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












To Our Shareholders:

Fiscal  year  2002 has been a  challenging  one for us.  As we have  focused  on
becoming a  relationship  bank, we continue to make changes in our  organization
and systems.  With many of these changes now in place and the  enthusiasm of our
management  and staff,  we feel that we are better poised to increase our market
share and  earnings in the coming year.  For the year ended June 30,  2002,  the
Company  earned  $1,589,000  compared to $1,489,000  for the year ended June 30,
2001.  Basic  earnings per share were $1.28 and diluted  earnings per share were
$1.27 for the  twelve-month  period ended June 30,  2002,  compared to $1.20 and
$1.18,  respectively,  for the twelve  months ended June 30, 2001.  Total assets
increased by $28.8 million to $246.2 million at June 30, 2002.

Looking  forward,  we are committed to continued growth in our earnings with our
primary  focus  on  creating  shareholder  value.  As a means  to  operate  more
competitively   and   efficiently,   we   completed   our   conversion   from  a
federally-chartered  thrift to a  Kentucky-chartered  commercial bank during the
twelve  months ended June 30, 2002.  As a  commercial  bank,  we may now offer a
wider range of products and  services to better serve our market as a whole.  We
are excited about the opportunities as we embark on this new stage in the growth
of Home Federal Bank.  In addition,  I am pleased to announce that your Board of
Directors declared a semi-annual dividend of $0.21 per share to all shareholders
of record as of September 16, 2002.

We are grateful for your continued support.




David B. Cook
President and CEO

                                                                               1
<PAGE>


FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                              RESULTS OF OPERATIONS

                                                                                      CHANGE
                                                                          -----------------------------
YEARS ENDED JUNE 30                          2002              2001            AMOUNT        PERCENT
-------------------------------------------------------------------------------------------------------
                                                              (Dollars in Thousands)
 <S>                                    <C>               <C>               <C>                <C>
 Interest income                        $       15,716    $       15,713    $            3        .02%
 Interest expense                                8,276             9,495            (1,219)    (12.84)
                                         -------------     -------------     -------------
 Net interest income                             7,440             6,218             1,222      19.65
 Provision for loan losses                         307               105               202     192.38
                                         -------------     -------------     -------------
 Net interest income after provision
    for loan losses                              7,133             6,113             1,020      16.69
 Other income                                    1,106               998               108      10.82
 Other expenses                                  5,903             4,855             1,048      21.59
 Income taxes                                      747               767               (20)     (2.61)
                                         -------------     -------------     -------------
 Net income                                      1,589             1,489               100       6.72
</TABLE>
<TABLE>
<CAPTION>
                               FINANCIAL POSITION

                                                                                              CHANGE
                                                                                ------------------------------------
JUNE 30                                            2002              2001            AMOUNT           PERCENT
--------------------------------------------------------------------------------------------------------------------
                                                                    (Dollars in Thousands)

 <S>                                          <C>               <C>               <C>                    <C>
 Total assets                                 $      246,164    $      217,405    $       28,759         13.23%
 Net loans                                           154,450           136,863            17,587         12.85
 Investment securities--available for sale            74,637            57,110            17,527         30.69
 Deposits                                            201,323           181,948            19,375         10.65
 Stockholders' equity                                 22,141            20,469             1,672          8.17

 Number of shares outstanding                      1,296,311         1,296,854               543           .04
</TABLE>
                                                                               2
<PAGE>

SELECTED FINANCIAL AND OTHER DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30                                           2002            2001            2000            1999           1998
----------------------------------------------------------------------------------------------------------------------------
                                                        (Dollar amounts in thousands, except per share amount)
<S>                                           <C>             <C>             <C>             <C>             <C>
 Financial Position
   Assets                                     $    246,164    $    217,405    $    205,211    $    190,730    $    176,437
   Loans, net                                      154,450         136,863         131,394         120,742         116,171
   Investments
      Available for sale                            74,637          57,110          36,672          37,299`         26,905
      Held to maturity                                  --              --          24,697          21,998          20,547
   Deposits                                        201,323         181,948         172,537         153,988         144,881
   Short-term borrowings and long-term                                              12,928          17,098          12,162
      debt                                          19,871          12,453
   Stockholders' equity                             22,141          20,469          17,986          17,751          17,987

YEAR ENDED JUNE 30                                2002            2001            2000            1999           1998
----------------------------------------------------------------------------------------------------------------------------
                                                        (Dollar amounts in thousands, except per share amount)
 Operating Results
   Interest income                            $     15,716    $     15,713    $     14,396    $     13,558    $     12,979
   Interest expense                                 (8,276)         (9,495)         (8,265)         (8,018)         (7,322)
                                               -----------     -----------     -----------     -----------     -----------
   Net interest income                               7,440           6,218           6,131           5,540           5,657
   Provision for loan losses                          (307)           (105)            437            (253)           (274)
                                               -----------     -----------     -----------     -----------     -----------
   Net interest income after provision
      for loan losses                                7,133           6,113           6,568           5,287           5,383
   Other income
      Net gain (loss) on trading securities             21             260            (163)           (141)            159
      Other                                          1,085             738             524             465             502
   Other expenses                                   (5,903)         (4,855)         (4,699)         (3,715)         (3,750)
                                               -----------     -----------     -----------     -----------     -----------
   Income before income tax                          2,336           2,256           2,230           1,896           2,294
   Income taxes                                       (747)           (767)           (788)           (656)           (791)
                                               -----------     -----------     -----------     -----------     -----------

   Net income                                 $      1,589    $      1,489    $      1,442    $      1,240    $      1,503
                                               ===========     ===========     ===========     ===========     ===========

   Basic earnings per share (1)               $       1.28    $       1.20    $       1.09    $        .94    $       1.16
   Diluted earnings per share                         1.27            1.18            1.08             .93            1.13
   Book value per share                              17.08           15.81           13.89           13.43           13.76

(1)  Years before 2000 adjusted for a 20% stock dividend on June 14, 2000.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30                             2002         2001        2000        1999         1998
--------------------------------------------------------------------------------------------------------
                                               (Dollar amounts in thousands, except per share amount)
 Other Data
<S>                                           <C>         <C>         <C>          <C>          <C>
   Average interest rate spread                 3.20%       2.69%       2.92%        2.69%        3.12%
   Net yield on average                                                 3.24         3.09         3.52
      interest-earning assets                   3.42        3.08
   Return on average assets                      .69         .70         .73          .67          .90
   Return on average stockholders'                                      8.07         6.85         8.70
      equity                                    7.46        7.74
   Equity as a percent of year-end                                      8.76         9.32        10.20
      assets                                    8.99        9.42
   Non-interest expense as a percent of
      average assets                            2.55        2.30        2.38         2.02         2.22
   Non-performing assets to total assets        1.49        1.09        1.69         1.02          .52
   Ratio of allowance for loan losses
      to gross loans                             .63         .52         .49          .99          .83
   Dividend payout ratio                       31.90       33.12       32.98        39.74        29.94
   Number of
      Real estate loans outstanding            1,993       1,933       1,996        2,249        2,077
      Deposit accounts                        16,346      16,669      16,609       14,802       14,945
      Full service offices                         4           4           4            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  completed its  conversion  from mutual to stock
form on December 28, 1992. Subsequently, the Bank converted to a state-chartered
commercial  bank and changed its name to Home Federal Bank  Corporation in 2002.
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 multifamily  real estate
loans located  primarily in Kentucky and East Tennessee areas  contiguous to the
Bank's immediate market area.

As a  state-chartered  commercial  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 Kentucky Department of Financial  Institutions and the FDIC. This regulation
is intended primarily for the protection of depositors.

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

TRADING IN THE COMMON STOCK.  The Company's common stock is listed on the NASDAQ
small cap market under the symbol "HFBA".  There are currently  1,296,311 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:

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

 Fiscal 2001
   First quarter         $     13.000      $     11.375     $       .19
   Second quarter              13.000            10.125
   Third quarter               12.000            11.000             .19
   Fourth quarter              12.880            11.000

 Fiscal 2002
   First quarter         $     13.000      $     11.450     $       .19
   Second quarter              14.150            12.030
   Third quarter               14.600            13.450             .20
   Fourth quarter              14.750            13.000

(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 26, 2002 was $12.90.

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 banks 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 banks 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,  2002,
approximately  65% 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   a
weighted-average  life of seven years or less,  U. S.  Government  Treasury  and
agency  securities  with  terms of seven  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.

The following  table sets forth,  as of June 30, 2002, 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,  assuming immediate and permanent
changes in interest rates up and down 200 basis points.


                          NET PORTFOLIO EQUITY
                         (Dollars in Thousands)

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

         +200          $       23,594      $       (9,179)            (28)%
         +100                  28,517              (4,256)            (13)
            0                  32,773
         -100                  34,444               1,671               5
         -200                  35,686               2,913               9

                                                                               7
<PAGE>

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

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 $9.2 million, or 28%.  Conversely,
a 200 basis  point  decrease in interest  rates is  anticipated  to cause a $2.9
million, or 9% 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 in assessing  the interest  rate risk of the Bank
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 13.2% to $246.2 million at June 30, 2002
compared to $217.4  million at June 30, 2001.  The majority of this  increase is
reflected in investments and loans,  which was primarily funded by a decrease on
cash  and  cash  equivalents,  an  increase  in  deposits  and  an  increase  in
borrowings.

Cash and cash equivalents  decreased by $8.7 million to $5.2 million at June 30,
2002 from $13.9  million at June 30,  2001,  primarily  due to  increases in the
investment and loan portfolios.

The Corporation  completely liquidated its trading account securities during the
year ended June 30, 2002 as compared to a balance of $1.049  million at June 30,
2001.  Management  opted to  liquidate  the trading  account due to the volatile
nature of the equities market.

