SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549

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

                                 FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

    For the year ended December 31, 2001
                                    OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                        Commission File Number:  0-28934

                           EMPIRE FEDERAL BANCORP, INC.
------------------------------------------------------------------------------
      (Exact name of small business issuer as specified in its charter)

          Delaware                                                 81-0512374
------------------------------------------           -------------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                             Identification No.)

123 South Main Street, Livingston, Montana                              59047
------------------------------------------           -------------------------
(Address of principal executive offices)                            (Zip Code)

Registrant's telephone number, including area code:  (406) 222-1981
                                                     --------------

Securities registered pursuant to Section 12(b) of the Act: None

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

                   Common Stock, par value $0.01 per share
                   ---------------------------------------
                             (Title of Class)

    Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES  x     NO
                                                   -----     -----

    Indicate by check mark whether disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or other
information statements incorporated by reference in Part III of this Form
10-KSB or any amendments to this Form 10-KSB.  YES   x    NO
                                                   -----     -----
    The aggregate market value of the voting stock held by nonaffiliates of
the Registrant, based on the closing sales price of the Registrant's Common
Stock as quoted on the Nasdaq National Market System under the symbol "EFBC"
on March 12, 2002, was $21,559,294 (1,507,643 shares at $14.30 per share).  It
is assumed for purposes of this calculation that none of the Registrant's
officers, directors and 5% stockholders are affiliates.

    The Registrant's revenues for the year ended December 31, 2001 were
$11,383,545.

                    DOCUMENTS INCORPORATED BY REFERENCE

1.  Portions of Annual Report to Stockholders for the year ended December 31,
    2001 (Parts I and II)
2.  Portions of the Proxy Statement for the Annual Meeting of Stockholders
    (Part III)

Transitional Small Business Disclosure Format (check one) Yes       No    X
                                                              -----     -----

<PAGE>



                                   PART I

Item 1.  Business
-----------------

GENERAL

     Empire Federal Bancorp, Inc. (the "Corporation"), a Delaware corporation,
was incorporated on September 20, 1996 for the purpose of becoming the holding
company for Empire Bank ("Empire" or the "Bank") upon its conversion from a
federal mutual savings and loan association to a federal stock savings bank
("Conversion") (the Corporation and Empire shall at times be referred
collectively to as the "Corporation").  The Conversion was completed on
January 23, 1997.  At December 31, 2001, the Corporation had total assets of
$174.9 million, total deposits of $126.9 million and stockholders' equity of
$28.9 million.  The Corporation has not engaged in any significant activity
other than holding the stock of Empire.  Accordingly, the information set
forth in this report, including financial statements and related data, relates
primarily to Empire.

     Empire was organized in 1923 as a Montana-chartered mutual building and
loan association under the name "Empire Building and Loan Association."  In
1970, the Bank converted to a federal charter and adopted the name "Empire
Federal Savings and Loan Association of Livingston."  In connection with the
Conversion, the Bank changed its title to "Empire Federal Savings Bank."  The
Bank's deposits are federally insured by the Federal Deposit Insurance
Corporation ("FDIC") under the Savings Association Insurance Fund ("SAIF").
The Bank is a member of the Federal Home Loan Bank ("FHLB") System.  During
2000, the Bank changed its name to Empire Bank.

     The Bank is a community oriented financial institution, which has
traditionally offered a variety of savings products to its retail customers
while concentrating its lending activities on the origination of loans secured
by one-to- four-family residential dwellings.  The Bank considers Gallatin,
Park and Sweet Grass counties in south central Montana as its primary market
area.  During 1999, the Bank received regulatory approval to open a de novo
branch in Billings, Montana, which was opened in April 2000.  During 2000, the
Bank opened a loan production office in Missoula, Montana and plans to open a
full service branch in that community during the first quarter of 2002.
Lending activities also have included the origination of multi-family,
commercial, business, commercial real estate and home equity loans.  The
Bank's primary business has been that of a traditional financial institution,
originating loans in its primary market area for its portfolio.  In addition,
the Bank has maintained a significant portion of its assets in investment and
mortgage-backed securities.  Similar to its lending activities, the Bank's
investment portfolio has been weighted toward U.S. Government agency
mortgage-backed securities secured by one-to-four-family residential
properties.  The portfolio also includes U.S. Government agency securities.
Investment securities, including mortgage-backed securities and FHLB stock,
totaled $37.6 million, or 21.5%, of total assets at December 31, 2001.  In
addition to interest and dividend income on loans and investments, the Bank
receives other income from the sale of insurance products through its
wholly-owned subsidiary, The Dime Service Corporation.

     As evidenced by the new branch in Billings and an increase in commercial
and business loans in 2001, the Corporation's strategy is changing from its
historical role as a mortgage lender to a growth-oriented expansion strategy
by pursuing internal and external growth opportunities, when appropriate.
This new strategy may subject the Corporation to a greater degree of risk.
Risks associated with this new business strategy include increased risk of
losses on loans, provision for loan losses which exceed historical levels,
difficulties in integrating or managing new branches or acquired institutions
and problems related to the management of growth.  There can be no assurance
that the Corporation will be successful in implementing this new business
strategy or in managing growth.  For further information regarding the
segments of the Corporation's business, see Note 19 of the Notes to
Consolidated Financial Statements in the 2001 Annual Report to Stockholders
("Annual Report") incorporated herein by reference.

                                     1

<PAGE>





Subsequent Events

     In January 2002, the Corporation announced its intent to acquire Montana
First National Bancorporation located in Kalispell, Montana.  In the
transaction, the Corporation will acquire all of the issued and outstanding
common stock of Montana First National Bancorporation in exchange for an
aggregate price of $4,037,500.  The aggregate cash price is subject to
adjustment based upon Montana First National Bancorporation's financial
performance prior to closing of the transaction, which is anticipated to occur
in the second quarter of fiscal year 2002.

     In connection with the anticipated transaction, the Corporation intends
to apply to the Federal Reserve System for permission to become a bank holding
company under the Bank Holding Company Act of 1956, as amended.  As a bank
holding company, the Corporation will become subject to the Bank Holding Act
and Federal Reserve Regulation Y, which, among other things, limit the
activities of bank holding companies to activities closely related to banking.
Under current law and regulations, bank holding companies may only engage in
certain limited insurance activities.  The Dime Service Corporation ("Dime") a
wholly-owned subsidiary of the Bank, engages in general insurance agency
services in Montana.  As a result of the anticipated transaction, the
Corporation, as a bank holding company, may be required to divest Dime because
the continued ownership of the entity is not authorized under the Bank Holding
Company Act and Regulation Y.  The divestiture, if any, would be required
within a two-year holding period authorized under the Bank Holding Company
Act.  The Corporation intends to elect to become a financial holding company
within this two-year holding period.  As a financial holding company, the
Corporation would be authorized to continue its control of Dime, as well as to
engage in other financially-related activities authorized under federal law
and regulation.  The Corporation is not currently entitled to become a
financial holding company but anticipates meeting the qualification
requirements prior to expiration of the two-year holding period.  All other
business activities currently conducted by the Corporation are authorized for
both bank holding companies and financial holding companies.  For further
information regarding the effect of a financial holding company election by
bank holding companies, see "Regulation   Regulation of Bank Holding
Companies."

LENDING ACTIVITIES

    Loan Portfolio Analysis.  The following table sets forth the composition
of the Bank's loan portfolio as of the dates indicated.  The Bank had no
concentration of loans of a given category exceeding 10% of total gross loans
other than as set forth below.

                                                  At December 31,
                                     ---------------------------------------
                                           2001                  2000
                                     -----------------     -----------------
                                     Amount    Percent     Amount    Percent
                                     ------    -------     ------    -------
                                                (Dollars in Thousands)

 One- to four-family..............  $37,214     43.22%     $46,128    55.63%
 One-to-four-family loans
   held for sale..................    4,089      4.75        1,497     1.80
 Multi-family.....................    4,730      5.49        5,158     6.22
 Commercial real estate...........   17,322     20.12       12,468    15.04
 Commercial.......................    6,349      7.37        6,182     7.46
 Consumer.........................    4,995      5.80        5,026     6.06
 Share loans......................      660       .77          459      .55
 Construction.....................   10,749     12.48        6,003     7.24
                                    -------    ------      -------   ------
   Total..........................   86,108    100.00%      82,921   100.00%
                                               ======                ======
Less:
 Loans in process.................       38                    404
 Deferred loan origination
   fees and costs.................      238                    321
 Allowance for loan losses........      591                    336
                                    -------                -------
   Total loans, net...............  $85,241                $81,860
                                    =======                =======

                                       2

<PAGE>



     Permanent Residential One- to Four-Family Mortgage Loans.  Historically,
the primary lending activity of the Bank has been the origination for
portfolio of permanent residential one- to four-family first mortgage loans.
Management believes that this policy of focusing on single-family residential
mortgage loans has been successful in contributing to interest income while
keeping delinquencies and losses to a minimum.  At December 31, 2001, $41.3
million, or 47.97%, of the Bank's total loan portfolio, before net items,
consisted of permanent residential one-to four-family mortgage loans, with an
average balance of $65,000.

     The Bank presently originates for its portfolio fixed-rate mortgage loans
secured by non-owner occupied one-to-four-family properties with terms of up
to 20 years and up to 30 years for owner-occupied residential properties.  At
December 31, 2001, $40.3 million, or 46.80%, of the total loans before net
items were fixed rate one-to four-family mortgage loans and $1.0 million, or
1.16%, were adjustable rate mortgage ("ARM") loans.  The Bank has offered two
ARM loan products for portfolio which adjust annually subject to a limitation
on the annual increase of 1.5% to 2.0% and an overall limitation of 5.0% or to
a specific ceiling rate. These ARM products utilize either the OTS Monthly
Median Cost of Funds Index or the Semi-Annual Cost of Funds Index ("COFI").
Loans based on the COFI constitute a majority of the Bank's ARM loans.  The
COFI is a lagging model index which, together with the periodic and overall
interest rate caps, may cause the yield on such loans to adjust more slowly
than the cost of interest-bearing liabilities especially in a rapidly rising
rate environment.

     The Bank's ARM loans do not permit negative amortization of principal and
carry no prepayment restrictions.  Borrower demand for ARM loans versus
fixed-rate mortgage loans is a function of the level of interest rates, the
expectations of changes in the level of interest rates and the difference
between the initial interest rates and fees charged for each type of loan.
The relative amount of fixed-rate mortgage loans and ARM loans that can be
originated at any time is largely determined by the demand for each in a
competitive environment.

     ARM loans help reduce the Bank's exposure to changes in interest rates.
There are, however, unquantifiable credit risks resulting from the potential
of increased costs due to changed rates to be paid by the customer.  It is
possible that during periods of rising interest rates the risk of default on
ARM loans may increase as a result of repricing with increased costs to the
borrower.  Another consideration is that although ARM loans allow the Bank to
increase the sensitivity of its asset base to changes in the interest rates,
the extent of this interest sensitivity is limited by the periodic and
lifetime interest rate adjustment limits.  Because of these considerations,
the Bank has no assurance that yields on ARM loans will be sufficient to
offset increases in the Bank's cost of funds.

     The Bank's lending policies generally limit the maximum loan-to-value
ratio on mortgage loans secured by owner occupied properties to 80% of the
lesser of the appraised value or the purchase price, however, most loans have
loan-to-value ratios of 75% or less.  Property valuations are required on all
properties.

     The Bank offers fixed-rate, permanent owner-occupied one-to-four-family
mortgage loans with terms of up to 30 years.  Substantially all permanent
one-to-four-family loans have original contractual terms to maturity of 20 to
25 years and are primarily made for loan amounts of less than $250,000.  Such
loans generally are amortized monthly with principal and interest due each
month and customarily include "due-on-sale" clauses.  The Bank enforces
due-on-sale clauses to the extent permitted under applicable laws.
Substantially all of the Bank's mortgage loan portfolio consists of
conventional loans.  The Bank has not originated significant amounts of
mortgage loans on second residences.

     The Bank also originates residential mortgage loans secured by non-owner
occupied rental properties within its primary market area.  Generally, such
loans are made at higher interest rates than owner-occupied residential
mortgage loans, with a loan-to-value ratio of 70%, and with a debt coverage
ratio of 1.25x.

                                       3

<PAGE>



     The Bank requires title insurance on all real estate secured loans.   The
Bank also requires that fire and extended coverage casualty insurance or
homeowners insurance (and, if appropriate, flood insurance) be maintained in
an amount at least equal to the outstanding loan balance.

     Construction Loans.  The Bank originates construction loans primarily for
the construction of single-family residences and multi-family properties.
Construction loans generally convert to a secondary market permanent loan upon
the completion of construction.  At December 31, 2001, construction loans
amounted to $10.7 million, or 12.48%, of the Bank's total loan portfolio,
before net items, as compared to $6.0 million, or 7.24%, at December 31, 2000.
Included in the December 31, 2001 balance are approximately $6.0 million in
loans for the construction of one-to-four family residences, most of which are
pre-sold.  Other significant amounts include a $2.0 million loan for the
construction of a motel.  Also included in the year-end balance is a $1.8
million construction loan for a multi-family complex which is past due at
December 31, 2001.  The increase is primarily the result of an increase in the
construction of one-to-four-family residences.  During the construction phase,
the borrower pays only interest on the loan.  The borrower is qualified at the
interest rate for the secondary market permanent loan.  The Bank's
construction loan agreements generally provide that loan proceeds are
disbursed in increments as construction progresses.  The Bank periodically
reviews the progress of the underlying construction project.  Construction
lending is generally limited to the Bank's primary lending areas and is
underwritten pursuant to the same general guidelines used for originating
permanent one- to four-family loans.  Construction financing is generally
considered to involve a higher degree of risk of loss than financing on
improved, owner-occupied real estate because of the uncertainties of
construction and the possibility of costs exceeding the initial estimates.

     Multi-Family and Commercial Real Estate Lending.  The Bank also
originates loans secured by multi-family and commercial real estate.  At
December 31, 2001, the Bank's loan portfolio included $4.7 million in multi-
family loans and $17.3 million in commercial real estate loans as compared to
$5.2 million and $12.5 million, respectively, at December 31, 2000.

     Multi-family and commercial real estate lending affords the Bank an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending.  However, loans secured by such
properties are generally greater in amount, more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than
one-to-four-family residential mortgage loans.  Because payments on loans
secured by commercial real estate and multi-family properties are often
dependent on the successful operation and management of the properties,
repayment of such loans may be influenced by adverse conditions in the real
estate market or the economy.

     Multi-family and commercial real estate loans originated by the Bank are
predominately fixed-rate loans with amortization terms of 15 to 20 years and
balloon at three to five years.  The Bank's commercial real estate portfolio
consists of loans on a variety of properties located in the Bank's primary
market area, including office buildings, churches, hotels and motels.
Multi-family loans generally are secured by small to medium-sized apartment
buildings.  An independent appraiser engaged by the Bank before the loan is
made performs appraisals on properties, which secure multi-family and
commercial real estate loans.  Underwriting of commercial and multi-family
loans includes a thorough analysis of the cash flows generated by the real
estate to support the debt service and the financial resources, experience,
and income level of the borrowers.  The Bank imposes a debt coverage ratio of
1.25x to ensure that the property securing the loans will generate sufficient
cash flow to adequately cover operating expenses and debt service payments
plus provide an acceptable return to the investor.  Operating statements on
each multi-family and commercial real estate loan are required and reviewed by
management on an annual basis.

     At December 31, 2001, the average loan balance of the Bank's multi-family
loans was $206,000.  At December 31, 2001, the Bank had five multi-family
loans in excess of $500,000 with three borrowers with an aggregate balance of
$2.5 million.  At December 31, 2001 the Bank had eight commercial real estate
loans in excess of $500,000 with seven borrowers with an aggregate balance of
$7.1 million.  Included in the $7.1 million balance is one loan for $521,000
that was past due at December 31, 2001. The continued increase in

                                       4

<PAGE>



commercial real estate loans during 2001 was the result of the planned
emphasis on offering full service banking products to the Bank's markets.

     Consumer Lending.  The Bank's consumer loan portfolio consists primarily
of home equity, home improvement, share loans and, to a substantially lesser
extent, mobile home and automobile loans.  At December 31, 2001 the Bank's
consumer loans totaled approximately $5.7 million, or 6.57%, of the Bank's
gross loans of which $3.9 million, or 4.60%, consisted of home equity and home
improvement loans.

     Consumer loans are made at fixed and adjustable interest rates and for
varying terms.  Home equity and home improvement loans are made for terms up
to 15 years for owner occupied residences.  In the case of home equity loans,
the Bank holds a second mortgage behind its own or another financial
institution's first mortgage.  When originating a home equity loan, the Bank
accounts for both the first and second mortgage liens and generally limits the
loan-to-value ratio to 80%.

     Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles and other vehicles.  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 beyond obtaining a deficiency judgment.  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 that can be recovered on such loans.

     Commercial Business Lending. The Bank's commercial business lending
activities focus primarily on small to medium size businesses owned by
individuals well known to the Bank and who reside in the Bank's primary market
area.  At December 31, 2001, commercial business loans amounted to $6.3
million, or 7.37% of total loans as compared to $6.2 million, or 7.46%, of
total loans at December 31, 2000.  At December 31, 2001 the Bank had six
commercial business loans in excess of $250,000 with six borrowers with an
aggregate balance of $2.5 million, all of which are current at December 31,
2001.  The borrowers include auto dealers, retail establishments, hospitals,
motels and restaurants.

     Commercial business loans may be unsecured loans, but usually are secured
by various types of business collateral other than real estate (i.e.,
inventory, equipment, etc.).  In many instances, however, such loans are often
also secured by junior liens on real estate.  Commercial business loans are
either lines of credit or term loans.  Lines of credit are usually renewable
and made for a one-year term.  Lines of credit are generally variable rate
loans indexed to the prime rate.  Term loans are usually originated with three
to five year maturities, with a maximum of seven years, on a fully amortizing
basis.  As with commercial real estate loans, the Bank ordinarily requires
annual financial statements from its commercial business borrowers and, if the
borrower is a corporation, personal guarantees from the principals.

     Commercial business lending ordinarily involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Real estate lending is usually considered to be collateral based lending with
loan amounts based on predetermined loan to collateral values and liquidation
of the underlying real estate collateral is viewed as the primary source of
repayment in the event of borrower default.  Although commercial business
loans are often collateralized by equipment, inventory, accounts receivable or
other business assets, the liquidation of collateral in the event of a
borrower default is often not a sufficient source of repayment because
accounts receivable may be uncollectible and inventories and equipment may be
obsolete or of limited use, among other things.  Accordingly, the repayment of
a commercial business loan depends primarily on the creditworthiness of the
borrower (and any guarantors), while liquidation of collateral is a secondary
and often insufficient source of repayment.

                                       5

<PAGE>



<PAGE>
<TABLE>

     Maturity of Loan Portfolio.  The following table sets forth the maturity of the Bank's loan portfolio
at December 31, 2001.  The table does not include prepayments of scheduled principal repayments.  All loans
are shown as maturing based on contractual maturities.

                         1-4                    Commercial                                Consumer
                        Family   Multi-family   Real Estate   Construction   Commercial   and Share   Total
                        ------   ------------   -----------   ------------   ----------   ---------   -----
                                                  (In Thousands)

                     <c>         <c>          <c>            <c>            <c>         <c>
Amounts Due:
Within 3 months         $  172      $  117       $ 2,086        $ 6,891        $1,541      $  228    $11,035
 3 months to 1 year....  1,191         715           759          3,085         2,398         900      9,048

After 1 year:
 1 to 3 years..........  3,648         177         7,311            180           329         776     12,421
 3 to 5 years..........  5,820         965         2,749            593           952       2,536     13,615
 5 to 10 years.........  5,246         738         1,873             --           764         694      9,315
 10 to 20 years........ 14,084       2,018         2,054             --           365         377     18,898
 Over 20 years......... 11,142          --           490             --            --         144     11,776
                       -------      ------       -------        -------        ------      ------     ------
Total due after
 one year.............. 39,940       3,898        14,477            773         2,410       4,527     66,025
                       -------      ------       -------        -------        ------      ------     ------
Total amount due.......$41,303      $4,730       $17,322        $10,749        $6,349      $5,655     86,108
                       =======      ======       =======        =======        ======      ======
Less:
 Allowance for
  loan loss............                                                                                  591
 Loans in process......                                                                                   38
 Deferred loan fees....                                                                                  238
                                                                                                     -------
Loans receivable, net..                                                                              $85,241
                                                                                                     =======

</TABLE>

<TABLE>
    The following table sets forth the dollar amount of all loans due after December 31, 2001, which have
fixed interest rates and have floating or adjustable interest rates.

                                     Fixed-    Floating- or
                                     Rates    Adjustable-Rates    Total
                                     -----    ----------------    -----
                                               (In Thousands)

                                 <c>            <c>           <c>
 One- to four-family............... $40,282        $1,021        $41,303
 Multi-family......................   3,978           752          4,730
 Commercial Real Estate............  12,203         5,119         17,322
 Construction......................   2,935         7,814         10,749
 Commercial........................   1,512         4,837          6,349
 Consumer and share................   3,677         1,978          5,655
                                    -------       -------        -------
     Total......................... $64,587       $21,521        $86,108
                                    =======       =======        =======

</TABLE>

                                                                     6

<PAGE>





     Scheduled contractual principal repayments of loans as presented in the
preceding table do not reflect the actual life of such assets.  The average
life of loans ordinarily is substantially less than their contractual terms
because of prepayments.  In addition, due-on-sale clauses on loans generally
give the Bank the right to declare loans 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, however, when current mortgage loan market rates are
higher than rates on existing mortgage loans and, conversely, decrease when
rates on existing mortgage loans are higher than current mortgage loan market
rates.

     Loan Solicitation and Processing.  Real estate loan customers are
solicited through advertising media and contacts with local real estate
brokers.  Upon receipt of a loan application from a prospective borrower, a
credit report and other data are obtained to verify specific information
relating to the loan applicant's employment, income and credit standing.  All
of the Bank's lending is subject to its written nondiscriminatory underwriting
standards, loan origination procedures and lending policies prescribed by the
Bank's Board of Directors.   Commercial loan customers are solicited through
advertising media, but loan officer's personal contact with potential
borrowers is the primary source of new commercial loans.

     All loans over $350,000 must be approved by the Bank's Loan Committee,
which consists of any three members of the Board of Directors.  Interest rates
are subject to change if the approved loan is not closed within the time of
the commitment.  Because the Bank originates loans for its own portfolio, many
of the loans do not comply with all secondary market documentation criteria.
This practice has enabled the Bank to develop an expedited loan application
and approval process which management believes provides it with a competitive
advantage in its primary market area while continuing to maintain its
underwriting standards.  Management of the Bank also believes its local
decision-making capabilities are an attractive quality to customers within its
market area.  The Bank's loan approval process allows loans to be approved and
closed in approximately four weeks or less.

     Loan Commitments.   Loan commitments typically contain a termination date
of 30 days from the date of the commitment letter that is issued at the time
the loan is approved.  The Bank had outstanding loan commitments of
approximately $3.5 million at December 31, 2001; most of which were for fixed
rate/single maturity payment loans.

     Loan Originations, Sales and Purchases.  During the year ended December
31, 2001, the Bank's total gross loan originations were $85.0 million.

     The Bank has occasionally originated or participated in loans secured by
properties outside the State of Montana.  These properties are primarily
located in California but also include loans secured by one-to-four-family
properties in Massachusetts, Utah and Colorado.  At December 31, 2001, these
loans amounted to $812,000 and consisted of (i) $215,000 in permanent
residential one-to-four-family mortgage loans, (ii) $297,000 in multi-family
loans, and (iii) a participation interest in a commercial real estate loan for
$300,000.  The Bank has  purchased loan participation interests primarily
during periods of reduced loan demand in its market area.  At December 31,
2001, the Bank had one loan participation interest in its primary market area
with a balance of $1.2 million.  Any such purchases are made in conformance
with the Bank's underwriting standards.  The Bank may decide to purchase
additional loans outside its market area in the future depending upon the
demand for mortgage credit in its market area, however, it has not purchased
any participation interests outside of its primary market area during the past
five years.  During the year ended December 31, 2001 the Bank had five loans
amounting to $1.1 million on properties located in Arizona and Wyoming.

     Historically, the Bank has been a portfolio lender, maintaining the
residential mortgage loans it originates in its portfolio rather than selling
them in the secondary market.  Subject to market conditions, management will
utilize and expand sales of mortgage loans in the secondary market.  During
the year ended December 31, 2001, the Bank sold $35.5 million of single-family
mortgage loans in the secondary market.  The Billings and Bozeman branches and
the Missoula loan production office were the most active of the Bank's offices
in these sales.

                                       7

<PAGE>




     The following table sets forth the Bank's originations and loan sales and
principal repayments during the periods indicated.  Mortgage loan originations
during the periods indicated include fixed-rate, adjustable rates and, in some
cases, balloon payment loans.

                                          Year Ended December 31,
                                          ------------------------
                                          2001                2000
                                          ----                ----
                                               (In Thousands)
Total gross loans receivable at
  beginning of period..................  $82,921            $61,370

Loans originated:
 One- to four-family...................   40,972             13,267
 Multi-family..........................      777              2,429
 Construction..........................   18,851             12,553
 Commercial real estate................    7,659              5,233
 Commercial............................   11,741             11,292
 Consumer..............................    4,973              4,737
                                         -------            -------
   Total loans originated..............   84,973             49,511

Loans sold:
 Whole loans...........................  (35,524)            (5,814)
                                         -------            -------
Loan principal repayments..............  (46,262)           (22,146)
                                         -------            -------
Net loan activity......................    3,187             21,551
                                         -------            -------
   Total gross loans receivable
    at end of period...................  $86,108            $82,921
                                         =======            =======

     Loan Origination and Other Fees.  The Bank charges loan origination fees,
which are a percentage of the principal amount of the mortgage loan.  The
amount of fees charged by the Bank is generally up to 1% for mortgage loans
and 2% for construction loans.  The Bank generally does not charge fees for
home equity loans.  Current accounting standards require that origination fees
received (net of certain loan origination costs) be deferred and amortized
into interest income over the contractual life of the loan.  Net deferred fees
or costs associated with loans that are prepaid are recognized as income at
the time of prepayment.  The Bank had $238,000 in net deferred loan fees at
December 31, 2001.

