the minimum capital requirements.


                                 Actual            Required           Excess

(Dollars in thousands)     ---------------------------------------------------
                           Amount    Percent   Amount  Percent   Amount  Percent

Tangible capital          $16,917    11.68%   $ 2,172   1.50%   $14,745   10.18%
Core capital               16,917    11.68      4,345   3.00     12,572     8.68

Plus allowed portion of general
allowance for loan losses   ---------------------------------------------------
810
Risk-based capital        $17,727    27.58      5,142   8.00     12,585    19.58
                            ---------------------------------------------------





                                      25
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

(14) Employee Benefits

During fiscal 1995 the Company  adopted an Employee  Stock  Ownership  Plan (the
ESOP) which met the  requirements of Section  4975(e)(7) of the Internal Revenue
Code and Section  407(d)(6) of the Employee  Retirement  Income  Security Act of
1974, as amended (ERISA),  and as such the ESOP was empowered to borrow in order
to finance  purchases  of the common  stock of the  Company.  The ESOP  borrowed
$1,426,200  from the Company to purchase  142,620  shares of common stock of the
Company on the date of the  conversion.  The Bank has  committed  to make annual
contributions  to the ESOP necessary to repay the loan including  interest.  The
Bank contributed $224,961, $302,957 and $167,744 to the ESOP for the years ended
June 30, 1997 and 1996 respectively.

As the debt is repaid,  ESOP shares which were  initially  pledged as collateral
for its debt, are released from  collateral  and allocated to active  employees,
based on the proportion of debt service paid in the year.  The Company  accounts
for  its  ESOP  in  accordance  with  Statement  of  Position  93-6,  "Employers
Accounting for Employee Stock Ownership Plans". Accordingly,  the shares pledged
as collateral are reported as unearned ESOP shares in stockholders'  equity.  As
shares are  determined  to be ratably  released  from  collateral,  the  Company
reports  compensation  expense equal to the current  market price of the shares,
and the shares  become  outstanding  for earnings per share  computations.  ESOP
compensation benefit expense for 1997, 1996 and 1995 was $175,503,  $175,611 and
$132,089, respectively.

All  employees  of the Bank are eligible to  participate  in the ESOP after they
attain age 21 and complete one year of service during which they worked at least
1,000 hours.  In 1997, the company  committed to release 10,262 shares of common
stock which were allocated to eligible  participants subject to the restrictions
of the ESOP.
 
  Shares released and allocated                                        34,549
   Unreleased shares                                                  108,071

      Total ESOP shares                                               142,620

   Fair value of unreleased shares at June 30, 1997                $2,296,508

On January 6, 1994, the Bank adopted a defined  contribution  retirement savings
plan  covering  all  employees  with at least one year of  service.  The  Bank's
portion of the  retirement  savings plan  contribution  was $15,156 for the year
ended June 30, 1995.  The plan was  suspended on December 31, 1994 and no future
contributions are expected to be made to it until the ESOP loan has been paid in
full.

The  Bank has  individual  deferred  compensation  and  supplemental  retirement
agreements  with certain  directors  and officers.  The cost of such  individual
agreements is being  accrued over the period of actual  service from the date of
the respective  agreement.  The cost of such agreements was $205,047,  $178,574,
and $176,218 for the years ended June 30, 1997,  1996,  and 1995,  respectively.
The  agreements  are funded  through a grantor trust with assets which match the
investment options selected by the directors and officers.  Increases(decreases)
in the value of the trust  assets are  recorded as  increases(decreases)  in the
related liability accounts.  The assets of the trust are included under "prepaid
expenses and other assets" and the corresponding  liabilities are included under
"accrued  expenses  and other  liabilities"  on the  consolidated  statement  of
financial condition.

The Company established the Management  Recognition Plan (MRP) for directors and
key officers during the year ended June 30, 1995. Following shareholder approval
of the MRP on  October  11,  1995,  the  Bank  purchased  78,441  shares  of the
Company's  common stock in the open market at $14.46 per share,  of which 71,310
were granted to directors and officers in accordance  with the provisions of the
MRP The cost of the  shares  awarded  under  the plan is  recorded  as  unearned
compensation,  a contra  equity  account,  and are  recognized  as an expense in
accordance  with the vesting  requirements  under the plan.  For the fiscal year
ended June 30, 1997 and 1996, the amount  included in  compensation  expense was
$197,885 and $148,414 respectively.