The Bank  augments its lending  activities  and  increases its asset yields to a
significant extent by investing in investment securities such as mortgage-backed
securities  "MBSs",  U.  S.  Government  securities,  municipal  securities  and
corporate securities.  During the year ended June 30, 2002, management purchased
$67.5 million in investment securities. Most of these purchases were funded from
the proceeds from called and maturing investment securities, principal collected
on MBSs and the sale of investment securities.  At June 30, 2002, the balance of
investment  securities  available  for sale (AFS) was $74.6  million  with a net
unrealized gain of $1.4 million.

During the year ended June 30, 2002, total loans receivable, net increased 12.8%
to $154.4 million compared to $136.9 million at June 30, 2001.

At June 30,  2002,  allowance  for loan  losses was  $975,000  or 0.63% of loans
receivable compared to $718,000 or 0.52% of loans receivable at June 30, 2001.

Premises and equipment decreased by $376 to $3.867 million at June 30, 2002 from
$4.243  million  at June  30,  2001.  Most  of  this  decrease  was  related  to
deprecation.

During  the year ended  June 30,  2002,  management  purchased  $2.7  million in
bank-owned  life insurance and the cash  surrender  value of the policy was $2.8
million at year end. The policy serves as an investment for the Bank, as well as
a benefit designed for the retention of the Bank's key employees.

Total deposits  increased  $19.4 million to $201.3 million at June 30, 2002 from
$181.9  million at June 30,  2001.  During the year  ended  June 30,  2002,  CDs
increased  $12.4 million while  non-interest  bearing,  savings and NOW accounts
increased $7.0 million.

Long-term  debt  increased  $7.4 million to $19.9  million at June 30, 2002 from
$12.5  million  at  June  30,  2001  as  the  result  of a  leveraging  strategy
implemented  during the year ended June 30, 2002. The Bank borrowed $7.5 million
with an  average  maturity  of three  years and used the  proceeds  to  purchase
securities with similar maturities.

At June 30,  2002,  the Bank met all  regulatory  capital  requirements.  Tier I
capital to averaged assets was 8.2%. Tier I capital to risk-weighted  assets was
14.8% and total  capital  to  risk-weighted  assets  was 15.6% at June 30,  2002
compared to 8.7%, 16.5% and 15.7%, respectively, at June 30, 2001.

                                                                               9
<PAGE>
COMPARISON OF YEAR ENDED JUNE 30, 2002 TO YEAR ENDED JUNE 30, 2001
--------------------------------------------------------------------------------

General.  Net income increased by $100,000 to $1.589 million for the fiscal year
ended June 30, 2002. The primary  reasons for the increase were a $1.222 million
increase in net interest income, a $107,000 increase in non-interest  income and
a $21,000  decrease  in income  tax  expense  offset by a $202,000  increase  in
provision for loan losses and a $1.048 million increase in non-interest expense.

Net Interest Income.  Net interest income increased to $7.440 million for fiscal
2002 from $6.218  million for fiscal 2001.  The increase was primarily due to an
increase in the net interest  margin.  The net interest  margin  increased by 34
basis points to 3.42% for the year ended June 30, 2002 compared to 3.08% for the
year ended June 30,  2001.  Most of this  increase was  attributable  to a lower
weighted-average cost of funds.

Interest  Income.  Interest  income for the fiscal years ended June 30, 2002 and
2001 was $15.716 million and $15.713 million, respectively. This modest increase
for fiscal 2002 over fiscal 2001 was due primarily to an increase in the average
balance of  interest-earning  assets,  as the yields  declined  in fiscal  2002.
Yields on such  assets  were 7.23% in fiscal  2002  compared  to 7.77% in fiscal
2001.

Average  interest-earning  assets were $217.2 million and $202.2 million for the
fiscal  years ended June 30, 2002 and 2001,  respectively.  The  increase in the
average balance of  interest-earning  assets was primarily due to an increase in
loan originations and purchases of investment securities.

Interest  Expense.  Interest expense for fiscal 2002 and 2001 was $8.276 million
and $9.495  million,  respectively.  The decrease in interest  expense of $1.219
million in fiscal 2002 over fiscal 2001 was  primarily  due to a decrease in the
rate of interest  paid on  deposits.  The cost of  interest-bearing  liabilities
decreased  to 4.03% for  fiscal  2002  compared  to 5.08% for  fiscal  2001.  In
addition,  the average  balance of  interest-bearing  liabilities  increased  by
$18.43 million due to increased deposits,  which was primarily used to fund loan
demand.

Provision  for Loan Losses.  The  provision for loan losses for the fiscal years
ended  June 30,  2002 and 2001 was  $307,000  and  $105,000,  respectively.  The
increase  of  $202,000  was  primarily  due  to  increase  in  commercial   loan
originations.  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.

Other  Income.  Other  income for fiscal  2002 was $1.106  million  compared  to
$999,000 for fiscal 2001,  an increase of $107,000.  The increase was  primarily
the result of a $108,000  increase in service  charges on  deposits,  a $238,000
decrease in gains on trading  account  securities,  a $21,000  increase in other
fees, a $101,000  increase in gain on the sale of real estate and an increase of
$76,000 in the increase in cash surrender value of bank-owned life insurance.

Other Expenses.  Other expenses  increased  $1.048 million to $5.903 million for
fiscal  2002 from $4.855  million for fiscal  2001.  Compensation  and  benefits
increased by $499,000,  primarily  the result of a $300,000  increase in general
compensation  expense  and an  increase  of  $199,000 in the cost of funding the
Bank's employee retirement fund.

                                                                              10
<PAGE>

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

Occupancy  expense  increased  $54,000 to $379,000  for fiscal 2002  compared to
$325,000  for  fiscal  2001.  This  increase  was  primarily  due  to  increased
depreciation,  taxes and utilities resulting from the addition of the Bank's new
annex  building  in  Middlesboro,  Kentucky  and the  purchase of the new branch
building in Harlan, Kentucky.

Equipment  expense  increased  $84,000 to $516,000  for fiscal 2002  compared to
$432,000  for  fiscal  2001,  primarily  the result of higher  depreciation  and
maintenance fees associated with the purchase of new computer and communications
equipment.

Data processing  expense  decreased $21,000 to $239,000 for fiscal 2002 compared
to $260,000 for 2001 primarily due to the  elimination of some services with the
Bank's data processor.

Legal and  professional  fees  increased  $238,000 to  $457,000  for fiscal 2002
compared to $219,000 for 2001. Legal expenses  increased  $119,000 primarily due
to foreclosure  expenses.  Consulting  fees increased  $139,000 as the result of
payment for services for the implementation of new operating procedures.

Other expenses  increased $203,000 to $1.240 million for fiscal 2002 compared to
$1.037  million for 2001,  primarily  due to the write down of other real estate
owned by $272,000.  The write down primarily involved two foreclosed real estate
development  properties  recently  reappraised.  All other  categories  of other
expense  decreased  $70,000 with no substantial  increase or decrease in any one
category.

Income Tax Expense.  Income tax expense decreased $21,000 to $746,000 for fiscal
2002 compared to $767,000 for fiscal 2001 due to a greater  amount of tax-exempt
income in fiscal 2002.

                                                                              11
<PAGE>
COMPARISON OF YEAR ENDED JUNE 30, 2001 TO YEAR ENDED JUNE 30, 2000
--------------------------------------------------------------------------------

General.  Net income  increased by $48,000 to $1.489 million for the fiscal year
ended June 30,  2001.  The  primary  reasons  for the  increase  were an $87,000
increase in net interest income, a $638,000 increase in non-interest  income and
a $21,000  decrease  in income  tax  expense  offset by a $542,000  increase  in
provision for loan losses and a $156,000 increase in non-interest expense.

Net Interest Income.  Net interest income increased to $6.218 million for fiscal
2001 from $6.131  million for fiscal 2000.  The increase was primarily due to an
increase in volume.  Even though net income  increased,  the net interest margin
decreased by 16 basis points to 3.08% for the year ended June 30, 2001  compared
to  3.24%  for  the  year  ended  June  30,  2000.  Most of  this  decrease  was
attributable to a higher weighted average cost of funds.

Interest  Income.  Interest  income for the fiscal years ended June 30, 2001 and
June 30,  2000 was  $15.713  million  and  $14.396  million,  respectively.  The
increase in fiscal 2001 over fiscal 2000 was due primarily to an increase in the
average balance of interest-earning  assets. Yields on such assets were 7.77% in
fiscal 2001 compared to 7.60% in fiscal 2000.

Average  interest-earning  assets were $202.2 million and $189.4 million for the
fiscal years ended June 30, 2001 and June 30, 2000,  respectively.  The increase
in the  average  balance  of  interest-earning  assets was  primarily  due to an
increase in loan originations.

Interest  Expense.  Interest expense for fiscal 2001 and 2000 was $9.495 million
and $8.265  million,  respectively.  The increase in interest  expense of $1.230
million in fiscal 2001 over fiscal 2000 was  primarily due to an increase in the
rate of interest  paid on  deposits.  The cost of  interest-bearing  liabilities
increased  to 5.08% for  fiscal  2001  compared  to 4.68% for  fiscal  2000.  In
addition, the average balance of interest-bearing liabilities increased by $10.5
million due to increased deposits, which was used to fund loan demand.

Provision  for Loan Losses.  The  provision for loan losses for the fiscal years
ended June 30, 2001 and June 30, 2000 was $105,000 and $(437,000), respectively.
The increase of $542,000 was primarily due to unanticipated collections on loans
that,  during the fiscal year ended 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.

Other Income. Other income for fiscal 2001 was $998,000 compared to $361,000 for
fiscal 2000, an increase of $637,000.  The increase is primarily the result of a
$254,000  increase in service charges on deposits,  a $421,000 increase in gains
on trading  account  securities  and a $22,000  increase in other  fees.  During
fiscal 2001,  management  instituted a new overdraft  privilege  product,  which
increased deposit service charge income significantly.

Other Expenses.  Other expenses  increased $156,000 to $4.855 million for fiscal
2001 from $4.699 million for fiscal 2000. Compensation and benefits increased by
$86,000,  primarily  the  result of a  $77,000  decrease  in the  amount of loan
origination  fees  deferred  related to  compensation  expense net of the amount
amortized in the current period.