     Non-Performing Assets and Delinquencies.  When a mortgage loan borrower
fails to make a required loan payment when due, the Bank institutes collection
procedures.  All loan payments are due on the contractual due date, however, a
loan is not considered delinquent and collection procedures are not instituted
until after the 30th day of the contractual due date.  The first notice is
mailed to the borrower 30 days after the contractual due date and, if
necessary, a second written notice follows within 30 days thereafter giving
the borrower 15 days to respond and correct the delinquency.  Attempts to
contact the borrower by telephone generally begin soon after the first notice
is mailed to the borrower.  If a satisfactory response is not obtained,
continuous follow-up contacts are attempted until the loan has been brought
current or foreclosure is initiated.  Attempts to interview the borrower,
preferably in person, are made to establish (i) the cause of the delinquency,
(ii) whether the cause is temporary, (iii) the attitude of the borrower toward
the debt, and (iv) a mutually satisfactory arrangement for curing the default.

                                       8

<PAGE>



     After such attempts have been made by the Bank, or earlier if the
borrower is chronically delinquent and all reasonable means of obtaining
payment on time have been exhausted, foreclosure is initiated according to the
terms of the security instrument and applicable law.  Interest income on loans
is then reduced by the full amount of accrued and uncollected interest.

     When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Bank institutes the same collection
procedures as for its mortgage loan borrowers.

     The Bank's Board of Directors is informed monthly as to the status of all
loans that are delinquent more than 30 days, the status on all loans currently
in foreclosure, and the status of all foreclosed and repossessed property
owned by the Bank.

     At December 31, 2001 the Bank had two nonaccrual loans amounting to
$747,000.  The Bank did not have any significant accruing loans contractually
past due 90 days or more as to principal or interest payments, or troubled
debt restructuring within the meaning of Statement of Financial Accounting
Standards ("SFAS") No. 15 at December 31, 2001 and 2000.  Loans amounting to
$4.5 million and $1.3 million were past due, but still accruing interest at
December 31, 2001 and 2000, respectively.

     Real Estate Owned.  The Bank had no real estate acquired through
foreclosure or in satisfaction of loans at December 31, 2001 or 2000.

     Asset Classification.  The OTS has adopted various regulations regarding
problem assets of savings institutions.  The regulations require that each
insured institution review and classify its assets on a regular basis.  In
addition, in connection with examinations of insured institutions, OTS
examiners have authority to identify problem assets and, if appropriate,
require them to be classified.  There are three classifications for problem
assets:  substandard, doubtful and loss.  Substandard assets have one or more
defined weaknesses and are characterized by the distinct possibility that the
insured institution will sustain some loss if the deficiencies are not
corrected.  Doubtful assets have the weaknesses of substandard assets with the
additional characteristic that the weaknesses may make collection or
liquidation in full on the basis of currently existing facts, conditions and
values questionable, and there is a high possibility of loss.  An asset
classified as loss is considered uncollectible and of such little values that
continuance as an asset of the institution is not warranted.  If an asset or
portion thereof is classified as loss, the insured institution establishes
specific allowances for loan losses for the full amount of the portion of the
asset.  All or a portion of general loan loss allowances established to cover
possible losses related to assets classified substandard or doubtful may be
included in determining an institution's regulatory capital, while specific
valuation allowances for loan losses generally do not qualify as regulatory
capital.  Assets that do not currently expose the insured institution to
sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "special mention" and are
monitored by the Bank.

     At December 31, 2001, the Bank had four substandard loans totaling
$809,000 and at December 31, 2000 had one substandard loan totaling $7,000.
Included in the December 31, 2001 balance is a $675,000 loan related to a
hotel/retail complex.

     Allowance for Loan Losses.  The Bank has established a systematic
methodology for determining provisions for loan losses.  The methodology is
set forth in a formal policy and considers the need for an overall general
valuation allowance as well as specific allowances for individual loans.

     In originating loans, the Bank recognizes that 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.  The Bank may increase its allowance for loan
losses by charging provisions for loan losses against the Bank's income.

                                       9

<PAGE>



     The general valuation allowance is maintained to cover losses inherent in
the portfolio of performing loans.  Management reviews the adequacy of the
allowance at least quarterly based on management's assessment of current
economic conditions, past loss and collection experience, and risk
characteristics of the loan portfolio.  The amount of the allowance is based
on management's evaluation of the collectibility of the loan portfolio, credit
concentrations, trends in historical loss experience, specific impaired loans,
peer group comparisons and economic conditions.  Allowances for impaired loans
are generally determined based on collateral values or the present value of
estimated cash flow.  Specific valuation allowances may be established to
absorb losses on loans for which full collectibility may not be reasonably
assured.  The amount of the allowance is based on the estimated value of the
collateral securing the loan and other analyses pertinent to each situation.

     At December 31, 2001, the Bank had an allowance for loan losses of
$591,000, which management believed to be adequate to absorb losses inherent
in the portfolio at that date.  Although management believes that it uses the
best information available to make such determinations in accordance with
accounting principles generally accepted in the United States of America,
future adjustments to the allowance for loan losses may be necessary and
results of operations could be significantly and adversely affected if
circumstances differ substantially from the assumptions used in making the
determinations.  Furthermore, there can be no assurance that regulators, in
reviewing the Bank's loan portfolio, will not request the Bank to increase
significantly its allowance for loan losses.  In addition, because future
events affecting borrowers and collateral cannot be predicted with certainty,
there can be no assurance that the existing allowance for loan losses will
continue to be adequate or that substantial increases will not be necessary
should the quality of any loans deteriorate as a result of the factors
discussed above.  Any material increase in the allowance for loan losses may
adversely affect the Bank's financial condition and results of operations.

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

                                                 Year Ended December 31,
                                                 -----------------------
                                                 2001              2000
                                                 ----              ----
                                                 (Dollars in Thousands)

Total loans outstanding before net items....... $86,108          $82,921
                                                =======          =======
Allowance balance at beginning
 of year....................................... $   336          $   226
                                                -------          -------
Provision:
    One-to-four family.........................      --               10
    Commercial real estate.....................     200               60
    Commercial.................................      55               40
                                                -------          -------
Total..........................................     255              110
                                                -------          -------
Net charge-offs:
    Commercial.................................      --               --
    Consumer...................................      --               --
                                                -------          -------
Total..........................................      --               --
                                                -------          -------
Allowance balance at end of year............... $   591          $   336
                                                =======          =======
Allowance for loan losses as a percent
 of total loans outstanding....................    0.69%            0.41%
                                                =======          =======
                                       10
<PAGE>



     The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated.  The portion of the allowance
to each loan category does not necessarily represent the total available for
losses within that category since the total allowance applies to the entire
loan portfolio.  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 other category.

                                                    At December 31,
                                     -----------------------------------------
                                            2001                  2000
                                     -------------------    ------------------
                                                  % of                  % of
                                                 Loans                 Loans
                                                in Each               in Each
                                                Category              Category
                                                to Total              to Total
                                     Amount      Loans      Amount     Loans
                                     ------      -----      ------     -----
                                              (Dollars in Thousands)

One- to four-family.................  $150       47.97%      $150      57.43%
Commercial real estate..............   300       20.12        100      15.04
Commercial..........................    95        7.37         40       7.46
Multi-family........................    25        5.49         25       6.22
Construction........................     9       12.48          9       7.24
Consumer and share..................    12        6.57         12       6.61
                                      ----      ------       ----     ------
  Total allowance...................  $591      100.00%      $336     100.00%
                                      ====      ======       ====     ======
Investment Activities

     The Bank is permitted under federal law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the
FHLB-Seattle, certificates of deposit of federally insured institutions,
certain bankers' acceptances and federal funds.  Subject to various
restrictions, the Bank may also invest a portion of its assets in commercial
paper and corporate debt securities.  The Bank is also required to maintain an
investment in FHLB stock as a condition of membership in the FHLB-Seattle.

     The securities in the Bank's investment portfolio provide it with
liquidity for funding loan originations and enables the Bank to improve the
match between the maturities and repricing of its interest-rate sensitive
assets and liabilities.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources" contained in the Corporation's 2001 Annual Report to Stockholders,
which is incorporated herein by reference.

     The President of the Bank determines appropriate investments in
accordance with the Board of Directors' approved investment policies and
procedures.  The Bank's policies generally limit investments to U.S.
Government and agency securities and mortgage-backed securities issued and
guaranteed by Federal Home Loan Mortgage Corporation ("FHLMC"), Federal
National Mortgage Association  ("FNMA"), and Government National Mortgage
Association ("GNMA").  The Bank's policies provide that investment purchases
be ratified at monthly Board of Directors meetings.  Investments are made
based on certain considerations, which include the interest rate, yield,
settlement date and maturity of the investment, the Bank's liquidity position,
and anticipated cash needs and sources (which in turn include outstanding
commitments, upcoming maturities, estimated deposits and anticipated loan
amortization and repayments).  The effect that the proposed investment would
have on the Bank's credit and interest rate risk, and risk-based capital is
also given consideration during the evaluation.

                                       11
<PAGE>


     At December 31, 2001, the Bank's investment and mortgage-backed
securities portfolio totaled $35.9 million and consisted principally of U.S.
Government and agency mortgage-backed securities.  At December 31, 2001, the
Bank had investment securities available-for-sale with an estimated market
value of $2.3 million, which consists of stock in the FHLMC.  The FHLMC common
stock at December 31, 2001 had an amortized cost of $40,000.  The market value
of the FHLMC common stock has increased significantly since its purchase in
the mid-1980's.  From time to time, investment levels may be increased or
decreased depending upon the yields on investment alternatives and upon
management's judgment as to the attractiveness of the yields then available in
relation to other opportunities and its expectation of the level of yield that
will be available in the future, as well as management's projections as to the
short-term demand for funds to be used in the Bank's loan origination and
other activities.

     Mortgage-Backed Securities.  The Bank purchases mortgage-backed
securities in order to: (i) generate positive interest rate spreads on large
principal balances with minimal administrative expense; (ii) lower the credit
risk of the Bank as a result of the guarantees provided by FHLMC, FNMA, and
GNMA; (iii) enable the Bank to use mortgage-backed securities as collateral
for financing; and (iv) invest excess funds during periods of reduced loan
demand.  Included in the Bank's mortgage-backed securities portfolio are real
estate mortgage investment conduits ("REMICs"), which mature between 2008 and
2031 and have interest rates based primarily on the rate paid on U.S. Treasury
securities and the COFI.  At December 31, 2001, net mortgage-backed securities
totaled $27.7 million, or 15.82%, of total assets.  At December 31, 2001, $2.9
million of the mortgage-backed securities had adjustable rates of interest and
$24.8 million had fixed rates.  The mortgage-backed securities portfolio had
coupon rates ranging from 4.50% to 12.75% and had a weighted average yield of
6.01% during the year ended December 31, 2001.

     Mortgage-backed securities (which also are known as mortgage
participation certificates or pass-through certificates) typically represent a
participation interest in a pool of single-family or multi-family mortgages.
The principal and interest payments on these mortgages are passed from the
mortgage originators, through intermediaries (generally U.S. Government
agencies and government-sponsored enterprises) that pool and resell the
participation interests in the form of securities, to investors such as the
Bank.  Such U.S. Government agencies and government-sponsored enterprises,
which guarantee the payment of principal and interest to investors, primarily
include the FHLMC, FNMA and the GNMA.  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 fall within a
specific range and have varying maturities.  Mortgage-backed securities
generally yield less than the loans that underlie such securities because of
the cost of payment guarantees and credit enhancements.  In addition,
mortgage-backed securities are usually more liquid than individual mortgage
loans and may be used to collateralize certain liabilities and obligations of
the Bank.  These types of securities also permit the Bank to optimize its
regulatory capital because they have low risk weighting.

     REMICs are generally created by redirecting the cash flows from the pool
of mortgages or mortgage-backed securities underlying these securities to
create two or more classes (or tranches) with different maturity or risk
characteristics designed to meet a variety of investor needs and preferences.
Management believes these securities may represent attractive alternatives
relative to other investments due to the wide variety of maturity, repayment
and interest rate options available.  Investment practices of the Bank
prohibit the purchase of high risk REMICs.  The Bank held REMICs with a net
carrying value of $14.1 million at December 31, 2001.  Private issuers, such
as mortgage bankers or money center banks may sponsor REMICs, or they may be
sponsored by U.S. Government agencies and government sponsored entities.  At
December 31, 2001, the Bank did not own any privately issued REMICs.

     Thrift Bulletin Number 52 ("TB-52"), the OTS Policy Statement on
securities portfolio policies and unsuitable investment practices, requires
that institutions classify mortgage derivative products acquired, including
REMICs and certain tranches of CMOs, as "high-risk mortgage securities" if
such products exhibit greater price volatility than a benchmark fixed-rate
30-year mortgage-backed pass-through security.  Institutions may only hold
high-risk mortgage securities to reduce interest-rate risk in accordance with
safe and sound practices and must also follow certain prudent

                                       12

<PAGE>



safeguards  in  the purchase and retention of such securities. At December 31,
2001, the Bank held $1.3 million securities that are identified under TB-52 as
"high-risk mortgage securities."  The Bank also evaluates its mortgage-backed
securities portfolio annually for compliance with applicable regulatory
requirements, including testing for identification of high-risk investments
pursuant to Federal Financial Institutions Examination Council standards.

     Derivatives also include "off balance sheet" financial products whose
value is derived from the value of an underlying financial asset, such as a
stock, bond, foreign currency, or a reference rate or index.  Such derivatives
include "forwards," "futures," "options" or "swaps."  The Bank's investment
policy does not permit investment in such "off balance sheet" derivative
instruments.

     Of the Bank's $27.7 million mortgage-backed securities portfolio at
December 31, 2001, $1.5 million had contractual maturities within six years
and $26.2 million had contractual maturities over six years.  The actual
maturity of a mortgage-backed security may be less than its stated maturity
due to prepayments of the underlying mortgages.  Prepayments that are faster
than anticipated may shorten the life of the security and may result in a loss
of any premiums paid and thereby reduce the net yield on such securities.
Although prepayments of underlying mortgages depend on many factors, including
the type of mortgages, the coupon rate, the age of 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
generally is the most significant determinant of the rate of prepayments.
During periods of declining mortgage interest rates, if the coupon rate of the
underlying mortgages exceeds the prevailing market interest rates offered for
mortgage loans, refinancing generally increases and accelerates the prepayment
of the underlying mortgages and the related security.  Under such
circumstances, the Bank may be subject to reinvestment risk because, to the
extent that the Bank's mortgage-backed securities amortize or prepay faster
than anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.  In contrast to
mortgage-backed securities in which cash flow is received (and hence,
prepayment risk is shared) pro rata by all securities holders, the cash flow
from the mortgages or mortgage-backed securities underlying REMICs are
segmented and paid in accordance with a predetermined priority to investors
holding various tranches of such securities or obligations.  A particular
tranche of REMICs may therefore carry prepayment risk that differs from that
of both the underlying collateral and other tranches.

     The following table sets forth information regarding the Bank's
mortgage-backed securities (including REMICs) activity for the periods
indicated.

                                       Year Ended December 31,
                                       -----------------------
                                       2001               2000
                                       ----               ----
                                            (In Thousands)

 Beginning balance..................  $31,630           $42,427
                                      -------           -------
 Mortgage-backed securities
   purchased........................    6,000                --
 Amortization of premiums, net of
   discount accretion...............      (37)              (73)
 Principal repayments and change in
   fair market value................   (9,914)          (10,724)
                                      -------           -------
       Ending balance...............  $27,679           $31,630
                                      =======           =======

                                       13
<PAGE>


     The following table sets forth the composition of the Bank's
mortgage-backed securities portfolio at the dates indicated.

                                                 At December 31,
                                  -------------------------------------------
                                         2001                   2000
                                  ------------------       ------------------
                                            Percent                  Percent
                                  Amount    of Total       Amount    of Total
                                  ------    --------       ------    --------
                                             (Dollars in Thousands)

Mortgage-backed securities:
 REMIC........................    $14,116    51.00%       $15,037     47.54%
 GNMA.........................      2,768    10.00          3,945     12.47
 FNMA.........................      8,147    29.43         11,185     35.36
 FHLMC........................      2,648     9.57          1,463      4.63
                                  -------   ------        -------    ------
   Total......................    $27,679   100.00%       $31,630    100.00%
                                  =======   ======        =======    ======

     The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities portfolio as of December 31, 2001:

                  Contractual Maturities Due in Year(s) Ended December 31,
                  -----------------------------------------------------------
                                            2005     2008     2018
                                             to       to       and
                  2002     2003    2004     2007     2017  Thereafter  Total
                  ----     ----    ----     ----     ----  ----------  -----
                                           (In Thousands)
Mortgage-backed
 securities..... $    3  $    8  $   851  $   629  $ 8,426  $17,762   $27,679
                 ======  ======  =======  =======  =======  =======   =======

     The following table sets forth the carrying value of the Bank's
investment securities portfolio (excluding mortgage-backed securities),
short-term investments and FHLB stock at the dates indicated.

                                              At December 31,
                                              ---------------
                                              2001       2000
                                              ----       ----
                                               (In Thousands)

Securities available-for-sale (1) (2)...... $ 8,266     $2,769
Interest-bearing deposits(3)...............  42,350        165
FHLB stock ................................   1,671      1,561
                                            -------     ------
   Total................................... $52,287     $4,495
                                            =======     ======

(1)  Includes FHLMC common stock and U.S. Government and Agency Securities.
(2)  Excludes mortgaged-backed securities.
(3)  See "Management's Discussion and Analysis of Financial Conditions and
     Results of Operation" contained in the Corporation's 2001 Annual Report
     to Stockholders, which is incorporated herein by reference.

                                       14

<PAGE>



     The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Bank's
available-for-sale investment securities portfolios as of December 31, 2001.

                                    Total Investment Securities
                               -----------------------------------------
                               Carrying         Average           Market
                                 Value           Yield            Value
                                 -----           -----            -----
                                         (Dollars in Thousands)

FHLMC stock...................  $2,256           1.22%            $2,256
U.S. Government and agencies..   6,010(1)        3.23              6,010
                                ------           ----             ------
Total.........................  $8,266           2.68%            $8,266
                                ======           ====             ======
(1) Matures in 2003 and 2004

                                       15

<PAGE>




Deposit Activities and Other Sources of Funds

     General.  Deposits and loan repayments are the major sources of the
Bank's funds for lending and other investment purposes.  Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and general interest rates and money market conditions influence loan
prepayments significantly.  Borrowings through the FHLB-Seattle may be used
to compensate for reductions in the availability of funds from other sources.
At December 31, 2001, the Bank had $17.0 million in borrowings from the FHLB.

     Deposit Accounts.  Substantially all of the Bank's depositors are
residents of south central Montana.  Deposits are attracted from within the
Bank's market area through the offering of a broad selection of deposit
instruments, including Negotiable Order of Withdrawals ("NOW") accounts, money
market accounts, regular savings accounts, certificates of deposit and
retirement savings plans.  Deposit account terms vary, according to the
minimum balance required, the time periods the funds must remain on deposit
and the interest rate, among other factors.  In determining the terms of its
deposit accounts, the Bank considers current market interest rates,
profitability to the Bank, matching deposit and loan products and its customer
preferences and concerns.  The Bank reviews its deposit mix and pricing
weekly.

     The following table sets forth certain information concerning the Bank's
time deposits and other interest-bearing deposits at December 31, 2001.

<PAGE>
<TABLE>


Weighted
 Average                                                                       Percentage
Interest Original         Checking and                    Minimum              of Total
  Rate     Term           Savings Deposits                Balance    Balance   Deposits
  ----     ----           ----------------                -------    -------   --------


        <c>            <c>                             <c>       <c>        <c>
 2.23%     None           NOW accounts                      $200    $ 15,711    12.38%
 3.00      None           Regular savings                    100      11,124     8.76
 3.52      None           Money market accounts            1,000      21,350    16.82

                          Certificates of deposit:
                          -----------------------

 3.92      1-3 months     Fixed term, fixed rate             500       2,862     2.26
 4.37      4-6 months     Fixed term, fixed rate             500      10,265     8.09
 4.95      7-12 months    Fixed term, fixed rate             500      32,518    25.62
 5.32      13-24 months   Fixed term, fixed rate             500      17,851    14.06
 5.51      25-36 months   Fixed term, fixed rate             500       6,314     4.97
 6.55      37-48 months   Fixed term, fixed rate             500       3,724     2.93
 6.11      49-120 months  Fixed term, fixed rate             500       2,794     2.20
 4.88      Various        Jumbo certificates             100,000       2,427     1.91
                                                                    --------   ------
                                                                     126,940   100.00%
            Accrued interest on deposits                                 186   ======
                                                                    --------
           Total                                                    $127,126
                                                                    ========

</TABLE>

                                                   16

<PAGE>





     The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining until maturity as of December
31, 2001.

        Maturity Period                 Amount
        ---------------                 ------
                                   (In Thousands)

Three months or less...............   $ 3,267
Over three through six months......     6,095
Over six through 12 months.........     8,160
Over 12 months.....................     5,325
                                      -------
     Total.........................   $22,847
                                      =======
Time Deposits by Rates

    The following table sets forth the time deposits in the Bank classified by
rates at December 31, 2001.

                                    Amount
                                    ------
                               (In Thousands)

      3.00 - 5.00%............... $ 31,896
      5.01 - 7.00%...............   46,649
      7.01 - 8.00%...............      210
                                  --------
          Total.................. $ 78,755
                                  ========

<PAGE>
<TABLE>

    The following table sets forth the amount and maturities of time deposits at December 31, 2001.

                                                         Amount Due
                         ----------------------------------------------------------------------
                                                                            After
                         December 31,    December 31,    December 31,    December 31,
                            2002             2003            2004            2004         Total
                         ------------    ------------    ------------    ------------     -----
                                                        (In Thousands)

                       <c>              <c>             <c>              <c>          <c>
Time deposits...........  $56,013          $14,514         $6,168           $2,060       $78,755
                          =======          =======         ======           ======
Accrued interest on
 certificate accounts...                                                                     186
                                                                                         -------
   Total................                                                                 $78,941
                                                                                         =======

</TABLE>



Deposit Activities

     The following table sets forth the deposit activities of the Bank for the
periods indicated.

                                            Year Ended December 31,
                                           ------------------------
                                             2001            2000
                                             ----            ----
                                                (In Thousands)

Net increase before interest credited..... $ 45,558         $2,989
Interest credited.........................    3,715          3,325
                                           --------         ------
Net increase in deposits.................. $ 49,273         $6,314
                                           ========         ======

                                       17

<PAGE>



Borrowings

     While savings deposits are the primary source of funds for the Bank's
lending and investment activities and for its general business purposes, the
Bank also relies upon advances from the FHLB-Seattle to supplement its supply
of lendable funds, to meet deposit withdrawal requirements and to fund the
purchase of investment and mortgage-backed securities.  At December 31, 2001,
the Bank was eligible to borrow up to approximately $33.4 million, and had
borrowed $17.0 million.

     The FHLB-Seattle functions as a central reserve bank providing credit for
savings and loan associations and certain other member financial institutions.
As a member, the Bank is required to own capital stock in the FHLB-Seattle and
is authorized to apply for advances on the security of such stock and certain
of its mortgage loans and other assets (principally securities which are
obligations of, or guaranteed by, the U. S. Government) provided certain
creditworthiness standards have been met.  Advances are made pursuant to
several different credit programs.  Each credit program has its own interest
rate and range of maturities.  Depending on the program, limitations on the
amount of advances are based on the financial condition of the member
institution and the adequacy of collateral pledged to secure the credit.

     The following table sets forth information concerning only short-term
borrowings (those maturing within one year or less) the Bank had during the
periods indicated.

                                      Year Ended December 31,
                                      ------------------------
                                      2001                2000
                                      ----                ----
                                      (Dollars in Thousands)

Short-term FHLB advances:
  Average balance outstanding.......  $7,571             $6,346
  Maximum amount outstanding at any
    month-end during the period..... $13,800            $10,200
  Weighted average interest rate
    during the period...............    4.92%              6.48%
Total short-term borrowings at
  end of period.....................  $4,000            $10,200

For additional information on all borrowings of the Corporation see Notes 8
and 9 of the Notes to Consolidated Financial Statements in the Annual Report,
which is incorporated herein by reference.

                                       18

<PAGE>




Subsidiary Activities

     Federal savings associations generally may invest up to 3% of their
assets in service corporations, provided that at least one-half of any amount
in excess of 1% is used primarily for community, inner city and community
development projects.  The Bank's investment in its service corporation, Dime
Service Corporation, did not exceed these limits at December 31, 2001.

     The Dime Service Corporation is a wholly owned subsidiary of the Bank.
It was established in 1985 to purchase and operate an insurance agency
business.  In 1992 and 1993, The Dime Service Corporation purchased the
insurance business of two local insurance agencies.  The Dime Service
Corporation presently engages in full service property and casualty insurance
activities under the name "Dime Insurance Agency."  At December 31, 2001, the
Bank's investment in The Dime Service Corporation was $480,000.  The Dime
Service Corporation had total assets of approximately $527,000 at December 31,
2001, and net income of approximately $37,000 for the year ended December 31,
2001.  See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" contained in Corporation's Annual Report, which is
incorporated herein by reference.

