SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                              --------------------
                                   FORM 10-KSB

(Mark One)
-------

  X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
------  ACT OF 1934

For the fiscal year ended June 30, 2002

        TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
-------

For the transition period from                to
                               --------------    ---------------

                           Commission File No. 0-20956
                                               -------

                            HFB FINANCIAL CORPORATION

             (Exact name of registrant as specified in its charter)

                  Tennessee                                   61-1228266
--------------------------------------------            ---------------------
     (State or other jurisdiction                         (I.R.S. employer
of incorporation or organization)                         identification no.)

1602 Cumberland Avenue, Middlesboro, Kentucky                   40965
---------------------------------------------               -------------
   (Address of principal executive offices)                   (Zip Code)

       Registrant's telephone number, including area code: (606) 248-1095

   Securities registered pursuant to Section 12(b) of the Act: Not Applicable

           Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock (par value $1.00 per share)
                    ----------------------------------------
                                 Title of Class

Indicate by check mark whether the registrant (1) has filed all reports required
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months (or such shorter  period that the registrant was required to
file such reports) and (2) has been subject to such filing  requirements for the
past 90 days. Yes [X]  No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-B is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

Registrant's revenues for the fiscal year ended June 30, 2002: $16,821,778.

The  registrant's  voting  stock is listed on the Nasdaq  SmallCap  Market.  The
aggregate  market  value  of the  voting  stock  held  by  nonaffiliates  of the
registrant,   based  on  the  $14.50  per  share  closing  sales  price  of  the
registrant's  common stock as quoted on the Nasdaq  SmallCap Market on September
25, 2002, was $15,857,446.  For purposes of this calculation, it is assumed that
directors and officers of the  registrant  are  affiliates.  As of September 25,
2002, the registrant had 1,296,311 shares of common stock outstanding,  of which
202,694 were held by affiliates.

Transitional Small Business Disclosure Format   Yes             No    X
                                                    -------        ------

                       DOCUMENTS INCORPORATED BY REFERENCE

     1.   Portions of Annual  Report to  Stockholders  for the Fiscal Year Ended
          June 30, 2002. (Parts I and II)

     2.   Portions  of  Proxy   Statement   for  the  2002  Annual   Meeting  of
          Stockholders. (Part III)
<PAGE>
                                     PART I


ITEM 1.  BUSINESS
-----------------

GENERAL

     HFB Financial  Corporation  (the "Company") is the sole stockholder of, and
acts as the holding company for, Home Federal Bank  Corporation  ("Home Federal"
or the "Bank").  The Company has no significant  assets other than capital stock
of the Bank and a portfolio of trading  account equity  securities.  The Company
qualifies as a bank holding  company and is subject to regulation by the Federal
Reserve Board ("FRB").  The Company's  principal business is the business of the
Bank and its  subsidiary.  Therefore,  references  to the "Company" in this Form
10-KSB are to both the Company and the Bank.  The Bank  operates  through  three
full service offices in the southeastern Kentucky communities of Middlesboro and
Harlan and one full  service  office in the eastern  Tennessee  community of New
Tazewell.  At June 30,  2002,  the Company had total  assets of $246.2  million,
deposits  of  $201.3  million,  net  loans  receivable  of  $154.4  million  and
stockholders' equity of $22.1 million.

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

     The Company is engaged  principally  in the business of accepting  deposits
from the general public and originating permanent loans that are secured by one-
to-four-family  residential  properties  located in its market area. The Company
also originates consumer loans and commercial real estate loans, and maintains a
substantial   investment  portfolio  of  mortgage-backed  and  other  investment
securities.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

     Certain   matters   discussed  in  this   document  are  "forward   looking
statements," intended to qualify for the safe harbors from liability established
by the Private Securities  Legislation Reform Act of 1995. These forward looking
statements  can  generally  be  identified  as such  because  the context of the
statement  will  include  words such as the Company  "believes,"  "anticipates,"
"expects," "estimates," or words of similar import.  Similarly,  statements that
describe  the  Company's  future  plans,  objectives  or goals are also  forward
looking statements. Such forward looking statements are subject to certain risks
and uncertainties  which are described in close proximity to such statements and
which could cause actual results to differ  materially from those anticipated as
of the date of this report. Shareholders, potential investors, and other readers
are cautioned not to place undue  reliance on such  forward-looking  statements.
The  forward-looking  statements included herein are only made as of the date of
this report and the Company  undertakes no  obligation  to publicly  update such
forward-looking statements to reflect subsequent events or circumstances.

CHARTER CONVERSION

     During the  fiscal  year ended June 30,  2002,  the Bank  converted  from a
federally-chartered  savings bank to a  Kentucky-chartered  commercial  bank. In
connection with the Bank's conversion,  the Company converted from a savings and
loan  holding  company  to a bank  holding  company.  The  company  and the Bank
received  regulatory  approval from federal and Kentucky  banking  regulators on
December 18, 2001.

     The  purpose  of the  conversion  was to  allow  the Bank to  operate  more
competitively  and  efficiently  as a community  bank.  As a  Kentucky-chartered
commercial  bank,  the Bank  continues  to offer its  traditional  products  and
services to residents of the community and also has an enhanced ability to offer
its products and services to local businesses as well.

CHANGE IN FISCAL YEAR

     On  February  19,  2002,  the  board of  directors  of the  Company  made a
determination  to  change  the  registrant's  fiscal  year end  from  June 30 to
December 31,  effective  July 1, 2002. The Company his filing this Annual Report
on Form 10-K with the  Securities  and Exchange  Commission  for its fiscal year
ended June 30,  2002.  Pursuant to the change in fiscal  year,  the Company will
file a Form 10-K transition  report with the Securities and Exchange  Commission
for the six-month period ending December 31, 2002. Audited financial  statements
covering  the  six-month  period  ending  December  31, 2002 will be part of the
Company's 10-K transition filing in March 2003.

                                       2
<PAGE>

     The  Company   changed  its  fiscal  year  in  order  to   facilitate   the
comparability  of the  Company  to other  bank  holding  companies,  which  have
historically  utilized a December 31 year-end.  Moving to a December 31 year-end
has  aligned  the  Company's  financial  reporting  with its peer group and with
publicly-held bank holding companies in the United States.

APPROVAL FOR NEW BRANCH OFFICE

     On July 8, 2002,  the Bank  received  regulatory  approval  to  establish a
branch office in the city of Jacksboro,  Tennessee. Jacksboro is county seat for
Campbell  County and is located in the north eastern  portion of Tennessee.  The
Bank has  originated  loans in this market over the last 20 years and  presently
has a  portfolio  of loans  in  excess  of $50.0  million  within  this  market.
Management believes that the Bank's presence in Jacksboro through an office will
in assist in  increasing  the Bank's loan  portfolio and obtaining new deposits.
The  Company's  wholly-owned  subsidiary,  Home  Service  Corporation,  has paid
$20,000  for  an  option  on a  commercial  lot  in  Jacksboro.  The  option  is
nonrefundable,  but applies toward the purchase price of $510,000.  Home Service
Corporation  will  build the branch  office and lease it to the Bank.  The total
cost of the land and building is estimated at $1.5 million. The Branch office is
expected to open in approximately 18 months.