                                                                              12
<PAGE>

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

Occupancy  expense  increased  $29,000 to $325,000  for fiscal 2001  compared to
$296,000  for  fiscal  2000.  This  increase  was  primarily  due  to  increased
depreciation,  taxes and utilities resulting from the addition of the Bank's new
annex  building  in  Middlesboro,  Kentucky  and the  purchase of the new branch
building in Harlan, Kentucky.

Equipment  expense  increased  $152,000 to $432,000 for fiscal 2001  compared to
$280,000  for  fiscal  2000,  primarily  the result of higher  depreciation  and
maintenance fees associated with the purchase of new computer and communications
equipment.

Data processing  expense  decreased $17,000 to $260,000 for fiscal 2001 compared
to $277,000 for 2000  primarily  due to one-time  expenses  associated  with the
conversion and addition of the new Harlan branch in fiscal 2000.

Professional services decreased $163,000 due to the fees paid to consultants for
assistance in developing a sales culture for the Bank in fiscal 2000.

State deposit and franchise taxes increased  $11,000  primarily due to a benefit
received with the Bank's  purchase of the new Harlan branch,  which was realized
in fiscal 2000 that was not available to the Bank in 2001.

Other  expense  increased  $58,000,  primarily  due  to a  $36,000  increase  in
telephone expense.  All other categories of other expense increased $50,000 with
no substantial increase or decrease in any one category.

Income Tax Expense.  Income tax expense decreased $21,000 to $767,000 for fiscal
2001 compared to $788,000 for fiscal 2000 due to a greater  amount of tax-exempt
income in fiscal 2001.

                                                                              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>
                                                   2002                             2001                          2000
                                         ------------------------------------------------------------------------------------------
                                                             AVERAGE                         AVERAGE                       AVERAGE
                                       AVERAGE                YIELD/   AVERAGE                YIELD/   AVERAGE              YIELD/
YEAR ENDED JUNE 30                     BALANCE    INTEREST    COST     BALANCE     INTEREST    COST    BALANCE   INTEREST    COST
------------------------------------------------------------------------------------------------------------------------------------
                                                                            (DOLLARS IN THOUSANDS)
<S>                                   <C>        <C>        <C>       <C>        <C>         <C>      <C>        <C>      <C>
Interest-earning assets
   Loans, net (1)                     $145,034   $ 11,801     8.14%   $137,874   $ 11,655      8.45%  $124,003   $ 10,218   8.24%
   Investment securities                66,578      3,759     5.65      61,243      3,885      6.34     62,882      4,062   6.46
   Federal Home Loan Bank
     stock and deposits with
     financial institutions              5,617        156     2.78       3,038        173      5.69      2,538        116   4.57
                                       -------    -------              -------    -------              -------    -------

      Total interest-earning
         assets                       $217,229   $ 15,716     7.23%   $202,155   $ 15,713     7.77%   $189,423   $ 14,396   7.60%
                                       =======    =======              =======    =======              =======    =======

Interest-bearing liabilities
   Deposits                           $189,940   $  7,458     3.93%   $174,532   $  8,807     5.05%   $163,325   $  7,549   4.62%
   Short-term borrowings and
     long-term debt                     15,582        818     5.25      12,559        688     5.48      13,196        716   5.43
                                       -------    -------              -------    -------              -------    -------

      Total interest-bearing
        liabilities                   $205,522   $  8,276     4.03%   $187,091   $  9,495     5.08%   $176,521   $  8,265   4.68%
                                       =======    =======              =======    =======              =======    =======

Net interest income                              $  7,440                        $  6,218                        $  6,131
                                                 ========                         =======                         =======

Interest rate spread                                          3.20%                           2.69%                         2.92%
                                                            ======                          ======                        ======

Net yield on interest-earning
  assets                                                      3.42%                           3.08%                         3.24%
                                                            ======                          ======                        ======

Ratio of average interest-earning
   assets to average
   interest-bearing liabilities                             105.70%                         108.72%                       107.31%
                                                            ======                          ======                        ======
</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>
                                                            2002 VS. 2001                             2001 VS. 2000
                                            ------------------------------------------------------------------------------------
                                                    INCREASE (DECREASE) DUE TO                 INCREASE (DECREASE) DUE TO
                                            ------------------------------------------------------------------------------------
                                                                    RATE/                                                RATE/
YEAR ENDED JUNE 30                            VOLUME      RATE      VOLUME     TOTAL      VOLUME     RATE     VOLUME     TOTAL
--------------------------------------------------------------------------------------------------------------------------------
                                                                (DOLLARS IN THOUSANDS)
Interest income
<S>                                        <C>        <C>         <C>       <C>         <C>        <C>       <C>       <C>
   Loans receivable (1)                     $    606   $   (437)   $  (23)   $    146    $  1,143   $  264    $   30    $ 1,437
   Investment securities                         338       (427)      (37)       (126)       (106)     (73)        2       (177)
   Other dividend income and deposits with
     financial institutions                      147        (89)      (75)        (17)         23       29         6         58
                                             -------    -------     -----     -------     -------    -----     -----     ------
      Total interest-earning assets            1,091       (953)     (135)          3       1,060      220        38      1,318
                                             -------    -------     -----     -------     -------    -----     -----     ------

Interest expense
   Deposits                                      777     (1,953)     (173)     (1,349)        518      693        48      1,259
   Short-term borrowings and long-term debt      166        (29)       (7)        130         (35)       7        --        (28)
                                             -------    -------     -----     -------     -------    -----     -----     ------
      Total interest-bearing liabilities         943     (1,982)     (180)     (1,219)        483      700        48      1,231
                                             -------    -------     -----     -------     -------    -----     -----     ------

Change in net interest income               $    148   $  1,029    $   45    $  1,222    $    577   $ (480)   $  (10)   $    87
                                             =======    =======     =====     =======     =======    =====     =====     ======
</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
Company  repurchases shares of its common stock in order to improve earnings per
share and return on stockholders'  equity.  To date, the Company has repurchased
288,202 of its shares (as restated for a 20% stock dividend on June 14, 2000 and
a  5-for-3  stock  split on June 30,  1997)  of  common  stock at a cost of $2.6
million.

Home Federal's capital ratios are substantially in excess of regulatory  minimum
capital  requirements.  At June 30, 2002,  the Bank's Tier I capital to averaged
assets  ratio was 8.2% or 4.2% in excess of the  Bank's  current  4.0% Tier I to
averaged capital ratio requirement.  Additionally,  the Bank's Tier I capital to
risk-weighted  assets ratio was 14.8% and total capital to risk-weighted  assets
was 15.6% or 10.8% and 7.6%,  respectively,  in excess of the minimum regulatory
requirements of 4.0% and 8.0%, respectively.

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. At June 30, 2002, the
Bank had $19.9 million outstanding in advances and an unexercised credit line of
$15.0 million at the FHLB. The Bank also had sufficient  collateral to borrow an
additional $37.0 million from the FHLB at June 30, 2002.

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.  Management
believes  that the  liquidity  levels  maintained  are  fully  adequate  to meet
potential deposit outflows, loan demand and normal operations.

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 ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
--------------------------------------------------------------------------------

ACCOUNTING  FOR  DERIVATIVE  INSTRUMENTS  AND HEDGING  ACTIVITIES.  Statement of
Financial  Accounting  Standards No. 133, Accounting for Derivative  Instruments
and  Hedging  Activities,  issued in June  1998 (as  amended  by SFAS No.  137),
standardizes  the  accounting  for  derivative  instruments,  including  certain
derivative  instruments  embedded in other  contracts.  The  statement  requires
entities to carry all  derivative  instruments  in the  statement  of  financial
position at fair value. The accounting for changes in the fair value,  gains and
losses, of a derivative instrument depends on whether it has been designated and
qualifies  as part of a hedging  relationship  and,  if so, on the  reasons  for
holding it. If certain  conditions  are met,  entities  may elect to designate a
derivative  instrument  as a hedge of exposures  to changes in fair value,  cash
flows or foreign  currencies.  The  statement  is  effective  for  fiscal  years
beginning  after June 15,  2001.  The  statement  is not  expected to affect the
Company because the Company does not currently purchase  derivative  instruments
or enter into hedging activities.

RECENT ACCOUNTING  PRONOUNCEMENTS.  In September 2000, the FASB issued Statement
No.  140,  Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
Extinguishments  of Liabilities--a  replacement of FASB Statement No. 125, which
revises the standards for accounting for  securitizations and other transfers of
financial  assets and collateral and requires certain  disclosures,  although it
continues most of the  provisions of Statement No. 125 without  reconsideration.
The provisions of Statement No. 140 are effective for periods after December 15,
2000. We currently are evaluating the impact, if any, of adopting the provisions
of  Statement  No.  140.  We do not expect the  adoption  of the  provisions  of
Statement No. 140 to have a material impact on our financial position or results
of operations.

In July 2001,  the FASB issued  Statement No. 141,  Business  Combinations,  and
Statement  No. 142,  Goodwill and Other  Intangible  Assets.  Statement  No. 141
requires  the  use of  the  purchase  method  of  accounting  for  all  business
combinations   initiated   after  June 30,   2001,   thereby   eliminating   the
pooling-of-interests  method.  Statement No. 141 also provides new criteria that
determine whether an acquired  intangible asset should be recognized  separately
from  goodwill.  Statement  No. 142  provides  guidance  on how to  account  for
goodwill and intangible assets after a business  combination has been completed.
Under Statement No. 142,  goodwill and certain other  intangible  assets will no
longer  be  amortized  and will be  tested  for  impairment  at least  annually.
Intangible  assets  with a definite  life will  continue  to be  amortized.  The
nonamortization  and  impairment  rules  will  apply to  existing  goodwill  and
intangible assets beginning with fiscal years starting after December 15,  2001.
While the Company has  recorded  intangible  assets  related to the  purchase of
certain deposits,  it does not have any goodwill  recorded.  Accordingly,  these
statements are not expected to have an impact on the Company.

