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, 1999

     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 its most recent fiscal year: $11,021,000.

     As of August 23, 1999, the aggregate  market value of the 298,280 shares of
Common Stock of the registrant  issued and outstanding held by non-affiliates on
such  date was  approximately  $7,941,705  based on the  closing  sale  price of
$26.625 per share of the registrant's  Common Stock on August 27, 1999 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 23, 1999: 1,112,771.

Transitional Small Business Disclosure Format (Check one):   Yes         No    X
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, 1999. (Parts I, II and IV)
     2.  Portions of Proxy  Statement for 1999 Annual  Meeting of  Stockholders.
         (Part III)


                                       1
<PAGE>





Item 1.  Description of Business


     QCF Bancorp,  Inc. QCF Bancorp, Inc. (the "Company") is the holding company
of the Queen City  Federal  Savings Bank (the  "Bank") 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, $4.6 million of cash and
investment  securities and a note receivable  from the Company's  Employee Stock
Ownership  Plan  (the  "ESOP").   At  June  30,  1999,  the  Company  had  total
consolidated   assets  of  $148.4  million,   deposits  of  $109.6  million  and
stockholders' equity of $20.0 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 and deposit fees. 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.

     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.

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



                                       2
<PAGE>


Lending Activities

     General.  The Bank's gross loan portfolio totaled $66.2 million at June 30,
1999,  representing  44.6% of total assets at that date. It is the Bank's policy
to  concentrate  its lending  within its market area.  At June 30,  1999,  $32.3
million,  or 48.8% 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 $20.4  million,  or 30.8% of the Bank's  gross loan
portfolio,  at June 30, 1999. 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, 1999,  multi-family and
commercial  real estate loans  amounted to $1.4  million,  or 2.1% of the Bank's
gross loan  portfolio.  The Bank also engages in commercial  lending  within its
market area.  At June 30, 1999,  commercial  loans  amounted to $12.1 million or
18.3% 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,  1999,  the Bank  had no  concentration  of loans
exceeding 10% of total loans other than as disclosed below.


                                                    At June 30,
                                           1999                     1998
                                     Amount      %             Amount      %
                                            (Dollars in thousands)

 Type of Loan:
 Real estate loans:
 Single-family residential        $ 32,303   48.79%           33,175   49.92
 Multi-family and commercial         1,363    2.06             2,097    3.15

 Commercial business loans          12,121   18.31            11,369   17.10

 Consumer loans:
 Automobile                         12,960   19.58            12,001   18.06
 Other                               7,455   11.26             7,825   11.77
   Total  gross loans               66,202  100.00            66,467  100.00

 Allowance for loan losses             570                     1,273
   Total                          $ 65,632                    65,194


     The  following  table  sets  forth  certain  information  at June 30,  1999
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.



                                       3
<PAGE>










                              One Year   One to      Five to    More than
                              or Less    Five Years  Ten Years  Ten Years  Total

                                             (In thousands)

Single-family residential
 real estate                  $ 105        2,797       7,171     22,230   32,303
Multi-family and
 commercial real estate          18          600         196        549    1,363
Consumer                      1,652       14,273       2,513      1,977   20,415
Commercial business           1,631        4,268       2,309      3,913   12,121
 Total                      $ 3,406       21,938      12,189     28,669   66,202




     The following  table sets forth at June 30, 1999,  the dollar amount of all
loans due one year or more after June 30, 1999 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            $ 4,540            27,658
Multi-family  and
 commercial real estate                            1,345                 0
Consumer                                          15,818             2,945
Commercial business                                4,309             6,181
Total                                            $26,012            36,784


     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


                                       4
<PAGE>



     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.

     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 $2.3 million at
June 30, 1999. 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 borrowers ranged
from  $378,000 to $1.0  million.  All of these loans were current as of June 30,
1999.

     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 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, 1999,  approximately  $32.3
million, or 48.8%, of the Bank's gross loan portfolio consisted of loans secured
by single-family residential properties.

     Substantially all  single-family  mortgage loans originated by the Bank for
retention in the Bank's  portfolio  since 1982 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,  1999,  the  Bank's  loan  portfolio  included  $27.7  million  in
adjustable-rate,  single-family  residential  mortgage loans,  which represented
41.8% 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.



                                       5
<PAGE>


     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, 1999,  the Bank's  commercial
business loans totaled $12.1 million, or 18.3%, 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  approve 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  primarily
include automobile loans,  recreational loans and second mortgage loans. At June
30, 1999, the Bank's  consumer loan balance  totaled $20.4 million,  or 30.8% 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."

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.


                                       6
<PAGE>

     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, 1999, 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,
                                                        1999              1998
                                                        (Dollars in thousands)

Loans accounted for on a non-accrual basis: (1)
Real Estate:
 Residential                                      $     29                  --
 Commercial                                             --                  --
Commercial business                                    259                  --
Consumer                                                --                  15
 Total                                                $288                  15
Percentage of total loans                              .44%                .02%
Other nonperforming assets   (2)                  $     18                 104

     (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, 1999, gross interest income of $43,000 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 $21,000,  for the year ended June 30, 1999. At June
30, 1999, the Bank had no restructured loans.

     At June 30,  1999,  nonaccrual  loans  consisted  of one  mortgage  and two
commercial loans.

     June  30,  1999,   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,


                                       7
<PAGE>

     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, 1999, the Bank had $259,000 of assets classified
as loss or doubtful  and $29,000 of assets  classified  as  substandard,  all of
which were  included in  nonaccrual  loans.  The assets  classified  as doubtful
consisted  of two  commercial  loans and the assets  classified  as  substandard
consisted of one mortgage loan. At June 30, 1999,  assets  designated as special
mention totaled  $464,000 and consisted of one commercial loan and five consumer
loans, one of which was 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 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 following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.

                                                           Year Ended June 30,
                                                          1999            1998
                                                          (Dollars in thousands)
Balance at beginning of year                       $        1,273       1,314
Consumer loan charge-offs                                     103          67
Consumer loan recoveries                                       36          26
Net loan charge-offs                                           67          41
Provision for (reduction in allowance) loan losses           (636)        --
Balance at end of year                                     $  570       1,273
Ratio of net charge-offs to average loans
  outstanding, net during the year                            .10%        .06%

                                       8
<PAGE>

     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.

                                                    June 30,
                                              1999                  1998
                                              Percent of            Percent of
                                              Loans in Each        Loans in Each
                                              Category to           Category to
                                      Amount  Total Loans   Amount  Total Loans

                                               (Dollars in thousands)

Real estate                           $173     50.85          363      53.07%
Commercial business                    248     18.31          392      17.10
Consumer                               149     30.84          518      29.83
Total allowance for loan losses       $570    100.00%       1,273    100.00%

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.

     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  stockholders
equity.

     The following table sets forth the carrying value of the Bank's  investment
portfolio at the dates indicated.




                                       9
<PAGE>






                                                           At June 30,
                                                   1999                1998
                                                    (Dollars in thousands)

Securities held to maturity:
  U.S. government and agency securities.       $ 12,187              27,193
  Corporate obligations. . . . . . . . . .        2,047               2,423
  Collateralized mortgage obligations . . .      43,623              38,972
  Mortgage-backed securities. . . . . .          17,015               9,524

Total investment securities . . . . .  . .     $ 74,872              78,112


     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.

     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, 1999,  the Bank had $43.6  million in CMOs,  which  amounted to
29.4% of total assets. As of June 30, 1999, 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.




                                       10
<PAGE>

     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,  1999,  the Bank had $17.0  million in  mortgage-backed
securities (11.5% of total assets) insured or guaranteed by FNMA, FHLMC or GNMA.

     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, 1999.
<TABLE>

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

Securities held to maturity:
 U.S. government and agency
<S>                             <C>      <C>       <C>        <C>     <C>       <C>       <C>        <C>      <C>
 Securities                     $3,491   6.84%     7,696      6.26    1,000     6.30      12,187     12,040   6.48

 Corporate obligations           1,600   7.00        447      7.50      ---                2,047      2,047   7.11

 Collateralized mortgage
  obligations                    4,936   6.37     38,687      6.34       --               43,623     43,232   6.34

 Mortgage-backed securities      2,953   7.01     13,281      6.31      781     8.00      17,015     16,821   6.51

  Total                        $12,980            60,111              1,781               74,872     74,142

</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  4%)  of  its  net  withdrawable  savings  deposits  plus  short-term
borrowings.  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,
                                  1999                      1998
                         Interest-                  Interest-
                         Bearing                    Bearing
                         Demand       Time          Demand            Time
                         Deposits     Deposits      Deposits          Deposits
                                       (Dollars in thousands)

Average balance         $ 44,822      57,351         43,432            55,749
Average rate                2.27%       5.25           2.25              5.34

     The  following  table  shows  maturities  for  certificates  of  deposit of
$100,000 or more at June 30, 1999.



