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

2001 ANNUAL REPORT

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


[LOGO]






                      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..............................................49
         Corporate Information................................................50







<PAGE>


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

FROM YOUR CHAIRMAN & PRESIDENT

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

Dear Shareholder:

We are  pleased  to  deliver  another  year of solid  earnings  growth and price
appreciation to our shareholders.

Financial highlights for the year 2001 include:

Net income for the year ended December 31, 2001 increased 7% to $2.0 million, as
compared to $1.8 million for the previous year.

Earnings  per  diluted  share  increased  21%, to $2.11 per share for the twelve
months ended December 31, 2001, as compared to $1.75 for the previous year.

Return on equity  increased  to 9.83% for the past twelve  months from 9.04% for
the same period one year ago.

Book value per share outstanding increased to $20.61 as of December 31, 2001, up
from $18.39 as of December 31, 2000.

In  addition,  the Board of  Directors  authorized  payment of $.54 per share of
dividends during 2001, an increase of 17% from the prior year.

Over the last five years, since we became a public company,  we have doubled the
size of our branch  network  from three to six full service  offices.  Our focus
over the last year has been on growing  both  deposits  and loans and  extending
cross-selling  opportunities  to  our  existing  customer  base.  These  efforts
resulted  in an  increase  in  total  deposits  of  over  $10  million.  We  are
particularly  pleased with the continued growth of our Lemont branch.  Since its
opening in December  1998, we have  increased  deposits in this facility to over
$24 million at the end of 2001.

In addition,  we extended this effort to loan  production.  We took advantage of
historic lows in interest rates to increase our loan  originations  to more than
$60 million in 2001, the most productive year in the history of the bank.  These
efforts  resulted in substantial  increases in fee income derived from both loan
originations and servicing during 2001.

Our renewed focus on cross-selling investment products to our existing customers
through  the Hemlock  Federal  Investment  Center  resulted in a tripling of fee
income obtained through the sale of investment products.


                                        1
<PAGE>


We enhanced  both our  marketing  efforts  and the level of customer  service by
opening our internet  branch during 2001. This full service  portal-based  site,
which is located at  www.hemlockbank.com,  enables  our  customers  to perform a
variety of transactions on their accounts, as well as the ability to shop online
and obtain information on other bank products and services. Customer response to
the internet site has been excellent.

While  many  thrift  stocks  experienced  strong  returns  during the past year,
Hemlock Federal Financial performed  exceedingly well, achieving a 54% growth in
share price for the twelve months ended  December 31, 2001.  Since our inception
as a public  company in 1997,  an investment  in Hemlock  Federal  Financial has
outperformed the Dow Jones Industrial Average, the S&P 500 and NASDAQ.

The key to our success,  quite  simply,  is the hard work and  dedication of our
employees.  We  firmly  believe  that  maintaining  a  positive  nurturing  work
environment  for our  employees  will  insure  a high  level of  service  to our
customers.  The high degree of employee  retention  and  overwhelming  number of
positive  comments we receive  from our  customers  tell us that our approach is
successful.  Thank you for your continued  support of Hemlock Federal  Financial
Corporation. We look forward to our continued success in 2002.


                                         Maureen G. Partynski
                                         Chairman and CEO



                                         Michael R. Stevens
                                         President



                                       2
<PAGE>



[PG NUMBER]

                   SELECTED CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
                                                             At December 31,
                                          ----------------------------------------------------
                                            2001       2000       1999       1998       1997
                                          --------   --------   --------   --------   --------
                                                          (Dollars in Thousands)
<S>                                       <C>        <C>        <C>        <C>        <C>
Selected Financial Condition Data:
---------------------------------

Total assets ..........................   $288,686   $276,663   $228,457   $204,424   $176,683
Cash and cash equivalents .............     28,157     18,504      9,813      6,036     14,883
Loans receivable, net(1) ..............    147,878    154,821    116,998    101,977     76,159
Loans held for sale ...................      8,595         --         --         --         --
Mortgage-backed securities:
  Held-to-maturity ....................     51,865     40,097     45,315     52,516     31,683
  Available-for-sale ..................     20,371     26,356     27,748     26,682     29,983
Investment securities:
  Held-to-maturity ....................      4,402     14,802     15,811      6,101     14,735
  Available-for-sale ..................     16,537     10,946      5,234      3,831      3,617
FHLB stock ............................      3,745      3,497      2,325      1,850        987
Notes payable .........................      5,800      5,250         --         --         --
Deposits ..............................    189,456    179,424    150,576    143,149    130,958
FHLB advances .........................     68,985     69,450     49,500     31,000     11,000
Stockholders' Equity ..................     20,874     19,103     25,721     27,206     30,427
</TABLE>

<TABLE>
<CAPTION>
                                                               Year Ended
                                                               December 31,
                                          ----------------------------------------------------
                                            2001       2000       1999       1998        1997
                                          --------   --------   --------   --------   --------
                                                          (Dollars in Thousands)

<S>                                       <C>        <C>        <C>        <C>        <C>
Selected Operations Data:
------------------------

Total interest income .................   $ 17,981   $ 17,594   $ 14,074   $ 12,750   $ 11,293
Total interest expense ................     10,493     10,155      7,297      6,842      5,723
                                          --------   --------   --------   --------   --------
  Net interest income .................      7,488      7,439      6,777      5,908      5,570
Provision for loan losses .............         --         --         20         21         30
                                          --------   --------   --------   --------   --------
Net interest income after
  provision for loan losses ...........      7,488      7,439      6,757      5,887      5,540
Fees and service charges ..............      1,024        688        500        573        417
Gain (loss) on sales of securities ....        280        (30)        63         19         (3)
Gain on sales of loans ................        172        196         --         --         --
Other non-interest income .............        298        202        148        117        125
                                          --------   --------   --------   --------   --------
Total non-interest income .............      1,774      1,056        711        709        539
Total non-interest expense ............      6,286      5,673      4,670      4,085      4,509
                                          --------   --------   --------   --------   --------
Income before taxes ...................      2,976      2,822      2,798      2,511      1,570
Provision for income taxes ............      1,006        983      1,058        957        626
                                          --------   --------   --------   --------   --------
Net income ............................   $  1,970   $  1,839   $  1,740   $  1,554   $    944
                                          ========   ========   ========   ========   ========
</TABLE>
------------
(1)  The allowance for loan losses at December 31, 2001, 2000, 1999, 1998 and
     1997 was $969,000, $969,000, $795,000, $775,000 and $775,000, respectively.


                                       3
<PAGE>


<TABLE>
<CAPTION>
                                                                                          Year Ended December 31,
                                                                         ----------------------------------------------------------
                                                                          2001         2000         1999         1998         1997
                                                                         ------       ------       ------       ------       ------
<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) ..................................................        0.71%        0.73%        0.82%        0.80%        0.58%
       Return on equity (ratio of net income to average
         equity)(1) ...............................................        9.83         9.04         6.56         5.33         3.52
       Interest rate spread information:
         Average during period ....................................        2.63         2.83         2.86         2.58         2.85
         End of period ............................................        2.68         2.74         2.86         2.58         2.92
         Net interest margin(2) ...................................        2.82         3.09         3.30         3.17         3.53
       Ratio of operating expense to average total assets .........        2.27         2.26         2.19         2.12         2.76
       Ratio of average interest-earning assets to average
         interest-bearing liabilities .............................      104.80       106.20       112.38       116.16       118.59

     Asset Quality Ratios:
       Non-performing assets to total assets at end of period .....        0.21         0.08         0.11         0.06         0.15
       Allowance for loan losses to non-performing loans ..........      164.80       457.08       308.14       623.40       302.73
       Allowance for loan losses to gross loans receivable ........        0.62         0.63         0.68         0.78         1.01

     Capital Ratios:
       Stockholders' equity to total assets at end of period ......        7.23         6.90        11.26        13.31        17.22
       Average stockholders' equity to average assets .............        7.23         8.11        12.46        15.09        16.45

     Other data:
       Number of full service offices .............................        6            6            4            4            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  mortgage and, to a significantly  lesser extent,
multi-family,  consumer  and other  loans  primarily  in its  market  area.  The
Company's   revenues   are  derived   principally   from   interest   earned  on
mortgage-backed  and other  securities and loans.  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. In response to
recessionary economic conditions, the Federal Reserve reduced the Fed Funds Rate
by a total of four and three-quarters percentage points in 2001. The Chairman of
the Federal  Reserve has indicated  that the current level of the Fed Funds Rate
is intended to stimulate the economy,  and is therefore temporary in nature. The
Company  has  responded  to  this  by  increasing  its  level  of  liquidity  in
anticipation  of higher  reinvestment  rates later in 2002.  This  decision  may
result in a lower level of net interest income until the Company's level of cash
and cash equivalents is redeployed into higher yielding assets.  In addition,  a
prolonged economic recession may result in a higher level of delinquencies which
may also have a negative impact on the Company's net interest income.

Financial Condition

     Consolidated  total assets  aggregated $288.7 million and $276.7 million at
December 31, 2001 and December 31, 2000, respectively. Cash and cash equivalents
increased  $9.7 million,  to $28.2  million as of December 31, 2001,  from $18.5
million as of December 31, 2000,  due  primarily to the sale of $14.9 million of
mortgage  loans.  These funds are currently  awaiting  reinvestment in loans and
securities.  In addition,  loans receivable increased $1.7 million due primarily
to an increase in loan  originations  through the  Company's  commissioned  loan
officer program.


                                       5
<PAGE>


     Total  liabilities  at December  31, 2001 were $267.8  million  compared to
$257.6 at  December  31,  2000,  an increase of $10.2  million.  Total  deposits
increased by $10.1 million,  from $179.4 million at December 31, 2000, to $189.5
million at December 31, 2001. The increase in total deposits is due primarily to
an increase in deposits in the Company's Oak Forest and Lemont branches.

     Stockholders  equity at  December  31, 2001 was $20.9  million  compared to
$19.1 million at December 31, 2000,  an increase of $1.8 million.  This increase
is due to net income of $2.0 million, partially offset by dividends paid of $.54
per share for a cost of $558,000,  as well as the repurchase of 26,500 shares of
the Company's common stock at a cost of $551,000.

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, 2001 AND 2000

General

     Consolidated net income of the Company for the year ended December 31, 2001
was $2.0  million,  as compared to $1.8 million for the year ended  December 31,
2000.  The  $131,000  increase in net income was  primarily  attributable  to an
increase in non-interest income, partially offset by an increase in non-interest
expense.

