FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

                              RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                   CHANGE
                                                                     ------------------------------------
YEAR ENDED JUNE 30                       1999             1998             AMOUNT           PERCENT
---------------------------------------------------------------------------------------------------------
                                                 (Dollars in Thousands)
<S>                                     <C>               <C>              <C>                <C>
Interest income                         $  13,558         $  12,979        $     579            4.46%
Interest expense                            8,018             7,322              696            9.51
Net interest income                         5,540             5,657             (117)          (2.07)
Provision for loan losses                     253               274              (21)           7.66)
Net interest income after provision
   for loan losses                          5,287             5,383              (96)          (1.78)
Other income                                  324               661             (337)         (50.98)
Other expenses                              3,715             3,750              (35)           (.93)
Income taxes                                  656               791             (135)         (17.06)
Net income                                  1,240             1,503             (263)         (17.50)
</TABLE>


                               FINANCIAL POSITION
<TABLE>
<CAPTION>
                                                                                   CHANGE
                                                                     ------------------------------------
JUNE 30                                    1999             1998             AMOUNT           PERCENT
---------------------------------------------------------------------------------------------------------
                                                 (Dollars in Thousands)
<S>                                      <C>               <C>               <C>               <C>
Total assets                             $190,416          $176,437          $13,979           7.92%
Net loans                                 120,742           116,171            4,571           3.93
Investment securities
   Available for sale                      37,299            26,905           10,394          38.63
   Held to maturity                        21,998            20,547            1,451           7.06
Deposits                                  153,988           144,881            9,107           6.29
Stockholders' equity                       17,751            17,987             (236)         (1.31)

Number of Shares Outstanding            1,100,985         1,089,648           11,337           1.04
</TABLE>
                                       2
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30                                           1999            1998            1997            1996           1995
----------------------------------------------------------------------------------------------------------------------------
                                                         (Dollar amounts in thousands, except per share amount)

FINANCIAL POSITION
<S>                                               <C>             <C>             <C>             <C>             <C>
   Assets                                         $190,416        $176,437        $159,457        $146,248        $131,260
   Loans, net                                      120,742         116,171         104,984          95,974          87,502
   Investments
     Available for sale                             37,299          26,905          25,113          20,838           4,175
     Held to maturity                               21,998          20,547          20,207          19,834          32,707
   Deposits                                        153,988         144,881         133,203         126,742         110,104
   Short-term borrowings and
     long-term debt                                 17,098          12,162           8,221           2,650           4,576
   Stockholders' equity                             17,751          17,987          16,567          15,572          15,409
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30                                1999            1998            1997            1996           1995
----------------------------------------------------------------------------------------------------------------------------
                                                        (Dollar amounts in thousands, except per share amount)
OPERATING RESULTS
<S>                                              <C>             <C>             <C>             <C>              <C>
   Interest income                               $  13,558       $  12,979       $  11,692       $  10,479        $  9,746
   Interest expense                                 (8,018)         (7,322)         (6,510)         (6,024)         (5,024)
                                            --------------------------------------------------------------------------------
   Net interest income                               5,540           5,657           5,182           4,455           4,722
   Provision for loan losses                          (253)           (274)           (138)            (35)            (37)
                                            --------------------------------------------------------------------------------
   Net interest income after
     provision for loan losses                       5,287           5,383           5,044           4,420           4,685
   Other income
     Net realized gain (loss) on
       trading securities                             (141)            159             307              (3)
     Other                                             465             502             439             359             317
   Other expenses                                    3,715          (3,750)         (4,161)         (3,456)         (3,000)
                                            --------------------------------------------------------------------------------
   Income before income tax                                          2,294           1,629           1,320           2,002
   Income taxes                                        656            (791)           (591)           (473)           (711)
                                            --------------------------------------------------------------------------------
   Net income                                    $   1,240       $   1,503        $  1,038         $   847        $  1,291
                                            ================================================================================

   Basic earnings per share (1)                 $     1.13       $    1.39       $     .98        $    .79        $   1.19
   Diluted earnings per share                         1.12            1.35             .96             .76            1.14
   Book value per share                              16.12           16.51           15.38           14.74           14.30

(1)  Years before 1997 adjusted to reflect a 5-for-3 stock split on June 30, 1997.
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30                                1999            1998            1997            1996           1995
----------------------------------------------------------------------------------------------------------------------------
                                                         (Dollar amounts in thousands, except per share amount)
OTHER DATA
<S>                                                 <C>             <C>             <C>             <C>             <C>
   Average interest rate spread                     2.69%           3.12%           3.06%           2.92%           3.34%
   Net yield on average interest-earning            3.09            3.52            3.49            3.36            3.73
     assets
   Return on average assets                          .67             .90             .68             .61             .99
   Return on average stockholders' equity           6.85            8.70            6.60            5.45            8.56
   Equity as a percent of year-end assets           9.32           10.20           10.39           10.65           11.74
   Non-interest expense as a percent of
     average assets                                 2.02            2.22            2.71            2.33            2.18
   Non-performing assets to total assets            1.02             .52             .27             .45             .26
   Ratio of allowance for loan losses to
     gross loans                                     .99             .83             .67             .68             .70
   Dividend payout ratio                           39.74           29.94           39.89           45.77           30.09
   Number of
     Real estate loans outstanding                 2,249           2,077           2,033           1,959           1,892
     Deposit accounts                             14,802          14,945          14,161          13,465          12,732
     Full service offices                              3               3               3               3               3
</TABLE>
                                       3
<PAGE>
BUSINESS OF THE COMPANY AND THE BANK
--------------------------------------------------------------------------------

THE CORPORATION.  HFB Financial Corporation  (Company), a Tennessee corporation,
was organized by Home Federal Bank,  Federal Savings Bank (Home Federal or Bank)
to be a savings  institution  holding company.  The Company was organized at the
direction  of the Bank in  September  1992 to acquire all of the  capital  stock
issued by the Bank upon the conversion of the Bank from mutual to stock form and
the  simultaneous  offering  and sale of 722,704  shares of common  stock of the
Company,  completed  on  December  28,  1992  (Conversion).  The  Company has no
significant  assets other than capital stock of the Bank, a portfolio of trading
account  equity  securities and a loan to the Bank's  employee  stock  ownership
plan.  The  Company's  principal  business  is the  business of the Bank and its
subsidiary.  Therefore, most of the discussion in this Annual Report regards the
Bank and its operations.

The executive offices of the Company and the Bank are located at 1602 Cumberland
Avenue, Middlesboro, Kentucky 40965 and the telephone number is (606) 248-1095.

THE BANK. Home Federal was incorporated in 1920 as a Kentucky-chartered building
and loan association known as Peoples Building and Loan. The Bank converted to a
federal savings and loan association and obtained federal  insurance of accounts
in 1961 and became a  federally-chartered  mutual  savings  bank,  Home  Federal
Savings Bank, in 1985. The Bank changed to its current name,  Home Federal Bank,
Federal  Savings Bank, in 1990. The Bank completed its conversion from mutual to
stock form on December  28,  1992.  The Bank  operates  through two full service
offices in the southeastern  Kentucky  communities of Middlesboro and Harlan and
one full service office in the East  Tennessee  community of New Tazewell and is
in the process of acquiring another branch in Harlan, including $17.2 million in
deposits from National City Bank of Kentucky.

The Bank is engaged  principally in the business of accepting  deposits from the
general public and originating  permanent loans which are secured by one-to-four
family  residential  properties  located  in its  market  area.  The  Bank  also
originates  consumer  loans and  commercial  real estate loans,  and maintains a
substantial   investment  portfolio  of  mortgage-backed  and  other  investment
securities.   Home  Federal's   current  business   strategy   embodies  several
objectives:  (i) continued  emphasis on  originating  interest rate sensitive or
shorter  term  loans  for  portfolio,  primarily  in the  form  of  longer  term
adjustable-rate  mortgage loans and shorter term consumer loans,  (ii) continued
maintenance  of a  substantial  investment  portfolio  of  short-term,  low-risk
investments,  primarily U. S.  government  and agency  securities and investment
grade   mortgage-backed   securities   and  (iii)   expanding  the  Bank's  loan
originations  in the counties  adjacent to the Bank's  market area. In addition,
from  time-to-time,  the  Bank  has  purchased  whole  loans  and  participation
interests in residential and commercial real estate and multi-family real estate
loans located  primarily in Kentucky and East Tennessee areas  contiguous to the
Bank's immediate market area.

As a  federally-chartered  savings bank, the Bank's  deposits are insured by the
Federal Deposit  Insurance  Corporation  (FDIC) up to applicable limits for each
depositor.  The Bank is a  member  of the  Federal  Home  Loan  Bank  (FHLB)  of
Cincinnati which is one of the twelve district banks comprising the FHLB system.
The Bank is subject to comprehensive examination,  supervision and regulation by
the Office of Thrift Supervision (OTS) and the FDIC. This regulation is intended
primarily for the protection of depositors.

                                       4
<PAGE>
MARKET INFORMATION
--------------------------------------------------------------------------------

TRADING  IN  THE  COMMON   STOCK.   The   Company's   common   stock  is  listed
over-the-counter  through the  National  Daily  Quotation  System  "Pink  Sheet"
published by the National Quotation Bureau,  Inc. There are currently  1,100,985
shares of the common stock  outstanding and  approximately 400 holders of record
of the common stock (not including shares held in "street name").

The following  table sets forth certain  information as to the range of the high
and low bid prices for the  Company's  common  stock for the  calendar  quarters
indicated:

                                HIGH BID (1)     LOW BID (1)      DIVIDENDS PAID
                            ----------------------------------------------------
FISCAL 1998

   First quarter                    $16.00          $14.75               $.21
   Second quarter                    18.00           16.00
   Third quarter                     18.00           18.00                .22
   Fourth quarter                    20.00           18.00

FISCAL 1999

   First quarter                    $20.00          $18.00               $.22
   Second quarter                    21.00           19.125
   Third quarter                     20.00           18.00                .23
   Fourth quarter                    20.00           17.00

(1)     Quotations  reflect   inter-dealer   prices,   without  retail  mark-up,
        mark-down or commission and may not represent actual transactions.

The latest bid price as of September 1, 1999 was $18.00.

DIVIDEND  RESTRICTIONS.  Under regulations of the OTS, the Bank is not permitted
to pay dividends on its capital stock if its regulatory capital would thereby be
reduced below regulatory capital requirements.

Additionally,  an OTS  regulation  restricts the Bank's  ability to make capital
distributions,  including payment of dividends.  The regulation provides that an
institution meeting its capital requirements, both before and after its proposed
capital  distribution,  may generally  distribute  net income to date during the
year, plus retained income for the preceding two years. The regulation  provides
more  significant  restrictions  on payment of  dividends  in the event that the
capital requirements are not met.

Although the Company is not subject to these restrictions, the Company's primary
source of funds for the payment of dividends is dividends from the Bank.

                                       5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

HFB  Financial  Corporation,  a Tennessee  corporation,  was  organized  by Home
Federal to be a savings institution  holding company.  The Company was organized
at the  direction  of the Bank in  September  1992 to acquire all of the capital
stock  issued by the Bank upon the  conversion  of the Bank from mutual to stock
form.  The Company has no  significant  assets other than  capital  stock of the
Bank.  The  Company's  principal  business  is the  business of the Bank and its
subsidiary.  Therefore,  the  discussion  in this  Management's  Discussion  and
Analysis relates to the Bank and its operations.

Home  Federal's  results  of  operations  in recent  years  have  reflected  the
fundamental  changes  which  have  occurred  in  the  regulatory,  economic  and
competitive  environment  in which  savings  institutions  operate.  The  Bank's
results of operations are primarily dependent on its net interest income,  which
is the  difference  between  interest  income  on  interest-earning  assets  and
interest expense on interest-bearing liabilities.  Interest income is a function
of the balances of interest-earning assets outstanding during the period and the
yields  earned on such assets.  Interest  expense is a function of the amount of
interest-bearing liabilities outstanding during the period and the rates paid on
such liabilities.  The Bank also generates  non-interest income, such as service
charges on transaction  accounts and other fees. Net income is further  affected
by the level of non-interest expenses, such as personnel expenses, occupancy and
equipment expenses, federal deposit insurance premiums and other expenses.

The  operations  of  Home  Federal,  and  savings  institutions  generally,  are
significantly  influenced by general  economic  conditions  and the monetary and
fiscal policies of governmental regulatory agencies.  Deposit flows and costs of
funds are influenced by interest rates on competing  investments  and prevailing
market  rates of  interest.  Lending  activities  are affected by the demand for
financing real estate and other types of loans, which in turn is affected by the
interest  rates at  which  such  financing  may be  offered  and  other  factors
affecting  loan  demand  and the  availability  of  funds.  Just  as the  Bank's
operations are influenced by regulatory authorities, so are its liquidity levels
and capital resources.