     In January 2002, the Corporation announced its intent to acquire Montana
First National Bancorporation located in Kalispell, Montana.  In the
transaction, the Corporation will acquire all of the issued and outstanding
common stock of Montana First National Bancorporation in exchange for an
aggregate price of $4,037,500.  The aggregate cash price is subject to
adjustment based upon Montana First's financial performance prior to closing
of the transaction, which is anticipated to occur in the second quarter of
fiscal year 2002.

     In connection with the anticipated transaction, the Corporation intends
to apply to the Federal Reserve System for permission to become a bank holding
company under the Bank Holding Company Act of 1956, as amended.  As a bank
holding company, the Corporation will become subject to the Bank Holding Act
and Federal Reserve Regulation Y, which, among other things, limit the
activities of bank holding companies to activities closely related to banking.
Under current law and regulations, bank holding companies may only engage in
certain limited insurance activities.  As a result of the anticipated
transaction, the Corporation, as a bank holding company, may be required to
divest its ownership interest in The Dime Service Corporation because the
continued ownership of the entity is not authorized under the Bank Holding
Company Act and Regulation Y.  The divestiture, if any, would be required
within a two-year holding period authorized under the Bank Holding Company
Act.  The Corporation intends to elect to become a financial holding company
within this two-year holding period.  As a financial holding company, the
Corporation would be authorized to continue its control of The Dime Service
Corporation, as well as to engage in other financially-related activities
authorized under federal law and regulation.  The Corporation is not currently
entitled to become a financial holding company but anticipates meeting the
qualification requirements prior to expiration of the two-year holding period.
All other business activities currently conducted by the Corporation are
authorized for both bank holding companies and financial holding companies.
For further  information regarding the effect of a financial holding company
election by  bank holding companies, see "Regulation -- Regulation of Bank
Holding Companies."

                              REGULATION

General

     The Bank is subject to extensive regulation, examination and supervision
by the OTS as its chartering agency, and the FDIC, as the insurer of its
deposits.  The activities of federal savings institutions are governed by the
Home Owners' Loan Act of 1933, as amended ("HOLA") and, in certain respects,
the Federal Deposit Insurance Act ("FDIA"), and the regulations issued by the
OTS and the FDIC to implement these statutes.  These laws and regulations
delineate the nature and extent of the activities in which federal savings
associations may engage.  Lending activities and other investments must comply
with various statutory and regulatory capital requirements.  In addition, the
Bank's

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relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and
the form and content of the Bank's mortgage documents.  The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions.  There are periodic examinations by the OTS and the FDIC to
review the Bank's compliance with various regulatory requirements.  The
regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes.  Any change in such policies, whether by the OTS, the FDIC or
Congress, could have a material adverse impact on the Corporation, the Bank
and their operations.  The Corporation, as a savings and loan holding company,
is also required to file certain reports with, and otherwise comply with the
rules and regulations of the OTS.

Federal Regulation of Savings Associations

     Office of Thrift Supervision.  The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the
Treasury.  The OTS generally possesses the supervisory and regulatory duties
and responsibilities formerly vested in the Federal Home Loan Bank Board.
Among other functions, the OTS issues and enforces regulations affecting
federally insured savings associations and regularly examines these
institutions.

     All savings associations are required to pay assessments to the OTS to
fund the agency's operations.  The general assessments, paid on a semi-annual
basis, are determined based on the savings association's total assets,
including consolidated subsidiaries.  The Bank's OTS assessment for the fiscal
year ended December 31, 2001 was $36,200.

     Federal Home Loan Bank System.  The FHLB System, consisting of 12 FHLBs,
is under the jurisdiction of the Federal Housing Finance Board ("FHFB").  The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner.

     The Bank, as a member of the FHLB-Seattle, is required to acquire and
hold shares of capital stock in the FHLB-Seattle in an amount equal to the
greater of (i) 1.0% of the aggregate outstanding principal amount of
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or (ii) 1/20 of its advances (i.e., borrowings)
from the FHLB-Seattle.  The Bank is in compliance with this requirement with
an investment in FHLB-Seattle stock of $1.7 million at December 31, 2001.

     Among other benefits, the FHLB provides a central credit facility
primarily for member institutions.  It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System.  It
makes advances to members in accordance with policies and procedures
established by the FHLB and the Board of Directors of the FHLB-Seattle.

     Federal Deposit Insurance Corporation.  The FDIC is an independent
federal agency that insures the deposits, up to prescribed statutory limits,
of depository institutions.  The FDIC maintains two separate insurance funds:
the Bank Insurance Fund ("BIF") and the SAIF.  As insurer of deposits, the
FDIC has examination, supervisory and enforcement authority over all savings
associations.  The Bank's accounts are insured by the SAIF up to the maximum
extent permitted by law.

     Under applicable regulations, the FDIC assigns an institution to one of
three capital categories based on the institution's financial information, as
of the reporting period ending seven months before the assessment period.  The
capital categories are:  (i) well-capitalized, (ii) adequately capitalized, or
(iii) undercapitalized.  An institution is also placed in one of three
supervisory subcategories within each capital group.  The supervisory subgroup
to which an institution is assigned is based on a supervisory evaluation
provided to the FDIC by the institution's primary federal regulator and
information that the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds.  An
institution's assessment rate depends on the capital category and supervisory

                                       20

<PAGE>



category to which it is assigned with the most well-capitalized, healthy
institutions receiving the lowest rates.  The Bank's FDIC assessment for the
year ended December 31, 2001 was $14,700.

     Effective January 1, 1997, the premium schedule for BIF and SAIF insured
institutions ranged from 0 to 27 basis points.  However, SAIF insured
institutions and BIF insured institutions are required to pay a Financing
Corporation assessment in order to fund the interest on bonds issued to
resolve thrift failures in the 1980s.  This amount is currently equal to
approximately 2.1 basis points for each $100 in domestic deposits for both BIF
and SAIF members.   These assessments, which may be revised based upon the
level of BIF and SAIF deposits, will continue until the bonds mature in the
year 2015.

     The FDIC is authorized to raise the assessment rates in certain
circumstances.  The FDIC has exercised this authority several times in the
past and may raise insurance premiums in the future.  If the FDIC takes such
action, it could have an adverse effect on the earnings of the Bank.

     Under the Federal Deposit Insurance Act ("FDIA"), insurance of deposits
may be terminated by the FDIC upon a finding that the institution has engaged
in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the FDIC or the OTS.  Management of the Bank
does not know of any practice, condition or violation that might lead to
termination of deposit insurance.

     Liquidity Requirements.   The Bank must maintain an adequate level of
liquidity to ensure the availability of sufficient funds to support loan
growth and deposit withdrawals to satisfy financial commitments and to take
advantage of investment opportunities.

     Prompt Corrective Action.  The OTS is required to take certain
supervisory actions against undercapitalized savings associations, the
severity of which depends upon the institution's degree of
undercapitalization.  Generally, an institution that has a ratio of total
capital to risk-weighted assets of less than 8%, a ratio of Tier 1 (core)
capital to total assets of less than 4%, or a ratio of core capital to total
assets of less than 4% (3% or less for institutions with the highest
examination rating) is considered to be "undercapitalized."  An institution
that has a total risk-based capital ratio less than 6%, a Tier I capital ratio
of less than 3% or a leverage ratio that is less than 3% is considered to be
"significantly undercapitalized" and an institution that has a tangible
capital to assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized."  Subject to a narrow exception, the OTS is required to
appoint a receiver or conservator for a savings institution that is
"critically undercapitalized."  OTS regulations also require that a capital
restoration plan be filed with the OTS within 45 days of the date a savings
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized."  Compliance with the plan
must be guaranteed by any parent holding company in an amount of up to the
lesser of 5% of the institution's assets or by the amount, which would bring
the institution into compliance with all capital standards.  In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion.  The OTS also could take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.

     At December 31, 2001, the Bank was categorized as "well capitalized"
under the prompt corrective action regulations of the OTS.

     Standards for Safety and Soundness.  The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings and (viii) compensation, fees and benefits ("Guidelines").   The
Guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired.  If the OTS determines that the
Bank fails to meet any standard prescribed by the Guidelines, the agency may
require the Bank to submit to the agency an acceptable plan to

                                       21

<PAGE>



achieve compliance with the standard.  Management is aware of no conditions
relating to these safety and soundness standards which would require
submission of a plan of compliance.

     Qualified Thrift Lender Test.  All savings associations, including the
Bank, are required to meet a qualified thrift lender ("QTL") test to avoid
certain restrictions on their operations.  This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out
of every 12 months on a rolling basis.  As an alternative, the savings
association may maintain 60% of its assets in those assets specified in
Section 7701(a)(19) of the Internal Revenue Code of 1986 as amended ("Code").
Under either test, such assets primarily consist of residential housing
related loans and investments.  At December 31, 2001, the Bank met the test
and its QTL percentage was  77.46%.

     Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL.  If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF.  If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state.  In addition, the
Bank is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends.  If such association
has not requalified or converted to a national bank within three years after
the failure, it must divest of all investments and cease all activities not
permissible for a national bank.  In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties.  If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies.  See "Savings and Loan Holding Company Regulations."

     Capital Requirements.  Federally insured savings associations, such as
the Bank, are required to maintain a minimum level of regulatory capital.  The
OTS has established capital standards, including a tangible capital
requirement, a leverage ratio (or core capital) requirement and a risk-based
capital requirement applicable to such savings association.

     The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation).  At December 31, 2001, the
Bank had tangible capital of $26.8 million, or 15.6% of adjusted total assets,
which is approximately $24.2 million above the minimum requirement of 1.5% of
adjusted total assets in effect on that date.  At December 31, 2001, the Bank
did not have any intangible assets.

     The capital standards also require core capital equal to at least 3% to
4% of adjusted total assets, depending on an institutions' supervisory rating.
Core capital generally consists of tangible capital.  At December 31, 2001,
the Bank had core capital equal to $26.8 million or 15.6% of adjusted total
assets, which is $19.9 million above the minimum leverage ratio requirement of
4% in effect on that date.

     The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets.  Total capital consists
of core capital, as defined above, and supplementary capital.  Supplementary
capital consists of certain permanent and maturing capital instruments that do
not qualify as core capital and general valuation loan and lease loss
allowances up to a maximum of 1.25% of risk-weighted assets.  Supplementary
capital may be used to satisfy the risk-based requirement only to the extent
of core capital.

     In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, are multiplied by a risk weight, ranging from
0% to 100%, based on the risk inherent in the type of assets.  For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one-to-four family first lien mortgage loans not more than 90 days delinquent
and having a loan-to-value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by FNMA or FHLMC.

     On December 31, 2001, the Bank had total risk-based capital of
approximately $28.3 million, including $26.8 million in core capital and $1.5
million in qualifying supplementary capital, and risk-weighted assets of $83.7
million,

                                       22

<PAGE>



or total capital of 33.86% of risk-weighted assets.  This amount was $21.6
million above the 8% requirement in effect on that date.

     The OTS is authorized to impose capital requirements in excess of these
standards on individual associations on a case-by-case basis.  The OTS and the
FDIC are authorized and, under certain circumstances required, to take certain
actions against savings associations that fail to meet their capital
requirements.  The OTS is generally required to take action to restrict the
activities of an "undercapitalized association" (generally defined to be one
with less than either a 4% core capital ratio, a 4% Tier 1 risked-based
capital ratio or an 8% risk-based capital ratio).  Any such association must
submit a capital restoration plan and until such plan is approved by the OTS
may not increase its assets, acquire another institution, establish a branch
or engage in any new activities, and generally may not make capital
distributions.  The OTS is authorized to impose the additional restrictions
that are applicable to significantly undercapitalized associations.

     The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an
unsafe or unsound condition.

     The imposition by the OTS or the FDIC of any of these measures on the
Corporation or the Bank may have a substantial adverse effect on their
operations and profitability.

     Limitations on Capital Distributions.  The OTS imposes various
restrictions on savings associations with respect to their ability to make
distributions of capital, which include dividends, stock redemptions or
repurchases, cash-out mergers and other transactions charged to the capital
account.  The OTS also prohibits a savings association from declaring or
paying any dividends or from repurchasing any of its stock if, as a result of
such action, the regulatory capital of the association would be reduced below
the amount required to be maintained for the liquidation account established
in connection with the association's mutual to stock conversion.

     The Bank may make a capital distribution without OTS approval provided
that the Bank notify the OTS 30 days before it declares the capital
distribution and that the following requirements are met: (i) the Bank has a
regulatory rating in one of the two top examination categories, (ii) the Bank
is not of supervisory concern, and will remain adequately or well capitalized,
as defined in the OTS prompt corrective action regulations, following the
proposed distribution, and (iii) the distribution does not exceed the Bank's
net income for the calendar year-to-date plus retained net income for the
previous two calendar years (less any dividends previously paid).  If the Bank
does not meet these stated requirements, it must obtain the prior approval of
the OTS before declaring any proposed distributions.

     In the event the Bank's capital falls below its regulatory requirements
or the OTS notifies it that it is in need of more than normal supervision, the
Bank's ability to make capital distributions will be restricted.  In addition,
no distribution will be made if the OTS notifies the Bank that a proposed
capital distribution would constitute an unsafe and unsound practice, which
would otherwise be permitted by the regulation.

     Loans to One Borrower.  Federal law provides that savings institutions
are generally subject to the national bank limit on loans to one borrower.   A
savings institution may not make a loan or extend credit to a single or
related group of borrowers in excess of 15% of its unimpaired capital and
surplus.  An additional amount may be lent, equal to 10% of unimpaired capital
and surplus, if secured by specified readily marketable collateral.   At
December 31, 2001, the Bank's limit on loans to one borrower was $4.3 million.
At December 31, 2001, the Bank's largest aggregate amount of loans to one
borrower was $2.3 million, all of which were performing according to their
original terms.

     Activities of Associations and Their Subsidiaries.  When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide
the information each agency may, by regulation, require.  Savings associations
also must conduct the activities of subsidiaries in accordance with existing
regulations and orders.

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<PAGE>



     The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary.  The
FDIC also may determine by regulation or order that any specific activity
poses a serious threat to the SAIF.  If so, it may require that no SAIF member
engage in that activity directly.

     Transactions with Affiliates.  Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association was a Federal Reserve member bank.  Generally, transactions
between a savings association or its subsidiaries and its affiliates are
required to be on terms as favorable to the association as transactions with
non-affiliates.  In addition, certain of these transactions, such as loans to
an affiliate, are restricted to a percentage of the association's capital.
Affiliates of the Bank include the Corporation and any company, which is under
common control with the Bank.  In addition, a savings association may not lend
to any affiliate engaged in activities not permissible for a bank holding
company or acquire the securities of most affiliates.  The OTS has the
discretion to treat subsidiaries of savings associations as affiliates on a
case by case basis.

     Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS.  These
conflict of interest regulations and other statutes also impose restrictions
on loans to such persons and their related interests.  Among other things,
such loans must be made on terms substantially the same as for loans to
unaffiliated individuals.

     Community Reinvestment Act.  Under the Community Reinvestment Act
("CRA"), a federal statute, a federally-insured financial institution has a
continuing and affirmative obligation consistent with safe and sound
operations to help meet all the credit needs of its delineated community.  The
CRA does not establish specific lending requirements or programs nor does it
limit an institution's discretion to develop the types of products and
services that it believes are best suited to meet all the credit needs of its
delineated community.  The CRA requires the federal banking agencies, in
connection with regulatory examinations, to assess an institution's record of
meeting the credit needs of its delineated community and to take such record
into account in evaluating certain regulatory applications filed by an
institution.  The CRA requires public disclosure of an institution's CRA
rating.  The Bank received a "satisfactory" rating as a result of its latest
evaluation.

     Regulatory and Criminal Enforcement Provisions.  Under the FDIA, the OTS
has primary enforcement responsibility over savings institutions and has the
authority to bring action against all "institution-affiliated parties,"
including stockholders, and any attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an
adverse effect on an insured institution.  Formal enforcement action may range
from the issuance of a capital directive or cease and desist order to removal
of officers or directors, receivership, conservatorship or termination of
deposit insurance.  Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or $1.0 million per day in especially egregious
cases.  Under the FDIA, the FDIC has the authority to recommend to the
Director of the OTS that enforcement action be taken with respect to a
particular savings institution.  If the Director does not take action, the
FDIC has authority to take such action under certain circumstances.  Federal
law also establishes criminal penalties for certain violations.

Savings and Loan Holding Company Regulations

     General.  The Corporation is a unitary savings and loan company subject
to regulatory oversight of the OTS.  Accordingly, the Corporation is required
to register and file reports with the OTS and is subject to regulation and
examination by the OTS.  In addition, the OTS has enforcement authority over
the Corporation and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.

     Acquisitions.  Federal law and OTS regulations issued thereunder
generally prohibit a savings and loan holding company, without prior OTS
approval, from acquiring more than 5% of the voting stock of any other savings

                                       24

<PAGE>



association or savings and loan holding company or controlling the assets
thereof.  They also prohibit, among other things, any director or officer of a
savings and loan holding company, or any individual who owns or controls more
than 25% of the voting shares of such holding company, from acquiring control
of any savings association not a subsidiary of such savings and loan holding
company, unless the acquisition is approved by the OTS.

     Activities.   As a unitary savings and loan holding company, the
Corporation generally is not subject to activity restrictions.  If the
Corporation acquires control of another savings association as a separate
subsidiary, it would become a multiple savings and loan holding company and
the activities of the Bank and any other subsidiaries (other than the Bank or
any other SAIF insured savings association) would generally become subject to
additional restrictions.  There generally are more restrictions on the
activities of a multiple savings and loan holding company than a unitary
savings and loan holding company.   Federal law provides that, among other
things, no multiple savings and loan holding company or subsidiary thereof
which is not an insured association shall commence or continue for more than
two years after becoming a multiple savings and loan association holding
company or subsidiary thereof, any business activity other than:  (i)
furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a
subsidiary insured institution, (iv) holding or managing properties used or
occupied by a subsidiary insured institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by
regulation as of March 5, 1987 to be engaged in by multiple holding companies
or (vii) those activities authorized by the Federal Reserve Board as
permissible for bank holding companies, unless the OTS by regulation,
prohibits or limits such activities for savings and loan holding companies.
Those activities described in (vii) above also must be approved by the OTS
prior to being engaged in by a multiple holding company.

     Qualified Thrift Lender Test.   If the Bank fails the qualified thrift
lender test, within one year the Corporation must register as, and will become
subject to, the significant activity restrictions applicable to bank holding
companies.  See "--Federal Regulation of Savings Associations--Qualified
Thrift Lender Test" for information regarding the Bank's qualified thrift
lender test.

     Financial Services Modernization Bill.  On November 12, 1999, President
Clinton signed into law the Gramm-Leach-Bliley Act (the "Act") and became
effective March 11, 2000.  The Act permits qualifying bank holding companies
to become financial holding companies and thereby affiliate with securities
firms and insurance companies and engage in other activities that are
financial in nature.  The Act defines "financial in nature" to include
securities underwriting, dealing and market making; sponsoring mutual funds
and investment companies; insurance underwriting and agency; merchant banking
activities; and activities that the Board has determined to be closely related
to banking.  A qualifying national bank also may engage, subject to limitation
on investment, in activities that are financial in nature, other than
insurance underwriting, insurance company portfolio investment, real estate
development, and real estate investment, through a financial subsidiary of the
bank.

     The Act also prohibits new unitary thrift holding companies from engaging
in nonfinancial activities or from affiliating with an nonfinancial entity.
As a grandfathered unitary thrift holding company, the Corporation has
retained its authority to engage in nonfinancial activities.

Regulation of Bank Holding Companies

     In connection with the proposed acquisition of Montana First National
Bancorporation, the Corporation intends to apply to the Federal Reserve System
for permission to become a bank holding company with a financial holding
company election under the Bank Holding Company Act of 1956, as amended.  As a
bank holding company with a financial holding company election, the
Corporation will become subject to the Bank Holding Company Act and
regulations issued by and supervision of the Federal Reserve.  The Federal
Reserve has extensive enforcement authority over bank holding companies,
including, amount other things, the ability to assess civil monetary
penalties, to issue cease and desist or removal orders and to require that a
holding company divest subsidiaries, including its bank subsidiaries.  In
general, the enforcement actions may be initiated for violations of law and
regulations and unsafe or unsound practices.

                                       25

<PAGE>



     The following is a general discussion of the regulations the Corporation
would be subject to as a bank holding company with a financial holding company
election.

     Financial Holding Company Election.  The enactment of the
Gramm-Leach-Bliley Financial Services Modernization Act of 1999 expanded the
structural options available to bank holding companies to permit them to
engage in banking and other financial activities.  Specifically, the Act
provides for the establishment of a new financial holding company.  The Act
permits qualifying bank holding companies that own a bank, "financial holding
companies," to also own companies that engage in securities underwriting and
dealing, insurance agency and underwriting, merchant banking or venture
capital activities, the distribution of mutual funds, and securities lending.
Financial holding companies may hold any type of deposit taking subsidiary,
including a national bank, a state chartered bank, or a thrift or savings
bank.  To qualify as a financial holding company, however, each of the
company's deposit-taking subsidiaries must be well capitalized, well-managed,
and have at least a "satisfactory" rating under the CRA.

     Acquisitions.    Under the Bank Holding Company Act, a bank holding
company must obtain Federal Reserve approval before: acquiring, directly or
indirectly, ownership or control of any voting shares of another bank or bank
holding company, if, after such acquisition, it would own or control more than
5% of such shares, unless it already owns or controls the majority of such
shares;  acquiring all or substantially all of the assets of another bank or
bank holding company; or merging or consolidating with another bank holding
company.

     Interstate Banking.  The Federal Reserve must approve an application of
an adequately capitalized and adequately managed bank holding company to
acquire control of, or acquire all or substantially all of the assets of, a
bank located in a state other than such holding company's home state, without
regard to whether the transaction is prohibited by the laws of any state.

     Dividends.   The Federal Reserve has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the
Federal Reserve's view that a bank holding company should pay cash dividends
only to the extent that the company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention
that is consistent with the company's capital needs, asset quality and overall
financial condition.  The Federal Reserve also indicated that it would be
inappropriate for a company experiencing serious financial problems to borrow
funds to pay dividends.

     Stock Repurchases.   Bank holding companies, except for certain
"well-capitalized" and highly rated bank holding companies, are required to
give the Federal Reserve prior written notice of any purchase or redemption of
its outstanding equity securities if the gross consideration for the purchase
or redemption, when combined with the net consideration paid for all such
purchases or redemptions during the preceding 12 months, is equal to 10% or
more of their consolidated net worth.  The Federal Reserve may disapprove such
a purchase or redemption if it determines that the proposal would constitute
an unsafe or unsound practice or would violate any law, regulation, Federal
Reserve order, or any condition imposed by, or written agreement with the
Federal Reserve.

     Capital Requirements.  The Federal Reserve has established capital
adequacy guidelines for bank holding companies that generally parallel the
capital requirements of the FDIC for a commercial bank.  The Federal Reserve
regulations provide that capital standards will be applied on a consolidated
basis in the case of a bank holding company with $150 million or more in total
consolidated assets.

     Under the Federal Reserve's capital adequacy guidelines, a company's
total risk based capital must equal 8% of risk-weighted assets and one half of
the 8%, or 4%, must consist of Tier 1 (core) capital.

Critical Accounting Policies.

     Companies may apply certain critical accounting policies requiring
management to make subjective or complex judgments, often as a result of the
need to estimate the effect of matters that are inherently uncertain.  The
Company considers its only critical accounting policy to be the allowance for
loan losses.  The allowance for loan

                                       26

<PAGE>



losses is established through a provision for loan losses charged against
earnings.  The balance of allowance for loan losses are maintained at the
amount management believes will be adequate to absorb known and inherent
losses in the loan portfolio.  The appropriate balance of allowance for loan
losses is determined by applying estimated loss factors to the credit exposure
from outstanding loans. Estimated loss factors are based on subjective
measurements including management's assessment of the internal risk
classifications of loans, changes in the nature of the loan portfolio,
industry concentrations and the impact of current local, regional and national
economic factors on the quality of the loan portfolio.  Changes in these
estimates and assumptions are reasonably possible and may have a material
impact on the Company's consolidated financial statements, results of
operations or liquidity.

     For additional information regarding the allowance for loan losses, its
relation to the provision for loan losses and risk related to asset quality
see "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Asset Quality" and Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Provision for Loan Losses"
and "Notes to Consolidated Financial Statements -- Summary of Significant
Accounting Policies -- Allowance for Loan Losses."

                                       27

<PAGE>



                                 TAXATION

Federal Taxation

     General.  The Corporation and the Bank report their income on a calendar
year basis using the accrual method of accounting and are subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below.  The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Corporation.

     Tax Bad Debt Reserves.  For taxable years beginning prior to January 1,
1996, savings institutions such as the Bank which met certain definitional
tests primarily relating to their assets and the nature of their business
("qualifying thrifts") were permitted to establish a reserve for bad debts and
to make annual additions thereto, which additions may, within specified
formula limits, have been deducted in arriving at their taxable income.  The
Bank's deduction with respect to "qualifying loans," which are generally loans
secured by certain interests in real property, may have been computed using an
amount based on the Bank's actual loss experience, or a percentage equal to 8%
of the Bank's taxable income, computed with certain modifications and reduced
by the amount of any permitted additions to the nonqualifying reserve.  The
Bank's deduction with respect to nonqualifying loans was computed under the
experience method, which essentially allows a deduction based on the Bank's
actual loss experience over a period of several years.  Each year the Bank
selected the most favorable way to calculate the deduction attributable to an
addition to the tax bad debt reserve.