IMPACT OF INFLATION AND CHANGING PRICES
--------------------------------------------------------------------------------

The consolidated  financial statements and notes thereto,  presented herein have
been prepared in accordance with accounting principles generally accepted in the
United States of America,  which generally  require the measurement of financial
position  and  operating   results  in  terms  of  historical   dollars  without
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 CORP
                           CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 2002 AND 2001


<TABLE>
<CAPTION>
ASSETS
                                                                      2002               2001
                                                              ------------------------------------
        <S>                                                    <C>                <C>
        Cash and due from banks                                $      4,775,348   $      5,112,788
        Federal funds sold                                              450,000          8,775,000
                                                                ---------------    ---------------
               Cash and cash equivalents                              5,225,348         13,887,788

        Trading assets, at fair value                                        --          1,049,327
        Available-for-sale securities                                74,636,556         57,109,780
        Loans, net of allowance for loan losses of
          $975,000 and $718,267 in 2002 and 2001,
          respectively                                              154,449,553        136,863,425
        Premises and equipment                                        3,867,217          4,242,655
        Federal Home Loan Bank stock                                  1,622,100          1,527,400
        Interest receivable                                           1,638,218          1,790,607
        Assets held for sale                                          1,560,805            504,960
        Other assets                                                    353,189            428,647
        Cash surrender value of life insurance                        2,811,018                 --
                                                                ---------------    ---------------
               Total assets                                    $    246,164,004   $    217,404,589
                                                                ===============    ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

    LIABILITIES
        Deposits
           Noninterest bearing demand                          $      7,343,530   $      4,631,492
           Savings, NOW and money market                             24,734,538         20,433,508
           Certificates of deposit                                  169,245,427        156,883,478
                                                                ---------------    ---------------
               Total deposits                                       201,323,495        181,948,478

        Long-term debt                                               19,871,257         12,452,796
        Interest payable                                                855,075            962,143
        Other liabilities                                             1,973,592          1,572,344
                                                                ---------------    ---------------
               Total liabilities                                    224,023,419        196,935,761
                                                                ---------------    ---------------
    STOCKHOLDERS' EQUITY
        Preferred stock, $1.00 par value
        Authorized and unissued--1,000,000 shares
        Common stock, $1.00 par value; authorized
          5,000,000 shares; issued and outstanding
          2002 and 2001 - 1,584,513 and
          1,579,582 shares                                           1,584,513          1,579,582
        Additional paid-in capital                                   8,749,714          8,729,990
        Retained earnings                                           13,922,605         12,839,997
        Common stock acquired by Rabbi trust for
          deferred compensation plans                                 (488,102)          (488,102)
        Accumulated other comprehensive income (loss)                  933,853            291,628
                                                               ---------------    ---------------
                                                                    24,702,583         22,953,095
       Treasury stock 2002 - 288,202 shares; 2001 -
          282,728 shares                                            (2,561,998)        (2,484,267)
                                                               ---------------    ---------------
               Total stockholders' equity                           22,140,585         20,468,828
                                                               ---------------    ---------------
               Total liabilities and stockholders' equity     $    246,164,004   $    217,404,589
                                                               ===============    ===============
</TABLE>

See Notes to Consolidated Financial Statements                                18
<PAGE>
                            HFB FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                       YEARS ENDED JUNE 30, 2002 AND 2001
<TABLE>
<CAPTION>
                                                                 2002                2001
                                                         -----------------------------------
    INTEREST INCOME
       <S>                                               <C>                <C>
        Loans                                            $     11,800,842   $     11,654,613
        Investment securities                                   3,759,455          3,885,382
        Other                                                     155,827            172,532
                                                          ---------------    ---------------
               Total interest income                           15,716,124         15,712,527
                                                          ---------------    ---------------

    INTEREST EXPENSE
        Deposits                                                7,457,692          8,806,524
        Long-term debt                                            818,029            688,074
                                                          ---------------    ---------------
               Total interest expense                           8,275,721          9,494,598
                                                          ---------------    ---------------

    NET INTEREST INCOME                                         7,440,403          6,217,929

    PROVISION FOR LOAN LOSSES                                     307,485            104,980
                                                          ---------------    ---------------

    NET INTEREST INCOME AFTER PROVISION
      FOR LOAN LOSSES                                           7,132,918          6,112,949
                                                          ---------------    ---------------

    NONINTEREST INCOME
        Service charges on deposit accounts                       738,580            630,588
        Other customer fees                                       100,930             80,125
        Net gains on trading securities                            21,426            259,697
        Net realized gains (losses) on sales of
          available-for-sale securities                             6,058               (670)
        Other                                                     238,660             29,133
                                                          ---------------    ---------------
               Total noninterest income                         1,105,654            998,873
                                                          ---------------    ---------------

    NONINTEREST EXPENSE
        Salaries and employee benefits                          2,691,733          2,192,803
        Net occupancy and equipment expense                       379,270            325,243
        Equipment expenses                                        516,031            431,970
        Data processing fees                                      238,818            260,021
        Legal and professional fees                               456,681            218,505
        Advertising                                               224,913            221,741
        State franchise and deposit taxes                         155,251            167,515
        Other                                                   1,240,193          1,037,342
                                                          ---------------    ---------------
               Total noninterest expense                        5,902,890          4,855,140
                                                          ---------------    ---------------

    INCOME BEFORE INCOME TAXES                                  2,335,682          2,256,682

    PROVISION FOR INCOME TAXES                                    746,314            767,364
                                                          ---------------    ---------------

    NET INCOME                                           $      1,589,368   $      1,489,318
                                                          ===============    ===============

    BASIC EARNINGS PER SHARE                             $            1.28  $            1.20
                                                          ================   ================

    DILUTED EARNINGS PER SHARE                           $            1.27  $            1.18
                                                          ================   ================
</TABLE>
See Notes to Consolidated Financial Statements                                19
<PAGE>
                            HFB FINANCIAL CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       YEARS ENDED JUNE 30, 2002 AND 2001
<TABLE>
<CAPTION>
                                                                                              ACCUMULATED
                                                            ADDITIONAL                           OTHER
                                  COMPREHENSIVE   COMMON     PAID-IN     RABBI      RETAINED  COMPREHENSIVE     TREASURY
                                     INCOME        STOCK     CAPITAL     TRUSTS     EARNINGS   INCOME (LOSS)     STOCK      TOTAL
                                  -------------------------------------------------------------------------------------------------
<S>                                <C>          <C>        <C>         <C>        <C>         <C>          <C>          <C>
 BALANCE, JULY 1, 2000                          $1,574,282 $8,708,790  $(515,623) $11,843,918 $(1,186,594) $(2,438,366) $17,986,407

  Comprehensive income
     Net income                    $ 1,489,318          --         --         --    1,489,318          --           --    1,489,318
     Change in unrealized
       appreciation on
       available-for-sale
       securities, net of
       reclassification adjustment   1,478,222          --         --         --           --   1,478,222           --    1,478,222
  Dividends on common stock, $0.38
     share                                              --         --         --     (493,239)         --           --     (493,239)
  Stock issued upon exercise of
     stock options                                   5,300     21,200         --           --          --           --       26,500
  Purchase of treasury stock                            --         --         --           --          --      (45,901)     (45,901)
  Stock withdrawn from Rabbi
     Trusts                                             --         --      8,355           --          --           --        8,355
  Net change in fair value of
     Rabbi Trust
     shares, net of tax                                 --         --     19,166           --          --           --       19,166
                                    ----------  ---------- ----------   --------   ----------   ---------  -----------   ----------
  Comprehensive income             $ 2,967,540
                                    ==========

 BALANCE, JUNE 30, 2001                          1,579,582  8,729,990   (488,102)  12,839,997     291,628   (2,484,267)  20,468,828

  Comprehensive income
     Net income                    $ 1,589,368          --         --         --    1,589,368          --           --    1,589,368
     Change in unrealized
       appreciation
       on available-for-sale
       securities, net of
       reclassification adjustment     642,225          --         --         --          --      642,225           --      642,225
  Dividends on common stock, $0.38
     share                                              --         --         --    (506,760)          --           --     (506,760)
  Stock issued upon exercise of
     stock options                                   4,931     19,724         --          --           --           --       24,655
  Purchase of treasury stock                            --         --         --          --           --      (77,731)     (77,731)
                                    ----------  ---------- -----------  --------  ----------   -----------  -----------  ----------
  Comprehensive income             $ 2,231,593
                                    ==========

 BALANCE, JUNE 30, 2002                         $1,584,513 $8,749,714  $(488,102) $13,922,605  $  933,853  $(2,561,998) $22,140,585
                                                 ========= ==========  =========  ===========  ==========  ===========  ===========
</TABLE>
See Notes to Consolidated Financial Statements                                20

