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2000 ANNUAL REPORT





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                      HEMLOCK FEDERAL FINANCIAL CORPORATION



<PAGE>




TABLE OF CONTENTS









Chairman's Message........................................    1
Selected Consolidated Financial Information...............    3
Management's Discussion and Analysis of Financial
  Condition and Results of Operations.....................    5
Consolidated Financial Statements.........................   18
Stockholder Information...................................   48
Corporate Information.....................................   49
































<PAGE>




FROM YOUR CHAIRMAN & PRESIDENT




Dear Shareholder:

         1999  was a  highly  productive  year in  which  we  made  considerable
progress in enhancing  shareholder value. Net income for the year ended December
31, 1999 increased $186,000 or 12% to $1.7 million,  as compared to $1.6 million
for the previous year.  Earnings per share increased 32%, to $1.16 per share for
1999 from $.88 for 1998.  Stockholders'  equity  decreased from $27.2 million to
$25.7 million,  as a result of the repurchase of 170,378 shares of Hemlock stock
during 1999. In addition,  the Board of Directors authorized payment of $.38 per
share in dividends during 1999, an increase of 27% from the prior year.

         The first full year of operations of our fourth full service  facility,
in the high growth suburb of Lemont, Illinois, was a complete success, with over
$11 million in deposits at year-end. The growth of this branch contributed to an
overall increase in deposits of $7.4 million.

         Despite the rise in mortgage  rates during 1999,  we still  experienced
significant  growth in our loan  portfolio,  which increased by $15.0 million or
14.72%. Over the past three years our loan portfolio has increased over 115%.

         In September of 1999 we announced the opening of the Hemlock Investment
Center, through which we are now offering our customers mutual funds, annuities,
and other non-insured investment products.

         In early January 2000, we announced the  acquisition of Midwest Savings
Bank. This transaction will be completed in the second quarter of 2000, with the
two Midwest offices  becoming  Hemlock Federal branch offices.  We are confident
that this  acquisition will contribute to earnings growth in the year 2000. Upon
completion  of the  Midwest  acquisition,  we will have  doubled  the  number of
Hemlock Federal offices since our conversion to a public company.

         We at Hemlock believe that the success of our branches is indicative of
the  demand  on the part of  consumers  for an  alternative  to the  indifferent
service of the  mega-banks.  Our goal is to provide  our  customers  with a wide
variety of financial  products,  with the added benefit of personalized  service
and  community  presence.  New product  introductions  planned  for 2000,  which
include  a debit  card and  internet  branch,  will  help  extend  our  customer
relationships while providing new sources of revenue.





<PAGE>



         On  behalf of the  Board of  Directors,  Management  and  Employees  of
Hemlock Federal, we wish to thank you for your continued support as we enter the
new  millennium.  We  will  continue  to  stand  firm in our  commitment  to the
traditional  principles on which we were founded - prudent financial management,
quality personal service and fulfilling the dream of homeownership,  as together
we work diligently for the long-term  profitability of Hemlock Federal Financial
Corporation.


                                          /s/ Maureen G. Partynski

                                          Maureen G. Partynski
                                          Chairman and CEO



                                          /s/ Michael R. Stevens
                                          Michael R. Stevens
                                          President










                                        2
<PAGE>




                   SELECTED CONSOLIDATED FINANCIAL INFORMATION


                                                  At December 31,
                                  ---------------------------------------------
                                     1999    1998     1997     1996      1995
                                  -------- -------- -------- --------  --------
                                             (Dollars in Thousands)
Selected Financial Condition Data:

Total assets..................... $228,457 $204,424 $176,683 $146,405  $145,626
Cash and cash equivalents........    9,813    6,036   14,883   17,410    13,301
Loans receivable, net(1).........  116,998  101,977   76,159   53,536    45,232
Mortgage-backed securities:
  Held-to-maturity...............   45,315   52,516   31,683   29,537    43,106
  Available-for-sale.............   27,748   26,682   29,983   34,041    25,620
Investment securities:
  Held-to-maturity...............   15,811    6,101   14,735      ---     1,500
  Available-for-sale.............    5,234    3,831    3,617    7,827    13,125
FHLB stock.......................    2,325    1,850      987      901       849
Deposits.........................  150,576  143,149  130,958  131,243   130,741
Total borrowings.................   49,500   31,000   11,000    1,300     1,500
Stockholders' Equity.............   25,721   27,206   30,427   12,115    11,877

                                            Year Ended
                                            December 31,
                                --------------------------------------
                                 1999   1998    1997     1996    1995
                               ------- ------- -------  ------- ------
                                            (Dollars in Thousands)
Selected Operations Data:

Total interest income......... $14,074 $12,750 $11,293  $10,137 $9,934
Total interest expense........   7,297   6,842   5,723    5,643  5,416
                               ------- ------- -------  ------- ------
  Net interest income.........   6,777   5,908   5,570    4,494  4,518
Provision for loan losses.....      20      21      30      150    133
                               ------- ------- -------  ------- ------
Net interest income after
   provision for loan
  losses......................   6,757   5,887   5,540    4,344  4,385
Fees and service charges......     500     573     417      379    352
Gain (loss) on sales
   of securities..............      63      19      (3)    (124)  (161)
Other non-interest income.....     148     117     125      132    146
                               ------- ------- -------  ------- ------
Total non-interest income.....     711     709     539      387    337
Total non-interest expense....   4,670   4,085   4,509    4,487  3,211
                               ------- ------- -------  ------- ------
Income before taxes...........   2,798   2,511   1,570      244  1,511
Income tax provision .........   1,058     957     626       82    559
                               ------- ------- -------  ------- ------
Net income.................... $ 1,740 $ 1,554   $ 944    $ 162  $ 952
                               ======= ======= =======  ======= ======


(1)  The allowance for loan losses at December 31, 1999,  1998,  1997,  1996 and
     1995 was $795,000, $775,000, $775,000, $745,000 and $600,000, respectively.


                                        3

<PAGE>


<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                    --------------------------------------------------------------
                                                                       1999           1998        1997          1996       1995
                                                                    ---------      ---------   ---------    ----------  ----------
<S>                                                                 <C>            <C>         <C>          <C>         <C>
Selected Financial Ratios and Other Data:

Performance Ratios:
   Return on assets (ratio of net income to average total assets)      0.82%          0.80%       0.58%        0.11%       0.66%
   Return on equity (ratio of net income to average equity)(1)         6.56           5.33        3.52         1.38        8.73
   Interest rate spread information:
     Average during period................................             2.86           2.58        2.85         2.93        3.01
     End of period........................................             2.86           2.58        2.92         3.07        3.11
     Net interest margin(2)...............................             3.30           3.17        3.53         3.20        3.25
   Ratio of operating expense to average total assets.....             2.19           2.12        2.76         3.07        2.23
   Ratio of average interest-earning assets to average
        interest-bearing liabilities......................           112.38         116.16      118.59       106.67      106.31
Quality Ratios:
   Non-performing assets to total assets at end of period.             0.11           0.06        0.15         0.05        0.40
   Allowance for loan losses to non-performing loans......           308.14         623.40      302.73       116.51      103.63
   Allowance for loan losses to gross loans receivable....             0.68           0.78        1.01         1.37        1.31

Capital Ratios:(2)
   Stockholders' equity to total assets at end of period..            11.26           13.31      17.22         7.68        8.16
   Average stockholders' equity to average assets.........            12.46          15.09       16.45         7.93        7.59

Other data:
   Number of full service offices.........................                4              4           3           3            3
</TABLE>

(1)  Ratios are exclusive of SFAS 115 valuation. (2) Net interest income divided
     by average interest-earning assets.



                                        4

<PAGE>

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


General

         Hemlock  Federal  Financial  Corporation  (the "Company") is a Delaware
corporation.  The Company is a savings and loan holding company which has as its
wholly  owned  subsidiary,  Hemlock  Federal  Bank  for  Savings  (the  "Bank").
Financial and other information  presented herein after March 31, 1997,  relates
to  consolidated  information  of the Company and the Bank.  Financial and other
information  prior to March 31, 1997,  relates only to Hemlock  Federal Bank for
Savings. The Company is a financial intermediary engaged primarily in attracting
deposits  from  the  general   public  and  using  such  deposits  to  originate
one-to-four family residential  mortgages and, to a significantly lesser extent,
multi-family, consumer and other loans primarily in its market area. The Company
also acquires  mortgage-backed and other securities.  The Company's revenues are
derived  principally from interest earned on loans and mortgage-backed and other
securities.  The  operations  of the Company  are  influenced  significantly  by
general economic conditions and by policies of financial institution  regulatory
agencies,  including the OTS and FDIC. The Company's cost of funds is influenced
by interest rates on competing  investments  and general market  interest rates.
Lending  activities  are affected by the demand for financing of real estate and
other types of loans,  which in turn is affected by the interest  rates at which
such financings may be offered.

         The  Company's  net  interest  income is dependent  primarily  upon the
difference or spread  between the average  yield earned on securities  and loans
receivable, net and the average rate paid on deposits and borrowings, as well as
the relative  amounts of such assets and  liabilities.  The Company,  like other
savings and loan  holding  companies,  is subject to  interest  rate risk to the
degree  that its  interest-bearing  liabilities  mature or reprice at  different
times, or on a different basis, than its interest-earning assets.

Financial Condition

         Consolidated  total assets aggregated $228.5 million and $204.4 million
at December 31, 1999 and December 31, 1998, respectively.  The increase in total
assets is primarily  attributable  to an increase in loans  receivable  of $15.0
million due primarily to an increase in  multi-family  loan  originations in the
Company's  market area and an increase in  securities  held-to-maturity  of $2.5
million  and  securities  available-for-sale  of  $2.5  million,  along  with an
increase in cash and cash equivalents of $3.8 million.

         Total  liabilities at December 31, 1999 were $202.7 million compared to
$177.2  million at  December  31,  1998,  an increase  of $25.5  million.  Total
deposits increased by $7.5 million,  from $143.1 million at December 31, 1998 to
$150.6  million at December 31, 1999, due  principally to a general  increase in
deposits  in the  Company's  existing  branches  as  well as the  opening  of an
additional branch office in December, 1998. In addition, FHLB advances increased
by $18.5

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<PAGE>



million,  from $31.0  million at December 31, 1998 to $49.5  million at December
31, 1999.  The  increase in deposits and advances was used to fund  increases in
both loans receivable and securities.

         Stockholders' equity at December 31, 1999 was $25.7 million compared to
$27.2  million at December 31, 1998, a decrease of $1.5  million.  This decrease
was due  primarily to the  repurchase of 170,378  shares of the Company's  stock
during  1999  at a cost  of $2.4  million,  a  reduction  in  accumulated  other
comprehensive  income  of  $638,000,  due to an  increase  in  market  rates  of
interest, and dividends paid of $648,000, partially offset by net income of $1.7
million.

Results of Operations

         The Company's  results of operations depend primarily upon the level of
net interest income,  which is the difference between the interest income earned
on its  interest-earning  assets such as securities and loans,  and the costs of
the Company's interest-bearing  liabilities,  primarily deposits and borrowings.
Results  of  operations  are  also  dependent  upon the  level of the  Company's
noninterest  income,  including fee income and service charges,  and affected by
the level of its  noninterest  expenses,  including  its general  administrative
expenses.  Net  interest  income  depends  upon the volume of  interest-earnings
assets and interest-bearing  liabilities and the interest rate earned or paid on
them, respectively.

                       COMPARISON OF OPERATING RESULTS FOR
                   THE YEARS ENDED DECEMBER 31, 1999 AND 1998

General

         Consolidated  net income of the Company for the year ended December 31,
1999 was $1.7 million, as compared to $1.6 for the year ended December 31, 1998.
The $186,000 increase in net income was primarily attributable to an increase in
net  interest  income.  This  item  was  partially  offset  by  an  increase  in
non-interest expense.

Net Interest Income

         Net  interest  income  after  provision  for loan losses  increased  by
$870,000,  to $6.8 million for the year ended  December 31, 1999, as compared to
$5.9 million for the year ended 1998. The net interest margin increased to 3.30%
for the year ended  December 31, 1999 from 3.17% for the year ended December 31,
1998,  primarily as a result of an increase in the interest rate spread to 2.86%
for the year ended December 31, 1999, from 2.58% for the year ended December 31,
1998. This was partially  offset by a decrease in the ratio of  interest-earning
assets to  interest-bearing  liabilities  to 112.38% for the year ended December
31, 1999 from 116.16% for the year ended December 31, 1998.