                                       6
<PAGE>
ASSET/LIABILITY MANAGEMENT
--------------------------------------------------------------------------------

Key components of a successful  asset/liability  strategy are the monitoring and
managing of interest rate  sensitivity  of both the  interest-earning  asset and
interest-bearing  liability  portfolios.   Home  Federal  has  employed  various
strategies  intended to minimize  the  adverse  effect of interest  rate risk on
future  operations  by  providing  a better  match  between  the  interest  rate
sensitivity  between  its  assets and  liabilities.  In  particular,  the Bank's
strategies  are intended to stabilize  net interest  income for the long term by
protecting its interest rate spread against  increases in interest  rates.  Such
strategies  include the  origination for portfolio of  adjustable-rate  mortgage
loans secured by one-to-four  family residential real estate and the origination
of consumer  and other  loans with  greater  interest  rate  sensitivities  than
long-term,   fixed-rate   residential   mortgage   loans.   At  June  30,  1999,
approximately  85% of the  loans in the  Bank's  mortgage  loan  portfolio  were
adjustable-rate  mortgages.  The Bank has used excess funds to invest in various
short-term investments,  including mortgage-backed  securities,  with terms of 7
years or less, U. S. Government  Treasury and agency securities with terms of 15
years or less and other short-term investments.

Asset/liability  management in the form of structuring cash instruments provides
greater flexibility to adjust exposure to interest rates. During periods of high
interest rates,  management believes it is prudent to offer competitive rates on
short-term deposits and less competitive rates for long-term  liabilities.  This
posture  allows the Bank to benefit  quickly  from  declines in interest  rates.
Likewise,  offering more competitive rates on long-term  deposits during the low
interest rate periods allows the Bank to extend the repricing and/or maturity of
its liabilities thus reducing its exposure to rising interest rates.

INTEREST RATE SENSITIVITY
--------------------------------------------------------------------------------

Net portfolio value (NPV) analysis  provides a  quantification  of interest rate
risk. In essence,  this approach  calculates the difference  between the present
value of  liabilities,  expected  cash  flows  from  assets  and cash  flow 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.

At June 30, 1999, 2% of the present value of the Bank's assets was approximately
$3.8 million,  which was less than $5.8  million,  the decrease in NPV resulting
from a 200 basis point change in interest rates.  As a result,  if the rule were
in effect and were applicable to the Bank, it would have been required to make a
$2.0 million deduction from total capital in calculating its risk-based  capital
requirement,  although the Bank's  capital  would have remained far in excess of
regulatory minimums.

                                       7
<PAGE>
The following  table sets forth,  as of June 30, 1999, the estimated  changes in
the Bank's NPV (i.e.,  the  present  value of expected  cash flows from  assets,
liabilities and off-balance-sheet contracts).

                              NET PORTFOLIO EQUITY
                             (Dollars in Thousands)

 CHANGE IN INTEREST
RATES (BASIS POINTS)    ESTIMATED NPV    AMOUNT OF CHANGE     PERCENT OF CHANGE
--------------------------------------------------------------------------------

       +300                 $13,668          $(9,039)               (40)%
       +200                  16,946           (5,761)               (25)
       +100                  20,001           (2,706)               (12)
          0                  22,707
       -100                  25,040            2,333                 10
       -200                  27,185            4,478                 20
       -300                  29,464            6,757                 30

As noted above,  the market value of the Bank's net assets would be  anticipated
to  decline  significantly  in the  event of  certain  designated  increases  in
interest  rates.  For  instance,  in the event of a 200 basis point  increase in
interest rates, NPV is anticipated to fall by $5.8 million, or 25%.  Conversely,
a 200 basis  point  decrease in interest  rates is  anticipated  to cause a $4.5
million,  or 20%,  increase  in NPV.  Subject to market  conditions,  management
intends to continue to restructure the Bank's assets and  liabilities  over time
to attempt to better manage the Bank's NPV volatility.

Certain  assumptions  utilized by the OTS in assessing the interest rate risk of
thrift  institutions  were  employed in  preparing  the  previous  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.  In the  event  that  interest  rates  do not  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 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.

                                       8
<PAGE>
FINANCIAL CONDITION
--------------------------------------------------------------------------------

The  Corporation's  assets increased by 7.92% to $190.4 million at June 30, 1999
compared to $176.4  million at June 30, 1998.  The majority of this  increase is
reflected in investment  securities  and loans  receivable,  which was primarily
funded by a decrease  in cash and cash  equivalents  and an increase in deposits
and long-term debt.

Cash and due from banks  decreased  by $3.4  million to $3.6 million at June 30,
1999 from $6.9 million at June 30, 1998,  primarily due to increased lending and
investment activities.

The Company  maintains  a  portfolio  of trading  account  securities,  which is
comprised of common stocks of other  financial  institutions.  The portfolio was
$1.0  million at June 30,  1999  compared  to  $835,000  at June 30,  1998.  The
portfolio was profitable  during the fiscal year ended June 30, 1998, but recent
declines in the stock market  significantly  affected  profitability  during the
year ended June 30, 1999.

The Bank  augments its lending  activities  and  increases its asset yields to a
significant extent by investing in investment securities such as mortgage-backed
securities "MBSs" and U.S. Government securities. During the year ended June 30,
1999, management purchased $33.6 million in investment securities. Most of these
purchases   were  funded  by  proceeds  from  called  and  maturing   investment
securities,  principal collected on MBSs and investments, the sale of investment
securities  and a  decrease  in cash and cash  equivalents.  A portion  of these
purchases  include a $5.0 million growth  strategy funded by long-term debt used
to  purchase  MBSs.  At June 30,  1999,  the  balance of  investment  securities
available for sale,  "AFS" was $37.3 million with a net unrealized  loss of $1.2
million and the balance of  investment  securities  held to maturity,  "HTM" was
$22.0 million.  This represented an increase in total  investment  securities of
$11.8 million or 24.9% as compared to $47.5 million at June 30, 1998.

During the year ended June 30, 1999, total loans receivable, net increased 3.93%
to $120.7 million compared to $116.2 million at June 30, 1998.

At June 30,  1999,  allowance  for loan losses was $1.2 million or .99% of loans
receivable  compared to $973,000 or .83% of loans  receivable  at June 30, 1998.
During fiscal 1999, the Bank had net  charge-offs of $14,000.  Provisions to the
allowance were $253,000 for the year ended June 30, 1999. Currently the Bank has
reserved $812,000 for impaired loans totaling $1.3 million.  These loans are now
involved in bankruptcy  proceedings and Management is closely monitoring them as
to their collectability.

Interest  receivable  increased $414,000 to $1.822 million at June 30, 1999 from
$1.408 million at June 30, 1998 due to increased loan and investment balances.

Total deposits increased by $9.1 million to $154.0 million at June 30, 1999 from
$144.9  million at June 30,  1998.  During the year  ended  June 30,  1999,  CDs
increased $9.2 million and NOW accounts and other demand accounts increased $1.1
million,  while passbook savings and money market deposit accounts  decreased by
$1.2 million.

Long-term  debt  increased  $4.9 million to $10.6  million at June 30, 1999 from
$5.7 million at June 30, 1998 as the result of a $5.0 million  growth  strategy,
which was implemented  during fiscal 1999. $5.0 million was borrowed to purchase
investment securities with a projected margin of 138 basis points.

The Bank's regulatory liquidity ratio was 27.40% at June 30, 1999 as compared to
26.19% at June 30, 1998.  At June 30, 1999 the Bank met all the fully  phased-in
regulatory  capital  requirements  under FIRREA.  Tangible,  core and risk-based
capital  ratios  were 9.0%,  9.0% and 21.4%,  respectively  at June 30,  1999 as
compared to 9.1%, 9.1% and 22.5% at June 30, 1998.

                                       9
<PAGE>
COMPARISON OF YEAR ENDED JUNE 30, 1999 TO YEAR ENDED JUNE 30, 1998
--------------------------------------------------------------------------------

General.  Net earnings  decreased  by $263,000 to $1.240  million for the fiscal
year ended June 30, 1999 from $1.503  million for the fiscal year ended June 30,
1998.  The primary  reasons for the  decreases  were a $117,000  decrease in net
interest  income,  and a $337,000  decrease in noninterest  income,  offset by a
$21,000 decrease in provision for loan losses, a $36,000 decrease in noninterest
expense and a $134,000 decrease in income tax expense.

Net Interest Income.  Net interest income decreased from $5.7 million for fiscal
1998  to  $5.6  million  for  fiscal  1999.  This  is  primarily  due to  spread
compression,  as the decline in the average yield on interest-earning  assets is
greater  than  the  decline  in the  related  average  cost of  interest-bearing
liabilities.

Interest  Income.  Interest  income for the fiscal years ended June 30, 1999 and
June 30, 1998, was $13.6 million and $13.0 million,  respectively.  The increase
in fiscal 1999 over fiscal 1998 was due  primarily to an increase in the average
balance of interest  earning assets.  Yields on such assets were 7.57% in fiscal
1999 compared to 8.07% in fiscal 1998.

Average  interest-earning  assets were $179.0 million and $160.8 million for the
fiscal years ended June 30, 1999 and June 30, 1998,  respectively.  The increase
in the  average  balance  of  interest-earning  assets was  primarily  due to an
increase in loan originations and an increase in investment securities.

Interest  Expense.  Interest  expense for fiscal 1999 and 1998, was $8.0 million
and $7.3 million,  respectively. The increase in interest expense of $696,000 in
fiscal  1998 over fiscal  1997 was due  primarily  to an increase in the average
balance of  interest-bearing  liabilities  from $147.9 million in fiscal 1998 to
$164.2  million in fiscal  1998.  Although  interest  expense  increased  due to
increased volume,  the Company's cost of funds on deposits decreased to 4.83% in
fiscal 1999 from 4.88% in fiscal 1998. The cost of borrowed  funds  decreased to
5.44% in  fiscal  1999  from  5.91% in  fiscal  1998.  The  average  balance  of
interest-bearing  liabilities  increased due to increased deposits and increased
borrowings used primarily to fund increases in the investment portfolio and also
to fund loan demand.

Provision  for Loan Losses.  The  provision for loan losses for the fiscal years
ended  June 30,  1999 and 1998 was  $253,000  and  $274,000,  respectively.  The
provision  was the result of  Management's  evaluation  of the  adequacy  of the
allowance  for  loan  losses  including  consideration  of  recoveries  of loans
previously  charged off, the perceived  risk exposure  among loan types,  actual
loss experience, delinquency rates, and current economic conditions.

Other Income. Other income for fiscal 1999 was $324,000 compared to $661,000 for
fiscal 1998, a decrease of $337,000.  The decrease is primarily  the result of a
$299,000 decrease in gains on trading account  securities held by the Company, a
$5,000  decrease in service  charges for  deposits  and other  customer  fees, a
decrease  in other  income of  $26,000  and a  decrease  in gains on the sale of
investment securities of $7,000.

                                       10
<PAGE>

Other Expenses.  Other expenses decreased $36,000 from $3.750 million for fiscal
1998 to $3,714 million for fiscal 1999. Salaries and employee benefits decreased
by $74,000  primarily as the result of an increase of $105,000 in deferred  loan
origination costs related to compensation expense.  General compensation expense
increased $85,000 due to normal increases. ESOP expense decreased $30,000 due to
the loan to  purchase  shares  for the plan  being  paid off in fiscal  1998 and
employee  education  expense  decreased  $24,000  due to the  cost  of  training
resulting  from the Bank's  conversion  to a new data  processor in fiscal 1998.
Occupancy expense increased $5,000 primarily due to higher property tax expense.
Equipment expense increased $1,000 due to increased repair and maintenance costs
offset by lower depreciation  expense. Data processing expense decreased $78,000
primarily due to one-time costs  associated with the Bank's  conversion to a new
data processor during fiscal 1998. Deposit insurance expense increased by $3,000
as the result of increased  deposits.  Legal and professional  expense increased
$32,000 due to higher  legal fees.  Advertising  expense  decreased  $20,000 and
state franchise and deposit tax increased $24,000 due to increased  deposits and
a higher  apportionment  for state  franchise  and  excise  tax.  Other  expense
increased  $71,000.  This was  primarily  due to a $27,000  increase  in postage
expense  and a $47,000  increase in other  services  and fees.  Postage  expense
increased due to bringing the Bank's statement  rendering operation in-house and
other  services and fees  increased due to the  implementation  of check imaging
services with the Federal Reserve Bank.

Income Tax Expense.  Income  taxes  decreased by $134,000 to $657,000 for fiscal
1999 compared to $791,000 for fiscal 1998 due to lower earnings.

                                       11
<PAGE>
COMPARISON OF YEAR ENDED JUNE 30, 1998 TO YEAR ENDED JUNE 30, 1997
--------------------------------------------------------------------------------

General.  Net earnings  increased  by $465,000 to $1.503  million for the fiscal
year ended June 30, 1998 from $1.038  million for the fiscal year ended June 30,
1997.  The primary  reasons  for the  increase  were a $475,000  increase in net
interest  income,  and a $411,000  decrease in noninterest  expense.  Offsetting
these increases were a $136,000 increase in provision for loan losses, a $85,000
decrease in noninterest income and a $200,000 increase in income tax expense.

