LETTER TO STOCKHOLDERS
-------------------------------------------------------------------------------










To Our Shareholders:

Fiscal year 2000 has been a challenging  one for us as competition  for deposits
has  increased  significantly.  For the year ended June 30,  2000,  the  Company
earned $1,442,000 compared to $1,240,000 for the year ended June 30, 1999. Basic
earnings per share were $1.09 and diluted  earnings per share were $1.08 for the
twelve  month   period  ended  June  30,  2000,   compared  to  $.94  and  $.93,
respectively,  for the twelve months ended June 30, 1999. Total assets increased
by $14.5 million to $205.2 million at June 30, 1999.

Looking  forward,  we are  committed to improving  our earnings with our primary
focus on creating  shareholder value. In addition, I am pleased to announce that
your Board of Directors  declared a  semi-annual  dividend of $0.19 per share to
all  shareholders  of record as of September 15, 2000 and payable  September 30,
2000.

We are grateful for your continued support.



/s/David B. Cook
----------------
David B. Cook
President and CEO




<PAGE>




FINANCIAL HIGHLIGHTS

                              Results of Operations

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------
                                                                                       Change
                                                                            ------------------------
Year Ended June 30                            2000             1999          Amount         Percent
------------------------------------------------------------------------------------------------------
                                                            (Dollars in Thousands)
<S>                                        <C>              <C>             <C>               <C>
Interest income                            $ 14,396         $ 13,558        $    838          6.18%
Interest expense                              8,265            8,018             247          3.08
Net interest income                           6,131            5,540             591         10.67
Provision for loan losses                      (437)             253            (690)      (272.73)
Net interest income after provision
    for loan losses                           6,568            5,287           1,281         24.23
Other income                                    361              324              37         11.42
Other expenses                                4,699            3,715             984         26.49
Income taxes                                    788              656             132         20.12
Net income                                    1,442            1,240             202         16.29
</TABLE>

<TABLE>
<CAPTION>


                               Financial Position

                                                                                    Change
                                                                       -------------------------------------
June 30                                 2000             1999               Amount            Percent
------------------------------------------------------------------------------------------------------------
                                                                                (Dollars in Thousands)
<S>                                 <C>               <C>               <C>                    <C>
Total assets                        $  205,211        $  190,730        $   14,481             7.59%
Net loans                              131,394           120,742            10,652             8.82
Investment securities
    Available for sale                  36,672            37,299              (627)           (1.68)
    Held to maturity                    24,697            21,998             2,699            12.27
Deposits                               172,537           153,988            18,549            12.05
Stockholders' equity                    17,986            17,751               235             1.32

Number of Shares Outstanding         1,295,347         1,321,182           (25,835)           (1.96)

</TABLE>


                                       2

<PAGE>




SELECTED FINANCIAL AND OTHER DATA
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

June 30                                 2000          1999            1998           1997              1996
----------------------------------------------------------------------------------------------------------------
                                              (Dollar amounts in thousands, except per share amount)
<S>                                  <C>             <C>             <C>             <C>             <C>
Financial Position
    Assets                           $205,211        $190,730        $176,437        $159,457        $146,248
    Loans, net                        131,394         120,742         116,171         104,984          95,974
    Investments
        Available for sale             36,672          37,299          26,905          25,113          20,838
        Held to maturity               24,697          21,998          20,547          20,207          19,834
    Deposits                          172,537         153,988         144,881         133,203         126,742
    Short-term borrowings and
        long-term debt                 12,928          17,098          12,162           8,221           2,650
    Stockholders' equity               17,986          17,751          17,987          16,567          15,572
</TABLE>


<TABLE>
<CAPTION>

Year Ended June 30                            2000             1999           1998               1997          1996
-------------------------------------------------------------------------------------------------------------------------
                                                   (Dollar amounts in thousands, except per share amount)
<S>                                        <C>              <C>              <C>              <C>              <C>
Operating Results
    Interest income                        $ 14,396         $ 13,558         $ 12,979         $ 11,692         $ 10,479
    Interest expense                         (8,265)          (8,018)          (7,322)          (6,510)          (6,024)
                                                                                                               --------
    Net interest income                       6,131            5,540            5,657            5,182            4,455
    Provision for loan losses                   437             (253)            (274)            (138)             (35)
                                                                                                               --------
    Net interest income after
        provision for loan losses             6,568            5,287            5,383            5,044            4,420
    Other income
        Net realized gain (loss) on
           trading securities                  (163)            (141)             159              307               (3)
        Other                                   524              465              502              439              359
    Other expenses                           (4,699)          (3,715)          (3,750)          (4,161)          (3,456)
                                                                                                               --------
    Income before income tax                  2,230            1,896            2,294            1,629            1,320
    Income taxes                               (788)            (656)            (791)            (591)            (473)
                                                                                                               --------

    Net income                             $  1,442         $  1,240         $  1,503         $  1,038         $    847
                                                                                                               ========

    Basic earnings per share (1)(2)        $   1.09         $    .94         $   1.16         $    .82         $    .66
    Diluted earnings per share                 1.08              .93             1.13              .80              .63
    Book value per share                      13.89            13.43            13.76            12.82            12.28
</TABLE>


 (1)     Years before 1997 adjusted to reflect a 5-for-3 stock split on June 30,
         1997.
 (2)     Years before 2000 adjusted for a 20% stock dividend on June 19, 2000.

<TABLE>
<CAPTION>

Year Ended June 30                                   2000              1999              1998              1997              1996
------------------------------------------------------------------------------------------------------------------------------------
                                                               (Dollar amounts in thousands, except per share amount)
<S>                                                  <C>               <C>               <C>               <C>               <C>
Other Data
Average interest rate spread                         2.92%             2.69%             3.12%             3.06%             2.92%
Net yield on average interest-earning assets         3.24              3.09              3.52              3.49              3.36
Return on average assets                              .73               .67               .90               .68               .61
Return on average stockholders' equity               8.07              6.85              8.70              6.60              5.45
Equity as a percent of year-end assets               8.78              9.32             10.20             10.39             10.65
Non-interest expense as a percent of
    average assets                                   2.38              2.02              2.22              2.71              2.33
Non-performing assets to total assets                1.25              1.02               .52               .27               .45
Ratio of allowance for loan losses to
    gross loans                                       .49               .99               .83               .67               .68
Dividend payout ratio                               32.98             39.74             29.94             39.89             45.77
Number of
    Real estate loans outstanding                   1,996             2,249             2,077             2,033             1,959
    Deposit accounts                               16,609            14,802            14,945            14,161            13,465
    Full service offices                                4                 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 one full service
office in the southeastern  Kentucky community of Middlesboro,  two full service
offices in the southeastern  Kentucky  community of Harlan, and one full service
office in the East Tennessee community of New Tazewell.

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  became  listed for
trading,  as of June 19, 2000,  on the NASDAQ  SmallCap  Market under the symbol
"HFBA". There are currently 1,294,347 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 1999
    First quarter             $20.000             $18.000             $.22
    Second quarter             21.000              19.125
    Third quarter              20.000              13.452              .23
    Fourth quarter             13.452              11.458

Fiscal 2000
    First quarter             $11.667             $11.458              .21
    Second quarter             12.550              11.667
    Third quarter              11.667               8.750              .22
    Fourth quarter             13.875              11.042


(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 August 25, 2000 was $11.00.

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. The Bank's  regulatory  capital exceeded OTS
requirements at June 30, 2000.

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,  2000,
approximately  80% 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. Savings associations
with over $300 million in assets or less than a 12% risk-based capital ratio are
required to file OTS Schedule CMR, which is used by the OTS to calculate changes
in NPV and the related level of interest rate risk.  Institutions,  which do not
meet either of the filing  requirements,  such as the Bank,  are not required to
file a CMR. 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, 2000, 2% of the present value of the Bank's assets was approximately
$4.1 million,  which was less than $9.1  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
$5.0 million deduction from total capital in calculating its risk-based  capital
requirement,  although  the  Bank's  capital  would have  remained  in excess of
regulatory minimums.