           Three months or less                              $    823,465
           Over three months to six months                        594,653
           Over six months to twelve months                     1,668,376
           Over twelve months                                   1,224,583
                                                              $ 4,311,077

     In the unlikely event the Bank is liquidated,  depositors  will be entitled
to full payment of their deposit accounts prior to any payment being made to the
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


                                       12
<PAGE>

     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 $2.0  million in
outstanding  borrowings  from the  FHLB of Des  Moines  at June 30,  1999 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,

                                                             1999        1998
                                                          (Dollars in thousands)

Amounts outstanding at end of period                       $16,218      16,081
Maximum amount of borrowings outstanding
 at any month end                                           17,785      31,444
Approximate average short-term borrowings outstanding (1)   15,220      19,528
Average cost of borrowings                                    3.48%       4.19%

(1) Based on month-end balances.


Subsidiary Activities

     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, 1999 the Bank's
total investment in Queen City Service was $71,000.

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.






                                       13
<PAGE>



Employees

     As of June 30, 1999, 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.

     Proposed  Legislative and Regulatory Changes.  The U. S. Congress is in the
process  of  drafting  legislation  which  may  have a  profound  effect  on the
financial  services  industry.  In January 1999  legislation was reintroduced in
both houses of the U. S. Congress  restructuring  the activities and regulations
oversight  of the  financial  services  industry.  The  stated  purposes  of the
legislation  are  to  enhance   consumer   choice  in  the  financial   services
marketplace,  level the playing field among providers of financial  services and
increase  competition and would permit  affiliations  between  commercial banks,
securities firms, insurance companies and, subject to certain limitations, other
commercial  enterprises  allowing  holding  companies  to offer new services and
products.  In particular,  the legislation would repeal the  Glass-Steagall  Act
prohibitions  on banks  affiliating  with  securities  firms and  thereby  allow
holding  companies  to engage in  securities  underwriting  and dealing  without
limits and to sponsor and act as distributor  for mutual funds.  The legislation
also would  remove the Bank  Holding  Company  Act's  prohibitions  on insurance
underwriting  allowing  holding  companies to underwrite  and broker any type of
insurance  product,   calls  for  a  new  regulatory   framework  for  financial
institutions  and their holding  companies and preserves the thrift  charter and
all  existing  thrift  powers.  The Senate  version (S. 900) was approved by the
Senate on May 6, 1999.  The House version (H.R. 10) was approved by the House on
July 1, 1999.  A  conference  committee  has been  appointed  to  reconcile  the
differences  between the two bills.  The two versions  differ  principally  with
respect to the  powers of  operating  subsidiaries,  permissible  activities  of
well-managed  holding  companies and restrictions on nonfinancial  activities of
unitary  thrift  holding  companies.  At  this  time,  it  is  unknown  how  the
legislation will be modified,  or if enacted, what form the final version of the
legislation  might  take and how it will  affect  the  Company's  and the Bank's
business and operations and competitive environment.

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  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, 1999 of $499,800.

     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



                                       14
<PAGE>

     certain operating  restrictions imposed on national banks and a restriction
on obtaining  additional  advances from the FHLB System.  At June 30, 1999,  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, 1999.

                                                               Percent of
                                                        Amount        Assets (1)
                                                         (Dollars in thousands)
Tangible capital . . . . . . . . . . . . . . . .       $15,178           10.7%
Tangible capital requirement . . . . . . . . ..          2,868            1.5
   Excess (deficit) . . . . . . . . . . . . . .        $12,310            9.2%

Core capital (2) . . . . . . . . . . . . . . .         $15,178           10.7%
Core capital requirement . . . . . . . . . . . .         5,735            3.0
Excess (deficit) . . . . . . . . . . . . . . . .        $9,443            7.7%

Risk-based  capital  . . . . . .  .  .  .  .  .        $15,748           23.6%
Risk-based  capital  requirement  . . . . . .            5,348            8.0
Excess(deficit) . . . . . . . . . . . . . . . .        $10,400           15.6%

     (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.

     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



                                       15
<PAGE>

     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 CAMELS 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
CAMELS 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 CAMELS
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 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 0.061% of deposits for well  capitalized
institutions   in  Subgroup  A  to  0.331%  of  deposits  for   undercapitalized
institutions in Subgroup C. Until December 31, 1999, SAIF- insured institutions,
will be required to pay  assessments to the FDIC at the rate of 6.5 basis points
to help  fund  interest  payments  on  certain  bonds  issued  by the  Financing
Corporation ("FICO") an agency of the federal government  established to finance
takeovers of insolvent thrifts. During this period, BIF members will be assessed
for these obligations at the rate of 1.3 basis points.  After December 31, 1999,
both BIF and SAIF members will be assessed at the same rate for FICO payments.





                                       16
<PAGE>

     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 $46.5 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
requirement  is to  reduce  the  amount  of the  institution's  interest-earning
assets. As of June 30, 1998, 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 may pay
capital  distributions during any calendar year up to an amount equal to 100% of
its net  income  for such  calendar  year plus its  retained  net income for the
preceding  two  calendar  years  provided  that at least 30 days notice is given
prior to the capital distribution or distributions. Should the Bank's regulatory
capital fall below certain levels,  applicable law and other federal regulations
would require the prior approval of the OTS for any capital distribution and, in
some  cases,  would  prohibit  the  payment  of  distributions.  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.




                                       17
<PAGE>

     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.

     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.  The guidelines,  adopted by the
Office of Thrift  Supervision  along with the other  federal  banking  agencies,
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.





                                       18
<PAGE>

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.

     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  to be  acquired  as of March 5,
1987; (ii) the acquirer is authorized to acquire control of the savings


                                       19
<PAGE>

     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 10 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, 1999.


                            Year  Owned or  Book Value at  Approx   Deposits at
                           Opened  Leased   June 30, 1999  Sq Ft   June 30, 1999
                                          (Deposits in thousands)

Main Office:
501 Chestnut Street         1969  Owned       $ 230,189    12,600   $ 101,543
Virginia, Minnesota  55792


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

102 E. Sheridan Street      1974  Owned          48,976     9,900       8,018
Ely, Minnesota 55731


     (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
$737,000  at June  30,  1999.  See Note 7 of  Notes  to  Consolidated  Financial
Statements.

                                       20
<PAGE>

Item 3. Legal Proceedings.

     From  time to  time,  the  Bank is a party  to  various  legal  proceedings
incident to its business.  At June 30, 1999, 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, 1999.



                                                       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,  1999  (the  "Annual  Report")  filed as  Exhibit  13  hereto is
incorporated herein by reference.

Item 6. Management's Discussion and Analysis or 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

Not applicable.



                                                      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  1999  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.








                                       21
<PAGE>

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, 1999 and 1998

Consolidated Statements of Income - Years ended June 30, 1999 and 1998

     Consolidated  Statements  of  Stockholders'  Equity - Years  ended June 30,
1999, and 1998

Consolidated Statements of Cash Flows - Years ended June 30, 1999 and 1998

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.












                                       22
<PAGE>





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
10.8      QCF Bancorp, Inc. 1998 Stock Option and Incentive Plan              +
13         Annual Report to Stockholders
21         Subsidiaries of the Registrant
23        Consent of Mc Gladrey & Pullen, LLP
27        Financial Data Schedule





(*)  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).
 (+) Management contract or compensatory plan arrangement.

     (b)  Reports on Form 8-K.  During the  quarter  ended  June 30,  1998,  the
Registrant did not file any Current Reports on Form 8-K.












                                       23
<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 17, 1999
                                           By:/s/Kevin E. Pietrini
                                           Kevin E.Pietrini
                                           Chairman of the Board,
                                           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.


    /s/Kevin E. Pietrini                                  September 17, 1999
    Kevin E. Pietrini
    Chairman of the Board,
    President, Chief Executive Officer
      and Director
   (Principal Executive Officer)

     /s/Daniel F. Schultx                                 September 17, 1999
     Daniel F. Schultz
     Vice President, Treasurer and Director
     (Principal Financial and Accounting Officer)

     /s/Peter J. Johnson                                  September 17, 1999
     Peter J. Johnson
     Director

     /s/ Craig W. Nordling                                September 17, 1999
     Craig W. Nordling
     Director

     /s/Robert L. Muhich                                  September 17, 1999
     Robert L. Muhich
     Director

      /s/John C. Pearsall                                 September 17, 1999
     John C. Pearsall
     Director

     /s/John A. Trenti                                    September 17, 1999
    John A. Trenti
    Director


<PAGE>



                                   Exhibit 13



To Our Shareholders, Customers, and Friends:

     As we approach the new millenium, we proudly present the results of another
exciting  and  productive  year at Queen  City  Federal.  The  annual  report to
shareholders  represents  another  record  year in terms of  return on per share
earnings. We ended the year with earnings per share of $2.52 which represents an
increase of 9.50% from the previous year. We also ended the year with net income
of $2,149,000  representing  a return on assets of 1.47%.  Our strong  financial
performance   represents  the  success  of  our  continued   transition  from  a
traditional  thrift to a commercial  bank.  We continue to have  increases  from
prior years in both consumer and commercial  lending allowing us to increase our
asset yields and provide  added fee income as well as giving us the  opportunity
to  attract  low-cost  commercial  deposits.   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.