Interest Income

         Interest  income for the year ended December 31, 1999 was $14.1 million
compared to $12.8 million for the year ended  December 31, 1998. The increase in
interest income was primarily a

                                        6

<PAGE>



result of a $19.1 million  increase in the average  balance of  interest-earning
assets.  The average balance of loans  receivable  increased $24.0 million while
the average balance of securities remained relatively stable. This was partially
offset by a decrease in the average balance of interest-earning deposits of $6.3
million.

Interest Expense

         Interest  expense for the year ended December 31, 1999 was $7.3 million
compared to $6.8 million for the year ended  December 31, 1998. The increase was
primarily  the result of a $22.4  million  increase  in the  average  balance of
interest-bearing  liabilities resulting from increased advances from the Federal
Home Loan Bank of Chicago, as well as a $3.9 million increase in deposits.  This
was  partially  offset by a decrease in the average  cost of funds from 4.27% in
1998 to 4.00% in 1999.

Provision for Loan Losses

         The  Company  recorded a  provision  for loan losses of $20,000 for the
year ended December 31, 1999,  increasing the total allowance for loan losses to
$795,000 as of December  31,  1999.  The  allowance  was equal to 0.68% of total
loans and 308.14% of  non-performing  loans as of December 31, 1999. The Company
had non-performing  assets totaling $258,000 as of December 31, 1999. The amount
of the provision  and  allowance for estimated  losses on loans is influenced by
current economic conditions,  actual loss experience,  industry trends and other
factors,  such as adverse economic  conditions,  including declining real estate
values, in the Company's market area. In addition,  various regulatory agencies,
as an  integral  part  of  the  examination  process,  periodically  review  the
Company's allowance for estimated losses on loans. While management believes the
existing level of reserves is adequate,  future adjustments to the allowance may
be necessary due to economic,  operating,  regulatory, and other conditions that
may be beyond the Company's control.

Non-Interest Income

         Non-interest  income  increased  $2,000 to $711,000  for the year ended
December 31, 1999. The increase was primarily attributable to a gain on the sale
of securities of $63,000 for the year ended  December 31, 1999, as compared to a
gain of  $19,000  for the year ended  December  31,  1998.  In  addition,  other
non-interest  income increased to $148,000 for the year ended December 31, 1999,
as compared to $117,000 for the year ended December 31, 1998. This was partially
offset by a decrease in fees and  services  charges  from  $573,000 for the year
ended  December 31, 1999, to $500,000 for the year ended  December 31, 1999, due
primarily to a decrease in loan originations.

Non-Interest Expense

         Non-interest  expense was $4.7 million for the year ended  December 31,
1999,  and $4.1 million for the year ended  December  31, 1998.  The increase in
non-interest  expense was primarily  attributable  to costs  associated with the
addition of a fourth full service branch office in December, 1998.


                                        7

<PAGE>



Provision for Income Taxes

         The  Company's  federal  and state  income tax expense  increased  from
$957,000 for the year ended December 31, 1998 to $1.1 million for the year ended
December  31, 1999.  The  $103,000  increase in income tax was the result of the
increase in net income before income taxes of $287,000.


                       COMPARISON OF OPERATING RESULTS FOR
                   THE YEARS ENDED DECEMBER 31, 1998 AND 1997

General

         Consolidated  net income of the Company for the year ended December 31,
1998 was $1.6 million,  as compared to $944,000 for the year ended  December 31,
1997.  The $610,000  increase in net income was  primarily  attributable  to the
$613,000   after-tax  accrual  to  establish  the  Hemlock  Federal   Charitable
Foundation, recorded in March, 1997.

Net Interest Income

         Net  interest  income  after  provisions  for loan losses  increased by
$347,000 to $5.9 million for the year ending  December 31, 1998,  as compared to
$5.5  million for the year ending  December 31,  1997.  The net interest  margin
decreased to 3.17% for the year ended  December 31, 1998 from 3.53% for the year
ended  December  31,  1997,  primarily as a result of a decrease in the yield of
interest  earning  assets for the year ended  December 31, 1998, as reflected in
the  decrease in the interest  rate spread to 2.58% for the year ended  December
31, 1998 from 2.85% for the year ended December 31, 1997.

Interest Income

         Interest  income for the year ended December 31, 1998 was $12.7 million
compared to $11.3 million for the year ended  December 31, 1997. The increase in
interest  income was  primarily a result of an increase of $28.1  million in the
average balance of interest-earning  assets as a result of the increases in both
loans receivable and securities held-to-maturity for the year ended December 31,
1998. The average  balance of loans  receivable  increased $28.1 million and the
average balance of securities increased $2.1 million.  This was partially offset
by a decrease in the average yield on  interest-earning  assets to 6.85% for the
year ended  December  31, 1998 from 7.15% for the year ended  December 31, 1997.
The  yield on loans  and  mortgage-backed  securities  decreased  as a result of
declining market rates.

Interest Expense

         Interest  expense for the year ended December 31, 1998 was $6.8 million
compared to $5.7 million for the year ended  December 31, 1997. The increase was
primarily  the result of a $27.0  million  increase  in the  average  balance of
interest-bearing  liabilities  resulting from  increased  deposits as well as an
increase in advances from the Federal Home Loan Bank of Chicago.

                                        8

<PAGE>



Provisions for Loan Losses

         The  Company  recorded a  provision  for loan losses of $21,000 for the
year ended December 31, 1998, which offset chargeoffs of $21,000 during the same
period.  The total  allowance  for loan losses was  $775,000 as of December  31,
1998.  The  allowance  was  equal  to  0.78%  of  total  loans  and  623.40%  of
non-performing  loans as of December  31, 1998.  The Company had  non-performing
assets  totaling  $124,000 as of December 31, 1998.  The amount of the provision
and allowance for losses on loans is influenced by current economic  conditions,
actual  loss  experience,  industry  trends and other  factors,  such as adverse
economic  conditions,  including  declining real estate values, in the Company's
market area. In addition,  various regulatory  agencies,  as an integral part of
the examination process,  periodically review the Company's allowance for losses
on loans. While management  believes the existing level of reserves is adequate,
future adjustments to the allowance may be necessary due to economic, operating,
regulatory, and other conditions that may be beyond the Company's control.

Non-Interest Income

         Non-interest  income increased  $170,000 to $709,000 for the year ended
December  31,  1998.  The  increase  was  primarily  attributable  to a $156,000
increase in fees and charges  resulting from an increase in fees associated with
lending.

Non-Interest Expense

         Non-interest  expense was $4.1 million for the year ended  December 31,
1998,  and $4.5  million for the year ended  December  31,  1997.  The  $400,000
decrease was due to the $1.0 million  accrual to establish  the Hemlock  Federal
Charitable  Foundation  in 1997.  This was offset by an  increase of $373,000 in
compensation  expense in 1998 due to the  establishment  of the  Recognition and
Retention Plan as well as the hiring of additional personnel for the new branch.

Provision for Income Taxes

         The  Company's  federal  and state  income tax expense  increased  from
$626,000  for the year ended  December  31, 1997 to $957,000  for the year ended
December  31, 1998.  The  $331,000  increase in income tax was the result of the
increase in net income before income taxes of $941,000.

                                        9

<PAGE>




         The following  table  presents,  for the periods  indicated,  the total
dollar amount of interest  income from average  interest-earning  assets and the
resultant  yields,  as well as the interest expense on average  interest-bearing
liabilities,  expressed both in dollars and rates. No tax equivalent adjustments
were made. All average balances are monthly average balances. Non-accruing loans
have been included in the table as loans carrying a zero yield.

<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
                                 ---------------------------------------------------------------------------------------
                                               1999                       1998                          1997
                                 ---------------------------- ----------------------------- ----------------------------
                                    Average  Interest           Average  Interest             Average   Interest
                                  Outstanding Earned/  Yield/ Outstanding Earned/   Yield/  Outstanding  Earned/  Yield/
                                    Balance    Paid     Rate    Balance    Paid      Rate     Balance     Paid     Rate
                                 ------------ --------- ----- ----------- -------- -------- ---------- --------- -------

<S>                                <C>        <C>       <C>    <C>       <C>        <C>     <C>        <C>        <C>
Loans receivable(1).............     $112,631  $ 8,086   7.18%  $ 88,595  $ 6,535    7.38%   $ 60,541   $ 4,829    7.98%
Mortgage-backed securities......       73,706    4,840   6.57     70,005    4,538    6.48      63,597     4,295    6.75
Securities(2)...................       11,307      748   6.62     14,465      919    6.35      18,759     1,210    6.45
Interest-bearing deposits.......        4,948      208   4.20     11,286      632    5.60      14,082       884    6.28
Other earning assets(3).........        2,628      192   7.30      1,768      126    7.12         986        75    7.61
                                     --------  -------          --------  -------            --------   -------
   Total earning assets(1)......      205,220   14,074   6.86    186,118   12,750    6.85     157,965    11,293    7.15
                                               -------                    -------                       -------
Non-interest earning assets.....        7,652                      6,833                        5,151
                                     --------                   --------                     --------
   Total assets.................     $212,872                   $192,951                     $163,196
                                     ========                   ========                     ========

Interest-Earning Liabilities:
Savings deposits................     $ 50,339    1,429   2.84   $ 46,460    1,333    2.87    $ 45,741     1,467    3.21
Demand and NOW..................       17,696      297   1.68     15,663      319    2.04      14,211       337    2.37
MMDA............................        6,888      217   3.15      5,712      180    3.15       5,024       159    3.16
Certificates of Deposit.........       73,414    3,666   4.99     67,467    3,659    5.42      64,765     3,541    5.47
Borrowings......................       34,269    1,688   4.93     24,923    1,351    5.42       3,462       219    6.32
                                     --------  -------          --------  -------            --------   -------
   Total interest-bearing
       liabilities..............      182,606    7,297   4.00%   160,225    6,842    4.27     133,203     5,723    4.30
                                               -------                    -------                       -------

Non-interest-bearing liabilities        3,746                      3,592                        3,091
                                     --------                   --------                     --------
   Total liabilities............      186,352                    163,817                      136,312

Equity..........................       26,520                     29,134                       26,834
                                     --------                   --------                     --------
   Total liabilities and equity.     $212,872                   $192,951                     $163,146
                                     ========                   ========                     ========

Net interest/spread.............               $ 6,777   2.86%            $ 5,908    2.58%               $5,570    2.85%
                                               =======   ====             =======    =====               ======    ====
Margin..........................                         3.30%                       3.17%                         3.53%
                                                         ====                        =====                         ====
Assets to liabilities........         112.38%                    116.16%                      118.59%
                                      ======                     ======                       ======
</TABLE>

(1)  Calculated net of deferred loan fees, loan discounts,  loans in process and
     loss reserves.
(2)  Calculated based on amortized cost.
(3)  Includes FHLMC, FHLB stock and equity securities, at cost.

                                       10

<PAGE>



         The  following  table  presents the weighted  average  yields earned on
loans,  securities and other  interest-earning  assets, and the weighted average
rates paid on savings  deposits and the  resultant  interest rate spreads at the
date indicated. Weighted average balances are based on monthly balances.

                                                   At December 31,
                                       ---------------------------------------
                                        1999     1998    1997    1996    1995
                                       ------- -------- ------- ------- ------

Weighted average yield on:
 Loans receivable(1)..................  7.25%    7.27%   7.63%   7.81%   8.06%
 Mortgage-backed securities(2)........  6.96     6.32    6.99    7.28    8.22
 Securities(2)........................  6.73     6.35    5.22    7.60    5.10
 Other interest-earning assets........  4.37     4.81    5.77    6.16    4.26
   Combined weighted average yield
        on interest-earning assets....  6.97     6.75    7.27    7.36    7.45

Weighted average rate paid on:
 Passbook Savings ....................  2.85     2.94    2.94    3.14    3.15
 NOW..................................  1.70     2.02    2.22    2.52    2.52
 MMDA.................................  3.20     3.20    3.20    3.20    3.14
 Certificate accounts.................  4.98     4.76    5.62    5.47    5.57
 Borrowings...........................  5.22     4.91    5.86    9.72    9.72
    Combined weighted average rate
        paid on interest-bearing
        liabilities...................  4.11     4.17    4.35    4.29    4.34

Spread................................  2.86%    2.58%   2.92%   3.07%   3.11%

(1)  Excluding amortization of deferred loan fees.
(2)  Excluding premium amortization and discount accretion.