LENDING ACTIVITIES

     General.  The Company  originates  loans primarily  through its main office
located in Middlesboro,  Kentucky. The principal lending activity of the Company
is the origination of conventional  mortgage loans for the purpose of purchasing
or refinancing owner-occupied, one- to four-family residential properties in its
primary market areas.  Conventional mortgage loans are primarily adjustable-rate
mortgage loans with a smaller amount of fixed-rate  mortgage loans which are not
insured or  guaranteed  by federal  agencies.  The  Company  does not  originate
Federal Housing Administration-insured or Veterans Administration-insured loans.
The Company does originate  consumer loans on a direct basis.  In addition,  the
Company also makes  conventional  mortgage loans for the purpose of constructing
one-  to  four-family   residences   and  loans  to  construct   commercial  and
multi-family real estate.

     The  Company  emphasizes  the  origination  of  adjustable-rate  loans  and
short-term  loans in order to increase the interest rate sensitivity of its loan
portfolio.  However,  the Company also continues to offer long-term,  fixed-rate
conventional  mortgage  loans  (30  year  terms  or  less),  originated  for its
portfolio.  The ratio of fixed-rate loans to adjustable-rate loans has increased
significantly  during the last 12 months due to the  current low  interest  rate
environment.

                                       3
<PAGE>

ANALYSIS OF LOAN PORTFOLIO

     Set  forth  below is  selected  data  relating  to the  composition  of the
Company's  loan  portfolio  at the dates  indicated.  As of June 30,  2002,  the
Company had no  concentrations  of loans exceeding 10% of total loans other than
as disclosed below.
<TABLE>
<CAPTION>
                                                               At June 30,
                                           ----------------------------------------------------
                                             2002       2001       2000        1999      1998
                                             ----       ----       ----        ----      ----
                                                               (In thousands)
Real estate loans:
<S>                                        <C>        <C>        <C>        <C>        <C>
  Single and multi-family mortgage loans   $125,901   $114,442   $111,157   $ 95,294   $ 94,153
  Commercial real estate loans .........     19,409     14,295     11,478     10,745     10,411
Real Estate construction loans .........      6,231      4,721      6,690     12,996      8,636
                                           --------   --------   --------   --------   --------
  Total real estate loans ..............    146,043    133,458    129,325    119,035    113,200
                                           --------   --------   --------   --------   --------

Consumer loans (1) .....................      7,409      6,276      5,286      5,912      6,473
                                           --------   --------   --------   --------   --------

Commercial loans .......................      1,973        506        193         98        353
                                           --------   --------   --------   --------   --------

Total gross loans ......................    160,923    140,240    134,804    125,045    120,026

Less:
  Undisbursed portion of mortgage loans       4,483      2,311      2,529      2,931      2,757
  Allowances for loan losses ...........        975        718        645      1,212        973
 Unamortized discount and deferred loan
 fees, net .............................        655        348        236        160        125
                                           --------   --------   --------   --------   --------
Total ..................................   $154,450   $136,863   $131,394   $120,742   $116,171
                                           ========   ========   ========   ========   ========
</TABLE>
(1)  Includes loans on deposits,  home improvement  loans,  automobile loans and
     other loans.

     The  following  table sets forth  certain  information  as of June 30, 2002
regarding  the dollar  amount of  principal  repayments  becoming due during the
periods  indicated  for  loans.  Demand  loans,  loans  having  no  schedule  of
repayments  and no stated  maturity,  and  overdrafts are reported as due in one
year or less. The table below does not include any estimate of prepayments which
significantly  shorten the average life of all mortgage  loans and may cause the
Company's actual repayment experience to differ from that shown below.
<TABLE>
<CAPTION>
                                                               Due After One
                                              Due in One       Year through    Due after Five
                                             Year or Less       Five Years         Years           Total
                                             ------------       ----------     -----------         -----
                                                               (In thousands)
<S>                                        <C>                <C>               <C>              <C>
Real estate mortgage loans..........       $     7,599        $    22,464       $   115,247      $  145,310
Real estate construction loans......               173              1,090             4,968           6,231
Consumer loans......................             3,691              3,654                64           7,409
Commercial loans....................               454              1,270               249           1,973
                                           -----------        -----------       -----------      ----------
  Total gross loans.................       $    11,917        $    28,478       $   120,528      $  160,923
                                           ===========        ===========       ===========      ==========
</TABLE>
     The following table sets forth as of June 30, 2002 the dollar amount of all
the loans due after one year  ending  June 30,  2002 and  distinguishes  between
those with predetermined (i.e., fixed) interest rates and those with floating or
adjustable interest rates.

                                                      Floating or
                                      Predetermined    Adjustable
                                           Rate           Rates        Total
                                           ----           -----        -----
                                                     (In thousands)
Real estate mortgage loans.........    $    45,196    $   92,515    $  137,711
Real estate construction loans.....          3,780         2,278         6,058
Consumer loans (1).................          3,718            --         3,718
Commercial loans...................            471         1.048         1,519
                                       -----------    ----------    ----------
   Total gross loans...............    $    53,165    $   95,841    $  149,006
                                       ===========    ==========    ==========

                                       4
<PAGE>

     The primary  emphasis of the Company's  lending activity is the origination
of conventional loans secured by owner-occupied,  one-to-four family residential
properties.  The Company's conventional mortgage loan originations are generally
for terms of 10 to 30 years,  amortized on a monthly  basis,  with principal and
interest due each month. Borrowers may refinance or prepay loans at their option
without penalty.  Conventional residential mortgage loans granted by the Company
customarily contain "due-on-sale" clauses which permit the Company to accelerate
the  indebtedness  of the loan  upon  transfer  of  ownership  of the  mortgaged
property.

     The Company's  lending policies  generally limit the maximum  loan-to-value
ratio on mortgage loans secured by  owner-occupied  properties to 81% and 95% of
the lesser of the appraised value or purchase price.  The maximum  loan-to-value
ratio on mortgage loans secured by non-owner-occupied properties and/or used for
refinancing  purposes  is also 80%.  The Company  does  originate  some  81%-95%
loan-to-value  ratio loans. The Company  requires private mortgage  insurance on
loans with  loan-to-value  ratios of 91% and over and charges a higher effective
interest  rate on such  loans to account  for the  additional  risk these  loans
carry.

     The Company  also  originates  conventional  fixed-rate  mortgage  loans on
one-to-four family residential properties,  the majority of which have a maximum
term to maturity of 30 years.  The Company  originates  and holds its fixed-rate
mortgage loans in its portfolio as long-term investments.

     In addition,  the Company  engages in a limited,  but increasing  amount of
construction lending, involving loans to qualified borrowers for construction of
one- to-four  family  residential  properties.  These  properties  are primarily
located in the Company's  market area. All  construction  loans are secured by a
first lien on the  property  under  construction.  Construction/permanent  loans
generally have adjustable interest rates and are underwritten in accordance with
the same terms and requirements as the Company's permanent mortgages, except the
loans generally provide for disbursement in stages during a construction  period
of up to twelve  months,  during  which  period the borrower is required to make
monthly payments of accrued  interest on the outstanding  loan balance.  Interim
construction  loans generally have fixed interest  rates,  terms of up to twelve
months and a maximum  loan-to-value  ratio of 80%.  Borrowers  must  satisfy all
credit  requirements which would apply to the Company's  permanent mortgage loan
financing for the subject property.

     The Company also  originates  consumer  loans,  primarily  savings  account
loans,  automobile loans, home equity loans and lines of credit, second mortgage
loans and other consumer  loans secured by mortgages on residences.  The Company
also makes a limited amount of unsecured loans.

     The Company has historically  engaged in a limited amount of commercial and
multi-family real estate lending,  but has increased  originations of such loans
over the past 12 months. The Company generally makes commercial and multi-family
real estate loans  available on properties in its market area,  with terms of 20
years or less,  loan-to-value  ratios  of 80% or less  and  adjustable  rates of
interest. In addition,  the Company, from time to time, purchases whole loans or
participation  interests in loans on  commercial  and  multi-family  real estate
located in Kentucky and Eastern Tennessee.