     This last year has also been  productive in terms of managing our Year 2000
risk.  The major  thrust of our Y2K plan was  completed in February of this year
with the successful installation of a new data processing system, including both
new hardware and software.  With our new computer  system in place, we enter the
year confident of our preparation for the Year 2000.

     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".  We will continue our commitment to the local  community
bank concept by promoting  local  involvement  in the  community and keeping the
decision process in the hands of our local board and management.

     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. I
would also like to thank our  employees  for their hard work and  dedication  in
making this another successful year at Queen City Federal.

                                                 Sincerely,


                                                 Kevin E. Pietrini
                                                 Chairman of the Board,
                                                 President and
                                                 Chief Executive Officer



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







                                                       At or For the Year Ended
                                                                 June 30

                                                         1999             1998

Operating Results
Net interest income                                $    5,831             6,467
Provision (reduction in allowance) for loan losses       (637)                0
Non interest income                                       629               691
Non interest expense                                    3,648             2,869
Net Income                                              2,149             2,653

Per Share Data
Net income (Diluted)                               $     2.52              2.30
Book value                                              17.90             19.93

Balance Sheet Data
Total assets                                       $  148,351           150,486
Investment Securities                                  74,872            78,112
Net loans                                              65,632            65,194
Deposits                                              109,561           103,566
Short-term borrowings                                  16,218            16,081
Stockholders' equity                                   19,981            26,328

Financial Ratios
Return on average assets                                 1.47%             1.72
Return on average equity                                10.12              9.82
Net interest margin                                      4.04              4.31
Average equity to average assets                        14.50             17.54
Non-performing assets to total assets                     .21               .08
Total regulatory capital to risk-adjusted assets        24.18             29.90


     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>















<TABLE>

                                              FIVE-YEAR SELECTED FINANCIAL SUMMARY(1)

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

Operating Results                                              1999           1998        1997          1996  1995
<S>                                                         <C>             <C>          <C>          <C>     <C>
   Interest income                                          $10,392         11,243       10,703       10,658  8,867
   Interest expense                                           4,561          4,776        4,674        4,585  4,018
   Net interest income                                        5,831          6,467        6,029        6,073  4,849
   Provision for (reduction in allowance)  loan losses         (637)             0            0            0      0
   Non-interest income                                          629            691          566          480    411
   Non-interest expense                                       3,648          2,869        3,276        2,687  2,378
   Income tax expense                                         1,300          1,636        1,308        1,533  1,166

   Net income                                                 2,149          2,653        2,011        2,333  1,715

Per Share Data (diluted)
  Net income (1995 - March 31-June 30)                        $2.52           2.30         1.65         1.46   0.35
  Pro forma net income                                                                                         1.04
  Book value                                                  17.90          19.93        19.23        18.47  17.17

Balance Sheet Data
  Total assets                                             $148,351        150,486      156,727      150,430 146,548
  Investment securities                                      74,872         78,112       83,098       89,183  88,503
  Net loans                                                  65,632         65,194       61,202       52,361  45,964
  Deposits                                                  109,561        105,566      103,681       88,832 113,544
  Short-term borrowings                                      16,218         16,081       22,140       29,264       0
  Stockholders' equity                                       19,981         26,328       27,423       29,685  30,602

Financial Ratios
  Return on average assets                                     1.47%          1.72         1.34         1.56    1.27
  Return on average equity                                    10.12           9.82         7.44         8.06   10.09
  Average equity to average assets                            14.50          17.54        18.03        19.33   12.62


     (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.
</TABLE>


Results of Operations

     QCF's net income of $2.1  million,  or $2.52 per diluted  share,  in fiscal
1999 decreased $505,000,  or 19.0%, from fiscal 1998 net income. The decrease in
net income for fiscal 1999 as compared to the prior year was due  primarily to a
decrease in average  yield and volume of interest  earning  assets and  interest
bearing  liabilities,  a  decrease  in the  allowance  for loan  losses  and the
acceleration of vesting under certain  compensation  plans.  Decrease in average
interest-earning  assets,  primarily  investment  securities,  was the result of
Queen City Federal Savings Bank's stock buyback programs.

     Return on average  assets was 1.47% for fiscal  1999  compared to 1.72% for
fiscal 1998.




                                       2
<PAGE>





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 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 interest-bearing  liabilities
and the results and yields.

<TABLE>

                                                                       Year Ended June 30

                                                     1999                                                 1998

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

<S>                                         <C>          <C>       <C>                     <C>       <C>        <C>
Loans receivable, net (2)                   $65,596      5,781     8.81                    64,020    5,758      8.99
Investment securities                        74,114      4,410     5.95                    79,186    5,159      6.52

Other including cash equivalents              4,598        201     4.37                     6,841      327      4.78

Total interest-earning assets              $144,308     l0,392     7.20                   150,047   11,244      7.49


Interest-Bearing Liabilities
  NOW accounts                               $9,117        115     1.26                     8,746      107      1.22
  Passbooks                                  25,719        646     2.51                    25,268      632      2.50
  Money market accounts                       9,986        257     2.57                     9,418      240      2.55
  Certificate accounts                       57,351      3,013     5.25                    55,749    2,978      5.34
  Short-term borrowings                      15,220        530     3.48                    19,528      819      4.19

Total interest-bearing liabilities          $117,393     4,561     3.89                   118,709    4,776      4.02

Net Interest Income                                      5,831                                       6,468

Net Earning Assets                           $26,915                                       31,338
Net Yield on Interest-Earning Assets                               4.04%                                        4.31
Average Interest-Earning Assets to
  Average Interest-Bearing Liabilities                           122.93%                                      126.40


     (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.
Loan fee income is not significant.
</TABLE>

     Net  interest  income was $5.8  million  for the fiscal year ended June 30,
1999,  down from $6.5 million in fiscal 1998. This represents a decrease of 9.8%
from fiscal 1998.  The decrease in net interest  income was due to a decrease in
the Bank's net interest margin and average net-earning assets.

                                       3
<PAGE>






     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.



<TABLE>
                                                                       Year Ended June 30

                                                              1999 vs 1998                   1998 vs 1997


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

Interest-earning assets:
<S>                                                     <C>       <C>         <C>             <C>     <C>       <C>
Loans receivable, net                                   $139      (116)       23              625     (11)      614
Investment securities                                   (345)     (404)     (749)            (341)    115      (226)
Other including cash  equivalents                       (100)      (26)     (126)              91      62       153
Total interest-earning assets                           (306)     (546)     (852)             375     166       541
Interest-bearing liabilities:
NOW accounts                                              $6         2         8               (1)    (10)      (11)
Passbooks                                                 11         3        14               34       0        34
Money market accounts                                     13         4        17               16       0        16
Certificate accounts                                      86       (51)       35              204    (151)       53
Short-term borrowings                                   (164)     (125)     (289)             (95)    105        10
  Total interest-bearing  liabilities                    (48)     (167)     (215)             158     (56)      102

Change in net interest income                          $(258)     (379)     (637)             217     222       439

</TABLE>


     In fiscal 1999 the yield on average interest-earning assets decreased by 29
basis  points  which  decreased  interest  income as  compared  to fiscal  1998.
Interest  income  also  decreased  due to a $ 5.7  million  decrease  in average
interest-earning  assets between fiscal years 1999 and 1998. The combined impact
(interest rate decrease and volume  decrease)  caused interest income for fiscal
1999 to decrease  $852,000 or 7.6%.  Interest  expense  decreased  $215,000 from
fiscal  1998  to  1999.   The   decrease  was  due  to  a  decrease  in  average
interest-bearing  liabilities  of $1.3 million or 1.1%,  and by a 13 basis point
decrease in interest rates. The decrease in average interest-bearing liabilities
was due to a $4.3 million decrease in average  short-term  borrowings  partially
offset by a $3.0 million increase in average interest bearing deposit accounts.

Provision for Loan Losses

     Provisions  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.  During fiscal
1999, management undertook a thorough review of its loan portfolio. Based on the
results of this review, the continued low level of loan losses and nonperforming
loans and current economic conditions,  management determined that the loan loss
reserves  should be reduced.  A net  reduction  of $637,000  was  recognized  in
earnings for fiscal 1999.

Non-interest Income

     Non-interest  income was $629,000 for fiscal 1999  compared to $691,000 for
fiscal 1998.  The following  table  presents  major  components of  non-interest
income.




                                       4
<PAGE>




                                                         Year Ended June 30
(Dollars in thousands)                                     1999          1998

Fees and service charges                                   $496          476
Other                                                       133          103
Gain On Sale of Securities                                    0          112
Total non-interest income                                  $629          691

     The decrease of $62,000 or 9.0% in total non-interest income between fiscal
year  1999  and  1998  was  primarily  due to 1998  including  a gain on sale of
securities.