<PAGE>
                            HFB FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                       YEARS ENDED JUNE 30, 2002 AND 2001
<TABLE>
<CAPTION>
                                                                                      2002                2001
                                                                            ----------------------------------------
  <S>                                                                         <C>                <C>
  OPERATING ACTIVITIES
      Net income                                                              $      1,589,368   $      1,489,318
      Items not requiring (providing) cash
        Amortization of goodwill                                                        89,602            107,525
        Depreciation of premises and equipment                                         445,431            378,780
        Amortization of premiums and discounts on securities                           263,388           (138,780)
        Premises and equipment gains                                                        --             (9,976)
        Permanent decline in fair market value of assets held for sale                 191,127                 --
        Increase in cash surrender value of life insurance                             (75,924)                --
        Provision for loan losses                                                      307,485            104,980
        Deferred income taxes                                                         (109,000)           (54,620)
        Net realized (gains) losses on available-for-sale securities                    (6,058)               670
        Net realized (gain) loss of sale of assets held for sale                      (101,677)               204
        Federal Home Loan Bank stock dividends                                         (94,700)          (107,700)
      Changes in
        Trading assets, at fair value                                                1,049,327           (290,757)
        Interest receivable                                                            152,389            117,415
        Other assets                                                                   (14,144)           436,657
        Interest payable                                                              (107,068)           111,372
        Other liabilities                                                              145,061           (103,055)
                                                                               ---------------    ---------------
               Net cash provided by operating activities                             3,724,607          2,042,033
                                                                               ---------------    ---------------
  INVESTING ACTIVITIES
      Net originations of loans                                                    (19,928,905)        (5,679,617)
      Purchase of premises and equipment, net                                          (69,993)        (1,277,442)
      Proceeds from sales of premises and equipment                                         --            137,323
      Proceeds from the sales of available-for-sale securities                       9,134,652          3,649,998
      Proceeds from maturities of available-for-sale securities                     41,576,950         11,572,457
      Purchases of available-for-sale securities                                   (67,488,296)       (14,300,249)
      Proceeds from maturities of held-to-maturity securities                               --          5,794,382
      Development cost of assets held for sale                                        (116,128)                --
      Proceeds from sales of assets held for sale                                    1,006,125            345,587
      Purchase of life insurance                                                    (2,735,094)                --
                                                                               ---------------    ---------------
               Net cash provided by (used in) investing activities                 (38,620,689)           242,439
                                                                               ---------------    ---------------
  FINANCING ACTIVITIES
      Net increase (decrease) in demand deposits, money market,
        NOW and savings accounts                                                     7,013,068           (180,009)
      Net increase in certificates of deposit                                       12,361,949          9,591,476
      Net decrease in short-term borrowings                                                 --           (400,000)
      Purchase of treasury stock                                                       (77,731)           (45,901)
      Proceeds from exercise of stock options                                           24,655             26,500
      Common stock withdrawn from Rabbi trusts                                              --              8,355
      Dividends paid                                                                  (506,760)          (493,240)
      Repayments of long-term debt                                                     (81,539)           (75,254)
      Proceeds from long-term debt                                                   7,500,000                 --
                                                                               ---------------    ---------------
               Net cash provided by financing activities                            26,233,642          8,431,927
                                                                               ---------------    ---------------
  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  (8,662,440)        10,716,399
  CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      13,887,788          3,171,389
                                                                               ---------------    ---------------
  CASH AND CASH EQUIVALENTS, END OF YEAR                                      $      5,225,348   $     13,887,788
                                                                               ===============    ===============
  SUPPLEMENTAL CASH FLOWS INFORMATION
        Interest paid                                                         $      8,382,789   $      8,147,294
        Income taxes paid (net of refunds)                                    $        935,211   $        690,254
        Collateral repossessed                                                $      2,035,292   $        104,960
</TABLE>
See Notes to Consolidated Financial Statements                                21
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

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

    NATURE OF OPERATIONS

          HFB Financial  Corporation  (Company) is a bank holding  company whose
          principal activity is the ownership and management of its wholly-owned
          subsidiary,  Home  Federal  Bank  Corporation  (Bank)  and the  Bank's
          wholly-owned subsidiary, Home Service Corporation.

          During the year ended June 30, 2002,  the Bank,  which  provides  full
          banking services, changed its charter from a federal savings bank to a
          state bank. As a state Bank,  the Bank is subject to regulation by the
          Federal  Deposit  Insurance  Corporation  and Kentucky  Department  of
          Financial  Institutions.  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.

          The  accounting  and  reporting   policies  of  the  Company  and  its
          wholly-owned  subsidiary  conform to accounting  principles  generally
          accepted  in the United  States of  America  and  reporting  practices
          followed by the banking industry. The more significant of the policies
          are described below.

    PRINCIPLES OF CONSOLIDATION

          The  consolidated  financial  statements  include the  accounts of the
          Company and the Bank after  elimination  of all material  intercompany
          transactions and accounts.

    USE OF ESTIMATES

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

          Material  estimates that are  particularly  susceptible to significant
          change  relate to the  determination  of the allowance for loan losses
          and  the  valuation  of  real  estate   acquired  in  connection  with
          foreclosures  or in  satisfaction  of loans.  In  connection  with the
          determination  of the  allowance  for loan losses and the valuation of
          foreclosed  assets  held for sale,  management  relies on  independent
          appraisals for significant properties.

    CASH EQUIVALENTS

          The Company considers all liquid investments with original  maturities
          of three months or less to be cash  equivalents.  At June 30, 2002 and
          2001,  cash  equivalents  consisted of federal  funds sold to regional
          banks.

                                                                              22
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

    SECURITIES

          Trading  securities,  which  include any security  held  primarily for
          near-term sale, are carried at fair value. Gains and losses on trading
          securities,  both  realized  and  unrealized,  are  included  in other
          income.

          Available-for-sale  securities,  which  include any security for which
          the Company has no immediate plan to sell but which may be sold in the
          future, are carried at fair value. Realized gains and losses, based on
          amortized cost of the specific security, are included in other income.
          Unrealized  gains and losses are recorded,  net of related  income tax
          effects, in stockholders' equity. Premiums and discounts are amortized
          and accreted,  respectively,  to interest income using the level-yield
          method over the period to maturity.

          Held-to-maturity  securities, which include any security for which the
          Company has the  positive  intent and ability to hold until  maturity,
          are carried at historical  cost adjusted for  amortization of premiums
          and accretion of  discounts.  Premiums and discounts are amortized and
          accreted,  respectively,  to  interest  income  using the  level-yield
          method over the period to maturity.

          Interest and dividends on  investments  in debt and equity  securities
          are included in income when earned.

    LOANS

          Loans  that  management  has the  intent  and  ability to hold for the
          foreseeable  future or until  maturity or payoff are reported at their
          outstanding  principal  balances  adjusted  for any  charge-offs,  the
          allowance  for loan losses,  any deferred  fees or costs on originated
          loans and unamortized premiums or discounts on purchased loans.

    ALLOWANCE FOR LOAN LOSSES

          The allowance for loan losses is  established  as losses are estimated
          to have  occurred  through a  provision  for loan  losses  charged  to
          earnings.   Loan  losses  are  charged   against  the  allowance  when
          management  believes  the   uncollectibility  of  a  loan  balance  is
          confirmed.   Subsequent  recoveries,  if  any,  are  credited  to  the
          allowance.

          The  allowance  for loan  losses is  evaluated  on a regular  basis by
          management  and is based  upon  management's  periodic  review  of the
          collectibility  of the loans in light of  historical  experience,  the
          nature and volume of the loan portfolio,  adverse  situations that may
          affect  the  borrower's  ability  to  repay,  estimated  value  of any
          underlying   collateral  and  prevailing  economic  conditions.   This
          evaluation is inherently  subjective as it requires estimates that are
          susceptible  to  significant  revision  as  more  information  becomes
          available.

                                                                              23
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

          A loan is considered  impaired when, based on current  information and
          events,  it is  probable  that the Bank will be unable to collect  the
          scheduled  payments of principal or interest when due according to the
          contractual  terms of the loan agreement.  Impairment is measured on a
          loan-by-loan basis for commercial and construction loans by either the
          present value of expected  future cash flows  discounted at the loan's
          effective  interest  rate, the loan's  obtainable  market price or the
          fair value of the collateral if the loan is collateral dependent.

          Large  groups of smaller  balance  homogenous  loans are  collectively
          evaluated for  impairment.  Accordingly,  the Bank does not separately
          identify  individual  consumer and  residential  loans for  impairment
          disclosures.

    PREMISES AND EQUIPMENT

          Premises  and  equipment  are  carried  at  cost  net  of  accumulated
          depreciation.   Depreciation  is  computed  using   straight-line  and
          accelerated methods based 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.

    FORECLOSED ASSETS HELD FOR SALE

          Assets acquired through,  or in lieu of, loan foreclosure are held for
          sale  and  are  initially  recorded  at  fair  value  at the  date  of
          foreclosure, establishing a new cost basis. Subsequent to foreclosure,
          valuations are periodically performed by management and the assets are
          carried  at the lower of  carrying  amount or fair  value less cost to
          sell.  Revenue  and  expenses  from  operations  and  changes  in  the
          valuation  allowance  are  included in net  expenses  from  foreclosed
          assets.

    FEE INCOME

          Loan origination fees, net of direct origination costs, are recognized
          as interest income using the  level-yield  method over the term of the
          loans. Loan servicing income,  included in "other income",  represents
          fees earned for servicing real estate  mortgage loans owned by various
          investors.

    FEDERAL HOME LOAN BANK STOCK

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

    TREASURY STOCK

          Treasury stock is stated at cost.  Cost is determined by the first-in,
          first-out method.

                                                                              24
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

    EMPLOYEE STOCK OWNERSHIP PLAN

          The Company  accounts for its employee stock  ownership plan (ESOP) in
          accordance  with American  Institute of Certified  Public  Accountants
          (AICPA) Statement of Position 93-6, Employer's Accounting for Employee
          Stock Ownership  Plans. The cost of shares issued to the ESOP, but not
          yet  allocated to  participants,  are  presented  in the  consolidated
          balance  sheet as a reduction of  stockholders'  equity.  Compensation
          expense is  recorded  based on the market  price of the shares as they
          are committed to be released for allocation to  participant  accounts.
          The  difference  between  the market  price and the cost of the shares
          committed  to be  released is  recorded  as an  adjustment  to paid-in
          capital.  Dividends  on  allocated  ESOP  shares  are  recorded  as  a
          reduction of retained  earnings;  dividends on unallocated ESOP shares
          are reflected as a reduction of debt.

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

    STOCK OPTIONS

          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  Option  No.  25,
          Accounting for Stock Issued to Employees, and, accordingly, recognizes
          no compensation expense for the stock option grants.

    INCOME TAX

          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 subsidiaries.

    EARNINGS PER SHARE

          Earnings per share have been computed based upon the  weighted-average
          common shares outstanding during each year.

    RECLASSIFICATIONS

          Certain  reclassifications  have  been  made  to  the  2001  financial
          statements to conform to the 2002  financial  statement  presentation.
          These reclassifications had no effect on net earnings.