                                       7

<PAGE>


The following  table sets forth,  as of June 30, 2000, 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             $  5,081              $(13,616)            (73)%
        +200                9,638                (9,058)            (48)
        +100               14,170                (4,526)            (24)
           0               18,696
        -100               22,383                 3,687              20
        -200               24,479                 5,783              31
        -300               25,889                 7,192              38

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 $9.1 million, or 48%.  Conversely,
a 200 basis  point  decrease in interest  rates is  anticipated  to cause a $5.8
million,  or 31%,  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 7.6% to $205.2 million at June 30, 2000
compared to $190.7  million at June 30, 1999.  The majority of this  increase is
reflected in investment  securities  and loans  receivable,  which was primarily
funded by an increase in deposits and long-term debt.

Cash and due from banks  decreased  by $402,000 to $3.2 million at June 30, 2000
from $3.6  million at June 30,  1999,  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
$759,000  at June 30,  2000  compared to $1.015  million at June 30,  1999.  The
decrease of $256,000 was attributable to the liquidation of stocks and a decline
in market value during the year ended June 30, 2000.

The Bank  augments  its lending  activities  and  increases  its asset yields to
significant extent by investing in investment securities such as mortgage-backed
securities "MBSs", U.S. Government securities and municipal  securities.  During
the year ended June 30, 2000,  management  purchased $16.2 million in investment
securities.  Most of these  purchases  were funded from proceeds from called and
maturing investment securities,  principal collected on MBSs and investments and
funds from the purchase of $17.1  million in deposits from National City Bank of
Kentucky.  A portion of these  purchases  include a $2.0 million growth strategy
funded by  long-term  debt used to purchase  municipal  securities.  At June 30,
2000, the balance of investment  securities  available for sale, "AFS" was $36.7
million with a net unrealized loss of $1.9 million and the balance of investment
securities  held to  maturity,  "HTM" was $24.7  million  with a market value of
$23.5 million.

During the year ended June 30, 2000, total loans receivable,  net increased 8.9%
to $131.4 million compared to $120.7 million at June 30, 1999.

At June 30,  2000,  allowance  for loan  losses  was  $645,000  or .49% of loans
receivable  compared  to $1.2  million or .99% of loans  receivable  at June 30,
1999.  During fiscal year 2000, the Bank had net  charge-offs  of $130,000.  The
allowance  was  reduced  by  $494,000  as the  result  of  more  than  favorable
collections on impaired  loans with a provision.  Provisions to the allowance of
$57,000 and the  reduction  of $494,000  resulted in a net decrease of $437,000.
Currently  the Bank has  reserved  $293,000  for impaired  loans  totaling  $1.6
million.

Premises  and  equipment  increased  by $1.5 million to $3.9 million at June 30,
2000 from $2.4 million at June 30, 1999 as the result of the construction of the
Banks  new  annex  facility  at its main  office in  Middlesboro,  Kentucky.  In
addition,  a new telephone  system was  purchased  and the Bank's  intra-net was
installed.

Other assets  increased by $816,000 to $1,319,000 at June 30, 2000 from $503,000
at June 30, 1999 primarily due to a balance of $367,000 in unamortized  premiums
resulting from the purchase of a branch operation in Harlan, Kentucky in October
1999.  The Bank  purchased  $17.1 million in deposits from National City Bank of
Kentucky for a premium of $459,000.

Total deposits  increased  $18.5 million to $172.5 million at June 30, 2000 from
$154.0  million at June 30,  1999.  During the year  ended  June 30,  2000,  CDs
increased  $14.5  million and NOW accounts and other demand  accounts  increased
$3.2  million  and  savings  and money  market  deposit  accounts  increased  by
$800,000.  Most of this  increase  was  attributable  to the  purchase  of $17.1
million in deposits from National City Bank in October 1999.

                                       9
<PAGE>


--------------------------------------------------------------------------------
Short-term debt decreased by $6.1 million to $400,000 at June 30, 2000 from $6.5
million  at June 30,  1999 as the  result of using  funding  from the  liquidity
created by the purchase of deposits from National City Bank.

Long-term  debt  increased  $1.9 million to $12.5  million at June 30, 2000 from
$10.6 million at June 30, 1999 primarily as the result of a $2.0 million Federal
Home Loan Bank advance, which was used to purchase municipal securities.

The Bank's regulatory  liquidity ratio was 40.1% at June 30, 2000 as compared to
27.40% at June 30, 1999.  At June 30, 2000 the Bank met all the fully  phased-in
regulatory  capital  requirements  under FIRREA.  Tangible,  core and risk-based
capital  ratios  were 8.6%,  8.6% and 18.3%,  respectively  at June 30,  2000 as
compared to 9.0%, 9.0% and 21.4% at June 30, 1999.


COMPARISON OF YEAR ENDED JUNE 30, 2000 TO YEAR ENDED JUNE 30, 1999
-------------------------------------------------------------------------------


General.  Net income increased by $202,000 to $1.442 million for the fiscal year
ended June 30, 2000 from $1.240 million for the fiscal year ended June 30, 1999.
The primary  reasons for the increase  were a $591,000  increase in net interest
income,  $690,000  decrease  in the  provision  for loan  losses  and a  $37,000
increase in  non-interest  income offset by a $984,000  increase in  noninterest
expense and a $132,000 increase in income tax expense.

Net Interest Income.  Net interest income increased to $6.131 million for fiscal
2000 from $5.540  million for fiscal 1999.  The increase was primarily due to an
increase  in  the  interest  rate  spread,  as  the  cost  of   interest-bearing
liabilities declined by 20 basis points during fiscal 2000.

Interest  Income.  Interest  income for the fiscal years ended June 30, 2000 and
June 30,  1999,  was  $14.396  million and $13.558  million,  respectively.  The
increase in fiscal 2000 over fiscal 1999 was due primarily to an increase in the
average balance of interest earning assets.  Yields on such assets were 7.60% in
fiscal 2000 compared to 7.57% in fiscal 1999.

Average  interest-earning  assets were $189.4 million and $179.0 million for the
fiscal years ended June 30, 2000 and June 30, 1999,  respectively.  The increase
in the  average  balance  of  interest-earning  assets was  primarily  due to an
increase in investment securities and an increase in loan originations.

Interest  Expense.  Interest expense for fiscal 2000 and 1999, was $8.3 and $8.0
million,  respectively.  The increase in interest  expense of $247,000 in fiscal
2000 over fiscal 1999 was due primarily to an increase in the average balance of
interest-bearing  liabilities  from  $164.2  million  in  fiscal  1999 to $176.5
million in fiscal 2000.  Although  interest  expense  increased due to increased
volume, the cost of interest-bearing  liabilities  decreased to 4.68% for fiscal
2000  from  4.88% in  fiscal  1999.  The  average  balance  of  interest-bearing
liabilities increased due to increased deposits and was 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, 2000 and 1999 was  $(437,000)  and  $253,000,  respectively.  The
decrease of $690,000 was primarily due to  unanticipated  collections  on loans,
that, at June 30, 1999 were impaired  with specific  allowances  included in the
allowance  for  loan  losses.  The  provision  was  determined  by  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.
-------------------------------------------------------------------------------

                                       10

<PAGE>


--------------------------------------------------------------------------------
Other Income. Other income for fiscal 2000 was $361,000 compared to $324,000 for
fiscal 1999,  an increase of $37,000.  The increase is primarily the result of a
$10,000 increase in service charges for deposit accounts,  a $31,000 decrease in
other  customer  fees and an  increase of $87,000 in other  income,  offset by a
$22,000  increase in losses on trading account  securities and a $7,000 decrease
in net realized gain on sales of available-for-sale securities.