     Federal legislation repealed the reserve method of accounting for bad
debt reserves for tax years beginning after December 31, 1995.  As a result,
savings associations are no longer able to calculate their deduction for bad
debts using the percentage-of-taxable-income method.  Instead, savings
associations are required to compute their deduction based on specific
charge-offs during the taxable year or, if the savings association or its
controlled group had assets of less than $500 million, based on actual loss
experience over a period of years.  This legislation also requires savings
associations to recapture into income over a six-year period their post-1987
additions to their bad debt tax reserves, thereby generating additional tax
liability.  At December 31, 2001, the Bank's post-1987 reserves were
negligible. The recapture may be suspended for up to two years if, during
those years, the institution satisfies a residential loan requirement.  The
Bank met the residential loan requirement for the taxable year ending December
31, 2001.

     Under prior law, if the Bank failed to satisfy the qualifying thrift
definitional tests in any taxable year, it would be unable to make additions
to its bad debt reserve.  Instead, the Bank would be required to deduct bad
debts as they occur and would additionally be required to recapture its bad
debt reserve deductions ratably over a multi-year period.  At December 31,
2001, the Bank's total bad debt reserve for tax purposes was approximately
$3.3 million.  Among other things, the qualifying thrift definitional tests
required the Bank to hold at least 60% of its assets as "qualifying assets."
Qualifying assets generally include cash, obligations of the United States or
any agency or instrumentality thereof, certain obligations of a state or
political subdivision thereof, loans secured by interests in improved
residential real property or by savings accounts, student loans and property
used by the Bank in the conduct of its banking business.  Under current law, a
savings association will not be required to recapture its pre-1988 bad debt
reserves if it ceases to meet the qualifying thrift definitional tests.

     Distributions.  To the extent that the Bank makes "nondividend
distributions" to the Corporation that are considered as made: (i) from the
reserve for losses on qualifying real property loans, to the extent the
reserve for such losses exceeds the amount that would have been allowed under
the experience method; or (ii) from the supplemental reserve for losses on
loans ("Excess Distributions"), then an amount based on the amount distributed
will be included in the Bank's taxable income.  Nondividend distributions
include distributions in excess of the Bank's current and accumulated earnings
and profits, distributions in redemption of stock, and distributions in
partial or complete liquidation.  However, dividends paid out of the Bank's
current or accumulated earnings and profits, as calculated for federal income
tax purposes, will not be considered to result in a distribution from the
Bank's bad debt reserve.  Thus, any dividends to the Corporation that would
reduce amounts appropriated to the Bank's bad debt reserve and deducted

                                       28

<PAGE>



for federal income tax purposes would create a tax liability for the Bank.
The amount of additional taxable income attributable to an Excess Distribution
is an amount that, when reduced by the tax attributable to the income, is
equal to the amount of the distribution.  Thus, if, the Bank makes a
"nondividend distribution," then approximately one and one-half times the
amount so used would be includable in gross income for federal income tax
purposes, assuming a 35% corporate income tax rate (exclusive of state and
local taxes).  See "REGULATION -- Federal Regulation of Savings Associations
-- Limitations on Capital Distributions" for limits on the payment of
dividends by the Bank.  The Bank does not intend to pay dividends that would
result in a recapture of any portion of its tax bad debt reserve.

     Corporate Alternative Minimum Tax.  The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%.  The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI.  In addition,
only 90% of AMTI can be offset by net operating loss carryovers.  AMTI is
increased by an amount equal to 75% of the amount by which the Bank's adjusted
current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses).  For taxable
years beginning after December 31, 1986, and before January 1, 1997, an
environmental tax of .12% of the excess of AMTI (with certain modification)
over $2.0 million is imposed on corporations, including the Bank, whether or
not an Alternative Minimum Tax ("AMT") is paid.

     Dividends-Received Deduction and Other Matters.  The Corporation may
exclude from its income 100% of dividends received from the Bank as a member
of the same affiliated group of corporations.  The corporate
dividends-received deduction is generally 70% in the case of dividends
received from unaffiliated corporations with which the Corporation and the
Bank will not file a consolidated tax return, except that if the Corporation
or the Bank owns more than 20% of the stock of a corporation distributing a
dividend, then 80% of any dividends received may be deducted.

     Audits.  There have not been any Internal Revenue Service audits of the
Bank's federal income tax returns during the past five years.

State Taxation

     The Corporation is subject to the Montana Corporation License Tax, which
is imposed at the rate of 6.75% of Montana taxable income.  There have not
been any audits of the Corporation's state tax returns during the past five
years.

Competition

     The Bank operates in an extremely competitive market for the attraction
of savings deposits (its primary source of lendable funds) and in the
origination of loans.  Historically, its most direct competition for savings
deposits has come from commercial banks, thrift institutions and credit unions
operating in its market area.  Some of these commercial banks are subsidiaries
of large regional holding companies having vastly greater resources than the
Bank at their disposal.  At December 31, 2001, there were many commercial
banks (including branch offices), two thrift institutions (in addition to the
Bank) and two credit unions in Park, Gallatin and Sweet Grass Counties.  In
addition, the competition in the Bank's newer markets, Billings and Missoula,
is significantly higher than in the historical market areas served by the
Bank.  Particularly in times of high market interest rates, the Bank has faced
competition for investors' funds from short-term money market securities and
corporate and U.S. Government securities.  The Bank competes for loan
originations with mortgage bankers, thrift institutions, credit unions and
commercial banks.  Such competition for deposits and loans may limit the
Bank's future growth and earnings prospects.

Personnel

     As of December 31, 2001, the Bank had 51 full-time equivalent employees,
12 of whom are employed by Dime Service Corporation and five part-time
employees, none of whom were represented by a collective bargaining unit.  The
Bank believes its relationship with its employees is good.

                                       29

<PAGE>



Item 2.  Description of Property
--------------------------------

     The Bank has four offices.   The main office is located at 123 South Main
Street, Livingston, Montana 59047.  The main office was opened in 1923 and the
present square footage is approximately 15,000 feet.   The Bank purchased the
building effective July 1, 1998, which purchase was approved by the OTS, for
$750,000.  The sellers accepted a 10-year 9% note as payment.  The net book
value of the property and equipment, including land previously owned, is $1.1
million.

     The Bank has branch offices located at 101 McLeod Street, Big Timber,
Montana 59011, at 5 West Mendenhall Street, Bozeman, Montana 59715 and at 455
South 24th Street West, Billings, Montana 59108.  The Big Timber branch office
consists of approximately 2,000 square feet, was opened in 1980 in connection
with the merger of the Big Timber Building and Loan Association, and relocated
to its current facility in 1984.  At December 31, 2001, the net book value of
the property and equipment was $211,000.  The Bozeman branch office consists
of approximately 7,000 square feet, was opened in 1958 in connection with the
merger  with Pioneer Building  and Loan Association and relocated to its
current facility in 1971.  At December 31, 2001, the net book value of the
property and equipment was $667,000.  During the third quarter of 1999, the
Bank acquired the property in Billings, Montana for a de novo branch facility.
At December 31, 2001 the Bank has  recorded $1.5 million related to this
property.  This property consists of approximately 3,700 square feet used
entirely by the new branch.  The Missoula loan processing office has equipment
amounting to $92,000. In addition, the land and building in Missoula,
including remodeling costs through December 31, 2001 was $1.0 million  The
total net book value of the Bank's premises and equipment at December 31, 2001
was $4.6 million.

     The Bank's subsidiary, Dime Service Corporation, leases offices in
Livingston, Big Timber and Bozeman, Montana.  The Livingston office is 2,500
square feet, the Big Timber office is 365 square feet and the Bozeman office
is 650 square feet.  There are no written lease agreements for the Livingston
and Big Timber offices.

                                       30

<PAGE>



Item 3.  Legal Proceedings
--------------------------

     From time to time, the Bank is involved in routine legal proceedings
occurring in the ordinary course of business.  At December 31, 2001, the Bank
was not a party to any legal proceedings that management of the Bank believed
would be materially adverse to the financial condition, results of operations,
cash flows or capital ratios of 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 year ended December 31, 2001.

Item 5.  Market for the Registrant's Common Equity and Related Stockholder
         Matters
--------------------------------------------------------------------------

     The information contained under the section captioned "Stock Market
Information" in the Company's Annual Report is incorporated herein by
reference.

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

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

Item 7.  Financial Statements
-----------------------------

     The Corporation's consolidated financial statements required herein are
contained in the Annual Report and are incorporated herein by reference.

Item 8.  Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure
------------------------------------------------------------------------

     No changes in or disagreements with the Corporation's independent
accountants on accounting and financial disclosure have occurred during the
past 12 months.

                                       31

<PAGE>



                                  PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(b) of the Exchange Act
----------------------------------------------------------------------

     The information contained under the sections captioned "Voting Securities
and Security Ownership of Certain Beneficial Owners and Management," "Proposal
I -- Election of Directors" and "Compliance with Section 16(a) of the Exchange
Act" in the Corporation's definitive proxy statement for the Corporation's
Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein
by reference.

Item 10.  Executive Compensation
--------------------------------

     The information contained under the section captioned "Executive
Compensation" in the Proxy Statement is incorporated herein by reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

     (a)  Security Ownership of Certain Beneficial Owners

          Information required by this item is incorporated herein by
          reference to the section captioned "Voting Securities and Security
          Ownership of Certain Beneficial Owners and Management" in the
          Proxy Statement.

     (b)  Security Ownership of Management

          Information required by this item is incorporated herein by
          reference to the section captioned "Proposal I -- Election of
          Directors" in the Proxy Statement.

     (c)  Management of the Corporation knows of no arrangements, including
          any pledge by any person of securities of the Corporation, 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  "Transaction with Management" and "Voting Securities
and Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement.

                                       32

<PAGE>



Item 13.  Exhibits, List and Reports on Form 8-K
------------------------------------------------

     (a)   Exhibits

     3.1   Certificate of Incorporation of Empire Federal Bancorp, Inc. (1)
     3.2   Bylaws of Empire Federal Bancorp, Inc. (1)
     10.2  Employment Agreement with William H. Ruegamer (3)
     10.3  Employee Stock Ownership Plan (1)
     10.4  Management Recognition and Development Plan (2)
     10.5  Stock Option Plan (2)
     10.6  Financial Institution's Thrift Plan (401(k)) (2)
     11    Statement regarding computation of earnings per share (see Notes 1
           and 12 to the Notes to Consolidated Financial Statements in the
           Corporation's Annual Report)
     13    Annual Report to Stockholders for the year ended December 31, 2001
     21    Subsidiaries of the Registrant
     23    Consent of Independent Auditors

-------------------
(1)  Incorporated by reference to the Corporation's Registration Statement on
     Form SB-1, File No. 333-12653.
(2)  Incorporated by reference to the Registrant's Annual Meeting Proxy
     Statement.
(3)  Incorporated by reference to the Registrant's Annual Report on Form
     10-QSB for the quarter ended June 30, 2001.

     (b)  Report on Form 8-K

          No Forms 8-K were filed during the quarter ended December 31, 2001.

                                       33

<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.

                                   EMPIRE FEDERAL BANCORP, INC.

Date:  March 27, 2002              By: /s/ William H. Ruegamer
                                       -----------------------------
                                       Chief Executive Officer and
                                       President
                                       (Duly Authorized Representative)

     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.

By: /s/ William H. Ruegamer                                 March 27, 2002
    ---------------------------------------
    William H. Ruegamer
    President and Chief Executive Officer
     (Principal Executive Officer)

By: /s/ Beverly D. Harris                                   March 27, 2002
    ---------------------------------------
    Beverly D. Harris
    Director

By: /s/ Edwin H. Doig                                       March 27, 2002
    ---------------------------------------
    Edwin H. Doig
    Chairman of the Board

By: /s/ Walter R. Sales                                     March 27, 2002
    ---------------------------------------
    Walter R. Sales
    Director

By: /s/ Burton Wastcoat                                     March 27, 2002
    ---------------------------------------
    Burton Wastcoat
    Director

By: /s/ Kenneth P. Cochran                                  March 27, 2002
    ---------------------------------------
    Kenneth P. Cochran
    Director and Senior Vice President

<PAGE>




                           Exhibit 13

                   Annual Report to Stockholders

<PAGE>




                            2001 ANNUAL REPORT

                       EMPIRE FEDERAL BANCORP, INC.

<PAGE>




                             TABLE OF CONTENTS
                                                                Page

          Letter to Stockholders..............................    1
          Selected Consolidated Financial Information.........    2
          Management's Discussion and Analysis of
            Financial Condition and Results of Operations.....    5
          Independent Auditors' Report........................   16
          Consolidated Financial Statements...................   17
          Notes to Consolidated Financial Statements..........   21
          Common Stock Information............................   46
          Directors and Officers..............................   47
          Corporate Information...............................   48

                                 ----------

                           BUSINESS OF THE COMPANY

     Empire Federal Bancorp, Inc. (the "Corporation") is a savings and loan
holding company headquartered in Livingston, Montana.  Its principal
subsidiary is Empire Bank (the "Bank") (the Corporation and the Bank shall at
times be referred to as the "Corporation") which operates four branches in
south-central Montana.  The Corporation was incorporated on September 20,
1996, for the purpose of becoming the holding company for the Bank, upon its
conversion from a federal mutual savings and loan association to a federal
stock savings bank.  As part of the conversion process the association's name
was changed from "Empire Federal Savings and Loan Association" to "Empire
Federal Bank".  The sale of stock by the Corporation was completed and the
conversion process finished on January 23, 1997.  The financial and other
information contained in this Annual Report are presented as if the conversion
had been completed on December 31, 1996.  On December 31, 2001, the
Corporation had total assets of $174.9 million, total deposits of $126.9
million, and stockholders' equity of $28.9 million.  The Corporation's
principal activity is holding the stock of the Bank.  Accordingly, the
information set forth in this report, including the consolidated financial
statements and related notes, relates primarily to the Bank.

     The Bank was organized under the statutes of the State of Montana as
Empire Federal Building and Loan Association (the "Association"), and was
authorized to begin business on May 25, 1923.  The Association was granted
membership in the Federal Home Loan Bank System on March 3, 1933, and obtained
insurance of accounts from the Federal Savings and Loan Insurance Corporation
on August 12, 1937.  At a meeting held August 11, 1952, members of the
Association voted to change the Association's name to Empire Savings and Loan
Association.  On January 5, 1959, the Association merged with Pioneer Building
and Loan Association of Bozeman and continued the services of  Pioneer to the
Bozeman community.  On June 25, 1970, the state-chartered Association
converted to a federal charter and changed its name to Empire Federal Savings
and Loan Association.  On September 30, 1980, the Association merged with  Big
Timber Building and Loan Association and opened its doors to business in Big
Timber.  During 1999 the Bank received approval to open a de novo branch in
Billings, Montana, which was opened in April 2000. In 2000, the Bank adopted
its current corporate title.   During 2000, the Bank opened a loan production
office in Missoula, Montana, which is expected to become a full service branch
in early 2002.

     In 1985, the Bank formed a service corporation, The Dime Service
Corporation ("Dime") and purchased the book of insurance of United Agencies in
Livingston, Montana and began operation as Dime Insurance Agency, an
independent insurance agency, with offices in Livingston, Bozeman and Big
Timber, Montana.

     The Bank is a community oriented financial institution which obtains
funds primarily through savings and checking deposits from  the general
public, from repayment of loans, and from borrowings and retained earnings.
These funds are used primarily to originate commercial, business, commercial
real estate, residential and consumer loans.  The Bank also makes home equity
loans for a wide variety of purposes, finances other types of real estate, and
invests in obligations of the U. S. Government and its agencies.


<PAGE>



                        LETTER TO SHAREHOLDERS

To Our Shareholders:

The year 2001 continued to bring change, challenge and growth for your
company. Change in the ongoing transition to become a full service community
bank, challenge in meeting the competitive forces of the financial service
industry and growth in our people, products and services to our customers and
the number of locations we serve.

Significant strides were made during 2001 to expand the Bank's franchise in
Montana. At December 31, 2001, a full service de novo branch was in the
process of construction and opened during March 2002 in Missoula, Montana.
Further, in January 2002, the Company announced its intent to acquire Montana
First National Bancorporation located in Kalispell, Montana with approximately
$26 million in assets and a presence in consumer and commercial banking in the
Kalispell market.  The Company will acquire all of the outstanding stock of
Montana First National Bancorporation for an aggregate price of $4,037,500.
The cash price is subject to adjustment based on Montana First's financial
performance prior to the closing of the transaction, which is anticipated to
occur in the third quarter of 2002.  Both Missoula and Kalispell are located
in one of the best growth areas of Montana.

During 2001, the Bank continued its strategic emphasis on growth by offering
more services, aggressive solicitation of deposits from customers and higher
than usual interest rates in the markets served.  Increased interest expense
during the three months ended December 31, 2001 reflects this strategy and
increased interest expense is expected to impact earnings for much of 2002 as
a result of the 63% increase in deposits.  Retention of these new depositors
will be a high priority during the coming months with emphasis on more
products, personal service and expanded locations.

The Company continued to repurchase common shares in the open market.  During
the year ended December 31, 2001, 54,500 shares were purchased for $819,550
for an average price of $15.04 per share.  At year-end the Company had
repurchased 1,084,457 shares for a total of $14,892,000, or an average price
of $13.73 per share.

Financial highlights for the year ended December 31, 2001 include:

     o   Net income of $1,141,000 or $.84 per share as compared to $1,217,000
           or $.79 per share, for the comparable period in 2000.
     o   Book value per share at December 31, 2001 amounted to $19.15 as
           compared to $18.51 at December 31, 2000.
     o   Cash dividends paid of $640,000 or $.46 per share.
     o   Increase in deposits of $49 million or 63.4% since December 31, 2000.
     o   Increase in net loans of $3,381,000 or 4.13% since December 31, 2000.

Three of our long-term directors, Walter J. Peterson Jr., Sanroe J. Kaisler
Jr. and John R. Boe, retired during 2001.  Their many years of dedication and
support will be missed and we wish them well.

Our consolidated capital amounted to $28.9 million or 16.51% of total assets
which is significantly in excess of regulatory requirements and our
competitors.  We continue to evaluate additional repurchases of our common
stock as compared to alternative financial investments and opportunities.

We are very pleased with our progress during 2001 and we continue to evaluate
opportunities for expansion that will be compatible to our organization and
beneficial to our shareholders.

We look forward to the challenges and opportunities in the coming years.  We
value our employees, customers, shareholders and the communities we serve.  We
appreciate your support and continued loyalty.

Sincerely,


/s/William H. Ruegamer
William H. Ruegamer
President and Chief Executive Officer

                                     1

<PAGE>




                 SELECTED CONSOLIDATED FINANCIAL INFORMATION

     The following tables set forth certain information concerning the
consolidated financial position and results of operation of the Corporation at
the dates and for the periods indicated.  This information is qualified in its
entirety by reference to the detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Annual Report.

                                            At December 31,
                         ----------------------------------------------------
                           2001       2000       1999       1998       1997
                           ----       ----       ----       ----       ----
                                            (In Thousands)

SELECTED FINANCIAL
 CONDITION DATA:

Total assets............ $174,912   $125,067   $114,527   $109,201   $109,801
Cash and interest-
 bearing deposits.......   46,536      2,648      2,372      5,154      2,904
Investment and
 mortgage-backed
 securities available-
 for-sale...............   35,945     29,374     41,090     39,866     36,496
Investment and
 mortgage-backed
 securities held-to-
 maturity...............       --      5,024      6,406     10,498     20,556
Loans receivable, net...   85,241     80,363     59,570     49,499     45,714
Deposits................  126,940     77,667     71,353     66,413     66,859
Advances from FHLB......   17,000     16,200      8,800      4,000         --
Total equity, substan-
 tially restricted......   28,873     28,915     32,755     36,301     40,598

                                                 Year
                                                 Ended
                                               December 31,
                        ----------------------------------------------------
                           2001       2000       1999       1998       1997
                           ----       ----       ----       ----       ----
                                            (In Thousands)

SELECTED OPERATING DATA:

Interest income.........  $9,538      $8,702     $7,592     $7,665     $7,709
Interest expense........   5,103       4,070      3,208      3,036      3,118
                          ------      ------     ------     ------     ------
 Net interest income....   4,435       4,632      4,384      4,629      4,591
Provision for loan
 losses.................     255         110         18         20         20
                          ------      ------     ------     ------     ------
 Net interest income
  after provision for
  loan losses...........   4,180       4,522      4,366      4,609      4,571
                          ------      ------     ------     ------     ------
Non-interest income
 Insurance commission
  income................     588         557        576        624        652
 Customer service
  charges...............     301         249        228        216        188
 Gain of sale of
  investments, net......     386         184         --         --         --
 Gain on sale of loans..     552          59         --         --         --
 Other income...........      19          26         24         32         19
                          ------      ------     ------     ------     ------
 Total non-interest
  income................   1,846       1,075        829        872        859

                        (table continued on following page)

                                         2
<PAGE>



                                                 Year
                                                 Ended
                                               December 31,
                        ----------------------------------------------------
                           2001       2000       1999       1998       1997
                           ----       ----       ----       ----       ----
                                            (In Thousands)
Non-interest expense:
 Compensation and
  benefits...............  2,326       2,033      1,839      2,156      1,621
 Occupancy and equipment.    645         565        409        378        363
 Deposit insurance
  premiums...............     65          51         65         72         78
 Other general and
  administrative.........    974         957        809        729        750
                          ------      ------     ------     ------     ------
   Total non-interest
    expense..............  4,010       3,606      3,122      3,335      2,812
Income before income
 taxes...................  2,016       1,991      2,073      2,146      2,618
Income tax expense.......    875         774        808        901      1,032
                          ------      ------     ------     ------     ------
Net income............... $1,141      $1,217     $1,265     $1,245     $1,586
                          ======      ======     ======     ======     ======
Earnings per share:
 Basic...................  $0.84       $0.79      $0.70      $0.56      $0.67
                           =====       =====      =====      =====      =====
 Diluted.................  $0.84       $0.79      $0.70      $0.56      $0.67
                           =====       =====      =====      =====      =====

Book value per share..... $19.15      $18.51     $16.37     $16.33     $15.66
                          ======      ======     ======     ======     ======

                                            At or For the
                                                 Year
                                                 Ended
                                               December 31,
                        ----------------------------------------------------
                           2001       2000       1999       1998       1997
                           ----       ----       ----       ----       ----


Performance Ratios:
Return on average assets
 (net income divided by
 average assets).........   0.82%     1.04%      1.15%      1.15%      1.43%
Return on average equity
 (net income divided by
 average equity).........   3.80      4.02       3.85       3.26       3.95
Dividend payout ratio
 (dividends declared
 per share divided by net
 income per share).......  54.76     55.70      57.14      57.14      33.58
Average interest-earning
 assets to average
 interest-bearing
 liabilities............. 124.79    131.89     142.55     154.90     155.55
Net interest income after
 provision for loan
 losses to total non-
 interest expense........ 104.24    125.41     139.85     138.19     162.55
Interest rate spread.....   2.40      2.98       2.85       2.82       2.66
Net yield on average
 interest-earning assets.   3.35      4.13       4.14       4.40       4.28
Efficiency ratio (non-
 interest expense divided
 by the sum of net
 interest income and
 non-interest income)(1).  63.85     63.18      59.89      60.63      51.59

          (table continued on, and footnotes on, following page)

                                      3

<PAGE>



                                             At or For the
                                                 Year
                                                 Ended
                                               December 31,
                        ----------------------------------------------------
                           2001       2000       1999       1998       1997
                           ----       ----       ----       ----       ----



Equity Ratios:
Average equity to
 average assets (average
 equity divided by
 average total assets)...  21.46%    25.84%     29.95%     35.27%      36.32%
Equity to assets at
 year end................  16.51     23.13      28.60      33.24       36.97

Asset Quality Ratios:
Non-performing assets
 to total assets.........   0.43        --         (1)        --          --
Non-performing loans
 to total assets.........   0.43        --         (1)        --          --
Non-performing loans
 to net loans............   0.92        --         (1)        --          --
Allowance for loan
 losses, real estate
 owned and other repos-
 sessed assets to non-
 performing assets.......  79.18        *          (1)        *           *
Allowance for loan
 losses to total loans
 outstanding.............   0.69      0.41       0.38       0.44        0.41


                                                  At
                                               December 31,
                        ----------------------------------------------------
                           2001       2000       1999       1998       1997
                           ----       ----       ----       ----       ----

OTHER DATA:

Number of:
 Real estate loans
  outstanding............   825        940        732        702         714
 Deposit accounts........11,010      9,620     10,029     10,078      10,368
 Full-service offices....     4          4          3          3           3


*    Not meaningful.
(1)  One loan for $14,000 on non-accrual at December 31, 1999.  Percentages
     not meaningful.

                                         4

<PAGE>



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

Special Note Regarding Forward-Looking Statements

     Certain matters in this annual report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995.  These forward-looking statements relate to, among others,
expectations of the business environment in which the Corporation operates,
projections of future performance, perceived opportunities in the market,
potential future credit experience, and statements regarding the Corporation's
business strategy.   Specifically, the Corporation has changed its role as a
traditional mortgage lender to that of a commercial bank by increasing its
commercial and business lending during fiscal 2001.  This reflects the
Corporation's new growth-oriented expansion strategy, which is to pursue
internal and external growth opportunities when management deems it
appropriate.  This new strategy may subject the Corporation to a greater
degree of risk.  Risks associated with this new business strategy include
increased risk of losses on loans, provision for loan losses which exceed
historical levels, difficulties in integrating or managing new branches or
acquired institutions and problems related to the management of growth.  There
can be no assurance that the Corporation will be successful in implementing
this new business strategy or in managing growth.