Non-interest Expense

     Non-interest  expense was $3.6  million  for fiscal  1999  compared to $2.9
million for fiscal 1998. The following  table  presents the major  components of
non-interest expense.

                                                         Year Ended June 30

(Dollars in thousands)                                   1999         1998

Compensation and benefits                               $2,683        2,033
Occupancy                                                  343          244
Other                                                      622          592
   Total non-interest expense                           $3,648        2,869

     Total non-interest  expense increased $779,000 or 27.2% from fiscal 1998 to
fiscal 1999. The primary cause of the increase in compensation  and benefits was
due to an  acceleration  of vesting in the management  recognition  plan and the
supplemental  executive  retirement  plan during fiscal 1999.  The effect of the
acceleration was to increase compensation and benefits expense by $644,000.  The
increase  in other  occupancy  expense  was  primarily  due to the  Bank's  data
processing conversion during fiscal 1999.

Income Taxes

     QCF recorded  income tax expense of $1.3 million in fiscal 1999 compared to
$1.6 million in fiscal 1998. The decrease in income tax expense between 1998 and
1999 is primarily the result of changes in taxable income between the years.

Financial Condition

     QCF's total assets at June 30, 1999 were $148.4 million  compared to $150.5
million at June 30,  1998.  The  decrease of $2.1  million from 1999 to 1998 was
primarily due to a decrease in investment securities.

Investment Securities

     Investment securities decreased by $3.2 million or 4.1% from fiscal 1998 to
fiscal 1999.  The decrease was  primarily  due to the  Company's  stock  buyback
program.   During  fiscal  1999,  QCF  purchased  $59.6  million  of  investment
securities  and  collected  principal  from  maturities  or  repayments of $62.6
million.

Cash and Cash Equivalents

     Cash and cash  equivalents  increased by $564,000 from $4.0 million at June
30, 1998 to $4.5 million at June 30, 1999. 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 $438,000 or 0.7% from $65.2 million at June
30, 1998 to $65.6 million at June 30, 1999.


                                       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  $306,000  at June  30,  1999  compared  to
$119,000 at June 30, 1998.

Non-performing assets are summarized in the following table.

                                                            June 30

(Dollars in thousands)                       1999   1998    1997    1996    1995

Non-accrual loans                           $288     15      225     297     182
Foreclosed assets                             18    104       38       6       0
  Total non-performing assets               $306    119      263     303     182

  Non-performing assets to year-end assets.  .21%   .08      .17     .20     .13
  Non-performing loans to year-end loans     .47%   .18      .43     .58     .40
  Allowance for loan losses to
     non-performing assets                   186%  1070      501     439     755

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

Deposits and Short-term Borrowings

     The Bank's deposits increased $4.0 million, or 3.8%, from $105.6 million at
June 30, 1998 to $109.6 million at June 30, 1999. Short-term  borrowings,  which
consist  of  sales  of  securities  under  agreements  to  repurchase  identical
securities  remained stable between fiscal years at approximately $14.2 million.
Federal Home Loan Bank advances also remained stable at $2.0 million.

Capital Adequacy

     Stockholders'  equity was $20.0  million  at June 30,  1999 down from $26.3
million at June 30, 1998.  The decrease was due to the  repurchase  of stock for
the  treasury of $6.6  million and for the stock  option  trust of $2.9  million
offset primarily by earnings of $2.1 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% of adjusted total assets, and (iii) a requirement that "risk-based capital"
equal or exceed 8.0% of  risk-weighted  assets.  At June 30, 1999 and 1998,  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 4% of its net withdrawable savings deposits plus short-term borrowings.
The Bank has  maintained  an average  daily  liquidity  ratio in excess of these
requirements.


                                       6
<PAGE>



     The  primary  investing  activities  are the  origination  of loans and the
purchase of securities. During the year ended June 30, 1999, net loans increased
$438,000 while maturities and principal collected on investment securities,  net
of purchases totaled $3.0 million.

     The primary financing activity is the attraction of deposits and short-term
borrowings.  During  the year  ended  June 30,  1999,  deposits  and  short-term
borrowings increased $4.1 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  $564,000 to $4.5 million  during the year
ended June 30, 1999.

Asset/Liability Management and Market Risk

     The Bank's primary market risk is interest rate risk. 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's 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.

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.





                                       7
<PAGE>





Year 2000 Readiness Disclosure

     The year 2000  ("Y2K")  issue is the result of  computer  programs  using a
two-digit format, as opposed to four digits, to indicate the year. Such computer
systems  will be unable to  interpret  dates  beyond the year 1999,  which could
cause a system  failure or other  computer  errors,  leading to  disruptions  in
operations. The Bank has been identifying potential problems associated with the
Y2K issue and has  implemented  a plan designed to ensure that all software used
in connection with the "Bank" business will manage and manipulate data involving
the  transition  with  data  from  1999  to  2000  without  functional  or  data
abnormality  and without  inaccurate  results related to such data. In addition,
the Bank  recognizes  that its ability to be Y2K compliant is dependent upon the
cooperation of its vendors.  The Bank is requiring its vendors to represent that
their  products  are or will be Y2K  compliant  and is in the process of testing
compliance.  All major Y2K issues  for the Bank,  including  testing,  have been
addressed and all problems have been remedied as of June 30, l999.  The Bank has
also  prepared a contingency  plan in the event there are system  interruptions.
The Bank believes that its costs related to Y2K will be approximately  $700,000,
primarily  related to replacing  the bank's core inhouse  computer  software and
hardware systems.

     The most likely,  worst case  scenario for the  transition to the Year 2000
would be the failure of the application software and teller software. Due to the
complexity and time needed to convert to an alternative system in the event that
the Bank's  application  and teller  system do not operate in the Year 2000,  it
will be  necessary  to  manually  update  information  until  such time that the
programs and  applications are corrected to accommodate the year 2000. When data
processing  functions  are  completed on December  31,  1999,  a detailed  trial
balance of all the applications will be generated. Authorization for withdrawals
will be  based  on the  information  contained  in  these  trial  balances.  Any
transactions  completed in  subsequent  days will be reflected in an addendum to
the trial balances on a daily basis.





































                                       8
<PAGE>
 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  statements  of  financial
condition of QCF Bancorp,  Inc. and subsidiary (the Company) as of June 30, 1999
and 1998,  and the  related  consolidated  statements  of income,  stockholders'
equity, and cash flows for the years 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 audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects, the financial position of QCF Bancorp,
Inc.  and  subsidiary  as of June 30,  1999 and  1998,  and the  results  of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
generally accepted accounting principles.

                                                     McGladrey & Pullen, LLP

Duluth, Minnesota
August 11, 1999

















                                       9
<PAGE>





<TABLE>


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


Assets                                                                   June 30, 1999   June 30, 1998


<S>                                                                          <C>            <C>
Cash                                                                         $879,094       764,128
Interest-bearing deposits with banks                                        3,643,229     3,194,241
   Cash and cash equivalents                                                4,522,323     3,958,369
Securities held to maturity
(estimated fair value of $74,141,613 and
$78,384,314 at June 30, 1999  and 1998, respectively)                      74,871,676    78,111,850
Loans receivable, net                                                      65,632,062    65,194,321
Federal Home Loan Bank stock, at cost                                         499,800       425,200
Accrued Interest Receivable                                                   983,826     1,274,412
Premises and equipment                                                        737,277       480,169
Deferred tax                                                                  573,000       479,200
Prepaid expenses and other assets                                             531,065       562,812
           Total Assets                                                  $148,351,029   150,486,333

Liabilities and Stockholders' Equity

Deposits                                                                 $109,561,041   105,566,338
Short-term borrowings                                                      14,217,535    14,081,081
Federal Home Loan Bank advances                                             2,000,000     2,000,000
Accrued interest payable                                                    1,077,269     1,129,347
Advance payments made by borrowers
    for taxes and insurance                                                    71,063        66,831
Accrued expenses and other liabilities                                      1,442,808     1,314,640

          Total Liabilities                                               128,369,716   124,158,237

Commitments and Contingencies

Stockholders' equity:
  Serial preferred stock; authorized 1,000,000 shares;
    issued  none
Common stock ($.01 par value): authorized 7,000,000 shares;
   issued 1,116,371 shares in 1999 and 1,782,750 shares in 1998.               11,164        17,828
Additional paid-in capital                                                 11,236,851    16,375,783
Retained earnings, subject to certain restrictions                         16,188,396    22,704,864
Unearned employee stock ownership plan shares                                (951,550)   (1,022,230)
Unearned management recognition plan shares                                  (104,304)     (526,123)
Deferred compensation payable in common stock                                 669,830       541,339
Shares in stock option trust, at exercise price                            (5,411,153)   (2,349,884)
Treasury stock, at cost, 94,857 shares in 1999
   and 533,484 in  1998                                                    (1,657,921)   (9,413,481)

          Total Stockholders' Equity                                       19,981,313    26,328,096

          Total Liabilities and Stockholders' Equity                     $148,351,029   150,486,333
</TABLE>

See accompanying notes to consolidated financial statements.