     Asset  Classification and Allowance for Loan Losses. The Company classifies
its loan assets as a "substandard,"  "doubtful" or "loss," if warranted.  Assets
classified  as  substandard  or doubtful  require a general  allowance  for loan
losses. If an asset is classified as loss the loan must be charged off. An asset
which does not currently warrant  classification but which possesses  weaknesses
or  deficiencies  deserving  close  attention  is required to be  designated  as
"special  mention."  Currently,  general loss  allowances  established  to cover
possible  losses  related to assets  classified  substandard  or doubtful may be
included in  determining an  institution's  regulatory  capital,  while specific
valuation  allowances for loan losses do not qualify as regulatory capital.  The
Company  has  determined  that at June 30,  2002 it had $1.6  million  in assets
classified  as  substandard,  $563,000 in assets  classified  as doubtful and no
assets  classified as loss. In addition,  the Company had $1.7 million in assets
designated  as special  mention.  Depending on their future  performance,  it is
possible that these loans might be required to be classified in future periods.

                                       5
<PAGE>

     The following  table sets forth an analysis of the Company's  allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
                                                        Year Ended June 30,
                                         ---------------------------------------------------
                                           2002       2001       2000       1999       1998
                                           ----       ----       ----       ----       ----
                                                           (In Thousands)
<S>                                      <C>        <C>        <C>        <C>        <C>
Balance at Beginning of Period .......   $   718    $   645    $ 1,212    $   973    $   710
                                         -------    -------    -------    -------    -------

Loan charge-offs:
 Real Estate:
  Residential ........................        20         24         87         --         --
  Commercial .........................        38          9         --         --         --
 Consumer ............................         9         10         12         16         11
 Commercial ..........................        --         --         34         --         --
                                         -------    -------    -------    -------    -------
Total charge-offs ....................        67         43        133         16         11

Recoveries:
 Real Estate:
  Residential ........................         8          9         --         --         --
 Consumer ............................        --          2          3          2         --
 Commercial ..........................         9         --         --         --         --
                                         -------    -------    -------    -------    -------
Total Recoveries .....................        17         11          3          2         --

Net loan recoveries (charge-offs) ....       (50)       (32)      (130)       (14)       (11)
                                         -------    -------    -------    -------    -------
Provision (Adjustment) for Loan Losses       307        105       (437)       253        274
                                         -------    -------    -------    -------    -------

Balance at end of period .............   $   975    $   718    $   645    $ 1,212    $   973
                                         =======    =======    =======    =======    =======

Ratio of allowance for losses to
  gross loans receivable..............     0.63%      0.52%      0.49%      0.97%      0.81%
                                         =======    =======    =======    =======    =======

Ratio of net loan charge-offs to
 average loans outstanding
 during the period....................      .03%       .02%      0.10%      0.01%      0.01%
                                         =======    =======    =======    =======    =======
</TABLE>
                                       6

<PAGE>

     The  following  table sets forth the  breakdown of the  allowance  for loan
losses by loan  category at the dates  indicated.  Management  believes that the
allowance  can be  allocated  by  category  only on an  approximate  basis.  The
allocation of the allowance to each  category is not  necessarily  indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any category.
<TABLE>
<CAPTION>
                                                                      Year Ended June 30,
                                         ---------------------------------------------------------------------
                                                  2002                     2001                   2000
                                         ----------------------   ---------------------  ---------------------
                                            Amount       %          Amount        %         Amount       %
                                            ------       -          ------        -         ------       -
                                                                     (In thousands)
<S>                                      <C>           <C>        <C>           <C>      <C>           <C>
Residential and commercial
     real estate loans............       $      946     96.97%    $      714     99.44%  $      618     95.94%
Consumer loans....................                4       .41%             4      0.56%          27      3.92%
Commercial loans..................               25      2.64%            --        --           --      0.14%
                                         ----------    ------     ----------    ------   ----------    ------
     Total allowance for
     loan losses..................       $      975    100.00%    $      718    100.00%  $      645    100.00%
                                         ----------    ------     ----------    ------   ----------    ------
</TABLE>

                                               Year Ended June 30,
                                  ------------------------------------------
                                           1999                   1998
                                           ----                   ----
                                   Amount          %       Amount        %
                                   ------          -       ------        -
                                                (In thousands)

Residential and commercial
     real estate loans .           $1,210       95.19%    $  970       94.31%
Consumer loans .........                2        4.72%         3        5.39%
Commercial loans .......               --        0.09%        --        0.30%
     Total allowance for           ------      ------     ------      ------
     loan losses .......           $1,212      100.00%    $  973      100.00%
                                   ------      ------     ------      ------

     Non-Performing  Loans and Other  Problem  Assets.  Management  reviews  the
credit  quality of the Company's  loans on a regular  basis.  After  residential
mortgage  loans  become  past  due  more  than 90 days,  the  Company  generally
establishes an allowance for uncollectible  interest for the amount by which the
principal balance and uncollected interest exceeds 90% of the appraised value of
the property. Commercial and multi-family real estate loans generally are placed
on non-accrual  status if the borrower is placed in bankruptcy  proceedings,  or
management concludes that payment in full is not likely. Consumer and commercial
loans  generally are charged off, or any expected  loss is reserved  for,  after
they  become  more  than 90 days past  due.  The  Company  accrues  interest  on
delinquent loans past due more than 90 days without  establishing a reserve when
management concludes such action is warranted,  such as in the event the loan is
exceptionally  well  collateralized  or the borrower  establishes  the temporary
nature of the delinquency.  Loans are charged off when management concludes that
they are uncollectible.

     Real  estate  acquired  by  the  Company  as a  result  of  foreclosure  is
classified  as real  estate  owned  until  such  time as it is sold.  When  such
property  is  acquired,  it is  recorded  at the lower of the  unpaid  principal
balance or its fair market  value (less  estimated  selling  cost at the date of
foreclosure).  Any required write-down of the loan to its fair market value upon
foreclosure is charged against the allowance for loan losses.

7
<PAGE>


     The following  table sets forth  information  with respect to the Company's
nonperforming  assets at the dates  indicated.  The Company has no  restructured
loans.
<TABLE>
<CAPTION>
                                                                Year Ended June 30,
                                               -----------------------------------------------------
                                                 2002        2001       2000       1999       1998
                                                 ----        ----       ----       ----       ----
                                                                   (In thousands)
<S>                                            <C>         <C>        <C>        <C>        <C>
Loans accounted for on a nonaccrual
basis (1) ..................................   $ 2,110     $ 2,231    $ 1,613    $ 1,416    $    --
                                               -------     -------    -------    -------    -------
Accruing loans which are contractually
  past due 90 days or more: (1)
     Real estate ...........................   $    --     $   134    $   614    $   521    $   677
     Consumer ..............................        --          --         15          5         40
                                               -------     -------    -------    -------    -------
Total of nonaccrual and 90 days
  Or more past due loans ...................   $ 2,110     $ 2,365    $ 2,242    $ 1,942    $   717
                                               -------     -------    -------    -------    -------

Real Estate owned ..........................     1,559         105        333         --         --
                                               -------     -------    -------    -------    -------
   Total nonperforming assets ..............   $ 3,669     $ 2,470    $ 2,575    $ 1,942    $   717
                                               =======     =======    =======    =======    =======
Nonaccrual and 90 days or more past due
  loans as a percentage of total loans, net.      2.38%       1.73%      1.96%      1.96%      0.62%
                                               =======     =======    =======    =======    =======
Nonaccrual and 90 days or more past due
  loans as a percentage of total assets, net       .86%       1.09%      1.10%      1.02%      0.41%
                                               =======     =======    =======    =======    =======
Nonperforming assets as a percentage of
  total assets .............................      1.49%       1.14%      1.25%      1.02%      0.41%
                                               =======     =======    =======    =======    =======
</TABLE>

(1)  Interest on delinquent loans is accrued to income to the extent  considered
     collectible.