     These forward-looking statements are based upon current management
expectations, and may, therefore, involve risks and uncertainties.  The
Corporation's actual results, performance, or achievements may differ
materially from those suggested, expressed, or implied by forward looking
statements due to a wide range of factors including, but not limited to, the
general business environment, the direction of future interest rates, the
local real estate market, competitive conditions between banks and non-bank
financial services providers, regulatory changes, labor market
competitiveness, and other risks detailed in the Corporation's reports filed
with the Securities and Exchange Commission.

General

     Management's discussion and analysis of financial condition and results
of operations is intended to assist in understanding the financial condition
and results of operations of the Corporation.  The information contained in
this section should be read in conjunction with the Consolidated Financial
Statements and accompanying Notes thereto contained herein.

Operating Strategy

     The Bank is a community oriented financial institution which has
traditionally offered a variety of savings products to its retail customers
while concentrating its lending activities on the origination of loans secured
by one-to-four family residential dwellings.  In the past, the Bank considered
Gallatin, Park and Sweet Grass counties in south central Montana as its
primary market area.  During 1999, the Bank received regulatory approval to
open a de novo branch in Billings, Montana, and management opened the new
branch in April 2000.  In addition, the Bank opened a loan production office
in Missoula, Montana during the third quarter of 2000.  During the second
quarter of 2001, the Bank notified the Office of Thrift Supervision of its
intention to open a de novo branch in Missoula in late 2001 or early 2002.
Lending activities also have recently included the increased emphasis on the
origination of multi-family, commercial, business, commercial real estate and
home equity loans.  The Bank's primary business has been that of a traditional
financial institution, originating loans in its primary market area for its
portfolio.  In addition, the Bank has maintained a significant portion of its
assets in investment and mortgage-backed securities.  Similar to its lending
activities, the Bank's investment portfolio has been weighted toward U.S.
Government agency mortgage-backed securities secured by one-to-four family
residential properties.  The Bank plans to continue to fund its assets
primarily with deposits, although FHLB advances are used as a supplemental
source of funds.

     The Bank relies to a significant extent on borrowings from the FHLB of
Seattle to finance its short-term and, to a certain extent, its longer term
financing needs.  The FHLB of Seattle functions as the central reserve bank
providing credit for savings institutions and certain other member financial
institutions.  In recent periods, borrowings from the FHLB of Seattle have
been available at rates that are more favorable than the rates that the Bank
would be required to pay on deposits.  Further, borrowings from the FHLB are
available at various maturities, facilitating the appropriate matching of
asset and liability maturity dates.

                                      5

<PAGE>



     The Bank's profitability depends primarily on its net interest income,
which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and FHLB advances.  Net interest income is also affected by the
relative amounts of interest-earning assets and interest-bearing liabilities.
When interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income.  The level of
other income and expenses also affects the Bank's profitability.  Other income
consists of service charges on checking and  NOW accounts and other fees,
insurance commissions and net gains or losses on the sale of investments and
loans.  Other expenses include compensation and employee benefits, occupancy
expenses, deposit insurance premiums, equipment and data servicing expenses,
professional fees and other operating costs.  The Bank's results of operations
are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government
legislation and policies concerning monetary and fiscal affairs, housing and
financial institutions and the attendant actions of the regulatory
authorities.

     The Bank's strategy is to operate as a conservative, well-capitalized,
profitable institution dedicated to offering a full line of community banking
services and to providing quality service to all customers.  The Bank believes
that it has successfully implemented its strategy by (i) maintaining strong
capital levels, (ii) maintaining effective control over operating expenses to
attempt to achieve profitability under differing interest rate scenarios,
(iii) emphasizing local loan originations and sales to the secondary market,
and (iv) emphasizing high-quality customer service with a competitive fee
structure.

     As evidenced by the new branch in Billings and the proposed new branch in
Missoula, coupled with an increase in commercial and business loans, the
Bank's strategy is changing from its historical role as a mortgage lender to a
growth-oriented expansion strategy by pursuing internal and external growth
opportunities, when appropriate.  This new strategy may subject the Company to
a greater degree of risk.  Risks associated with this new business strategy
include increased risk of losses on loans, provision to loan losses which
exceed historical levels, difficulties in integrating or managing new branches
or acquired institutions and problems related to the management of growth.
There can be no assurance that the Company will be successful in implementing
this new business strategy or in managing growth.

Financial Condition

     Consolidated assets increased by approximately $49.8 million, or 39.9%,
from $125.1 million at December 31, 2000 to $174.9 million at December 31,
2001.

     Effective January 1, 2001, the Company transferred held-to-maturity
securities with amortized costs of $5.0 million to the available-for-sale
securities category as allowed by Statement of Financial Accounting Standard
No. 133.  Investment and mortgage-backed securities available-for-sale, after
reclassification on January 1, 2001, increased $1.5 million, or 4.50%, from
$34.4 million at December 31, 2000 to $35.9 million at December 31, 2001 as
the result of maturities and payments of $10.3 million, a decrease in market
value of $185,000 and purchases of $12.0 million.

     Net loans increased $3.3 million, or 4.1%, from $81.9 million at December
31, 2000 to $85.2 million at December 31, 2001.

     Deposits increased $49.3 million or 63.4%, from $77.6 million at December
31, 2000 to $126.9 million at December 31, 2001.  This increase is the result
of a program to attract depositors in all of the Bank's markets.  The majority
of this increase in deposits was in one to two year certificates of deposits.

     A majority of the increase in deposits has been temporarily invested in
interest bearing deposits, which amounted to $42.4 million at December 31,
2001 as compared to $165,000 at December 31, 2000.

                                      6

<PAGE>



     Premises and equipment increased by $877,000 from $3.7 million at
December 31, 2000 to $4.6 million at December 31, 2001 as the result of
purchases of $1.2 million, which includes the purchase of $1.0 million for
property and construction costs in Missoula for a planned branch.
Depreciation of $336,000 offset this increase.

     Stockholders' equity amounted to $28.9 million at December 31, 2000 and
2001. Changes during the year include net income of $1.1 million, the release
of ESOP shares in the amount of $193,000 and a decrease of $113,000 related to
the market value of securities available-for-sale.  In addition, 12,398 shares
of MRDP vested and unearned MRDP compensation was reduced by $196,000.
Stockholders' equity was also decreased by the payments of $640,000 in
dividends.   During the year ended December 31, 2001, the Company repurchased
54,500 shares of its common stock in the open market at an average price of
$15.04 per share for a total of $820,000.  There were 1,084,457 shares held in
treasury at December 31, 2001 with an average price of $13.73.  Book value per
share at December 31, 2001 was $19.15.

Asset Quality

     At December 31, 2001, the Bank had two nonaccrual loans amounting to
$747,000.  At December 31, 2001, the Bank had 26 loans delinquent over 30 days
amounting to $4.5 million of which five loans amounting to $761,000 were
delinquent over 90 days.  The Bank had no real estate acquired through
foreclosure.

Results of Operations

     The operating results of the Bank depend primarily on its net interest
income.  The Bank's net interest income is determined by its interest rate
spread, which is the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities
and the degree of mismatch in the maturity and repricing characteristics of
its interest-earning assets and interest-bearing liabilities.  The Bank's net
earnings are also affected by the establishment of provisions for loan losses
and the level of its other non-interest income, including insurance commission
income and deposit service charges, as well as its other expenses and income
tax provisions.

Comparison of Results of Operations for the Year Ended December 31, 2001 and
2000

     Net Income.  Net income decreased by $76,000 from $1.2 million for the
year ended December 31, 2000 to $1.1 million for the year ended December 31,
2001.  The following narrative discusses the various components of the change.

     Net Interest Income.  Net interest income decreased $197,000, or 4.3%,
from $4.6 million for the year ended December 31, 2000 to $4.4 million for the
same period in 2001.  The interest rate spread decreased from 2.98% for the
year ended December 31, 2000 to 2.40% for the comparable period in 2001.

     Interest Income.  Total interest income increased by $836,000, or 9.6%,
from $8.7 million for the year ended December 31, 2000 to $9.5 million for the
same period in 2001.  The increase was primarily attributable to an increase
in average interest earning assets of $20.2 million, or 18.0%, from $112.1
million for the year ended December 31, 2000 as compared to $132.3 million for
the comparable period in 2001.  Average outstanding loans increased $16.4
million offset by decreases in the average outstanding balances of investments
and mortgage-backed securities of $8.1 million.   Average balances of other
investments, primarily interest bearing deposits, increased by $11.9 million,
or 602.0%, from $2.0 million for the year ended December 31, 2000 to $13.9
million for the same period in 2001.  The significant increase is the result
of investing the proceeds from the deposit growth in interest bearing deposits
at the FHLB and other financial institutions.  The yield on interest earning
assets for the year ended December 31, 2001, was 7.2% as compared to 7.8% for
the comparable period in 2000.

     Interest Expense.  Total interest expense was $5.1 million for the year
ended December 31, 2001, as compared to $4.1 million for the same period in
2000.  Interest on deposits increased by $748,000, or 22.5%, and interest on
notes payable and other debt increased by $285,000, or 38.2%.

                                      7

<PAGE>



     Average deposits for the year ended December 31, 2001 amounted to $87.2
million as compared to $73.2 million for the same period in 2000, an increase
of $14.0 million, or 19.1%.   Included in the average deposits for the year
ended December 31, 2001 was $52.4 million in certificates of deposit as
compared to $41.5 million for the comparable period in 2000, an increase of
$10.9 million or 26.3%.  In addition to the increase in average deposits, the
cost of deposits increased from 4.5% for year ended December 31, 2000 to 4.7%
for the same period in 2001 reflecting a general increase in the Bank's
interest rates.  Outstanding certificates of deposits at December 31, 2001
amounted to $126.9 million as compared to $77.7 million at December 31, 2000,
an increase of $49.2 million or 63.4%.  This increase is the result of a
strategic emphasis by management to attract new depositors and borrowers.
Continued increases in cost of deposits are projected for the year ended
December 31, 2002, based on the significant increase in deposits during the
third and fourth quarters of 2001.

     Other interest expense of $1.0 million for the year ended December 31,
2001 includes $984,000 related to borrowings from the FHLB and $46,000
associated with other debt.  Other interest expense for the comparable period
in 2000 included $694,000 related to FHLB borrowings and $51,000 associated
with other debt.  The weighted average interest rate on the FHLB advances was
4.98% and 6.38% at December 31, 2001 and 2000, respectively.

     Provision for Loan Losses.  The provision for loan losses was $255,000
for the year ended December 31, 2001 as compared to $110,000 for the same
period in 2000, an increase of $145,000 or 131.8%.  The increase in the
allowance for loan losses reflects the Bank's continued emphasis in
underwriting more commercial, commercial real estate, land and infrastructure
and construction loans.   At the end of both periods, the level of reserves
was deemed to be adequate by management.  Loan loss reserves as a percentage
of loans were .69% at December 31, 2001 and .41% at December 31, 2000.
Management's periodic evaluation of the adequacy of the allowance is based on
factors such as the Bank's past loan loss experience, known and inherent risks
in the portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral, current and prospective
economic conditions, peer group comparisons, and independent appraisals.  In
addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to provide additions to the allowance based
upon judgments different from management.  Assessment of the adequacy of the
allowance for credit losses involves subjective judgments regarding future
events, and thus, there can be no assurance that additional provisions for
credit losses will not be required in future periods. Although management uses
the best information available, future adjustments to the allowance may be
necessary due to economic, operating, regulatory and other conditions that may
be beyond the Bank's control.  Any increase or decrease in the provision for
loan losses has a corresponding negative or positive effect on net income.

     Non-Interest Income.  Non-interest income was $1.8 million for the year
ended December 31, 2001, as compared to $1.1 million for the same period in
2000, an increase of $791,000 or 71.7%.   During the year ended December 31,
2001, the Bank recorded $552,000 in gains on sale of loans.  This gain is the
result of the Bank's activity in underwriting mortgage loans for sale in the
secondary market.  There were only nominal sales to the secondary market
during the year ended December 31, 2000 resulting in gains of $58,000.  Gross
loans sold during the year ended December 31, 2001 amounted to $35.5 million
as compared to $5.8 million for the comparative period in 2000.

     The net gain on sale of investments for the year ended December 31, 2001
was the result of the sale of 6,000 shares of FHLMC stock for a gain of
$386,000.  The net gain of $185,000 for the comparative period in 2000 was the
result of the sale of $6.5 million of mortgage-backed securities and bonds for
a loss of $160,000 offset by the sale of 7,500 shares of FHLMC stock for a
gain of $345,000.

     Insurance commissions received from Dime are the largest component of
non-interest income.  Insurance commissions of $588,000 and $557,000 were
received for the year ended December 31, 2001 and 2000, respectively.
     Non-Interest Expense.  Total non-interest expense increased $404,000, or
11.2%, to $4.0 million for the year ended December 31, 2001, compared to the
same period in 2000.  Included in this increase is a $293,000  increase in
compensation and benefits expense, which is primarily related to the
additional salaries and benefits for the employees at the new branch in
Billings and the Missoula loan production office.  Occupancy expense also
increased $80,000 during the year ended December 31, 2001 to $645,000 from
$565,000 for the comparable period in 2000 primarily as the result of
additional cost associated with the new branch facility and loan production
office.


                                      8

<PAGE>



     Income Taxes.   Income taxes increased  $101,000, or 13.0%, to $875,000
for the year ended December 31, 2001, compared to $774,000 for the same period
in 2000.  The effective combined federal and state tax rate was 43.4% and
38.9% for the year ended December 31, 2001 and 2000, respectively.  The
primary difference between the expected and actual tax calculation relates to
state taxes and the mark-to-market adjustment on ESOP shares committed to be
released and MRDP shares awarded during the year.

Comparison of Results of Operations for the Years Ended December 31, 2000 and
1999

     Net Income.  Net income decreased by $48,000, or 3.8%, to $1.2 million
for the year ended December 31, 2000 as compared to $1.3 million for the same
period in 1999.  While the net income is approximately the same for the two
comparative periods, several components of net income changed and are
discussed in the following narrative.

     Net Interest Income.  Net interest income increased $248,000, or 5.7%,
from $4.4 million for the year ended December 31, 1999 to $4.6 million for the
same period in 2000.  The interest rate spread increased from 2.85% for the
year ended December 31, 1999 to 2.98% for the comparable period in 2000.

     Interest Income.  Total interest income increased by $1.1 million, or
14.6%, from $7.6 million for the year ended December 31, 1999 to $8.7 million
for the same period in 2000.  The increase was primarily attributable to an
increase in average interest earning assets of $6.1 million, or 5.7%, from
$106.0 million for the year ended December 31, 1999 as compared to the
comparable period in 2000.  Average outstanding loans increased $17.3 million
offset by decreases in the average outstanding balances of investments and
mortgage-backed securities of $11.2 million. The yield on interest earning
assets for the year ended December 31, 2000, was 7.6% as compared to 7.2% for
the comparable period in 1999.

     Interest Expense.  Total interest expense was $4.1 million for the year
ended December 31, 2000, as compared to $3.2 million for the same period in
1999.  Interest on deposits increased by $441,000, or 15.3%, and interest on
notes payable and other debt increased by $421,000, or 130.1%.

     Average deposits for the year ended December 31, 2000 amounted to $73.2
million as compared to $68.7 million for the same period in 1999.  In addition
to the increase in average deposits, the cost of deposits increased from 4.2%
for the year ended December 31, 1999 to 4.6% for the same period in 2000
reflecting a general increase in interest rates in the Bank's markets.

     Other interest expense of $745,000 for the year ended December 31, 2000
includes $694,000 related to borrowings from the FHLB and $51,000 associated
with the purchase of the main office building.  Other interest expense for the
comparable period in 1999 included $267,000 related to FHLB borrowings and
$56,000 associated with the purchase of the main office building.

     Provision for Loan Losses.  The provision for loan losses was $110,000
for year ended December 31, 2000 as compared to $18,000 for the same period in
1999, an increase of $92,000, or 5.11%.  This increase is commensurate with
the significant growth in loans during 2000.   At the end of both periods, the
level of the allowance was deemed to be adequate by management.  Loan loss
allowance as a percentage of loans was .41% at December 31, 2000, and .38% at
December 31, 1999.   Management's periodic evaluation of the adequacy of the
allowance is based on factors such as the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, estimated value of any underlying collateral,
current and anticipated prospective economic conditions, peer group
comparisons, and independent appraisals.  In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the Bank's allowance for loan losses.  Such agencies may require the
Bank to provide additions to the allowance based upon judgments different from
management.  Assessment of the adequacy of the allowance for credit losses
involves subjective judgments regarding future events, and thus, there can be
no assurance that additional provisions for credit losses will not be required
in future periods. Although management uses the best information available,
future adjustments to the allowance may be necessary due to economic,
operating, regulatory and other conditions that may be beyond the Bank's
control.  Any increase or decrease in the provision for loan losses has a
corresponding negative or positive effect on net income.


                                      9

<PAGE>



     Non-Interest Income.  Non-interest income increased $246,000, or 29.6%,
to $1.1 million for the year ended December 31, 2000, as compared to $829,000
for the same period in 1999 primarily as the result of the net gain on the
sale of investments of $184,000 and gains on the sale of mortgage loans of
$58,000, offset by a decrease in commissions from insurance companies of
$19,000.

     The net gain on sale of investments was the result of the sale of $6.4
million of mortgage-backed securities and bonds for a loss of $160,000 offset
by the sale of 7,500 shares of FHLMC stock for a gain of $344,000.  Generally
the proceeds of these sales were used to fund the repurchase of treasury
shares and to fund loan originations during the year ended December 31, 2000.

     Gains on the sale of mortgage loans are the result of the Bank's
increased activity in sales of loans in the secondary market.

     Insurance commissions received from Dime are the largest component of
non-interest income.  Insurance commissions of $557,000 and $576,000 were
received for the years ended December 31, 2000 and 1999, respectively.  The
decrease in commission income in 2000 resulted primarily from decreases in
premiums and commissions from key companies represented by Dime.  Increased
competition and possible future decreases in commissions will continue to
impact Dime's financial results.

     Non-Interest Expense.  Total non-interest expense increased $484,000 or
15.5%, to $3.6 million for the year ended December 31, 2000, compared to $3.1
million for the same period in 1999.  Included in this increase is a $193,000
increase in compensation expense, which is primarily related to the additional
salaries and benefits for the employees at the new branch in Billings and the
Missoula loan production office.  Occupancy expense also increased $156,000
from $409,000 for the year ended December 31, 1999 to $565,000 for the same
period in 2000 primarily as the result of additional costs associated with the
new branch facility.

     Additional net increases in other non-interest expense amounting to
$134,000 were primarily the result of increased advertising, legal, consulting
and auditing costs as well as additional costs associated with the opening of
the branch office in Billings and the loan production office in Missoula.

     Income Taxes.  Income taxes decreased $34,000, or 4.2%, from $808,000 for
the year ended December 31, 1999, as compared to $774,000 for the same period
in 2000 as a result of the decrease in income before taxes.  The effective
combined federal and state tax rates were 38.9% and 39.0% for the year ended
December 31, 2000 and 1999, respectively.

                                      10

<PAGE>


<PAGE>
<TABLE>

     The following table sets forth certain information for the periods indicated regarding average balances
of assets and liabilities as well as the total dollar amounts of interest income from average
interest-earning assets and interest expense on average interest-bearing liabilities and average yields and
costs.  Such yields and costs for the periods indicated are derived by dividing income or expense by the
average monthly balance of assets or liabilities, respectively, for the periods presented.

                                                                                 Year Ended

                                                                            December 31,
                                  At December 31, -------------------------------------------------------
                                         2001                 2001                         2000
                                    ------------  --------------------------   --------------------------
                                        Yield/    Average             Yield/   Average             Yield/
                                        Cost      Balance   Interest  Cost     Balance   Interest   Cost
                                        ----      -------   --------  ----     -------   --------   ----
                                                                  (Dollars in Thousands)

                                     <c>      <c>        <c>       <c>      <c>        <c>       <c>
Interest-earning assets:
 Loans receivable...................    7.63%    $ 87,409   $7,372    8.43%    $ 70,981   $6,010     8.47%
 Mortgage-backed securities.........    6.01       27,988    1,720    6.15       35,711    2,436     6.82
 Investment securities..............    2.68        3,030       40    1.33        3,403      124     3.66
 Other interest-earning assets (1)..    1.85       13,912      406    2.92        1,982      132     6.65
                                      ------     --------   ------  ------     --------   ------  -------
   Total interest-earning assets....    5.58      132,339    9,538    7.21      112,077    8,702     7.64
Non-interest-earning assets.........                7,635                         5,002
                                                 --------                      --------
 Total assets.......................             $139,974                      $117,079
                                                 ========                      ========

Interest-bearing liabilities:
 NOW accounts.......................    2.23       10,667      255    2.39       10,295      245     2.38
 Money market accounts..............    3.52       13,520      576    4.26        9,181      429     4.67
 Regular savings....................    3.00       10,655      319    3.00       12,208      366     3.00
 Certificates of deposit............    5.08       52,407    2,923    5.58       41,470    2,284     5.51
                                      ------     --------   ------  ------     --------   ------  -------
   Total deposits...................    4.30       87,249    4,073    4.67       73,154    3,324     4.55
 Other liabilities..................    5.08       18,797    1,030    5.48       11,821      746     6.30
                                      ------     --------   ------  ------     --------   ------  -------
   Total interest-bearing
     liabilities....................    4.39      106,046    5,103    4.81       84,975    4,070     4.79
Non-interest-bearing liabilities....                3,891                         1,849
                                                 --------                      --------
Total liabilities...................              109,937                        86,824
Stockholder's equity................               30,037                        30,255
                                                 --------                      --------
Total liabilities and
  stockholder's equity..............             $139,974                      $117,079
                                                 ========                      ========
 Net interest income................                        $4,435                        $4,632
                                                            ======                        ======
 Interest rate spread(2)............   1.19%                          2.40%                          2.98%
                                       ====                           ====                           ====
 Net yield on interest-earning
   assets(3)........................                                  3.35%                          4.13%
                                                                      ====                           ====
Ratio of average interest-earning
 assets to average interest-
 bearing liabilities................                                124.79%                        131.89%
                                                                    ======                         ======
(1) Includes interest-bearing deposits in other financial institutions and FHLB stock.
(2) Interest-rate spread represents the difference between the average yield on interest-earning assets and
    the average cost of interest-bearing liabilities.
(3) Net yield on interest-earning assets represents net interest income as a percentage of average
    interest-earning assets.
(4) Includes $2.3 million of FHLMC stock with dividend rate of 1.22% per annum.

</TABLE>

                                                             11
<PAGE>


<PAGE>
<TABLE>

Rate/Volume Analysis

     The following table sets forth the effects of changing rates and volumes on net interest income of the
Bank, information is provided with respect to (i) effects on net interest income attributable to changes in
volume (changes in volume multiplied by prior rate); (ii) effects on net interest income attributable to
changes in rate (changes in rate multiplied by prior volume); (iii) changes in rate/volume (change in rate
multiplied by change in volume); and (iv) the net change (the sum of the prior columns).


                                        Year Ended December 31,               Year Ended December 31,
                                         2001 Compared to Year                 2000 Compared to Year
                                        Ended December 31, 2000               Ended December 31, 1999
                                          Increase (Decrease)                   Increase (Decrease)
                                                 Due to                                 Due to
                                   -----------------------------------     -------------------------------
                                                        Rate/                                Rate/
                                   Volume     Rate      Volume     Net     Volume     Rate   Volume    Net
                                   ------     ----      ------     ---     ------     ----   ------    ---
                                                                 (In Thousands)

                                <c>      <c>        <c>       <c>       <c>        <c>    <c>     <c>
Interest-earning assets:
 Loans receivable................. $1,391   $   (24)   $    (5)  $1,362    $1,404     $ 179  $  58   $1,641
 Mortgage-backed securities.......   (527)     (241)        52     (716)     (500)      133    (24)    (391)
 Investment securities............    (13)      (79)         8      (84)      (64)       (4)     1      (67)
 Other interest-earning assets....    793       (74)      (445)     274       (98)       47    (22)     (73)
                                   ------   -------    -------   ------    ------     -----  -----   ------
    Total interest-earning
       assets.....................  1,644      (418)      (390)     836       742       355     13    1,110
                                   ------   -------    -------   ------    ------     -----  -----   ------
Interest expense:
 Deposits.........................    641        90         18      749       189       236     16      441
 Other liabilities................    439       (97)       (58)     284       346        36     39      421
                                   ------   -------    -------   ------    ------     -----  -----   ------
    Total interest-bearing
      liabilities.................  1,080        (7)       (40)   1,033       535       272     55      862
                                   ------   -------    -------   ------    ------     -----  -----   ------
Net change in net interest
 income........................... $  564   $  (411)   $  (350)  $ (197)   $  207     $  83  $ (42)  $  248
                                   ======   =======    =======   ======    ======     =====  =====   ======

</TABLE>

                                                                         12
<PAGE>




Asset and Liability Management and Interest Rate Risk

     General.  The ability to maximize net interest income depends largely
upon achieving a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates.  Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities, which either reprice or mature within a given
period of time.  The difference, or the interest rate repricing "gap,"
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates.  A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount
of interest-rate sensitive liabilities, and is considered negative when the
amount of interest-rate sensitive liabilities exceeds the amount of
interest-rate sensitive assets.  Generally, during a period of rising interest
rates, a negative gap within shorter maturities would result in a decrease in
net interest income.  Conversely, during a period of falling interest rates, a
negative gap within shorter maturities would result in an increase in net
interest income.