                                                                              25
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

NOTE 2:  INVESTMENTS

    AVAILABLE-FOR-SALE SECURITIES

          The  amortized  cost  and   approximate   fair  values  of  securities
          classified as available for sale are as follows:

                                              JUNE 30, 2002
                       --------------------------------------------------------
                                          GROSS        GROSS
                           AMORTIZED   UNREALIZED    UNREALIZED    APPROXIMATE
                             COST         GAINS       (LOSSES)      FAIR VALUE
                       --------------------------------------------------------

   Other asset-backed
     securities          $   15,127    $      180   $       --   $    15,307
   Corporate bonds            7,668           264           --         7,932
   U. S. government
     agencies                10,673           252          (73)       10,852
   Mortgage-backed
     securities              36,002           681           --        36,683
   State and political
     subdivisions             3,717           146           --         3,863
                          ---------     ---------    ---------    ----------

                         $   73,187    $    1,523   $      (73)  $    74,637
                          =========     =========    =========    ==========




                                              JUNE 30, 2001
                       --------------------------------------------------------
                                          GROSS        GROSS
                           AMORTIZED   UNREALIZED    UNREALIZED    APPROXIMATE
                             COST         GAINS       (LOSSES)      FAIR VALUE
                       --------------------------------------------------------

    U. S. Treasury       $     1,000    $    24   $        --   $      1,024
    Corporate bonds            7,735         50            (2)         7,783
    U. S. government
      agencies                22,767        256           (60)        22,963
    Mortgage-backed
      securities              24,146        219          (110)        24,255
    State and political
      subdivisions             1,021         64            --          1,085
                          ----------     ------    ----------    -----------

                         $    56,669    $   613   $      (172)  $     57,110
                          ==========     ======    ==========    ===========

                                                                              26
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)


        Maturities of available-for-sale debt investments at June 30, 2002:

                                               AMORTIZED    APPROXIMATE
                                                 COST       FAIR VALUE
                                          ------------------------------

    One year or less                        $      3,508   $      3,580
    After one through five years                  11,845         12,148
    After five through ten years                   4,694          4,816
    After ten years                                2,011          2,103
    Mortgage and other asset-backed
       securities not due on a
       single maturity date                       51,129         51,990
                                             -----------    -----------
                                            $     73,187   $     74,637
                                             ===========    ===========

          The book value and fair value of  securities  pledged as collateral to
          secure public  deposits and for other purposes  amounted to $2,750,000
          at June 30, 2002, and $4,850,000 at June 30, 2001, respectively.

          Proceeds  from the sale of  securities  available for sale during 2002
          and 2001 were $9,134,652 and $3,649,998,  respectively. Gross gains of
          $63,334 and gross  losses of $57,276 were  realized  from sales during
          2002,  and gross  gains of $13,074  and gross  losses of $13,744  were
          realized from sales during 2001.

          Unrealized holding gains on trading securities of $0 and $259,697 were
          included in earnings in 2002 and 2001, respectively.

          During 2001, the Company engaged a professional  investment consulting
          firm to assist in creating an asset/liability management strategy. One
          of the suggestions of the firm upon implementation of the strategy was
          that the Company  transfer all securities that were classified as held
          to maturity to available for sale. Following this recommendation,  the
          Company   transferred  debt  securities  with  an  amortized  cost  of
          $18,975,585   from  held  to  maturity  to  available  for  sale.  The
          securities  had an  unrealized  gain of  approximately  $212,000.  The
          Company  currently has no intentions of classifying  any securities as
          held to maturity in the future.

                                                                              27
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)


NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES

        Categories of loans at June 30 include:

                                                  2002              2001
                                           ---------------------------------

           Commercial and industrial         $      21,382   $      14,801
           Residential real estate                 120,403         111,783
           Construction                              6,231           4,721
           Consumer                                  7,409           6,276
                                              ------------    ------------

                  Total loans                      155,425         137,581

           Less
               Allowance for loan losses              (975)           (718)
                                              ------------    ------------

                  Net loans                  $     154,450   $     136,863
                                              ============    ============


          Impaired loans totaled  $1,122,000 and $1,387,000 and had an allowance
          for loan  losses of $365,000  and  $124,000 at June 30, 2002 and 2001,
          respectively.

          Interest of $45,000 and $146,000 was  recognized  on average  impaired
          loans of $1,128,000 and  $1,420,000  for 2002 and 2001,  respectively.
          Interest of $45,000 and $146,000 was recognizable on impaired loans on
          the cash basis of accounting during 2002 and 2001, respectively.

          Activity in the allowance for loan losses was as follows:

                                                         2002          2001
                                                    --------------------------

           Balance, beginning of year                 $      718   $       645
           Provision charged to expense                      307           105
           Losses charged off, net of recoveries
              of $38 for 2002
              and $11 for 2001                               (50)          (32)
                                                       ---------    ----------

           Balance, end of year                       $      975   $       718
                                                       =========    ==========

NOTE 4:  PREMISES AND EQUIPMENT

          Major  classifications of premises and equipment,  stated at cost, are
          as follows:

                                                     2002           2001
                                               -----------------------------

           Land and buildings                    $      4,216   $     4,158
           Furniture and equipment                      2,505         2,468
                                                  -----------    ----------
                                                        6,721         6,626
           Less accumulated depreciation               (2,429)       (1,983)
                                                  -----------    ----------

                  Net premises and equipment     $      4,292   $     4,643
                                                  ===========    ==========

                                                                              28
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

NOTE 5: CORE DEPOSITS

          The  carrying  basis  and   accumulated   amortization  of  recognized
          intangible assets at June 30, 2002 and 2001, were:

                                2002                          2001
                   -----------------------------------------------------------
                         GROSS                          GROSS
                       CARRYING     ACCUMULATED       CARRYING    ACCUMULATED
                         AMOUNT     AMORTIZATION       AMOUNT     AMORTIZATION
                   -----------------------------------------------------------

  Core deposits     $        459   $        289    $      459    $      200
                     ===========    ===========     =========     ============


        Amortization  expense for the years  ended June 30,  2002 and 2001,  was
        $89,000 and $108,000,  respectively.  Estimated amortization expense for
        each of the following five years is:

           2003                              $         70,000
           2004                                        52,000
           2005                                        33,000
           2006                                        15,000
                                              ---------------
                                             $        170,000

NOTE 6:  CERTIFICATES OF DEPOSIT

          Certificates  of deposit in  denominations  of  $100,000  or more were
          $56,363,000 and $53,469,000 on June 30, 2002 and 2001, respectively.

          At June 30, 2002, the scheduled  maturities of certificates of deposit
          are as follows:

                  2003                              $        109,939
                  2004                                        43,732
                  2005                                         2,839
                  2006                                         3,044
                  2007                                         3,458
                  Thereafter                                   6,233
                                                     ---------------
                                                    $        169,245

                                                                              29
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

NOTE 7: SHORT-TERM BORROWINGS AND LINE OF CREDIT

          In 2002 and 2001, the Company had available a 90-day revolving line of
          credit  up to a  maximum  of  $15,000,000.  The line of  credit  bears
          interest at a daily  variable  rate which is set by the  Federal  Home
          Loan Bank.

          At June 30,  2002 and 2001,  the  Company had not drawn on the line of
          credit.

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



NOTE 8:  LONG-TERM DEBT

                                                             2002       2001
                                                          ---------------------

      Federal Home Loan Bank advances, variable
         rates due at various dates through March 2010    $   19,871  $  12,453
                                                           =========  =========

          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  $29,807,000.  Advances are
          subject to restrictions or penalties in the event of prepayment.

          Maturities in years ending June 30 were as follows:

           2003                         $          2,088
           2004                                    2,596
           2005                                    5,187
           2006                                    2,500
           2007                                       --
           Thereafter                              7,500
                                         ---------------
                                        $         19,871

                                                                              30
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)


NOTE 9: OTHER COMPREHENSIVE INCOME

                                                             2002
                                                -------------------------------
                                                BEFORE-TAX     TAX   NET-OF-TAX
                                                  AMOUNT     EXPENSE    AMOUNT
                                                -------------------------------

    Unrealized gains on securities
       Unrealized holding gains arising
         during the year                        $   1,008   $   (363)  $   645
       Less:  Reclassification for net gains
         realized during the year                       6         (3)        3
                                                 --------    -------    ------

       Net unrealized gains                     $   1,002   $   (360)  $   642
                                                 ========    =======    ======


                                                              2001
                                                -------------------------------
                                                BEFORE-TAX     TAX   NET-OF-TAX
                                                  AMOUNT     EXPENSE    AMOUNT
                                                -------------------------------

    Unrealized gains on securities
       Unrealized holding gains arising
         during the year                        $  2,318   $  (841)  $  1,477
       Less:  Reclassification for net losses
         realized during the year                     (1)       --         (1)
                                                 -------    ------    -------

       Net unrealized gains                     $  2,319   $  (841)  $  1,478
                                                 =======    ======    =======

                                                                              31
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

NOTE 10:  INCOME TAXES

          The provision for income taxes includes these components:

                                             2002                2001
                                      ----------------------------------------

           Taxes currently payable
               Federal                  $            800   $            758
               State                                  55                 63
           Deferred income taxes
               Federal                               (99)               (45)
               State                                 (10)                (9)
                                         ---------------    ---------------
               Income tax expense       $            746   $            767
                                         ===============    ===============


          A  reconciliation  of income tax expense at the statutory  rate to the
          Bank's actual income tax expense is shown below:

                                                    2002         2001
                                             -----------------------------

   Computed at the statutory rate (34%)        $      794   $       767
   Increase (decrease) resulting from
       Effect of state income taxes                    31            36
       Tax-exempt income                              (43)           --
       Increase in cash surrender value
          of life insurance                           (26)           --
       Other                                          (10)          (36)
                                                ---------    ----------
          Actual tax expense                   $      746   $       767
                                                =========    ==========

                                                                              32
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)


          The tax effects of  temporary  differences  related to deferred  taxes
          shown on the balance sheets were:

                                                            2002       2001
                                                        ----------------------
  Deferred tax assets
      Deferred compensation                              $     122   $     122
      Deferred compensation--Rabbi trust                        86          85
      Deposit-based intangible                                  74          53
      Allowance for loan losses                                 76           5
                                                          --------    --------
                                                               358         265
                                                          --------    --------

  Deferred tax liabilities
      Depreciation                                            (109)        (79)
      Federal Home Loan Bank stock dividends                  (382)       (351)
      Other                                                    (15)        (92)
      Unrealized gains on available-for-sale securities       (521)       (158)
                                                          --------    --------
                                                            (1,027)       (680)
                                                          --------    --------

         Net deferred tax liability                      $    (669)  $    (415)
                                                          ========    ========

          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, 2002,  the
          unrecorded  deferred  income  tax  liability  on the above  amount was
          approximately $800,000.