Other Expenses. Other expenses increased $984,000 from $3.715 million for fiscal
1999 to $4.699 million for fiscal 2000. Salaries and employee benefits increased
by  $362,000,  primarily  the  result of an  increase  of  $242,000  in  general
compensation  expense and a $25,000 increase in benefit expense.  These expenses
increased  due  to  the  addition  of  new  employees  from  the  Harlan  branch
acquisition, the employment of an executive officer and normal annual increases.
In addition, there was a $95,000 decrease in the amount of loan origination fees
deferred  related to  compensation  expense net of the amount  amortized  in the
current period.

Occupancy expense increased  $100,000 due to an increase of $41,000 in leasehold
expense,  an  increase  of $41,000 in repairs  and  maintenance,  an increase of
$13,000  in taxes and  insurance  and an  increase  of  $5,000  in  depreciation
expense.  Increases in leasehold  expense included $27,000 for the rental of the
Harlan  facility from  National City Bank and an annual  increase of $14,000 for
the  other  Harlan  office  due  to  increase  floor  space  and   improvements.
Maintenance  and repairs,  taxes and insurance  increased due to the addition of
more facilities.

Equipment  expenses  increased  $49,000,  primarily  as  the  result  of  higher
depreciation. The Bank purchased new equipment for its new annex building during
the fiscal year ended June 30, 2000.

Data  processing  expenses  increased  $42,000  during  fiscal  2000  due to the
conversion and addition of the new Harlan branch.

Deposit insurance expense decreased $25,000 due to a reduction in premium rates.
Professional services increased $186,000 primarily as the result of fees paid to
consultants  for  assistance  in  developing a sales  culture for the Bank.  The
process has been  extensive  and has resulted a complete  reorganization  of the
Bank's staff.

Advertising  expense  increased  $109,000  as the  result  of a new  advertising
campaign launched during fiscal 2000.

Other  expense  increased  $150,000,   primarily  due  to  $93,000  of  goodwill
amortization  for the  purchase  of  intangibles  related to the  Harlan  branch
purchase. Printing expense increased $17,000, directors' fees increased $19,000,
telephone  expense  increased $23,000 and all other categories of other expenses
net decreased by $2,000.

Income Tax Expense.  Income  taxes  increased by $132,000 to $788,000 for fiscal
2000 compared to $656,000 for fiscal 1999 due to higher earnings.

                                       11

<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  1999 over fiscal  1998 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  1999.  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.

                                       12

<PAGE>


-------------------------------------------------------------------------------
Other Expenses.  Other expenses decreased $35,000 from $3.750 million for fiscal
1998 to $3.715 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 $135,000 to $656,000 for fiscal
1999 compared to $791,000 for fiscal 1998 due to lower 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>
                                                                          2000                               1999
                                                       --------------------------------------------------------------------------
                                                                                     Average
                                                        Average                      Yield/        Average
Year Ended June 30                                      Balance     Interest          Cost         Balance         Interest
---------------------------------------------------------------------------------------------------------------------------------
                                                                                  (Dollars in Thousands)
<S>            <C>                                        <C>            <C>           <C>          <C>               <C>
Interest-earning assets
    Loans, net (1)                                        $124,003       $10,218       8.24%        $121,817          $10,030
    Investment securities                                   62,882         4,062       6.46           51,493            3,229
    FHLB stock and deposits
        with financial institutions                          2,538           116       4.57            5,716              299
                                                       ------------------------------           ---------------------------------

           Total interest-earning assets                  $189,423       $14,396       7.60%        $179,026          $13,558
                                                       ==============================           =================================

Interest-bearing liabilities
    Deposits                                              $163,325      $  7,549       4.62%        $149,288         $  7,207
    Short-term borrowings and long-
        term debt                                           13,196           716       5.43           14,918              811
                                                       ------------------------------           ---------------------------------

           Total interest-bearing liabilities             $176,521      $  8,265       4.68%        $164,206         $  8,018
                                                       ==============================           =================================

Net interest income                                                     $  6,131                                     $  5,540
                                                                    =================                          ==================

Interest rate spread                                                                   2.92%
                                                                                    =============

Net yield on interest-earning assets                                                   3.24%
                                                                                    =============

Ratio of average interest-earning assets to average
    interest-bearing liabilities                                                     107.31%
                                                                                    =============
</TABLE>


<TABLE>
<CAPTION>
                                                        1999                       1998
                                                      ------------------------------------------------------
                                                        Average                                  Average
                                                        Yield/     Average                       Yield/
Year Ended June 30                                       Cost      Balance       Interest         Cost
------------------------------------------------------------------------------------------------------------

<S>            <C>                                        <C>        <C>             <C>           <C>
Interest-earning assets
    Loans, net (1)                                        8.23%      $110,906        $  9,768      8.81%
    Investment securities                                 6.27         44,829           2,911      6.49
    FHLB stock and deposits
        with financial institutions                       5.23          5,098             300      5.88
                                                                 -------------------------------

           Total interest-earning assets                  7.57%      $160,833         $12,979      8.07%
                                                                 ===============================

Interest-bearing liabilities
    Deposits                                              4.83%      $137,533        $  6,708      4.88%
    Short-term borrowings and long-
        term debt                                         5.44         10,397             614      5.91
                                                                 -------------------------------

           Total interest-bearing liabilities             4.88%      $147,930        $  7,322      4.95%
                                                                 ===============================

Net interest income                                                                  $  5,657
                                                                               =================

Interest rate spread                                      2.69%                                    3.12%
                                                      ============                             =============

Net yield on interest-earning assets                      3.09%                                    3.52%
                                                      ============                             =============

Ratio of average interest-earning assets to average
    interest-bearing liabilities                        109.03%                                  108.72%
                                                      ============                             =============
</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>

                                                          2000 vs. 1999                           1999 vs. 1998
                                             ---------------------------------------------------------------------------------
                                                   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)
<S>                                            <C>     <C>                  <C>       <C>        <C>         <C>       <C>
Interest income
    Loans receivable (1)                       $180    $   8                $188      $961       $(636)      $(63)     $262
    Investment securities                       714       97        $22      833       433        (100)       (15)      318
    Other dividend income and deposits
        with financial institutions            (166)     (38)        21     (183)       36         (33)        (4)       (1)
                                             ---------------------------------------------------------------------------------
           Total interest-earning assets        728       67         43      838     1,430        (769)       (82)      579
                                             ---------------------------------------------------------------------------------

Interest expense
    Deposits                                    678     (306)       (29)     343       573         (68)        (6)      499
    Short-term borrowings and long-
        term debt                               (94)      (2)                (96)      267         (49)       (21)      197
                                             ---------------------------------------------------------------------------------
           Total interest-bearing liabilities   584     (308)       (29)     247       840        (117)       (27)      696
                                             ---------------------------------------------------------------------------------

Change in net interest income                  $144     $375        $72     $591      $590       $(652)      $(55)    $(117)
                                             =================================================================================
</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 278,935 of its shares
(as restated for a 20% stock dividend on June 19, 2000 and a 5-for-3 stock split
on June 30, 1997) of common stock at a cost of $2.4 million.

Home Federal's capital ratios are substantially in excess of regulatory  capital
requirements. At June 30, 2000, the Bank's tangible and core capital amounted to
8.6% of total adjusted assets, or 7.1% and 5.6%, 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 18.3% at June
30, 2000, or 10.3% 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, 2000
was approximately 40.1%.

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>


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.