     In the past, the Bank has perceived its market niche to be that of a
traditional thrift lender that originates fixed rate residential loans for its
portfolio and purchases fixed rate U.S. Government and agency investment
securities and mortgage-backed securities to supplement its lending
activities.  The Bank uses its capital position to absorb the adverse
consequences of the increased interest rate risk associated with this
strategy.  As an integral part of this strategy, the Bank has historically
concentrated its lending activity on the origination of long-term, fixed-rate,
residential one- to four-family mortgage loans and commercial real estate and
multi-family loans.  As of December 31, 2001, 75.8% of the Bank's total loans
were fixed rate loans and 71.2% of its investments and mortgage-backed
securities had fixed interest rates.  During 2000 and 2001, the Bank expanded
its lending activities to include commercial loans with floating rates.  At
December 31, 2001 commercial loans amounted to $6.3 million, most of which
have floating interest rates.

     The mismatch between maturities and interest rate sensitivities of
balance sheet items results in interest rate risk.  The Bank has a high level
of interest rate risk as a result of its policies to make fixed-rate,
residential one- to four-family real estate loans and to purchase fixed rate
investment and mortgage-backed securities, which are longer term in nature
than the short-term characteristics of its liabilities for customer deposit
accounts.  Because of its capital position, the Bank has accepted the above
average interest rate risk associated with fixed-rate loans and fixed-rate
investment and mortgage-backed securities in an effort to maximize yield.  See
"-- Liquidity and Capital Resources."

Interest Rate Sensitivity of Net Portfolio Value

     The following table is provided to the Bank by the OTS and illustrates
the change in net portfolio value at December 31, 2001 based on OTS
assumptions.  Net portfolio value is the difference between the Bank's
depository portfolio value and its loans receivable portfolio value.  No
effect has been given to any steps that management of the Bank may take to
counter the effect of the interest rate movements presented in the table.

                                                          Net Portfolio as %
     Basis                                               of  Portfolio Value
   Point ("bp")         Net Portfolio Value                   of Assets
     Change     ---------------------------------        -------------------
    in Rates    $ Amount    $ Change     % Change        NPV Ratio    Change
    --------    --------    --------     --------        ---------    ------
                                 (Dollars in Thousands)

     300  bp     30,245     (4,750)        (14%)          17.33%     (188 bp)
     200  bp     31,954     (3,041)         (9%)          18.04%     (117 bp)
     100  bp     33,583     (1,412)         (4%)          18.68%     ( 53 bp)
       0         34,995         --          --            19.21%       --
    (100) bp     35,460        465           1%           19.30%     +  9 bp

                                      13

<PAGE>



     Under the OTS interest rate risk capital rule (implementation of which
has been postponed), those institutions with greater than "normal" levels of
interest rate risk will be subject to an interest rate risk component in
calculating their risk-based capital ratio.  An institution with a "normal"
level of interest rate risk is defined as one whose "Measured Interest Rate
Risk" is less than 2.0%.

     The following table is provided by the OTS and is based on the
calculations in the previous table.

                                                  December 31,    December 31,
                                                      2001            2000
                                                      ----            ----
RISK MEASURES:  200 BP RATE SHOCK
Pre-Shock NPV Ratio:  NPV as % of PV of Assets....   19.21%          24.85%
Exposure Measure:  Post-Shock NPV Ratio...........   18.04%          22.32%
Sensitivity Measure:  Change in NPV Ratio.........     117bp           253bp

     As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table.  For
example, although certain assets and liabilities may have similar maturities
or periods to repricing, they may react in different degrees to changes in
market interest rates.  Also, the interest rates on certain types of assets
and liabilities may fluctuate in advance of changes in market interest rates,
while interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as substantially all of the Bank's ARM
loans, have features that restrict changes in interest rates on a short-term
basis (1.5% to 2.0% per adjustment period) and over the life of the asset
(generally 5% over the life).  Furthermore, in the event of a change in
interest rates, expected rates of prepayments on loans and early withdrawals
from certificates could likely deviate significantly from those assumed in
calculating the table.  Therefore, the data presented in the table should not
be relied upon as indicative of actual results.

Liquidity and Capital Resources

     The Bank's primary sources of funds are proceeds from principal and
interest payments on loans, maturing securities and certificates of deposit.
The proceeds from the sale of available-for-sale securities and FHLB advances
are additional sources of liquidity.  While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.

     The primary investing activity of the Bank has been the origination of
one- to four-family mortgage loans, commercial real estate and commercial
loans.  During the year ended December 31, 2001, the Bank originated mortgage
loans in the amount of $68.3 million.   The Bank also invests in investment
grade federal agency securities.

     The Bank must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit
withdrawals, to satisfy financial commitments and to take advantage of
investment opportunities.  During the year ended December 31, 2001 and 2000,
the Bank used its sources of funds primarily to fund loan commitments,
distribution to the Corporation to repurchase shares of common stock, and to
pay deposit withdrawals.

     The Bank uses cash flows generated from operating, investing and
financing activities to meet its liquidity requirements.  See Consolidated
Statements of Cash Flows included as part of the Consolidated Financial
Statements.

     Like most thrift institutions, deposits, particularly certificates of
deposit, have been the primary source of external funds for the Bank.  By
offering interest rates that are competitive with or at a slight premium to
the average rate paid by local competitors, the Bank has had limited success
in lengthening the maturity of its certificate of deposit portfolio.  At
December 31, 2001, certificates of deposit amounted to $78.8 million, or 62.0%
of total deposits, including $22.8 million, which were scheduled to mature in
more than one year after December 31, 2001.  At December 31, 2001, $56.0
million of certificates of deposit were scheduled to mature within one year.
Historically, the Bank has been able to retain a significant amount of
maturing deposits.  Management of the Bank believes it has

                                       14

<PAGE>



adequate resources to fund all loan commitments by deposits and, if necessary,
FHLB advances are available.  Additionally, the Bank can adjust the offering
rates of savings certificates to retain deposits in changing interest rate
environments.

     The Bank is required to maintain specific amounts of capital pursuant to
OTS requirements.  As of December 31, 2001, the Bank was in compliance with
all regulatory capital requirements, which were effective as of such date with
tangible, core and risk-based capital ratios of 15.6%, 15.6% and 33.9%,
respectively.  For a detailed discussion of regulatory capital requirements
and a numerical presentation of the Bank's capital levels relative to
regulatory requirements, see Note 14 of Notes to the Consolidated Financial
Statements.

     The Corporation, as the holding company for the Bank, does not have any
source of cash flow other than dividends declared by the Bank, which are
subject to regulatory restrictions.  Distributions paid by the Bank to the
Corporation during 2001 amounted to $930,000. At December 31, 2001, no loans
are outstanding between the Corporation and the Bank.

Effect of Inflation and Changing Prices

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

                                     15

<PAGE>





                   Independent Auditors' Report


The Board of Directors and Stockholders
Empire Federal Bancorp, Inc.:

We have audited the accompanying consolidated balance sheets of Empire Federal
Bancorp, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for the years then ended.  These
consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  Those standards require that we
plan and perform the audit to obtain easonable 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 Empire
Federal Bancorp, Inc. and subsidiaries as of December 31, 2001 and 2000, and
the results of their operations and their cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United
States of America.

/S/KPMG LLP

Billings, Montana
February 22, 2002, except as to Note 20, which is
   as of March 5, 2002

                                   16

<PAGE>



              EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                       Consolidated Balance Sheets

                                                       December 31,
                                             ------------------------------
               Assets                             2001              2000
               ------                        ------------      ------------
Cash and due from banks                      $  4,185,664         2,482,564
Interest-bearing deposits                      42,350,439           165,136
                                             ------------      ------------
   Cash and cash equivalents                   46,536,103         2,647,700
Investment and mortgage-backed securities
 available-for-sale                            35,945,324        29,374,395
Mortgage-backed securities held-to-maturity            --         5,024,454
Loans receivable, net                          81,151,598        80,362,737
Loans held for sale                             4,089,014         1,497,244
Stock in Federal Home Loan Bank of
 Seattle, at cost                               1,670,600         1,560,700
Accrued interest receivable                       629,245           528,281
Income tax receivable                                  --            44,418
Premises and equipment, net                     4,596,212         3,719,566
Prepaid expenses and other assets                 293,977           307,770
                                             ------------      ------------
                                             $174,912,073       125,067,265
                                             ============      ============
   Liabilities and Stockholders' Equity
   ------------------------------------
Liabilities:
 Deposits                                    $126,940,015        77,666,644
 Advances from Federal Home Loan Bank          17,000,000        16,200,000
 Note payable                                     464,306           530,749
 Advances from borrowers for taxes
  and insurance                                   245,522           286,086
 Accrued expenses and other liabilities           304,848           349,060
 Deferred income taxes                          1,084,264         1,119,505
                                             ------------      ------------
   Total liabilities                          146,038,955        96,152,044
                                             ------------      ------------
Stockholders' equity:
 Preferred stock, par value $.01 per share,
  250,000 shares authorized, none issued
  and outstanding                                      --                --
 Common stock, par value $.01 per share,
  4,000,000 shares authorized, 2,592,100
  issued                                           25,921            25,921
 Additional paid-in capital                    25,322,946        25,278,214
 Unearned ESOP and MRDP compensation           (1,626,790)       (1,928,091)
 MRDP shares acquired                            (258,864)         (302,011)
 Retained earnings, substantially restricted   18,852,536         8,351,208
 Treasury shares acquired, at cost,
  1,084,457 and 1,029,957 shares at December
  31, 2001 and 2000, respectively             (14,891,933)      (14,072,383)
 Accumulated other comprehensive income         1,449,302         1,562,363
                                             ------------      ------------
   Total stockholders' equity                  28,873,118        28,915,221
                                             ------------      ------------
Commitments and contingencies                $174,912,073       125,067,265
                                             ============      ============

See accompanying notes to consolidated financial statements.

                                        17

<PAGE>


                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                      Consolidated Statements of Income

                                                   Years Ended December 31,
                                                ----------------------------
                                                   2001               2000
                                                ----------        ----------
Interest income:
 Loans receivable                               $7,371,815         6,010,312
 Mortgage-backed securities                      1,719,781         2,435,555
 Investment securities                              40,239           124,394
 Other                                             406,131           131,828
                                                ----------        ----------
    Total interest income                        9,537,966         8,702,089
                                                ----------        ----------
Interest expense:
 Passbook accounts                                 319,208           366,370
 NOW accounts                                      830,841           674,265
 Certificates of deposit                         2,922,894         2,283,958
 Advances from Federal Home Loan Bank              984,243           694,233
 Note payable                                       45,556            50,902
                                                ----------        ----------
    Total interest expense                       5,102,742         4,069,728
                                                ----------        ----------
    Net interest income                          4,435,224         4,632,361

Provision for loan losses                          255,008           110,000
                                                ----------        ----------
    Net interest income after provision
     for loan losses                             4,180,216         4,522,361

Non-interest income:
 Insurance commission income                       588,335           556,795
 Customer service charges                          301,290           249,562
 Gain on sale of securities                        385,801           184,613
 Gain on sale of loans                             551,800            58,348
 Other                                              18,354            25,919
                                                ----------        ----------
    Total non-interest income                    1,845,580         1,075,237

Non-interest expense:
 Compensation and benefits                       2,326,047         2,032,837
 Occupancy and equipment                           644,908           565,003
 Deposit insurance premiums                         64,763            50,700
 Data processing services                          152,931           114,757
 Other                                             821,410           842,707
                                                ----------        ----------
    Total non-interest expense                   4,010,059         3,606,004
                                                ----------        ----------

    Income before income taxes                   2,015,737         1,991,594

Income taxes                                       874,647           774,528
                                                ----------        ----------
    Net income                                  $1,141,090         1,217,066
                                                ==========        ==========
Basic earnings per share                        $      .84               .79
                                                ==========        ==========
Diluted earnings per share                      $      .84               .79
                                                ==========        ==========

See accompanying notes to consolidated financial statements.

                                        18
<PAGE>


<PAGE>
<TABLE>

                                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                  Consolidated Statements of Stockholders' Equity and Comprehensive Income
                                    Years Ended December 31, 2001 and 2000

                                                                                        Accu-
                                      Unearned                                         mulated
                                        ESOP                                            other
                         Additional   and MRDP      MRDP                   Treasury    compre-    Total
                Common    paid-in      compen-     shares     Retained      shares     hensive stockholders'
                 stock    capital      sation     acquired    earnings     acquired    income     equity
                 -----    -------      ------     ---------   --------     --------    ------     ------

             <c>      <c>         <c>          <c>        <c>         <c>           <c>       <c>
Balances at
 December 31,
 1999           $25,921  25,260,408  (2,264,623)  (302,011)  17,842,091   (8,439,462)   632,893  32,755,217
Repurchase of
 439,127 shares
 of common
 stock               --          --          --         --           --   (5,632,921)            (5,632,921)
ESOP shares com-
 mitted to be
 released            --      25,550     138,240         --           --           --         --     163,790
MRDP shares
 vested              --      (7,744)    198,292         --           --           --         --     190,548
Comprehensive
income:
 Net income          --          --          --         --    1,217,066           --         --   1,217,066
 Increase in un-
 realized gain
 on securities
 available-for-
 sale                --          --          --         --           --           --    929,470     929,470
                                                                                                 ----------
  Comprehensive
  income                                                                                          2,146,536
Cash dividends
 declared ($.44
 per share)          --          --          --         --     (707,949)          --         --    (707,949)
                -------  ----------    ---------- --------   ----------  -----------  ---------  ----------
Balances at
 December 31,
 2000            25,921  25,278,214  (1,928,091)  (302,011)  18,351,208  (14,072,383) 1,562,363  28,915,221
Repurchase of
 54,500 shares
 of common
 stock               --          --           --        --           --     (819,550)        --    (819,550)
ESOP shares com-
 mitted to be
 released            --      54,636      138,240        --           --           --         --     192,876
Award of 2,592
 MRDP shares         --          --           --    43,147           --           --         --      43,147
MRDP shares
 vested              --      (9,904)     163,061        --           --           --         --     153,157

Comprehensive income:
 Net income          --          --           --        --    1,141,090           --         --   1,141,090
Decrease in un-
 realized gain on
 securities
 available-for-
 sale                --          --           --        --           --           --   (113,061)   (113,061)
                                                                                                 ----------
  Comprehensive
   income                                                                                         1,028,029
Cash dividends
 declared ($.46
 per share)          --          --            --       --     (639,762)          --         --    (639,762)

                -------  ----------    ---------- --------   ----------  -----------  ---------  ----------
Balances at
 December 31,
 2001           $25,921  25,322,946    (1,626,790)(258,864)  18,852,536  (14,891,933) 1,449,302  28,873,118
                =======  ==========    ========== ========   ==========  ===========  =========  ==========

</TABLE>

<TABLE>

                                                              Year Ended December 31,
                                                           --------------------------
                                                                 2001          2000
                                                           ----------      ----------


                                                        <c>              <c>
Disclosure of other comprehensive (loss) income elements:
  Unrealized and realized holding gains arising
    during the period, net of income tax expense
    of $61,314 and $666,252 in 2001 and 2000,
    respectively                                            $  95,901       1,042,084
  Reclassification adjustment for gains included in
    net income, net of income tax expense of
    $150,462 and $71,999 in 2001 and 2000, respectively      (235,339)       (112,614)
  Cumulative affect of adoption of SFAS No. 133; transfer
    of held-to-maturity securities to available-for-sale,
    net of income tax expense of $16,864                       26,377              --
                                                           ----------      ----------
      Net unrealized (loss) gain on available-for-sale
        securities                                         $ (113,061)        929,470
                                                           ==========      ==========

</TABLE>

                                                                19
<PAGE>



               EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                   Consolidated Statements of Cash Flows

                                                   Years Ended December 31,
                                               -----------------------------
                                                   2001             2000
                                               ------------     ------------

Cash flows from operating activities:
 Net income                                    $  1,141,090        1,217,066
 Adjustments to reconcile net income to net
  cash (used)provided by operating activities:
   Provision for loan losses                        255,008          110,000
   Depreciation                                     336,319          338,947
   Loss on retirement of premises and equipment       1,069           22,772
   Gain on sale of securities                      (385,801)        (184,613)
   Gain on sale of loans                           (551,800)         (58,348)
   Amortization of premiums and discounts on
    loans and mortgage-backed securities, net         9,543           50,615
   Federal Home Loan Bank stock dividends          (109,900)         (97,200)
   ESOP shares committed to be released             172,458          149,979
   MRDP compensation expense                        196,304          190,548
   Deferred income taxes                             37,045            4,876
   Proceeds from sales of loans                  36,529,888        4,375,104
   Origination of loans held for sale           (38,569,858)      (5,814,000)
   Increase in accrued interest receivable         (100,964)         (76,895)
   Decrease (increase) in income taxes
    receivable                                       44,418           (8,349)
   Decrease (increase) in prepaid expenses
    and other assets                                 13,793          (30,807)
   (Decrease) increase in accrued expenses
    and other liabilities                           (44,212)          72,267
                                               ------------     ------------
      Net cash (used) provided by operating
       activities                                (1,025,600)         261,962
                                               ------------     ------------
Cash flows from investing activities:
 Net increase in loans receivable                (1,043,869)     (20,901,290)
 Purchases of investments available-for-sale    (12,000,000)              --
 Proceeds from sales of investments
  available-for-sale                                392,701        6,610,837
 Principal payments on mortgage-backed securities:
   Held-to-maturity                                      --        1,369,347
   Available-for-sale                            10,251,735        6,773,642
 Purchases of premises and equipment             (1,214,034)      (1,220,955)
                                               ------------     ------------
      Net cash used in investing activities      (3,613,467)      (7,368,419)
                                               ------------     ------------
Cash flows from financing activities:
 Net increase in deposits                        49,273,371        6,313,546
 Proceeds from advances from Federal
  Home Loan Bank                                 11,000,000       17,800,000
 Repayment of advances from Federal
  Home Loan Bank                                (10,200,000)     (10,400,000)
 Payments on note payable                           (66,443)         (61,098)
 Net change in advances from borrowers for
  taxes and insurance                               (40,564)          56,649
 Payments of dividends                             (619,344)        (694,138)
 Purchase of treasury stock                        (819,550)      (5,632,921)
                                               ------------     ------------
      Net cash provided by financing activities  48,527,470        7,382,038
                                               ------------     ------------
Net increase in cash and cash equivalents        43,888,403          275,581

Cash and cash equivalents, beginning of year      2,647,700        2,372,119
                                               ------------     ------------
Cash and cash equivalents, end of year         $ 46,536,103        2,647,700
                                               ============     ============
Cash paid during the year for:
 Interest                                      $  5,101,720        4,011,000
 Income taxes                                       801,067          778,000
                                               ============     ============
Non-cash operating and financing activity:
 Dividends on allocated ESOP shares            $     20,418           13,811
                                               ============     ============


See accompanying notes to consolidated financial statements.

                                        20
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(1)   Summary of Significant Accounting Policies

(a) General

      The accompanying consolidated financial statements include the accounts
      of Empire Federal Bancorp, Inc. (the Holding Company) and its
      wholly-owned subsidiary, Empire Bank (Empire).  The consolidated
      financial statements also include Dime Service Corporation (Dime), a
      wholly-owned subsidiary of Empire operating as an insurance agency.  The
      Holding Company, Empire and Dime are herein referred to collectively as
      "the Company."  All significant intercompany balances and transactions
      have been eliminated in consolidation.

      Empire provides services to customers in south central Montana through a
      main office and four branches in five separate communities.  Empire
      offers a variety of deposit products to its customers while concentrat-
      ing its lending activities on real estate loans.  These real estate
      lending activities focus primarily on the origination of loans secured
      by one- to four-family residential real estate but also include the
      origination of multi-family, commercial real estate, home equity and
      commercial loans. Empire is subject to competition from other financial
      service providers and is also subject to  the regulations of certain
      federal and state agencies and undergoes periodic examinations by those
      regulatory authorities.

(b)   Basis of Presentation

      The consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of
      America.  In preparing the consolidated 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 income and expenses for the period.  Actual results could differ
      significantly from those estimates.

      Material estimates that are particularly susceptible to significant
      change in the near-term relate to the determination of the allowance for
      loan losses.  Management believes that the allowance for loan losses is
      adequate, however, future additions to the allowance may be necessary
      based on changes in factors affecting the borrowers' ability to repay.
      In addition, various regulatory agencies, as an integral part of their
      examination process, periodically review the allowance for loan losses.
      Such agencies may require Empire to recognize additions to the allowance
      based on their judgments about information available to them at the time
      of their examination.

(c)   Cash Equivalents

      For purposes of the statements of cash flows, the Company considers all
      cash, daily interest demand deposits, amounts due from banks and
      interest-bearing deposits with banks with original maturities of three
      months or less to be cash equivalents.

                                        21

                                                                  (Continued)
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(d)   Investment and Mortgage-Backed Securities

      Investment and mortgage-backed securities available-for-sale include
      securities that management intends to use as part of its overall
      asset/liability management strategy and that may be sold in response to
      changes in interest rates and resultant prepayment risk and other
      related factors.  Securities available-for-sale are carried at fair
      value and unrealized gains and losses (net of related tax effects) are
      excluded from earnings and reported as a separate component of
      stockholders' equity.  Investment securities and mortgage-backed
      securities, other than those designated as available-for-sale or
      trading, are comprised of debt securities for which the Company has the
      positive intent and ability to hold to maturity and are carried at cost.
      Management determines the appropriate classification of investment and
      mortgage-backed securities as either available-for-sale or held-to-
      maturity at the purchase date.

      Declines in the fair value of securities below carrying value that are
      other than temporary are charged to expense as realized losses and the
      related carrying value reduced to fair value.

      The carrying value of debt securities is adjusted for amortization of
      premiums and accretion of discounts using the interest method over the
      estimated lives of the securities.  Upon realization, gains and losses
      from the sale of securities are included in earnings using the specific
      identification method.

(e)   Loans Receivable

      Loans receivable are stated at unpaid principal balances, less unearned
      discounts and net deferred loan origination fees.  Interest on loans is
      credited to income as earned. Interest receivable is accrued only if
      deemed collectible.  Discounts on purchased loans are amortized using
      the interest method over the remaining period to contractual maturity,
      adjusted for anticipated prepayments.

(f)   Allowance For Loan Losses

      The allowance for loan losses is based on management's evaluation of the
      adequacy of the allowance, including an assessment of past loan loss
      experience, known and inherent risks in the portfolio, adverse
      situations that may affect the borrower's ability to repay, the
      estimated value of any underlying collateral, current economic
      conditions, and independent appraisals.

      Additions to the allowance arise from charges to operations through the
      provision for loan losses or from the recovery of amounts previously
      charged off.  The allowance is reduced by loans charged off.  Loans are
      charged off when management believes there has been permanent impairment
      of their carrying values.

      Accrued interest on loans that are contractually past due ninety days or
      more is generally charged off against income.  Interest is subsequently
      recognized only to the extent cash payments are received until, in
      management's judgment, the borrower's ability to make periodic interest
      and principal payments is reasonably assured, in which case the loan is
      returned to accrual status.

                                        22
                                                                  (Continued)
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      The Company also provides an allowance for losses on specific loans
      which are deemed to be impaired.  Groups of small-balance homogeneous
      loans (generally residential real estate and consumer loans) are
      evaluated for impairment collectively. A loan is considered impaired
      when, based upon current information and events, it is probable that the
      Company will be unable to collect, on a timely basis, all principal
      and interest according to the contractual terms of the loan's original
      agreement.  When a specific loan is determined to be impaired, the
      allowance for loan losses is increased through a charge to expense for
      the amount of the impairment.  The amount of the impairment is measured
      using cash flows discounted at the loan's effective interest rate,
      except when it is determined that the sole source of repayment for the
      loan is the operation or liquidation of the underlying collateral.  In
      such cases, the current value of the collateral, reduced by anticipated
      selling costs, will be used in place of discounted cash flows.  The
      Company uses the cash basis of income recognition on impaired loans.

(g)   Loans Held for Sale

      Loans originated and intended for sale on the secondary market are
      carried at the lower of cost or estimated fair value.  Net unrealized
      losses, if any, are recognized through a valuation allowance by charges
      to income.  A sale is recognized when the Company surrenders control of
      the loan and consideration, other than beneficial interests in the loan,
      is received in exchange.  A gain is recognized to the extent the
      selling price exceeds the carrying value.  The Company does not retain
      servicing on any of its sold loans.

(h)   Loan Origination Fees and Related Costs

      Loan origination fees and certain direct loan origination costs are
      deferred and the net fee or cost is recognized as interest income using
      the interest method over the contractual life of the loans, adjusted for
      prepayments.

(i)   Stock in Federal Home Loan Bank

      The Company holds stock in the Federal Home Loan Bank (FHLB).  FHLB
      stock is restricted because it may only be sold to another member
      institution or the FHLB at its par value.  Due to restrictive terms, and
      the lack of a readily determinable market value, FHLB stock is carried
      at cost.

(j)   Premises and Equipment

      Premises and equipment are stated at cost less accumulated depreciation.
      Depreciation is provided using straight-line and accelerated methods
      over the estimated useful lives of 40 years for the buildings, 7 to 15
      years for improvements and 3 to 15 years for furniture, fixtures and
      equipment.

(k)   Income Taxes

      Deferred tax assets and liabilities are recognized for the estimated
      future consequences attributable to differences between the financial
      statement carrying amounts of assets and liabilities and their
      respective tax bases.  The effect on deferred tax assets and liabilities
      of a change in tax rates is recognized in income in the period
      that includes the enactment date.

                                        23
                                                                  (Continued)
<PAGE>


                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(l)   Earnings Per Share

      Basic earnings per share (EPS) is calculated by dividing net income
      available to common stockholders by the weighted average number of
      common shares outstanding during the period less unvested Management
      Recognition and Development Plan (MRDP) shares and unallocated Employee
      Stock Ownership Plan (ESOP) shares.

      Diluted EPS is calculated by dividing net income by the weighted average
      number of common shares used to compute basic EPS plus the incremental
      amount of potential common stock determined by the treasury stock
      method.