Net Interest Income

     Net interest income after  provision for loan losses  increased by $49,000,
to $7.5  million  for the year ended  December  31,  2001,  as  compared to $7.4
million for the year ended December 31, 2000. Net interest  margin  decreased to
2.82%  for the year  ended  December  31,  2001 from  3.09%  for the year  ended
December  31, 2000,  primarily  as a result of a decrease in the  interest  rate
spread to 2.63% for the year ended  December 31,  2001,  from 2.83% for the year
ended   December   31,   2000.   The   ratio  of   interest-earning   assets  to
interest-bearing  liabilities  decreased to 104.80% for the year ended  December
31, 2001 from 106.20% for the year ended  December 31, 2000. The decrease in the
spread was largely the result of the  redeployment  of cash flows from  mortgage
loans into shorter term securities and cash, which resulted in a decrease in the
yield earned. This was partially offset by a decrease in the cost of funds.


                                       6
<PAGE>


Interest Income

     Interest  income for the year ended  December  31,  2001 was $18.0  million
compared to $17.6  million for the year ended  December 31,  2000.  The $387,000
increase in interest income was primarily the result of a $24.2 million increase
in the average balance of interest-earning  assets. The average balance of loans
receivable  increased  $18.9 million,  the average  balance of  interest-bearing
deposits increased $5.9 million, and the average balance of other-earning assets
increased $9.5 million.  This was partially  offset by a decrease in the average
balance of interest-earning  securities of $10.1 million. The positive impact of
the  aggregate  increase in the average  balance of  interest-earning  assets on
interest income was partially offset by a decrease in the yield on total earning
assets of 0.52%.

Interest Expense

     Interest  expense for the year ended  December  31, 2001 was $10.5  million
compared to $10.2 million for the year ended December 31, 2000. The increase was
primarily  the result of a $26.1  million  increase  in the  average  balance of
interest-bearing  liabilities resulting from an increase of $16.9 million in the
average balance of total deposits, as well as an increase in the average balance
of total borrowings of $9.2 million.  This was partially offset by a decrease in
the cost of funds of 0.32%.

Provision for Loan Losses

     The Company  did not record a provision  for loan losses for the year ended
December 31,  2001.  The  allowance  was  $969,000,  equal to 0.62% of net loans
(including  loans  held for  sale) and  164.80%  of  non-performing  loans as of
December 31, 2001. The Company had non-performing assets totaling $588,000 as of
December 31, 2001.  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 the Company's actual loss experience in recent years has
been  minimal,  management  believes  that the  substantial  growth  in the loan
portfolio in recent years,  including the  significant  increase in multi-family
loans,  warrants the current level of the allowance for loan losses.  Management
also recognizes  that the recent slowdown in the economy  increases the need for
an  allowance  level  not  immediately  suggested  by  past  experience.   While
management  believes  the  existing  level  of  reserves  is  adequate,   future
adjustment  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 $718,000,  to $1.8 million for the year ended
December 31, 2001. The increase was primarily attributable to a gain on the sale
of  securities  and loans of $452,000 for the year ended  December 31, 2001,  as
compared to a net gain of $166,000  for the year ended  December  31,  2000.  In
addition,  fee and service charge income  increased  $336,000,  to $1.0 million,
while other non-interest income increased $96,000 to $298,000 for the year ended
December


                                       7
<PAGE>


31, 2001. The increases in fee and other  non-interest  income are due primarily
to the impact of the  acquisition of Midwest  Savings Bank,  which took place in
June,  2000,  as  well  as  an  increase  in  fees  related  to  increased  loan
originations  and an  increase in  commissions  generated  through  sales by the
Company's investment center.

Non-Interest Expense

     Non-interest expense was $6.3 million for the year ended December 31, 2001,
and $5.7 million for the year ended December 31, 2000. The $613,000  increase in
non-interest  expense was primarily  attributable to increased costs  associated
with the  addition of the two new branch  offices  obtained  through the Midwest
Savings  Bank  acquisition,  which took place in June,  2000.  The  increase  in
non-interest expense included increases in compensation, building, equipment and
data processing expense.

Provision for Income Taxes

     The Company's  federal and state income tax expense increased from $983,000
for the year ended December 31, 2000 to $1.0 million for the year ended December
31, 2001.  The $23,000  increase in income tax was the result of the increase in
net income before income taxes of $154,000,  partially  offset by an increase in
tax-exempt investments.

                      COMPARISON OF OPERATING RESULTS FOR
                   THE YEARS ENDED DECEMBER 31, 2000 AND 1999

General

     Consolidated  net income of the Company for the year  ending  December  31,
2000 was $1.8 million,  as compared to $1.7 million for the year ended  December
31, 1999. The $100,000  increase in net income was primarily  attributable to an
increase in net interest income and fee income.  This was partially offset by an
increase in non-interest expense.

Net Interest Income

     Net  interest  income  after the  provision  for loan losses  increased  by
$682,000,  to $7.4 million for the year ending December 31, 2000, as compared to
$6.8  million for the year ended  December 31,  1999.  The net  interest  margin
decreased to 3.09% for the year ended  December 31, 2000 from 3.30% for the year
ended  December  31,  1999,  primarily as a result of a decrease in the interest
rate spread to 2.83% for the year ended  December 31,  2000,  from 2.86% for the
year  ended  December  31,  1999.  The  ratio  of  interest-earning   assets  to
interest-bearing  liabilities  decreased to 106.20% for the year ended  December
31, 2000 from 112.38% for the year ended  December 31, 1999. The decrease in the
spread was largely a result of an increase in the cost of funds. The decrease in
the ratio of  interest-earning  assets  to  interest-bearing  liabilities  was a
result of the  Company's  repurchase of stock funded with  borrowings.  Although
this had the impact of narrowing  the net interest  margin,  the  repurchase  of
stock  below book value was  accretive  to book  value,  earnings  per share and
return on equity.


                                       8
<PAGE>


Interest Income

     Interest  income for the year ended  December  31,  2000 was $17.6  million
compared to $14.1 million for the year ended  December 31, 1999. The increase in
interest  income  was  primarily  a result of a $35.8  million  increase  in the
average  balance  of  interest-earning  assets.  The  average  balance  of loans
receivable  increased  $28.9  million  while the average  balance of  securities
remained relatively stable.

Interest Expense

     Interest  expense for the year ended  December  31, 2000 was $10.2  million
compared to $7.3 million for the year ended  December 31, 1999. The increase was
primarily  the result of a $44.4  million  increase  in the  average  balance of
interest-bearing  liabilities resulting from increased advances from the Federal
Home  Loan  Bank of  Chicago  of $26.6  million,  a $17.8  million  increase  in
deposits, as well as an increase in the average cost of funds from 4.00% in 1999
to 4.47% in 2000.

Provision for Loan Losses

     The  allowance  for loan losses  increased  by $174,000  for the year ended
December 31, 2000, increasing the total allowance for loan losses to $969,000 as
of December 31, 2000. This was a result of the allowance acquired in the Midwest
Savings transaction. The allowance was equal to 0.63% of total loans and 457% of
non-performing loans as of December 31, 2000 as compared 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  $212,000 as of December 31, 2000. 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 $345,000 to $1.05 million for the year ended
December 31, 2000. The increase was primarily attributable to a gain on the sale
of  securities  and loans of $166,000 for the year ended  December 31, 2000,  as
compared to a gain of $63,000 for the year ended December 31, 1999. In addition,
other non-interest  income increased to $202,000 for the year ended December 31,
2000,  as compared to $148,000 for the year ended  December  31, 1999.  Finally,
fees and service charges increased from $500,000 for the year ended December 31,
1999,  to $688,000 for the year ended  December 31,  2000,  due  primarily to an
increase  in loan  originations,  ATM  service  charges,  and income on checking
accounts.


                                       9
<PAGE>


Non-Interest Expense

     Non-interest expense was $5.7 million for the year ended December 31, 2000,
and $4.7  million  for the  year  ended  December  31,  1999.  The  increase  in
non-interest  expense was primarily  attributable  to costs  associated with the
Midwest Savings acquisition.  The increase in non-interest expense also included
increases in compensation, building, equipment, and data processing expenses.

Provision for Income Taxes

     The  Company's  federal and state  income tax expense  decreased  from $1.1
million for the year ended  December  31,  1999 to  $983,000  for the year ended
December  31,  2000.  The  $75,000  decrease in income tax was the result of the
increase in tax exempt securities.

     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,

                                            2001                       2000                      1999
                                            -----                      -----                     ----
                                   Average      Interest           Average      Interest            Average      Interest
                                 Outstanding     Earned/   Yield/ Outstanding    Earned/   Yield/ Outstanding     Earned/     Yield/
                                   Balance        Paid      Rate   Balance        Paid      Rate    Balance        Paid        Rate
                                   --------      ------     ----   --------       -----     ----    --------       -----       ----
                                                                      (Dollars in Thousands)
<S>                                <C>         <C>          <C>    <C>         <C>          <C>     <C>         <C>            <C>
Loans receivable(1) ............   $160,420    $ 11,704     7.30%  $141,505    $ 10,696     7.56%   $112,631    $  8,086       7.18%
Mortgage-backed securities(2) ..     64,926       4,171     6.42     69,803       5,052     7.24      73,706       4,840       6.57
Securities(2) ..................     11,232         762     6.78     16,445       1,109     6.74      11,307         748       6.62
Interest-bearing deposits ......     10,855         308     2.84      5,006         211     4.21       4,948         208       4.20
Other earning assets(3) ........     17,800       1,036     5.82      8,266         526     6.36       2,628         192       7.30
                                   --------      ------            --------       -----             --------      ------
   Total earning assets(1) .....    265,233      17,981     6.78    241,025      17,594     7.30     205,220      14,074       6.86
                                                 ------                          ------                           ------
Non-interest earning assets ....     11,854                           9,788                            7,652
                                   --------                        --------                         --------
   Total assets ................   $277,087                        $250,813                         $212,872
                                   ========                        ========                         ========

 Interest-Earning Liabilities:
Savings deposits ...............   $ 61,753       1,545     2.50   $ 56,601       1,586     2.80    $ 50,339       1,429       2.84
Demand and NOW .................     26,076         267     1.02     21,896         294     1.34      17,696         297       1.68
MMDA ...........................      9,408         263     2.80      8,067         259     3.21       6,888         217       3.15
Certificates of Deposit ........     85,808       4,386     5.11     79,550       4,265     5.36      73,414       3,666       4.99

Borrowings .....................     70,036       4,032     5.76     60,849       3,751     6.16      34,269       1,688       4.93
                                   --------      ------            --------       -----             --------      ------
      Total interest-bearing
        liabilities ............    253,081      10,493     4.15    226,963      10,155     4.47     182,606       7,297       4.00
                                                 ------                          ------                           ------

Non-interest-bearing liabilities      3,974                           3,514                            3,746
                                   --------                        --------                         --------
   Total liabilities ...........    257,055                         230,477                          186,352

Equity .........................     20,032                          20,336                           26,520
                                   --------                        --------                         --------
   Total liabilities and equity    $277,087                        $250,813                         $212,872
                                   ========                        ========                         ========

Net interest/spread ............               $  7,488     2.63%              $  7,439     2.83%               $  6,777       2.86%
                                               ========     ====               ========     ====                ========       ====

Margin .........................                            2.82%                           3.09%                              3.30%
                                                            ====                            ====                               ====

Assets to liabilities ..........     104.80%                         106.20%                          112.38%
                                   ========                        ========                         ========
</TABLE>
----------
(1)  Calculated net of deferred loan fees, loan discounts,  loans in process and
     loss reserves, and includes loans held for sale.