                                       17

<PAGE>



                    HFB FINANCIAL CORPORATION AND SUBSIDIARY

                           Consolidated Balance Sheet
<TABLE>
<CAPTION>


June 30                                                                                  2000                  1999
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                   <C>
Assets
    Cash and due from banks                                                          $   3,171,389         $   3,573,139
    Trading assets, at fair value                                                          758,570             1,014,808
    Investment securities
        Available for sale                                                              36,672,364            37,298,664
        Held to maturity (fair value of $23,505,716 and $21,508,000)                    24,697,115            21,997,870
                                                                                ----------------------------------------------
               Total investment securities                                              61,369,479            59,296,534
    Loans, net of allowance for loan losses of $645,107 and $1,211,594                 131,393,748           120,741,798
    Premises and equipment                                                               3,871,340             2,432,475
    Federal Home Loan Bank stock                                                         1,419,700             1,346,800
    Interest receivable                                                                  1,908,022             1,821,970
    Other assets                                                                         1,318,620               502,876
                                                                                ----------------------------------------------

               Total assets                                                           $205,210,868          $190,730,400
                                                                                ==============================================

Liabilities
    Deposits
        Interest bearing                                                              $167,221,697          $152,971,687
        Noninterest bearing                                                              5,315,314             1,016,069
                                                                                ----------------------------------------------
               Totals                                                                  172,537,011           153,987,756
    Short-term borrowings                                                                  400,000             6,500,000
    Long-term debt                                                                      12,528,050            10,597,501
    Interest payable                                                                       850,771               733,041
    Other liabilities                                                                      908,629             1,161,055
                                                                                ----------------------------------------------
               Total liabilities                                                       187,224,461           172,979,353
                                                                                ----------------------------------------------

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--1,574,282 and 1,303,031 shares                           1,574,282             1,303,031
    Additional paid-in capital                                                           8,708,790             6,303,419
    Common stock acquired by Rabbi trusts for deferred
        compensation plans                                                                (515,623)             (639,767)
    Treasury stock, at cost--278,935 and 202,046 shares                                  (2,438,366)           (2,030,955)
    Retained earnings                                                                   11,843,918            13,501,715
    Accumulated other comprehensive loss                                                (1,186,594)             (686,396)
                                                                                ----------------------------------------------
               Total stockholders' equity                                               17,986,407            17,751,047
                                                                                ----------------------------------------------

               Total liabilities and stockholders' equity                             $205,210,868          $190,730,400
                                                                                ==============================================
</TABLE>

See notes to consolidated financial statements.

                                       18

<PAGE>


                    HFB FINANCIAL CORPORATION AND SUBSIDIARY

                        Consolidated Statement of Income
<TABLE>
<CAPTION>


Year Ended June 30                                                      2000                 1999                 1998
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                   <C>              <C>
Interest Income
    Loans receivable                                                $10,217,744           $10,029,733      $  9,767,979
    Investment securities                                             4,062,065             3,228,779         2,911,288
    Other dividend income                                                33,560               115,142            87,085
    Deposits with financial institutions                                 82,436               184,062           212,868
                                                             -----------------------------------------------------------------
               Total interest income                                 14,395,805            13,557,716        12,979,220
                                                             -----------------------------------------------------------------

Interest Expense
    Deposits                                                          7,549,213             7,206,451         6,708,163
    Short-term borrowings                                               113,635               374,466           469,668
    Long-term debt                                                      602,176               436,840           144,100
                                                             -----------------------------------------------------------------
               Total interest expense                                 8,265,024             8,017,757         7,321,931
                                                             -----------------------------------------------------------------

Net Interest Income                                                   6,130,781             5,539,959         5,657,289
    Provision (adjustment) for loan losses                             (436,988)              252,876           273,721
                                                             -----------------------------------------------------------------

Net Interest Income After Provision for Loan Losses                   6,567,769             5,287,083         5,383,568
                                                             -----------------------------------------------------------------

Other Income
    Service charges for deposit accounts                                376,887               366,606           387,845
    Other customer fees                                                  58,072                89,369            72,738
    Net gain (loss) on trading securities                              (163,026)             (140,596)          158,642
    Net realized gain on sales of available-
        for-sale securities                                                                     7,122            13,614
    Other income                                                         88,765                 1,737            28,383
                                                             -----------------------------------------------------------------
               Total other income                                       360,698               324,238           661,222
                                                             -----------------------------------------------------------------

Other Expenses
    Salaries and employee benefits                                    2,106,928             1,744,475         1,818,476
    Net occupancy expenses                                              296,233               196,683           191,988
    Equipment expenses                                                  279,904               230,550           229,994
    Data processing fees                                                276,622               234,144           311,847
    Deposit insurance expense                                            61,900                87,091            84,129
    Legal and professional fees                                         381,220               195,040           162,686
    Advertising                                                         222,281               113,658           133,453
    State franchise and deposit taxes                                   156,743               145,606           121,915
    Other expenses                                                      916,976               767,282           695,868
                                                             -----------------------------------------------------------------
               Total other expenses                                   4,698,807             3,714,529         3,750,356
                                                             -----------------------------------------------------------------

Income Before Income Tax                                              2,229,660             1,896,792         2,294,434
    Income tax expense                                                  787,949               656,503           791,360
                                                             -----------------------------------------------------------------

Net Income                                                         $  1,441,711          $  1,240,289      $  1,503,074
                                                             =================================================================

Basic Earnings Per Share                                                  $1.09                 $0.94             $1.16
                                                             =================================================================

Diluted Earnings Per Share                                                $1.08                 $0.93             $1.13
                                                             =================================================================
</TABLE>


See notes to consolidated financial statements.

                                       19

<PAGE>




                    HFB FINANCIAL CORPORATION AND SUBSIDIARY

                 Consolidated Statement of Stockholders' Equity

<TABLE>
<CAPTION>
                                                           Common Stock
                                                   -------------------------  Additional
                                                      Shares                   Paid-In         ESOP        MRP and        Rabbi
                                                   Outstanding      Amount     Capital         Debt*       SERP**         Trusts
                                                   ---------------------------------------------------------------------------------

<S>                                                  <C>         <C>          <C>            <C>            <C>           <C>
Balances, July 1, 1997                               1,285,673   1,285,673    $6,094,551     $(125,422)     $(100,950)    $(283,259)
    Comprehensive income
        Net income
        Other comprehensive income, net of tax
           Unrealized gains on
               securities, net of
               reclassification adjustment

    Comprehensive income

    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)
    Comprehensive income
        Net income
        Other comprehensive income, net of tax
           Unrealized losses on
               securities, net of
               reclassification adjustment

    Comprehensive income

    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, net of tax                                                                                           (371,815)
    Net change in fair value of Rabbi Trust shares,
        net of tax                                                                                                           85,355
                                                   ---------------------------------------------------------------------------------

Balances, June 30, 1999                              1,303,031   1,303,031     6,303,419                                   (639,767)
</TABLE>

<TABLE>
<CAPTION>
                                                                                   Accumulated
                                                                                     Other
                                                Comprehensive      Retained       Comprehensive    Treasury      Stockholders'
                                                    Income         Earnings        Income (Loss)     Stock            Equity
                                                --------------------------------------------------------------------------------

<S>                                                <C>            <C>              <C>            <C>             <C>
Balances, July 1, 1997                                            $11,717,514      $    9,875     $(2,030,955)    $16,567,027
    Comprehensive income
        Net income                                 $1,503,074       1,503,074                                       1,503,074
        Other comprehensive income, net of tax
           Unrealized gains on
               securities, net of
               reclassification adjustment            121,058                         121,058                         121,058
                                                --------------
    Comprehensive income                           $1,624,132
                                                ==============
    Cash dividends ($.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
    Comprehensive income
        Net income                                 $1,240,289         1,240,289                                     1,240,289
        Other comprehensive income, net of tax
           Unrealized losses on
               securities, net of
               reclassification adjustment           (817,329)                       (817,329)                       (817,329)
                                                --------------
    Comprehensive income                          $   422,960
                                                ==============
    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, net of tax                                                                                     (371,815)
    Net change in fair value of Rabbi Trust shar
        net of tax                                                                                                     85,355
                                                              ------------------------------------------------------------------

Balances, June 30, 1999                                              13,501,715      (686,396)    (2,030,955)      17,751,047
</TABLE>

                                       20

<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, 1999         1,303,031   $1,303,031   $6,303,419                     $(639,767)
    Comprehensive income
        Net income                                                                                                    $1,441,711
        Other comprehensive income, net of tax
           Unrealized losses on
               securities                                                                                               (500,198)
                                                                                                                     --------------
    Comprehensive income                                                                                              $  941,513
                                                                                                                     ==============
    Cash dividends ($.43 per share)
    20% stock dividend with $1,216 paid in lieu
        of fractional shares                        262,279      262,279    2,360,511
    Stock issued upon exercise of
        stock options                                 8,972        8,972       44,860
    Purchase of treasury stock (30,400 shares)
    Stock withdrawn from Rabbi Trusts                                                                         8,352
    Net change in fair value of Rabbi Trust
        shares, net of tax                                                                                  115,792
                                                 -------------------------------------------------------------------