(m)   Long-Lived Assets

      Long-lived assets are reviewed for impairment whenever events or
      circumstances indicate that the carrying amount of an asset may not be
      recoverable.  An impairment loss is recognized if the sum of the
      expected future cash flows is less than the carrying amount of the
      asset.  No long-lived assets were identified as impaired as of
      December 31, 2001 or 2000.

(n)   Stock-Based Compensation to Employees

      Compensation cost for stock-based compensation to employees is measured
      at the grant date using the intrinsic value method.  Under the intrinsic
      value method, compensation cost is the excess of the market price of the
      stock at the grant date over the amount an employee must pay to
      ultimately acquire the stock and is recognized as compensation expense
      over any related service period.  Statement of Financial Accounting
      Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation,
      established accounting and disclosure requirements using a fair value-
      based method of accounting for stock-based compensation plans.
      Compensation expense for nonemployee stock option grants is measured at
      the grant date based on the fair value of the award as required by SFAS
      No. 123. As allowed by SFAS No. 123, the Company has elected to continue
      to apply the intrinsic value method of accounting for employee stock
      option grants described above, and has adopted the disclosure
      requirements of SFAS No. 123.

(o)   Comprehensive Income

      Comprehensive income includes net income, as well as other changes in
      stockholders' equity that result from transactions and economic events
      other than those with stockholders.  The Company's only significant
      element of comprehensive income is unrealized gains and losses on
      available-for-sale securities.

                                        24
                                                                  (Continued)
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(p)   Derivative Instruments

      In June 2000, the Financial Accounting Standards Board (FASB) issued
      SFAS No. 138, Accounting for Derivative Instruments and Hedging
      Activities, an amendment to SFAS No. 133.  SFAS No. 133 and SFAS No. 138
      establish accounting and reporting standards requiring that every
      derivative instrument (including certain derivative instruments embedded
      in other contracts) be recorded in the balance sheet as either an asset
      or liability measured at its fair value.  These standards require that
      changes in the derivative's fair value be recognized currently in
      earnings unless specific hedge accounting criteria are met.  As of
      December 31, 2001 and 2000, the Company was not engaged in hedging
      activities nor did it hold derivative instruments that require
      adjustments to carrying values under SFAS No. 133 and No. 138.  The
      Company adopted the standards on January 1, 2001 and the impact of the
      adoption was not material.  Upon adoption of SFAS No. 133, the Company
      transferred held-to-maturity securities with amortized costs of
      $5,024,454 and market value of $5,067,695 into the available-for-sale
      securities category.  The $43,241 unrealized gain was recorded as a
      component of comprehensive income net of tax as a transition
      adjustment.

(q)   Impact of Recently Issued Accounting Standards

      In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
      SFAS No. 142, Goodwill and Other Intangible Assets.  SFAS No. 141
      requires that the purchase method of accounting be used for all business
      combinations initiated after June 30, 2001.  SFAS No. 141 also specifies
      criteria that intangible assets acquired in a purchase method business
      combination must meet to be recognized and reported apart from goodwill.
      SFAS No. 142 requires that goodwill and intangible assets with
      indefinite useful lives no longer be amortized but instead tested for
      impairment at least annually in accordance with the provisions of SFAS
      No. 142.  SFAS No. 142 also requires that intangible assets with
      definite useful lives be amortized over their respective estimated
      useful lives to their estimated residual values, and reviewed for
      impairment in accordance with SFAS No. 121, Accounting for the
      Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
      Of.

      The Company adopted the provisions of SFAS No. 141 effective July 1,
      2001, and adopted SFAS No. 142 effective December 31, 2001.  As of the
      date of adoption, the Company did not have any goodwill or other
      intangible assets.  Accordingly, adoption did not have any effect on its
      consolidated financial statements.

      In September 2000, the FASB issued SFAS No. 140, Accounting for
      Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities -  a replacement of SFAS No. 125.  SFAS No. 140 revises
      accounting standards for securitizations and transfers of financial
      assets and collateral and requires certain disclosures, but carries
      forward most of SFAS No. 125's provisions without change.  SFAS No. 140
      is effective for recognition and reclassification of collateral and
      disclosures relating to securitization transactions and collateral for
      fiscal years ended after December 15, 2000.  Adoption of these
      provisions did not have a material effect on the consolidated financial
      statements.

(r)   Reclassifications

      Certain reclassifications have been made to the 2000 amounts to conform
      to the 2001 presentation.


                                        25
                                                                  (Continued)
<PAGE>




                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(2)   Investment and Mortgage-Backed Securities Available-For-Sale

      The amortized cost, unrealized gains and losses, and estimated fair
      values of investment and mortgage-backed securities available-for-sale
      at December 31 are as follows:
                                              2001
                         ------------------------------------------------
                                        Gross        Gross      Estimated
                         Amortized   unrealized    unrealized      fair
                            cost        gains        losses       value
                         ---------   ----------    ----------   ---------

  FHLMC common stock   $    39,761    2,216,539          --     2,256,300
  Bonds:
    FHLB                 3,010,460        2,874      (4,624)    3,008,710
    FHLMC                2,001,767           --     (17,037)    1,984,730
    FNMA                 1,015,370        1,530          --     1,016,900
                       -----------    ---------   ---------    ----------
                         6,027,597        4,404     (21,661)    6,010,340
                       -----------    ---------   ---------    ----------
  Mortgage-backed
   securities:
    GNMA certificates    2,763,499       35,995     (31,165)    2,768,329
    FHLMC certificates   2,660,566       22,752     (35,224)    2,648,094
    FNMA certificates    8,071,766      123,466     (48,776)    8,146,456
    REMIC certificates  14,006,230      177,039     (67,464)   14,115,805
                       -----------    ---------   ---------    ----------
                        27,502,061      359,252    (182,629)   27,678,684
                       -----------    ---------   ---------    ----------
                       $33,569,419    2,580,195    (204,290)   35,945,324
                       ===========    =========   =========    ==========

                                              2000
                         ------------------------------------------------
                                        Gross        Gross      Estimated
                         Amortized   unrealized    unrealized      fair
                            cost        gains        losses       value
                         ---------   ----------    ----------   ---------

  FHLMC common stock    $   46,660    2,722,114           --    2,768,774

  Mortgage-backed
   securities:
     GNMA certificates   3,146,091           --      (55,573)   3,090,518
     FHLMC certificates    531,193           --       (4,020)     527,173
     FNMA certificates   9,060,012       41,110     (103,392)   8,997,730
     REMIC certificates 14,029,187       67,653     (106,640)  13,990,200
                       -----------    ---------    ---------   ----------
                        26,766,483      108,763     (269,625)  26,605,621
                       -----------    ---------    ---------   ----------
                       $26,813,143    2,830,877     (269,625)  29,374,395
                       ===========    =========    =========   ==========

                                        26
                                                                  (Continued)
<PAGE>




                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      The REMICs consist of nineteen certificates which are backed by the FNMA
      or the FHLMC.

      All bonds available-for-sale at December 31, 2001 mature between one and
      five years.

      Gross gains of $385,801 were realized on the sale of securities in the
      year ended December 31, 2001.  There were no sales of securities
      available-for-sale during the year ended December 31, 2000.

      The Company has not entered into any interest rate swaps, options or
      future contracts.  All of the U.S. Government and agency obligations at
      December 31, 2001 have call features.

      Securities and interest-bearing deposits with an amortized cost of
      $1,459,000 and $1,002,000 at December 31, 2001 and 2000, respectively,
      were pledged to secure public and other funds on deposit.  The
      approximate market value of securities pledged at December 31, 2001 and
      2000 was $1,479,000 and $997,000 respectively.  All pledged securities
      are held in a custody account by a third party.

(3)   Mortgage-Backed Securities Held-to-Maturity

      The amortized cost, unrealized gains and losses, and estimated fair
      values of mortgage-backed securities held-to-maturity at December 31,
      2000 are summarized as follows:

                                        Gross        Gross      Estimated
                         Amortized   unrealized    unrealized      fair
                            cost        gains        losses       value
                         ---------   ----------    ----------   ---------
  Mortgage-backed
   securities:
     GNMA certificates  $  854,528       20,657       (2,570)     872,615
     FHLMC certificates    935,740       22,635       (9,212)     949,163
     FNMA certificates   2,187,458       31,820      (10,966)   2,208,312
     REMIC certificates  1,046,728          457       (9,580)   1,037,605
                        ----------    ---------    ---------    ---------
                        $5,024,454       75,569      (32,328)   5,067,695
                        ==========    =========    =========    =========

                                        27
                                                                  (Continued)
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(4)   Loans Receivable, Net

      Loans receivable, net at December 31 are summarized as follows:

                                         2001            2000
                                      -----------     ----------
  First mortgage loans:
     One to four family               $37,214,191     46,128,318
     Multi-family                       4,729,519      5,157,651
     Commercial real estate            12,787,201     12,468,045
  Construction loans                   10,748,896      6,002,824
  Land and infrastructure               4,535,257             --
  Commercial non-mortgage               6,349,358      6,182,468
  Loans to depositors, secured
    by savings                            659,592        459,031
  Other consumer loans                  4,995,743      5,025,539
                                      -----------     ----------
                                       82,019,757     81,423,876
  Less:
    Undisbursed portion of loans          (38,325)      (403,719)
    Allowance for loan losses            (591,361)      (336,165)
    Net deferred loan origination fees   (238,473)      (321,255)
                                      -----------     ----------
                                      $81,151,598     80,362,737
                                      ===========     ==========

      Loans receivable include approximately $21,536,000 and $14,529,000 in
      adjustable rate loans at December 31, 2001 and 2000, respectively.

      A summary of activity in the allowance for loan losses for the years
      ended December 31 is as follows:
                                         2001            2000
                                      -----------     ----------

  Balance at beginning of year        $   336,165        226,215
  Provision charged to expense            255,008        110,000
  Losses charged against the
    allowance                                  --            (50)
  Recoveries of amounts
    previously charged off                    188             --
                                      -----------     ----------
  Balance at end of year              $   591,361        336,165
                                      ===========     ==========

                                        28
                                                                  (Continued)
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      The recorded investment in impaired loans, which includes those loans
      currently reported as nonaccrual, amounted to approximately $747,000 at
      December 31, 2001.  These loans were not subject to a specific allowance
      for loan losses because of the estimated net realizable value of loan
      collateral, guarantees and other factors.  The average recorded
      investment in impaired loans for the year ended December 31, 2001 was
      approximately $844,000.  Interest income that would have been recorded
      on impaired loans if such loans had been current for the entire period
      would have been approximately $12,000 for the year ended December 31,
      2001.  Interest income recognized on impaired loans for the year
      ended December 31, 2001 was approximately $20,000.  There were no
      commitments to borrowers that have loans on non-accrual as of December
      31, 2001.  There were no loans that were considered impaired as of or
      for the year ended December 31, 2000.

(5)   Accrued Interest Receivable

      Accrued interest receivable at December 31 is summarized as follows:

                                         2001            2000
                                      -----------     ----------

  Loans receivable                    $   533,302        461,285
  Mortgage-backed securities               50,287         66,996
  Investment securities and
    interest-bearing deposits              45,656             --
                                      -----------     ----------
                                      $   629,245        528,281
                                      ===========     ==========

(6)   Premises and Equipment

      Premises and equipment at December 31 is summarized as follows:

                                         2001            2000
                                      -----------     ----------

  Buildings and improvements          $ 2,641,504      2,658,041
  Land                                    929,165        929,165
  Furniture, fixtures and equipment     1,935,045      1,747,950
  Construction in progress              1,012,648             --
                                      -----------     ----------
                                        6,518,362      5,335,156
  Accumulated depreciation             (1,922,150)    (1,615,590)
                                      -----------     ----------
                                      $ 4,596,212      3,719,566
                                      ===========     ==========

      Construction in progress at December 31, 2001 represents the purchase of
      a building and land and related remodeling costs for a new branch in
      Missoula, Montana.

                                        29
                                                                  (Continued)
<PAGE>




                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(7)   Deposits

      Deposits at December 31 are summarized as follows:

                         Weighted
                       average rate
                            at               2001                 2000
                         December  --------------------- ---------------------
                         31, 2001      Amount    Percent    Amount     Percent
                         --------  ------------  ------- -----------   -------

  Passbook accounts         3.04%  $ 11,124,193     8.8% $11,199,566     14.4%
  NOW accounts              2.84%    37,061,136    29.2   24,379,235     31.4
                                   ------------   -----  -----------    -----
                                     48,185,329    38.0   35,578,801     45.8
                                   ------------   -----  -----------    -----
  Certificates of
   deposit:            3.01-4.00%     6,995,675     5.5           --       --
                       4.01-5.00%    24,900,044    19.6    1,270,783      1.6
                       5.01-6.00%    34,855,215    27.5   21,107,580     27.2
                       6.01-7.00%    11,793,552     9.3   19,494,518     25.1
                       7.01.8.00%       210,200      .1      214,962       .3
                                   ------------   -----  -----------    -----
     Total
     certificates of
     deposit                         78,754,686    62.0   42,087,843     54.2
                                   ------------   -----  -----------    -----
                                   $126,940,015   100.0% $77,666,644    100.0%
                                   ============   =====  ===========    =====

      Certificates of deposit at December 31, 2001 are scheduled to mature as
      follows:

      Year ending December 31:
              2002                    $56,012,947
              2003                     14,513,830
              2004                      6,167,630
              2005                        962,321
              2006                        422,526
          Thereafter                      675,432
                                      -----------
                                      $78,754,686
                                      ===========

      Certificates of deposit of $100,000 or greater were approximately
      $22,847,000 and $7,349,000 at December 31, 2001 and 2000, respectively.

      Accrued interest payable on deposits (included in accrued expenses and
      other liabilities) was approximately $186,000 and $162,000 at December
      31, 2001 and 2000, respectively.

                                        30
                                                                  (Continued)
<PAGE>




                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(8)   Advances From Federal Home Loan Bank

      Advances from the Federal Home Loan Bank at December 31 are summarized
      as follows:

                                                2001          2000
                                            -----------   -----------
      4.65% to 6.12% fixed rate advances,
        interest payable monthly            $15,000,000    11,800,000
      Variable rate advances (1 month
        LIBOR plus .1%), interest
        payable monthly                       2,000,000     4,000,000
      Cash management advance, paid in 2001          --       400,000
                                            -----------   -----------
                                            $17,000,000    16,200,000
                                            ===========   ===========

      Contractual principal repayments on advances from the Federal Home Loan
      Bank subsequent to December 31, 2001 are as follows:

      Year ending December 31:
              2002                      $ 4,000,000
              2003                        6,500,000
              2004                               --
              2005                        4,900,000
              2006                        1,000,000
           Thereafter                       600,000
                                        -----------
                                        $17,000,000
                                        ===========
      $5,000,000 of the fixed rate advances have putable options which may be
      exercised by the FHLB after a predetermined time and quarterly,
      thereafter.

      The weighted average interest rate on these advances was 4.98% and 6.38%
      at December 31, 2001 and 2000, respectively.

      Advances from the FHLB are secured by pledges of FHLB stock and a
      blanket assignment of the Company's unpledged, qualifying mortgage
      loans, mortgage-backed securities and investment securities.  Subject to
      collateral availability, the total amount of additional advances
      available at December 31, 2001 is approximately $16,412,000.

(9)   Note Payable

      During 1997, the Company entered into an agreement with an officer of
      the Company and related individuals to purchase the Livingston, Montana
      main office building.  The purchase was financed with a long-term note
      requiring quarterly payments of $28,000 including interest at 9%.  The
      note is secured by the building.  The note was paid off in February
      2002.

                                        31
                                                                  (Continued)
<PAGE>




                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(10)  Income Taxes

      Income tax expense for the years ended December 31 is summarized as
      follows:

                                     Federal       State         Total
                                   ---------     --------      --------
      2001:
        Current                    $ 702,846      134,756       837,602
        Deferred                      33,870        3,175        37,045
                                   ---------     --------      --------
                                   $ 736,716      137,931       874,647
                                   =========     ========      ========
      2000:
        Current                    $ 635,747      133,905       769,652
        Deferred                       4,020          856         4,876
                                   ---------     --------      --------
                                   $ 639,767      134,761       774,528
                                   =========     ========      ========

      Income tax expense for the years ended December 31 differs from
      "expected" income tax expense (computed by applying the Federal
      corporate income tax rate of 34% to income  before income taxes) as
      follows:

                                                   2001          2000
                                                ---------      --------

      Computed "expected" tax expense           $ 685,351       677,142
      Increase (decrease) resulting from:
        State taxes, net of Federal income
          tax benefit                              91,034        88,942
        Mark-to-market adjustment on ESOP
          shares committed to be released          18,576         8,687
        Adjustment to income tax accruals          76,927            --
        Other                                       2,759          (243)
                                                ---------      --------
                                                $ 874,647       774,528
                                                =========      ========

                                        32
                                                                  (Continued)
<PAGE>




                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      Temporary differences between the financial statement carrying amounts
      and the tax bases of assets and liabilities that give rise to
      significant portions of deferred tax assets and liabilities at December
      31 are as follows:

                                                     2001         2000
                                                -----------   ----------
      Deferred tax assets:
        Allowance for loan losses               $   227,407      129,272
        Deferred loan origination fees               93,678      123,539
        Deferred compensation accrual                    --       29,117
        Vested MRDP shares                           66,549       73,275
                                                -----------   ----------
          Gross deferred tax assets                 387,634      355,203
                                                -----------   ----------

      Deferred tax liabilities:
        FHLB stock dividends                       (490,993)    (448,731)
        Premises and equipment, principally due
          to differences in depreciation            (51,577)     (24,092)
        Unrealized gain on securities available-
          for-sale                                 (926,603)    (998,889)
        Other, net                                   (2,725)      (2,996)
                                                -----------   ----------
          Gross deferred tax liabilities         (1,471,898)  (1,474,708)
                                                -----------   ----------
          Net deferred tax liability            $(1,084,264)  (1,119,505)
                                                ===========   ==========

      In assessing the realizability of deferred tax assets, management
      considers whether it is more likely than not that some portion or all of
      the deferred tax assets will not be realized.  The ultimate realization
      of deferred tax assets is dependent upon the existence of, or generation
      of, taxable income in the periods in which those temporary differences
      are deductible.  Management considers the scheduled reversal of
      deferred tax liabilities, taxes paid in carryback years, projected
      future taxable income, and tax planning strategies in making this
      assessment.  Based upon the level of historical taxable income and
      estimates of future taxable income over the periods in which the
      deferred tax assets are deductible, at December 31, 2001 and 2000,
      management believes it is more likely than not the Company will realize
      the benefits of these deductible differences.

      Retained earnings at December 31, 2001 includes approximately $3,320,000
      for which no provision for Federal income tax has been made.  This
      amount represents the base year tax bad debt reserve at December 31,
      1986.  This amount is treated as a permanent difference and deferred
      taxes are not recognized unless it appears this amount will be reduced
      and thereby result in taxable income in the foreseeable future.  The
      Company is not currently contemplating any changes in its business or
      operations which would result in a recapture of this Federal bad debt
      reserve into taxable income.

(11)  Stock Repurchases

      The Company has authorized plans to repurchase some of its outstanding
      shares in the open market.  During the years ended December 31, 2001 and
      2000, the Company repurchased 54,500 and 439,127 shares, respectively,
      under the plans.

                                        33
                                                                  (Continued)
<PAGE>




                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(12)  Employee Benefit Plans

      Retirement Plan.  The Company has a noncontributory multi-employer
      trustee defined benefit pension plan.  Actuarially determined pension
      costs are funded as required by the trustee.  Information related to
      the Company's portion of the actuarial present value of benefits is not
      available.  Consulting actuaries to the plan have indicated the plan
      reached the ERISA full funding limitation during 2001 and 2000.  There
      were no contributions to the plan in 2001 or 2000.

      Savings Plan.  During January 1999, the Company adopted a 401(k) savings
      plan.  The Company allows eligible employees to contribute up to 15% of
      their monthly wages.  The Company matches an amount equal to 50% of the
      employee's contribution, up to 6% of total wages.  Participants are at
      all times fully vested in their contributions and vest after five years
      in the Company's contributions.  The Company's contributions were
      approximately $28,600 and $19,000 during the years ended December 31,
      2001 and 2000, respectively.

      Employee Stock Ownership Plan (ESOP).  In January 1997, an ESOP was
      established covering substantially all employees.  The ESOP borrowed
      $2,073,680 from the Holding Company and used the funds to purchase
      207,368 shares of the common stock of the Company.  The loan is intended
      to be repaid by the ESOP over a period of 15 years principally from the
      Company's contributions to the ESOP and dividends on ESOP shares.  The
      cost of the shares acquired by the ESOP is considered unearned
      compensation and, as such, is recorded as a reduction of the Company's
      stockholders' equity.  Shares purchased by the ESOP are held in a
      suspense account for allocation among participants as the loan is
      repaid.  Contributions to the ESOP and shares released from the suspense
      account are allocated among participants on the basis of their
      compensation in the year of allocation.  Benefits will vest upon the
      completion of five years of service.  Forfeitures are reallocated to
      remaining plan participants and may reduce the Company's contributions.
      Benefits may be payable upon retirement, death, disability, or
      separation from service.  The dividends on the unallocated ESOP shares
      are not recorded as dividends in the consolidated statements of
      stockholders' equity.

      Compensation expense is recorded in an amount equal to the fair value of
      shares held by the ESOP which are deemed committed to be released.
      Shares are committed to be released on a straight-line basis over 15
      years, which is the basis for the annual allocation of ESOP shares to
      participants.  For the years ended December 31, 2001 and 2000, ESOP
      principal and interest payments of approximately $241,000 and $286,000,
      respectively, were funded by Empire and Dime contributions of
      approximately $149,071 and $198,000, respectively, to the ESOP.  The
      remainder of the ESOP payments were funded by dividends on ESOP shares.
      During each of the years ended December 31, 2001 and 2000, 13,824 and
      13,824 shares, respectively, were committed to be released to
      participant accounts and 0 and 1,518 allocated shares were distributed
      from the ESOP during the year ended December 31, 2001 and 2000,
      respectively.  The fair value of the remaining 47,843 shares to be
      released in future years was approximately $705,684 at December 31,
      2001.  Compensation expense relating to the ESOP shares was $172,458 and
      $149,979 for the years ended December 31, 2001 and 2000, respectively.

                                        34
                                                                  (Continued)
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      Employment Contracts.  In January 1999, the Company entered into a
      three-year employment agreement with the Company's president and chief
      executive officer.  In October 1999, the Company entered into
      three-year employment agreements with two senior officers, effective
      January 1, 2000.  In December 2000, the October 1999 agreements were
      extended for an additional year.  These agreements provide severance
      up to three times average annual compensation following a change in
      control of the Company.

      Stock Option Plan.  Effective July 1997, the Company's stockholders
      approved the Stock Option Plan.  The terms of the Stock Option Plan
      provide for the granting of options to acquire up to 259,210 shares of
      common stock to employees, officers and directors of the Company.  The
      option price at which the Company's common stock may be purchased upon
      exercise of options granted under the plans must be at least equal to
      the per share market value of such stock at the date the option is
      granted.  The term of the options may not exceed five years from the
      date the options are granted.  The options will vest over a five
      year period following the date of the grant of the options.  At December
      31, 2001 and 2000, 24,582 shares were available for grant under the
      Stock Option Plan.

      Changes in shares issuable under options granted for the years ended
      December 31, 2001 and 2000 are summarized as follows:

                         Options outstanding         Options exercisable
                       ------------------------   -------------------------
                         Shares     Weighted       Shares       Weighted
                                    average                     average
                                 exercise price              exercise price
                       --------  --------------   --------   --------------
Balance at December
  31, 1999              238,128     $16.045         83,570       $16.625
Canceled                 (3,500)     16.625             --            --
Became exercisable           --          --         36,557        15.869
                       --------                   --------
Balance at December
  31, 2000              234,628      16.036        120,127        16.395
Became exercisable           --          --         36,557        15.869
                       --------                   --------
Balance at December
  31, 2001              234,628     $16.036        156,684       $16.272
                       ========                   ========

      The stock options outstanding at December 31, 2001 consist of the
      following:

  Number of      Weighted Average       Weighted Average        Options
   Shares         Exercise Price         Remaining Life       Exercisable
  -------         --------------         --------------       -----------

  206,984            $16.625               6.00 years           145,626
   27,644             11.625               7.67 years            11,058
 --------                                                      --------
  234,628             16.036                                    156,684
 ========                                                      ========

                                        35
                                                                  (Continued)
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      Based on the terms of options granted and using the intrinsic value
      method, no compensation cost has been recognized for any stock option
      grants in the accompanying financial statements.  Had the Company
      determined compensation cost based on the estimated fair value at the
      grant date for its stock options, the Company's net income and net
      income per share for the years ended December 31, 2001 and 2000 would
      have been as follows:

                                                  2001        2000
                                             -----------   ----------

      Net income:         As reported        $ 1,141,090    1,217,066
                          Pro forma              907,427      970,370
                                             ===========   ==========
      Basic earnings
       per share:         As reported        $     .84         .79
                          Pro forma                .67         .63
                                             ===========   ==========
      Diluted earnings
       per share:         As reported        $     .84         .79
                          Pro forma                .66         .63
                                             ===========   ==========

      Management Recognition and Development Plan (MRDP).  During July 1997,
      the Company's stockholders approved the MRDP.  The terms of the MRDP
      provide for the award of up to 103,684 of common shares to employees,
      officers and directors of the Company.  The shares granted will vest
      over a five year period following the date of grant.  During the year
      ending December 31, 2001, the Company granted 2,592 shares, under this
      plan.  No grants were made during the year ending December 31, 2000.
      Total shares granted under the plan were 88,041 and 85,449 at December
      31, 2001 and 2000, respectively.  71,164 and 58,761 shares were vested
      as of December 31, 2001 and 2000, respectively.  Compensation
      expense, determined by the market value of the shares at the date of
      grant, of $196,304 and $190,548 was recognized during the years ended
      December 31, 2001 and 2000, respectively, for shares that vested.