                                       11

<PAGE>

         The  following  schedule  presents  the  dollar  amount of  changes  in
interest income and interest  expense for major  components of  interest-earning
assets and interest-bearing  liabilities.  It distinguishes  between the changes
related to outstanding  balances and that due to the changes in interest  rates.
For each category of interest-earning  assets and interest-bearing  liabilities,
information is provided on changes  attributable to (i) changes in volume (i.e.,
changes  in  volume  multiplied  by old rate) and (ii)  changes  in rate  (i.e.,
changes in rate multiplied by old volume).  For purposes of this table,  changes
attributable  to both rate and volume,  which  cannot be  segregated,  have been
allocated  proportionately  to the  change  due to volume  and the change due to
rate.
<TABLE>
<CAPTION>


                                                   Year Ended December 31,             Year Ended December 31,
                                                        1998 vs. 1999                       1997 vs. 1998
                                                ---------------------------------   ---------------------------------
                                                     Increase                            Increase
                                                     (Decrease)                          (Decrease)
                                                       Due to             Total              Due to            Total
                                                -------------------     Increase    --------------------    Increase
                                                  Volume     Rate      (Decrease)    Volume      Rate      (Decrease)
                                                --------   --------     --------    --------    --------     --------
<S>                                               <C>       <C>           <C>         <C>        <C>         <C>
Interest-earning assets:
 Loans receivable..........................       $1,730    $  (179)      $1,551      $2,093     $ (387)     $  1,706
 Mortgage-backed securities................          212          60         302         420       (177)          243
 Securities...............................         (138)        (17)       (155)       (273)        (18)        (291)
Interest-bearing deposits..................        (296)       (128)       (424)       (163)        (89)        (252)
Other earning assets.......................            7          43          50          56         (5)           51
                                                --------   --------     --------    --------    --------     --------
   Total interest-earning assets...........        1,545       (221)       1,324       2,133       (676)        1,457

Interest-bearing liabilities:
 Passbook savings..........................          110        (14)          96          23       (157)        (134)
 NOW.......................................           38        (60)        (22)          32        (50)         (18)
 MMDA......................................           37         ---          37          22         (1)           21
 Certificate of Deposit....................          309       (302)           7         147        (29)          118
 Borrowings................................          469       (132)         337       1,168        (36)        1,132
                                                --------   --------     --------    --------    --------     --------

   Total interest-bearing liabilities......          963       (508)         455       1,392       (273)        1,119
                                                --------   --------     --------    --------    --------     --------

Net interest/spread........................     $    582     $   287     $   869    $    741      $(404)     $    338
                                                ========     =======     =======    ========      ======     ========

</TABLE>


                                                        12

<PAGE>



Quantitative and Qualitative Disclosures About Market Risk

         Asset/Liability  Management.  In an attempt to manage its  exposure  to
changes in interest rates, management monitors the Company's interest rate risk.
The Board of Directors  reviews at least  quarterly the Company's  interest rate
risk  position  and  profitability.  The Board of  Directors  also  reviews  the
Company's portfolio,  formulates  investment  strategies and oversees the timing
and  implementation  of  transactions  to  assure  attainment  of the  Company's
objectives in the most  effective  manner.  In addition,  the Board  anticipates
reviewing on a quarterly basis the Company's asset/liability position, including
simulations  of the effect on the  Company's  capital of various  interest  rate
scenarios.

         In managing its  asset/liability  mix,  the  Company,  depending on the
relationship  between long- and short-term interest rates, market conditions and
consumer  preference,  at times  places more  emphasis on managing  net interest
margin than on better  matching the interest rate  sensitivity of its assets and
liabilities  in an effort to enhance net interest  income.  Management  believes
that the increased net interest income resulting from a mismatch in the maturity
of its asset and liability portfolios can, during periods of declining or stable
interest rates, provide high enough returns to justify the increased exposure to
sudden and unexpected increases in interest rates.

         The  Company has taken a variety of steps to manage its  interest  rate
risk  level.   First,   the  Company   maintains  a  significant   portfolio  of
mortgage-backed  securities having adjustable rates and/or short or intermediate
terms to maturity. At December 31, 1999, $46.4 million or 20.3% of the Company's
assets consisted of mortgage-backed  and related securities having adjustable or
floating  interest  rates or  anticipated  average  lives of five years or less.
Second,  the Company  focuses  its  lending  activities  on the  origination  of
adjustable rate mortgage loans ("ARMs"), seven year balloon loans and fixed rate
loans with terms to maturity of 15 years or less. Third, the Company maintains a
portfolio of securities  and liquid assets with weighted  average lives of three
years or less. At December 31, 1999, the Company had $16.8 million of securities
with a remaining  average life of three years or less.  Finally,  a  substantial
proportion of the  Company's  liabilities  consists of NOW and passbook  savings
accounts  which are  believed by  management  to be somewhat  less  sensitive to
interest rate changes than certificate accounts.

         Net  Portfolio  Value.  Management  utilizes  the net  portfolio  value
("NPV")  analysis to quantify  interest  rate risk.  In essence,  this  approach
calculates the  difference  between the present value of  liabilities,  expected
cash flows from assets and cash flows from off balance  sheet  contracts.  Under
OTS regulations,  an  institution's  "normal" level of interest rate risk in the
event of an immediate and sustained 200 basis point change in interest  rates is
a decrease in the institution's NPV in an amount not exceeding 2% of the present
value of its  assets.  Pursuant to this  regulation,  thrift  institutions  with
greater than "normal"  interest  rate exposure must take a deduction  from their
total capital available to meet their risk-based capital requirement. The amount
of that  deduction is one-half of the difference  between (a) the  institution's
actual  calculated  exposure to the 200 basis point  interest  rate  increase or
decrease  (whichever  results in the greater pro forma  decrease in NPV) and (b)
its "normal"  level of exposure  which is 2% of the present value of its assets.
Savings institutions, however, with less than $300 million in assets and a total
capital ratio in excess of 12%, will be exempt from this requirement  unless the
OTS determines otherwise. The OTS has postponed

                                       13

<PAGE>



the  implementation of the rule until further notice.  Based upon its asset size
and capital level at December 31, 1999,  the Bank would qualify for an exemption
from this rule; however,  management believes that the Bank would be required to
make a deduction from capital of $507,000 if it were subject to this rule.

         The  following  table sets forth,  at December 31, 1999, an analysis of
the  Bank's  interest  rate risk as  measured  by the  estimated  changes in NPV
resulting from  instantaneous  and sustained  parallel shifts in the yield curve
(+/-300 basis  points,  measured in 100 basis point  increments)  as compared to
tolerance  limits  under the Bank's  current  policy.


    Change in             Net Portfolio Value      NPV as % fPV of Assets
  Interest Rates   ------------------------------- ----------------------
  (Basis Points)   $ Amount   $ Change   % Change   NPV Ratio    Change
 ----------------  ---------  ---------  ---------  ---------- ----------
                                (Dollars in Thousands)

        +300       $14,800    $(10,580)     (42)%       7.09%    (415)bp
       +200         18,827      (6,553)     (26)%       8.77%    (247)bp
       +100         22,504      (2,876)     (11)%      10.20%    (104)bp
        ---         25,380                             11.24%
       -100         27,646       2,266        9%       12.00%      75bp
       -200         29,135       3,755       15%       12.42%     118bp
       -300         30,075       4,695       19%       12.62%     137bp

         Certain  assumptions  utilized in assessing  the interest  rate risk of
thrift  institutions  were  employed in preparing  the  preceding  table.  These
assumptions  relate to interest  rates,  loan  prepayment  rates,  deposit decay
rates,  and the market values of certain assets under the various  interest rate
scenarios.  It was also  assumed  that  delinquency  rates  will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities  would perform as set
forth above.  In addition,  a change in U.S.  Treasury  rates in the  designated
amounts  accompanied  by a change in the shape of the Treasury yield curve would
cause significantly different changes to the NPV than indicated above.

Liquidity and Capital Resources

         The Company's  primary  sources of funds are deposits and proceeds from
principal and interest payments on loans and mortgage-backed  securities.  While
maturities and scheduled  amortization  of loans and securities are  predictable
sources of funds,  deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition.  Hemlock Federal
generally  manages the pricing of its  deposits to be  competitive  and increase
core deposit relationships.

         Federal  regulations require Hemlock Federal to maintain minimum levels
of liquid  assets.  The required  percentage  has varied from time to time based
upon economic conditions and savings

                                       14

<PAGE>



flows and is currently 4% of net  withdrawable  savings  deposits and borrowings
payable on demand or in one year or less during the  preceding  calendar  month.
Liquid assets for purposes of this ratio include  cash,  certain time  deposits,
U.S.   Government,   government  agency  and  corporate   securities  and  other
obligations  generally  having  remaining  maturities  of less than five  years.
Hemlock Federal has  historically  maintained its liquidity ratio for regulatory
purposes at levels in excess of those  required.  At December 31, 1999,  Hemlock
Federal's liquidity ratio for regulatory purposes was 13.6%.

         The   Company's   cash   flows   are   comprised   of   three   primary
classifications:  cash flows from operating activities, investing activities and
financing  activities.  Cash flows  provided by operating  activities  were $2.6
million and $1.8 million for the years ended  December 31, 1999 and December 31,
1998,  respectively.  Net cash from investing  activities consisted primarily of
proceeds from  maturities and  repayments of securities,  offset by purchases of
securities and loan originations.  Net cash from financing  activities consisted
primarily of borrowings from the FHLB and deposit  growth,  offset by repayments
of FHLB advances and purchases of treasury stock in 1999 and 1998.

         The Company's most liquid assets are cash and  short-term  investments.
The levels of these assets are dependent on the Company's operating,  financing,
lending and investing  activities during any given period. At December 31, 1999,
cash and  short-term  investments  totaled $9.8  million.  The Company has other
sources of liquidity if a need for additional funds arises, including securities
maturing  within  one year and the  repayment  of loans.  The  Company  may also
utilize the sale of  securities  available-for-sale  and Federal  Home Loan Bank
advances as a source of funds.

         At December 31, 1999, the Bank had outstanding commitments to originate
loans of $1.6  million of which $1.4  million had fixed  interest  rates.  These
loans are to be secured by  properties  located  in its  market  area.  The Bank
anticipates  that it will have  sufficient  funds  available to meet its current
loan  commitments.  Certificates of deposit which are scheduled to mature in one
year or less from December 31, 1999 totaled $57.7 million.  Management  believes
that a significant portion of such deposits will remain with the Bank.

         Liquidity  management is both a daily and long-term  responsibility  of
management.  Hemlock Federal adjusts its investments in liquid assets based upon
management's  assessment  of (i) expected  loan demand,  (ii)  expected  deposit
flows,  (iii) yields  available  on  interest-earning  deposits  and  investment
securities,  and (iv) the objectives of its asset/liability  management program.
Excess liquidity is invested  generally in  interest-earning  overnight deposits
and short- and  intermediate-term  U.S.  Government and agency  obligations  and
mortgage-backed  securities of short duration. If Hemlock Federal requires funds
beyond its ability to generate  them  internally,  it has  additional  borrowing
capacity with the FHLB of Chicago.

         Hemlock Federal is subject to various regulatory  capital  requirements
imposed by the OTS. At December 31, 1999, Hemlock Federal was in compliance with
all applicable capital  requirements on a fully phased-in basis. See "Regulation
- Regulatory  Capital  Requirements"  and Note 10 of the Notes to the  Financial
Statements.



                                       15

<PAGE>



Regulatory Capital

         Federally  insured  savings  institutions  are  required  to maintain a
minimum  level  of  regulatory  capital.  OTS  regulations  established  capital
requirements,  including a tangible  capital  requirement,  a leverage  (or core
capital) requirement and a risk-based capital requirement  applicable to savings
institutions.  These capital  requirements must be generally as stringent as the
comparable  capital  requirements for national banks. The OTS is also authorized
to  impose  capital  requirements  in excess of these  standards  on  individual
institutions on a case-by-case basis.

         At December  31,  1999,  the Bank  continued  to exceed all  regulatory
capital  requirements with tangible and core capital of $21.8 million, or 9.64%,
of adjusted  total  assets,  which were  approximately  $12.7  million and $18.4
million above the minimum  requirements of 4.0% and 1.5%,  respectively,  of the
adjusted total assets in effect on that date. On December 31, 1999, the Bank had
risk-based capital of $23.1 million,  or 24.1% of risk-weighted  assets of $95.5
million.  This amount was $15.5 million above the 8.0%  requirement in effect on
that date. Under regulatory guidelines, the Bank was considered well-capitalized
at December 31, 1999.

Impact of Inflation

         The financial  statements and related data  presented  herein have been
prepared in accordance  with generally  accepted  accounting  principles,  which
require  the  measurement  of  financial   position  and  operating  results  in
historical dollars without  considering changes in the relative purchasing power
of money over time due to  inflation.  The primary  impact of  inflation  on the
operations of the Company is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution  are  monetary  in nature.  As a result,  change in  interest  rates
generally  have  a  more  significant   impact  on  a  financial   institution's
performance  than does inflation.  Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services. In the
current  interest  rate  environment,  liquidity  and maturity  structure of the
Company's  assets and  liabilities are critical to the maintenance of acceptable
performance levels.