     As of June 30,  2002,  the Company had a total of $1.1 million in 23 single
family loans classified as  "substandard."  As of June 30, 2002, the Company had
$1.2  million in  commercial  real-estate  loans and  $429,000 in single  family
residential loans classified as "special mention."

     In  addition,  the Company had 4  commercial  real  estate  loans  totaling
$505,000,  which  had  been  classified  as  "substandard"  and  1  real  estate
development  loan in the amount of $563,000 had been  classified as  "doubtful."
The property securing these loans is single-family and multi-family residential.
Management  believes  that  these  loans  have been  adequately  classified  and
reserved for, but continues to monitor them as to their collectibility and as to
any possible  losses the Company could incur,  or  additional  reserves that may
need to be established.

     As of June 30, 2002, the Company had a total of $1.6 million in real estate
owned.

     At June 30, 2002, the Company had no other loans of a material amount which
were not classified as non-accrual, past due 90 days or more or restructured but
where known  information  about  possible  credit  problems of borrowers  caused
management  to have serious  doubts as to the ability of the borrowers to comply
with  present loan  repayment  terms and could  result in future  disclosure  as
non-accrual, 90 days past due or restructured.

INVESTMENT ACTIVITIES

     The Company is required  under  federal  regulations  to maintain a minimum
amount  of  liquid  assets,  which  can  be  invested  in  specified  short-term
securities,  and is also permitted to make certain other investments.  Liquidity
levels may be  increased or decreased  depending  upon the yields on  investment
alternatives,  management's judgment as to the attractiveness of the yields then
available in relation to other  opportunities,  its expectations of the level of
yield  that  will be  available  in the  future  and its  projections  as to the
short-term  demand for funds to be used in the Company's  loan  origination  and
other activities.

     The  general  objectives  of the  Company's  investment  policy  are to (i)
protect the Company's  depositor  resources,  (ii) maintain  liquidity levels to
meet  the   operational   needs  of  the  Company  and   applicable   regulatory
requirements,  (iii) reduce  credit risk by investing in high  quality,  diverse
investments, (iv) serve as a hedge against significant interest rate shifts, (v)
contribute to earnings in a stable and dependable  manner  without  compromising
the goals of  liquidity  and safety,  and (vi) provide  collateral  for pledging
needs.  The  Company's  investment  activities  are  managed by Chief  Financial
Officer,  Stanley Alexander,  Jr. with oversight by the Investment

                                       8
<PAGE>

Committee and under the  supervision  of the Board of  Directors.  An investment
policy has been  adopted by the Board  which  provides  for  maintenance  of the
investment  portfolio  for the  purpose of  providing  earnings  and  ensuring a
minimum liquidity reserve. In accordance with the investment policy,  management
has primarily invested in U.S. Treasury  securities backed by the full faith and
credit of the United States and government  agency  securities,  mortgage-backed
securities  issued by FHLMC,  FNMA, or GNMA,  federal funds sold,  and federally
insured  interest-bearing  deposits  in other  financial  institutions.  General
obligation and bank qualified  bonds of  municipalities  within the market areas
served by the Company and which are considered to possess  acceptable credit and
limited default risk are also considered for investment.

     The Board of Directors  of the Company has  authorized  the  existence of a
trading account in an amount not to exceed 8% of total assets for the purpose of
taking  advantage of  favorable  short-term  market  conditions.  The  Company's
investment  policy specifies that securities  traded within this account must be
U.S.  Treasury or agency  obligations.  Securities  in the  trading  account are
marked to market on a monthly  basis.  During the year ended June 30, 2002 there
was no trading activity.  At June 30, 2002, there were no securities held in the
Company's trading account.

     The Board of Directors of the Company had  authorized a trading  account of
up to $1.0 million for  investing in common  stocks of publicly  traded  thrifts
which are  considered  to be  undervalued.  During the year ended June 30, 2002,
Management  decided  to  cease  trading  account  activity  and  had  completely
liquidated the Company's trading account by June 30, 2002.

     The Company, in accordance with generally accepted  accounting  principles,
reports its investment  securities  available for sale, at current market value,
with unrealized gains or losses, net of tax effect,  adjusted through equity and
realized  gains or  losses  in  income  when  securities  are  sold.  Investment
securities held to maturity,  are reported at cost as adjusted for  unaccredited
discounts and unamortized premiums.

     The  following  table  sets  forth  the  carrying  value  of the  Company's
investment securities at the dates indicated.

                                                          At June 30,
                                                 ---------------------------
                                                   2002      2001     2000
                                                   ----      ----     ----
                                                   (Dollars in Thousands)

Investment securities, available for sale:
  U.S. Treasury, Federal Agency obligations,
  corporate bonds and municipal
  obligations ................................   $22,618   $32,855   $23,736

Investment securities, held to maturity:
  U.S. Treasury and Federal Agency obligations        --        --    13,201
                                                 -------   -------   -------

Total investment securities, available for
  Sale and held to maturity ..................   $22,618   $32,855   $36,937
                                                 =======   =======   =======

                                       9
<PAGE>

     The following  table sets forth the maturities and Weighted  Average Yields
of securities at June 30, 2002.
<TABLE>
<CAPTION>
                                                                   At June 30, 2002
                                ------------------------------------------------------------------------------
                                 One Year          One to      Five to Ten      More than   Total Investment
                                  or Less        Five Years       Years         Ten Years       Portfolio
                                ------------   --------------  -------------   ----------   ------------------
                                                                (Dollars in thousands)
<S>                                 <C>            <C>            <C>            <C>              <C>
Investment securities,
available for sale:
    U.S. Treasury,
    Federal Agency
    Obligations,
    Corporate Bonds and
    Municipal
    Obligations ...........         $ 3,580        $10,692        $ 4,816        $ 3,530          $22,618

  Total investment
  securities, available for
  sale ....................         $ 3,580        $10,392        $ 4,816        $ 3,530          $22,618
                                    =======        =======        =======        =======          =======

Weighted average
 yield ....................            5.05%          5.61%          5.93%          5.09%            5.50%
                                    =======        =======        =======        =======          =======
</TABLE>

MORTGAGE-BACKED SECURITIES ACTIVITIES

     In accordance with the Company's  investment policy,  management invests in
mortgage-backed securities issued by Freddie Mac, Fannie Mae, and Ginnie Mae. In
addition,  the Company's  investment policy permits investment in collateralized
mortgage obligations.