(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.

<TABLE>
<CAPTION>
                                                                            At December 31,
                                                        ------------------------------------------------------
                                                         2001        2000        1999        1998        1997
                                                        ------------------------------------------------------
<S>                                                      <C>         <C>         <C>         <C>         <C>
Weighted average yield on:
Loans receivable(1) ..............................       7.13%       7.52%       7.25%       7.27%       7.63%
Mortgage-backed securities(2) ....................       5.19        7.23        6.96        6.32        6.99
Securities(2) ....................................       6.00        6.79        6.73        6.35        5.22
Other interest-earning assets ....................       3.13        6.76        4.37        4.81        5.77
       Combined weighted average yield
       on interest-earning assets ................       6.17        7.35        6.97        6.75        7.27

Weighted average rate paid on:
Passbook savings .................................       1.75        2.75        2.85        2.94        2.94
NOW ..............................................       0.50        1.50        1.70        2.02        2.22
MMDA .............................................       1.65        3.27        3.20        3.20        3.20
Certificates of deposit ..........................       2.66        5.70        4.98        4.76        5.62
Borrowings .......................................       5.60        6.09        5.22        4.91        5.86
   Combined weighted average rate
       paid on interest-bearing liabilities ......       3.49        4.61        4.11        4.17        4.35

Spread ...........................................       2.68%       2.74%       2.86%       2.58%       2.92%
</TABLE>
----------
(1)  Includes  loans held for sale and excludes  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,
                                                         2001 vs. 2000                    2000 vs. 1999
                                                 -----------------------------    -----------------------------
                                                      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) .........................   $ 1,390    $  (382)   $ 1,008    $ 2,164    $   446    $ 2,610
 Mortgage-backed securities ..................      (338)      (543)      (881)      (265)       477        212
 Securities ..................................      (354)         7       (347)       346         15        361
Interest-bearing deposits ....................       184        (87)        97          2          1          3
Other earning assets .........................       558        (48)       510        362        (28)       334
                                                 -------    -------    -------    -------    -------    -------
   Total interest-earning assets .............     1,440     (1,053)       387      2,609        911      3,520

Interest-bearing liabilities:
 Passbook savings ............................       137       (178)       (41)       176        (19)       157
 NOW .........................................        50        (77)       (27)        63        (66)        (3)
 MMDA ........................................        40        (36)         4         38          4         42
 Certificates of deposit .....................       326       (205)       121        318        281        599
 Borrowings ..................................       540       (259)       281      1,558        505      2,063
                                                 -------    -------    -------    -------    -------    -------

   Total interest-bearing liabilities ........     1,093       (755)       338      2,153        705      2,858
                                                 -------    -------    -------    -------    -------    -------

Net interest/spread ..........................   $   347    $  (298)   $    49    $   456    $   206    $   662
                                                 =======    =======    =======    =======    =======    =======
</TABLE>

(1) Includes loans held for sale.


                                       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.

     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 the implementation of the rule
until  further  notice.  Based upon its asset size and capital level at December
31, 2001, the Bank would qualify for an exemption from this rule.


                                       13
<PAGE>


     The  following  table sets forth,  at December 31, 2001, 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 of December 31, 2001,
due to the current level of interest rates, the Office of Thrift  Supervision no
longer  provides NPV estimates for decreases in interest  rates greater than 100
basis points.

<TABLE>
<CAPTION>
  Change in                        Net Portfolio Value                   NPV as % f PV of Assets
Interest Rates         ------------------------------------------       -------------------------
(Basis Points)         $ Amount           $ Change       % Change       NPV Ratio          Change
--------------         --------           --------       --------       ---------          ------
                                                 (Dollars in Thousands)
<S>                     <C>               <C>              <C>            <C>             <C>
     +300               19,671            (13,245)         (40)%           7.01%          (395) bp
     +200               24,375             (8,541)         (26)%           8.49%          (247) bp
     +100               28,916             (4,000)         (12)%           9.84%          (112) bp
       --               32,916                 --           --            10.96%            -- bp
     -100               34,579             (1,663)           5%           11.34%            38 bp
     -200                   --                 --           --%              --%            -- bp
     -300                   --                 --           --%              --%            -- bp
</TABLE>

     For comparative purposes, the table below sets forth, at December 31, 2000,
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).

<TABLE>
<CAPTION>
  Change in                        Net Portfolio Value                   NPV as % f PV of Assets
Interest Rates         ------------------------------------------       -------------------------
(Basis Points)         $ Amount           $ Change       % Change       NPV Ratio          Change
--------------         --------           --------       --------       ---------          ------
                                                 (Dollars in Thousands)
<S>                     <C>               <C>              <C>            <C>             <C>
     +300               11,111            (15,294)         (58)%           4.26%          (515) bp
     +200               16,714             (9,691)         (37)%           6.23%          (317) bp
     +100               22,003             (4,402)         (17)%           8.00%          (140) bp
       --               26,405                 --           --             9.40%            -- bp
     -100               29,023              2,618           10%           10.18%            78 bp
     -200               30,843              4,438           17%           10.69%           129 bp
     -300               33,937              7,532           29%           11.57%           217 bp
</TABLE>

         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.


                                       14
<PAGE>


     Management  recognized  the need for a reduction in the Company's  level of
interest  rate risk.  As a result,  the  Company  has taken a number of steps to
manage its interest  rate risk level,  including  originating  and selling loans
directly into the secondary  market.  In 2001, the Company sold $14.9 million in
long term fixed rate loans into the secondary market.  The Company also obtained
$16 million in fixed rate Federal Home Loan Bank  advances  with  maturities  of
three years or greater in 2001.  The Company  also  increased  its level of cash
equivalents  to $28.2  million,  or 10% of total  assets.  At December 31, 2001,
$47.5  million,  or 16% of the Company's  assets  consisted of  mortgage-related
securities with adjustable rates and/or terms to maturity of five years or less.
In addition,  $43.3 million, or 29% of the Company's loans receivable are either
adjustable rate or seven year balloon mortgages.  Finally, $91.2 million, or 49%
of the Company's deposits consist of passbook savings and NOW checking accounts,
which are believed by management  to be less  sensitive to interest rate changes
than certificate accounts.

     The actions of  management  have  resulted in a reduction in the  Company's
level of interest  rate risk over the past twelve  months.  Management  believes
that in order to maintain  interest rate risk at an acceptable  level, it may be
necessary to sell additional fixed rate mortgage loans. In addition,  management
may consider other actions such as obtaining  additional  Federal Home Loan Bank
long term fixed rate advances and  reinvesting  cash flows into  adjustable rate
and/or short term securities as a means of managing interest rate risk.

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 levels of liquid
assets  sufficient to ensure the Bank's safe and sound operation.  Liquid assets
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 at levels in excess of those required to meet this standard.

     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 $5.0 million and
$2.0  million  for the years ended  December  31, 2001 and  December  31,  2000,
respectively. Net cash from investing activities consisted primarily of proceeds
from  maturities and repayments of securities and loans,  offset by purchases of
securities and loan originations.  Net cash from financing  activities consisted
primarily of borrowings from the FHLB, a note payable and deposit growth, offset
by repayments of FHLB advances and purchases of treasury stock.


                                       15
<PAGE>


     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, 2001,
cash and short-term  investments  totaled $28.2  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, 2001,  the Bank had  outstanding  commitments  to originate
loans of $3.1  million of which $3.1  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, 2001 totaled $72.1 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, 2001, Hemlock Federal was in compliance with
all applicable capital  requirements on a fully phased-in basis. See "Regulation
- Regulatory  Capital  Requirements"  and Note 14 of the Notes to the  Financial
Statements.

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, 2001, the Bank  continued to exceed all regulatory  capital
requirements  with  tangible  and  core  capital  of $20.5  million,  or 7.2% of
adjusted total assets,  which were approximately $9.2 million above the tangible
minimum  requirement  and $16.3 million above core minimum  requirements of 4.0%
and 1.5%, respectively,  of the adjusted total assets in effect on that date. On
December 31, 2001,  the Bank had  risk-based  capital of $20.5 million plus $1.5
million in  supplemental  capital,  or 16.6% of  risk-weighted  assets of $132.5
million.  This amount was $11.4 million above the 8.0%  requirement in effect on
that date. Under regulatory guidelines, the Bank was considered well-capitalized
at December 31, 2001.


                                       16
<PAGE>


Impact of Inflation

     The  financial  statements  and  related  data  presented  herein have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America,  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.

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 (the Corporation) as of
December 31, 2001 and 2000 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,  2001.  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 auditing standards generally accepted
in the  United  States of  America.  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, 2001 and 2000 and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2001, in conformity  with  accounting  principles
generally accepted in the United States of America.