Impact of New Accounting Standards

         Statement  of Financial  Accounting  Standards  (Statement)  No. 133 on
derivatives will, in 2001,  require all derivatives to be recorded at fair value
in the balance sheet,  with changes in fair value charged or credited to income.
If  derivatives  are  documented  and  effective  as  hedges,  the change in the
derivative fair value will be offset by an equal change in the fair value of the
hedged item. Under the new standard,  securities  held-to-maturity can no longer
be hedged, except for changes in the issuer's creditworthiness.  Therefore, upon
adoption of Statement No. 133,  companies will have another  one-time  window of
opportunity  to  reclassify  held-to-maturity  securities  to either  trading or
available-for-sale,  provided  certain  criteria are met. This  Statement may be
adopted  early at the start of a  calendar  quarter.  Since the  Company  has no
significant derivative instruments or hedging activities,  adoption of Statement
No. 133 is not  expected to have a material  impact on the  Company's  financial
statements.


                                       16

<PAGE>


Year 2000

         The Company successfully completed its Year 2000 changeover without any
problems or  disruptions  to operations.  While  management  believes that it is
unlikely,  there can be no  assurance  that  problems  not yet  apparent  to the
Company or its vendors will not arise as the year  progresses.  Management  will
continue to monitor all business processes continue to function properly.  Total
expenditures  on the Year 2000 project  through  December 31, 1999 were $18,000,
which is consistent with the amount that management estimated for the project.

Safe Harbor Statement

         This report contains  forward-looking  statements within the meaning of
Section  27A of the  Securities  Act of 1933,  as amended and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.   The  Company  intends  such
forward-looking  statements  to be covered  by the safe  harbor  provisions  for
forward-looking  statements  contained in the Private  Securities  Reform Act of
1995,  and is  including  this  statement  for  purposes  of these  safe  harbor
provisions.  Forward-looking statements,  which are based on certain assumptions
and describe  future plans,  strategies  and  expectations  of the Company,  are
generally  identifiable by the use of the words "believe",  "expect",  "intend",
"anticipate",  "estimate",  "project"  or  similar  expressions.  The  Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain.  Factors which could have a material adverse affect on the
operations and future prospects of the Company and the subsidiaries include, but
are not limited to, changes in: interest  rates,  general  economic  conditions,
legislative/regulatory  changes,  monetary  and  fiscal  policies  of  the  U.S.
Government,  including  policies of the U.S.  Treasury  and the Federal  Reserve
Board, the quality or composition of the loan or investment  portfolios,  demand
for loan products, deposit flows, competition,  demand for financial services in
the Company's  market area and accounting  principles,  policies and guidelines.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such  statements.  Further
information  concerning  the  Company  and its  business,  including  additional
factors  that  could  materially  affect the  Company's  financial  results,  is
included in the Company's filings with the Securities and Exchange Commission.











                                       17

<PAGE>










                         REPORT OF INDEPENDENT AUDITORS



Board of Directors
Hemlock Federal Financial Corporation
Oak Forest, Illinois


We have audited the accompanying  consolidated statements of financial condition
of Hemlock Federal Financial Corporation and Subsidiary, as of December 31, 1999
and  1998,  and the  related  consolidated  statements  of  income,  changes  in
stockholders'  equity,  and cash flows for each of the three years in the period
ended December 31, 1999. These financial  statements are the  responsibility  of
the  Corporation's  management.  Our  responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Hemlock  Federal
Financial  Corporation  and Subsidiary as of December 31, 1999 and 1998, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1999,  in  conformity  with  generally  accepted
accounting principles.


                                         Crowe, Chizek and Company LLP
Oak Brook, Illinois
January 21, 2000


                                                                             18.

<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           December 31, 1999 and 1998
                             (Dollars in thousands)
--------------------------------------------------------------------------------
                                                              1999      1998
                                                            --------  --------
ASSETS
Cash and due from banks                                     $  5,034  $  2,359
Interest-bearing deposits in financial institutions            4,779     3,677
                                                            --------  --------
     Cash and cash equivalents                                 9,813     6,036

Securities available-for-sale                                 32,982    30,513
Securities held-to-maturity (fair value:  1999 - $60,029;
  1998 - $59,527)                                             61,126    58,617
Loans receivable, net                                        116,998   101,977
Federal Home Loan Bank stock, at cost                          2,325     1,850
Accrued interest receivable                                    1,199       932
Premises and equipment, net                                    3,538     3,567
Prepaid expenses and other assets                                476       932
                                                            --------  --------
     Total assets                                           $228,457  $204,424
                                                            ========  ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits                                                    $150,576  $143,149
Advances from Federal Home Loan Bank                          49,500    31,000
Advance payments by borrowers for taxes and insurance          1,133     1,075
Accrued interest payable and other liabilities                 1,527     1,994
                                                            --------  --------
     Total liabilities                                       202,736   177,218

Stockholders' equity
     Common stock, $.01 par value; 2,500,000 shares
       authorized; 2,076,325 shares issued                        21        21
     Additional paid-in capital                               20,270    20,208
     Unearned ESOP shares                                     (1,163)   (1,329)
     Unearned stock awards                                      (859)   (1,120)
     Treasury stock, (1999 - 457,762 shares;
          1998 - 287,384 shares)                              (7,227)   (4,863)
     Retained earnings, substantially restricted              14,235    13,207
     Accumulated other comprehensive income                      444     1,082
                                                            --------  --------
         Total equity                                         25,721    27,206
                                                            --------  --------

              Total liabilities and stockholders' equity    $228,457  $204,424
                                                            ========  ========

--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.

                                                                             19.

<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                 Years ended December 31, 1999, 1998, and 1997
                  (Dollars in thousands, except per share data)
--------------------------------------------------------------------------------
                                                        1999     1998     1997
                                                      -------  -------  -------
Interest income
    Loans                                             $ 8,086  $ 6,535  $ 4,829
    Mortgage-backed and other securities                4,840    4,519    4,295
    Securities                                            765      976    1,210
    Other interest-earning assets                         383      720      959
                                                      -------  -------  -------
       Total interest income                           14,074   12,750   11,293

Interest expense
    Deposits                                            5,609    5,491    5,504
    Other borrowings                                    1,688    1,351      219
                                                      -------  -------  -------
       Total interest expense                           7,297    6,842    5,723
                                                      -------  -------  -------


Net interest income                                     6,777    5,908    5,570

Provision for loan losses                                  20       21       30
                                                      -------  -------  -------


Net interest income after provision for loan losses     6,757    5,887    5,540

Noninterest income
    Fees and service charges                              500      573      417
    Rental income                                          52       40       40
    Gain (loss) on sale of securities                      63       19       (3)
    Miscellaneous income                                   96       77       85
                                                      -------  -------  -------
       Total noninterest income                           711      709      539

Noninterest expense
    Compensation and employee benefits                  2,418    2,237    1,864
    Occupancy and equipment expenses                      920      625      625
    Data processing                                       264      240      235
    Federal insurance premiums                             86       81       71
    Advertising and promotion                             177      148       80
    Contributions                                          12        7    1,007
    Other                                                 793      747      627
                                                      -------  -------  -------
       Total noninterest expense                        4,670    4,085    4,509
                                                      -------  -------  -------


Income before provision for income taxes                2,798    2,511    1,570

Provision for income taxes                              1,058      957      626
                                                      -------  -------  -------


Net income                                            $ 1,740  $ 1,554  $   944
                                                      =======  =======  =======

Earnings per share
    Basic and diluted                                 $  1.16  $   .88  $   .40
                                                      =======  =======  =======


--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.

                                                                             20.

<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  Years ended December 31, 1999, 1998, and 1997
                  (Dollars in thousands, except per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                         Accumulated
                                        Additional Unearned Unearned                        Other         Total
                                 Common   Paid-in    ESOP     Stock   Treasury  Retained Comprehensive Stockholders' Comprehensive
                                  Stock   Capital   Shares   Awards     Stock   Earnings   Income        Equity         Income
                                  -----   -------   ------   ------     -----   --------   ------        ------         ------

<S>                               <C>    <C>       <C>      <C>        <C>      <C>         <C>         <C>          <C>
Balance at December 31, 1996      $   -  $     -   $     -  $     -    $   -    $11,508     $607        $12,115

Issuance of stock and restricted
 stock awards in connection
 with conversion                     21   20,016    (1,661)  (1,433)       -          -        -         16,943
ESOP shares earned                    -       89       166        -        -          -        -            255
Stock awards earned                   -        -         -       51        -          -        -             51
Cash dividends ($.12 per share)       -        -         -        -        -       (249)       -           (249)
Comprehensive income:
 Net income                           -        -         -        -        -        944        -            944       $   944
 Change in unrealized gain on
   securities available-for-sale,
   net of reclassification and
   tax effects                        -        -         -        -        -          -      368            368           368
                                   ----  -------   -------  -------   ------    -------      ------      ------       -------
 Total comprehensive
  income                                                                                                              $ 1,312
                                                                                                                      =======

Balance at December 31, 1997         21   20,105    (1,495)  (1,382)       -     12,203      975         30,427



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

                                   (Continued)

                                                                             21.


<PAGE>

              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  Years ended December 31, 1999, 1998, and 1997
                  (Dollars in thousands, except per share data)
--------------------------------------------------------------------------------

                                                                                         Accumulated
                                        Additional Unearned Unearned                        Other         Total
                                 Common   Paid-in    ESOP     Stock   Treasury  Retained Comprehensive Stockholders' Comprehensive
                                  Stock   Capital   Shares   Awards     Stock   Earnings   Income        Equity         Income
                                  -----   -------   ------   ------     -----   --------   ------        ------         ------

<S>                               <C>    <C>       <C>      <C>      <C>      <C>         <C>         <C>          <C>

Balance at December 31, 1997      $  21  $ 20,105  $(1,495) $(1,382)   $    -   $12,203     $ 975        $30,427

ESOP shares earned                    -       103      166        -         -         -         -            269
Stock awards earned                   -         -        -      262         -         -         -            262
Cash dividends ($.30 per share)       -         -        -        -         -      (550)        -           (550)
Purchase of treasury stock            -         -        -        -    (4,863)        -         -         (4,863)
Comprehensive income:
  Net income                          -         -        -        -         -     1,554         -          1,554       $ 1,554
  Change in unrealized gain
  on securities available-
  for-sale, net of reclass-
  ification and tax effects           -        -         -        -        -          -         107          107           107
                                   ----  -------   -------  -------  -------    -------      ------      -------       -------
       Total comprehensive
         income                                                                                                        $ 1,661
                                                                                                                       =======

Balance at December
   31, 1998                          21   20,208    (1,329)  (1,120)  (4,863)    13,207       1,082       27,206

ESOP shares earned                    -       62       166        -        -          -           -          228
Stock awards earned                   -        -         -      261        -          -           -          261
Cash dividends ($.38 per share)       -        -         -        -        -       (712)          -         (712)
Purchase of treasury stock            -        -         -        -   (2,364)         -           -       (2,364)
Comprehensive income:
  Net income                          -        -         -        -        -      1,740           -        1,740       $ 1,740
  Change in unrealized gain
  on securities available-
  for-sale, net of reclass-
  ification and tax effects           -        -         -        -        -          -        (638)        (638)         (638)
                                   ----  -------   -------  -------  -------    -------      ------      -------       -------
       Total comprehensive
         income                                                                                                        $ 1,102
                                                                                                                       =======

Balance at December 31, 1999       $ 21  $20,270   $(1,163) $  (859) $(7,227)   $14,235      $  444      $25,721
                                   ====  =======   =======  =======  =======    =======      ======      =======

</TABLE>

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

          See accompanying notes to consolidated financial statements.

                                                                             22.