The  Company  established  a stock  option  plan  for  directors,  officers  and
employees.  The stock  option plan was approved by  shareholders  on October 11,
1995, and in accordance with the terms of the plan, the exercise
               
                               26
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

price  was  established  at the fair  market  price  on the date of  shareholder
approval of $13.875 per share. Awards made under the plan may be incentive stock
options  as  defined  by Section  422 of the  Internal  Revenue  Code of 1986 or
options that do not qualify.  Under the plan 178,275  options were available for
grant and 160,448 options were granted in 1995.  32,091 options were eligible to
be exercised as of June 30, 1997.  No options had been  exercised as of June 30,
1997. All options expire on October 11, 2005.

As permitted under generally accepted  accounting  principles,  grants under the
plan are accounted  for  following the  provisions of APB Opinion No. 25 and its
related  interpretaions.  Accordingly,  no compensation cost has been recognized
for grants made to date.  Had  compensation  cost been  determined  based on the
(fair)(minimum)  value method prescribed in the FASB Statement No. 123, reported
net income (and earnings per share) would have been reduced to:
                             
        Year ended June 30                 Net income                  Per share

              1997                         $1,888,854                      1.47

              1996                          2,211,263                      1.37

              1995                          1,715,147                      1.04

In determining the pro forma amounts above, the value of each grant is estimated
at the grant date using the (minimum)(fair) value method prescribed in Statement
No. 123, with the following weighted-average  assumptions for grants in 1995: No
dividends;  risk-free  interest rate of 6.0%,  expected  life of 10 years,  (and
expected price volatility of 14.57%).

(15) Stockholders' Equity

The Company was  incorporated  for the purpose of becoming  the savings and loan
holding  company of the Bank in  connection  with the Bank's  conversion  from a
federally  chartered mutual savings bank to a federally  chartered stock savings
bank, pursuant to a Plan of Conversion adopted on October 25, 1994.

The Company  commenced  on February  10,  1995,  a  Subscription  and  Community
Offering  of its  shares  in  connection  with the  conversion  of the Bank (the
Offering).  The  Offering  was closed on March 17, 1995 and the  conversion  was
consummated  on March 31, 1995,  with the  issuance of  1,782,750  shares of the
Company's  common  stock at a price of $10 per share.  Total  proceeds  from the
conversion of  $16,998,000  net of costs relating to the conversion of $829,500,
have been recorded as common stock and additional  paid-in capital.  The Company
purchased  all of the capital  stock of the Bank in exchange  for 50% of the net
proceeds of the conversion.

The  Company's  articles  of  incorporation  authorized  the  issuance  of up to
1,000,000 shares of preferred stock but to date no shares have been issued.

In order to grant a priority to eligible  account holders in the event of future
liquidation,  the Bank,  at the time of  conversion  established  a  liquidation
account equal to its regulatory capital as of December 31, 1994. In the event of
future  liquidation  of the Bank,  an eligible  account  holder who continues to
maintain their deposit account shall be entitled to receive a distribution  from
the liquidation  account.  The total amount of the  liquidation  account will be
decreased as the balance of eligible  account holders are reduced  subsequent to
the conversion, based on an annual determination of such balance.
The Bank may not declare or pay a cash dividend to the Company in excess of 100%
of its net income to date during the current  calendar year plus the amount that
would reduce by one-half the Bank's  surplus  capital  ratio at the beginning of
the  calendar  year  without  prior  notice to the Office of Thrift  Supervision
(OTS).  Additional  limitations on dividends declared or paid on, or repurchases
of, the Bank's capital stock are tied to the Bank's level of compliance with its
regulatory capital requirements.



                                      27
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

(16) Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Values of Financial Instruments," requires
disclosures  of  estimated  fair  values of the  Bank's  financial  instruments,
including  assets,  liabilities  and off-  balance  sheet  items for which it is
practicable to estimate fair value. The fair value estimates are made as of June
30, 1997 and 1996 based upon relevant market information, if available, and upon
the characteristics of the financial instruments  themselves.  Because no market
exists for a significant portion of the Bank's financial instruments, fair value
estimates are based upon judgments  regarding  future expected loss  experience,
current  economic   conditions,   risk   characteristics  of  various  financial
instruments,  and other  factors.  The  estimates  are  subjective in nature and
involve  uncertainties and matters of significant  judgment and therefore cannot
be determined with precision.  Changes in assumptions could significantly affect
the estimates.