                                          Crowe, Chizek and Company LLP

Oak Brook, Illinois
January 18, 2002


                                                                             18.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                           December 31, 2001 and 2000
                             (Dollars in thousands)

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

<TABLE>
<CAPTION>
                                                                           2001           2000
                                                                        ---------       ---------
<S>                                                                     <C>             <C>
ASSETS
Cash and due from banks                                                 $   4,929       $   5,201
Interest-bearing deposits in financial institutions                        23,228          13,303
                                                                        ---------       ---------
     Cash and cash equivalents                                             28,157          18,504

Securities available-for-sale                                              36,908          37,302
Securities held-to-maturity (fair value:  2001 - $57,549;
  2000 - $55,230)                                                          56,267          54,899
Loans held for sale                                                         8,595             356
Loans receivable, net                                                     147,878         154,465
Federal Home Loan Bank stock, at cost                                       3,745           3,497
Accrued interest receivable                                                 1,216           1,495
Intangible assets                                                           1,496           1,654
Premises and equipment, net                                                 3,704           3,773
Prepaid expenses and other assets                                             720             718
                                                                        ---------       ---------

     Total assets                                                       $ 288,686       $ 276,663
                                                                        =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits                                                                $ 189,456       $ 179,424
Advances from Federal Home Loan Bank                                       68,985          69,450
Notes payable                                                               5,800           5,250
Advance payments by borrowers for taxes and insurance                       1,551           1,629
Accrued interest payable and other liabilities                              2,020           1,807
                                                                        ---------       ---------
     Total liabilities                                                    267,812         257,560

Stockholders' equity
     Common stock                                                              21              21
     Additional paid-in capital                                            20,544          20,353
     Unearned ESOP shares                                                    (831)           (997)
     Unearned stock awards                                                   (343)           (590)
     Treasury stock, at cost                                              (16,634)        (16,083)
     Retained earnings                                                     16,919          15,507
     Accumulated other comprehensive income                                 1,198             892
                                                                        ---------       ---------
         Total equity                                                      20,874          19,103
                                                                        ---------       ---------

              Total liabilities and stockholders' equity                $ 288,686       $ 276,663
                                                                        =========       =========
</TABLE>


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


                                                                             19.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                  Years ended December 31, 2001, 2000, and 1999
                  (Dollars in thousands, except per share data)

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                     2001           2000            1999
                                                                   --------       --------        --------
<S>                                                                 <C>            <C>             <C>
Interest income
    Loans                                                           $ 11,704       $ 10,696        $  8,086
    Mortgage-backed and collateralized mortgage
      obligation securities                                            4,171          5,052           4,840
    Securities                                                           814          1,131             765
    Other interest-earning assets                                      1,292            715             383
                                                                    --------       --------        --------
       Total interest income                                          17,981         17,594          14,074

Interest expense
    Deposits                                                           6,461          6,404           5,609
    Federal Home Loan Bank advances                                    3,648          3,462           1,688
    Notes payable                                                        384            289             --
                                                                    --------       --------        --------
       Total interest expense                                         10,493         10,155           7,297
                                                                    --------       --------        --------

Net interest income                                                    7,488          7,439           6,777

Provision for loan losses                                                --             --               20
                                                                    --------       --------        --------

Net interest income after provision for loan losses                    7,488          7,439           6,757

Noninterest income
    Fees and service charges                                           1,024            688             500
    Gain on sale of loans                                                172            196              --
    Gain (loss) on sale of securities                                    280            (30)             63
    Other                                                                298            202             148
                                                                    --------       --------        --------
       Total noninterest income                                        1,774          1,056             711

Noninterest expense
    Compensation and employee benefits                                 3,299          2,852           2,418
    Occupancy and equipment expenses                                   1,015          1,026             920
    Data processing                                                      426            384             264
    Federal insurance premiums                                            34             37              86
    Advertising and promotion                                            225            202             177
    Other                                                              1,287          1,172             805
                                                                    --------       --------        --------
       Total noninterest expense                                       6,286          5,673           4,670
                                                                    --------       --------        --------

Income before provision for income taxes                               2,976          2,822           2,798

Provision for income taxes                                             1,006            983           1,058
                                                                    --------       --------        --------


Net income                                                          $  1,970       $  1,839        $  1,740
                                                                    ========       ========        ========

Basic earnings per share                                            $   2.18       $   1.75        $   1.16
                                                                    ========       ========        ========

Diluted earnings per share                                          $   2.11       $   1.75        $   1.16
                                                                    ========       ========        ========
</TABLE>

--------------------------------------------------------------------------------
          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, 2001, 2000, and 1999
                  (Dollars in thousands, except per share data)

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                   Additional     Unearned     Unearned
                                        Common       Paid-in        ESOP         Stock       Treasury
                                         Stock       Capital       Shares        Awards        Stock
                                       ----------   ----------   ----------    ----------    ----------
<S>                                    <C>          <C>          <C>           <C>           <C>
Balance at January 1, 1999             $       21   $   20,208   $   (1,329)   $   (1,120)   $   (4,863)

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

Balance at December 31, 1999           $       21   $   20,270   $   (1,163)   $     (859)   $   (7,227)
                                       ==========   ==========   ==========    ==========    ==========

<CAPTION>
                                                      Accumulated
                                                          Other         Total
                                         Retained    Comprehensive  Stockholders' Comprehensive
                                          Earnings       Income        Equity        Income
                                         ----------    ----------    ----------    ----------
<S>                                      <C>           <C>           <C>           <C>
Balance at January 1, 1999               $   13,207    $    1,082    $   27,206

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

Balance at December 31, 1999             $   14,235    $      444    $   25,721
                                         ==========    ==========    ==========
</TABLE>

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


                                                                             21.
<PAGE>

              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  Years ended December 31, 2001, 2000, and 1999
                  (Dollars in thousands, except per share data)

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                    Additional     Unearned      Unearned
                                         Common      Paid-in         ESOP         Stock        Treasury
                                          Stock      Capital        Shares        Awards         Stock
                                       ----------   ----------    ----------    ----------    ----------
<S>                                    <C>          <C>           <C>           <C>           <C>
Balance at January 1, 2000             $       21   $   20,270    $   (1,163)   $     (859)   $   (7,227)

ESOP shares earned                             --           83           166            --            --
Stock awards earned                            --           --            --           269            --
Cash dividends ($.46 per share)                --           --            --            --            --
Purchase of treasury stock                     --           --            --            --        (8,856)
Comprehensive income:
    Net income                                 --           --            --            --            --
    Change in unrealized gain on
      securities available-for-sale,
      net of reclassification and
      tax effects                              --           --            --            --            --
                                       ----------   ----------    ----------    ----------    ----------
       Total comprehensive
         income


Balance at December 31, 2000                   21       20,353          (997)         (590)      (16,083)

ESOP shares earned                             --          199           166            --            --
Stock awards earned                            --           (8)           --           247            --
Cash dividends ($.54 per share)                --           --            --            --            --
Purchase of treasury stock                     --           --            --            --          (551)
Comprehensive income:
    Net income                                 --           --            --            --            --
    Change in unrealized gain on
      securities available-for-sale,
      net of reclassification and
      tax effects                              --           --            --            --            --
                                       ----------   ----------    ----------    ----------    ----------
       Total comprehensive
         income


Balance at December 31, 2001           $       21   $   20,544    $     (831)   $     (343)   $  (16,634)
                                       ==========   ==========    ==========    ==========    ==========

<CAPTION>
                                                     Accumulated
                                                        Other        Total
                                         Retained   Comprehensive Stockholders' Comprehensive
                                         Earnings       Income       Equity        Income
                                        ----------    ----------   ----------    ----------
<S>                                     <C>           <C>           <C>          <C>
Balance at January 1, 2000              $   14,235    $      444   $   25,721

ESOP shares earned                              --            --          249
Stock awards earned                             --            --          269
Cash dividends ($.46 per share)               (567)           --         (567)
Purchase of treasury stock                      --            --       (8,856)
Comprehensive income:
    Net income                               1,839            --        1,839    $    1,839
    Change in unrealized gain on
      securities available-for-sale,
      net of reclassification and
      tax effects                               --           448          448           448
                                        ----------    ----------   ----------    ----------
       Total comprehensive
         income                                                                  $    2,287
                                                                                 ==========

Balance at December 31, 2000                15,507           892       19,103

ESOP shares earned                              --            --          365
Stock awards earned                             --            --          239
Cash dividends ($.54 per share)               (558)           --         (558)
Purchase of treasury stock                      --            --         (551)
Comprehensive income:
    Net income                               1,970            --        1,970    $    1,970
    Change in unrealized gain on
      securities available-for-sale,
      net of reclassification and
      tax effects                               --           306          306           306
                                        ----------    ----------   ----------    ----------
       Total comprehensive
         income                                                                  $    2,276
                                                                                 ==========

Balance at December 31, 2001            $   16,919    $    1,198   $   20,874
                                        ==========    ==========   ==========
</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, 2001, 2000, and 1999
                             (Dollars in thousands)

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                     2001          2000          1999
                                                                                  ----------    ----------    ----------
<S>                                                                               <C>           <C>           <C>
Cash flows from operating activities
    Net income                                                                    $    1,970    $    1,839    $    1,740
    Adjustments to reconcile net income to net cash provided
      by operating activities
       Depreciation and amortization                                                     511           434           219
       Amortization of premiums and discounts on securities, net                         366            21           223
       Net (gain) loss on sale of securities                                            (280)           30           (63)
       Provision for loan losses                                                          --            --            20
       Change in deferred income taxes                                                   343           333           183
       ESOP compensation expense                                                         365           249           228
       Stock awards expense                                                              239           269           261
       Change in loans held for sale                                                  (8,067)         (356)           --
       Net gain on sale of loans                                                        (172)         (196)           --
       FHLB stock dividends                                                             (248)         (183)           --
       Net change in accrued interest receivable                                         279           (36)         (267)
       Net change in accrued interest payable and other liabilities                     (325)         (361)          (43)
       Increase in net deferred loan costs                                               (28)         (120)         (124)
       Net change in other assets                                                         (2)          (71)          204
                                                                                  ----------    ----------    ----------
          Net cash (used in) provided by operating activities                         (5,049)        1,952         2,581

Cash flows from investing activities
    Midwest Savings Bank acquisition, net of cash and cash equivalents                    --          (728)           --
    Purchase of securities available-for-sale                                         (9,208)      (11,049)      (15,227)
    Proceeds from sales of securities available-for-sale                               2,347         3,712         2,839
    Principal payments on mortgage-backed securities and
      collateralized mortgage obligations                                             28,103        12,451        24,766
    Purchase of securities held-to-maturity                                          (28,801)           --       (23,958)
    Proceeds from maturities and calls of securities                                   7,000           172         5,395
    Purchase of FHLB stock                                                                --          (124)         (475)
    Proceeds from sale of loans                                                           --        11,070            --
    Net change in loans                                                                6,615        (9,308)      (14,917)
    Property and equipment expenditures                                                 (284)          (92)         (190)
                                                                                  ----------    ----------    ----------
       Net cash provided by (used in) investing activities                             5,772         6,104       (21,767)

Cash flows from financing activities
    Net change in deposits                                                            10,032           662         7,427
    Increase in advance payments by borrowers for taxes
      and insurance                                                                      (78)          496            58
    Notes payable                                                                        550         5,250            --
    Borrowings from FHLB                                                              30,985        33,000        35,500
    Repayments of FHLB advances                                                      (31,450)      (29,250)      (17,000)
    Purchase of treasury stock                                                          (551)       (8,856)       (2,364)
    Dividends paid                                                                      (558)         (567)         (658)
                                                                                  ----------    ----------    ----------
       Net cash provided by financing activities                                       8,930           735        22,963
                                                                                  ----------    ----------    ----------

Net change in cash and cash equivalents                                                9,653         8,691         3,777

Cash and cash equivalents at beginning of year                                        18,504         9,813         6,036
                                                                                  ----------    ----------    ----------

Cash and cash equivalents at end of year                                          $   28,157    $   18,504    $    9,813
                                                                                  ==========    ==========    ==========

Supplemental disclosures of cash flow information
    Cash paid during the year for
       Interest                                                                   $   10,610    $    9,866    $    7,213
       Income taxes                                                                      701           799           836
</TABLE>

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

                                                                             23.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (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 five branches
located in the Chicago metropolitan area.