NOTE 11: REGULATORY MATTERS

          The  Bank  is  subject  to  various  regulatory  capital  requirements
          administered by the federal banking agencies.  Failure to meet minimum
          capital  requirements  can  initiate  certain  mandatory  and possibly
          additional  discretionary  actions by regulators  that, if undertaken,
          could  have  a  direct  material   effect  on  the  Bank's   financial
          statements.  Under  capital  adequacy  guidelines  and the  regulatory
          framework for prompt  corrective  action,  the Bank must meet specific
          capital  guidelines that involve  quantitative  measures of the Bank's
          assets,  liabilities and certain off-balance-sheet items as calculated
          under regulatory accounting practices.  The Bank's capital amounts and
          classification  are  also  subject  to  qualitative  judgments  by the
          regulators about components, risk weightings and other factors.

                                                                              33
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

          Quantitative  measures  established  by regulation  to ensure  capital
          adequacy  require the Bank to maintain minimum amounts and ratios (set
          forth in the table  below) of total and Tier I capital  (as defined in
          the regulations) to risk-weighted  assets (as defined),  and of Tier I
          capital  (as  defined)  to  average  assets (as  defined).  Management
          believes,  as of June 30, 2002 and 2001, that the Bank met all capital
          adequacy requirements to which it is subject.

          As of June 30,  2002,  the most  recent  notification  from the Bank's
          regulators   categorized  the  Bank  as  well  capitalized  under  the
          regulatory  framework for prompt corrective  action. To be categorized
          as well capitalized,  the Bank must maintain minimum total risk-based,
          Tier I  risk-based  and Tier I  leverage  ratios  as set  forth in the
          table. There are no conditions or events that have occurred since that
          notification   that  management   believes  have  changed  the  Bank's
          category.

          The Bank's actual capital amounts and ratios are also presented in the
          table.
<TABLE>
<CAPTION>
                                                                                              MINIMUM REQUIRED
                                                                     MINIMUM REQUIRED       TO BE WELL CAPITALIZED
                                                                   FOR CAPITAL ADEQUACY    UNDER PROMPT CORRECTIVE
                                                 ACTUAL                  PURPOSES             ACTION PROVISIONS
                                       ------------------------------------------------------------------------------
                                          AMOUNT        RATIO       AMOUNT       RATIO       AMOUNT        RATIO
                                       ------------------------------------------------------------------------------
<S>                                      <C>              <C>      <C>              <C>     <C>               <C>
     AS OF JUNE 30, 2002
       Total Capital
         (to Risk-Weighted Assets)       $   20,907       15.55%   $   10,756       8.00%   $   13,445        10.00%

       Tier I Capital
         (to Risk-Weighted Assets)           19,932       14.83         5,378       4.00         8,067         6.00
       Tier I Capital (to averaged
         assets)                             19,932        8.19         9,730       4.00        12,163         5.00

     AS OF JUNE 30, 2001
       Total Capital
         (to Risk-Weighted Assets)           17,886       15.74         9,089       8.00        11,361        10.00

       Tier I Capital
         (to Risk-Weighted Assets)           18,718       16.48         4,544       4.00         6,816         6.00
       Core Capital (to adjusted
         total assets)                       18,718        8.65         8,657       4.00        10,821         5.00
       Core Capital (to adjusted
         tangible assets)                    18,718        8.67         4,317       2.00           N/A          N/A
       Tangible Capital (to adjusted
         total assets)                       18,718        8.65         3,246       1.50           N/A          N/A
</TABLE>
          Without  prior  approval,  the Bank is  restricted  as to the  maximum
          amount of  dividends  it can pay to the  Company  to net  profits  (as
          defined) for the current year plus the previous two years.

                                                                              34
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

NOTE 12:  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 expense was $204,000
          and $0 for the years ended June 30, 2002 or 2001, respectively.

    SUPPLEMENTAL RETIREMENT PLAN

          The Bank also has  supplemental  retirement plan  arrangements for the
          benefit of certain  officers and  directors.  These  arrangements  are
          funded by life  insurance  contracts  which have been purchased by the
          Bank and a  portion  of the death  benefit  has been  endorsed  to the
          employee. The Bank's expense for the Plan was $9,000.

    EMPLOYEE STOCK OWNERSHIP PLAN

          The Bank has an Employee  Stock  Ownership Plan (Plan) 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 Plan contains  101,177 shares of Company  stock,  all of which are
          allocated.  The  cost of the  Plan is  borne  by the  Company  through
          contributions   to  an  employee  stock  ownership  trust  in  amounts
          determined by the Board of Directors. The contributions to the Plan in
          2002 and 2001 were $19,000 and $8,000, respectively.

    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.

                                                                              35
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

          The Rabbi  trusts  did not  purchase  any  shares of stock in 2002 and
          2001. A total of 1,670 shares were distributed to a trust  beneficiary
          in 2002 and 2001.  The Bank's  liability at June 30, 2002 and 2001 for
          both  plans was  $574,300.  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 $0 and $5,000 for 2002 and 2001,
          respectively.

NOTE 13: STOCK OPTION PLAN

          The Company has an incentive stock option plan in which 144,500 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, 2002,  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.  The exercise price of each option,  which has a ten-year
          life, is equal to the market price of the Company's  stock on the date
          of the grant;  therefore,  no compensation  expense is recognized.  No
          options were granted during 2002 or 2001.

          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,
          2002 and 2001.
<TABLE>
<CAPTION>
                                                   2002                              2001
                                     -------------------------------------------------------------------
                                                          WEIGHTED-                        WEIGHTED-
                                                           AVERAGE                          AVERAGE
                                          SHARES       EXERCISE PRICE       SHARES      EXERCISE PRICE
                                     --------------------------------------------------------------------
<S>                                        <C>          <C>                    <C>       <C>
           Outstanding,
              beginning of year            21,714       $     8.15             27,014    $        7.53
           Exercised                       (4,931)            5.00             (5,300)            5.00
                                        ---------                     ---------------

           Outstanding,
              end of year                  16,783             9.08             21,714             8.15
                                        =========                     ===============

           Options exercisable at
              year end                     16,783             9.08             21,714             8.15
</TABLE>
          As of June 30, 2002,  the 16,789  options  outstanding  have  exercise
          prices  ranging  from 5.00 to 10.75 and a  weighted-average  remaining
          contractual life of 4.125 years.

                                                                              36
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

NOTE 14:  EARNINGS PER SHARE

          Earnings per share were computed as follows:
<TABLE>
<CAPTION>
                                                                                    2002
                                                         -----------------------------------------------------------
                                                                                 WEIGHTED-           PER SHARE
                                                               INCOME          AVERAGE SHARES          AMOUNT
                                                         -----------------------------------------------------------
           <S>                                             <C>                       <C>         <C>
           NET INCOME                                      $          1,589
                                                            ===============

           BASIC EARNINGS PER SHARE
             Income available to common stockholders                  1,589          1,246,561   $          1.28

           EFFECT OF DILUTIVE SECURITIES
             Stock options                                               --              9,416
                                                            ---------------    ---------------

           DILUTED EARNINGS PER SHARE
             Income available to common stockholders
                and assumed conversions                    $          1,589          1,255,977   $          1.27
                                                            ===============    ===============    ==============

                                                                                    2001
                                                         -----------------------------------------------------------
                                                                                 WEIGHTED-           PER SHARE
                                                               INCOME          AVERAGE SHARES          AMOUNT
                                                         -----------------------------------------------------------

           NET INCOME                                      $          1,489
                                                            ===============

           BASIC EARNINGS PER SHARE
             Income available to common stockholders       $          1,489          1,245,799   $          1.20

           EFFECT OF DILUTIVE SECURITIES
             Stock options                                               --             15,269
                                                            ---------------    ---------------

           DILUTED EARNINGS PER SHARE
             Income available to common stockholders

                and assumed conversions                    $          1,489          1,261,068   $          1.18
                                                            ===============    ===============    ==============
</TABLE>

                                                                              37
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

NOTE 15: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

          The following  table  presents  estimated fair values of the Company's
          financial instruments. The fair values of certain of these instruments
          were  calculated  by  discounting  expected  cash flows,  which method
          involves significant  judgments by management and uncertainties.  Fair
          value is the estimated amount at which financial assets or liabilities
          could be exchanged in a current  transaction  between willing parties,
          other than in a forced or liquidation  sale.  Because no market exists
          for certain of these financial instruments and because management does
          not intend to sell these financial  instruments,  the Company does not
          know whether the fair values shown below represent values at which the
          respective financial  instruments could be sold individually or in the
          aggregate.
<TABLE>
<CAPTION>
                                                     JUNE 30, 2002                   JUNE 30, 2001
                                            -----------------------------------------------------------------
                                                  CARRYING          FAIR          CARRYING         FAIR
                                                   AMOUNT           VALUE          AMOUNT          VALUE
                                            -----------------------------------------------------------------
    Financial assets
    <S>                                       <C>             <C>             <C>             <C>
        Cash and cash equivalents             $       5,225   $       5,225   $      13,888   $      13,888
        Trading securities                               --              --           1,049           1,049
        Available-for-sale securities                74,637          74,637          57,110          57,110
        Loans, net of allowance for
          loan losses                               154,450         158,385         136,863         142,967
        FHLB stock                                    1,622           1,622           1,527           1,527
        Cash surrender value of life
          insurance                                   2,811           2,811              --              --
        Interest receivable                           1,638           1,638           1,791           1,791

    Financial liabilities
        Deposits                                    201,323         204,289         181,948         180,962
        Long-term debt                               19,871          20,056          12,453          12,614
        Interest payable                                855             855             962             962
        Unrecognized financial
          instruments (net of contract
          amount)
           Commitments to extend credit                  --              --              --              --
           Letters of credit                             --              --              --              --
</TABLE>

                                                                              38
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

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

    CASH AND CASH EQUIVALENTS

          For these  short-term  instruments,  the carrying amount  approximates
          fair value.