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

The estimated fair value of the Bank's  financial  instruments  are shown below.
Following the table, there is an explanation of the methods and assumptions used
to estimate the fair value of each class of financial instruments.
                          
                                                June 30
                                        1997                  1996

                                 Carrying Estimated   Carrying   Estimated
(in thousands)                    Amount Fair Value    Amount   Fair Value
Financial assets:
  Cash and cash equivalents      $7,774    7,774        4,735      4,735
  Securities available
     for sale                    24,986   24,986       32,222     32,222
  Securities held to maturity    58,113   58,335       56,961     56,811
  Loans receivable, net          61,202   45,583       52,361     52,275
  Federal Home Loan
     Bank Stock                     554      554          554        554
  Accrued accounts receivable     1,311    1,311        1,224      1,224
Financial liabilities:
  Deposits                      103,681  114,022       88,832     88,742
  Short-term borrowings          22,140   22,076       29,264     29,998
  Accrued interest payable        1,071    1,071        1,013      1,013

Cash and Cash Equivalents

 The carrying amount of cash and cash equivalents approximates their fair value.

Securities Available for Sale and Securities Held to Maturity

The fair value of securities are based upon quoted market prices.

Loans Receivable

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

                                      28
<PAGE>


                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

Federal Home Loan Bank Stock

The carrying amount at FHLB stock approximates its fair value.

Accrued Interest Receivable

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

Deposits

The fair value of deposits with no stated maturity such as checking, savings and
money market accounts,  is equal to the amount payable on demand. The fair value
of certificates of deposit is based on the discounted  value of contractual cash
flows using as discount rates the rates that were offered by the Bank as of June
30,  1997  and  1996 for  deposits  with  maturities  similar  to the  remaining
maturities of the existing certificates of deposit.

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

Short-term Borrowings

The fair value of short-term  borrowings  due on demand,  is equal to the amount
payable on demand. The fair value of other short-term borrowings is based on the
discounted  value of  contractual  cash flows using as discount  rates the rates
that  were  available  to the Bank as of June 30,  1997 and 1996 for  short-term
borrowings with maturities  similar to the remaining  maturities of the existing
short-term borrowings.

Accrued Interest Payable

The carrying  amount of accrued  interest  payable  approximates  its fair value
since it is short-term in nature.
(17) QCF Bancorp, Inc. Financial Information (Parent Company Only)

The parent  company's  principal  assets are its  investment in the Bank and its
savings  deposits  at the  Bank.  The  following  are  the  condensed  financial
statements for the parent company only as of June 30, 1997 and 1996.

                                                     June 30
   Condensed Balance Sheets                  1997                1996
  Assets:
         Cash and cash equivalents       $1,826,158                  0
         Securities available for sale    8,484,571          9,250,806
         Investment in subsidiary        16,783,814         20,942,550
         Other assets                       372,743            437,109
            Total assets                $27,467,286         30,630,465
  Liabilities:  
         Cash overdraft                           0            945,668

  Stockholders' equity:                  27,467,286         29,684,792
            Total liabilities and
               stockholders' equity      27,467,286        30,630,465





                                      29
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

                                                      Year Ended June 30
                                               1997          1996        1995
Condensed Statements of Income
   Interest income                            $ 722,139     739,706      94,939
   Equity in earnings of subsidiary           1,610,787   2,358,885   1,661,741
   Other                                       (140,672)   (779,929)     (5,532)
   Income before income tax expense           2,192,254   2,318,662   1,751,147
   Income tax expense (benefit)                 181,000     (15,000)     36,000
      Net income                             $2,011,254   2,333,662   1,715,147