(13)  Earnings Per Share

      The following table sets forth the compilation of basic and diluted
      earnings per share for the years ended December 31:

                                                        2001         2000
                                                    ----------    ---------
      Average outstanding shares during the year
       on which basic earnings per share is
       calculated                                    1,360,764    1,535,637
      Add:   Incremental shares under stock
               option plans                              4,568          815
             Incremental shares related to MRDP          1,057          170
                                                    ----------    ---------
      Average outstanding shares on which diluted
       earnings per share is calculated              1,366,389    1,536,622
                                                    ==========    =========
      Net income applicable to common stockholders  $1,141,090    1,217,066
                                                    ==========    =========
      Basic earnings per share                      $    .84          .79
                                                    ==========    =========
      Diluted earnings per share                    $    .84          .79
                                                    ==========    =========
                                        36
                                                                  (Continued)
<PAGE>


                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      For the years ending December 31, 2001 and 2000, stock options to
      purchase 206,984 shares were outstanding, but were not included in the
      computation of diluted earnings per share because the options'
      exercise prices were greater than the average market price of the common
      shares, and therefore, the effect would be antidilutive.

(14)  Regulatory Capital

      Empire is required to meet three capital requirements: a tangible
      capital requirement equal to not less than 1.5% of tangible assets (as
      defined in the regulations); a core capital requirement, comprised of
      tangible capital adjusted for supervisory goodwill and other defined
      factors, equal to not less than 3.0% of tangible assets; and a
      risk-based capital requirement equal to at least 8.0% of all
      risk-weighted assets.  For risk-weighting, selected assets are given a
      risk assignment of 0% to 100%.  Empire's total risk-weighted assets
      at December 31, 2001 and 2000 were $83,678,000 and $68,986,000,
      respectively.

      Empire's compliance with capital requirements at December 31, 2001 and
      2000 follows (dollars in thousands):

                                          Minimum to be       Minimum to be
                                           adequately       well capitalized
                                        capitalized under     under prompt
                                        prompt corrective   corrective actions
                            Actual      actions provision       provision
                        --------------  -----------------   -----------------
                        Amount   Ratio    Amount   Ratio     Amount   Ratio
                        ------   -----    ------   -----     ------   -----


As of December
 31, 2001:
  Total capital        $28,334   33.86    $6,694    8.00%   $ 8,368   10.00%
  Tier 1 capital        26,768   31.99        --      --      5,021    6.00
  Tier 1 leverage       26,768   15.55     6,886    4.00      8,608    5.00
  Tangible capital      26,768   15.55        --      --      2,582    1.50
                       =======   =====    ======   =====    =======   =====
As of December
 31, 2000:
  Total capital        $27,891   40.43%   $5,519    8.00%    $6,899   10.00%
  Tier 1 capital        26,353   38.20        --      --      4,139    6.00
  Tier 1 leverage       26,353   21.61     4,878    4.00      6,098    5.00
  Tangible capital      26,353   21.61     1,829    1.50         --      --
                       =======   =====    ======   =====    =======   =====

      Failure to comply with applicable regulatory capital requirements can
      result in capital directives from the director of the Office of Thrift
      Supervision (OTS), restrictions on growth and other limitations on a
      savings bank's operations.

                                        37
                                                                  (Continued)
<PAGE>




                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      Consolidated stockholders' equity differs from Empire's tangible, core,
      and risk-based capital at December 31 as a result of the following
      (dollars rounded to nearest thousands):

                                                      2001         2000
                                                  -----------   ----------

      Consolidated stockholders' equity           $28,873,000   28,915,000
      Holding Company assets                         (176,000)    (558,000)
                                                  -----------   ----------
           Empire capital                          28,697,000   28,357,000
      Non-includable assets of Dime                  (480,000)    (442,000)
      Unrealized gains on certain available-
        for-sale securities                        (1,449,000)  (1,562,000)
                                                  -----------   ----------
      Tangible and core capital                    26,768,000   26,353,000
      Unrealized gains on certain available-
        for-sale securities                           997,000    1,225,000
      Allowance for loan losses                       591,000      336,000
      Assets required to be deducted                  (22,000)     (23,000)
                                                  -----------   ----------
      Risk-based capital                          $28,334,000   27,891,000
                                                  ===========   ==========

      In accordance with OTS regulations, at the time of conversion, Empire
      restricted a portion of retained earnings by establishing a liquidation
      account.  The liquidation account will be maintained for the benefit
      of eligible holders who continue to maintain their accounts in Empire
      after the conversion.  The liquidation account will be reduced annually
      to the extent that eligible account holders have reduced their
      qualifying deposits.  Subsequent increases will not restore an eligible
      account holder's interest in the liquidation account.  In the event of a
      complete liquidation of Empire, and only in such an event, each account
      holder will be entitled to receive a distribution from the liquidation
      account in an amount proportionate to the adjusted qualifying account
      balances then held.

      In addition, savings banks that before and after proposed dividend
      distributions meet or exceed their fully phased-in capital requirements,
      may make capital distributions with prior notice to the OTS during any
      calendar year up to 100% of year-to-date net income plus 50% of the
      amount in excess of their fully phased-in capital requirements as of the
      beginning of the calendar year.  However, the OTS may impose
      greater restrictions if an institution is deemed to be in need of more
      than normal supervision.  Empire currently exceeds its fully phased-in
      capital requirements and has been assessed as "well-capitalized"
      under the regulatory guidelines.

(15)  Financial Instruments With Off-Balance-Sheet Risk

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

                                        38
                                                                  (Continued)
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      Standby letters of credit are written conditional commitments issued by
      the Company to guarantee the performance of a customer to a third party.
      Most commitments extend for no more than one year.  The credit risk
      involved in issuing letters of credit is essentially the same as that
      involved in extending loan facilities to customers.  Generally, these
      commitments are collateralized.

      Commitments to extend credit are agreements to lend to a customer as
      long as 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 many of the
      commitments are expected to expire without being drawn upon, the total
      commitment amounts do not necessarily represent future cash
      requirements.  The Company evaluates each customer's creditworthiness on
      a case-by-case basis.  The amount of collateral obtained, if deemed
      necessary by the Company, upon extension of credit is based on
      management's credit evaluation of the counterparty.  Collateral held
      varies but may include accounts receivable, inventory, property, plant
      and equipment, and income-producing commercial properties.

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

      At December 31, 2001 standby letters of credit in the amount of
      approximately $25,000 were outstanding.  Commitments to extend
      additional credit to existing and new borrowers amounted to
      approximately $3,542,000 at fixed rates and $6,952,000 at variable
      rates.  Loans in process at December 31, 2001 were approximately
      $2,511,000.

      Substantially, all loans held-for-sale at December 31, 2001 and 2000
      were committed to be sold.

(16)  Financial Instruments With Concentration of Credit Risk

      Substantially all of the Company's loans, commitments, and commercial
      and standby letters of credit have been granted to customers in the
      Company's market area, consisting of three counties in south central
      Montana.  Generally, such customers are depositors of the Company.
      These loans and commitments are generally less than 10% of the Company's
      stockholders' equity for any one borrower.  At December 31, 2001, no
      borrowers had outstanding loans or loan commitments exceeding 10% of the
      Company's stockholders' equity.

      At December 31, 2001, approximately $1,948,295 of the Company's loans
      receivable are secured by real property located outside of the Company's
      trade area.  Of this amount, loans totaling $680,054 are secured
      by properties located in southern California.

(17)  Fair Value of Financial Instruments

      The Company is required to disclose the fair value for financial
      instruments, whether recognized or not recognized on the balance sheet.
      A financial instrument is defined as cash, evidence of an ownership
      interest in an entity, or a contract that both imposes a contractual
      obligation on one entity to deliver cash or another financial instrument
      to a second entity.

                                        39

                                                                  (Continued)
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      Quoted market prices are used for fair value when available, but do not
      exist for some of the Company's financial instruments, primarily loans,
      time deposits, notes payable, FHLB advances and other borrowed
      funds.  The fair value of these instruments has been derived from the
      OTS Net Portfolio Value Model (OTS Model).  The OTS Model primarily
      employs the static discounted cash flow method which estimates
      the fair value of loans, time deposits, FHLB advances and notes payable
      by discounting the cash flows the instruments are expected to generate
      by the yields currently available to investors on instruments of
      comparable risk and duration.  Therefore, to calculate present value,
      the OTS Model makes assumptions about the size and timing of expected
      cash flows and appropriate discount rates.  Different assumptions
      could materially change these instruments' estimated values.

      The following assumptions and methods were used by the Company in
      estimating the fair value of its financial instruments:

      Financial Assets.  Due to the liquid nature of the instruments, the
      carrying value of cash and cash equivalents and interest-bearing
      deposits approximates fair value.  For all investment and
      mortgage-backed securities, the fair value is based upon quoted market
      prices.  The fair value of loans receivable and loans held for sale was
      obtained from the OTS Model.  The fair value of accrued interest
      receivable approximates book value as the Company expects contractual
      receipt in the short-term.  The fair value of FHLB stock approximates
      redemption value.

      Financial Liabilities.  The fair value of NOW and demand accounts and
      non-term savings deposits, approximates book values as these deposits
      are payable on demand.  The fair value of time deposits, notes payable,
      FHLB advances and CMA advances was obtained from the OTS Model.  The
      fair value of accrued interest payable approximates book value as the
      Company expects payment in the short-term.

      Off-Balance Sheet.  Commitments made to extend credit represent
      commitments for loan originations, the majority of which are contracted
      for immediate sale and therefore no fair value adjustment is necessary.
      These commitments are for loans with terms of less than one year and
      have interest rates which approximate prevailing market rates.

      Limitations.  Fair value estimates are made at a specific point in time,
      based on relevant market information and information about the financial
      instrument.  These estimates do not reflect any premium or discount that
      could result from offering for sale at one time the Company's entire
      holdings of a particular instrument.  Because no market exists for a
      significant portion of the Company's financial instruments, fair
      value estimates are based on judgments regarding comparable market
      interest rates, future expected loss experience, current economic
      conditions, risk characteristics of various financial instruments, and
      other factors.  These 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 on existing on- and off-balance sheet
      financial instruments without attempting to estimate the value of
      anticipated future business and the value of assets and liabilities that
      are not considered financial instruments.  Significant assets and
      liabilities that are not considered financial instruments include
      deferred tax assets and premises and equipment.  In addition, the tax
      effect of the difference between the fair value and carrying value of
      financial instruments can have a significant effect on fair value
      estimates and have not been considered in the estimates presented
      herein.

                                        40
                                                                  (Continued)
<PAGE>




                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

      The approximate book value and fair value of the Company's financial
instruments as of December 31, are as follows:

                                      2001                    2000
                          -------------------------    ----------------------
                              Carrying      Fair       Carrying      Fair
                               Value        Value        Value       Value
                          ------------   ----------    ---------  -----------

Financial Assets:
 Cash and due from banks  $  4,186,000    4,186,000    2,483,000    2,483,000
 Interest-bearing deposits  42,350,000   42,350,000      165,000      165,000
 Investment and mortgage-
   backed securities
   available-for-sale       35,945,000   35,945,000   29,374,000   29,374,000
 Mortgage-backed securities
   held-to-maturity                 --           --    5,024,000    5,068,000
 Loans receivable, net      81,152,000   83,683,000   80,363,000   81,379,000
 Loans held for sale         4,089,000    4,089,000    1,497,000    1,497,000
 Stock in FHLB of Seattle    1,671,000    1,671,000    1,561,000    1,561,000
 Accrued interest receivable   629,000      629,000      528,000      528,000

Financial Liabilities:
 Deposits                  126,940,000  128,593,000   77,667,000   77,737,000
 FHLB and CMA advances
  and note payable          17,464,000   17,977,000   16,731,000   16,760,000
 Accrued interest payable      186,000      186,000      162,000      162,000


                                        41
                                                                  (Continued)
<PAGE>



                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(18)  Holding Company Information (Condensed)

      The summarized financial information for Empire Federal Bancorp, Inc. is
      presented below.

      Condensed Balance Sheets:

                                                        December 31,
                                                --------------------------
                                                  2001             2000
                                                -----------    -----------
                     Assets

      Cash                                      $   151,513        164,059
      Loan to Empire                                     --        400,000
      Investment in Empire                       28,696,605     28,357,318
      Other assets                                   25,000             --
                                                -----------     ----------
                                                $28,873,118     28,921,377
                                                ===========     ==========

         Liabilities and Stockholders' Equity

      Liabilities:
        Income taxes payable                    $        --          6,156
      Stockholders' equity:
      Common stock                                   25,921         25,921
      Additional paid-in capital                 25,322,946     25,278,214
      Unearned ESOP and MRDP compensation        (1,626,790)    (1,928,091)
      MRDP shares acquired                         (258,864)      (302,011)
      Retained earnings                          18,852,536     18,351,208
      Treasury stock                            (14,891,933)   (14,072,383)
      Accumulated other comprehensive income      1,449,302      1,562,363
                                                -----------     ----------
          Total stockholders' equity             28,873,118     28,915,221
                                                -----------     ----------
                                                $28,873,118     28,921,377
                                                ===========     ==========

                                        42
                                                                  (Continued)
<PAGE>




                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

Condensed Statements of Income:

                                               Years Ended December 31,
                                           -----------------------------
                                                2001             2000
                                           ------------     ------------
Revenues:
 Cash dividends from subsidiary            $    930,000        4,000,000
 Interest income - loan to Empire                 1,874           98,246
 Interest income - loan to ESOP                 139,737          148,084
                                           ------------     ------------
   Total revenues                             1,071,611        4,246,330
Expenses:
 Compensation expense - ESOP shares            (172,458)        (149,979)
 Compensation expense - MRDP shares            (196,304)        (190,548)
 Operating expenses                            (115,807)        (181,568)
                                           ------------     ------------
   Total expenses                              (484,569)        (522,095)
   Earnings before equity in undistributed
     earnings of subsidiary and income taxes    587,042        3,724,235
Income tax benefit                              101,700           98,094
                                           ------------     ------------
   Income before equity in undistributed
     earnings of subsidiary                     688,742        3,822,329
Equity in undistributed earnings
 of subsidiary                                  452,348       (2,605,263)
                                           ------------     ------------
   Net income                              $  1,141,090        1,217,066
                                           ============     ============

Condensed Statements of Cash Flows:

Cash flows from operating activities:
 Net income                                $  1,141,090        1,217,066
 Adjustments to reconcile net income to
   net cash provided by operating
   activities:
    Dividends in excess of earnings
      (undistributed earnings)
      of subsidiary                            (452,348)       2,605,263
   Increase in other assets                     (25,000)              --
   Decrease in income taxes                      (6,156)          21,164
   ESOP compensation                            172,458          149,979
   MRDP compensation                            196,304          190,548
                                           ------------     ------------
        Net cash provided by operating
          activities                          1,026,348        4,184,020
                                           ------------     ------------
Cash flows from investing activities -
  principal payments from loan to Empire        400,000        2,200,000
                                           ------------     ------------
  Cash flows from financing activities:
  Cash dividends paid                          (619,344)        (694,138)
  Purchase of treasury stock                   (819,550)      (5,632,921)
                                           ------------     ------------
        Net cash used in financing
          activities                         (1,438,894)      (6,327,059)
                                           ------------     ------------
Net increase (decrease) in cash                 (12,546)          56,961
Cash at beginning of year                       164,059          107,098
                                           ------------     ------------
Cash at end of year                        $    151,513          164,059
                                           ============     ============

                                        43
                                                                  (Continued)
<PAGE>






                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

(19)  Operating Segment Information

      SFAS No. 131, "Financial Reporting for Segments of a Business
      Enterprise," requires that a business enterprise report financial and
      descriptive information about its reportable operating segments.
      Operating segments are defined as components of an enterprise about
      which separate financial information is available that is evaluated
      regularly by the chief operating decision maker in deciding how to
      allocate resources and in assessing performance.

      The Company evaluates segment performance internally based on its two
      primary lines of business, commercial banking and insurance, and thus
      the operating segments are so defined.  The operating segment defined as
      "other" includes the Holding Company and eliminations of transactions
      between segments.

      The accounting policies of the individual operating segments are the
      same as those of the Company described in note 1.  Transactions between
      operating segments are primarily conducted at fair value, resulting in
      profits that are eliminated for reporting consolidated results of
      operations.

      The following is a summary of selected operating segment information for
      the years ended December 31, 2001 and 2000:

                                  Empire      Dime      Other     Consolidated
                             ------------ ---------- ----------   ------------
              2001:
      Net interest income    $  4,311,462     11,769    111,993      4,435,224
      Non-interest income       1,397,981    595,142   (204,335)     1,788,788
                             ------------ ---------- ----------   ------------
         Total income           5,709,443    606,911    (92,342)     6,224,012

      Provision for loan
       losses                     255,008         --         --        255,008
      Other noninterest
       expense                  3,105,114    560,080    288,073      3,953,267
                             ------------ ---------- ----------   ------------
        Income before income
         taxes                  2,349,321     46,831   (380,415)     2,015,737
      Income taxes                966,973      9,374   (101,700)       874,647
                             ------------ ---------- ----------   ------------
        Net income           $  1,382,348     37,457   (278,715)     1,141,090
                             ============ ========== ==========   ============

         Total assets        $175,014,932    527,323   (630,182)   174,912,073
      Loans, net               85,240,612         --         --     85,240,612
      Deposits                127,266,930         --   (326,915)   126,940,015
      Stockholders' equity     28,696,605    479,781   (303,267)    28,873,118
                             ============ ========== ==========   ============

                                        44
                                                                  (Continued)
<PAGE>







                EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                 Notes to Consolidated Financial Statements
                        December 31, 2001 and 2000

                                  Empire      Dime      Other     Consolidated
                             ------------ ---------- ----------   ------------
                2000:
      Net interest income    $  4,422,228     14,422    195,711      4,632,361
      Non-interest income         804,146    569,650   (298,559)     1,075,237
                             ------------ ---------- ----------   ------------
             Total income       5,226,374    584,072   (102,848)     5,707,598
      Provision for loan
       losses                     110,000         --         --        110,000
      Other noninterest
       expense                  2,849,711    578,910    177,383      3,606,004
                             ------------ ---------- ----------   ------------
        Income before income
         taxes                  2,266,663      5,162   (280,231)     1,991,594
      Income taxes                871,925        697    (98,094)       774,528
                             ------------ ---------- ----------   ------------
        Net income           $  1,394,738      4,465   (182,137)     1,217,066
                             ============ ========== ==========   ============

              Total assets   $125,166,471    510,649   (609,855)   125,067,265
      Loans, net               81,859,981         --         --     81,859,981
      Deposits                 77,998,233         --   (331,589)    77,666,644
      Stockholders' equity     28,357,318    442,324    115,579     28,915,221
                             ============ ========== ==========   ============

(20)  Subsequent Event

      On March 5, 2002, the Company entered into an agreement and plan of
      merger to acquire all of the issued and outstanding common stock of
      Montana First National Bancorporation in Kalispell, Montana.  The
      acquisition, which is subject to regulatory approval, is expected to
      close during the second quarter of 2002.  The transaction will be
      accounted for as a purchase and the cash purchase price of $4,037,500,
      subject to certain adjustments, will be allocated to the assets acquired
      and liabilities assumed based on their fair values upon the closing of
      the transaction.

                                        45
                                                                  (Continued)
<PAGE>



                         COMMON STOCK INFORMATION

     The common stock of the Corporation is traded in the over-the counter
market as reported on the Nasdaq National Market under the symbol "EFBC."  As
of March 8, 2002, there were approximately 328 stockholders of record.  The
Corporation estimates that, as of January 30, 2002, there were approximately
608 beneficial owners holding stock in nominee or "street" name.

     The Corporation presently pays quarterly cash dividends on the common
stock, subject to the discretion of the Board of Directors.  Dividend payments
by the Corporation depend primarily on the ability of the Bank to pay
dividends to the Corporation.  Under OTS regulations, the dollar amount of
dividends a federal savings association may pay depends upon the association's
capital surplus position and recent net income.  Generally, if an association
satisfies its regulatory capital requirements, it may make dividend payments
up to the limits prescribed in the OTS regulations.  However, institutions
that have converted to the stock form of ownership may not declare or pay a
dividend on, or repurchase any of, its common stock if the effect thereof
would cause the regulatory capital of the institution to be reduced below the
amount required for the liquidation account which was established in
accordance with OTS regulations and the Bank's Plan of Conversion.  In
addition, earnings of the Bank appropriated to bad debt reserves and deducted
for federal income tax purposes are not available for payment of cash
dividends without payment of taxes at the then current tax rate by the Bank on
the amount removed from the reserves for such distributions.  The Bank does
not contemplate any distribution that would limit the Bank's bad debt
deduction or create federal tax liabilities.

     The stock prices shown below reflect the high and low prices by quarter
from January 1, 2000 through the quarter ended December 31, 2001.

                                       Market Price            Cash
                                      --------------      Dividends Paid
                                      High       Low         Per Share
                                      ----       ---         ---------

January 1, 2000 - March 31, 2000.... $11.88    $11.00          $0.11
April 1, 2000 - June 30, 2000.......  12.00     10.38           0.11
July 1, 2000 - September 30, 2000...  14.19     11.81           0.11
October 1, 2000 - December 31, 2000.  13.00     11.63           0.11
January 1, 2001 - March 31, 2001....  13.98     12.00           0.115
April 1, 2001 - June 30, 2001.......  14.50     13.19           0.115
July 1, 2001 - September 30, 2001...  15.49     13.85           0.115
October 1, 2001 - December 31, 2001.  15.05     14.00           0.115


                                       46

<PAGE>



                           DIRECTORS AND OFFICERS
                                     OF
                EMPIRE FEDERAL BANCORP, INC. AND EMPIRE BANK



Directors:

William H. Ruegamer                       Edwin H. Doig
 President and Chief Executive Officer     Chairman of the Board of
 of the Corporation and the Bank           the Corporation and a
                                           retired Registered Pharmacist
                                           former owner and manager of
Beverly D. Harris                          Livingston Drug
 President of Dime Service Corporation
 the Bank's wholly-owned subsidiary      *Sanroe J. Kaisler Jr.
                                           Retired insurance broker and former
                                           partner and majority stockholder of
*Walter J. Peterson Jr.                    Waite & Company, an insurance
 Vice President of Dime Service            company
 Corporation
                                          Walter R. Sales
Kenneth P. Cochran                         Retired rancher and former Montana
 Senior Vice President and President of    Legislator
 the Billings Branch office.

*John R. Boe                              Burton "Tony" Wastcoat
 Retired teacher and vice principal of     Owner/ Broker
 local junior high school in Big Timber.   Coldwell Banker - RCI Realty

*Mr. Boe retired as a director November 13, 2001.
*Mr. Peterson and Mr. Kaisler retired as directors December 31, 2001.

Officers:

William H. Ruegamer                       Linda M. Alkire
 President and Chief Executive Officer     Chief Financial Officer and
 of the Corporation and the Bank           Treasurer of the Corporation and
                                           the Bank

Ann Worthington
 Secretary of the Corporation
 and the Bank

                                     47

<PAGE>




                           CORPORATE INFORMATION

Corporate Headquarters                       Transfer Agent

123 South Main Street                        Registrar and Transfer Co.
Livingston, Montana                          Cranford, New Jersey

Independent Auditors                         Common Stock

KPMG LLP                                     Traded Over-the-Counter/
Billings, Montana                            National Market System
                                             Nasdaq Symbol: EFBC
General Counsel
                                             10-KSB Information
Huppert and Swindlehurst, P.C.
Livingston, Montana                          A copy of the Form 10-KSB will be
                                             furnished without charge to
                                             stockholders of record upon
                                             written request to the Secretary,
Special Securities Counsel                   Empire Federal Bancorp, Inc., 123
                                             South Main Street, Livingston,
Breyer & Associates PC                       Montana 59047.
McLean, Virginia

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

Annual Meeting

     The Annual Meeting of Stockholders will be held on Tuesday, May 21, 2002
at 12:30 p.m., Mountain Daylight Time, at the Corporation's main office
located at 123 South Main Street, Livingston, Montana.

                                      48

<PAGE>



                           Exhibit 21

                 Subsidiaries of the Registrant

Parent
------

Empire Federal Bancorp, Inc.

                                 Percentage           Jurisdiction or
Subsidiaries(a)                 of Ownership       State of Incorporation
---------------                 ------------       ----------------------

Empire Bank                        100%                United States

The Dime Service Corporation (b)   100%                Montana

-------------
(a)  The operation of the Corporation's wholly-owned subsidiaries are included
     in the Corporation's Financial Statements contained in Item 7 of this
     Report.
(b)  The Dime Service Corporation is the wholly-owned subsidiary of Empire
     Bank.

<PAGE>



                           Exhibit 23

                 Consent of Independent Auditors

<PAGE>



                                [KPMG Letterhead]

                           Independent Auditors' Consent
                           -----------------------------

The Board of Directors and Stockholders
Empire Federal Bancorp, Inc.

We consent to incorporation by reference in the registration statement (No.
333-48511) on Form S-8 of Empire Federal Bancorp, Inc., of our report dated
February 22, 2002, except as to note 20 which is as of March 5, 2002, relating
to the consolidated balance sheets of Empire Federal Bancorp, Inc. and
subsidiaries as of December 31, 2001 and 2000 and the related consolidated
statements of income, stockholders' equity and comprehensive income, and cash
flows for the years then ended, which report appears in the December 31, 2001
annual report on Form 10-KSB of Empire Federal Bancorp, Inc.

/s/KPMG LLP

Billings, Montana
March 25, 2002

<PAGE>