    INVESTMENT SECURITIES

          Fair values for securities  equal quoted market prices,  if available.
          If quoted  market  prices are not  available,  fair value is estimated
          based on quoted market prices of similar securities.

    LOANS

          The fair value of loans is  estimated by  discounting  the future cash
          flows using the current  rates at which similar loans would be made to
          borrowers  with  similar  credit  ratings  and for the same  remaining
          maturities.  Loans with similar  characteristics  were  aggregated for
          purposes of the calculations.  The carrying amount of accrued interest
          approximates its fair value.

    FEDERAL HOME LOAN BANK STOCK

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

    CASH SURRENDER VALUE OF LIFE INSURANCE

          The fair value of cash surrender values of life insurance  approximate
          carrying value.

    DEPOSITS

          The fair value of demand deposits,  savings accounts, NOW accounts and
          certain money market  deposits is the amount  payable on demand at the
          reporting  date,  i.e.,  their  carrying  amount.  The  fair  value of
          fixed-maturity time deposits is estimated using a discounted cash flow
          calculation  that applies the rates currently  offered for deposits of
          similar remaining maturities.  The carrying amount of accrued interest
          payable approximates its fair value.

    FEDERAL FUNDS PURCHASED

          For these short-term instruments,  the carrying amount is a reasonable
          estimate of fair value.

                                                                              39
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

    COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT

          The fair value of  commitments  is estimated  using the fees currently
          charged to enter into  similar  agreements,  taking  into  account the
          remaining terms of the agreements and the present  creditworthiness of
          the counterparties.  For fixed-rate loan commitments,  fair value also
          considers the difference  between current levels of interest rates and
          the committed  rates.  The fair value of letters of credit is based on
          fees currently charged for similar agreements or on the estimated cost
          to   terminate   or  otherwise   settle  the   obligations   with  the
          counterparties at the reporting date.

NOTE 16: COMMITMENTS AND CREDIT RISK

          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 a portion
          of the  commitments  may expire  without  being drawn upon,  the total
          commitment   amounts  do  not   necessarily   represent   future  cash
          requirements.  Each  customer's  creditworthiness  is  evaluated  on a
          case-by-case  basis.  The  amount of  collateral  obtained,  if deemed
          necessary,   is  based  on  management's   credit  evaluation  of  the
          counterparty.   Collateral  held  varies,  but  may  include  accounts
          receivable,  inventory, property, plant and equipment, commercial real
          estate and residential real estate.

          At June 30, 2002 and 2001, the Company had outstanding  commitments to
          originate loans aggregating  approximately  $3,613,000 and $3,257,000,
          respectively.  The  commitments  extended over varying periods of time
          with the majority being disbursed within a one-year period.

          Letters of credit are conditional commitments issued by the Company to
          guarantee  the  performance  of a  customer  to a third  party.  Those
          guarantees  are  primarily   issued  to  support  public  and  private
          borrowing arrangements, including commercial paper, bond financing and
          similar  transactions.  The credit risk involved in issuing letters of
          credit is essentially  the same as that involved in extending loans to
          customers.

          The  Company  had total  outstanding  letters of credit  amounting  to
          $446,000  and $517,000 at June 30, 2002 and 2001,  respectively,  with
          terms ranging from 30 days to one year.

          During 2002,  Home  Service  Corporation  (subsidiary  of the Company)
          entered into a contract in which the Company has an option to purchase
          land at a cost of  $510,000  for  construction  of a new  branch.  The
          option expires on December 10, 2002.

                                                                              40
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

NOTE 17: CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)

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

                       CONDENSED BALANCE SHEETS

                                                             2002      2001
                                                        ---------------------
  ASSETS
      Cash and due from banks                             $    922   $     25
      Trading assets, at fair value                             --      1,049
      Investment in common stock of subsidiaries            21,109     19,269
      Other assets                                             112        126
                                                           -------    -------

             Total assets                                 $ 22,143   $ 20,469
                                                           =======    =======

  LIABILITY                                               $      2   $     --

  STOCKHOLDERS' EQUITY                                      22,141     20,469
                                                           -------    -------

             Total liabilities and stockholders' equity   $ 22,143   $ 20,469
                                                           =======    =======

                         CONDENSED STATEMENTS OF INCOME

                                                         2002           2001
                                                      --------------------------
       INCOME
         Dividends from subsidiaries                  $       404   $       426
         Net gain on trading securities                        21           260
         Other income                                           4             2
                                                       ----------    ----------
                  Total income                                429           688

       EXPENSES--Other                                         34            62
                                                        ----------    ----------

       INCOME BEFORE INCOME TAX AND EQUITY IN
         UNDISTRIBUTED INCOME OF SUBSIDIARIES                 395           626

       INCOME TAX EXPENSE                                       4            82
                                                       ----------    ----------

       INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME
         OF SUBSIDIARIES                                      391           544

       EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES       1,198           945
                                                       ----------    ----------

       NET INCOME                                     $     1,589   $     1,489
                                                       ==========    ==========

                                                                              41
<PAGE>
                            HFB FINANCIAL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2002 AND 2001
                       (Table Dollar Amounts in Thousands)

                       CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                         2002         2001
                                                                   --------------------------
       OPERATING ACTIVITIES
       <S>                                                           <C>           <C>
           Net income                                                $     1,589   $   1,489
           Adjustments to reconcile net income to net cash
              provided by operating activities
               Equity in undistributed income of subsidiaries             (1,198)       (945)
               Net change in
                  Trading assets, at fair value                            1,049        (290)
                  Other assets and other liabilities                          17          21
               Other                                                          --          (7)
                                                                      ----------    --------
                    Net cash provided by operating activities              1,457         268
                                                                      ----------    --------

       FINANCING ACTIVITIES
           Cash dividends                                                   (507)       (493)
           Proceeds from exercise of stock options                            25          27
           Common stock withdrawn from Rabbi trust                            --           8
           Purchase stock                                                    (78)        (46)
                                                                      ----------    --------
                    Net cash used in financing activities                   (560)       (504)
                                                                      ----------    --------

       NET CHANGE IN CASH AND CASH EQUIVALENTS                               897        (236)

       CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                           25         261
                                                                      ----------    --------

       CASH AND CASH EQUIVALENTS, END OF YEAR                        $       922   $      25
                                                                      ==========    ========
</TABLE>
                                                                              42
<PAGE>

[BKD LLP LOGO]

                         INDEPENDENT ACCOUNTANTS' REPORT



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


We have audited the  accompanying  consolidated  balance sheets of HFB Financial
Corporation  as of  June  30,  2002  and  2001,  and  the  related  consolidated
statements  of  income,  stockholders'  equity and cash flows for the years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of HFB  Financial
Corporation  as of June 30, 2002 and 2001,  and the results of their  operations
and their  cash flows for the years then  ended in  conformity  with  accounting
principles generally accepted in the United States of America.

BKD, LLP


Evansville, Indiana
July 18, 2002

                                                                              43
<PAGE>
<TABLE>
<CAPTION>
<S>                                      <C>                                      <C>
                               BOARD OF DIRECTORS
------------------------------------------------------------------------------------------------------------

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

CHARLES A. HARRIS                        EARL BURCHFIELD                          DAVID B. COOK
Independent Insurance Agent              Retired Publisher of                     President, Chief Executive
Harris Insurance Agency                  Middlesboro Daily News                   Officer and Director of the
                                                                                  Bank and the Company
KENNETH V. JONES
Chief Operations Officer


                               EXECUTIVE OFFICERS
-------------------------------------------------------------------------------------------------------------

DAVID B. COOK                            STANLEY ALEXANDER, JR.                   KENNETH V. JONES
President and Chief Executive            Chief Financial Officer                  Chief Operations 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
                                         104 Cumberland Avenue
                                         Harlan, Kentucky


                               GENERAL INFORMATION
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                                                                                  ANNUAL REPORT ON
INDEPENDENT CERTIFIED                    ANNUAL MEETING                           FORM 10-KSB
PUBLIC ACCOUNTANTS                       The 2002 Annual Meeting of               A copy of the Company's Annual
BKD, LLP                                 Stockholders will be held on             Report on Form 10-KSB for the
P. O. Box 628                            October 16, 2002 at 2.00 p.m.            fiscal year ended June 30, 2002,
Evansville, Indiana  47704-0628          at the Pine Mountain State Resort        as filed with the Securities and
                                         Park, Pineville, Kentucky.               Exchange Commission, will be furnished
                                                                                  without charge to stockholders as of
GENERAL COUNSEL                          TRANSFER AGENT AND REGISTRAR             the record date for the 2002 Annual
Joseph Coker                             Registrar & Transfer Company             Meeting upon written request to the
P. O. Box 134                            10 Commerce Drive                        Chief Financial Officer, HFB
Jacksboro, Tennessee  37757              Crawford, New Jersey  07016-3572         Financial Corporation, 1602
                                                                                  Cumberland Avenue, Middlesboro,
                                                                                  Kentucky.
SPECIAL COUNSEL
Kutak Rock
Suite 1000
1101 Connecticut Ave., N. W.
Washington, D.C.  20036-4374
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