Condensed Statements of Cash Flows
Operating activities:
   Net income                                $2,011,254   2,333,662   1,715,147
   Equity in earnings of subsidiary          (1,610,787) (2,358,885)(1,661,741)
   Distributions of earnings of subsidiary    6,000,000           0  5,000,000
   Amortization of Unearned ESOP shares         175,503     175,611    132,089
   Amortization of MRP                          197,885     148,414          0
   (Decrease)increase in liabilities           (945,668)    945,668          0
   Decrease in other assets                     (56,914)   (327,326)  (109,783)
   Net cash provided by operating activities  5,771,273     917,144  5,075,712
Investing activities:
   Purchase of securities available for sale          0 (10,006,363)         0
   Principal collected from securities
      available for sale                      1,071,042     687,264          0
   Net cash  provided by (used in)
      investing activities                    1,071,042  (9,319,099)         0
Financing activities:
   Proceeds from sale of common stock                 0           0 16,998,000
   Increase in unearned ESOP shares                   0           0 (1,426,200)
   Purchase of Bank stock                             0           0 (8,499,000)
   Increase in stock option trust            (2,239,040)          0          0
   Purchase of treasury stock                (2,777,117) (3,746,557)         0
   Net cash provided by (used in)
      financing activities                   (5,016,157) (3,746,557) 7,072,800
   Increase(decrease) in cash and
      cash equivalents                        1,826,158 (12,148,512)12,148,512
   Cash and cash equivalents, beginning
      of period                                       0  12,148,512          0
   Cash and cash equivalents, end
      of period                              $1,826,158           0  12,148,512


















                                      30
<PAGE>

                       QCF BANCORP, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements, Continued

(18) Quarterly Financial Data (Unaudited)

Summarized  quarterly  financial  data (in  thousands of dollars  except for per
share amounts) for fiscal 1997 and 1996 are as follows:
  
                                            Three Months Ended
   Selected Operations Data   ------------------------------------------
                              6/30/97     3/31/97   12/31/96      9/30/96

   Interest income           $ 2,726       2,627       2,692       2,657
   Interest expense            1,196       1,137       1,175       1,165
      Net interest income      1,530       1,490       1,517       1,492
   Non-interest income           169         128         134         135
   Non-interest expense          678         674         544       1,381
   Income tax expense            402         370         436         100
        Net income        $      619         574         671         147
   Earnings per common share   $ .49         .45         .55         .11
   High stock price            20.25       19.75       18.25       15.75
   Low stock price             20.38       18.75       16.25       15.00

                             6/30/96    3/31/96     12/31/95     9/30/95
                              ------------------------------------------

   Interest income           $ 2,620       2,646       2,742        2,649
   Interest expense            1,106       1,141       1,223       1,107
      Net interest income      1,514       1,497       1,519       1,542
   Non-interest income           147         115         101         117
   Non-interest expense          663         693         676         654
   Income tax expense            382         371         374         406
      Net income                 615         548         571         600
   Earnings per common share    $.40         .33         .34         .36
   High stock price            15.25       14.88       15.00       14.50
   Low stock price             14.00       14.38       14.25       13.00


  Selected Financial Condition Data      6/30/97 3/31/97 12/31/96   9/30/96
                                     ------------------------------------------

   Total assets                       $ 156,727  149,637 146,922    148,321
   Investment securities                 83,098   81,889  80,493     87,278
   Net loans                             61,202   58,465  57,665     55,744
   Deposits                             103,681  104,946 102,84      81,794
   Short-term borrowings                 20,140   15,850  15,746     37,905
   Stockholders' equity                  27,423   27,070  26,760     26,161

                                         6/30/96 3/31/96 12/31/95   9/30/95
                                     ------------------------------------------

   Total assets                       $ 150,430  145,608 161,23     153,695
   Investment securities                 89,183   89,787 105,236     99,726
   Net loans                             52,361   49,938  48,357     47,118
   Deposits                              88,832  105,083 103,71     105,037
   Short-term borrowings                 29,264    7,04   24,292     15,019
   Stockholders' equity                  29,685   31,760  31,465     31,474









<PAGE>

                           STOCKHOLDERS' INFORMATION

Annual Meeting                                        Stock Listing
The annual meeting of shareholders     QCF's common stock is listed on
will be held on Wednesday,             the NASDAQ National Market System with
October 8, 1997 at 9:00 A. M. at       a ticker symbol of QCFB.
the executive office of the Company.   Stockholders of record:  360