Use of Estimates in the Preparation of Financial Statements:  The preparation of
financial statements in conformity with accounting principles generally accepted
in the United  States of  America  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, net of taxes,  reported in other
comprehensive income.  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:  Loans  that  management  has the  intent  and  ability  to hold  for the
foreseeable  future or until  maturity or payoff are  reported at the  principal
balance outstanding, net of unearned interest, deferred loan fees and costs, and
an allowance  for loan losses.  Loans held for sale are reported at the lower of
cost or market, on an aggregate basis.

Interest income is reported on the interest method and includes  amortization of
net  deferred  loan fees and costs  over the loan term.  Interest  income is not
reported when full loan repayment is in doubt.  Payments  received on such loans
are reported as principal reductions.

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


                                                                             24.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance  for Loan  Losses:  The  allowance  for  loan  losses  is a  valuation
allowance for probable  incurred  credit losses,  increased by the provision for
loan losses and decreased by chargeoffs less  recoveries.  Management  estimates
the allowance  balance required using past loan loss experience,  the nature and
volume of the  portfolio,  information  about specific  borrower  situations and
estimated collateral values, economic conditions, and other factors. Allocations
of the allowance  may be made for specific  loans,  but the entire  allowance is
available for any loan that, in  management's  judgment,  should be charged off.
Loan losses are charged against the allowance when management  believes that the
uncollectibility of a loan balance is confirmed.

A loan is  impaired  when full  payment  under the loan  terms is not  expected.
Impairment  is evaluated in total for  smaller-balance  loans of similar  nature
such as  residential  mortgage,  consumer,  and  credit  card  loans,  and on an
individual loan basis for other loans.  If a loan is impaired,  a portion of the
allowance is allocated so that the loan is reported net, at the present value of
estimated  future cash flow using the loan's  existing rate or at the fair value
of collateral if repayment is expected solely from the collateral.

Servicing  Assets:  Servicing  assets  represent the allocated value of retained
servicing rights on loans sold.  Servicing assets are expensed in proportion to,
and  over the  period  of,  estimated  net  servicing  revenues.  Impairment  is
evaluated  based  on the  fair  value  of the  assets,  using  groupings  of the
underlying  loans with similar  characteristics.  Fair value is determined using
prices for similar  assets with similar  characteristics.  Any  impairment  of a
grouping is reported as a valuation allowance.

Intangible  Assets:  The  excess of the  purchase  price  over the fair value of
assets  acquired  for  acquisition  transactions  accounted  for as purchases is
recorded  as an  intangible  asset.  Fair  value  adjustments  for  identifiable
tangible  assets are accreted  and  amortized  over the lives of the  respective
assets.  Goodwill and core deposit intangibles are being amortized over eight to
fifteen years.

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 that
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.

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


                                                                             25.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stockholders'  Equity: Common stock has $.01 par value, and 2,500,000 shares are
authorized.  There were 2,076,325  common shares issued at December 31, 2001 and
2000,  including  1,063,139  shares  and  1,036,139  shares  held  in  treasury,
respectively. Treasury stock is carried at cost.

Employee Stock Ownership Plan (ESOP):  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 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:  Basic  earnings per share is based on net income divided by
the weighted  average number of shares  outstanding  during the period including
allocated and committed to be released ESOP shares.  Diluted  earnings per share
shows the dilutive  effect,  if any, of additional  common shares issuable under
stock options and unearned management recognition (MRP) shares.

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.

Loss  Contingencies:  Loss  contingencies,  including  claims and legal  actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood  of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.

Reclassifications:  Certain items in the financial  statements as of and for the
years ended December 31, 2000 and 1999 have been reclassified, with no effect on
net income, to conform to the current year presentation.

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


                                                                             26.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

New Accounting  Pronouncements:  A new accounting standard requires all business
combinations  to be recorded  using the purchase  method of  accounting  for any
transaction  initiated  after June 30,  2001.  Under the  purchase  method,  all
identifiable  tangible and  intangible  assets and  liabilities  of the acquired
company must be recorded at fair value at date of acquisition, and the excess of
cost  over  fair  value  of  net  assets   acquired  is  recorded  as  goodwill.
Identifiable  intangible  assets must be separated from  goodwill.  Identifiable
intangible  assets  with finite  useful  lives will be  amortized  under the new
standard,  whereas goodwill, both amounts previously recorded and future amounts
purchased,  will cease  being  amortized  starting  in 2002.  Annual  impairment
testing will be required  for goodwill  with  impairment  being  recorded if the
carrying  amount of goodwill  exceeds its implied  fair value.  Adoption of this
standard on January 1, 2002 will not have a material effect on the Corporation's
financial statements.

NOTE 2 - ACQUISITION OF MIDWEST SAVINGS BANK

On June 9, 2000,  the Bank completed its  acquisition  of Midwest  Savings Bank.
Cash of $3.3  million  was paid for all of the  outstanding  shares  of  Midwest
Savings  Bank.  The  acquisition  was  recorded  using  the  purchase  method of
accounting, and concurrent with the transaction, Midwest Savings Bank was merged
into  Hemlock  Federal  Bank.  At June 9, 2000,  Midwest  Savings Bank had total
assets of $47.8 million,  which included $39.6 million of loans, $2.6 million of
cash and cash equivalents,  $28.2 million of deposits, and $16.2 million of FHLB
advances.  The acquisition  resulted in goodwill of $1,003,000,  which,  through
December 31, 2001, was being  amortized  over fifteen years,  and a core deposit
intangible of $730,000,  which is being  amortized over eight years.  Intangible
assets are reported net of accumulated  amortization  of $237,000 and $79,000 at
December 31, 2001 and 2000.

Midwest  Savings  Bank's  results  of  operations  have  been  reflected  in the
Corporation's  consolidated statements of income beginning as of the acquisition
date. The pro forma total net interest  income,  total income,  net income,  and
basic and diluted  earnings per share for the years ended  December 31, 2000 and
1999 after  giving  effect to the  Midwest  Savings  Bank  acquisition  as if it
occurred on January 1, 1999 are as follows:

                                                      2000            1999
                                                      ----            ----

     Net interest income                             $ 7,988        $ 8,211
     Total income                                     20,093         18,221
     Net income                                        1,764          1,533
     Basic earnings per share                           1.68           1.02
     Diluted earnings per share                         1.68           1.02

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


                                                                             27.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTES 3 - SECURITIES

Securities consist of the following at:
<TABLE>
<CAPTION>
                                                                    ---------------------December 31, 2001----------------------
                                                                                         -----------------
                                                                                      Gross            Gross
                                                                    Amortized      Unrealized        Unrealized         Fair
                                                                       Cost           Gains           (Losses)          Value
                                                                     --------        --------         --------         --------
<S>                                                                  <C>             <C>              <C>              <C>
     Securities available-for-sale
        FHLMC stock                                                  $  7,520        $  1,329         $     --         $  8,849
        FNMA stock                                                      5,494              --             (126)           5,368
        Mortgage-backed securities                                      4,984             158               --            5,142
        Collateralized mortgage obligations                            14,897             333               (1)          15,229
        Other equity securities                                         2,050             286              (16)           2,320
                                                                     --------        --------         --------         --------

                                                                     $ 34,945        $  2,107         $   (144)        $ 36,908
                                                                     ========        ========         ========         ========
     Securities held-to-maturity
        U.S. government agencies                                     $  4,402        $    131         $     (6)        $  4,527
        Mortgage-backed securities                                     41,347           1,252              (30)          42,569
        Collateralized mortgage obligations                            10,518              33              (98)          10,453
                                                                     --------        --------         --------         --------

                                                                     $ 56,267        $  1,416         $   (134)        $ 57,549
                                                                     ========        ========         ========         ========
</TABLE>

<TABLE>
<CAPTION>
                                                                    ---------------------December 31, 2000----------------------
                                                                                         -----------------
                                                                                      Gross            Gross
                                                                    Amortized      Unrealized        Unrealized         Fair
                                                                       Cost           Gains           (Losses)          Value
                                                                     --------        --------         --------         --------
<S>                                                                  <C>             <C>              <C>              <C>
     Securities available-for-sale
        U.S. government agencies                                     $  1,000        $     --         $     (2)        $    998
        FHLMC stock                                                     2,520           1,404               (6)           3,918
        FNMA stock                                                      5,494              22               --            5,516
        Mortgage-backed securities                                      3,984             112               --            4,096
        Collateralized mortgage obligations                            22,369              78             (187)          22,260
        Other equity securities                                           473              44               (3)             514
                                                                     --------        --------         --------         --------

                                                                     $ 35,840        $  1,660         $   (198)        $ 37,302
                                                                     ========        ========         ========         ========
     Securities held-to-maturity
        U.S. government agencies                                     $ 14,802        $     77         $   (256)        $ 14,623
        Mortgage-backed securities                                     34,181             617              (90)          34,708
        Collateralized mortgage obligations                             5,916              20              (37)           5,899
                                                                     --------        --------         --------         --------

                                                                     $ 54,899        $    714         $   (383)        $ 55,230
                                                                     ========        ========         ========         ========
</TABLE>

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


                                                                             28.


<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 3 - SECURITIES (Continued)

The amortized cost and estimated market value of debt securities at December 31,
2001 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                                 $ 1,400        $ 1,402        $    --        $    --
     Due after five years through ten years                                  3,002          3,125             --             --
                                                                           -------        -------        -------        -------
                                                                             4,402          4,527             --             --

     FHLMC stock                                                                --             --          7,520          8,849
     FNMA stock                                                                 --             --          5,494          5,368
     Mortgage-backed securities and collateralized
       mortgage obligations                                                 51,865         53,022         19,881         20,371
     Other equity securities                                                    --             --          2,050          2,320
                                                                           -------        -------        -------        -------

                                                                           $56,267        $57,549        $34,945        $36,908
                                                                           =======        =======        =======        =======
</TABLE>

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

                                                For the Year Ended
                                     --------------December 31,---------------
                                                   -----------
                                         2001          2000          1999
                                         ----          ----          ----

     Proceeds                          $ 2,347       $ 3,712       $ 2,839
     Gross realized gains                  284           115           157
     Gross realized losses                  (4)         (145)          (94)

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


                                                                             29.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 4 - LOANS RECEIVABLE

Loans receivable consist of the following:
                                                  ---------December 31,--------
                                                           -----------
                                                       2001            2000
                                                       ----            ----
     First mortgage loans
         Secured by one-to-four-family residences   $  114,013    $  123,016
         Secured by multi-family                        27,330        24,430
         Secured by commercial real estate                 379           430
                                                    ----------    ----------
                                                       141,722       147,876
         Less net deferred loan origination costs         (868)         (913)
                                                    ----------    ----------
              Total first mortgage loans               142,590       148,789

     Consumer and other loans
         Home equity loans                               5,952         6,137
         Loans on deposits                                  78           150
         Automobile loans                                  227           358
                                                    ----------    ----------
              Total consumer and other loans             6,257         6,645
         Less allowance for loan losses                    969           969
                                                    ----------    ----------

                                                    $  147,878    $  154,465
                                                    ==========    ==========

There were no impaired loans at December 31, 2001 or December 31, 2000.