<PAGE>

              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Years ended December 31, 1999, 1998, and 1997
                             (Dollars in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                    1999      1998      1997
                                                                   -------   -------   -------
<S>                                                                <C>       <C>       <C>
Cash flows from operating activities
 Net income                                                        $ 1,740   $ 1,554   $   944
 Adjustments to reconcile net income to net cash provided
   by operating activities
    Depreciation                                                       219       123       117
    Amortization of premiums and discounts on securities, net          223       375       268
    Net (gain) loss on sale of securities                              (63)      (19)        3
    Provision for loan losses                                           20        21        30
    Change in deferred income taxes                                    183        59      (320)
    ESOP compensation expense                                          228       269       255
    Stock awards expense                                               261       262        51
    Net change in accrued interest receivable                         (267)      (28)     (116)
    Net change in accrued interest payable and other liabilities       (43)     (247)      960
    Increase in net deferred loan costs                               (124)     (122)     (101)
    Net change in other assets                                         204      (402)      361
                                                                   -------   -------   -------
       Net cash provided by operating activities                     2,581     1,845     2,452

Cash flows from investing activities
  Purchase of securities available-for-sale                        (15,227)  (11,197)  (12,051)
  Proceeds from sales of securities available-for-sale               2,839     3,162       596
  Principal payments on mortgage-backed securities
    and collateralized mortgage obligations                         24,766    32,017    21,030
  Purchase of  securities held-to-maturity                         (23,958)  (56,629)  (39,258)
  Proceeds from maturities and calls of securities                   5,395    24,459    21,050
  Purchase of FHLB stock                                              (475)     (863)      (86)
  Purchase of loans                                                      -         -   (12,865)
  Net increase in loans                                            (14,917)  (25,717)   (9,687)
  Property and equipment expenditures                                 (190)   (1,591)   (1,173)
                                                                   -------   -------   -------
     Net cash used in investing activities                         (21,767)  (36,359)  (32,444)

Cash flows from financing activities
  Net change in deposits                                             7,427    12,191      (285)
  Increase in advance payments by borrowers for taxes
    and insurance                                                       58       271       123
  Borrowings from FHLB                                              35,500    42,000    11,000
  Repayments of FHLB advances                                      (17,000)  (22,000)   (1,500)
  Issuance of stock                                                      -         -    18,376
  Purchase of treasury stock                                        (2,364)   (6,245)        -
  Dividends paid                                                      (658)     (550)     (249)
                                                                   -------   -------   -------
     Net cash provided by financing activities                      22,963    25,667    27,465
                                                                   -------   -------   -------
</TABLE>

--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.

                                                                             23.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years ended December 31, 1999, 1998, and 1997
                             (Dollars in thousands)
--------------------------------------------------------------------------------

                                                      1999     1998      1997
                                                     ------  -------   -------
Net change in cash and cash equivalents              $3,777  $(8,847)  $(2,527)

Cash and cash equivalents at beginning of year        6,036   14,883    17,410
                                                     ------  -------   -------

Cash and cash equivalents at end of year             $9,813  $ 6,036   $14,883
                                                     ======  =======   =======

Supplemental disclosures of cash flow information
    Cash paid during the year for
       Interest                                      $7,213  $ 6,751   $ 5,683
       Income taxes                                     836      865       690







--------------------------------------------------------------------------------
          See accompanying notes to consolidated financial statements.

                                                                             24.


<PAGE>

              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  The accompanying consolidated financial statements
include the accounts of Hemlock Federal Financial  Corporation (the Corporation)
and its  wholly-owned  subsidiary,  Hemlock Federal Bank for Savings (the Bank).
All  significant  intercompany  transactions  and  balances  are  eliminated  in
consolidation.

Nature of Operations:  The only business of the  Corporation is the ownership of
the Bank. The Bank is a federally-chartered stock savings bank and member of the
Federal  Home Loan Bank  (FHLB)  system  which  maintains  insurance  on deposit
accounts  with the  Savings  Association  Insurance  Fund  (SAIF) of the Federal
Deposit  Insurance  Corporation.  The Bank is engaged in the  business of retail
banking,  with  operations  conducted  through its main office and two  branches
located in the Chicago metropolitan area.

Use of Estimates in the Preparation of Financial Statements:  The preparation of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
income and expenses  during the reporting  period.  Actual  results could differ
from those  estimates.  The  collectibility  of loans,  fair value of  financial
instruments, and status of contingencies are particularly subject to change.

Securities:  Securities are classified as held-to-maturity  when the Corporation
has the  positive  intent  and  ability to hold those  securities  to  maturity.
Accordingly,  they are stated at cost, adjusted for amortization of premiums and
accretion   of   discounts.    All   other    securities   are   classified   as
available-for-sale  since the Corporation may decide to sell those securities in
response to changes in market interest rates, liquidity needs, changes in yields
or alternative investments,  and for other reasons. These securities are carried
at fair  value with  unrealized  gains and losses  charged or  credited,  net of
income  taxes,  to a valuation  allowance  included as a separate  component  of
equity.  Realized gains and losses on disposition  are based on the net proceeds
and the adjusted  carrying  amounts of the securities  sold,  using the specific
identification method.

Loans Receivable: Loans receivable are stated at unpaid principal balances, less
the allowance for loan losses and deferred loan origination fees and discounts.

Allowance  for Loan  Losses:  Because  some loans may not be repaid in full,  an
allowance for loan losses is maintained. Increases to the allowance are recorded
by a provision for loan losses  charged to expense.  Estimating  the risk of the
loss and the amount of loss on any loan is necessarily subjective.  Accordingly,
the allowance is maintained  by  management  at a level  considered  adequate to
cover  losses  that are  currently  anticipated  based on past loss  experience,
general economic  conditions,  information  about specific  borrower  situations
including their

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             25.
<PAGE>

              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

financial  position and collateral values, and other factors and estimates which
are subject to change over time.  While  management  may  periodically  allocate
portions of the  allowance  for  specific  problem  loan  situations,  including
impaired  loans  discussed  below,  the whole  allowance  is  available  for any
charge-offs  that  occur.  Loans  are  charged  off in  whole  or in  part  when
management's estimate of the undiscounted cash flows from the loan are less than
the recorded  investment in the loan,  although  collection efforts continue and
future recoveries may occur.

The Corporation  measures  impaired loans based on the present value of expected
cash flows discounted at the loan's  effective  interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of collateral
if the loan is collateral dependent. Loans considered to be impaired are reduced
to the  present  value of  expected  future  cash  flows or to the fair value of
collateral,  by  allocating a portion of the  allowance  for loan losses to such
loans.  If these  allocations  cause the  allowance  for loan  losses to require
increase, such increase is reported as a provision for loan losses.

Smaller balance homogenous loans are defined as residential first mortgage loans
secured by one-to-four-family  residences,  residential  construction loans, and
share loans and are  evaluated  collectively  for  impairment.  Commercial  real
estate loans are evaluated  individually for impairment.  Normal loan evaluation
procedures, as described in the second preceding paragraph, are used to identify
loans which must be evaluated for impairment.  In general,  loans  classified as
doubtful or loss are considered  impaired while loans  classified as substandard
are individually evaluated for impairment. Depending on the relative size of the
credit relationship,  late or insufficient  payments of 30 to 90 days will cause
management to reevaluate the credit under its normal loan evaluation procedures.
While the factors which identify a credit for  consideration  for measurement of
impairment or nonaccrual are similar, the measurement  considerations  differ. A
loan is impaired when the economic  value  estimated to be received is less than
the  value  implied  in the  original  credit  agreement.  A loan is  placed  in
nonaccrual  when  payments  are more  than 90 days past due  unless  the loan is
adequately collateralized and in the process of collection.

Recognition  of Income on Loans:  Interest on real  estate and certain  consumer
loans is accrued  over the term of the loans  based upon the  principal  balance
outstanding.  Where serious doubt exists as to the collectibility of a loan, the
accrual of interest is  discontinued.  The carrying values of impaired loans are
periodically adjusted to reflect cash payments, revised estimates of future cash
flows,  and  increases  in the present  value of expected  cash flows due to the
passage of time.  Cash  payments  representing  interest  income are reported as
such.  Other cash payments are reported as reductions in carrying  value,  while
increases or decreases due to changes in estimates of future payments and due to
the  passage of time are  reported  as  adjustments  to the  provision  for loan
losses.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             26.

<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loan fees, net of direct loan origination costs, are deferred and amortized over
the contractual life of the loan as a yield adjustment.

Premises  and  Equipment:  Premises  and  equipment  are  stated  at  cost  less
accumulated  depreciation.  Depreciation  is  computed  using the  straight-line
method over the estimated useful lives of the respective premises and equipment.
Maintenance  and repairs are  charged to expense as  incurred  and  improvements
which extend the useful lives of assets are capitalized.

Income Taxes: The Corporation  records income tax expense based on the amount of
taxes due on its tax return, plus deferred taxes computed on the expected future
tax consequences of temporary  differences  between the carrying amounts and the
tax bases of assets and liabilities, using enacted tax rates.

Employee Stock Ownership Plan: The cost of shares issued to the ESOP but not yet
allocated to  participants is presented in the  consolidated  balance sheet as a
reduction of stockholders' equity. Compensation expense is recorded based on the
market price of the shares as they are  committed to be released for  allocation
to participant accounts. The difference between the market price and the cost of
shares committed to be released is recorded as an adjustment to paid-in capital.
Dividends on unallocated ESOP shares are reflected as either a reduction of debt
or dividends paid to the ESOP which are allocated to participants.

Shares are considered  outstanding  for earnings per share  calculations as they
are committed to be released; unallocated shares are not considered outstanding.

Earnings  Per Share:  Amounts  reported as earnings per share for the year ended
December 31, 1997 reflect earnings since March 31, 1997 (date of the conversion)
available  to common  stockholders  divided by the  weighted  average  number of
common shares outstanding since March 31, 1997.

Statement of Cash Flows: Cash and cash equivalents include cash on hand, amounts
due from banks,  and daily federal funds sold. The Corporation  reports net cash
flows for customer loan transactions and deposit transactions.

Comprehensive  Income:  Comprehensive  income  consists  of net income and other
comprehensive  income.  Other comprehensive income includes unrealized gains and
losses on securities  available-for-sale  which are also  recognized as separate
components of equity.

Reclassifications:  Certain  reclassifications  were  made  to  the  prior  year
financial statements to conform to the 1999 presentation.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             27.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 2 - SECURITIES

Securities consist of the following at:
                                                    December 31, 1999
                                         ------------------------------------
                                                   Gross      Gross
                                        Amortized Unrealized Unrealized Fair
                                           Cost     Gains   (Losses)    Value
                                         -------   ------   -------   -------
Securities available-for-sale
    U.S. government agencies             $ 1,000   $    -   $   (20)  $   980
    FHLMC stock                            2,521      949         -     3,470
    FHLMC certificates                     2,245       38         -     2,283
    FNMA certificates                      2,622       48         -     2,670
    Collateralized mortgage obligations   23,019       77      (301)   22,795
    Other equity securities                  847        4       (67)      784
                                         -------   ------   -------   -------

                                         $32,254   $1,116   $  (388)  $32,982
                                         =======   ======   =======   =======
Securities held-to-maturity
    U.S. government agencies             $15,811   $    1   $  (655)  $15,157
    GNMA certificates                     14,791       62      (206)   14,647
    FHLMC certificates                     9,260      140       (20)    9,380
    FNMA certificates                     14,396      142      (383)   14,155
    Collateralized mortgage obligations    6,868        3      (181)    6,690
                                         -------   ------   -------   -------

                                         $61,126   $  348   $(1,445)  $60,029
                                         =======   ======   =======   =======

                                                    December 31, 1998
                                         ------------------------------------
                                                   Gross      Gross
                                        Amortized Unrealized Unrealized Fair
                                           Cost     Gains   (Losses)    Value
                                         -------   ------   -------   -------
Securities available-for-sale
    U.S. government agencies             $ 1,804   $    7   $    (1)  $ 1,810
    FHLMC stock                               24    1,571         -     1,595
    FHLMC certificates                     3,318      116         -     3,434
    FNMA certificates                      4,015      104        (1)    4,118
    Collateralized mortgage obligations   19,050      160       (80)   19,130
    Other equity securities                  527        -      (101)      426
                                         -------   ------   -------   -------

                                         $28,738   $1,958   $  (183)  $30,513
                                         =======   ======   =======   =======
Securities held-to-maturity
    U.S. government agencies             $ 6,101   $    2   $     -   $ 6,103
    GNMA certificates                     19,186      316         -    19,502
    FHLMC certificates                     8,007      289         -     8,296
    FNMA certificates                     13,607      236       (11)   13,832
    Collateralized mortgage obligations   11,716       92       (14)   11,794
                                         -------   ------   -------   -------

                                         $58,617   $  935   $   (25)  $59,527
                                         =======   ======   =======   =======
--------------------------------------------------------------------------------
                                  (Continued)

                                                                             28.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 2 - SECURITIES (Continued)

The amortized cost and estimated market value of debt securities at December 31,
1999 by  contractual  maturity are shown below.  Expected  maturities may differ
from  contractual  maturities  because  borrowers  may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>

                                            Held-to-Maturity           Available-for-Sale
                                         -----------------------    ------------------------
                                          Amortized      Fair         Amortized      Fair
                                            Cost         Value          Cost         Value
                                         ----------   ----------    ----------    ----------
<S>                                      <C>          <C>           <C>           <C>
Due after one year through five years    $    4,503   $    4,462    $    1,000    $      980
Due after five years through ten years        8,312        8,010             -             -
Due after ten years or more                   2,996        2,685             -             -
                                         ----------   ----------    ----------    ----------
                                             15,811       15,157         1,000           980

FHLMC stock                                       -            -         2,521         3,470
Mortgage-backed securities and
  collateralized mortgage obligations        45,315       44,872        27,886        27,748
Other equity securities                           -            -           847           784
                                         ----------   ----------    ----------    ----------
                                         $   61,126   $   60,029    $   32,254    $   32,982
                                         ==========   ==========    ==========    ==========
</TABLE>

At December  31, 1999 and 1998,  all of the  Corporation's  mortgage-backed  and
related  securities  were guaranteed or insured by  quasi-governmental  agencies
(e.g., GNMA, FNMA, FHLMC).