Net Interest Income.  Net interest income increased from $5.2 million for fiscal
1997 to $5.7 million for fiscal 1998.

Interest  Income.  Interest  income for the fiscal years ended June 30, 1998 and
June 30, 1997, was $13 million and $11.7 million,  respectively. The increase in
fiscal  1998 over fiscal  1996 was due  primarily  to an increase in the average
balance of interest  earning assets.  Yields on such assets were 8.07% in fiscal
1998 compared to 7.88% in fiscal 1997.

Average  interest-earning  assets were $160.8 million and $148.4 million for the
fiscal years ended June 30, 1998 and June 30, 1997,  respectively.  The increase
in the  average  balance  of  interest-earning  assets was  primarily  due to an
increase in loan originations and an increase in investment securities.

Interest  Expense.  Interest  expense for fiscal 1998 and 1997, was $7.3 million
and $6.5 million,  respectively. The increase in interest expense of $812,000 in
fiscal  1998 over fiscal  1997 was due  primarily  to an increase in the average
balance of  interest-bearing  liabilities  from $135.2 million in fiscal 1997 to
$147.9 million in fiscal 1998. The Company's cost of funds on deposits increased
to 4.95% in fiscal 1998 from 4.82% in fiscal  1997.  The cost of borrowed  funds
increased to 5.91% in fiscal 1998 from 5.13% in fiscal 1997. The average balance
of  interest-bearing   liabilities  increased  due  to  increased  deposits  and
increased  borrowings  used to fund loan demand and increases in the  investment
portfolio.

Provision  for Loan Losses.  The  provision for loan losses for the fiscal years
ended  June 30,  1998 and 1997 was  $274,000  and  $138,000,  respectively.  The
provision  was the result of  Management's  evaluation  of the  adequacy  of the
allowance  for  loan  losses  including  consideration  of  recoveries  of loans
previously  charged off, the perceived  risk exposure  among loan types,  actual
loss experience, delinquency rates, and current economic conditions.

Other Income. Other income for fiscal 1998 was $661,000 compared to $746,000 for
fiscal  1997, a decrease of $85,000.  The decrease is primarily  the result of a
$148,000 decrease in gains on trading account securities held by the Company and
a $68,000  increase in service  charges for deposits and other  customer fees. A
decrease in other  income of $24,000  offsets  increases in gains on the sale of
investment securities of $3,000 and other customer fees of $16,000.

                                       12
<PAGE>

Other Expenses. Other expenses decreased $411,000 from $4.161 million for fiscal
1997 to $3.750 million for fiscal 1998. Salaries and employee benefits increased
by $160,000  primarily as the result of salary  increases and overtime  incurred
during the Bank's recent  conversion to a new data processor.  Occupancy expense
decreased $14,000 due to lower depreciation expense. Equipment expense increased
$12,000  due  to  increased  depreciation  and  repairs  and  maintenance.  Data
processing  expense increased $91,000 primarily due to one-time costs associated
with the Bank's  conversion to a new data processor.  Deposit  insurance expense
decreased by $85,000 as the result of lower premium rates. This was precipitated
by the  recapitalization  of the  Savings  Association  Insurance  Fund  "SAIF".
Legislation  enacted on September 30, 1996 to recapitalize  the underfunded SAIF
resulted in a one time assessment to savings  associations  insured by the SAIF.
The Banks one time assessment of $706,000 was expensed in fiscal 1997. Legal and
professional  expense  decreased  $19,000  due  to  lower  consulting  fees  and
advertising   expense  increased  $13,000.   Other  expense  increased  $138,000
primarily  as the result of a $53,000  penalty for  breaking a contract  for ATM
processing,  a $33,000  increase  in  printing  and  stationary  expense  and an
increase of $28,000 in postage expense.

Income Tax Expense.  Income  taxes  increased by $200,000 to $791,000 for fiscal
1998 compared to $591,000 for fiscal 1997 due to higher earnings.

                                       13
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
--------------------------------------------------------------------------------

The  following  table sets forth certain  information  relating to the Company's
average  interest-earning  assets and interest-bearing  liabilities and reflects
the average yield on assets and the average cost of liabilities  for the periods
and dates  indicated.  Such yields and costs are  derived by dividing  income or
expense by the average balance of assets or liabilities,  respectively,  for the
periods  presented.  Average  balances  are  derived  from  month-end  balances.
Management  does not  believe  that the use of  month-end  balances  instead  of
average daily  balances has caused any material  difference  in the  information
presented.
<TABLE>
<CAPTION>
                                           1999                             1998                               1997
                               ------------------------------------------------------------------------------------------------
                                                   AVERAGE                              AVERAGE                        AVERAGE
                               AVERAGE              YIELD/    AVERAGE                    YIELD/    AVERAGE              YIELD/
YEAR ENDED JUNE 30             BALANCE   INTEREST    COST     BALANCE     INTEREST        COST     BALANCE   INTEREST    COST
-------------------------------------------------------------------------------------------------------------------------------
                                                                     (Dollars in Thousands)
Interest-earning assets
<S>                            <C>         <C>      <C>       <C>        <C>           <C>       <C>        <C>       <C>
   Loans, net (1)              $121,817    $10,030    8.23%   $110,906   $  9,768        8.81%   $100,098   $  8,692    8.68%
   Investment securities         51,493      3,229    6.27      44,829      2,911        6.49      44,234      2,768    6.26
   FHLB stock and deposits
     with financial
     institutions                 5,716        299    5.23       5,098        300        5.88       4,106        232    5.65
                               -----------------------------------------------------             ---------------------
       Total interest-
          earning assets       $179,026    $13,558    7.57%   $160,833    $12,979        8.07%   $148,438    $11,692    7.88%
                               ===================            ======================             =====================

Interest-bearing liabilities
   Deposits                    $149,288   $  7,207    4.83%   $137,533   $  6,708        4.88%   $131,202   $  6,305    4.81%
   Short-term borrowings and
     long-term debt              14,918        811    5.44      10,397        614        5.91       3,998        205    5.13
                               -------------------            ----------------------             ---------------------
       Total interest-bearing
         liabilities           $164,206   $  8,018    4.88%   $147,930   $  7,322        4.95%   $135,200   $  6,510    4.82%
                               ===================            ======================             =====================
Net interest income                       $  5,540                       $  5,657                           $  5,182
                                        ==========                       ===========                       ===========
Interest rate spread                                  2.69%                              3.12%                          3.06%
                                                  ============                     ==============                     ========
Net yield on interest-
  earning assets                                      3.09%                              3.52%                          3.49%
                                                  ============                     ==============                     ========
Ratio of average interest-
  earning assets to average
  interest-bearing                                  109.03%                            108.72%                        109.79%
  liabilities
                                                  ============                     ==============                     ========
</TABLE>

(1) Includes nonaccrual loans.

                                       14
<PAGE>
RATE/VOLUME ANALYSIS
--------------------------------------------------------------------------------

The table below sets forth  certain  information  regarding  changes in interest
income and interest expense of the Company for the periods  indicated.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information  is  provided  on  changes  attributable  to (i)  changes  in volume
(changes in volume multiplied by old rate); (ii) changes in rate (change in rate
multiplied  by old volume);  and (iii) changes in  rate/volume  (changes in rate
multiplied by changes in volume).  Average  balances are derived from  month-end
balances. Management does not believe that the use of month-end balances instead
of average daily balances has caused any material differences in the information
presented.
<TABLE>
<CAPTION>

                                                      1999 VS. 1998                             1998 VS. 1997
                                         -----------------------------------------------------------------------------------
                                                INCREASE (DECREASE) DUE TO               INCREASE (DECREASE) DUE TO
                                         -----------------------------------------------------------------------------------
                                                                RATE/                                     RATE/
YEAR ENDED JUNE 30                        VOLUME    RATE       VOLUME      TOTAL     VOLUME     RATE     VOLUME      TOTAL
----------------------------------------------------------------------------------------------------------------------------
                                                         (Dollars in Thousands)
Interest income
<S>                                        <C>       <C>        <C>        <C>      <C>         <C>        <C>     <C>
   Loans receivable (1)                      $961    $(636)     $(63)      $262     $  938      $124       $14     $1,076
   Investment securities                      433     (100)      (15)       318         37       103         3        143
   Other dividend income and deposits
     with financial institutions               36      (33)       (4)        (1)        56        10         2         68
                                         ----------------------------------------------------------------------------------
       Total interest-earning assets        1,430     (769)      (82)       579      1,031       237        19      1,287
                                         ----------------------------------------------------------------------------------
Interest expense
   Deposits                                   573      (68)       (6)       499        304        94         5        403
   Short-term borrowings and long-
     term debt                                267      (49)      (21)       197        328        31        50        409
                                         ----------------------------------------------------------------------------------
       Total interest-bearing
          liabilities                         840     (117)      (27)       696        632       125        55        812
                                         ----------------------------------------------------------------------------------
Change in net interest income                $590    $(652)     $(55)     $(117)    $  343      $170      $(38)   $   475
                                         ==================================================================================
</TABLE>
(1)  For  purposes  of  calculating  volume,  rate  and  rate/volume  variances,
     nonaccrual loans were included in the weighted-average balance outstanding.

                                       15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------

The Company's  primary  source of liquidity is dividends  paid by the Bank.  The
Bank,  as  a  stock  savings  institution,  is  subject  to  certain  regulatory
limitations with respect to the payment of dividends to the Company. See "Market
Information-Dividend  Restrictions".  Prior to  1998,  the  Company  repurchased
shares of its common stock in order to improve  earnings per share and return on
stockholders' equity. To date, the Company has repurchased 202,046 of its shares
(as  restated  for a 5-for-3  stock split on June 30, 1997) of common stock at a
cost of $2 million.

Home Federal's capital ratios are substantially in excess of regulatory  capital
requirements. At June 30, 1999, the Bank's tangible and core capital amounted to
9.0% of total adjusted assets, or 7.5% and 6.0%, respectively,  in excess of the
Bank's current 1.5% tangible and 3.0% core capital  requirements.  Additionally,
the Bank's risk-weighted capital to risk-weighted assets ratio was 21.4% at June
30, 1999, or 13.4% in excess of the Banks 8.0% risk-based capital requirement.

Home Federal's  principal  sources of funds for operations are deposits from its
primary   market   area,   principal   and   interest   payments  on  loans  and
mortgage-backed  securities and proceeds from maturing investment securities. In
addition, as a member of the FHLB of Cincinnati,  the Bank is eligible to borrow
funds from the FHLB of Cincinnati in the form of advances.

Home  Federal is  required by OTS  regulations  to  maintain  minimum  levels of
specified  liquid  assets  which  are  currently  equal  to 5% of  deposits  and
short-term borrowings.  Such investments serve as a source of liquid funds which
the Bank may use to meet deposit  withdrawals and other  short-term  needs.  The
Bank's most liquid assets are cash and cash  equivalents,  which are short-term,
highly liquid investments with original  maturities of three months or less that
are readily  convertible to known amounts of cash. The levels of such assets are
dependent upon the Bank's operating,  financing and investment activities at any
given time. In recent  years,  the Bank has  maintained  higher levels of liquid
assets than  required by  regulation.  Management  believes  that the  liquidity
levels maintained are fully adequate to meet potential  deposit  outflows,  loan
demand and normal  operations.  Home Federal's  liquidity ratio at June 30, 1999
was approximately 27.4%.

The  primary  source of cash from  operating  activities  is net  earnings.  The
primary uses of funds are lending  activities and investments in mortgage-backed
and  investment  securities.  Cash received from net loan  repayments  and other
sources is used to purchase investment and mortgage-backed securities. Financing
sources  consist  principally  of net  increases  in deposits.  Other  financing
sources include short and long-term borrowings.

                                       16
<PAGE>
YEAR 2000
--------------------------------------------------------------------------------

The Company has completed an assessment of its computer  systems,  including its
information and  non-information  systems,  and identified those systems that it
believes  could be  affected by the Year 2000 issue.  It has also  developed  an
implementation  plan to address  the issue and has  tested  all of its  internal
mission  critical  hardware and  software  systems to determine if they are Year
2000 compliant.  While the Company has exposure to several risks related to Year
2000,  the primary  risk to the Company of not  complying  with Year 2000 is the
potential  inability to correctly  process and record  customer loan and deposit
transactions.

The Company believes that it has met the requirements that have been established
for the  banking  industry  by the  Federal  Financial  Institution  Examination
Council  "FFIEC".  These  standards  require  that a  series  of  procedures  be
performed by financial  institutions within established timeframes to reduce the
risk of noncompliance  with the Year 2000 issue. While the Company believes that
it will meet all of the FFIEC requirements and that its mission critical systems
will be in compliance  with Year 2000,  it can give no assurance  that this will
occur.

The Company has developed a business resumption contingency plan that would take
effect if its  internal  systems,  or the systems of those  material  vendors on
which it is reliant, would not be compliant with Year 2000 requirements.