     The  following   table  sets  forth  the   composition   of  the  Company's
mortgage-backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
                                                                                        At June 30,
                                                        ----------------------------------------------------------------------
                                                                 2002                    2001                      2000
                                                        ---------------------- ----------------------  -----------------------
                                                          Amount         %        Amount         %         Amount         %
                                                          ------         -        ------         -         ------         -
                                                                               (Dollars in thousands)
<S>                                                     <C>            <C>     <C>            <C>      <C>             <C>
Mortgage-backed securities, available for sale:
  Freddie Mac......................................     $    9,462      18.13% $    5,569      22.96%  $    3,311       13.55%
  Fannie Mae.......................................         19,610      37.70       8,955      36.92        3,678       15.05
  Ginnie Mae......................................           7,669      14.74          --         --           --          --
  Collateralized mortgage obligations..............         15,307      29.43       9,731      40.12        5,947       24.34
                                                        ----------     ------  ----------     ------   ----------      ------

Total mortgage-backed securities available for sale.        52,018     100.00      24,255     100.00       12,936       52.94
                                                        ----------     ------  ----------     ------   ----------      ------
Mortgage-backed securities, held to maturity:
  Freddie Mac......................................             --         --          --         --        1,658        6.79
  Fannie Mae.......................................             --         --          --         --        6,727       27.54
  Ginnie Mae.......................................             --         --          --         --        3,111       12.73
                                                        ----------     ------  ----------     ------   ----------      ------
Total mortgage-backed securities, held to maturity.             --         --          --         --       11,496       47.06
                                                        ----------     ------  ----------     ------   ----------      ------

Total mortgage-backed securities, available
for sale and held to maturity......................     $   52,108     100.00% $   24,255     100.00%  $   24,432      100.00%
                                                        ==========     ======  ==========     ======   ==========      ======
</TABLE>

DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

     GENERAL.  Deposits  are a  significant  source of the  Company's  funds for
lending and other  investment  purposes.  In addition to  deposits,  the Company
derives funds from loan principal  repayments and interest payments and maturing
investment  securities.  Loan repayments and interest  payments are a relatively
stable  source of funds,

                                       10
<PAGE>

while  deposit  inflows and outflows  are  significantly  influenced  by general
interest  rates  and  money  market  conditions.  Borrowings  may be  used  on a
short-term  basis to compensate for reductions in the availability of funds from
other sources, or on a longer term basis for general business purposes.

     DEPOSITS.  Deposits are  attracted  principally  from within the  Company's
primary  market area through the  offering of a variety of deposit  instruments,
including passbook and statement  accounts and certificates of deposit.  Deposit
account terms vary,  principally on the basis of the minimum  balance  required,
the time  periods the funds must remain on deposit and the  interest  rate.  The
Company also offers individual retirement accounts ("IRAs") and Keogh Plans.

     The  Company's  policies are designed  primarily to attract  deposits  from
local residents  through its branch network rather than to solicit deposits from
areas  outside its primary  market.  The Company does not accept  deposits  from
brokers due to the  volatility and rate  sensitivity of such deposits.  Interest
rates  paid,  maturity  terms,   service  fees  and  withdrawal   penalties  are
established by the Company on a periodic basis. Determination of rates and terms
are predicated upon funds acquisition and liquidity requirements,  rates paid by
competitors, growth goals and federal regulations.

     The following table sets forth the average  balances and interest rates for
the Company's deposit accounts by type of deposit for the periods indicated.
<TABLE>
<CAPTION>
                                                                        June 30,
                                       ----------------------------------------------------------------------------
                                                 2002                      2001                        2000
                                       ---------------------     -----------------------   ------------------------
                                         Average   Average          Average     Average       Average       Average
                                          Amount    Rate            Amount       Rate          Amount        Rate
                                          ------    ----            ------       ----          ------        ----
                                                                  (Dollars in thousands)
<S>                                    <C>           <C>         <C>              <C>       <C>               <C>
NOW and money market
  deposit accounts...................  $   19,206     .76%       $   17,708       0.95%     $   15,702        1.69%
Passbook accounts....................       7,590    1.16             7,357       1.31           7,604        2.22
Certificates.........................     163,144    4.44           156,883       5.48         140,019        5.08
                                       ----------    ----        ----------       ----      ----------        ----
  Total..............................  $  189,940    3.93%       $  181,948       4.87%     $  163,325        4.62%
                                        =========    ====        ==========       ====      ==========        ====
</TABLE>

     The following table  indicates the amount of the Company's  certificates of
deposit of  $100,000  or more by time  remaining  until  maturity as of June 30,
2002.  Most of the  Company's  deposits of over  $100,000  come from  individual
depositors in the Company's market area.

                                                          Certificates
                  Maturity Period                          of Deposit
                  ---------------                        --------------
                                                         (In thousands)

                 Three months or less                      $ 11,440
                 Over three through six months                8,919
                 Over six through twelve months              16,153
                 Over twelve months                          25,686
                                                             ------
                         Total                             $ 62,198
                                                            =======

     Management  attributes the net increase in deposits for the year ended June
30, 2002 to general economic conditions and competition in the local market. The
Company does not offer  premiums for  deposits,  and in the past has not offered
interest  rates  on  deposits  which  exceed  the  average  rates  paid by other
financial institutions in its market area.

     BORROWINGS.  Savings deposits  historically have been the primary source of
funds for the Company's  lending and  investment  activities and for its general
business  activities.  The Company is authorized,  however, to use advances from
the FHLB of Cincinnati to  supplement  its supply of lendable  funds and to meet
deposit withdrawal requirements.  All of the advances are collateralized by FHLB
stock and single family first mortgage loans with aggregate  principal  balances
totaling  150% of the  outstanding  amount of advances.  The FHLB of  Cincinnati
functions as a central  reserve bank providing  credit for savings  institutions
and certain other member

                                       11
<PAGE>

financial  institutions.  As a member,  the  Company is  required to own capital
stock in the FHLB and is  authorized  to apply for  advances on the  security of
such stock and  certain of its home  mortgages  and other  assets  (principally,
securities  which are  obligations  of, or  guaranteed  by, the  United  States)
provided  certain  standards  related  to  creditworthiness  have been met.  The
Company had no short-term  borrowings  outstanding at June 30, 2002. The average
balance of short term  borrowings  during the 12 months  ended June 30, 2002 was
$7,000 with a weighted  average rate of 2.0%. The maximum  balance of short term
borrowings during the 12 months ended June 30, 2002 was $850,000.

     At June 30, 2002, the Company had $19.9 million in long-term advances at an
average rate of 5.02%  outstanding  with the Federal Home Loan Bank. The average
balance  of these  advances  for the 12  months  ended  June 30,  2002 was $15.6
million at a  weighted-average  rate of 5.23%. At June 30, 2002, the Company had
sufficient collateral to borrow another $52.0 million, including a $15.0 million
unexercised line of credit, from the Federal Home Loan Bank.

SUBSIDIARY ACTIVITIES

     The  Company's  only  subsidiary  other  than  the  Bank  is  Home  Service
Corporation,  which engages in the  ownership  and rental of the Company's  main
office  building and  operations  center in  Middlesboro,  Kentucky and a branch
office in New Tazewell,  Tennessee. Home Service Corporation also owns and rents
other properties to unrelated parties.

COMPETITION

     The Company  experiences  substantial  competition  both in attracting  and
retaining savings deposits and in the making of mortgage and other loans.

     Direct   competition   for  savings   deposits  comes  from  other  savings
institutions,  credit  unions,  regional bank holding  companies and  commercial
banks  located in its  primary  market  area.  Significant  competition  for the
Company's  other  deposit  products and services  comes from money market mutual
funds,  brokerage  firms,  insurance  companies and retail  stores.  The primary
factors in competing for loans are interest rates and loan  origination fees and
the range of services offered by various financial institutions. Competition for
origination of real estate loans normally comes from other savings institutions,
commercial banks, mortgage bankers, mortgage brokers and insurance companies.

     The Company's primary competition  comprises the commercial banks near each
of the Company's branch offices. In Middlesboro, where the Company's main office
is located,  primary  competition  consists of four banks.  In Harlan,  Kentucky
where two branch offices are located,  the Company's primary  competition is two
banks. In New Tazewell,  Tennessee, where a branch office is located, the Bank's
primary competition is three banks.