Sales of securities available-for-sale are summarized as follows:

                               For the Year Ended
                                  December 31,
                     -------------------------------------
                        1999         1998          1997
                     ----------   ----------    ----------

     Proceeds        $   2,839    $  3,162       $    596
     Gross gains           157         115              -
     Gross losses           94          96              3

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             29.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 3 - LOANS RECEIVABLE

Loans receivable consist of the following at:
                                                            December 31,
                                                    ---------------------------
                                                        1999            1998
                                                    ------------   ------------
First mortgage loans
     Principal balances:
         Secured by one-to-four-family residences   $     91,287   $     87,041
         Loans held for sale                                 218              -
         Secured by multi-family                          21,031         12,070
         Secured by commercial real estate                   181            191
                                                    ------------   ------------
                                                         112,717         99,302
     Less:
         Loans in process                                      -            313
         Net deferred loan origination costs                (533)          (409)
                                                    ------------   ------------
              Total first mortgage loans                 113,250         99,398

Consumer and other loans Principal balances:
         Home equity loans                                 4,164          2,844
         Loans on deposits                                   114            129
         Automobile loans                                    265            381
                                                    ------------   ------------
              Total consumer and other loans               4,543          3,354
     Less allowance for loan losses                          795            775
                                                    ------------   ------------

                                                    $    116,998   $    101,977
                                                    ============   ============

There were no impaired loans at December 31, 1999 or December 31, 1998.

Nonaccrual and renegotiated loans totaled approximately $258,000 and $124,000 at
December 31, 1999 and 1998,  respectively.  The approximate  amounts of interest
income that would have been recorded  under the original terms of such loans and
the interest income actually recognized were not material.

The Corporation is not committed to lend additional funds to debtors whose loans
have been modified.

Loans serviced for others consisted of approximately $2,617,000, $1,078,000, and
$1,527,000, at December 31, 1999, 1998, and 1997, respectively. These loans were
sold  to the  Federal  Home  Loan  Mortgage  Corporation  and  Illinois  Housing
Development Authority.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             30.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 3 - LOANS RECEIVABLE (Continued)

The Corporation's  lending  activities have been concentrated  primarily in Cook
County,  Illinois,  where its main office is located. The largest portion of the
Corporation's  loans are  originated  for the purpose of enabling  borrowers  to
purchase  residential  real  estate  property  secured  by  first  liens on such
property.  At December 31, 1999,  approximately 78% of the  Corporation's  loans
were secured by owner-occupied,  one-to-four-family  residential  property.  The
Corporation   requires   collateral  on  all  loans  and   generally   maintains
loan-to-value ratios of 80% or less.

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

                                             For the Year Ended
                                                  December 31,
                                   -----------------------------------------
                                     1999            1998             1997
                                   -----------    -----------    -----------

     Balance at beginning of year  $       775    $       775    $       745
     Provision charged to income            20             21             30
     Charge-offs                             -            (21)             -
                                   -----------    -----------    -----------

                                   $       795    $       775    $       775
                                   ===========    ===========    ===========

NOTE 4 - PREMISES AND EQUIPMENT

Premises and equipment consists of the following at:

                                                   December 31,
                                           --------------------------
                                               1999           1998
                                           -----------    -----------
     Land                                  $     1,033    $     1,033
     Building and landscaping                    2,794          2,700
     Leasehold improvements                        102            102
     Furniture, fixtures, and equipment            842            748
                                           -----------    -----------
         Total cost                              4,771          4,583

     Accumulated depreciation                   (1,233)        (1,016)
                                           -----------    -----------

                                           $     3,538    $     3,567
                                           ===========    ===========

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             31.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 5 - DEPOSITS

Certificate  of  deposit  accounts  with  balances   $100,000  or  more  totaled
$6,244,000 and $8,579,000 at December 31, 1999 and 1998, respectively.  Deposits
greater than $100,000 are not insured.

At December 31, 1999,  scheduled  maturities of  certificates  of deposit are as
follows:

        2000                         $    57,658
        2001                              11,703
        2002                               2,339
        2003                                 633
        2004 and thereafter                  864
                                     -----------

                                     $    73,197
                                     ===========

NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK

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

                                            December 31,
                             --------------------------------------------
                                     1999                   1998
                             -------------------- -----------------------
                              Weighted              Weighted
                               Average              Average
                                Rate    Amount        Rate       Amount
                             --------- ---------- ----------- -----------
Advances from the Federal
  Home Loan Bank due
    2000                        6.50%   $ 4,500         -%      $     -
    2004                        5.86      9,000         -             -
    2008                        4.95     18,000      4.82        22,000
    2009                        5.05      7,000         -             -
    Open line                   4.75     11,000      5.13         9,000
                                        -------                 -------

         Total                  5.22%   $49,500      4.91%      $31,000
                                        =======                 =======

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             32.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 6 - ADVANCES FROM FEDERAL HOME LOAN BANK (Continued)

At December  31,  1999,  $29.0  million of the FHLB  advances  have various call
provisions.  The  Corporation  will incur a penalty if the  advances  are repaid
prior to their maturity dates.

The  Corporation  maintains  a  collateral  pledge  agreement  covering  secured
advances  whereby the  Corporation has agreed to at all times keep on hand, free
of all other pledges,  liens,  and  encumbrances,  whole first mortgage loans on
improved  residential  property not more than 90 days delinquent  aggregating no
less than 167% of the  outstanding  secured  advances from the Federal Home Loan
Bank of Chicago.

NOTE 7 - INCOME TAXES

An analysis of the provision for income taxes consists of the following:

                                   For the Year Ended
                                       December 31,
                        -----------------------------------------
                           1999           1998            1997
                        -----------    -----------    -----------
     Current
         Federal        $       755    $       787    $       842
         State                  120            111            104
     Deferred                   183             59           (320)
                        -----------    -----------    -----------

                        $     1,058    $       957    $       626
                        ===========    ===========    ===========

The  provision  for income  taxes  differs from that  computed at the  statutory
corporate tax rate as follows:
                                        For the Year Ended December 31,
                              -------------   ----------------  ---------------
                                   1999            1998             1997
                              -------------   ----------------  ---------------
    Provision for federal
      income taxes
      computed at
      statutory rate of 34%   $  951  34.0%      $854  34.0%       $534  34.0%
    State income taxes,
      net of federal tax
      effect and other           107   3.9        103   4.1          92   5.9
                              ------  ----       ----  ----        ----  ----

                              $1,058  37.9%      $957  38.1%       $626  39.9%
                              ======  ====       ====  ====        ====  ====

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             33.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 7 - INCOME TAXES (Continued)

Deferred tax assets (liabilities) are comprised of the following:

                                                               December 31,
                                                             --------------
                                                              1999     1998
                                                             -----    -----
     Contributions                                           $ 268    $ 362
     Loans, principally due to allowance for loan losses       225      196
     Other                                                      21       37
                                                             -----    -----
         Total deferred tax assets                             514      595

     Unrealized gain on securities available-for-sale         (284)    (693)
     Depreciation                                             (121)     (62)
     Federal Home Loan Bank stock dividends                    (42)     (42)
     Deferred loan fees                                       (203)    (144)
     Other                                                     (27)     (43)
                                                             -----    -----
         Total deferred tax liabilities                       (677)    (984)
                                                             -----    -----
              Net deferred tax liabilities                   $(163)   $(389)
                                                             =====    =====

The Bank has  qualified  under  provisions  of the  Internal  Revenue Code which
permit it to deduct from taxable  income a provision for bad debts which differs
from the  provision  charged  to income on the  financial  statements.  Retained
earnings at December  31, 1999 and 1998  include  approximately  $3,114,000  for
which no deferred federal income tax liability has been recorded.


NOTE 8 - EARNINGS PER SHARE

A  reconciliation  of the  numerators  and  denominators  for earnings per share
computations  for 1999 and  1998,  and  April 1, 1997 to  December  31,  1997 is
presented below.

                                                  1999          1998      1997
                                                  ----          ----      ----
Basic earnings per share
 Net income                                    $    1,740  $    1,554 $      944
 Less net income of Bank prior to conversion            -           -        171
                                               ----------  ---------- ----------

  Net income available to common stockholders  $    1,740  $    1,554 $      773
                                               ==========  ========== ==========

 Weighted average common shares outstanding     1,503,112   1,764,550  1,918,524
                                               ==========  ========== ==========

    Basic earnings per share                   $     1.16  $      .88 $      .40
                                               ==========  ========== ==========

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             34.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 8 - EARNINGS PER SHARE (Continued)

                                                  1999       1998        1997
                                               ---------- ---------- ----------
Earnings Per Share Assuming Dilution
   Net income available to common stockholders $    1,740 $    1,554 $      773
                                               ========== ========== ==========

   Weighted average common shares outstanding   1,503,112  1,764,550  1,918,524
   Add dilutive effect of assumed exercises:
      Incentive stock options                           -      5,584          -
      Stock awards                                      -      1,446          -
                                               ---------- ---------- ----------
   Weighted average common and dilutive
     potential common shares outstanding        1,503,112  1,771,580  1,918,524
                                               ========== ========== ==========

   Diluted Earnings Per Share                  $     1.16 $      .88 $      .40
                                               ========== ========== ==========

The Corporation's outstanding stock options and stock awards were not considered
in the 1999 and 1997  computations  of diluted  earnings  per share  because the
effects of assumed exercise would have been antidilutive.


NOTE 9 - EMPLOYEE BENEFIT PLANS

An employee profit sharing plan was approved by the Board of Directors effective
January 1, 1985. The plan covers  employees having over one year of service (one
thousand  working hours) and who are at least 21 years of age.  Contributions to
the  profit  sharing  plan  are   determined   and  approved   annually  by  the
Corporation's  Board of  Directors.  Contributions  of $42,000 were approved and
funded for the year ended December 31, 1997. There were no contributions for the
years ended December 31, 1999 and 1998.

As part of the conversion  transaction,  the Corporation established an employee
stock ownership plan (ESOP) for the benefit of substantially all employees.  The
ESOP borrowed  $1,661,060  from the  Corporation and used those funds to acquire
166,106 shares of the Corporation's stock at $10 per share.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             35.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 9 - EMPLOYEE BENEFIT PLANS (Continued)

Shares issued to the ESOP are allocated to ESOP participants  based on principal
repayments  made by the  ESOP on the  loan  from  the  Corporation.  The loan is
secured by shares  purchased  with the loan  proceeds  and will be repaid by the
ESOP with funds from the Corporation's  discretionary  contributions to the ESOP
and earnings on ESOP assets.  Principal  payments are scheduled to occur in even
quarterly   amounts  over  a  ten-year  period.   However,   in  the  event  the
Corporation's  contributions  exceed  the  minimum  debt  service  requirements,
additional principal payments will be made.

During 1999, 1998 and 1997, 16,611 shares of stock with an average fair value of
$13.75,  $16.19,  and $15.05  per  share,  respectively,  were  committed  to be
released,  resulting in ESOP  compensation  expense of $228,000,  $269,000,  and
$255,000, respectively.  Shares held by the ESOP at December 31, 1999, 1998, and
1997 are as follows:
                                              1999       1998       1997
                                           --------   --------   --------

    Allocated shares                         49,832     33,221     16,610
    Unallocated shares                      116,274    132,885    149,496
                                           --------   --------   --------

       Total ESOP shares                    166,106    166,106    166,106
                                           ========   ========   ========

       Fair value of unallocated shares    $  1,642   $  2,324   $  2,552
                                           ========   ========   ========

The  Corporation has a stock option plan under the terms of which 207,633 shares
of the Corporation's common stock were reserved for issuance. The options become
exercisable  in equal  installments  over a  five-year  period  from the date of
grant. The options expire ten years from the date of grant.