The  Company  outsources  a  significant  portion of its data  processing  to an
outside  provider.  A worst case scenario for the Company  would likely  involve
non-compliance  with Year 2000 by its primary  data  processor  in such a manner
that would leave the Company in a position where it could not correctly  process
and  record  customer  loan and  deposit  transactions.  While the  Company  has
successfully  tested its primary data processing system for compliance with Year
2000, it cannot  guarantee that the systems of this and other companies on which
the  Company's  systems  rely will be timely  converted  and not have a material
effect on the Company.  Other parties whose Year 2000  compliance may affect the
Company  include the Federal Home Loan Bank of Cincinnati,  the Federal  Reserve
Bank of  Cincinnati  and  vendors who  support  loan and  deposit  documentation
software,  and the operations of the Company's ATM network.  These third parties
have indicated their compliance or intended compliance. Where it was possible to
do so, the Company scheduled testing with these third parties. Where testing was
not possible,  the Company will rely on certifications  from vendors and service
providers.  A failure  to resolve  year 2000  issues by  governmental  agencies,
utilities  and  telecommunications  companies  on whom the Company is  dependent
could also  adversely  affect the Company.  There can be no  assurance  that the
Company's  year 2000 plan will  effectively  address the year 2000 issue or that
the impact of any  failure of the  Company's  third-party  vendors  and  service
providers  to be year  2000  compliant  will not have a  material  effect on the
Company's business, financial condition or results of operations.

The Company has,  through June 30, 1999,  incurred  certain costs, not including
salary  expense,  related to Year 2000. A portion of these costs was incurred in
connection with the recent  conversion of the Company's  primary data processing
system.  Costs incurred through June 30, 1999 total  approximately  $326,000 and
include $205,000 for equipment,  $65,000 for software, $12,000 for de-conversion
fees  that were paid to the  previous  data  processing  provider,  $38,000  for
training and $6,000 for the initial  assessment.  At June 30, 1999,  the Company
expects to incur  additional  costs  associated with Year 2000  preparedness but
does not expect these costs to be material to the Company's  financial condition
or results of operations.

The  Company  does not have,  at June 30,  1999,  any  material  commitments  to
purchase  new  equipment,  software  or to incur  material  costs to modify  its
existing  system for year 2000 compliance and does not believe that any material
amounts of its existing computer  hardware or software is impaired.  The Company
has assessed the impact of Year 2000 on its  commercial-lending  customers,  and
believes  that the  impact,  in  terms  of  potential  credit  exposure,  is not
material. The majority of the Company's commercial lending portfolio consists of
commercial  real  estate  loans that are made to  companies  that are not highly
technology intensive.

                                       17
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
--------------------------------------------------------------------------------

The consolidated financial statements,  and notes thereto, presented herein have
been prepared in accordance with generally accepted accounting principles, which
generally require the measurement of financial position and operating results in
terms of historical dollars without consideration of the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Bank's operations. Unlike most industrial
companies,  nearly all the assets and liabilities of the Bank are monetary. As a
result,  interest rates have a greater impact on the Bank's  performance than do
the effects of general levels of inflation.  Interest  rates do not  necessarily
move in the same  direction  or to the same  extent  as the  price of goods  and
services.

                                       18
<PAGE>
                    HFB FINANCIAL CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>

JUNE 30                                                                                   1999                 1998
----------------------------------------------------------------------------------------------------------------------------

ASSETS
<S>                                                                                    <C>                   <C>
   Cash and due from banks                                                             $   3,573,139         $  6,947,148
   Trading assets, at fair value                                                           1,014,808              835,307
   Investment securities
     Available for sale                                                                   37,298,664           26,904,517
     Held to maturity (fair value of $21,508,000 and $20,625,000)                         21,997,870           20,546,634
                                                                                  ------------------------------------------
         Total investment securities                                                      59,296,534           47,451,151
   Loans, net of allowance for loan losses of $1,211,594 and $972,859                    120,741,798          116,170,754
   Premises and equipment                                                                  2,432,475            2,220,548
   Federal Home Loan Bank stock                                                            1,346,800            1,255,900
   Interest receivable                                                                     1,821,970            1,407,901
   Other assets                                                                              188,876              148,077
                                                                                  ------------------------------------------
         Total assets                                                                   $190,416,400         $176,436,786
                                                                                  ==========================================
LIABILITIES
   Deposits
     Interest bearing                                                                   $152,971,687         $144,622,466
     Non-interest bearing                                                                  1,016,069              258,952
                                                                                  ------------------------------------------
         Totals                                                                          153,987,756          144,881,418
   Short-term borrowings                                                                   6,500,000            6,500,000
   Long-term debt                                                                         10,597,501            5,661,598
   Interest payable                                                                          733,041              580,621
   Other liabilities                                                                         847,055              825,950
                                                                                  ------------------------------------------
         Total liabilities                                                               172,665,353          158,449,587
                                                                                  ------------------------------------------

STOCKHOLDERS' EQUITY
   Preferred stock, $1 par value
     Authorized and unissued--1,000,000 shares
   Common stock, $1 par value
     Authorized--5,000,000 shares
     Issued and outstanding--1,303,031 and 1,291,694 shares                                1,303,031            1,291,694
   Additional paid-in capital                                                              6,303,419            6,195,948
   Less: Common stock acquired by ESOP                                                                            (41,545)
         Common stock acquired by Rabbi trusts for deferred
            compensation plans                                                              (639,767)            (313,059)
   Treasury stock, at cost--202,046 shares                                                (2,030,955)          (2,030,955)
   Retained earnings                                                                      13,501,715           12,754,183
   Accumulated other comprehensive income                                                   (686,396)             130,933
                                                                                  ------------------------------------------
         Total stockholders' equity                                                       17,751,047           17,987,199
                                                                                  ------------------------------------------
         Total liabilities and stockholders' equity                                     $190,416,400         $176,436,786
                                                                                  ==========================================
</TABLE>

See notes to consolidated financial statements.

                                       19
<PAGE>
                    HFB FINANCIAL CORPORATION AND SUBSIDIARY
                        CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30                                                1999             1998             1997
---------------------------------------------------------------------------------------------------------------

INTEREST INCOME
<S>                                                             <C>            <C>              <C>
   Loans receivable                                             $10,029,733    $  9,767,979     $  8,692,178
   Investment securities                                          3,228,779       2,911,288        2,768,076
   Other dividend income                                            115,142          87,085           78,953
   Deposits with financial institutions                             184,062         212,868          152,989
                                                             --------------------------------------------------
         Total interest income                                   13,557,716      12,979,220       11,692,196
                                                             --------------------------------------------------
INTEREST EXPENSE
   Deposits                                                       7,206,451       6,708,163        6,305,373
   Short-term borrowings                                            374,466         469,668          160,393
   Long-term debt                                                   436,840         144,100           44,140
                                                             --------------------------------------------------
         Total interest expense                                   8,017,757       7,321,931        6,509,906
                                                             --------------------------------------------------

NET INTEREST INCOME                                               5,539,959       5,657,289        5,182,290
   Provision for loan losses                                        252,876         273,721          138,156
                                                             --------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES               5,287,083       5,383,568        5,044,134
                                                             --------------------------------------------------
OTHER INCOME
   Service charges for deposit accounts                             366,606         387,845          319,555
   Other customer fees                                               89,369          72,738           56,260
   Net gain (loss) on trading securities                           (140,596)        158,642          307,461
   Net realized gain on sales of available-
     for-sale securities                                              7,122          13,614           10,653
   Other income                                                       1,737          28,383           51,989
                                                             --------------------------------------------------
         Total other income                                         324,238         661,222          745,918
                                                             --------------------------------------------------
OTHER EXPENSES
   Salaries and employee benefits                                 1,744,475       1,818,476        1,658,323
   Net occupancy expenses                                           196,683         191,988          205,675
   Equipment expenses                                               230,550         229,994          217,608
   Data processing fees                                             234,144         311,847          221,250
   Deposit insurance expense                                         87,091          84,129          169,261
   SAIF special assessment                                                                           705,859
   Legal and professional fees                                      195,040         162,686          181,584
   Advertising                                                      113,658         133,453          120,579
   State franchise and deposit taxes                                145,606         121,915          123,033
   Other expenses                                                   767,282         695,868          558,108
                                                             --------------------------------------------------
         Total other expenses                                     3,714,529       3,750,356        4,161,280
                                                             --------------------------------------------------
INCOME BEFORE INCOME TAX                                          1,896,792       2,294,434        1,628,772
   Income tax expense                                               656,503         791,360          591,180
                                                             --------------------------------------------------
NET INCOME                                                     $  1,240,289    $  1,503,074     $  1,037,592
                                                             ==================================================
BASIC EARNINGS PER SHARE                                              $1.13           $1.39             $.98
                                                             ==================================================
DILUTED EARNINGS PER SHARE                                            $1.12           $1.35             $.96
                                                             ==================================================
</TABLE>

See notes to consolidated financial statements.

                                       20
<PAGE>
                    HFB FINANCIAL CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                   COMMON STOCK
                              ----------------------        ADDITIONAL
                                 SHARES                       PAID-IN     ESOP      MRP AND       RABBI    COMPREHENSIVE
                              OUTSTANDING   AMOUNT            CAPITAL     DEBT*      SERP**      TRUSTS        INCOME
                              ------------------------------------------------------------------------------------------
<S>                              <C>      <C>               <C>         <C>         <C>          <C>           <C>
BALANCES, JULY 1, 1996           746,064  $   746,064       $6,297,130  $(209,428)  $(121,250)   $(258,290)
Comprehensive income
  Net income                                                                                                   $1,037,592
  Other comprehensive
    income, net of tax
    Unrealized gains on
      securities, net of
      reclassification
      adjustment                                                                                                  159,195
                                                                                                               ==========
Comprehensive income                                                                                           $1,196,787
                                                                                                               ==========
Cash dividends ($.39 per
  share)
Stock issued upon exercise
  of stock options                25,439       25,439          256,421
Reduction of ESOP debt                                                     84,006
Stock issued under MRP                                                                 20,300
Stock purchased by Rabbi
  trusts                                                                                           (24,969)
5-for-3 stock split
  ($4,490 paid
  in lieu of fractional
  shares)                        514,170      514,170         (518,660)
Treasury stock purchased--
  8,850 shares
Tax benefit of employee
  benefit plans                                                 59,660
                              -----------------------------------------------------------------------------

BALANCES, JUNE 30, 1997        1,285,673    1,285,673        6,094,551   (125,422)   (100,950)    (283,259)
Comprehensive income
  Net income                                                                                                   $1,503,074
  Other comprehensive
    income, net of tax
    Unrealized gains on
      securities, net of
      reclassification
      adjustment                                                                                                  121,058
                                                                                                               ==========
Comprehensive income                                                                                           $1,624,132
                                                                                                               ==========
Cash dividends ($.43 per
  share)
Stock issued upon exercise
  of stock options                 6,021        6,021           30,105
Reduction of ESOP debt                                                     83,877
Stock issued under MRP and
  SERP                                                                                100,950
Stock purchased by Rabbi
  trusts                                                                                           (29,800)
Tax benefit of employee
  benefit
  plans                                                         71,292
                              ------------------------------------------------------------------------------
BALANCES, JUNE 30, 1998        1,291,694    1,291,694        6,195,948    (41,545)                (313,059)
</TABLE>

                                       21
<PAGE>
                    HFB FINANCIAL CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                  (continued)
<TABLE>
<CAPTION>
                                            ACCUMULATED
                                               OTHER
                               RETAINED    COMPREHENSIVE    TREASURY    STOCKHOLDERS'
                               EARNINGS        INCOME        STOCK         EQUITY
                             -------------------------------------------------------

<S>                           <C>            <C>          <C>           <C>
BALANCES, JULY 1, 1996        $11,093,766    $(149,320)   $(1,826,405)  $15,572,267
Comprehensive income
  Net income                    1,037,592                                 1,037,592
  Other comprehensive
    income, net of tax
    Unrealized gains on
      securities, net of
      reclassification
      adjustment                               159,195                      159,195

Comprehensive income

Cash dividends ($.39 per
  share)                         (413,844)                                 (413,844)
Stock issued upon exercise
  of stock options                                                          281,860
Reduction of ESOP debt                                                       84,006
Stock issued under MRP                                                       20,300
Stock purchased by Rabbi
  trusts                                                                    (24,969)
5-for-3 stock split
  ($4,490 paid
  in lieu of fractional
  shares)                                                                    (4,490)
Treasury stock purchased--
  8,850 shares                                               (204,550)     (204,550)
Tax benefit of employee
  benefit
  plans                                                                      59,660
                             -------------------------------------------------------

BALANCES, JUNE 30, 1997        11,717,514        9,875     (2,030,955)   16,567,027
Comprehensive income
  Net income                    1,503,074                                 1,503,074
  Other comprehensive
    income, net of tax
    Unrealized gains on
      securities, net of
      reclassification
      adjustment                               121,058                      121,058