     The Company is able to compete  effectively  in its primary  market area by
offering competitive interest rates and loan fees, and a wide variety of deposit
products,  and by emphasizing  personal  customer service.  Management  believes
that, as a result of the Company's  commitment to  competitive  pricing,  varied
products and personal  service,  the Company has  developed a solid base of core
deposits  and the loan  origination  quality and volume are among the leaders in
the Company's market area.

EMPLOYEES

     As of June 30,  2002,  the  Company  and its  subsidiary  had 64  full-time
employees,  none of whom was represented by a collective  bargaining  agreement.
The Company believes that it enjoys excellent relations with its personnel.

                                   REGULATION

GENERAL

     The Company and the Bank are subject to the policies of various  regulatory
authorities.  In particular,  bank holding companies and their  subsidiaries are
affected by the credit and monetary  policies of the Federal  Reserve Board (the
"FRB").  The Company and the Bank are subject to numerous federal and state laws
and  regulations  affecting  their  business  and  also  must  undergo  periodic
examination by federal and state financial institution

                                       12
<PAGE>

examiners.  The  earnings  of the Bank,  and the  earnings of the  Company,  are
affected  not  only  by the  laws  and  regulations  applicable  to the  banking
business,   but  also  by  the  policies  and   interpretations   of  regulatory
authorities.

     The  supervision  and  regulation  of  bank  holding  companies  and  their
subsidiaries is intended primarily for the protection of depositors, the deposit
insurance  funds of the FDIC and the banking system as a whole,  and not for the
protection of the bank holding company  shareholders  or creditors.  The banking
agencies  have broad  enforcement  power over bank holding  companies  and banks
including  the  power to  impose  substantial  fines  and  other  penalties  for
violations of laws and regulations, to issue cease and desist or removal orders,
to seek injunctions, and publicly disclose such actions; and extensive authority
to police unsafe or unsound practices.

     The following description  summarizes some of the laws to which the Company
and  the  Bank  are  subject.  References  herein  to  applicable  statutes  and
regulations are brief summaries thereof, do not purport to be complete,  and are
qualified in their entirety by reference to such statutes and regulations.

REGULATION OF THE BANK

     Home Federal is a Kentucky chartered  commercial banking  corporation,  the
deposits of which are insured by the FDIC. Prior to the Bank's conversion from a
federally-chartered  savings bank to a  Kentucky-chartered  commercial bank, the
Bank was subject to regulation by the Office of Thrift  Supervision (the "OTS").
The Bank is not a member of the Federal Reserve  System.  The Bank is subject to
supervision and regulation by the FDIC and the Kentucky  Department of Financial
Institutions.  Such  supervision  and  regulation  subjects  the Bank to special
restrictions,   requirements,   potential   enforcement   actions  and  periodic
examination by the FDIC and the Kentucky  Department of Financial  Institutions.
Because the FRB regulates the bank holding  company  parent of the Bank, the FRB
also has supervisory authority that directly affects the Bank.

     The Kentucky banking statutes prescribe the permissible activities in which
a  Kentucky  bank may  engage  and  where  those  activities  may be  conducted.
Kentucky's statutes contain a "super-parity" provision that permits a well-rated
Kentucky  banking  corporation  (such as the  Bank)  to  engage  in any  banking
activity  in which a national  or state bank  operating  in any other state or a
federal  savings  association  meeting  the  qualified  thrift  lender  test and
operating in any state could  engage,  provided it first obtains a legal opinion
specifying the statutory or regulatory provisions that permit the activity.

     BRANCHING.  Kentucky law currently  expressly permits a Kentucky  chartered
bank to establish a branch  office in any county in Kentucky.  Kentucky  banking
statutes  also  permit a Kentucky  bank,  with  prior  regulatory  approval,  to
establish a branch office outside of Kentucky.  Well-capitalized  Kentucky banks
that have been in  operation  at least  three  years  and that  satisfy  certain
criteria  relating  to,  among other  things,  their  composite  and  management
ratings,  may establish a branch without the approval of the Commissioner of the
Department of Financial Institutions upon notice to the Department and any other
state bank with its main office  located in the county where the new branch will
be  located.  Branching  by  all  other  banks  requires  the  approval  of  the
Commissioner,  who must ascertain and determine that the public  convenience and
advantage  will be served and promoted and that there is reasonable  probability
of the successful  operation of the branch.  In any case, the  transaction  must
also be approved  by the FDIC,  which  considers a number of factors,  including
financial  history,   capital  adequacy,   earnings   prospects,   character  of
management,  needs of the community and consistency  with corporate  powers.  An
out-of-state  bank is  permitted  to  establish  branch  offices in  Kentucky by
merging with a Kentucky bank. De novo branching into Kentucky by an out-of-state
bank is not permitted by the Kentucky banking statutes.

     RESTRICTIONS ON AFFILIATE  TRANSACTIONS.  Transactions between the Bank and
its nonbanking affiliates,  including the Company, are subject to Section 23A of
the Federal Reserve Act. In general, Section 23A imposes limits on the amount of
such  transactions,  and also requires certain levels of collateral for loans to
affiliated parties. It also limits the amount of advances to third parties which
are  collateralized  by the  securities  or  obligations  of the  Company or its
subsidiary.

     Affiliate  transactions  are also  subject  to Section  23B of the  Federal
Reserve Act which generally requires that certain  transactions between the Bank
and its affiliates be on terms  substantially the same, or at least as favorable
to the Bank, as those prevailing at the time for comparable transactions with or
involving other nonaffiliated persons.

     The Bank's  regulatory  lending  limit to one  borrower was $3.2 million at
June  30,  2002.  Currently,  the Bank has  only  one  borrower,  a real  estate
developer,  that approaches that limit, with a balance of $3.0 million. The

                                       13
<PAGE>

Bank imposes the same limits to affiliates and insiders. At June 30, 2002, loans
to  directors,  executive  officers  and  control  persons  totaled  $647,000 in
aggregate.

     RESTRICTIONS  ON  DISTRIBUTION  OF  SUBSIDIARY  BANK  DIVIDENDS AND ASSETS.
Dividends  paid by the Bank have  provided  substantially  all of the  Company's
operating funds, and for the foreseeable future it is anticipated that dividends
paid by the Bank to the  Company  will  continue to be the  Company's  principal
source of operating funds. Capital adequacy  requirements and state law serve to
limit the amount of dividends  that may be paid by the Bank.  Under federal law,
the Bank cannot pay a dividend if, after paying the  dividend,  the Bank will be
"undercapitalized."  The FDIC may  declare a  dividend  payment to be unsafe and
unsound  even though the Bank would  continue  to meet its capital  requirements
after the dividend.  Under Kentucky  banking law, the dividends the Bank can pay
during any  calendar  year are  generally  limited to its profits for that year,
plus its retained  net profits for the two  preceding  years,  less any required
transfers  to  surplus or to fund the  retirement  of  preferred  stock or debt,
absent  approval of the  Commissioner  of the Kentucky  Department  of Financial
Institutions.

     Because  the  Company is a legal  entity  separate  and  distinct  from its
subsidiary,  its  right to  participate  in the  distribution  of  assets of any
subsidiary upon the subsidiary's  liquidation or reorganization  will be subject
to the prior claims of the subsidiary's creditors. In the event of a liquidation
or  other  resolution  of an  insured  depository  institution,  the  claims  of
depositors  and other  general  or  subordinated  creditors  are  entitled  to a
priority  of  payment  over the  claims  of  holders  of any  obligation  of the
institution to its shareholders,  including any depository  institution  holding
company (such as the Company) or any shareholder or creditor thereof.