                                       10
<PAGE>


<TABLE>

                                                  QCF BANCORP, INC. AND SUBSIDIARY
                                                 Consolidated Statements of Income



                                                               Year Ended June 30
                                                                   1999                   1998


Interest income:
<S>                                                              <C>                    <C>
Loans                                                            $5,781,385             5,756,593
Securities                                                        4,610,896             5,486,860

     Total interest income                                       10,392,281            11,243,453

Interest expense:
  Deposits                                                        4,030,582             3,956,865
  Short-term borrowings                                             530,418               819,001

     Total interest expense                                       4,561,000             4,775,866

     Net interest income                                          5,831,281             6,467,587

Provision (reduction in allowance)  for loan losses                (636,523)                    0

     Net interest income after provision (reduction in
          allowance) for loan losses                              6,467,804             6,467,587

Non-interest income:
  Fees and service charges                                          495,749               475,935
  Other                                                             133,303               103,156
  Gain on sale of securities                                              0               112,218

      Total non-interest income                                     629,052               691,309

Non-interest expense:
  Compensation and benefits                                       2,683,171             2,033,453
  Occupancy                                                         342,569               243,982
  Other                                                             622,357               592,040

     Total non-interest expense                                  $3,648,097             2,869,475

  Income before income tax expense                                3,448,759             4,289,421

Income tax expense                                                1,300,000             1,636,000

  Net income                                                     $2,148,759             2,653,421

Basic earnings per common share                                       $2.79                  2.51

Diluted earnings per common share                                     $2.52                  2.30
</TABLE>

See accompanying notes to consolidated financial statements.



                                       11
<PAGE>








<TABLE>

                                                  QCF BANCORP, INC. AND SUBSIDIARY
                                           Consolidated Statement of Stockholders' Equity

                                                        Net Unrealized Unearned
                                                        Gain (loss) on Employee   Unearned
                                       Addt'l             Securities   Stock      Management  Deferred Stock               Total
                Comprehensive  Common  Paid-in  Retained  Available    Ownership  Recognition Comp     Option   Treas   Stockholders
                   Income      Stock   Capital  Earnings  For Sale    Plan Shares Plan Shares Payable  Trust    Stock      Equity
<S>                             <C>   <C>        <C>        <C>       <C>         <C>     <C>      <C>        <C>         <C>
Balance, June 30, 1997         l7,828 16,665,625 20,051,443 (222,745) (1,080,710) (746,292)      0 (1,872,071)(5,389,792) 27,423,286
Comprehensive Income:
Net Income         $2,653,421                     2,653,421                                                                2,653,421

Purchase of treasury stock                                                                                    (3,482,350)(3,482,350)

Reclassification of stock to
deferred comp. payable                                                                     617,840              (617,840)          -

Settlement of deferred comp
Payable in stock                          45,942                                           (76,501)               76,501      45,942

Purchase of stock for
stock option  trust                     (529,957)                                                    (601,495)           (1,131,452)

Exercise of stock options                 51,086                                                      123,682                174,768

Amortization of manage-
ment recognition plan                     83,106                                   220,169                                   303,275

Change in unrealized loss on
securities available for sale                               222,745                                             222,745
                       222,745
Comprehensive Income$2,876,166

Earned employee stock
ownership plan shares                     59,981                          58,480                                             118,461

Balance, June 30, 1998         17,828 16,375,783  22,704,864      0   (1,022,230) (526,123)541,339 (2,349,884)(9,413,481) 26,328,096
Comprehensive Income:
Net Income           $2,148,759                    2,148,759                                                               2,148,759
Comprehensive Income $2,148,759

Purchase of treasury stock                                                                                    (6,583,983)(6,583,983)
Retirement of treasury stock   (6,664)(5,667,652) (8,665,227)                                                 14,339,543           -
Increase in deferred comp payable
in stock                                                                                   128,491                           128,491

Purchase of stock for
stock option trust                       214,299                                                   (3,080,000)           (2,865,701)

Exercise of stock options                  6,351                                                       18,731                 25,082

Amortization of manage-
ment recognition plan                    191,100                                   421,819                                   612,919

Earned employee stock
ownership plan share                     116,970                          70,680                                             187,650

Balance, June 30, 1999         11,164 11,236,851 16,188,396       0     (951,550)(104,304 669,830  (5,411,153)(1,657,921) 19,981,313
</TABLE>

See accompanying notes to consolidated financial statements.

                                       12
<PAGE>





<TABLE>

                                                  QCF BANCORP, INC. AND SUBSIDIARY
                                               Consolidated Statements of Cash Flows
                                                                                        Year ended June 30
                                                                                    1999               1998
Operating activities:
<S>                                                                            <C>                  <C>
Net income                                                                     $2,148,759           2,653,421
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation                                                                    195,822             108,406
  Gain on sale of securities                                                            0            (112,218)
  Amortization of net premiums (discounts)  on securities                         140,402             (97,718)
  Reduction in allowance for loan losses                                         (636,523)                  0
  Decrease in accrued interest receivable                                         290,586              36,367
  Increase (decrease) in accrued interest payable                                 (52,078)             58,034
  Increase  (decrease)  in accrued expenses & other liabilities                   323,500            (371,175)
  Increase (decrease) in deferred income taxes                                    (93,800)           (111,200)
  Increase in deferred compensation payable                                       128,491              98,767
  Amortization of unearned ESOP shares                                            187,650             158,795
  Amortization of MRP                                                             421,819             220,169
  (Increase) decrease in other assets                                             (54,056)            729,159
          Net cash provided by operating activities                            $3,000,572           3,370,807

Investing activities:
 Proceeds from sales of securities available for sale                                   0             599,600
 Proceeds from sale of Federal Home Loan Bank stock                                     0             128,700
 Proceeds from maturities and principal collected
  on securities held to maturity                                               62,629,695          54,568,400
 Proceeds from maturities and principal collected
  on securities available for sale                                                      0           7,617,805
 Purchases of securities held to maturity                                     (59,604,523)        (57,215,248)
 Net decrease ( increase)  in loans                                               198,782          (3,992,020)
 Net decrease  (increase)  in real estate owned                                    85,803             (66,140)
 Purchases of premises and equipment                                             (452,930)           (163,966)

   Net cash provided by  investing activities                                   2,856,827            1,477,131

Financing activities:
  Net increase  in deposits                                                     3,994,703            1,884,848
  Net  increase  in short-term borrowings                                         136,454               41,287
  Net decrease in Federal Home Loan Bank advances                                     0             (6,100,000)
  Purchase of treasury stock                                                   (6,583,983)          (3,482,350)
  Purchase of stock  for stock option trust                                    (2,865,701)          (1,131,452)
  Proceeds from exercise of stock options                                          25,082              123,682

  Net cash  used in financing activities                                       (5,293,445)          (8,663,985)

  Increase (decrease)  in cash and cash equivalents                               563,954           (3,816,047)

Cash and cash equivalent at beginning of year                                   3,958,369            7,774,416

Cash and cash equivalents at end of year                                       $4,522,323            3,958,369

Supplemental disclosures of cash flow information:
 Cash paid during the year for:
 Income taxes                                                                  $1,527,423            1,696,547
 Interest                                                                       4,613,078            4,717,832
Supplemental schedule of non-cash operating and
   Investing activities:
Securities transferred to securities held to maturity                                   0           17,352,203
Deferred compensation obligation and related stock in Grantor
    trust reclassified to stockholder's equity                                          0              617,840
</TABLE>

See accompanying notes to consolidated financial statements.


                                       13
<PAGE>







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




(1) Description of the Business

     QCF  Bancorp,  Inc.  (the  Company)  is the  holding  company of Queen City
Federal Savings Bank (the Bank) with operations in Virginia and Ely,  Minnesota.
The Bank provides retail and commercial loan and deposit  services  primarily to
customers within a 30-mile radius of Virginia and Ely, Minnesota.

(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.

Consolidation

     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.


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.

Securities

     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 stated at the amount of unpaid principal, reduced by an allowance
for loan losses.

     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



     Management  believes that the allowance for loan losses is adequate.  While
management  used  available  information  to recognize  losses on loans,  future
additions  to the  allowance  may be  necessary  based on  changes  in  economic
conditions.  In addition,  various regulatory  agencies,  as an integral part of
their examination  process,  periodically  review the allowance for loan losses.
Such  agencies may require  additions to the allowance  based on their  judgment
about information available to them at the time of their examination.