Executive Office                                      Form lO-KSB
QCF Bancorp, Inc.                      QCF's Form lOKSB is filled with the
501 Chestnut Street                    Securities and Exchange Commission and
Virginia, MN 55792-1147                is available without charge upon request
(218) 741-2O4O                         from: QCF Bancorp, Inc.
                                             Attn: Investor Relations
Independent Auditors                         P.O. Box 1147
McGladrey & Pullen                           Virginia, MN 55792
227 West First Street
Duluth, MN 55802
                                       Transfer Agent & Registrar
Investor Information                   Inquiries regarding change of address,
QCF Bancorp, Inc.                      transfer requirements, lost certificates
Investor Relations                     should he directed to the transfer agent:
P.O. Box 1147                          Registrar and Transfer Company
Virginia, MN 55802                     10 Commerce Drive
                                       Cranford, New Jersey 07016
                                       1-800-368-5948

Directors and Officers:
  Directors:                           Executive Officers:
  Philip K. Schumacher                 Kevin C. Pietrini
  Chairman of the Board                President
  President of Arrowhead Health
  Care Center

  Kevin V. Pietrini                    Daniel P. Schultz
  President and Chief                  Vice President and Treasurer
  Executive Officer

  Robert A. Muhich                     Linda M. Myklebust
  Computer Consultant                  Vice President
  Culbert Realty & Appraisal Service

  John A. Trenti                       Gerald D. Mckenna
  Attorney at the Trenti Law Firm      Vice President

  Peter J. Johnson                     Branch Offices:
  President of Hoover Construction     Thunderbird Mall
                                       Virginia, MN 55792
  Craig W. Nordling
  Line Department Manager              102 East Sheridan Street
  Lake Country Power                   Ely, MN 55731

  John C. Pearsall
  Partner with Mesabi Dental Service

<PAGE>

 


                                                                          
                                   EXHIBIT 21

                         Subsidiaries of the Registrant

                                                  State or Other
                                                  Jurisdiction of    Percentage
                                                   Incorporation      Ownership
Parent

QCF Bancorp, Inc.                                     Minnesota


Subsidiary (1)

Queen City Federal Savings Bank                      United States        100%

Subsidiaries of Queen City Federal Savings Bank (1)

Queen City Service Corporation                         Minnesota          100%
 

________________
(1)
The assets,  liabilities and operations of the  subsidiaries are included in the
consolidated financial statements contained in the Annual Report to Stockholders
attached hereto as an exhibit.



<PAGE>
EXHIBIT 23

MCGLADREY&PULLEN; LLP                                             RSM
Certified Public Accountants and Consultants international


                   INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
QCF Bancorp, Inc.
Virginia. Minnesota


We have audited the accompanying  consolidated  statement of financial condition
of QCF Bancorp,  Inc. and subsidiary  (the Company) as of June 30, 1997, and the
related consolidated statements of income,  stockholders' equity, and cash flows
for the year then ended.  These financial  statements are the  responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects.  the financial  position of QCF Bancorp,  Inc.
and  subsidiary as of June30,  1997,  and the results of its  operations and its
cash  flows  for the year  then  ended in  conformity  with  generally  accepted
accounting principles.

We hereby consent to the  incorporation  by reference of this repoft included in
this Form l0-KSB in the previously filed  Registration Statement of QCF Bancorp,
Inc. on Form S-8 (No.33-98154).


                                                                         


Duluth, Minnesota
August 18, 1997
<PAGE>


Peat Marwick LLP


                4200 Norwest Center
                90 South Seventh Street
                Minneapolis. MN 55402


            Consent of Independent Public Accountants


The Board of Directors
QCF Bancorp, Inc.:


We consent to the incorporation by reference in the registration  statement (No.
33- 98154) on Form 8-8 of QCF Bancorp, Inc. of our report dated August20,  1996,
relating to the  consolidated  statement of financial  condition of QCF Bancotp,
Inc. and subsidiary as of June 30, 1996, and the related consolidated statements
of  income,  stockholders'  equity  and cash  flows for each of the years in the
two-year  period ended June 30, 1996,  which report appears in the June 30, 1997
annual report on Form 10-KSB of QCF Bancorp Inc.


                             

September 17, 1997
<PAGE>