Nonaccrual and renegotiated loans totaled approximately $588,000 and $212,000 at
December 31, 2001 and 2000,  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.

In the  normal  course  of  business,  loans  are  made to  executive  officers,
directors,  and principal  stockholders of the Corporation and its  subsidiaries
and to parties which the Corporation or its directors,  executive officers,  and
stockholders  have the ability to  significantly  influence  (related  parties).
Changes in such loans during the year ended December 31, 2001 follow:

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


                                                                             30.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 4 - LOANS RECEIVABLE (Continued)

     Balance at December 31, 2000                                  $ 1,296
     New loans, extensions, and modifications                          125
     Repayments                                                        (59)
                                                                   -------

     Balance at December 31, 2001                                  $ 1,362
                                                                   =======

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, 2001,  approximately 77% 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,-------
                                                        -----------
                                                  2001     2000      1999
                                                -------   -------   -------

     Balance at beginning of year               $   969   $   795   $   775
     Allowance acquired                              --       174        --
     Provision charged to income                     --        --        20
     Charge-offs                                     --        --        --
                                                -------   -------   -------

                                                $   969   $   969   $   795
                                                =======   =======   =======


NOTE 5 - LOAN SERVICING

The following summarizes the secondary mortgage market activities:

                                                 Year Ended December 31,
                                             ------------------------------
                                               2001       2000       1999
                                             --------   --------   --------

     Proceeds from sale of mortgage loans    $ 15,137   $ 11,070   $     --
                                             ========   ========   ========

     Gain on sale of mortgage loans          $    172   $    196   $     --
                                             ========   ========   ========

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


                                                                             31.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 5 - LOAN SERVICING (Continued)

The Corporation sells mortgage loans with servicing retained to the Federal Home
Loan Mortgage Corporation (FHLMC) and the Illinois Housing Development Authority
(IHDA).  Mortgage loans serviced for others are not included in the accompanying
consolidated  balance sheet.  As part of the acquisition of Midwest Savings Bank
during  2000,  approximately  $20  million of loans  serviced  for  others  were
acquired. These loans were sold to the FHLMC, IHDA, and the City of Bolingbrook.
The unpaid principal balances of these loans are summarized as follows:

                                                         December 31,
                                                         -----------
                                                  2001       2000       1999
                                                --------   --------   --------
     Federal Home Loan Mortgage Corporation     $ 33,864   $ 24,881   $  1,864
     IHDA                                         14,646     13,065        753
     Bolingbrook                                     409        531         --
                                                --------   --------   --------

                                                $ 48,919   $ 38,477   $  2,617
                                                ========   ========   ========

Custodial  escrow  balances  maintained  in connection  with the foregoing  loan
servicing were  approximately  $327,000,  $260,000,  and $69,000 at December 31,
2001, 2000, and 1999, respectively.

Following is an analysis of the changes in originated mortgage servicing rights:

                                                      December 31,
                                                      -----------
                                              2001        2000       1999
                                            --------    --------   --------
     Balance at beginning of year           $     89    $     --   $     --
     Originated mortgage servicing rights        134          89         --
     Amortization                                (24)         --         --
                                            --------    --------   --------

                                            $    199    $     89   $     --
                                            ========    ========   ========

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


                                                                             32.


<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 6 - PREMISES AND EQUIPMENT

Premises and equipment consists of the following at:

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

     Land                                           $   1,040    $   1,040
     Building and landscaping                           3,179        3,008
     Leasehold improvements                               102          171
     Furniture, fixtures, and equipment                 1,025        1,142
                                                    ---------    ---------
         Total cost                                     5,346        5,361

     Accumulated depreciation                          (1,642)      (1,588)
                                                    ---------    ---------

                                                    $   3,704    $   3,773
                                                    =========    =========


NOTE 7 - DEPOSITS

Certificate  of  deposit  accounts  with  balances   $100,000  or  more  totaled
$9,297,000 and $8,125,000 at December 31, 2001 and 2000, respectively.  Deposits
greater than $100,000 are not insured.

At December 31, 2001,  scheduled  maturities of  certificates  of deposit are as
follows:

              2002                                          $    72,143
              2003                                                9,619
              2004                                                2,927
              2005                                                1,726
              2006 and thereafter                                   703
                                                            -----------

                                                            $    87,118
                                                            ===========

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


                                                                             33.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK

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

<TABLE>
<CAPTION>
                                                                      December 31,
                                                                      ------------
                                               -----------2001------------   ------------2000-----------
                                                          ----                           ----
                                                 Weighted                       Weighted
                                                 Average                        Average
                                                  Rate           Amount          Rate           Amount
                                               ----------      ----------     ----------      ----------
<S>                                                  <C>       <C>                  <C>       <C>
     Advances from the Federal
       Home Loan Bank due
          2001                                         --%     $       --           6.47%     $    4,000
          2003                                       6.28           7,000           6.28           7,000
          2004                                       5.54           6,400           5.69           4,000
          2005                                       5.76          13,000           6.20           8,000
          2006                                       5.36           6,850             --              --
          2007                                       4.35           3,735             --              --
          2008                                       4.95          18,000           4.95          18,000
          2010                                       6.37          14,000           6.37          14,000
          Open line                                    --              --           6.79          14,450
                                                               ----------                     ----------

              Total                                  5.59%     $   68,985           6.02%     $   69,450
                                                               ==========                     ==========
</TABLE>

At December  31,  2001,  $51.0  million of the FHLB  advances  have various call
provisions  including  semi-annual and annual call dates.  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.

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


                                                                             34.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 9 - NOTE PAYABLE

At year end, the Corporation had the following notes payable outstanding:
<TABLE>
<CAPTION>
                                                                                           2001          2000
                                                                                           ----          ----
<S>                                                                                    <C>           <C>
       Revolving  line of credit;  one year term maturing  March 5;
       variable rate at three-month LIBOR plus 1.75% (5.22% - 2001;
       8.40% - 2000); interest due  quarterly, principal at maturity.                  $    4,250    $    5,250

       Term  note;  maturing  March 5,  2002;  fixed rate at 6.95%;
       principal and interest due quarterly.                                                1,550           --
                                                                                       ----------    ---------

                                                                                       $    5,800    $    5,250
                                                                                       ==========    ==========
</TABLE>

The notes are secured by 100% of the Bank's  outstanding  common stock. In March
2000, the Corporation used the line to finance the repurchase of common stock in
the  Dutch  auction  tender  offer and has  since  used the line for  additional
repurchases of the Corporation's stock. Among other restrictions, under the debt
agreement with LaSalle,  the Bank must remain well capitalized.  The Corporation
was in compliance with the financial covenants at December 31, 2001.


NOTE 10 - INCOME TAXES

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

                                                For the Year Ended
                                         -----------December 31,------------
                                                    -----------
                                           2001         2000         1999
                                         --------     --------     --------
     Current
         Federal                         $    610     $    650     $    755
         State                                 53           --          120
     Deferred                                 343          333          183
                                         --------     --------     --------

                                         $  1,006     $    983     $  1,058
                                         ========     ========     ========

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


                                                                             35.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 10 - INCOME TAXES (Continued)

The  provision  for income  taxes  differs from that  computed at the  statutory
corporate tax rate as follows:

<TABLE>
<CAPTION>
                                                  ----------------------For the Year Ended December 31,-----------------------
                                                  ---------2001----------     ---------2000---------    ---------1999---------
<S>                         <C>                   <C>                <C>      <C>               <C>     <C>               <C>
     Provision for federal
       income taxes computed
       at statutory rate of 34%                   $   1,012          34.0%    $     959         34.0%   $     951         34.0%
     State income taxes,
       net of federal tax
       effect and other                                  (6)          (.2)           24           .9          107          3.9
                                                  ---------     ---------     ---------    ---------    ---------    ---------

                                                  $   1,006          33.8%    $     983         34.9%   $   1,058         37.9%
                                                  =========     =========     =========    =========    =========    =========
</TABLE>

Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
                                                                            -------December 31,-------
                                                                                   -----------
                                                                               2001            2000
                                                                            ----------      ----------
<S>                                                                         <C>             <C>
     Contributions                                                          $      136      $      220
     Loans, principally due to allowance for loan losses                           330             306
     Net operating loss carryforwards acquired                                     276             396
     Other                                                                          22              29
                                                                            ----------      ----------
         Total deferred tax assets                                                 764             951

     Unrealized gain on securities available-for-sale                             (765)           (570)
     Purchase accounting adjustments                                              (111)           (120)
     Depreciation                                                                  (98)            (97)
     Federal Home Loan Bank stock dividends                                       (241)           (145)
     Deferred loan fees                                                           (347)           (358)
     Other                                                                        (129)            (50)
                                                                            ----------      ----------
         Total deferred tax liabilities                                         (1,691)         (1,340)
                                                                            ----------      ----------

              Net deferred tax liabilities                                  $     (927)     $     (389)
                                                                            ==========      ==========
</TABLE>

The federal net operating loss  carryforward of  approximately  $812,000 expires
from 2010 through 2019.

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


                                                                             36.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 10 - INCOME TAXES (Continued)

The Bank has  qualified  under  provisions  of the  Internal  Revenue Code which
permit it to deduct from taxable  income a provision  for bad debts that differs
from the  provision  charged  to income on the  financial  statements.  Retained
earnings at December 31, 2001 and 2000  include  approximately  $3,781,000,  for
which no deferred federal income tax liability has been recorded.