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

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

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 using  straight-line and accelerated  methods 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

     Basic per-share amounts are computed by dividing net income (the numerator)
by the  weighted-average  number of common shares outstanding (the denominator).
Diluted  per-share  amounts assume the  conversion,  exercise or issuance of all
potential  common stock  instruments  unless the effect is to reduce the loss or
increase the income per common share from continuing operations.







                                       15
<PAGE>







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

     Following is  information  about the  computation of the earnings per share
data for the years ended June 30, 1999 and 1998.

<TABLE>

                                            Year Ended June  30, 1999                      Year Ended June 30, 1998
                                                                        Net                                            Net
                                                                      Income                                          Income
                                                                        Per                                            Per
                                    Numerator        Denominator       Share       Numerator         Denominator      Share
Basic earnings per
   Share:
            Income available
               to common
<S>                                <C>                  <C>            <C>        <C>                  <C>             <C>
               stockholders        $2,148,759           769,995        $2.79      $2,653,421           1,055,186       $2.51
Effect of dilutive
    securities:
            Stock options                   -            71,714                            -              76,710
            Management recog-
               nition plan                  -            11,612                            -              22,358
Diluted earnings per
   Share:
            Income available
               to common
               stockholders         $2,148,759          853,321        $2.52     $2,653,421            1,154,254       $2.30
</TABLE>


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  of Recently Issued Statements of Financial Accounting Standards

     In June 1998, the Financial  Accounting  Standards  Board issued  Statement
(FASB) No. l33,  Accounting for Derivative  Instruments and Hedging  Activities,
which is  required to be adopted in years  beginning  after June 15,  2000.  The
statement permits early adoption as of the beginning of any fiscal quarter after
its issuance.  The Company has not determined whether to adopt the new statement
early.  The statement  will require the Company to recognize all  derivatives on
the  consolidated  statement of financial  condition at fair value.  Derivatives
that are not hedges  must be  adjusted  to fair  value  through  income.  If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of  derivatives  will either be offset against the change in fair value of
the  hedged  assets,  liabilities,  or  firm  commitments  through  earnings  or
recognized in other comprehensive  income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.

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

(3)  Securities Held to Maturity

     Securities  held to  maturity  at June  30,  1999  and  June  30,  1998 are
summarized as follows:




                                       16
<PAGE>







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

<TABLE>


                                                                  June 30, 1999

                                                              Gross            Gross
                                            Amortized        unrealized      unrealized           Fair
                                               cost            gains           losses            value

<S>                                         <C>               <C>             <C>            <C>
Mortgage backed  securities                 $17,014,555       45,430          238,643        16,821,342
Collateralized mortgage  obligations         43,623,022       51,339          442,599        43,231,762
U.S. government & agency obligations         12,186,800        2,200          148,868        12,040,132
Corporate bonds  and notes                    2,047,299        1,078                0         2,048,377
                                            $74,871,676      100,047          830,110        74,141,613

                                                                  June 30, 1998

                                                               Gross           Gross
                                            Amortized        unrealized      unrealized            Fair
                                               cost            gains           losses             value

Mortgage backed securities                   $9,524,274        56,481         (20,019)          9,560,738
Collateralized mortgage obligations          38,972,039       167,134         (77,784)         39,061,390
U.S. government & agency obligations         27,193,044       115,918          (8,650)         27,300,312
Corporate bonds & notes                       2,422,493        39,384               0           2,461,875
                                            $78,111,850       378,917        (106,453)         78,384,314
</TABLE>


     Collateralized   mortgage   obligations   presented  in  the  tables  above
aggregating  $252,180 and $819,817 (cost) at June 30, 1999 and 1998 respectively
have been issued by private issuers.

     The carrying  amount and fair value of securities  held to maturity at June
30, 1999, 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, 1999

                                                     Amortized         Fair
                                                        cost           value

Due within one year                                 $12,980,206     12,959,409
Due after one year through five years                60,110,382     59,402,284
Due after five years through ten years                1,781,088      1,779,920
Due after ten years                                           0              0
                                                    $74,871,676     74,141,613


     There were no sales of securities  held to maturity  during the years ended
June 30, 1999 and 1998.

     Accrued  interest  receivable  on  securities  held to maturity  aggregated
$499,159 and $788,536 at June 30, 1999 and 1998, respectively.  Held-to-maturity
securities  with carrying values of $16,136,819 and $16,630,189 at June 30, 1999
and 1998, respectively, were pledged to secure public deposits.


(4) Loans Receivable

Loans receivable at June 30, 1999 and 1998 are summarized as follows:

                                       17
<PAGE>




                        QCF BANCORP, INC. AND SUBSIDIARY
              Notes to Consolidated Financial Statements, Continued
                                                               June 30
                                                       1999             1998

Residential one-to-four family mortgage loans      $32,302,910       33,174,947
Multifamily and commercial mortgage loans            1,363,370        2,096,809
Consumer loans                                      20,414,839       19,827,147
Commercial loans                                    12,120,581       11,368,603
                                                    66,201,700       66,467,506

Less:  Allowance for losses                           (569,638)      (1,273,185)
                                                   $65,632,062       65,194,321


     The weighted  average  annual  contractual  interest rate for all loans was
8.58% and 8.76% at June 30, 1999 and 1998, respectively.

     Non-accrual  loans totaled  $288,192 and $15,312 at June 30, 1999 and 1998,
respectively. There were no restructured loans at June 30, 1999 and 1998.

     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,  1999 was  $135,389.  The  average
investment in impaired loans during fiscal 1999 was $313,000.

     The effect of impaired  loans on  interest  income for the years ended June
30, 1999, and 1998 was insignificant.

     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  $66,588  and $70,670 at June 30,  1999 and 1998,  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, 1999 and 1998
was $484,667 and $485,876, 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.

     At June  30,  1999 and  1998  Bank was  servicing  loans  for  others  with
aggregate unpaid principal balances of approximately  $1,299,976 and $2,039,010,
respectively.

(5) Allowance for Loan Losses

    Activity in the allowance for loan losses is summarized as follows


                                                              June 30
                                                       1999              1998

 Balance, beginning of year                         $1,273,185        1,314,174
 Provision (reduction in allowance)  for losses       (636,523)               0
 Charge-offs                                          (102,913)         (67,389)
 Recoveries                                             35,889           26,400
 Balance, end of year                                 $569,638        1,273,185

     During  fiscal  1999,  management  undertook a thorough  review of its loan
portfolio.  Based on the  results of this  review,  continued  low level of loan
losses and  non-performing  loans and current  economic  conditions,  management
determined  that the loan loss  reserves  should be reduced.  A net reduction of
$636,523 was recognized in earnings for fiscal 1999.





                                       18
<PAGE>




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



(6) Foreclosed Real Estate

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


                                                             June 30

                                                   1999                  1998

    Real estate in judgment                      $18,724               104,527

    Less allowance for losses                          0                     0
                                                 $18,724               104,527

(7) Premises and Equipment

    A summary of premises and equipment at June 30, 1999 and 1998 is as follows:

                                                              June 30
                                                   1999                  1998

   Land                                          $90,800                90,800
   Office buildings and improvements           1,080,965             1,083,340
   Furniture and equipment                     1,189,370             1,037,690
                                               2,361,135             2,211,830
   Less accumulated depreciation              (1,623,858)           (1,731,661)

                                                $737,277               480,169

(8) Deposits

     Deposits and weighted-average  interest rates at June 30, 1999 and 1998 are
summarized as follows:


                                            June 30
                             1999                              1998

                                    Weighted                          Weighted
                                    Average                           Average
                    Amount           Rate              Amount           Rate

Passbook         $26,383,768         2.50%           25,372,064        2.50%
Demand deposits   15,069,106         0.63            14,101,439        0.78
Money market      10,384,235         2.57            10,251,715        2.55
Certificates      57,723,932         5.20            55,841,120        5.25

                $109,561,041                        105,566,338






                                       19
<PAGE>








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


     At June  30,  1999  and  1998,  the  Bank  had  $4,311,000  and  $5,903,000
respectively,  of  certificates  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, 1999 or 1998.

Interest expense on deposits is summarized as follows:

                                                  Year ended June 30
                                            1999                      1998
Passbook                                  $645,547                  631,695
Demand deposits                            115,202                  107,380
Money market                               256,640                  240,166
Certificates                             3,013,193                2,977,624
                                        $4,030,582                3,956,865

Certificates had the following remaining maturities.

                                                    June 30, 1999
                                                                   Weighted
                                                                    average
                                                    Amount           rate

Less than 3 months                           $    8,205,012          4.81%
3-12 months                                      28,716,093          5.36
13-36 months                                     16,401,443          5.16
Over 36 months                                    4,401,384          5.53

                                              $  57,723,932          5.20%

At June 30, 1999 and 1998 no securities were pledged as collateral for deposits.


(9) 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 3.07% at June 30, 1999.