Comprehensive income

Cash dividends ($.43 per
  share)                         (466,405)                                 (466,405)
Stock issued upon exercise
  of stock options                                                           36,126
Reduction of ESOP debt                                                       83,877
Stock issued under MRP and
  SERP                                                                      100,950
Stock purchased by Rabbi
  trusts                                                                    (29,800)
Tax benefit of employee
  benefit
  plans                                                                      71,292
                             -------------------------------------------------------
BALANCES, JUNE 30, 1998        12,754,183      130,933     (2,030,955)   17,987,199
</TABLE>
                                       22
<PAGE>
                    HFB FINANCIAL CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Continued)

<TABLE>
<CAPTION>
                                   COMMON STOCK
                              ----------------------        ADDITIONAL
                                 SHARES                       PAID-IN     ESOP      MRP AND       RABBI    COMPREHENSIVE
                              OUTSTANDING   AMOUNT            CAPITAL     DEBT*      SERP**      TRUSTS        INCOME
                              ----------------------------------------------------------------------------------------------
<S>                              <C>        <C>               <C>         <C>         <C>          <C>           <C>
BALANCES, (BROUGHT FORWARD)
   JUNE 30, 1998                 1,291,694  $1,291,694        $6,195,948  $(41,545)                 $(313,059)
   Comprehensive income
     Net income                                                                                                  $1,240,289
     Other comprehensive
       income, net of tax
       Unrealized losses on
         securities, net of
         reclassification
         adjustment                                                                                                (817,329)
                                                                                                                 ----------
   Comprehensive income                                                                                          $  422,960
                                                                                                                 ==========
   Cash dividends ($.45 per
     share)
   Stock issued upon exercise
     of stock options               11,337      11,337            56,685
   Reduction of ESOP debt                                                   41,545
   Stock purchased by Rabbi
     trusts                                                                                           (48,600)
   Tax benefit of employee
     benefit
     plans                                                        50,786
   Stock withdrawn from Rabbi
     Trusts                                                                                             8,352
   Transitional fair value
     adjustment of Rabbi
     Trust shares                                                                                    (371,815)
   Net change in fair value
     of Rabbi Trust shares                                                                             85,355
                                 -----------------------------------------------------------------------------
BALANCES, JUNE 30, 1999          1,303,031  $1,303,031        $6,303,419  $      0    $      0      $(639,767)
                                 =============================================================================
</TABLE>
*Employee Stock Ownership Plan (ESOP)
**Management Recognition Plan (MRP) and Supplemental Executive Retirement Plan
  (SERP)

See notes to consolidated financial statements.

                                       23
<PAGE>
                    HFB FINANCIAL CORPORATION AND SUBSIDIARY
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Continued)

<TABLE>
<CAPTION>
                                            ACCUMULATED
                                               OTHER
                               RETAINED    COMPREHENSIVE    TREASURY    STOCKHOLDERS'
                               EARNINGS        INCOME        STOCK         EQUITY
                             -------------------------------------------------------

BALANCES, (BROUGHT FORWARD)
<S>                            <C>              <C>        <C>            <C>
   JUNE 30, 1998               $12,754,183      $130,933   $(2,030,955)   $17,987,199
   Comprehensive income
     Net income                  1,240,289                                  1,240,289
     Other comprehensive
       income, net of tax
       Unrealized losses on
         securities, net of
         reclassification
         adjustment                             (817,329)                    (817,329)

   Comprehensive income

   Cash dividends ($.45 per
     share)                       (492,757)                                  (492,757)
   Stock issued upon exercise
     of stock options                                                          68,022
   Reduction of ESOP debt                                                      41,545
   Stock purchased by Rabbi
     trusts                                                                   (48,600)
   Tax benefit of employee
     benefit
     plans                                                                     50,786
   Stock withdrawn from Rabbi
     Trusts                                                                     8,352
   Transitional fair value
     adjustment of Rabbi
     Trust shares                                                            (371,815)
   Net change in fair value
     of Rabbi Trust shares                                                     85,355
                               -------------------------------------------------------
BALANCES, JUNE 30, 1999        $13,501,715     $(686,396)  $(2,030,955)   $17,751,047
                               =======================================================
</TABLE>
                                       24
<PAGE>
                    HFB FINANCIAL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30                                                           1999              1998             1997
--------------------------------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES
<S>                                                                        <C>              <C>               <C>
   Net income                                                              $  1,240,289     $  1,503,074      $  1,037,592
   Adjustments to reconcile net income to net cash
     provided by operating activities
     Provision for loan losses                                                  252,877          273,721           138,156
     Depreciation and amortization
       Property and equipment                                                   267,702          217,587           233,684
       Cost of ESOP and MRP                                                      41,545          184,827           104,306
       Investment securities                                                     33,996           32,336            60,686
     FHLB stock dividend                                                        (90,900)         (86,800)          (78,700)
     Investment security (gains) losses                                          (7,122)         (13,614)          (10,653)
     Deferred income tax                                                        135,000          (27,000)           29,000
     Net change in
       Trading assets, at fair value                                           (179,501)         (39,752)         (549,055)
       Interest receivable                                                     (414,069)        (333,619)         (119,656)
       Interest payable                                                         152,420           32,388            13,935
       Other assets                                                              53,315            4,494            43,192
       Other liabilities                                                         21,105          (62,977)           83,620
     Other                                                                                                          29,718
                                                                       -----------------------------------------------------
     Net cash provided by operating activities                                1,506,657        1,684,665         1,015,825
                                                                       -----------------------------------------------------
INVESTING ACTIVITIES
   Purchases of securities available for sale                               (24,954,517)      (9,722,516)       (8,881,777)
   Proceeds from maturities of securities available for sale                  8,614,926        6,342,531         2,849,946
   Purchases of securities held to maturity                                  (8,239,459)      (8,763,360)       (4,005,000)
   Proceeds from sales of securities available for sale                       4,615,865        1,783,144         2,000,000
   Proceeds from maturities of securities held to maturity                    6,808,811        8,399,235         3,615,504
   Net change in loans                                                       (4,823,921)     (11,460,088)       (9,364,864)
   Purchases of premises and equipment                                         (479,629)        (270,742)          (31,314)
   Proceeds from sale of real estate owned                                                                         185,527
   Other                                                                                                             1,401
                                                                       -----------------------------------------------------
     Net cash used by investing activities                                  (18,457,924)     (13,691,796)      (13,630,577)
                                                                       -----------------------------------------------------
</TABLE>
                                       25
<PAGE>
                    HFB FINANCIAL CORPORATION AND SUBSIDIARY
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Continued)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30                                           1999              1998             1997
------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
<S>                                                      <C>                <C>                <C>
   Net change in
     Noninterest-bearing, interest-bearing and
       savings deposits                                  $      (64,074)    $    654,002       $  (483,555)
     Certificates of deposit                                  9,170,412       11,024,874         6,943,860
     Short-term borrowings                                                    (1,000,000)        5,625,000
   Proceeds of long-term debt                                 5,000,000        5,000,000
   Repayment of long-term debt                                  (64,097)         (59,155)          (54,595)
   Cash dividends                                              (492,757)        (466,405)         (413,844)
   Purchase of stock                                                                              (204,550)
   Sale of common stock                                          68,022           36,126           281,860
   Cash paid in lieu of fractional shares                                                           (4,490)
   Common stock acquired by Rabbi trusts                        (48,600)         (29,800)          (24,969)
   Common stock withdrawn from Rabbi trusts                       8,352
                                                       -----------------------------------------------------
     Net cash provided by financing activities               13,577,258       15,159,642        11,664,717
                                                       -----------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                      (3,374,009)       3,152,511          (950,035)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                  6,947,148        3,794,637         4,744,672
                                                       -----------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                     $  3,573,139     $  6,947,148      $  3,794,637
                                                       =====================================================
ADDITIONAL CASH FLOWS INFORMATION
   Interest paid                                           $  7,865,337     $  7,289,543      $  6,492,945
   Income tax paid                                              305,864          914,762           426,896
</TABLE>
See notes to consolidated financial statements.

                                       26
<PAGE>
                    HFB FINANCIAL CORPORATION AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                       (Table Dollar Amounts in Thousands)

NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of HFB Financial Corporation (Company) and
its  wholly-owned   subsidiary,   Home  Federal  Bank  (Bank),  and  the  Bank's
wholly-owned subsidiary, Home Service Corporation, conform to generally accepted
accounting  principles and reporting practices followed by the banking industry.
The more significant of the policies are described below.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

The Company is a bank holding company whose principal  activity is the ownership
and management of the Bank. The Bank operates under a federal thrift charter and
provides full banking services in a single  significant  business segment.  As a
federally-chartered  thrift,  the Bank is subject to regulation by the Office of
Thrift Supervision and the Federal Deposit Insurance Corporation.

The Bank generates commercial, mortgage and consumer loans and receives deposits
from customers located primarily in Bell County, Kentucky,  surrounding counties
and the  surrounding  States of  Tennessee  and  Virginia.  The Bank's loans are
generally  secured by specific  items of  collateral  including  real  property,
consumer assets and business assets.

CONSOLIDATION--The consolidated financial statements include the accounts of the
Company,  the Bank and the Bank's  subsidiary after  elimination of all material
intercompany transactions and accounts.

TRADING ACTIVITIES are engaged in by the Company for its own account. Securities
that are held  principally  for  resale  in the near  term are  recorded  in the
trading  assets  account at fair value with  changes in fair value  recorded  in
earnings.   Trading  account  securities  consist  primarily  of  thrift  equity
securities. Interest and dividends are included in net interest income.

Quoted   market  prices  are  used  to  determine  the  fair  value  of  trading
instruments.

INVESTMENT  SECURITIES--Debt  securities are classified as held to maturity when
the  Company  has the  positive  intent and  ability to hold the  securities  to
maturity.  Securities  held to maturity  are  carried at  amortized  cost.  Debt
securities not classified as held to maturity or included in the trading account
and  marketable  equity  securities  not classified as trading are classified as
available for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported separately in stockholders'  equity, net of
tax.

Amortization  of premiums and  accretion  of discounts  are recorded as interest
income from  securities.  Realized gains and losses are recorded as net security
gains  (losses).  Gains and losses on sales of securities  are determined on the
specific-identification method.

                                       27
<PAGE>

HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

LOANS are  carried  at the  principal  amount  outstanding.  Interest  income is
accrued on the principal  balances of loans. The accrual of interest on impaired
loans is discontinued when, in management's  opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued,  all
unpaid  accrued  interest is reversed when  considered  uncollectible.  Interest
income is subsequently recognized only to the extent cash payments are received.
Certain  loan fees and  direct  costs are being  deferred  and  amortized  as an
adjustment of yield on the loans.

ALLOWANCE  FOR  LOAN  LOSSES  is  maintained  to  absorb  loan  losses  based on
management's  continuing  review and  evaluation  of the loan  portfolio and its
judgment  as to  the  impact  of  economic  conditions  on  the  portfolio.  The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio,  the current  condition and amount of loans
outstanding,  and the probability of collecting all amounts due.  Impaired loans
are  measured by the present  value of expected  future cash flows,  or the fair
value of the collateral of the loan, if collateral dependent.

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic environment and market conditions.  Management believes that as of June
30,  1999 the  allowance  for  loan  losses  is  adequate  based on  information
currently  available.  A worsening or  protracted  economic  decline in the area
within which the Bank  operates  would  increase the  likelihood  of  additional
losses due to credit and market risks and could  create the need for  additional
loss reserves.

PREMISES  AND  EQUIPMENT  are carried at cost net of  accumulated  depreciation.
Depreciation is computed using the declining  balance method  principally on the
estimated  useful lives of the assets.  Maintenance  and repairs are expensed as
incurred  while major  additions and  improvements  are  capitalized.  Gains and
losses on dispositions are included in current operations.

FEDERAL HOME LOAN BANK (FHLB) STOCK is a required  investment  for  institutions
that are members of the Federal Home Loan Bank system.  The required  investment
in the common stock is based on a predetermined formula.

TREASURY STOCK is stated at cost. Cost is determined by the first-in,  first-out
method.

INCOME TAX in the consolidated  statement of income includes deferred income tax
provisions or benefits for all significant  temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiary.

EARNINGS PER SHARE have been  computed  based upon the weighted  average  common
shares (including ESOP shares) outstanding during each year.

                                       28
<PAGE>

HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

STOCK  OPTIONS  are granted for a fixed  number of shares to  employees  with an
exercise  price equal to the fair value of the shares at the date of grant.  The
Company  accounts for and will  continue to account for stock  option  grants in
accordance  with APB Opinion No. 25,  Accounting  for Stock Issued to Employees,
and,  accordingly,  recognizes  no  compensation  expense  for the stock  option
grants.