     DEPOSIT INSURANCE ASSESSMENTS.  Currently, the FDIC maintains two funds for
the insurance of deposits of financial  institutions:  the Bank  Insurance  Fund
(BIF) for deposits  originated  by banks and the Savings  Association  Insurance
Fund (SAIF) for deposits originated by savings  associations,  including savings
association  deposits  acquired by banks.  The Bank must pay  assessments to the
FDIC for federal deposit  insurance  protection based on a risk based assessment
system. Under this system,  FDIC-insured  depository  institutions pay insurance
premiums at rates based on their risk classification.  Institutions  assigned to
higher-risk  classifications  (that is, institutions that pose a greater risk of
loss to their  respective  deposit  insurance  funds) pay  assessments at higher
rates  than  institutions  that  pose  a  lower  risk.  An  institution's   risk
classification  is  assigned  based  on its  capital  levels  and the  level  of
supervisory  concern the institution poses to the regulators.  In addition,  the
FDIC can impose special  assessments in certain instances.  The current range of
BIF and SAIF assessments is between 0% and .27% of deposits.

     The Deposit  Insurance Funds Act of 1996 requires both BIF and SAIF insured
institutions to share the cost of the Financing  Corporation  bonds,  which were
issued to initially  fund the SAIF,  through  additional  assessments on insured
deposits.

     CROSS-GUARANTEE  PROVISIONS.  The Federal Deposit  Insurance Act contains a
"cross-guarantee"  provision which generally makes commonly  controlled  insured
depository institutions liable to the FDIC for any losses incurred in connection
with the failure of a commonly controlled depository institution.

     CONSUMER  LAWS AND  REGULATIONS.  In addition  to the laws and  regulations
discussed  herein,  the  Bank is also  subject  to  certain  consumer  laws  and
regulations that are designed to protect  consumers in transactions  with banks.
While the list set forth herein is not  exhaustive,  these laws and  regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds
Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity
Act, the Real Estate Settlement  Procedures Act, and the Fair Housing Act, among
others.  These laws and regulations mandate certain disclosure  requirements and
regulate the manner in which financial  institutions must deal with clients when
taking  deposits  or making  loans.  The Bank must  comply  with the  applicable
provisions of these  consumer  protection  laws and  regulations  as part of its
ongoing business operations.

REGULATION OF THE COMPANY

     Prior to the Company's  conversion  from a savings and loan holding company
to a bank holding company,  the Company was subject to regulation by the OTS. As
a bank holding  company,  the Company is subject to supervision,  regulation and
examination  by the FRB. The Bank Holding  Company Act of 1956,  as amended (the
"BHCA") and other  federal laws subject  bank  holding  companies to  particular
restrictions on the types of activities in which they may engage, and to a range
of supervisory  requirements and activities,  including  regulatory  enforcement
actions for violations of laws and regulations.

                                       14
<PAGE>

     BANK  ACQUISITIONS  BY BANK HOLDING  COMPANIES.  The Company is required to
obtain the prior approval of the FRB under the BHCA before it may acquire all or
substantially  all of the  assets of any bank,  or  ownership  or control of any
voting  shares of any bank, if after such  acquisition  it would own or control,
directly  or  indirectly,  more than 5% of the voting  shares of such  bank.  In
approving bank  acquisitions by bank holding  companies,  the FRB is required to
consider the financial and managerial resources and future prospects of the bank
holding  company  and the  banks  concerned,  the  convenience  and needs of the
communities to be served,  and various  competitive  factors.  Consideration  of
convenience  and  needs  issues  includes  the  parties'  performance  under the
Community  Reinvestment  Act of 1977,  as amended  ("CRA").  Under the CRA,  all
financial  institutions have a continuing and affirmative  obligation consistent
with safe and sound  operation  to help meet the  credit  needs of their  entire
communities,  including  low-to-moderate income neighborhoods.  By virtue of the
Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act of  1994,  the
geographic  location  of the bank is no  longer a  factor.  Under  that  Act,  a
well-capitalized  and  well-managed  bank  holding  company  may  acquire a bank
located in any state, subject to certain deposit percentage  limitations and age
requirements.

     GRAMM-LEACH-BLILEY  ACT. On November 12, 1999, the  Gramm-Leach-Bliley  Act
was  signed  into  law,  eliminating  many  of the  remaining  barriers  to full
convergence  of the banking,  securities,  and insurance  industries.  The major
provisions of the Act took effect March 12, 2000.

     The Gramm-Leach-Bliley Act enables a broad-scale consolidation among banks,
securities  firms,  and insurance  companies by creating a new type of financial
services  company called a "financial  holding  company," a bank holding company
with  dramatically  expanded  powers.  Financial  holding  companies  can  offer
virtually  any  type  of  financial  service,   including  banking,   securities
underwriting, insurance (both agency and underwriting), and merchant banking. In
addition,  the Act  permits the FRB and the  Treasury  Department  to  authorize
additional activities for financial holding companies,  but only if they jointly
determine that such  activities are "financial in nature" or  "complementary  to
financial activities."

     The FRB serves as the primary  "umbrella"  regulator of  financial  holding
companies,  with jurisdiction over the parent company and more limited oversight
over its  subsidiaries.  The primary regulator of each subsidiary of a financial
holding  company  depends  on the  activities  conducted  by the  subsidiary.  A
financial holding company need not obtain FRB approval prior to engaging, either
de novo or through  acquisitions,  in financial activities previously determined
to be permissible by the FRB.  Instead,  a financial  holding  company need only
provide  notice to the FRB within 30 days after  commencing  the new activity or
consummating the acquisition.

     The  Gramm-Leach-Bliley  Act includes consumer privacy  protections and CRA
"sunshine" rules,  "modernizes" various other banking related statutes,  permits
mutual bank holding  companies,  and requires a number of studies and reports to
Congress.

     SAFE AND SOUND BANKING PRACTICES.  Bank holding companies are not permitted
to engage in unsafe and unsound banking  practices.  The FRB may prohibit a bank
holding company from engaging in an activity if it believes that the transaction
would  constitute  an unsafe or unsound  practice  or would  violate  any law or
regulation.  The FDIC and the Kentucky Department of Financial Institutions have
similar authority with respect to the Company's bank subsidiary.

     SOURCE OF STRENGTH. Under FRB policy, a bank holding company is expected to
act as a source of financial strength to each of its banking subsidiaries and to
commit  resources to their support.  Such support may be required at times when,
absent this FRB policy,  a holding company may not be inclined to provide it. As
noted  below,  a bank  holding  company may also be required  to  guarantee  the
capital restoration plan of an undercapitalized banking subsidiary.

CAPITAL ADEQUACY REQUIREMENTS

     CAPITAL GUIDELINES.  The FRB and FDIC have substantially similar risk-based
and leverage ratio guidelines for banking  organizations,  which are intended to
ensure that banking  organizations  have  adequate  capital  related to the risk
levels  of assets  and  off-balance  sheet  instruments.  Under  the  risk-based
guidelines,  specific  categories of assets are assigned different risk weights,
based  generally on the perceived  credit risk of the asset.  These risk weights
are multiplied by  corresponding  asset balances to determine a  "risk-weighted"
asset base. The guidelines  require a minimum total risk-based  capital ratio of
8.0%,  of which at least 4.0% is required to consist of Tier 1 capital  elements
(generally,  common  shareholders'  equity,  minority  interests  in the  equity
accounts of consolidated subsidiaries, non-cumulative perpetual preferred stock,
less goodwill and certain other intangible assets).  Total capital is the sum of
Tier 1 and Tier 2  capital.  Tier 2 capital  generally  may  consist  of limited
amounts

                                       15
<PAGE>

of subordinated  debt,  qualifying hybrid capital  instruments,  other preferred
stock, loan loss reserves and unrealized gains on certain equity securities.  As
of June 30, 2002, the Company's  ratio of Tier 1 capital to total  risk-weighted
assets was 14.90% and its ratio of total capital to total  risk-weighted  assets
was 15.62%.  As of June 30,  2002,  the Bank's  ratio of Tier 1 capital to total
risk-weighted  assets  was  14.83%  and its  ratio  of  total  capital  to total
risk-weighted assets was 15.55%.