Balances, June 30, 2000                           1,574,282   $1,574,282   $8,708,790   $  0       $  0   $(515,623)
                                                 ===================================================================
</TABLE>


<TABLE>
<CAPTION>

                                                                         Accumulated
                                                                          Other                          Total
                                                    Retained       Comprehensive     Treasury      Stockholders'
                                                    Earnings       Income (Loss)       Stock           Equity
                                                 ---------------------------------------------------------------

<S>                                                 <C>              <C>             <C>             <C>
Balances, (brought forward) June 30, 1999           $13,501,715      $  (686,396)    $(2,030,955)    $17,751,047
    Comprehensive income
        Net income                                    1,441,711                                       1,441,711
        Other comprehensive income, net of tax
           Unrealized losses on
               securities                                               (500,198)                       (500,198)

    Comprehensive income

    Cash dividends ($.43 per share)                   (475,502)                                         (475,502)
    20% stock dividend with $1,216 paid in lieu
        of fractional shares                        (2,624,006)                                           (1,216)
    Stock issued upon exercise of
        stock options                                                                                     53,832
    Purchase of treasury stock (30,400 shares)                                         (407,411)        (407,411)
    Stock withdrawn from Rabbi Trusts                                                                      8,352
    Net change in fair value of Rabbi Trust
        shares, net of tax                                                                               115,792
                                                 ---------------------------------------------------------------

Balances, June 30, 2000                            $11,843,918       $(1,186,594)    $(2,438,366)    $17,986,407
                                                 ===============================================================
</TABLE>

*Employee Stock Ownership Plan (ESOP)

**Management Recognition Plan (MRP) and Supplemental Executive Retirement Plan
  (SERP)


See notes to consolidated financial statements.


                                       21

<PAGE>


                    HFB FINANCIAL CORPORATION AND SUBSIDIARY

                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>


Year Ended June 30                                                            2000             1999              1998
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>               <C>               <C>
Operating Activities
    Net income                                                          $  1,441,711      $  1,240,289      $  1,503,074
    Adjustments to reconcile net income to net cash
        provided by operating activities
        Provision (adjustment) for loan losses                              (436,988)          252,876           273,721
        Depreciation and amortization
           Goodwill                                                           92,655
           Premises and equipment                                            292,876           267,702           217,587
           Cost of ESOP and MRP and SERP                                                        41,545           184,827
           Investment securities                                             (85,388)           33,996            32,336
        FHLB stock dividend                                                  (72,900)          (90,900)          (86,800)
        Investment security gains                                                               (7,122)          (13,614)
        Deferred income tax                                                  198,000           (28,000)          (27,000)
        Net change in
           Trading assets, at fair value                                     256,238          (179,501)          (39,752)
           Interest receivable                                               (86,052)         (414,069)         (333,619)
           Interest payable                                                  117,730           152,420            32,388
           Other assets                                                     (362,552)          (41,011)            4,494
           Other liabilities                                                (136,634)          278,432           (62,977)
                                                                     -------------------------------------------------------
               Net cash provided by operating activities                   1,218,696         1,506,657         1,684,665
                                                                     -------------------------------------------------------

Investing Activities
    Purchases of securities available for sale                            (8,346,396)      (24,954,517)       (9,722,516)
    Proceeds from maturities of securities available for sale              8,237,202         8,614,926         6,342,531
    Purchases of securities held to maturity                              (7,874,038)       (8,239,459)       (8,763,360)
    Proceeds from sales of securities available for sale                                     4,615,865         1,783,144
    Proceeds from maturities of securities held to maturity                5,211,053         6,808,811         8,399,235
    Net change in loans                                                  (10,214,962)       (4,823,921)      (11,460,088)
    Purchases of premises and equipment                                   (1,731,741)         (479,629)         (270,742)
    Acquisition of deposits (net of cash acquired)                          (459,423)
                                                                     -------------------------------------------------------
               Net cash used by investing activities                     (15,178,305)      (18,457,924)      (13,691,796)
                                                                     -------------------------------------------------------
</TABLE>

                                       22


<PAGE>

                    HFB FINANCIAL CORPORATION AND SUBSIDIARY

                      Consolidated Statement of Cash Flows
                                   (continued)

<TABLE>
<CAPTION>

Year Ended June 30                                                       2000                 1999             1998
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>                 <C>
Financing Activities
    Net change in
        Noninterest-bearing, interest-bearing and
           savings deposits                                        $  4,020,255       $      (64,074)     $    654,002
        Certificates of deposit                                      14,529,000            9,170,412        11,024,874
        Short-term borrowings                                        (6,100,000)                            (1,000,000)
    Proceeds of long-term debt                                        2,000,000            5,000,000         5,000,000
    Repayment of long-term debt                                         (69,451)             (64,097)          (59,155)
    Cash dividends                                                     (475,502)            (492,757)         (466,405)
    Purchase of stock                                                  (407,411)
    Sale of common stock                                                                      68,022            36,126
    Cash paid in lieu of fractional shares                               (1,216)
    Proceeds from exercise of stock options                              53,832
    Common stock acquired by Rabbi trusts                                                    (48,600)          (29,800)
    Common stock withdrawn from Rabbi trusts                              8,352                8,352
                                                                  --------------------------------------------------------
               Net cash provided by financing activities             13,557,859           13,577,258        15,159,642
                                                                  --------------------------------------------------------

Net Change in Cash and Cash Equivalents                                (401,750)          (3,374,009)        3,152,511

Cash and Cash Equivalents, Beginning of Year                          3,573,139            6,947,148         3,794,637
                                                                  --------------------------------------------------------

Cash and Cash Equivalents, End of Year                             $  3,171,389         $  3,573,139      $  6,947,148
                                                                  ========================================================

Additional Cash Flows Information
    Interest paid                                                  $  8,147,294         $  7,865,337      $  7,289,543
    Income tax paid                                                     690,254              305,864           914,762

</TABLE>

See notes to consolidated financial statements.

                                       23

<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  accumulated   other
comprehensive income, 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.



                                       24
<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,  2000 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.

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.

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. All share and per
share  amounts in prior years have been  adjusted to reflect the effect of a 20%
stock dividend paid during 2000.

Reclassifications  of  certain  amounts  in  the  1999  consolidated   financial
statements have been made to conform to the 2000 presentation.



                                       25
<PAGE>


HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 2 -  Deposit Purchase

On October 15,  1999,  the Bank  purchased  certain  assets and assumed  certain
liabilities  related to National City Bank's  Harlan,  Kentucky,  location.  The
assets  included  $16,759,000  of cash and  $12,000 of  personal  property.  The
liabilities  consisted of $17,120,000 of customer deposits and $110,000 of other
liabilities.  A premium of $459,000  is being  amortized,  using an  accelerated
method, over seven years.


 Note 3 - Investment Securities

<TABLE>
<CAPTION>

                                                                                  Gross               Gross
                                                             Amortized         Unrealized          Unrealized        Fair
                                                               Cost               Gains               Losses         Value
                                                         ---------------------------------------------------------------------
<S>                                                              <C>                <C>            <C>             <C>
June 30, 2000
    Available for sale
        U. S. Treasury                                           $  2,497           $  3           $      (1)      $  2,499
        Federal agencies                                           21,431                             (1,220)        20,211
        Municipals                                                  1,018              8                              1,026
        Mortgage-backed securities                                 13,604              1                (669)        12,936
                                                         ---------------------------------------------------------------------
               Total available for sale                            38,550             12              (1,890)        36,672
                                                         ---------------------------------------------------------------------

    Held to maturity
        Federal agencies                                           13,201                               (665)        12,536
        Mortgage-backed securities                                 11,496             12                (538)        10,970
                                                         ---------------------------------------------------------------------
               Total held to maturity                              24,697             12              (1,203)        23,506
                                                         ---------------------------------------------------------------------

               Total investment securities                        $63,247            $24             $(3,093)       $60,178
                                                         =====================================================================

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
                                                         =====================================================================
</TABLE>

                                       26

<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, 2000, 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.