     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,  1999,  the  agreements  were
collateralized  by  securities  with a  carrying  value  of  $16,136,819  and an
approximate  market value of  $16,010,194.  At June 30, 1998 the agreements were
collateralized  by  securities  with a  carrying  value  of  $16,630,189  and an
approximate market value of $16,776,474.

     Federal Home Loan Bank  advances  totaled  $2,000,000  at June 30, 1999 and
1998.  The  advances  have an average  maturity  of 7 months and 2 months and an
average  rate of 5.58% and 5.74% at June 30,  1999 and 1998,  respectively.  The
advances  are  collateralized  by the Bank's  Federal Home Loan Bank stock and a
blanket pledge of residential one-to-four family mortgage loans.





                                       20
<PAGE>












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

(10) Income Taxes

      Federal and state income tax expense is as follows:

                                          Year ended June 30


                                  1999                    1998
Current:
   Federal                     $1,066,800              1,314,000
   State                          327,000                433,200
       Total current            1,393,800              1,747,200

Deferred:
   Federal                        (72,400)               (82,300)
   State                          (21,400)               (28,900)
        Total deferred            (93,800)              (111,200)
                               $1,300,000              1,636,000

     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:


                                                      Year Ended June 30
                                                  1999                 1998

Federal "expected" income tax expense          $1,172,578            1,458,403
Items affecting federal income tax:
   Preferred stock dividends                            0               (7,875)
   State income taxes, net of federal
        income tax benefit                        215,711              267,911
   Low income housing tax credits                 (52,433)             (52,433)
   Other, net                                     (35,856)             (30,006)
                                               $1,300,000            1,636,000

Effective income tax rate                            37.7%                38.1%

     The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at June 30, 1999 and 1998 are as follows:

                                                  Year Ended June, 30
                                                     1999               1998
Deferred tax assets:
  Allowance for loan losses                            $0               89,871
  Deferred compensation                           198,337              186,682
  Supplemental executive retirement plan          525,923              272,724
  Limited partnership                              23,308               12,361
  Other                                             8,184                7,569
                                                  755,752              569,207

Deferred tax liabilities:
     Allowance for loan losses                     96,727                   0
     Federal Home Loan Bank stock                  55,128              55,128
     Premises and equipment                        30,898              34,879
                                                  182,753              90,007
Net deferred tax asset                           $573,000             479,200



                                       21
<PAGE>




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





     No  valuation  allowance  was  required for deferred tax assets at June 30,
1999 or 1998.

     Retained  earnings at June 30, 1999 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.

(11) 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.


     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 $1,955,000 and $1,450,024 at June 30, 1999 and 1998, 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 $261,000 and $171,500 at June 30, 1999 and 1998, respectively.

(12)  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.

     The Bank is subject to various regulatory capital requirements administered
by the Bank's primary federal regulatory agency. Failure to meet minimum capital
requirements  can  initiate  mandatory  and  possibly  additional  discretionary
actions by regulators  that, if undertaken,  could have a direct material affect
on the Company's  consolidated  financial  statements.  Under  capital  adequacy
guidelines,  and the regulatory framework for prompt corrective action, the Bank
must meet specific  capital  guidelines  that involve  quantitative  measures of
assets  and  certain   off-balance   sheet  items  calculated  under  regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgements by the  regulators  about  components,  risk
weighting, and other factors. Quantitative measures established by regulation to
ensure capital  adequacy  require the Bank to maintain mimimum ratios (set forth
in the  table  below)  of total and Tier I  capital,  and of Tier I  capital  to
average assets (all as defined in the regulations).  Management believes,  as of
June 30, 1999, that the Bank meets all capital adequacy requirements to which it
is subject.



                                       22
<PAGE>





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

     As of June 30, 1999, 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,
1999 together with the excess over the minimum capital requirements.

                                                          To Be Well Capitalized
                                               For Capital      Under Prompt
                                                Adequacy    Corrective   Action
                                Actual          Purposes         Provisions
                            Amount   Ratio   Amount    Ratio   Amount     Ratio
                                (000's)           (000's)           (000's)
As of June 30, 1999
Total capital (to
  risk weighted assets)    $15,748   23.6%    $5,348  > 8.0%   $6,685  >  10.0%
Tier I capital (to
  risk weighted assets)     15,178   22.7%     2,674  > 4.0%    4,011  >   6.0%
Tier I capital (to
  average assets)           15,178   10.7%     5,673  > 4.0%    7,091  >   5.0%

As of June 30, 1998
Total capital (to
  risk weighted assets      20,442   29.9%     5,469  > 8.0%    6,837  >   10.0%
Tier I capital (to
  risk weighted assets)     19,169    28.0%    2,735  > 4.0%    4,102  >    6.0%
Tier I capital (to
  average assets)           19,169    13.4%    5,724  > 4.0%    7,155  >    5.0%



 (13) Employee Benefits

     The Company adopted an Employee Stock Ownership Plan (the ESOP) which meets
the requirements of Section  4975(e)(7) of the Internal Revenue Code and Section
407(d)(6) of the Employee  Retirement  Income  Security Act of 1974,  as amended
(ERISA),  and as such the  ESOP is  empowered  to  borrow  in  order to  finance
purchases of the common stock of the Company.  The ESOP borrowed $1,426,200 from
the Company to purchase 142,620 shares of common stock of the Company.  The Bank
has committed to make annual  contributions  to the ESOP  necessary to repay the
loan including interest.  The Bank contributed $159,485 and $161,147 to the ESOP
for the years ended June 30, 1999 and 1998, 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 1999 and 1998  was  $187,650  and  $158,795,
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 1999,  the company  committed to release  7,068 shares of
common  stock  which were  allocated  to  eligible  participants  subject to the
restrictions of the ESOP.

Shares released and allocated                             44,913
Unreleased shares                                         95,219

     Total ESOP shares                                   140,132

Fair value of unreleased shares at June 30, 1999      $2,523,303



                                       23
<PAGE>


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

     The Bank has entered into deferred compensation and supplemental retirement
agreements  with  certain  directors  and  officers.  One  of  the  supplemental
retirement  agreements  is a defined  benefit type  agreement and the other is a
defined contribution type agreement.  Under the deferred compensation agreements
and the defined  contribution type supplemental  retirement  agreement,  amounts
earned each year are charged to expense and credited to individual accounts. The
individual  accounts are credited with earnings based upon one of two investment
options, bank certificates of deposit or common stock of the Company. Investment
elections are irrevocable.  The obligation for accrued amounts that are measured
by the value of the Company's common stock are reported at cost in the statement
of stockholders' equity.

     The defined benefit type supplemental  retirement agreement provides for an
annual retirement benefit based on average annual compensation less amounts that
the  executive  is expected  to receive  under the Bank's  qualified  retirement
plans.  Benefits are payable for the life expectancy of the executive  beginning
at age 55. During the year ended June 30, 1999 the Bank  accelerated the vesting
to l00 percent as of June 30, 1999. As a result,  the Bank has fully  recognized
the present value of estimated future benefits payable under the agreement.  The
amount  charged  to  expense  for the  deferred  compensation  and  supplemental
retirement  agreements  was  $625,677  and $22l,292 for the years ended June 30,
1999 and 1998, respectively.

     The Company  has  established  the  Management  Recognition  Plan (MRP) for
directors  and key  officers.  Under the plan,  78,441  shares are available for
grant and 71,310 were granted to directors and officers in 1995. The cost of the
shares  awarded  under the plan is recorded as unearned  compensation,  a contra
equity  account,  and is being  recognized as an expense in accordance  with the
vesting requirements under the plan. During the fiscal year ended June 30, 1999,
the Company  accelerated vesting resulting in an additional expense of $233,000.
For the fiscal  year  ended  June 30,  1999 and 1998,  the  amount  included  in
compensation expense was $421,819 and $220,169, respectively.

     The Company has established stock option plans for directors,  officers and
employees.  In accordance  with the terms of the plan, the exercise  prices were
established  at the fair  market  price on the date of  shareholder  approval of
$13.875  and $28.00 per share for the  respective  plans.  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.

     The options vest over a five and one-year period at the rate of 20% and 50%
per year. If unused,  the options  expire in October 2005 and September  2008. A
summary of the status of the Company's stock option plan as of June 30, 1999 and
1998, and changes during the years ending on those dates is presented below:

                                           1999                  1998
                                                Weighted              Weighted
                                                 Average               Average
                                                Exercise              Exercise
                                      Shares     Price       Shares      Price
Outstanding at beginning  of year    151,534    $13.88      160,448      13.88
  Granted                            110,000     28.00            -           -
  Exercised                          ( 4,350)    13.00       (8,914)     13.88
Outstanding at end of year           260,184     19.85      151,534      13.88

Exercisable at end of year           142,710                 51,698

Weighted-average fair value
  per option of options granted
  during the year                               $13.58                       -

     At June 30, 1999, the options outstanding under the stock option plans have
a weighted-average remaining contractual life of 6.9 years. All of the nonvested
options are expected to eventually vest.