NOTE 2 -- INVESTMENT SECURITIES
<TABLE>
<CAPTION>
                                                                             GROSS            GROSS
                                                         AMORTIZED        UNREALIZED        UNREALIZED          FAIR
                                                            COST             GAINS            LOSSES            VALUE
                                                     -----------------------------------------------------------------------
<S>                                                        <C>                  <C>          <C>                <C>
JUNE 30, 1999
   Available for sale
     U. S. Treasury                                        $  4,491             $  54                           $  4,545
     Federal agencies                                        21,465                 5        $    (774)           20,696
     Mortgage-backed securities                              12,436                10             (388)           12,058
                                                     -----------------------------------------------------------------------
         Total available for sale                            38,392                69           (1,162)           37,299
                                                     -----------------------------------------------------------------------

   Held to maturity
     Federal agencies                                         7,731                               (221)            7,510
     Mortgage-backed securities                              14,267                37             (306)           13,998
                                                     -----------------------------------------------------------------------
         Total held to maturity                              21,998                37             (527)           21,508
                                                     -----------------------------------------------------------------------
         Total investment securities                        $60,390              $106        $  (1,689)          $58,807
                                                     =======================================================================

JUNE 30, 1998
   Available for sale
     U. S. Treasury                                        $  5,479             $  98                           $  5,577
     Federal agencies                                        12,603                64        $      (6)           12,661
     Mortgage-backed securities                               8,633                50              (16)            8,667
                                                     -----------------------------------------------------------------------
         Total available for sale                            26,715               212              (22)           26,905
                                                     -----------------------------------------------------------------------
   Held to maturity
     Federal agencies                                         6,497                56              (20)            6,533
     Mortgage-backed securities                              14,050                61              (19)           14,092
                                                     -----------------------------------------------------------------------
         Total held to maturity                              20,547               117              (39)           20,625
                                                     -----------------------------------------------------------------------
         Total investment securities                        $47,262              $329        $     (61)          $47,530
                                                     =======================================================================
</TABLE>
                                       29
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

The amortized  cost and fair value of securities  held to maturity and available
for sale at June 30, 1999, by contractual  maturity,  are shown below.  Expected
maturities will differ from contractual  maturities because issuers may have the
right  to  call  or  prepay  obligations  with or  without  call  or  prepayment
penalties.

                                  HELD TO MATURITY        AVAILABLE FOR SALE
                              -----------------------------------------------
                                AMORTIZED     FAIR       AMORTIZED    FAIR
JUNE 30                           COST        VALUE        COST       VALUE
-----------------------------------------------------------------------------

Within one year                 $   502      $   501     $ 1,999     $ 2,006
One to five years                 1,680        1,640       4,491       4,526
Five to ten years                 4,513        4,382      14,007      13,525
After ten years                   1,036          987       5,459       5,184
                              -----------------------------------------------
                                  7,731        7,510      25,956      25,241
Mortgage-backed securities       14,267       13,998      12,436      12,058
                              -----------------------------------------------
       Totals                   $21,998      $21,508     $38,392     $37,299
                              ===============================================

Securities  with a carrying value of $11,766,000  and $9,775,000 were pledged at
June 30, 1999 and 1998 to secure public deposits.

Proceeds from sales of securities  available for sale during 1999, 1998 and 1997
were  $4,615,865,  $1,783,144  and  $2,000,000.  Gross  gains on those  sales of
$7,122,  $13,614 and  $14,212  were  realized  in 1999,  1998 and 1997 and gross
losses of $3,559 were realized in 1997.

Unrealized holding gains (losses) on trading securities of $(37,292),  $(35,915)
and $50,069 were included in earnings in 1999, 1998 and 1997.

                                       30
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 3 -- LOANS AND ALLOWANCE

JUNE 30                                                 1999          1998
-------------------------------------------------------------------------------

Commercial real estate and industrial loans            $  10,843      $  10,764
Real estate mortgage loans                                92,203         91,271
Construction loans                                        12,996          8,636
Consumer loans                                             5,912          6,473
                                                      -------------------------
                                                         121,954        117,144
Allowance for loan losses                                 (1,212)          (973)
                                                      -------------------------
       Total loans                                      $120,742       $116,171
                                                      =========================


YEAR ENDED JUNE 30                        1999             1998           1997
--------------------------------------------------------------------------------

Allowance for loan losses
   Balances, beginning of year         $   973             $710            $671
   Provision for losses                    253              274             138
   Recoveries on loans                       2                                3
   Loans charged off                       (16)             (11)           (102)
                                     ------------------------------------------
   Balances, end of year                $1,212             $973            $710
                                     ==========================================

Information on impaired loans is summarized below:

JUNE 30                                                 1999             1998
-------------------------------------------------------------------------------

Impaired loans with an allowance                          $1,523         $1,271
                                                     ==========================

Allowance for impaired loans (included in
  the Company's allowance for loan losses)                $  812         $  356
                                                     ==========================

YEAR ENDED JUNE 30                                       1999             1998
-------------------------------------------------------------------------------

Average balance of impaired loans                         $1,812         $1,285
Interest income recognized on impaired loans                  14            156
Cash-basis interest included above                                          128

                                       31
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 4 -- PREMISES AND EQUIPMENT

JUNE 30                                             1999             1998
------------------------------------------------------------------------------

Land and improvements                                $1,075           $   611
Buildings                                             1,410             1,685
Furniture and equipment                               1,642             1,499
Automobiles                                             104               104
                                                 -----------------------------
       Total cost                                     4,231             3,899
Accumulated depreciation                             (1,799)           (1,678)
                                                 -----------------------------
       Net                                           $2,432            $2,221
                                                 =============================


NOTE 5 -- DEPOSITS

JUNE 30                                             1999             1998
------------------------------------------------------------------------------

Demand deposits                                    $  13,600         $  12,453
Savings deposits                                       7,625             8,836
Certificates and other time deposits
   of $100,000 or more                                40,626            35,181
Other certificates and time deposits                  92,137            88,411
                                                 -----------------------------
       Total deposits                               $153,988          $144,881
                                                 =============================

Certificates and other time deposits maturing in years ending June 30

   2000                                                 $  94,766
   2001                                                    30,638
   2002                                                     1,724
   2003                                                     2,520
   2004                                                     2,995
   Thereafter                                                 120
                                                      ---------------
                                                         $132,763
                                                      ===============
                                       32

<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 6 -- SHORT-TERM BORROWINGS AND LINE OF CREDIT

In 1999 and 1998, the Company had available a 90-day revolving line of credit up
to a maximum of $10,000,000 and  $13,000,000.  The line of credit bears interest
at a daily variable rate which is set by the Federal Home Loan Bank.

At June 30,  1999 and 1998,  the  Company  had drawn  $6,500,000  on the line of
credit.

This line of credit is  collateralized  by FHLB  stock and  single-family  first
mortgage  loans  with  aggregate   principal   balances  totaling  150%  of  the
outstanding amount.

NOTE 7 -- LONG-TERM DEBT

                                                         1999          1998
--------------------------------------------------------------------------------

   Federal Home Loan Bank advances, variable
     rates, due at various dates through January 2009    $10,598      $5,662

These advances are collateralized by FHLB stock and single-family first mortgage
loans with aggregate  principal balances totaling 150% of the outstanding amount
of advances.  Advances are subject to  restrictions or penalties in the event of
prepayment.

Maturities in years ending June 30

   2000                                           $      69
   2001                                                  75
   2002                                                  82
   2003                                                  88
   2004                                                  94
   Thereafter                                        10,190
                                                -----------------
                                                    $10,598
                                                =================

                                       33
<PAGE>

HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 8 -- INCOME TAX

YEAR ENDED JUNE 30                        1999         1998         1997
--------------------------------------------------------------------------------

Income tax expense
   Currently payable
     Federal                                 $496        $765          $523
     State                                     26          53            39
   Deferred
     Federal                                  119         (35)           27
     State                                     16           8             2
                                          --------------------------------------
       Total income tax expense              $657        $791          $591
                                          ======================================

Reconciliation of federal statutory
  to actual tax expense
   Federal statutory income tax at 34%       $645        $780          $554
   Effect of state income taxes                28          40            27
   Other                                      (16)        (29)           10
                                          --------------------------------------
       Actual tax expense                    $657        $791          $591
                                          ======================================

                                       34
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

A  cumulative  net deferred  tax asset  (liability)  is included in other assets
(liabilities). The components of the asset (liability) are as follows:

JUNE 30                                                      1999       1998
--------------------------------------------------------------------------------

ASSETS
   Deferred compensation                                       $299        $127
   Allowance for loan losses                                                  4
   Unrealized gain on securities available for sale             406
                                                          ----------------------
         Total assets                                           705         131
                                                          ----------------------

LIABILITIES
   Basis in FHLB stock                                         (276)       (243)
   Allowance for loan losses                                    (88)
   Unrealized loss on investment securities
      available for sale                                        (59)
   Other                                                        (27)         (8)
                                                          ----------------------
         Total liabilities                                     (391)       (310)
                                                          ----------------------
                                                               $314       $(179)
                                                          ======================

Retained earnings include approximately  $2,096,000 for which no deferred income
tax  liability  has been  recognized.  This amount  represents  an allocation of
income  to bad debt  deductions  as of June  30,  1988  for tax  purposes  only.
Reduction  of amounts so allocated  for purposes  other than tax bad debt losses
including  redemption  of bank  stock of  excess  dividends,  or loss of  "bank"
status, would create income for tax purposes only, which income would be subject
to the then-current  corporate income tax rate. At June 30, 1999, the unrecorded
deferred income tax liability on the above amount was approximately $800,000.

                                       35
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 9 -- OTHER COMPREHENSIVE INCOME--UNREALIZED GAINS (LOSSES) ON SECURITIES
<TABLE>
<CAPTION>
                                                                                               1999
                                                                       -----------------------------------------------------
                                                                                                TAX
                                                                           BEFORE-TAX         (EXPENSE)         NET-OF-TAX
YEAR ENDED JUNE 30                                                           AMOUNT            BENEFIT            AMOUNT
----------------------------------------------------------------------------------------------------------------------------

Unrealized gains (losses) on securities:
<S>                                                                            <C>                <C>               <C>
   Unrealized holding gains (losses) arising during the year                   $(1,275)           $462              $(813)
   Less: reclassification adjustment for gains (losses)
     realized in net income                                                          7              (3)                 4
                                                                       -----------------------------------------------------
   Other comprehensive income--net unrealized
     gains (losses) on securities                                              $(1,282)           $465              $(817)
                                                                       =====================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                               1998
                                                                       -----------------------------------------------------
                                                                                                TAX
                                                                           BEFORE-TAX         (EXPENSE)         NET-OF-TAX
YEAR ENDED JUNE 30                                                           AMOUNT            BENEFIT            AMOUNT
----------------------------------------------------------------------------------------------------------------------------

Unrealized gains (losses) on securities:
<S>                                                                               <C>             <C>                <C>
   Unrealized holding gains (losses) arising during the year                      $190            $(60)              $130
   Less: reclassification adjustment for gains (losses)
     realized in net income                                                         13              (4)                 9
                                                                       -----------------------------------------------------
   Other comprehensive income--net unrealized
     gains (losses) on securities                                                 $177            $(56)              $121
                                                                       =====================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                               1997
                                                                       -----------------------------------------------------
                                                                                                TAX
                                                                           BEFORE-TAX         (EXPENSE)         NET-OF-TAX
YEAR ENDED JUNE 30                                                           AMOUNT            BENEFIT            AMOUNT
----------------------------------------------------------------------------------------------------------------------------
Unrealized gains (losses) on securities:
<S>                                                                               <C>             <C>                <C>
   Unrealized holding gains (losses) arising during the year                      $250            $(84)              $166
   Less: reclassification adjustment for gains (losses)
     realized in net income                                                         10              (3)                 7
                                                                       -----------------------------------------------------
   Other comprehensive income--net unrealized
     gains (losses) on securities                                                 $240            $(81)              $159
                                                                       =====================================================
</TABLE>
                                       36
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 10 -- COMMITMENTS AND CONTINGENT LIABILITIES

In  the  normal  course  of  business  there  are  outstanding  commitments  and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements.  The
Banks' exposure to credit loss in the event of nonperformance by the other party
to the  financial  instruments  for  commitments  to extend  credit and  standby
letters of credit is represented by the  contractual or notional amount of those
instruments.  The Bank uses the same credit policies in making such  commitments
as it does for instruments that are included in the consolidated balance sheet.

Financial instruments whose contract amount represents credit risk as of June 30
were as follows:

                                              1999             1998
                                          ---------------------------------

Commitments to extend credit                   $1,788           $10,127
Commitments to purchase investments             1,436
Standby letters of credit                         226               360

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash  requirements.  The Bank evaluates each customer's  credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's  credit
evaluation.

Standby  letters of credit  are  conditional  commitments  issued by the Bank to
guarantee the performance of a customer to a third party.

The  Company  has  entered  into  change in control  agreements  with two of its
executive  officers  which  provide for the  continuation  of salary and certain
benefits for a specified period of time under certain conditions.

The Company and  subsidiary  are also subject to claims and lawsuits which arise
primarily in the ordinary  course of business.  It is the opinion of  management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material  adverse effect on the  consolidated  financial  position of the
Company.