NOTE 11 - EARNINGS PER SHARE

A  reconciliation  of the  numerators  and  denominators  for earnings per share
computations for 2001, 2000, and 1999 is presented below.
<TABLE>
<CAPTION>
                                                                       2001              2000              1999
                                                                   ------------      ------------      ------------
<S>                                                                <C>               <C>               <C>
     Basic earnings per share

        Net income available to common stockholders                $      1,970      $      1,839      $      1,740
                                                                   ============      ============      ============
        Weighted average common shares outstanding                      903,450         1,048,587         1,503,112
                                                                   ============      ============      ============

           Basic earnings per share                                $       2.18      $       1.75      $       1.16
                                                                   ============      ============      ============

     Earnings per share assuming dilution
        Net income available to common stockholders                $      1,970      $      1,839      $      1,740
                                                                   ============      ============      ============

        Weighted average common shares outstanding                      903,450         1,048,587         1,503,112
        Add dilutive effect of assumed exercises:
           Incentive stock options                                        2,622                --                --
           Stock awards                                                  27,527                --                --
                                                                   ------------      ------------      ------------
        Weighted average common and dilutive
          potential common shares outstanding                           933,599         1,048,587         1,503,112
                                                                   ============      ============      ============

           Diluted earnings per share                              $       2.11      $       1.75      $       1.16
                                                                   ============      ============      ============
</TABLE>


NOTE 12 - 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.  There were no  contributions  for the years
ended December 31, 2001, 2000, and 1999.

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


                                                                             37.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 12 - EMPLOYEE BENEFIT PLANS (Continued)

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.

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 2001,  2000, and 1999,  16,611 shares of stock with an average fair value
of $21.96,  $14.99,  and $13.75 per share,  respectively,  were  committed to be
released,  resulting in ESOP  compensation  expense of $365,000,  $249,000,  and
$228,000, respectively. Shares held by the ESOP at December 31 are as follows:
<TABLE>
<CAPTION>
                                                                     2001             2000             1999
                                                                 ------------     ------------     ------------
<S>                                                              <C>              <C>              <C>
     Allocated shares                                                  83,054           66,443           49,832
     Unallocated shares                                                83,052           99,663          116,274
                                                                 ------------     ------------     ------------

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

        Fair value of unallocated shares                         $      2,139     $      1,689     $      1,642
                                                                 ============     ============     ============
</TABLE>

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.

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


                                                                             38.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 12 - EMPLOYEE BENEFIT PLANS (Continued)

A summary of the  status of the  Corporation's  stock  option  plan and  changes
during the years ended are presented below:
<TABLE>
<CAPTION>
                                                     ---------2001---------    ---------2000---------    ---------1999---------
                                                              ----                      ----                      ----
                                                                 Weighted-                 Weighted-                Weighted-
                                                                  Average                   Average                  Average
                                                                  Exercise                  Exercise                 Exercise
                                                      Shares        Price       Shares        Price       Shares       Price
                                                     ---------    ---------    ---------    ---------    ---------    ---------
<S>                                                    <C>        <C>            <C>        <C>            <C>        <C>
     Outstanding
       at beginning of year                            186,716    $   17.17      186,716    $   17.17      182,716    $   17.24
     Granted                                                --           --           --           --        4,000        13.88
     Exercised                                              --           --           --           --           --           --
     Forfeited                                              --           --           --           --           --           --
                                                     ---------    ---------    ---------    ---------    ---------    ---------

     Outstanding
       at end of year                                  186,716    $   17.17      186,716    $   17.17      186,716    $   17.17
                                                     =========    =========    =========    =========    =========    =========
</TABLE>


<TABLE>
<CAPTION>
                                                          2001             2000           1999
                                                          ----             ----           ----
<S>                                                    <C>              <C>              <C>
     Options exercisable at end of year                  147,776          110,432           73,088
     Weighted-average fair value of
       options granted during year                            --               --            $2.93
     Average remaining option term                     5.9 years        6.9 years        7.9 years
</TABLE>

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.
<TABLE>
<CAPTION>
                                                            2001          2000          1999
                                                            ----          ----          ----
<S>                                                      <C>           <C>           <C>
     Net income as reported                              $  1,970      $  1,839      $  1,740
     Pro forma net income                                   1,762         1,631         1,614
     Earnings per share as reported
         Basic                                               2.18          1.75          1.16
         Diluted                                             2.11          1.75          1.16
     Pro forma earnings per share
         Basic                                               1.95          1.56          1.07
         Diluted                                             1.89          1.56          1.07
</TABLE>

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


                                                                             39.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 12 - EMPLOYEE BENEFIT PLANS (Continued)

The  Black-Scholes  option  pricing  valuation  model was  developed  for use in
estimating  the fair value of traded  options that 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.

     Date of grant                                              October 12, 1999
     Options granted                                                   4,000
     Estimated fair value stock of options granted                     $2.93
     Assumptions used:
         Risk-free interest rate                                        5.99%
         Expected option life                                         10 years
         Expected stock price volatility                                 .01
         Expected dividend yield                                        2.74%

In connection with the conversion to stock ownership,  the Corporation adopted a
Management  Recognition  and  Retention  Plan (MRP).  In 1999,  the  Corporation
contributed  $1.4  million,  which  allowed 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 $246,000,
$269,000,  and $261,000 for the years ended  December 31, 2001,  2000, and 1999,
respectively.  During  2000,  453,490  shares of stock of the  Corporation  were
reacquired of which 83,053 were allocated to the MRP.


NOTE 13 - TREASURY STOCK

An analysis of changes in the number of shares of treasury stock outstanding
follows:
<TABLE>
<CAPTION>
                                                         2001               2000               1999
                                                     ------------       ------------       ------------
<S>                                                     <C>                  <C>                <C>
     Balance at January 1                               1,036,639            457,762            287,384
     Treasury stock purchases                              26,500            578,877            170,378
                                                     ------------       ------------       ------------

         Balance at December 31                         1,063,139          1,036,639            457,762
                                                     ============       ============       ============
</TABLE>

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


                                                                             40.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 14 - 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 capital
requirements can initiate regulatory action.

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.

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>
2001
    Total capital (to risk-
      weighted assets)                                  $  22,042        16.6%   $  10,645         8.0%   $  13,306        10.0%
    Tier 1 (core) capital (to risk-
      weighted assets)                                     20,532        15.4        5,322         4.0        7,983         6.0
    Tier 1 (core) capital (to adjusted
      total assets)                                        20,532         7.2       11,343         4.0       14,179         5.0
    Tangible capital (to tangible assets)                  20,532         7.2        4,254         1.5          N/A         N/A

2000
    Total capital (to risk-
      weighted assets)                                  $  21,144        16.8%   $  10,085         8.0%   $  12,607        10.0%
    Tier 1 (core) capital (to risk-
      weighted assets)                                     19,746        15.7        5,043         4.0        7,564         6.0
    Tier 1 (core) capital (to adjusted
      total assets)                                        19,746         7.2       10,970         4.0       13,713         5.0
    Tangible capital (to tangible assets)                  19,746         7.2        4,114         1.5           NA          NA
</TABLE>

At December 31,  2001,  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.

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


                                                                             41.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 14 - REGULATORY MATTERS (Continued)

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.

NOTE 15 - OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes were as follows:
<TABLE>
<CAPTION>
                                                                      2001             2000            1999
                                                                   ----------       ----------      ----------
<S>                                                                <C>              <C>             <C>
     Unrealized holding gains and losses on
       securities available-for-sale                               $      781       $      704      $     (984)
     Reclassification adjustments for (gains)
       and losses recognized in income                                   (280)              30             (63)
                                                                   ----------       ----------      ----------
     Net unrealized gains and (losses)                                    501              734          (1,047)
     Tax effect                                                           195              286            (409)
                                                                   ----------       ----------      ----------

     Other comprehensive income                                    $      306       $      448      $     (638)
                                                                   ==========       ==========      ==========
</TABLE>

NOTE 16 - 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:
<TABLE>
<CAPTION>
                                                                                 Contract Amount
                                                                                  December 31,
                                                                              2001            2000
                                                                              ----            ----
<S>                                                                        <C>            <C>
     Financial instruments whose contract amounts represent
       credit risk
     Commitments to extend credit, including loans in process              $    3,136     $    1,801
     Unused lines of credit                                                     2,893          2,296

</TABLE>

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


                                                                             42.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 16 - OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
  (Continued)

At  December  31,  2001 and 2000,  fixed  rate  commitments  to  extend  credit,
including   loans  in  process,   consisted  of   $3,136,000   and   $1,582,000,
respectively.  The fixed rate commitments at December 31, 2001 are due to expire
within 1 to 60 days of issuance and have rates ranging from 6.00% to 7.50%.

Financial instruments that potentially subject the Corporation to concentrations
of credit risk  include  interest-bearing  deposit  accounts in other  financial
institutions  and loans.  At December  31, 2001 and 2000,  the  Corporation  had
deposit   accounts  with  balances   totaling   approximately   $23,786,000  and
$13,094,000,   respectively,   at  the  Federal   Home  Loan  Bank  of  Chicago.
Concentrations of loans are described in Note 4.

NOTE 17 - COMMITMENTS AND CONTINGENCIES

At December 31, 2001 and 2000, 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 $132,000,  $111,000, and $85,000 for the years ended December
31,  2001,  2000,  and 1999,  respectively.  The  lease for the Oak Lawn  branch
expires April 1, 2002. The lease for the Chicago branch expires on July 1, 2002.
The lease for the Bolingbrook branch expires in December 2002. Projected minimum
rental payments under the terms of the leases,  not including taxes,  insurance,
and maintenance, is $69,000 for 2002.

NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS

The   approximate   carrying  amount  and  estimated  fair  value  of  financial
instruments consist of the following:
<TABLE>
<CAPTION>
                                                         --------December 31, 2001---- -------December 31, 2000----
                                                          Approximate                  Approximate
                                                           Carrying      Estimated       Carrying         Estimated
                                                            Amount      Fair Value        Amount         Fair Value
                                                         ----------     -----------     -----------      ----------
<S>                                                      <C>             <C>             <C>             <C>
     Financial Assets
        Cash and cash equivalents                        $   28,157      $   28,157      $   18,504      $   18,504
        Securities                                           93,175          94,457          92,201          92,532
        Loans held for sale                                   8,595           8,595             356             356
        Loans receivable, net                               147,878         147,383         154,465         154,393
        Federal Home Loan Bank stock                          3,745           3,745           3,497           3,497
        Accrued interest receivable                           1,216           1,216           1,495           1,495
</TABLE>

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


                                                                             43.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
                                                        -----December 31, 2001----    -----December 31, 2000----
                                                             -----------------             -----------------
                                                          Approximate                  Approximate
                                                           Carrying      Estimated      Carrying       Estimated
                                                            Amount      Fair Value       Amount       Fair Value
                                                            ------      ----------       ------       ----------
<S>                                                      <C>           <C>            <C>            <C>
     Financial Liabilities
        Demand deposits                                  $  (37,190)   $  (37,190)    $  (34,337)    $  (34,337)
        Savings deposits                                    (65,148)      (65,148)       (59,833)       (59,833)
        Time deposits                                       (87,118)      (88,179)       (85,254)       (85,485)
        Advances from Federal Home Loan Bank                (68,985)      (69,930)       (69,450)       (69,216)
        Note payable                                         (5,800)       (5,804)        (5,250)        (5,250)
        Advance payments by borrowers for taxes
          and insurance                                      (1,551)       (1,551)        (1,629)        (1,629)
        Accrued interest payable                               (515)         (515)          (632)          (632)
</TABLE>

The methods and assumptions used to estimate fair value are described as
follows:

Carrying  amount is the  estimated  fair  value  for cash and cash  equivalents,
short-term borrowings, Federal Home Loan Bank stock, accrued interest receivable
and payable,  demand  deposits,  short-term  debt,  and  variable  rate loans or
deposits that reprice  frequently  and fully.  Security fair values are based on
market prices or dealer quotes, and if no such information is available,  on the
rate and term of the security and information  about the issuer.  For fixed rate
loans or  deposits  and for  variable  rate loans or  deposits  with  infrequent
repricing  or repricing  limits,  fair value is based on  discounted  cash flows
using current market rates applied to the estimated  life and credit risk.  Fair
values for impaired loans are estimated  using  discounted cash flow analysis or
underlying  collateral  values.  Fair values of loans held for sale are based on
market  quotes.  Fair  value of debt is  based  on  current  rates  for  similar
financing.

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,  2001 or 2000,  the fair  values  would have been
achieved,  because the market values may differ depending on the  circumstances.
The estimated  fair values at December 31, 2001 and 2000 should not  necessarily
be considered to apply at subsequent dates.

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


                                                                             44.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 19 - PARENT COMPANY FINANCIAL STATEMENTS

Presented below are the condensed statements of financial condition,  statements
of  income,   and  statements  of  cash  flows  for  Hemlock  Federal  Financial
Corporation.

                   CONDENSED STATEMENTS OF FINANCIAL CONDITION
                           December 31, 2001 and 2000

                                                              2001       2000
                                                           ---------   ---------
ASSETS
Cash and cash equivalents                                  $     448   $     251
Securities available-for-sale                                  2,320         426
ESOP loan                                                        831         997
Investment in bank subsidiary                                 23,061      22,271
Accrued interest receivable and other assets                      76         436
                                                           ---------   ---------

                                                           $  26,736   $  24,381
                                                           =========   =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable                                               $   5,800   $   5,250
Accrued expenses and other liabilities                            62          28
Stockholders' equity                                          20,874      19,103
                                                           ---------   ---------

                                                           $  26,736   $  24,381
                                                           =========   =========

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


                                                                             45.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 19 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                         CONDENSED STATEMENTS OF INCOME
              For the years ended December 31, 2001, 2000, and 1999
<TABLE>
<CAPTION>
                                                               2001             2000             1999
                                                            ----------       ----------       ----------
<S>                                                         <C>              <C>              <C>
Income
     Dividends from bank subsidiary                         $    2,000       $    3,010       $    3,000
     Interest income                                               132              140              148
     Net gain (loss) on sale of securities                         265              (24)             (23)
                                                            ----------       ----------       ----------
         Total income                                            2,397            3,126            3,125

Expense
     Interest expense                                              384              289               --
     Other expenses                                                124              203              118
                                                            ----------       ----------       ----------
                                                                   508              492              118

Income before income taxes and equity in
  undistributed earnings of bank subsidiary                      1,889            2,634            3,007

Income tax expense (benefit)                                       (57)            (152)              (2)
                                                            ----------       ----------       ----------


Income before equity in undistributed
  earnings of bank subsidiary                                    1,946            2,786            3,009

     Equity in undistributed (overdistributed)
       earnings of bank subsidiary                                  24             (947)          (1,269)
                                                            ----------       ----------       ----------


Net income                                                  $    1,970       $    1,839       $    1,740
                                                            ==========       ==========       ==========
</TABLE>

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


                                                                             46.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 19 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
              For the years ended December 31, 2001, 2000, and 1999

<TABLE>
<CAPTION>
                                                                               2001           2000           1999
                                                                            ----------     ----------     ----------
<S>                                                                         <C>            <C>            <C>
Operating activities
    Net income                                                              $    1,970     $    1,839     $    1,740
    Adjustments to reconcile net income to net cash provided
      by operating activities
       Amortization of discounts and premiums on securities, net                    --             --             (7)
       Equity in undistributed earnings of bank subsidiary                         (24)           947          1,269
       Net (gain) loss on sale of securities                                      (265)            24             23
       Change in
          Other assets                                                             268           (200)           105
          Other liabilities                                                         34           (192)          (268)
                                                                            ----------     ----------     ----------
              Net cash from operating activities                                 1,983          2,418          2,862

Investing activities
    Purchase of securities available-for-sale                                   (3,200)            --         (1,092)
    Proceeds from maturities and calls of securities                                --             --          1,173
    Proceeds from sales of securities                                            1,807            431            750
    Payment received on loan to ESOP                                               166            166            166
                                                                            ----------     ----------     ----------
       Net cash from investing activities                                       (1,227)           597            997

Financing activities
    Proceeds from note payable                                                     550          5,250             --
    Purchase of treasury stock                                                    (551)        (8,856)        (2,364)
    Dividends paid                                                                (558)          (567)          (658)
                                                                            ----------     ----------     ----------
       Net cash from financing activities                                         (559)        (4,173)        (3,022)
                                                                            ----------     ----------     ----------

Net change in cash and cash equivalents                                            197         (1,158)           837

Cash and cash equivalents at beginning of year                                     251          1,409            572
                                                                            ----------     ----------     ----------

Cash and cash equivalents at end of year                                    $      448     $      251     $    1,409
                                                                            ==========     ==========     ==========
</TABLE>

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


                                                                             47.
<PAGE>


              HEMLOCK FEDERAL FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2001, 2000, and 1999
    (Table amounts in thousands of dollars, except share and per share data)

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


NOTE 20 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
                                                        Net                           Earnings           Earnings
                                     Interest        Interest          Net            Per Share          Per Share
                                      Income          Income         Income            Basic (a)        Diluted (a)
                                      ------          ------         ------            ---------        -----------
<S>                                <C>             <C>             <C>                <C>                <C>
2001
     First quarter                 $    4,679      $    1,945      $      492         $      .54         $      .54
     Second quarter                     4,596           1,923             485                .54                .52
     Third quarter                      4,533           1,899             489                .54                .52
     Fourth quarter                     4,173           1,721             504                .56                .53

2000
     First quarter                 $    3,800      $    1,770      $      472         $      .35         $      .35
     Second quarter                     4,147           1,835             381                .38                .38
     Third quarter                      4,747           1,872             401                .42                .42
     Fourth quarter                     4,900           1,962             585(b)             .63(b)             .63(b)
</TABLE>

(a)  Earnings  per  share  for the  quarters  and  full  years  have  each  been
     calculated  separately.  Accordingly,  quarterly amounts may not add to the
     annual  amounts  because  of  differences  in  the  average  common  shares
     outstanding during each period.

(b)  Net  income  and  earnings  per share in the  fourth  quarter  of 2000 were
     affected by a gain on the sale of $11.0  million of loans  receivable.  The
     net effect of this item was to increase net income by $120,000 and earnings
     per share by $.13.

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

                                                                             48.
<PAGE>


                      HEMLOCK FEDERAL FINANCIAL CORPORATION
                             STOCKHOLDER INFORMATION

ANNUAL MEETING

     The Annual  Meeting of  Stockholders  will be held at10:30 a.m. Oak Forest,
Illinois time, on May 1, 2002 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

                                 HIGH            LOW          DIVIDENDS
    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

    FISCAL 2000
First Quarter                  $15.375         $10.875          $.11
Second Quarter                 $15.563         $12.750          $.11
Third Quarter                  $16.188         $14.813          $.12
Fourth Quarter                 $17.000         $15.375          $.12

    FISCAL 2001
First Quarter                  $19.625         $16.500          $.13
Second Quarter                 $21.125         $18.250          $.13
Third Quarter                  $23.170         $20.700          $.14
Fourth Quarter                 $25.750         $22.000          $.14

The stock price  information  set forth in the table  above was  provided by the
National  Association of Securities  Dealers,  Inc.  Automated  Quotation System
("NASDAQ"). The common stock began trading on March 31, 1997. The average of the
bid and asked prices of Hemlock Federal Financial  Corporation's common stock on
March 22, 2002 was $24.35.

At March 22,  2002  there  were  973,186  shares of  Hemlock  Federal  Financial
Corporation  common stock  outstanding  (including  unallocated ESOP shares) and
there were 485 holders of record.

STOCKHOLDERS AND GENERAL INQUIRIES              TRANSFER AGENT

Rosanne M. Belczak                              Registrar and Transfer Co.
Hemlock Federal Financial Corporation           10 Commerce Drive
5700 West 159th Street                          Cranford, NJ  07016
Oak Forest, Illinois 60422                      1-(800) 368-5948
(708) 687-9400
www.hemlockbank.com

ANNUAL AND OTHER REPORTS

     A copy of Hemlock  Federal  Financial  Corporation's  Annual Report on Form
10-K for the year ended  December 31,  2001,  as filed with the  Securities  and
Exchange  Commission,  may be obtained  without charge by contacting  Rosanne M.
Belczak,  Hemlock Federal  Financial  Corporation,  5700 West 159th Street,  Oak
Forest, Illinois 60452.


                                       49
<PAGE>


                      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 M. Thornton
G. Gerald Schiera                                  Vice-President, Controller
Donald L. Manprisio                              Neil Christensen
                                                   Vice-President, Lending
                                                 Rosanne M. Belczak
                                                   Vice-President, Secretary
                                                 Rhonda Nisbet
                                                   Vice-President, Operations

Hemlock Federal Bank for Savings Locations:

Main Office:
5700 W. 159th St.                                15730 W. 127th St.
Oak Forest, Illinois 60452   708-687-9400        Lemont, Illinois 60439

8855 S. Ridgeland Ave.                           324 Commons Dr.
Oak Lawn, Illinois 60453                         Bolingbrook, Illinois  60440

4636 S. Damen Ave.                               3030 W. Cermak Ave.
Chicago, Illinois 60609                          Chicago, Illinois  60623

www.hemlockbank.com

Independent Auditors                             Special Counsel

Crowe, Chizek and Company LLP                    Silver, Freedman & Taff, L.L.P.
One Mid America Plaza                            1700 Wisconsin Avenue, N.W.
Oak Brook, Illinois  60552                       Washington, D.C.  20007

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.