<TABLE>
<CAPTION>

                                                 Held to Maturity                           Available for Sale
                                --------------------------------------------------------------------------------------------
                                     Amortized Cost               Fair                Amortized                Fair
June 30                                                           Value                Cost                    Value
----------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                     <C>                    <C>                    <C>
Within one year                        $    500                $    498               $ 2,994                $ 2,987
One to five years                         4,150                   4,009                 3,110                  3,061
Five to ten years                         6,476                   6,197                12,831                 12,117
After ten years                           2,075                   1,832                 6,011                  5,571
                                --------------------------------------------------------------------------------------------
                                         13,201                  12,536                24,946                 23,736
Mortgage-backed securities               11,496                  10,970                13,604                 12,936
                                --------------------------------------------------------------------------------------------

           Totals                       $24,697                 $23,506               $38,550                $36,672
                                ============================================================================================
</TABLE>


Securities with a carrying value of $9,697,000 and  $11,766,000  were pledged at
June 30, 2000 and 1999 to secure public deposits.

Proceeds from sales of  securities  available for sale during 1999 and 1998 were
$4,615,865 and $1,783,144. Gross gains on those sales of $7,122 and $13,614 were
realized in 1999 and 1998. There were no sales of securities  available for sale
during 2000.

Unrealized holding losses on trading securities of $170,992, $37,292 and $35,915
were included in earnings in 2000, 1999 and 1998.


                                       27

<PAGE>


HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 4 - Loans and Allowance

<TABLE>
<CAPTION>

June 30                                                                                   2000                     1999
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                      <C>
Commercial real estate and industrial loans                                            $  11,671                $  10,843
Real estate mortgage loans                                                               108,392                   92,203
Construction loans                                                                         6,690                   12,996
Consumer loans                                                                             5,286                    5,912
                                                                              -------------------------------------------------
                                                                                         132,039                  121,954
Allowance for loan losses                                                                   (645)                  (1,212)
                                                                              -------------------------------------------------

           Total loans                                                                  $131,394                 $120,742
                                                                              =================================================
</TABLE>
<TABLE>
<CAPTION>


Year Ended June 30                                              2000                    1999                     1998
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>                  <C>                         <C>
Allowance for loan losses
    Balances, beginning of year                                 $1,212               $   973                     $710
    Provision (adjustment) for losses                             (437)                  253                      274
    Recoveries on loans                                              3                     2
    Loans charged off                                             (133)                  (16)                     (11)
                                                        -----------------------------------------------------------------------

    Balances, end of year                                       $  645                $1,212                     $973
                                                        =======================================================================
</TABLE>

Information on impaired loans is summarized below:

<TABLE>
<CAPTION>

June 30                                                                                2000                         1999
-------------------------------------------------------------------------------------------------------------------------------

<S>                                                                                     <C>                      <C>
Impaired loans with an allowance                                                        $1,563                   $1,523
                                                                              =================================================

Allowance for impaired loans (included in the Company's
    allowance for loan losses)                                                          $  293                   $  812
                                                                              =================================================

Year Ended June 30                                                                     2000                         1999
-------------------------------------------------------------------------------------------------------------------------------

Average balance of impaired loans                                                       $1,211                   $1,812
Interest income recognized on impaired loans                                                27                       14
Cash-basis interest included above                                                          27

</TABLE>

                                       28

<PAGE>


HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 5 - Premises and Equipment

<TABLE>
<CAPTION>

June 30                                                                        2000                1999
---------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                <C>
Land and improvements                                                          $1,226             $1,075
Buildings                                                                       2,284              1,410
Furniture and equipment                                                         1,832              1,642
Automobiles                                                                       135                104
                                                                  ----------------------------------------------
           Total cost                                                           5,477              4,231
Accumulated depreciation                                                       (1,606)            (1,799)
                                                                  ----------------------------------------------

           Net                                                                 $3,871             $2,432
                                                                  ==============================================
</TABLE>


Note 6 - Deposits

<TABLE>
<CAPTION>

June 30                                                                        2000                1999
----------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                <C>
Demand deposits                                                               $  17,323          $  13,600
Savings deposits                                                                  7,922              7,625
Certificates and other time deposits of $100,000 or more                         44,377             40,626
Other certificates and time deposits                                            102,915             92,137
                                                                  ----------------------------------------------

           Total deposits                                                      $172,537           $153,988
                                                                  ==============================================
</TABLE>


Certificates and other time deposits maturing in years ending June 30

    2001                                                       $101,390
    2002                                                         37,956
    2003                                                          3,921
    2004                                                          2,902
    2005                                                          1,097
    Thereafter                                                       26
                                               ------------------------------

                                                               $147,292
                                               ==============================


                                       29

<PAGE>


HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


 Note 7 - Short-Term Borrowings and Line of Credit

In 2000 and 1999, the Company had available a 90-day revolving line of credit up
to a maximum of $15,000,000 and  $10,000,000.  The line of credit bears interest
at a daily variable rate which is set by the Federal Home Loan Bank.

At June 30, 2000 and 1999,  the Company had drawn $400,000 and $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 or $600,000.


Note 8 - Long-Term Debt

<TABLE>
<CAPTION>

June 30                                                                                    2000                   1999
-------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                                             <C>               <C>
Federal Home Loan Bank advances, variable
    rates, due at various dates through March 2010                                            $12,528           $10,598
</TABLE>

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 or $18,792,000. Advances are subject to restrictions or penalties in
the event of prepayment.

Maturities in years ending June 30


    2005                                     $ 2,500
    Thereafter                                10,028
                                    --------------------

                                             $12,528
                                    ====================


                                       30

<PAGE>



HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 9 - Income Tax


<TABLE>
<CAPTION>

Year Ended June 30                                                       2000         1999       1998
--------------------------------------------------------------------------------------------------------
<S>                                                                     <C>          <C>         <C>
Income tax expense
    Currently payable
        Federal                                                         $546         $659        $765
        State                                                             44           26          53
    Deferred
        Federal                                                          188          (44)        (35)
        State                                                             10           16           8
                                                                 ---------------------------------------

           Total income tax expense                                     $788         $657        $791
                                                                 =======================================

Reconciliation of federal statutory to actual tax expense
    Federal statutory income tax at 34%                                 $758         $645        $780
    Effect of state income taxes                                          36           28          40
    Other                                                                 (6)         (16)        (29)
                                                                 ---------------------------------------

           Actual tax expense                                           $788         $657        $791
                                                                 =======================================
</TABLE>


                                       31

<PAGE>



HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


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

June 30                                                  2000          1999
------------------------------------------------------------------------------

Assets
    Deferred compensation                                $231          $299
    Unrealized loss on securities available for sale      691           406
    Deposit-based intangibles                              25
    Other                                                   5             1
                                                     -------------------------
               Total assets                               952           706
                                                     -------------------------

Liabilities
    Basis in FHLB stock                                  (312)         (276)
    Allowance for loan losses                            (188)          (88)
    Depreciation                                          (51)          (28)
                                                     -------------------------
               Total liabilities                         (551)         (392)
                                                     -------------------------

                                                         $401          $314
                                                     =========================

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,  payment 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, 2000,  the
unrecorded  deferred income tax liability on the above amount was  approximately
$800,000.