                                       37
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 11 -- YEAR 2000

Like all entities, the Company is exposed to risks associated with the Year 2000
Issue,   which  affects  computer  software  and  hardware;   transactions  with
customers, vendors, and other entities; and equipment dependent upon microchips.
The Company has begun,  but not yet completed,  the process of  identifying  and
remediating  potential Year 2000 problems.  It is not possible for any entity to
guarantee the results of its own  remediation  efforts or to accurately  predict
the impact of the Year 2000 Issue on third  parties  with which the Company does
business.  If remediation efforts of the Company or third parties with which the
Company  does  business  are not  successful,  the Year 2000  Issue  could  have
negative effects on the Company's  financial condition and results of operations
in the near term.

The Company has not  estimated  the ultimate  cost of  addressing  the Year 2000
Issue. It is reasonably  possible that the Company's belief that it will recover
the carrying  amount of certain  existing  hardware  and  software  could change
materially  in the near term as a result of the Company's  Year 2000  resolution
decisions.

NOTE 12 -- DIVIDENDS AND CAPITAL RESTRICTIONS

Without prior approval,  current  regulations allow the Bank to pay dividends to
the Company  not  exceeding  net income for the current  year plus those for the
preceding two years.  The Bank normally  restricts  dividends to a lesser amount
because of the need to maintain an adequate capital structure.

NOTE 13 -- REGULATORY CAPITAL

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies and is assigned to a capital category. The assigned
capital  category is largely  determined  by three  ratios  that are  calculated
according to the regulations:  total risk adjusted capital,  Tier 1 capital, and
Tier 1 leverage  ratios.  The ratios are intended to measure capital relative to
assets and  credit  risk  associated  with those  assets and  off-balance  sheet
exposures of the entity.  The capital category assigned to an entity can also be
affected by  qualitative  judgments  made by regulatory  agencies about the risk
inherent in the entity's activities that are not part of the calculated ratios.

There are five capital categories defined in the regulations,  ranging from well
capitalized to critically  undercapitalized.  Classification of a bank in any of
the  undercapitalized  categories can result in actions by regulators that could
have a material  effect on a bank's  operations.  At June 30, 1999 and 1998, the
Bank is categorized as well  capitalized  and met all subject  capital  adequacy
requirements.  There  are no  conditions  or  events  since  June 30,  1999 that
management believes have changed the Bank's classification.

                                       38
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
                                                                              REQUIRED FOR               TO BE WELL
                                                       ACTUAL               ADEQUATE CAPITAL*           CAPITALIZED*
                                             -------------------------------------------------------------------------------
                                                 AMOUNT        RATIO       AMOUNT       RATIO        AMOUNT       RATIO
                                             -------------------------------------------------------------------------------
AS OF JUNE 30, 1999
<S>                                              <C>            <C>          <C>          <C>       <C>            <C>
   Total risk-based capital* (to risk-
     weighted assets)                            $17,694        22%          $6,612       8.00%     $  8,265       10.00%
   Core capital* (to adjusted tangible
     assets)                                      17,138         9            7,631       4.00        11,447        6.00
   Core capital* (to adjusted total assets)       17,138         9            7,631       4.00         9,539        5.00

AS OF JUNE 30, 1998
   Total risk-based capital* (to risk-
     weighted assets)                            $16,727        23%          $5,943       8.00%       $7,429       10.00%
   Core capital* (to adjusted tangible
     assets)                                      16,040         9            7,023       4.00        10,534        6.00
   Core capital* (to adjusted total assets)       16,040         9            7,023       4.00         8,778        5.00
</TABLE>

*As defined by regulatory agencies

The Bank's tangible capital at June 30, 1999 was $17,138,000 which amount was 9%
of tangible assets and exceeded the required ratio of 1.5%.

NOTE 14 -- STOCKHOLDERS' EQUITY

On June 15, 1997, the Board of Directors  declared a 5-for-3 stock split,  which
was paid on June 30, 1997. All share data has been adjusted to reflect the stock
split.

NOTE 15 -- EMPLOYEE BENEFIT PLANS

PENSION PLAN

The  Company is a  participant  in a pension  fund known as The  Pentegra  Group
(formerly  the  Financial   Institutions   Retirement  Fund).  This  plan  is  a
multi-employer  plan; separate actuarial valuations are not made with respect to
each participating  employer.  According to The Pentegra Group, the market value
of the fund's assets exceed the value of vested  benefits in the aggregate as of
June 30, 1998, the most recent  valuation date.  There is no unfunded  liability
for past service. Plan benefits are fully vested after five years of service and
are based on an employee's  years of service and a percentage of the  employee's
average salary,  using the five highest consecutive years preceding  retirement.
The  Bank's  funding  policy is to make  contributions  to the plan equal to the
amount  accrued as pension  expense.  The Bank incurred no expense for the years
ended June 30, 1999, 1998 or 1997.

                                       39
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

EMPLOYEE STOCK OWNERSHIP PLAN

The  Bank has an  Employee  Stock  Ownership  Plan  (ESOP)  for the  benefit  of
participating  employees.  Generally, all employees age 21 or older are eligible
to participate upon completion of one year of service. The Bank accounts for its
ESOP in accordance  with Emerging  Issues Task Force (EITF) Issue No. 89-8. ESOP
cash  contributions  and ESOP expense  accrued during the year are determined by
several factors  including the number of shares allocated to participants,  ESOP
debt service and  dividends on  unallocated  shares.  Dividends on allocated and
unallocated shares are used to retire ESOP debt.

The ESOP  borrowed  $505,890  from the Company to purchase  84,314 shares of HFB
Financial  Corporation  common  stock.  The loan,  secured by the  stock,  bears
interest at a rate of prime plus 1% and matures in the year 2002.  Principal and
interest payments are made monthly. The Bank's contributions for 1999, 1998, and
1997 were $41,545,  $83,877 and $82,955,  of which $31,738,  $61,715 and $67,030
was charged to operations.  For 1999, 1998, and 1997, the portions eliminated in
consolidation were $1,060, $7,914 and $15,925. ESOP expense is determined by the
shares allocated  method.  The number of shares released is determined by taking
the  number  of shares  before  the  allocation  for the  current  plan year and
multiplying  by a  fraction.  The  numerator  of the  fraction  is the amount of
principal and interest paid on the loan for that plan year.  The  denominator of
the fraction is the sum of the  numerator  plus the total  payments of principal
and interest on that loan  projected  to be paid for all future plan years.  For
this purpose, the interest to be paid in future years is to be computed by using
the interest rate in effect as of the current  allocation  date.  Both allocated
and unallocated  shares are considered  outstanding when computing  earnings per
share. At June 30, 1999, the ESOP paid off the remaining balance of the loan and
all shares were allocated to participants.

MANAGEMENT RECOGNITION PLAN

The objective of the Bank's  Management  Recognition Plan (MRP) is to enable the
Bank to retain executive personnel of experience and ability in key positions of
responsibility.  Under the plan,  20,475  shares  of HFB  Financial  Corporation
common  stock were issued to the MRP Trust and were  payable  over a  three-year
period,  at the rate of 33 1/3% of such shares per year,  following  the date of
the grant or award.  Compensation expense in the amount of the fair market value
at the award date of the  common  stock was  recognized  pro rata over the three
years (1995,  1996 and 1997) during which the shares vest. All shares in the MRP
Trust have been  awarded  to the  President  of the Bank.  The MRP  expense  was
$11,360 for 1997. There was no expense  recognized in 1999 and 1998. In 1998 and
1997, 1,166 and 3,383 shares were paid to the President of the Bank.

                                       40
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

The objective of the Bank's  Supplemental  Retirement  Plan (SERP) is to provide
selected  senior officers with  postretirement  benefits which will (i) enable a
targeted   level  of  retirement   income  to  be  met,  (ii)  provide   certain
preretirement   death  benefits  should  the  covered  executive  die  prior  to
retirement age and (iii) compensate for the inability to earn full ESOP benefits
due to the senior officer's  anticipated  retirement before the Bank's ESOP loan
is repaid.  Under the plan,  15,658 shares of HFB Financial  Corporation  common
stock were  issued to the SERP Trust and were  payable  upon  completion  of the
earlier of five years of service or when the recipient's  employment  terminates
due to retirement at or after age 65. Compensation  expense in the amount of the
fair market value at the award date of the common stock was being recognized pro
rata over four years to the  projected  retirement  date of the  recipient.  All
shares in the SERP Trust have been  awarded to the former  Chairman of the Board
of the  Bank.  The SERP  expense  was  $14,364  for 1997.  There was no  expense
recognized in 1999 or 1998.  The shares  awarded under this plan were fully paid
in 1998.

DEFERRED COMPENSATION AGREEMENTS (RABBI TRUSTS)

Prior to its conversion,  the Bank maintained an unfunded deferred  compensation
plan for members of the Board of Directors who elected to participate in any one
year.  Benefits  were  payable  upon  a  participating   director's  retirement,
resignation,  disability or death unless the plan  committee  permitted  earlier
distributions in the event of a participant's  emergency or necessity.  The Bank
established  individual  grantor trusts (Rabbi trusts) for each director who had
deferred  compensation,  contributed funds sufficient to equal the deferred fees
for each  director  and  purchased  a total of 37,061  shares  of HFB  Financial
Corporation  common stock at its  conversion  date. The assets of the individual
Rabbi trusts are available to the general  creditors of the Bank in the event of
the Bank's  insolvency.  In 1994,  the Bank adopted a new Deferred  Compensation
Agreement for the directors similar to the old agreement.  All deferred payments
are paid to these same Rabbi trusts.

The Rabbi trusts  purchased  an  additional  2,700,  1,600 and 1,666 shares at a
total cost of $48,600,  $29,800 and $25,000 in 1999,  1998 and 1997.  A total of
1,392  shares  were  distributed  to a trust  beneficiary  in 1998.  The  Bank's
liability at June 30, 1999 and 1998 for both plans was  $808,870  and  $328,887.
Deferred  amounts are included in accrued  expenses and other  liabilities.  The
stock  in  the  grantor  trusts  is  shown  as a  contra-capital  account  until
distributed  to the  directors  over  a  five-year  period  beginning  at  their
retirement,  resignation  or death.  The amount  charged to expense was $45,008,
$33,047 and $21,509 for 1999, 1998 and 1997.

Effective  September 30, 1998,  the Company  implemented  Emerging  Issues Tasks
Forces (EITF)  97-14,  Accounting  for Deferred  Compensation  Agreements  Where
Amounts  Earned Are Held in a Rabbi Trust and Invested.  This EITF requires that
deferred  compensation  obligation  arrangements  where  amounts  earned  by  an
employee are invested in the stock of the employer and placed in a "rabbi trust"
be recorded as a liability  at the fair value of the Company  shares held rather
than at original  acquisition  cost as has  previously  been the case.  The EITF
allowed for a transition adjustment of the excess of the September 30, 1998 fair
value over the original cost of Company shares owned to be recorded, net of tax,
as a one-time  adjustment.  This  transition  adjustment  amounted  to  $552,400
($371,815  net of tax) at  September  30,  1998,  and was  reduced  to  $449,400
($286,460 net of tax) at June 30, 1999.  All future  increases/decreases  in the
deferred compensation liability will be recognized in income.

                                       41
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 16 -- STOCK OPTION PLAN

The Company has an incentive stock option plan in which 120,450 shares have been
reserved for future  issuance by the Company to directors  and  employees of the
Company and its  subsidiary.  The plan  provides for a term of ten years,  after
which  no  awards  may be  made,  unless  earlier  terminated  by the  Board  of
Directors.  At June 30,  1994,  options  to  purchase  108,148  shares  had been
granted, with 102,127 shares at $10 per share and 6,021 shares at $14 per share.

Under the  Company's  incentive  stock  option plan,  which is accounted  for in
accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for
Stock  Issued to  Employees,  and related  interpretations,  the Company  grants
selected  executives and other key employees  stock option awards which vest and
become fully exercisable  immediately.  During 1997, the Company  authorized the
grant of options  for up to 9,995  shares of the  Company's  common  stock.  The
exercise  price of each  option,  which has a  ten-year  life,  was equal to the
market  price  of the  Company's  stock  on the  date of  grant;  therefore,  no
compensation expense was recognized.

Although the Company has elected to follow APB No. 25, SFAS No. 123 requires pro
forma  disclosures  of net income and  earnings  per share as if the Company had
accounted for its employee stock options under that Statement. The fair value of
each option grant was estimated using an option-pricing model with the following
assumptions:

                                                                   1997
                                                                ----------

Risk-free interest rate                                              6%
Dividend yield                                                       2.5%
Volatility factor of expected market price of common stock           11%

Weighted-average expected life of the options                      8 years

Under  SFAS No.  123,  compensation  cost is  recognized  in the  amount  of the
estimated  fair value of the options and  amortized to expense over the options'
vesting  period.  The pro forma  effect on net income and  earnings per share of
this  statement  were not  materially  different  from  those  presented  on the
consolidated statement of income.