A summary of the  status of the  Corporation's  stock  option  plan and  changes
during the years ended are presented below:

                              1999                 1998               1997
                         ------------------  ------------------- ---------------
                                   Weighted-           Weighted-       Weighted-
                                    Average             Average          Average
                                   Exercise            Exercise         Exercise
                         Shares      Price   Shares      Price   Shares   Price
                         -------   --------  ---------   ------  -------  -----
Outstanding
  at beginning of year   182,716   $  17.24    182,716   $17.24        -  $   -
Granted                    4,000      13.88          -        -  182,716   17.24
Exercised                      -          -          -        -        -      -
Forfeited                      -          -          -        -        -      -
                         -------   --------  ---------   ------  -------  -----

Outstanding
  at end of year         186,716   $  17.17    182,716   $17.24  182,716  $17.24
                         =======   ========  =========   ======  =======  ======


--------------------------------------------------------------------------------
                                  (Continued)

                                                                             36.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------


NOTE 9 - EMPLOYEE BENEFIT PLANS (Continued)

                                             1999        1998         1997
                                         -----------  ------------  ----------

     Options exercisable at end of year     73,088       36,544            -
     Weighted-average fair value of
       options granted during year          $ 2.93          $ -       $ 5.63
     Average remaining option term       7.9 years    8.8 years    9.8 years

The Corporation applies APB Opinion 25 and related Interpretations in accounting
for its stock option plan. Accordingly, no compensation cost has been recognized
at the date of grant.  Had  compensation  cost been determined based on the fair
value at the grant dates for awards under the plan consistent with the method of
SFAS No. 123,  "Accounting for Stock-Based  Compensation," the Corporation's net
income and earnings  per share would have been reduced to the pro forma  amounts
in the table below.  For purposes of pro forma  disclosure,  the estimated  fair
value of the options is amortized to expense over the options' vesting period.

                                             1999        1998         1997
                                         -----------  ------------  ----------

     Net income as reported              $     1,740  $     1,554    $     944
     Pro forma net income                      1,614        1,428          753
     Earnings per share as reported
         Basic and diluted                     1.16           .88          .40
     Pro forma earnings per share
         Basic and diluted                     1.07           .81          .39

The  Black-Scholes  option  pricing  valuation  model was  developed  for use in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because changes in the subjective input  assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             37.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------


NOTE 9 - EMPLOYEE BENEFIT PLANS (Continued)

Date of grant                                    10/12/99  10/22/97   12/9/97

Options granted                                    4,000    172,334   10,382
Estimated fair value stock of options granted      $2.93     $5.64     $5.44
Assumptions used:
    Risk-free interest rate                        5.99%     6.12%     5.95%
    Expected option life                         10 years  10 years  10 years
    Expected stock price volatility                 .01       .05       .05
    Expected dividend yield                        2.74%     1.40%     1.40%

In connection with the conversion to stock ownership,  the Corporation adopted a
Management  Recognition  and  Retention  Plan (MRP).  In 1997,  the  Corporation
contributed  $1.4 million  allowing the MRP to acquire  83,053  shares of common
stock of the Corporation,  at an average cost of $17.25 per share, to be awarded
to directors and key employees.  These shares vest over a five-year period.  The
unamortized cost of shares not yet earned (vested) is reported as a reduction of
stockholders' equity. MRP compensation expense totaled $261,000,  $262,000,  and
$51,000 for the years ended  December 31, 1999,  1998,  and 1997,  respectively.
During 1998, 453,490 shares of stock of the Corporation were reacquired of which
83,053 were allocated to the MRP.


NOTE 10 - REGULATORY MATTERS

The Bank is subject to regulatory capital  requirements  administered by federal
regulatory  agencies.  Capital adequacy  guidelines and prompt corrective action
regulations involve quantitative  measures of assets,  liabilities,  and certain
off-balance-sheet   items  calculated  under  regulatory  accounting  practices.
Capital amounts and classifications are also subject to qualitative judgments by
regulators  about  components,  risk  weightings,  and  other  factors,  and the
regulators can lower  classifications in certain cases.  Failure to meet various
capital  requirements  can initiate  regulatory  action that could have a direct
material effect on the financial statements.

The prompt corrective action regulations provide five classifications, including
well  capitalized,  adequately  capitalized,   undercapitalized,   significantly
undercapitalized, and critically undercapitalized,  although these terms are not
used to  represent  overall  financial  condition.  If  adequately  capitalized,
regulatory   approval   is   required   to   accept   brokered   deposits.    If
undercapitalized,  capital  distributions  are  limited,  as is asset growth and
expansion, and plans for capital restoration are required.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             38.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 10 - REGULATORY MATTERS (Continued)

At year end, actual capital levels of the Bank and minimum required levels were:
<TABLE>
<CAPTION>

                                                                                                Minimum Required
                                                                                                   to Be Well
                                                                     Minimum Required              Capitalized
                                                                        for Capital          Under Prompt Corrective
                                                 Actual              Adequacy Purposes         Action Regulations
                                         ----------------------- -------------------------- -------------------------
                                          Amount        Ratio        Amount        Ratio       Amount       Ratio
                                         ----------- ----------- ------------ ------------- -------------- ----------
<S>                                      <C>          <C>        <C>             <C>        <C>           <C>
1999
----
    Total capital (to risk-
      weighted assets)                   $  23,051      24.1%      $   7,640       8.0%       $   9,550     10.0%
    Tier 1 (core) capital (to risk-
      weighted assets)                      21,830      22.9           3,820       4.0            5,730      6.0
    Tier 1 (core) capital (to adjusted
      total assets)                         21,830       9.6           9,055       4.0           11,320      5.0
    Tangible capital (to tangible assets)   21,830       9.6           3,396       1.5              N/A      N/A

1998
----
    Total capital (to risk-
      weighted assets)                   $  23,441      30.0%      $   6,257       8.0%       $   7,821     10.0%
    Tier 1 (core) capital (to risk-
      weighted assets)                      22,666      29.0           3,128       4.0            4,693      6.0
    Tier 1 (core) capital (to adjusted
      total assets)                         22,666      11.2           8,069       4.0           10,086      5.0
    Tangible capital (to tangible assets)   22,666      11.2           3,026       1.5              N/A      N/A
</TABLE>

At December 31,  1999,  the most recent  notification  from the Office of Thrift
Supervision  categorized  the  Bank as well  capitalized  under  the  regulatory
framework for prompt corrective action.  There are no conditions or events since
that  notification  that  management  believes  have  changed the  institution's
category.

Federal  regulations  require the Bank to comply with a Qualified  Thrift Lender
(QTL) test which  requires that 65% of assets be  maintained in  housing-related
finance  and other  specified  assets.  If the QTL test is not met,  limits  are
placed on growth,  branching,  new investments,  FHLB advances, and dividends or
the institution must convert to a commercial bank charter.  Management considers
the QTL test to have been met.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             39.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 11 - OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes were as follows:

                                                    1999     1998    1997
                                                  -------   -----   ------
     Unrealized holding gains and losses on
       securities available-for-sale              $  (979)   $196    $600
     Less reclassification adjustments for gains
       and losses recognized in income                (63)    (19)      3
                                                  -------    ----    ----
     Net unrealized gains and losses               (1,042)    177     603
     Tax effect                                       404      70     235
                                                  -------    ----    ----

     Other comprehensive income                   $  (638)   $107    $368
                                                  =======    ====    ====


NOTE 12 - OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

The Corporation is party to financial instruments with off-balance-sheet risk in
the  normal  course  of the  business  of  meeting  the  financing  needs of its
customers.  These financial  instruments  include  commitments to fund loans and
previously approved unused lines of credit. The Corporation's exposure to credit
loss  in  the  event  of  nonperformance  by  the  parties  to  these  financial
instruments is represented by the  contractual  amount of the  instruments.  The
Corporation  uses  the  same  credit  policy  for  commitments  as it  uses  for
on-balance-sheet items. These financial instruments are summarized as follows:

                                                                 Contract Amount
                                                                   December 31,
                                                                ----------------
                                                                1999       1998
                                                                -------  -------
Financial instruments whose contract amounts represent
  credit risk
    Commitments to extend credit, including loans in process    $1,569    $2,077
    Unused lines of credit                                       1,881       849

At  December  31,  1999 and 1998,  fixed  rate  commitments  to  extend  credit,
including   loans  in  process,   consisted  of   $1,427,000   and   $1,939,000,
respectively.  The fixed rate commitments at December 31, 1999 are due to expire
within 1 to 60 days of issuance and have rates ranging from 6%to 8.25%.

Financial   instruments   which   potentially   subject   the   Corporation   to
concentrations of credit risk include interest-bearing deposit accounts in other
financial institutions and loans. At December 31, 1999 and 1998, the Corporation
had  deposit  accounts  with  balances  totaling  approximately  $4,632,000  and
$3,537,000,   respectively,   at  the   Federal   Home  Loan  Bank  of  Chicago.
Concentrations of loans are described in Note 3.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             40.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------


NOTE 13 - COMMITMENTS AND CONTINGENCIES

The  Corporation is, from time to time, a party to certain  lawsuits  arising in
the ordinary course of its business. The Corporation believes that none of these
lawsuits would, if adversely  determined,  have a material adverse effect on its
financial condition, results of operations, or capital.

At December 31, 1999 and 1998, the Corporation was obligated under noncancelable
operating  leases for office space.  Net rent expenses under  operating  leases,
including the proportionate  share of taxes,  insurance,  and maintenance costs,
were approximately  $85,000,  $85,000,  and $95,000 for the years ended December
31,  1999,  1998,  and 1997,  respectively.  The  lease for the Oak Lawn  branch
expires April 1, 2002. The lease for the Chicago branch expires on July 1, 2002.
Projected  minimum rental payments under the terms of the leases,  not including
taxes, insurance, and maintenance, are as follows at December 31, 1999:

                           2000        $        78
                           2001                 78
                           2002                 27
                                       -----------

                               Total   $       183
                                       ===========


NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The   approximate   carrying  amount  and  estimated  fair  value  of  financial
instruments consist of the following:
<TABLE>
<CAPTION>

                                                December 31, 1999            December 31, 1998
                                             -------------------------   --------------------------
                                             Approximate                  Approximate
                                              Carrying      Estimated      Carrying       Estimated
                                               Amount      Fair Value       Amount       Fair Value
                                             -----------   -----------   -----------   ------------
<S>                                          <C>           <C>           <C>           <C>
Financial Assets
    Cash and cash equivalents                $     9,813   $     9,813   $     6,036   $     6,036
    Securities                                    94,108        93,011        89,130        90,040
    Loans receivable, net                        116,998       115,844       101,977       102,422
    Federal Home Loan Bank stock                   2,325         2,325         1,850         1,850
    Accrued interest receivable                    1,199         1,199           932           932

Financial Liabilities
    Demand deposits                          $   (25,590)      (25,590)  $   (23,497)  $   (23,497)
    Savings deposits                             (51,789)      (51,789)      (47,799)      (47,799)
    Time deposits                                (73,197)      (73,268)      (71,853)      (72,327)
    Advance from Federal Home Loan Bank          (49,500)      (49,500)      (31,000)      (31,000)
    Advance payments by borrowers for taxes
      and insurance                               (1,133)       (1,133)       (1,075)       (1,075)
    Accrued interest payable                        (343)         (343)         (259)         (259)
</TABLE>

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             41.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

For purposes of the above, the following assumptions were used:

Cash  and  Cash  Equivalents:  The  estimated  fair  values  for  cash  and cash
equivalents are based on their carrying  values due to the short-term  nature of
these assets.

Securities:  The fair values of investment  and  mortgage-backed  securities are
based on the quoted market value for the individual security or its equivalent.

Loans  Receivable:  The  estimated  fair value for loans has been  determined by
calculating the present value of future cash flows based on the current rate the
Bank would  charge for similar  loans with  similar  maturities,  applied for an
estimated time period until the loan is assumed to be repriced or repaid.

Deposits:  The  estimated  fair value for time  deposits has been  determined by
calculating  the present  value of future cash flows based on estimates of rates
the  Corporation  would pay on such deposits,  applied for the time period until
maturity.  The estimated fair values of demand and savings  deposits are assumed
to approximate  their carrying values as management  establishes  rates on these
deposits at a level that approximates the local market area. Additionally, these
deposits can be withdrawn on demand.

Advances  from Federal  Home Loan Bank:  The fair value of the Federal Home Loan
Bank  advances was  determined by  calculating  the present value of future cash
flows using the current rate for advances with similar lengths to maturity.

Accrued Interest: The fair values of accrued interest receivable and payable are
assumed to equal their carrying values.

Off-Balance-Sheet  Instruments:  Off-balance-sheet  items consist principally of
unfunded loan commitments. The fair value of these commitments is not material.