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





                                       24
<PAGE>





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


                                                 Year Ended June 30,
                                             1999                      1998
Net income:
  As reported                            $2,148,759                 $2,653,421
  Proforma                                1,677,923                  2,584,747

Basic earnings per share:
  As reported                                  2.79                       2.51
  Proforma                                     2.18                       2.45

Diluted earnings per share
  As reported                                  2.52                       2.30
  Proforma                                     1.97                       2.24

     In determining the pro forma amounts above, the fair value of each grant is
estimated at the grant date using the Black-Scholes  option-pricing  model, with
the following  weighted-average  assumptions for grants in fiscal years 1996 and
1999: No dividends;  risk-free interest rate of 6.0%,  expected life of 10 years
and price volatility of 14.57% and 18.57%, respectively.


 (14) 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, 1995.

     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.

(15) 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, 1999 and 1998 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,


                                       25
<PAGE>








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


     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
                                          1999                   1998


                                Carrying     Estimated     Carrying   Estimated
(in thousands)                   Amount      Fair Value      Amount   Fair Value
Financial assets:
  Cash and cash equivalents      $4,522         4,522       3,958      3,958
  Securities held to maturity    74,872        74,142     78,1127      8,384
  Loans receivable, net          65,632        65,629      65,194     65,761
  Federal Home Loan Bank Stock      500           500         425        425
Accrued accounts receivable         984           984       1,274      1,274
Financial liabilities:
  Deposits                      109,561       109,172     105,566    105,727
  Short-term borrowings          16,218        16,203      16,081     16,076
  Accrued interest payable        1,077         1,077       1,129      1,129

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.

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.



                                       26
<PAGE>









                        QCF BANCORP, INC. AND SUBSIDIARY
              Notes to Consolidated Financial Statements, Continued
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, 1999 and 1998 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,  1999  and  1998  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.

Off-balance Sheet Instruments

     Since the majority of the Bank's  off-balance sheet instruments  consist of
non-fee  producing,  variable rate commitments,  the Bank has determined they do
not have a distinguishable fair value.


(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, 1999 and 1998.


                                                        June 30
Condensed Balance Sheets                           1999         1998
Assets:
   Cash and cash equivalents                   $3,055,266    3,119,061
   Securities held to maturity                  1,527,807    3,798,098
   Investment in subsidiary                    15,177,733   19,169,233
   Other                                          220,507      241,704
     Total assets                             $19,981,313   26,328,096

Liabilities:                                            0            0

Stockholders' equity:                          19,981,313   26,328,096

    Total liabilities and
       stockholders' equity                   $19,981,313   26,328,096





                                       27
<PAGE>






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


                                                         Year Ended June 30
                                                         1999          1998
Condensed Statements of Income
   Interest income                                     $308,291       598,497
   Equity in earnings of subsidiary                   2,008,500     2,252,721
   Other                                               (163,465)      (69,797)
   Income before income tax expense                   2,153,326     2,781,421
   Income tax expense                                     4,567       128,000
     Net income                                      $2,148,759     2,653,421

Condensed Statements of Cash Flows
Operating activities:
   Net income                                        $2,148,759    2,653,421
   Equity in earnings of subsidiary                  (2,008,500)  (2,252,721)
   Distributions of earnings of subsidiary            6,000,000            0
   Increase in deferred compensation payable            128,492      541,339
  Amortization of Unearned ESOP shares                  187,650      158,795
  Amortization of MRP                                   421,819      220,169
  Increase  in other assets                             212,296     (165,740)
  Net cash provided by operating activities           7,090,516    1,486,741
Investing activities:
Principal collected from securities held  to maturity 2,270,291    2,386,916
  Principal collected from securities  available for sale     0    2,450,704
  Net cash  provided by  investing activities         2,470,291    4,837,620

Financing activities:
  Purchase of stock  into stock option trust        (2,8565,701)  (1,131,452)
  Proceeds from exercise of stock options                25,082      123,682
  Purchase of treasury stock                         (6,583,983)  (4,023,689)
  Net cash (used in) financing activities            (9,424,602)  (5,031,458)

  (Decrease) increase in cash and  cash equivalents     (63,795)   1,292,903
  Cash and cash equivalents, beginning  of period     3,119,061    1,826,158
  Cash and cash equivalents, end of period           $3,055,266   $3,119,061


(18) Quarterly Financial Data (Unaudited)

     Summarized quarterly financial data (in thousands of dollars except for per
share amounts) for fiscal 1999 and 1998 are as follows:

                                                    Three Months Ended

Selected Operations Data                    6/30/99  3/31/99  12/31/98  9/30/98

Interest income                             $2,501     2,581     2,615    2,695
Interest expense                             1,113     1,121     1,167    1,160
   Net interest income                       1,388     1,460     l,448    l,535
Provision for (reduction in) allowance
   for loan losses                            (637)        0        0         0
Non-interest income                            169       129       171      160
Non-interest expense                          1335       775       775       63
Income tax expense                             324       304       318       54
    Net income                                 535       509       526       79
Diluted  Earnings per common share            $.72       .65       .61      .58
High stock price                             26.68     25.50     27.50    31.50
Low stock price                              25.00     25.00     25.00    27.50



                                       28
<PAGE>




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



                                      6/30/98   3/31/98    12/31/97  9/30/97

Interest income                        $2,785     2,761     2,868     2,829
Interest expense                        1,161     1,151     1,235     1,229
  Net interest inc                      1,624     1,610     1,633     1,600
Non-interest income                       217       185       148       141
Non-interest expense                      736       719       735       679
Income tax expense                        428       393       393       422
  Net income                             $677       682       654       640
Diluted earnings per common share       $ .60       .60       .57       .52
High stock price                        33.00     29.38     29.75     26.25
Low stock price                         27.25     27.25     26.50     2l.25

Selected Financial Condition Data     6/30/99    3/31/99   12/31/98   9/30/98

Total assets                         $148,351   144.934   145,332    148,878
  Investment securities                74,872    73,334    69,691     74,563
  Net loans                            65,632    65,226    65,895     66,670
  Deposits                            109,561   108,574   107,708    105,869
  Short-term borrowings                16,218    14,453    15,436     18,079
  Stockholders' equity                 19,981    19,414    19,701     21,919

                                      6/30/98   3/31/98    12/31/97    9/30/97

Total assets                         $150,486   154,089   152,668    158,192
  Investment securities                78,112    77,899    76,918     82,357
  Net loans                            65,194    64,525    64,819     63,673
  Deposits                            105,566   105,239   103,693    104,549
  Short-term borrowings                16,081    13,862    14,158     14,253
  Stockholders' equity                 26,328    27,275    26,820     26,020

























                                       29
<PAGE>








                            STOCKHOLDERS' INFORMATION
<TABLE>

<S>                                                                      <C>
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 13, 1999 at 9:00 A. M. at                                        a ticker symbol of QCFB.
the executive office of the Company.                                     Stockholders of record:  305

Executive Office                                                         Form 1O-KSB
QCF Bancorp, Inc.                                                        QCF's Form 1OKSB 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, LLP                                                  Virginia, MN 55792
227 West First Street
Duluth, MN 55802                                                         Transfer Agent & Registrar
                                                                         Inquiries regarding change of address,
QCF Bancorp, Inc.                                                        transfer requirements, and 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:
Kevin E. Pietrini                                                        Kevin E. Pietrini
Chairman of the Board,                                                   Chairman of the Board,
President and Chief                                                      President and Chief Executive Officer
Executive Officer
                                                                         Daniel F. Schultz
Robert A. Muhich                                                         Vice President and Treasurer
Computer Consultant
Culbert Realty & Appraisal Service                                       Linda M. Myklebust
                                                                         Vice President
John A. Trenti
Attorney at the Trenti Law Firm                                          Gerald D. McKenna
                                                                         Vice President
Peter J. Johnson
President of Hoover Construction                                         Branch Offices:
                                                                         Thunderbird Mall
Craig W. Nordling                                                        Virginia, Mn. 55792
Line Department Manager
Lake Country Power                                                       102 East Sheridan Street
                                                                         Ely, MN 5573l
John C. Pearsall
Partner with Mesabi Dental Service

Daniel F. Schultz
Vice President/Treasurer

</TABLE>


                                       30



<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             l00%

Subsidiaries of Queen City Federal Savings Bank (l)

Queen City Service Corporation               Minnesota                 l00%













(l) 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 22



McGLADREY&PULLEN,LLP                                               RSM
Certified Public Accountants and Consultants                       international




                       CONSENT OF INDEPENDENT ACCOUNTANTS


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




     We hereby consent to the  incorporation  by reference of our report,  dated
August  11,  1999,  included  in this Form  10-KSB and in the  previously  filed
Registration Statement of QCF Bancorp, Inc. on Form S-8 (No. 33-98154).



                                                         McGLADREY & PULLEN, LLP



Duluth, Minnesota
September 15,1999

<PAGE>