                                       42
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

The following is a summary of the status of the Company's  stock option plan and
changes in that plan as of and for the years ended June 30, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30                                     1999                       1998                      1997
----------------------------------------------------------------------------------------------------------------------------
                                                            WEIGHTED-                  Weighted-                   Weighted
                                                             AVERAGE                    Average                     Average
                                                            EXERCISE                    Exercise                    Exercise
                    OPTIONS                     SHARES        PRICE       Shares        Price            Shares      Price
----------------------------------------------------------------------------------------------------------------------------

<S>                                            <C>            <C>          <C>          <C>             <C>          <C>
Outstanding, beginning of year                  38,848        $7.07        44,869       $6.93            81,255      $  6.00
Granted                                                                                                   9,995        12.90
Exercised                                      (11,337)        6.00        (6,021)      (6.00)          (42,408)        6.65
Forfeited/expired                                                                                        (3,973)        6.00
Outstanding, end of year                        27,511         7.51        38,848        7.07            44,869         6.93
Options exercisable at year end                 27,511         7.51        38,848        7.07            44,869         6.93
Weighted-average fair value of options
   granted during the year                                                                                $2.86
</TABLE>

As of June 30, 1999, the 27,511 options outstanding have exercise prices ranging
from $6.00 to $12.90 and a weighted-average  remaining  contractual life of four
years.

                                       43
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 17 -- EARNINGS PER SHARE

Earnings per share were computed as follows:
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED JUNE 30, 1999
                                                                       -----------------------------------------------------
                                                                                              WEIGHTED              PER
                                                                                               AVERAGE             SHARE
                                                                            INCOME             SHARES              AMOUNT
                                                                       -----------------------------------------------------
<S>                                                                            <C>           <C>                 <C>
   NET INCOME                                                                  $1,240
                                                                       ==================
   BASIC EARNINGS PER SHARE

     Income available to common stockholders                                   $1,240        1,095,517           $1.13
   EFFECT OF DILUTIVE SECURITIES
     Stock options                                                                              10,523
                                                                       -----------------------------------------------------
   DILUTED EARNINGS PER SHARE
     Income available to common stockholders
       and assumed conversions                                                 $1,240        1,106,040           $1.12
                                                                       =====================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED JUNE 30, 1998
                                                                       -----------------------------------------------------
                                                                                               Weighted             Per
                                                                            Income             Average             Share
                                                                                                Shares             Amount
                                                                       -----------------------------------------------------
<S>                                                                            <C>           <C>                 <C>
   NET INCOME                                                                  $1,503
                                                                       ==================
   BASIC EARNINGS PER SHARE
     Income available to common stockholders                                   $1,503        1,083,866           $1.39
   EFFECT OF DILUTIVE SECURITIES
     Stock options                                                                              28,882
                                                                       -----------------------------------------------------
   DILUTED EARNINGS PER SHARE
     Income available to common stockholders
       and assumed conversion                                                  $1,503        1,112,748           $1.35
                                                                       =====================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED JUNE 30, 1997
                                                                       -----------------------------------------------------
                                                                                               Weighted             Per
                                                                            Income             Average             Share
                                                                                                Shares             Amount
                                                                       -----------------------------------------------------
<S>                                                                            <C>           <C>                <C>
   NET INCOME                                                                  $1,038
                                                                       ==================
   BASIC EARNINGS PER SHARE
     Income available to common stockholders                                   $1,038        1,057,642          $  .98
   EFFECT OF DILUTIVE SECURITIES
     Stock options                                                                              19,423
                                                                       -----------------------------------------------------
   DILUTED EARNINGS PER SHARE
     Income available to common stockholders
       and assumed conversion                                                  $1,038        1,077,065          $  .96
                                                                       =====================================================
</TABLE>
                                       44
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 18 -- FAIR VALUES OF FINANCIAL INSTRUMENTS

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instrument:

CASH  AND  CASH  EQUIVALENTS--The  fair  value  of  cash  and  cash  equivalents
approximates carrying value.

TRADING  ACCOUNT  AND  INVESTMENT  SECURITIES--Fair  values  are based on quoted
market prices.

LOANS--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair values for certain mortgage loans, including one-to-four family
residential,  are  based on  quoted  market  prices  of  similar  loans  sold in
conjunction with securitization  transactions,  adjusted for differences in loan
characteristics.  The fair value for other loans is estimated  using  discounted
cash flow analyses using interest rates  currently  being offered for loans with
similar terms to borrowers of similar credit quality.

INTEREST  RECEIVABLE/PAYABLE--The  fair  values of  interest  receivable/payable
approximate carrying values.

FHLB  STOCK--Fair  value of FHLB  stock is based on the price at which it may be
resold to the FHLB.

DEPOSITS--The fair values of  noninterest-bearing,  interest-bearing  demand and
savings  accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate  their  fair  values at the  balance  sheet  date.  Fair  values for
fixed-rate  certificates  of deposit are estimated  using a discounted cash flow
calculation  that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.

SHORT-TERM BORROWINGS AND LONG-TERM DEBT--The fair value of these borrowings are
estimated using a discounted cash flow  calculation,  based on current rates for
similar debt.

OFF-BALANCE-SHEET  COMMITMENTS--Commitments  include commitments to purchase and
originate  mortgage  loans,  commitments  to sell  mortgage  loans,  and standby
letters of credit and are  generally of a short-term  nature.  The fair value of
such  commitments  are based on fees  currently  charged to enter  into  similar
agreements,  taking into account the remaining  terms of the  agreements and the
counterparties'  credit  standing.  The carrying  amounts of these  commitments,
which are  immaterial,  are  reasonable  estimates  of the fair  values of these
financial statements.

                                       45
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
                                                                    1999                               1998
                                                     -----------------------------------------------------------------------
                                                             CARRYING          FAIR            Carrying           Fair
JUNE 30                                                       AMOUNT          VALUE            Amount            Value
----------------------------------------------------------------------------------------------------------------------------

ASSETS
<S>                                                         <C>               <C>             <C>                <C>
   Cash and cash equivalents                                $  3,573          $  3,573        $   6,947          $  6,947
   Trading account securities                                  1,015             1,015              835               835
   Investment securities available for sale                   37,299            37,299           26,905            26,905
   Investment securities held to maturity                     21,998            21,508           20,547            20,625
   FHLB stock                                                  1,347             1,347            1,256             1,256
   Loans, net                                                120,742           123,977          116,171           118,665
   Interest receivable                                         1,822             1,822            1,408             1,408

LIABILITIES
   Deposits                                                  153,988           154,010          144,881           146,517
   Short-term borrowings                                       6,500             6,500            6,500             6,496
   Long-term debt                                             10,598            10,988            5,662             5,667
   Interest payable                                              733               733              581               581
</TABLE>
                                       46
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

NOTE 19 -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)

Presented  below is condensed  financial  information as to financial  position,
results of operations and cash flows for the Company:

                             CONDENSED BALANCE SHEET

JUNE 30                                                1999          1998
-------------------------------------------------------------------------------

ASSETS

   Cash and cash equivalents                         $     184      $     414
   Account receivable--subsidiary                                         500
   Trading assets, at fair value                         1,015            835
   Loan to ESOP                                                            42
   Investment in common stock of subsidiaries           16,452         16,171
   Other assets                                            100             25
                                                    ---------------------------
         Total assets                                  $17,751        $17,987
                                                    ===========================
STOCKHOLDERS' EQUITY                                   $17,751        $17,987
                                                    ===========================

                                       47
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

                          CONDENSED STATEMENT OF INCOME

YEAR ENDED JUNE 30                               1999         1998       1997
--------------------------------------------------------------------------------

INCOME
   Dividends from subsidiary                                 $   950     $   620
   Net gain (loss) on trading securities          $ (141)        159         307
   Other income                                       27          28          27
                                               ---------------------------------
         Total income                               (114)      1,137         954

EXPENSES
   Other expenses                                     51          64          30
                                               ---------------------------------

INCOME BEFORE INCOME TAX AND EQUITY IN
   UNDISTRIBUTED INCOME OF SUBSIDIARY               (165)      1,073         924

INCOME TAX EXPENSE (BENEFIT)                         (71)         54         108
                                               ---------------------------------

INCOME BEFORE EQUITY IN UNDISTRIBUTED
   INCOME OF SUBSIDIARY                              (94)      1,019         816

EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY       1,334         484         222
                                               ---------------------------------
NET INCOME                                        $1,240      $1,503      $1,038
                                               =================================

                                       48
<PAGE>
HFB FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)

                        CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30                                                           1999              1998             1997
----------------------------------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES
<S>                                                                            <C>              <C>               <C>
   Net income                                                                  $1,240           $1,503            $1,038
   Adjustments to reconcile net income to net
     cash provided by operating activities
     Equity in undistributed earnings of subsidiary                            (1,334)            (484)             (222)
     Amortization of cost of ESOP and MRP                                          42              185               104
     Net change in
       Account receivable--subsidiary                                             500             (452)              (36)
       Trading account securities                                                (180)             (39)             (549)
       Other assets and other liabilities                                         (75)             (50)              (51)
     Other                                                                          1             (156)
                                                                       -----------------------------------------------------
     Net cash provided by operating activities                                    194              507               284
                                                                       -----------------------------------------------------

INVESTING ACTIVITIES--Principal collected on loan to ESOP                          42               83                84
                                                                       -----------------------------------------------------
FINANCING ACTIVITIES
   Sale of common stock                                                            68               36               282
   Cash paid in lieu of fractional shares                                                                             (5)
   Purchase of stock                                                                                                (205)
   Other                                                                                           (30)              (25)
   Stock purchased by Rabbi trusts                                                (49)
   Common stock withdrawn from Rabbi trusts                                         8
   Cash dividends                                                                (493)            (466)             (414)
                                                                       -----------------------------------------------------
     Net cash used by financing activities                                       (466)            (460)             (367)
                                                                       -----------------------------------------------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                          (230)             130                 1

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      414              284               283
                                                                       -----------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                                        $   184          $   414           $   284
                                                                       =====================================================
</TABLE>

                                       49
<PAGE>
                          INDEPENDENT AUDITOR'S REPORT

To the Stockholders and
Board of Directors
HFB Financial Corporation
Middlesboro, Kentucky

We have audited the consolidated balance sheet of HFB Financial  Corporation and
subsidiary as of June 30, 1999 and 1998, and the related consolidated statements
of income, changes in stockholders' equity, and cash flows for each of the three
years in the period ended June 30, 1999. These consolidated financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

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

In our opinion,  the consolidated  financial  statements described above present
fairly, in all material  respects,  the consolidated  financial  position of HFB
Financial  Corporation  and  subsidiary  as of June 30,  1999 and 1998,  and the
results of their  operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles.

As discussed in the notes to the consolidated financial statements,  the Company
changed its method of accounting  for deferred  compensation  agreements  (Rabbi
Trusts) during the year ended June 30, 1999.

OLIVE LLP

Evansville, Indiana
July 23, 1999

                                       50
<PAGE>
                               BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S>                              <C>                            <C>
ROBERT V. COSTANZO               FRANK W. LEE                   FRANCES COFFEY RASNIC
Chairman of the Board of         Retired Pharmacist             Vice-President
the Bank and the Company         Lee's Drug Store               Coffey Funeral Home

E. W. NAGLE                      CHARLES A. HARRIS              EARL BURCHFIELD
Vice Chairman of the Bank        Independent Insurance Agent    Retired Publisher of
and a Director of the Company    Harris Insurance Agency        Middlesboro Daily News

DAVID B. COOK
President, Chief Executive
Officer and Director of the
Bank and the Company

                               EXECUTIVE OFFICERS

DAVID B. COOK                    STANLEY ALEXANDER, JR.
President and Chief Executive    Chief Financial Officer
Officer

                                OFFICE LOCATIONS

MAIN OFFICE                      BRANCH OFFICE                            BRANCH OFFICE
1602 Cumberland Avenue           Village Center                           500 Fifth Avenue
Middlesboro, Kentucky            Harlan, Kentucky                         New Tazewell, Tennessee

                               GENERAL INFORMATION

INDEPENDENT CERTIFIED            ANNUAL MEETING                           ANNUAL REPORT ON FORM 10-KSB
PUBLIC ACCOUNTANTS               The 1999 Annual Meeting of Stockholders  A copy of the Company's Annual Report on
Olive LLP                        will be held on October 19, 1999 at 2:00 Form 10-KSB for the fiscal year ended
20 N. W. Third Street            p.m.                                     June 30, 1999, as filed with the
Evansville, Indiana  47708       at the Pine Mountain State Resort        Securities and Exchange Commission, will
                                 Park, Pineville, Kentucky.               be furnished without charge to
                                                                          stockholders as of the record date for
GENERAL COUNSEL                  TRANSFER AGENT AND REGISTRAR             the 1999 Annual Meeting upon written
Joseph Coker                     Reliance Trust Company                   request to the Chief Financial Officer,
P. O. Box 134                    950 East Paces Ferry Road                HFB Financial Corporation, 1602
Jacksboro, Tennessee  37757      Suite 2840                               Cumberland Avenue, Middlesboro, Kentucky.
                                 Atlanta, Georgia  30326

SPECIAL COUNSEL
Kutak Rock
Suite 1000
1101 Connecticut Ave., N.W.
Washington, D.C.  20036-4374
</TABLE>