Other  assets and  liabilities  of the  Corporation  not  defined  as  financial
instruments,  such as  property  and  equipment,  are not  included in the above
disclosures.  Also not  included  are  nonfinancial  instruments  typically  not
recognized  in financial  statements  such as the value of core  deposits,  loan
servicing rights, customer goodwill, and similar items.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             42.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 14 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

While  the  above  estimates  are  based on  management's  judgment  of the most
appropriate  factors,  there is no assurance that if the Corporation disposed of
these  items on  December  31,  1999 or 1998,  the fair  value  would  have been
achieved,  because the market value may differ  depending on the  circumstances.
The estimated  fair values at December 31, 1999 and 1998 should not  necessarily
be considered to apply at subsequent dates.


NOTE 15 - PLAN OF CONVERSION

On  September  10,  1996,  the Board of  Directors of the Bank adopted a Plan of
Conversion  to convert from a federal  mutual  savings  bank to a federal  stock
savings bank with the concurrent formation of a holding company and the adoption
of a federal thrift charter.  On March 31, 1997, the Corporation  sold 2,076,325
shares of common stock at $10 per share and received proceeds of $18,376,279 net
of conversion expenses of $725,910 and ESOP shares. Approximately 50% of the net
proceeds were used by the Corporation to acquire all of the capital stock of the
Bank.

Simultaneous with the conversion,  the Board of Directors of the holding company
established  The Hemlock  Federal  Charitable  Foundation.  The  foundation is a
not-for-profit  entity.  In 1997, the Board approved a $1,000,000  unconditional
contribution  to the  Foundation,  of  which  $280,000  was  paid in 1997 and an
additional  $250,000  was paid in 1999 and  1998.  The  remaining  $220,000  and
$470,000,  respectively,  is included in other  liabilities in the  consolidated
statements of financial condition at December 31, 1999 and 1998.

At the time of  conversion,  the Bank  established a  liquidation  account in an
amount  equal to its total net worth as of the  latest  statement  of  financial
condition  appearing  in the  final  prospectus.  The  balance  at that date was
$11,680,000.  The  liquidation  account  will be  maintained  for the benefit of
eligible  depositors  who continue to maintain  their accounts at the Bank after
the conversion.  The liquidation  account will be reduced annually to the extent
that eligible  depositors  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,  each  eligible
depositor  will be  entitled  to  receive a  distribution  from the  liquidation
account in an amount  proportionate to the current adjusted  qualifying balances
for accounts then held.  The  liquidation  account  balance is not available for
payment of dividends.

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             43.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS

Presented below are the condensed statement of financial condition, statement of
income,  and statement of cash flows for Hemlock Federal Financial  Corporation.
The  Corporation  was formed on March 31, 1997.  Accordingly,  the statements of
income and cash flows for the year 1997 reflect the period April 1, 1997 through
December 31, 1997.

                   CONDENSED STATEMENTS OF FINANCIAL CONDITION
                           December 31, 1999 and 1998

                                                        1999           1998
                                                    -----------    -----------
ASSETS
Cash and cash equivalents                           $     1,409    $       572
Securities available-for-sale                               783            426
Securities held-to-maturity                                   -          1,166
ESOP loan                                                 1,163          1,329
Investment in bank subsidiary                            22,313         23,809
Accrued interest receivable and other assets                273            392
                                                    -----------    -----------

                                                    $    25,941    $    27,694
                                                    ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities              $       220    $       488
Stockholders' equity
     Common stock                                            21             21
     Additional paid-in capital                          20,270         20,208
     Unearned ESOP shares                                (1,163)        (1,329)
     Unearned stock awards                                 (859)        (1,120)
     Treasury stock, (1999 - 457,762
        shares; 1998 - 370,437 shares)                   (7,227)        (4,863)
     Retained earnings                                   14,235         13,207
     Accumulated other comprehensive income                 444          1,082
                                                    -----------    -----------

                                                    $    25,941    $    27,694
                                                    ===========    ===========

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             44.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)


                         CONDENSED STATEMENTS OF INCOME
        For the years ended December 31, 1999 and 1998 and for the period
                       April 1, 1997 to December 31, 1997

                                                     1999       1998       1997
                                                    -------    ------    ------
Income
     Dividends from bank subsidiary                 $ 3,000    $    -    $    -
     Interest income                                    148       429       476
     Loss on sale of securities                         (23)      (44)        -
                                                    -------    ------    ------
         Total income                                 3,125       385       476

Other expenses                                          118       132     1,074
                                                    -------    ------    ------


Income (loss) before income taxes and equity in
  undistributed earnings of bank subsidiary           3,007       253      (598)

Income tax expense (benefit)                             (2)       82      (202)
                                                    -------    ------    ------


Income (loss) before equity in undistributed
  earnings of bank subsidiary                         3,009       171      (396)

Equity in undistributed earnings of bank subsidiary  (1,269)    1,383     1,169
                                                    -------    ------    ------


Net income                                          $ 1,740    $1,554    $  773
                                                    =======    ======    ======

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             45.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 16 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
        For the years ended December 31, 1999 and 1998 and for the period
                       April 1, 1997 to December 31, 1997
<TABLE>
<CAPTION>

                                                                    1999     1998      1997
                                                                  -------   -------   --------
<S>                                                              <C>       <C>       <C>
Operating activities
    Net income                                                    $ 1,740   $ 1,554   $    773
    Adjustments to reconcile net income to net cash provided
      by operating activities
       Amortization of discounts and premiums on securities, net       (7)       (3)        (6)
       Equity in undistributed earnings of bank subsidiary          1,269    (1,383)    (1,169)
       Loss on sale of securities                                      23        44          -
       Change in
          Other assets                                                105        11       (364)
          Other liabilities                                          (268)     (302)       739
                                                                  -------   -------   --------
              Net cash from operating activities                    2,862       (79)       (27)

Investing activities
    Purchase of securities available-for-sale                      (1,092)     (765)         -
    Purchase of securities held-to-maturity                             -    (1,834)    (7,485)
    Principal payments on securities                                    -         -        122
    Proceeds from maturities and calls of securities                1,173     4,291      3,750
    Proceeds from sales of securities                                 750       195          -
    Payment received on loan to ESOP                                  166       166        166
    Purchase of bank subsidiary stock                                   -         -     (9,205)
    Capital contribution to subsidiary                                  -       (55)         -
                                                                  -------   -------   --------
       Net cash from investing activities                             997     1,998    (12,652)

Financing activities
    Net proceeds from sale of common stock                              -         -     18,376
    Purchase of treasury stock                                     (2,364)   (6,245)         -
    Dividends paid                                                   (658)     (550)      (249)
                                                                  -------   -------   --------
       Net cash from financing activities                          (3,022)   (6,795)    18,127
                                                                  -------   -------   --------

Net change in cash and cash equivalents                               837    (4,876)     5,448

Cash and cash equivalents at beginning of period                      572     5,448          -
                                                                  -------   -------   --------

Cash and cash equivalents at end of period                        $ 1,409   $   572   $  5,448
                                                                  =======   =======   ========

</TABLE>

--------------------------------------------------------------------------------
                                  (Continued)

                                                                             46.
<PAGE>
              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1999, 1998, and 1997
    (Table amounts in thousands of dollars, except share and per share data)
--------------------------------------------------------------------------------

NOTE 17 - SUBSEQUENT EVENT

On January 10,  2000,  the  Company  announced  the  execution  of a  definitive
agreement  providing  for the  purchase  and  merger  of  Midwest  Savings  Bank
(Midwest)  into Hemlock  Federal  Bank for  Savings.  Total assets of Midwest at
December 31, 1999 were approximately $48.6 million. The transaction is valued on
a current basis at $3.36 million. In the transaction,  Midwest stockholders will
receive cash for each share of Midwest common stock  approximately  equal to the
book value of the stock as of  December  31,  1999 plus net income  through  the
month end prior to the  closing  date and subject to certain  other  transaction
adjustments.  The transaction is subject to the approval of the  stockholders of
Midwest, as well as banking  regulators,  and is expected to close in the second
quarter of 2000.













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

                                                                             47.
<PAGE>



                      HEMLOCK FEDERAL FINANCIAL CORPORATION
                             STOCKHOLDER INFORMATION

ANNUAL MEETING

         The Annual  Meeting  of  Stockholders  will be held at 10:00  a.m.  Oak
Forest, Illinois time, on May 10, 2000 at the main office of the Company located
at 5700 West 159th Street, Oak Forest, Illinois 60452.

STOCK LISTING

         Hemlock  Federal  Financial  Corporation  common stock is traded on the
National  Association  of Securities  Dealers,  Inc.  National  Market under the
symbol "HMLK."

PRICE RANGE OF COMMON STOCK

         The per share price range of the common  stock for each  quarter  since
the common stock began trading on March 31, 1997 was as follows:


    FISCAL 1997                          HIGH        LOW      DIVIDENDS
Second Quarter...................       $13.875    $12.500      $.00
Third Quarter....................       $15.625    $13.875      $.06
Fourth Quarter...................       $17.500    $15.375      $.06

    FISCAL 1998
First Quarter....................       $19.000    $17.000      $.07
Second Quarter...................       $19.000    $17.375      $.07
Third Quarter....................       $18.000    $13.375      $.08
Fourth Quarter...................       $14.750    $13.125      $.08

    FISCAL 1999
First Quarter....................       $13.750    $12.625      $.09
Second Quarter...................       $14.000    $13.000      $.09
Third Quarter....................       $14.250    $13.500      $.10
Fourth Quarter...................       $14.500    $12.875      $.10

The stock price  information  set forth in the table  above was  provided by the
National Association of Securities Dealers, Inc. Automated Quotation System. The
average of the bid and asked prices of Hemlock Federal  Financial  Corporation's
common stock on March 29, 2000 was $12.25.

At March 23,  2000 there were  1,197,815  shares of  Hemlock  Federal  Financial
Corporation  common stock  outstanding  (including  unallocated ESOP shares) and
there were 519 holders of record.



                                       48

<PAGE>



STOCKHOLDERS AND GENERAL INQUIRIES                   TRANSFER AGENT

Rosanne M. Pastorek-Belczak                          Registrar and Transfer Co.
Hemlock Federal Financial Corporation                10 Commerce Drive
5700 West 159th Street                               Cranford, NJ  07016
Oak Forest, Illinois 60452                           1-(800) 368-5948
(708) 687-9400

ANNUAL AND OTHER REPORTS

         A copy of Hemlock Federal Financial Corporation's Annual Report on Form
10-K for the year ended  December 31,  1999,  as filed with the  Securities  and
Exchange  Commission,  may be obtained  without charge by contacting  Rosanne M.
Pastorek-Belczak, Hemlock Federal Financial Corporation, 5700 West 159th Street,
Oak Forest, Illinois 60452.

                      HEMLOCK FEDERAL FINANCIAL CORPORATION
                              CORPORATE INFORMATION

Hemlock Federal Financial Corporation        Hemlock Federal Bank
Board of Directors                             Officers

Maureen G. Partynski, Chairman               Maureen G. Partynski
Michael R. Stevens                             Chairman and CEO
Rosanne M. Pastorek-Belczak, Secretary       Michael R. Stevens
Kenneth J. Bazarnik                            President
Frank A. Bucz                                Jean Thornton
Charles Gjondla                                Vice-President, Controller
G. Gerald Schiera                            Neil Christensen
                                               Vice-President, Lending
                                             Rosanne M. Pastorek-Belczak
                                               Vice-President, Secretary

Hemlock Federal Bank for Savings Locations:

Main Office:
5700 W. 159th St.
Oak Forest, Illinois 60452   708-687-9400

8855 S. Ridgeland Ave.
Oak Lawn, Illinois 60453

4636 S. Damen Ave.
Chicago, Illinois 60609

15730 W. 127th St.
Lemont, Illinois 60439

                                       49

<PAGE>



Independent Auditors                           Special Counsel

Crowe, Chizek and Company LLP                  Silver, Freedman & Taff, L.L.P.
One Mid America Plaza                          1100 New York Avenue, N.W.
Oak Brook, Illinois  60552                     7th Floor
                                               Washington, D.C.  20005

Stock Trading Information:

Hemlock Federal Financial Corporation Common Stock is traded on the NASDAQ stock
market under the trading symbol "HMLK."

Stockholder Services:

Stockholders  should direct inquiries  concerning  their stock,  change of name,
address or ownership;  report lost  certificates or consolidate  accounts to the
Company's transfer agent at 1-800-368-5948 or write:

         Registrar and Transfer
         P.O. Box 1010
         Cranford, New Jersey 07016

Investor Relations

         Hemlock  Federal  Financial  Corporation  files an annual report to the
Securities and Exchange  Commission on Form 10-K and three quarterly  reports on
Form 10-Q. Copies of these forms are available by request.  Requests, as well as
inquiries  from  stockholders,  analysts and others  seeking  information  about
Hemlock  Financial  Corporation  should  be  directed  to  Michael  R.  Stevens,
President, at 5700 W. 159th St., Oak Forest, Illinois 60452, phone 708-687-9400.


















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