                                       32
<PAGE>



HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 10 -Other Comprehensive Income--Unrealized Gains (Losses) on Securities

<TABLE>
<CAPTION>

                                                                                                2000
                                                                           -----------------------------------------------
                                                                           Before-Tax           Tax         Net-of-Tax
Year Ended June 30                                                           Amount           Benefit          Amount
--------------------------------------------------------------------------------------------------------------------------

Unrealized losses on securities:
<S>                                                                            <C>              <C>          <C>
    Unrealized holding losses arising during the year                          $(785)           $285         $(500)
                                                                           ===============================================
<CAPTION>


                                                                                                1999
                                                                           -----------------------------------------------
                                                                                                Tax
                                                                             Before-Tax       (Expense)     Net-of-Tax
Year Ended June 30                                                            Amount           Benefit        Amount
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>              <C>          <C>

Unrealized gains (losses) on securities:
    Unrealized holding losses arising during the year                        $(1,275)           $462         $(813)
    Less: reclassification adjustment for gains realized in net income
                                                                                   7              (3)            4
                                                                           -----------------------------------------------

    Other comprehensive income--net unrealized
        losses on securities                                                 $(1,282)           $465         $(817)
                                                                           ===============================================
<CAPTION>

                                                                                                1998
                                                                           -----------------------------------------------

                                                                               Before-         Tax          Net-of-Tax
Year Ended June 30                                                           Tax Amount      Expense          Amount
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>              <C>          <C>

Unrealized gains on securities:
    Unrealized holding gains arising during the year                            $190            $(60)         $130
    Less: reclassification adjustment for gains realized in net income
                                                                                  13              (4)            9
                                                                           -----------------------------------------------

    Other comprehensive income--net unrealized
        gains on securities                                                     $177            $(56)         $121
                                                                           ===============================================
</TABLE>

                                       33

<PAGE>



HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


               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
Bank's 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:

                                                   2000        1999
                                                 -------------------

Commitments to extend credit                     $3,016      $1,788
Commitments to purchase investments                           1,436
Standby letters of credit                           259         226

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.

                                       34

<PAGE>


HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


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.


               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, 2000 and 1999, the
Bank is categorized as well  capitalized  and met all subject  capital  adequacy
requirements.  There  are no  conditions  or  events  since  June 30,  2000 that
management believes have changed the Bank's classification.


                                       35

<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 Capital1          Capitalized1
                                                  -------------------------------------------------------------------------------
                                                        Amount       Ratio        Amount      Ratio        Amount        Ratio
                                                  -------------------------------------------------------------------------------
<S>                                                    <C>           <C>          <C>          <C>        <C>           <C>
As of June 30, 2000
    Total risk-based capital1 (to risk-
        weighted assets)                               $18,238       18.33%       $7,960       8.00%      $  9,950      10.00%
    Tier 1 capital1 (to risk-weighted assets)           17,638       17.77         3,980       4.00          5,970       6.00
    Core capital1 (to adjusted total assets)            17,638        8.59         8,214       4.00         10,267       5.00
    Core capital1 (to adjusted tangible assets)         17,638        8.56         4,123       2.00            N/A        N/A
    Tangible capital1 (to adjusted total assets)        17,638        8.59         3,080       1.50            N/A        N/A

As of June 30, 1999
    Total risk-based capital1 (to risk-
        weighted assets)                               $17,694       21.41%       $6,612       8.00%      $  8,265      10.00%
    Tier 1 capital1 (to risk-weighted assets)           17,138       20.74         3,306       4.00          4,959       6.00
    Core capital1 (to adjusted total assets)            17,138        9.02         7,604       4.00          4,132       5.00
    Core capital1 (to adjusted tangible assets)         17,138        8.98         3,816       2.00            N/A        N/A
    Tangible capital1 (to adjusted total assets)        17,138        9.02         2,851       1.50            N/A        N/A
</TABLE>


(1)  As defined by regulatory agencies


Note 14 - 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. 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 proceeding
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, 2000, 1999 or 1998.

                                       36

<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  101,177  shares of HFB
Financial  Corporation common stock. The loan was paid off during the year ended
June 30, 1999. The Bank's  contributions  for 2000,  1999 and 1998 were $21,489,
$41,545  and  $83,877,  of which  $21,489,  $31,738  and  $61,715 was charged to
operations.  For 1999 and 1998, the portions  eliminated in  consolidation  were
$1,060 and  $7,914.  No  portions  were  eliminated  for 2000.  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, 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,  24,570  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  vested.  All shares in the
MRP Trust have been  awarded  to the  President  of the Bank.  There has been no
expense  recognized since 1997. In 1998, 1,166 shares were paid to the President
of the Bank.

                                       37


<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,  18,790 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  terminated
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. There has been no expense recognized since 1997. 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 44,473  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 did not purchase any shares of stock in 2000. In 1999 and 1998,
the Rabbi trusts  purchased an additional 3,240 and 1,920 shares at a total cost
of $48,600 and  $29,800.  A total of 1,670  shares were  distributed  to a trust
beneficiary in 1999 and 1998. The Bank's liability at June 30, 2000 and 1999 for
both plans was $655,800  and  $808,870.  Deferred  amounts are included in 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
$9,000, $45,008 and $33,047 for 2000, 1999 and 1998.

Effective  September 30, 1998,  the Company  implemented  Emerging  Issues Tasks
Force Consensus (EITF) 97-14,  Accounting for Deferred  Compensation  Agreements
Where  Amounts  Earned Are Held in a Rabbi Trust and  Invested.  This  Consensus
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 had 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 was $552,400 ($371,815
net of tax)  at  September  30,  1998.  All  future  increases/decreases  in the
deferred compensation  liability will be recognized in income to the extent that
the share  price of the  Company  stock  exceeds/falls  below the share price at
September 30, 1998 and the original cost of the shares, respectively.

                                       38


<PAGE>



HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 15 - Stock Option Plan

The Company has an incentive stock option plan in which 144,540 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,  2000,  options  to  purchase  143,641  shares  had been
granted.

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 2000, the Company  authorized the
grant of options  for up to 4,768  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 the 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:

                                                                       2000
                                                                  -------------

Risk-free interest rate                                                 6.8%
Dividend yield                                                          3.5%
Volatility factor of expected market price of common stock             20.0%

Weighted-average expected life of the options                       10 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 are as follows:


                                                              2000
                                                           ----------

Net income                            As reported           $1,442
                                      Pro forma              1,430

Basic earnings per share              As reported            $1.09
                                      Pro forma               1.08

Diluted earnings per share            As reported            $1.08
                                      Pro forma               1.07


                                       39

<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, 2000, 1999 and 1998.

<TABLE>
<CAPTION>

Year Ended June 30                                        2000                        1999                        1998
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                       Weighted-
                                                             Weighted-                  Weighted-                       Average
                                                              Average                    Average                        Exercise
                            Options            Shares     Exercise Price     Shares   Exercise Price     Shares          Price
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>        <C>                <C>        <C>               <C>        <C>
Outstanding, beginning of year                 33,013     $    6.26          46,616     $   5.89          53,843     $   5.76
Granted                                         4,768         10.63
Exercised                                      10,766          5.00          13,604         5.00          (7,225)       (5.00)
                                               ------                        ------                       ------
Outstanding, end of year                       27,014          7.53          33,013         6.26          46,616         5.89
                                               ======                        ======                       ======

Options exercisable at year end                27,014          7.53          33,013         6.26          46,616         5.89
Weighted-average fair value of options
    granted during the year                                $   3.64
</TABLE>


As of June 30, 2000, the 27,014 options outstanding have exercise prices ranging
from $5.00 to $10.75 and a  weighted-average  remaining  contractual life of 4.7
years.

                                       40

<PAGE>



HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


               Earnings Per Share

Earnings per share were computed as follows:

<TABLE>
<CAPTION>

                                                                                  Year Ended June 30, 2000
                                                       ---------------------------------------------------------------------------
                                                                                   Weighted Average Shares      Per Share Amount
                                                             Income
                                                       ---------------------------------------------------------------------------
<S>                                                               <C>                          <C>                     <C>

    Net Income                                                    $1,442
                                                       =========================
    Basic Earnings Per Share
        Income available to common stockholders                   $1,442                       1,321,443               $1.09
    Effect of Dilutive Securities
        Stock options                                                                             11,058
                                                       ------------------------------------------------------
    Diluted Earnings Per Share
        Income available to common stockholders
           and assumed conversions                                $1,442                       1,332,501               $1.08
                                                       ===========================================================================
<CAPTION>


                                                                                  Year Ended June 30, 1999
                                                       ---------------------------------------------------------------------------
                                                                                          Weighted              Per Share Amount
                                                             Income                    Average Shares
                                                       ---------------------------------------------------------------------------
<S>                                                               <C>                          <C>                     <C>
    Net Income                                                    $1,240
                                                       =========================
    Basic Earnings Per Share
        Income available to common stockholders                   $1,240                       1,314,620               $0.94
    Effect of Dilutive Securities
        Stock options                                                                             12,628
                                                       ------------------------------------------------------
    Diluted Earnings Per Share
        Income available to common stockholders
           and assumed conversions                                $1,240                       1,327,248               $0.93
                                                       ===========================================================================

<CAPTION>


                                                                                  Year Ended June 30, 1998
                                                       ---------------------------------------------------------------------------
                                                                                   Weighted Average Shares      Per Share Amount
                                                             Income
                                                       ---------------------------------------------------------------------------
<S>                                                               <C>                          <C>                     <C>
    Net Income                                                    $1,503
                                                       =========================
    Basic Earnings Per Share
        Income available to common stockholders                   $1,503                       1,300,639               $1.16
    Effect of Dilutive Securities
        Stock options                                                                             34,658
                                                       ------------------------------------------------------
    Diluted Earnings Per Share
        Income available to common stockholders
           and assumed conversion                                 $1,503                       1,335,297               $1.13
                                                       ===========================================================================
</TABLE>


                                       41

<PAGE>


HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


Note 17 - 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.

                                       42

<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>

                                                                  2000                                      1999
                                                 -------------------------------------------------------------------------------
                                                           Carrying            Fair             Carrying            Fair
June 30                                                      Amount            Value              Amount            Value
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                <C>                <C>              <C>

Assets
    Cash and cash equivalents                             $    3,171         $    3,171         $   3,573        $   3,573
    Trading assets, at fair value                                759                759             1,015            1,015
    Investment securities available for sale                  36,672             36,672            37,299           37,299
    Investment securities held to maturity                    24,697             23,505            21,998           21,508
    FHLB stock                                                 1,420              1,420             1,347            1,347
    Loans, net                                               131,394            131,252           120,742          123,977
    Interest receivable                                        1,908              1,908             1,822            1,822

Liabilities
    Deposits                                                 172,537            169,495           153,988          154,010
    Short-term borrowings                                        400                400             6,500            6,500
    Long-term debt                                            12,528             12,292            10,598           10,988
    Interest payable                                             851                851               733              733

</TABLE>


                                       43

<PAGE>



HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


               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                                                2000            1999
--------------------------------------------------------------------------------

Assets
    Cash and cash equivalents                        $    261       $     184
    Trading assets, at fair value                         759           1,015
    Investment in common stock of subsidiary           16,819          16,452
    Other assets                                          147             100
                                                --------------------------------

               Total assets                           $17,986         $17,751
                                                ================================

Stockholders' Equity                                  $17,986         $17,751
                                                ================================



                                       44

<PAGE>



HFB FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)


                          Condensed Statement of Income
<TABLE>
<CAPTION>

Year Ended June 30                                    2000          1999           1998
------------------------------------------------------------------------------------------
<S>                                                 <C>                         <C>

Income
    Dividends from subsidiary                       $  800                      $   950
    Net gain (loss) on trading securities             (163)      $ (141)            159
    Other income                                        34           27              28
                                                  ----------------------------------------
               Total income                            671         (114)          1,137

Expenses
    Other expenses                                      24           51              64
                                                  ----------------------------------------

Income Before Income Tax and Equity in
    Undistributed Income of Subsidiary                 647         (165)          1,073

Income Tax Expense (Benefit)                           (52)         (71)             54
                                                  ----------------------------------------

Income Before Equity in Undistributed
    Income of Subsidiary                               699          (94)          1,019

Equity in Undistributed Income of Subsidiary           743        1,334             484
                                                  ----------------------------------------

Net Income                                          $1,442       $1,240          $1,503
                                                  ========================================
</TABLE>


                                       45

<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                                                  2000          1999            1998
---------------------------------------------------------------------------------------------------------
<S>                                                             <C>             <C>             <C>
Operating Activities
    Net income                                                  $ 1,442         $ 1,240         $ 1,503
    Adjustments to reconcile net income to net
        cash provided by operating activities
        Equity in undistributed earnings of subsidiary             (743)         (1,334)           (484)
        Amortization of cost of ESOP and MRP                         42             185
        Net change in
           Account receivable--subsidiary                           500            (452)
           Trading assets, at fair value                            256            (180)            (39)
           Other assets and other liabilities                       (47)            (75)            (50)
        Other                                                        (9)              1            (156)
                                                                ---------------------------------------
               Net cash provided by operating activities            899             194             507
                                                                ---------------------------------------

Investing Activity--Principal collected on loan to ESOP              42              83
                                                                ---------------------------------------

Financing Activities
    Proceeds from exercise of stock options                          54              68              36
    Cash paid in lieu of fractional shares                           (1)
    Purchase of stock                                              (407)
    Other                                                           (30)
    Stock purchased by Rabbi trusts                                 (49)
    Common stock withdrawn from Rabbi trusts                          8               8
    Cash dividends                                                 (476)           (493)           (466)
                                                                ---------------------------------------
               Net cash used by financing activities               (822)           (466)           (460)
                                                                ---------------------------------------

Net Change in Cash and Cash Equivalents                              77            (230)            130

Cash and Cash Equivalents, Beginning of Year                        184             414             284
                                                                ---------------------------------------

Cash and Cash Equivalents, End of Year                          $   261         $   184         $   414
                                                                =======================================
</TABLE>



                                       46




<PAGE>


                          Independent Auditor's Report



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


We have audited the  accompanying  consolidated  balance  sheet of HFB Financial
Corporation  and  subsidiary  as of June 30,  2000  and  1999,  and the  related
consolidated statements of income, stockholders' equity, and cash flows for each
of the  three  years in the  period  ended  June 30,  2000.  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,  2000 and 1999,  and the
results of their  operations and their cash flows for each of the three years in
the period ended June 30, 2000, 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.



/s/OLIVE LLP
------------
OLIVE LLP

Evansville, Indiana
July 14, 2000

                                       47

<PAGE>

<TABLE>
<CAPTION>

                                              Board of Directors
<S>                                      <C>                                          <C>
Robert V. Costanzo                       Frank W. Lee                                 Frances Coffey Rasnic
Chairman of the Board of                 Retired Pharmacist                           Manager
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.                       Kenneth V. Jones
President and Chief Executive            Chief Financial Officer                      Chief Operating 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

                                         Branch Office
                                         102 Cumberland Avenue
                                         Harlan, Kentucky

                                              General Information
                                                                                     Annual  Report  on  Form  10-KSB
Independent Certified                    Annual Meeting                              A copy of the  Company's  Annual Report on
Public Accountants                       The 2000 Annual Meeting of                  Form 10-KSB for the fiscal year ended June
Olive LLP                                Stockholders will be held on                30, 2000, as filed with the Securities and
20 N. W. Third Street                    October 31, 2000 at 2:00 p.m.               Exchange  Commission,  will  be  furnished
Evansville, Indiana  47708               at the Pine Mountain State Resort           without charge to  stockholders  as of the
                                         Park, Pineville, Kentucky.                  record  date for the 2000  Annual  Meeting
                                                                                     upon   written   request   to  the   Chief
                                                                                     Financial    Officer,     HFB    Financial
                                         Transfer Agent and Registrar                Corporation,   1602   Cumberland   Avenue,
General Counsel                          Reliance Trust Company                      Middlesboro, Kentucky 40965.
Joseph Coker                             10 Commerce Drive
P. O. Box 134                            Crawford, New Jersey  07016-3572
Jacksboro, Tennessee  37757


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