     In addition to the risk-based capital  guidelines,  the FRB uses a leverage
ratio as an  additional  tool to evaluate  the capital  adequacy of bank holding
companies.  The  leverage  ratio is a  company's  Tier 1 capital  divided by its
average total  consolidated  assets (less goodwill and certain other  intangible
assets).  Certain  highly-rated  bank holding  companies  may maintain a minimum
leverage  ratio of 3.0%,  but other bank  holding  companies  may be required to
maintain  a  leverage  ratio of up to 200  basis  points  above  the  regulatory
minimum. As of June 30, 2002, the Company's leverage ratio was 8.23%. The FDIC's
leverage  guidelines  require  state banks to maintain Tier 1 capital of no less
than 5% of average  total  assets,  except in the case of certain  highly  rated
banks for which the  requirement  is 3% of average total assets.  As of June 30,
2002,  the  Bank's  ratio of Tier 1 capital to average  total  assets  (leverage
ratio) was 8.19%. [See Note 11 of the Consolidated Financial Statements included
in the Company's 2002 Annual Report to Shareholders.]

     The federal  banking  agencies'  risk-based and leverage ratios are minimum
supervisory  ratios  generally  applicable  to banking  organizations  that meet
certain  specified  criteria,  assuming  that they have the  highest  regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with  capital  positions  well  above  the  minimum  ratios.  The  federal  bank
regulatory  agencies  may set  capital  requirements  for a  particular  banking
organization that are higher than the minimum ratios when circumstances warrant.
FRB guidelines  also provide that banking  organizations  experiencing  internal
growth or making  acquisitions  will be  expected  to  maintain  strong  capital
positions   substantially  above  the  minimum   supervisory   levels,   without
significant reliance on intangible assets. The FDIC may establish higher minimum
capital adequacy  requirements if, for example,  a bank has previously  received
special attention or has a high susceptibility to interest rate risk.

     CORRECTIVE   MEASURES  FOR  CAPITAL   DEFICIENCIES.   The  federal  banking
regulators  are  required to take  "prompt  corrective  action"  with respect to
capital-deficient  institutions.  Agency  regulations  define,  for each capital
category,  the levels at which institutions are "well capitalized,"  "adequately
capitalized,"    "undercapitalized,"    "significantly   undercapitalized"   and
"critically  undercapitalized."  Under these  regulations,  a "well capitalized"
bank has a total risk-based  capital ratio of 10% or higher; a Tier 1 risk-based
capital  ratio of 6% or  higher;  a leverage  ratio of 5% or higher;  and is not
subject to any written agreement,  order or directive requiring it to maintain a
specific capital level for any capital measure. An "adequately capitalized" bank
has a total  risk-based  capital  ratio  of 8% or  higher;  a Tier 1  risk-based
capital ratio of 4% or higher; a leverage ratio of 4% or higher (3% or higher if
the bank was rated a CAMEL 1 in its most  recent  examination  report and is not
experiencing  significant  growth);  and does not meet the  criteria  for a well
capitalized  bank. A bank is  "undercapitalized"  if it fails to meet any one of
the ratios required to be adequately capitalized.

     Undercapitalized  institutions are required to submit a capital restoration
plan,  which must be guaranteed by any holding  company of the  institution.  In
addition, agency regulations contain broad restrictions on certain activities of
undercapitalized  institutions  including  asset  growth,  acquisitions,  branch
establishment,   and  expansion  into  new  lines  of  business.   With  certain
exceptions,  an insured depository institution is prohibited from making capital
distributions,  including  dividends,  and is prohibited from paying  management
fees to control persons if the institution would be  undercapitalized  after any
such distribution or payment. A bank's capital  classification  will also affect
its ability to accept brokered deposits. Under the FDIC regulations,  a bank may
not lawfully  accept,  roll over or renew brokered  deposits unless either it is
well capitalized or it is adequately  capitalized and receives a waiver from the
FDIC.

     As an institution's capital decreases, the FDIC's enforcement powers become
more  enhanced.  A  significantly  undercapitalized  institution  is  subject to
mandated  capital  raising  activities,  restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions. The
FDIC  has  only  very   limited   discretion   in  dealing   with  a  critically
undercapitalized  institution and is virtually required to appoint a receiver or
conservator.

     Banks with  risk-based  capital  and  leverage  ratios  below the  required
minimums may also be subject to certain  administrative  actions,  including the
termination  of deposit  insurance  upon  notice  and  hearing,  or a  temporary
suspension of insurance  without a hearing in the event the  institution  has no
tangible capital.

                                       16
<PAGE>

ITEM 2.  PROPERTIES
-------------------

     The Company's  principal  executive  offices are located at 1602 Cumberland
Avenue,  Middlesboro,   Kentucky  in  facilities  leased  to  the  Bank  by  its
wholly-owned  subsidiary,  Home Service Corporation.  The Company also maintains
operations  offices at 1608  Cumberland  Avenue,  Middlesboro,  Kentucky and has
branch  offices  located at 600 Fifth Avenue,  New  Tazewell,  Tennessee and 102
Cumberland  Avenue,  Harlan,  Kentucky,  which are all leased from Home  Service
Corporation.  In addition,  the Company has one other branch offices  located at
Village Center, Harlan, Kentucky, which is leased from a third party. The Bank's
wholly-owned subsidiary, Home Service Corporation also has an option on property
for the construction of a new branch office in Jacksboro, Tennessee.

ITEM 3. LEGAL PROCEEDINGS.
-------------------------

     From  time to  time,  the  Company  is a party  to  various  routine  legal
proceedings incident to its business,  including loan foreclosure actions. There
are currently no material legal  proceedings  to which the Company,  the Bank or
its subsidiary is a party or to which any of their property is subject.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended June 30, 2002.


                                     PART II

ITEM 5.  MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS
--------------------------------------------------------------------------------

     The information  contained under the section captioned "Market Information"
in the Company's  Annual Report to  Stockholders  for the Fiscal Year Ended June
30,  2002  (the  "Annual  Report")  is  incorporated  herein by  reference.  For
information  regarding  restrictions  on the  payment of  dividends  see Item 1.
"Business - Regulation - Regulation of the Bank - Restrictions  on  Distribution
of Subsidiary Bank Dividends and Assets."

ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------

     The information contained in the section captioned "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations"  in the Annual
Report is incorporated herein by reference.

ITEM 7.  FINANCIAL STATEMENTS
-----------------------------

     The  Consolidated  Financial  Statements and Related Notes contained in the
Annual Report are incorporated herein by reference.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------

     Not applicable.  In June 2001, the Company's accountant,  Olive LLP, merged
with Baird, Kurtz and Dobson into the Company's current accountant, BKD, LLP.


                                    PART III

ITEM 9.  DIRECTORS  AND  EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
--------------------------------------------------------------------------------

     For information  regarding  directors,  executive  officers,  promoters and
control persons pursuant to Item 401 of regulation S-B, reference is made to the
section  captioned  "Proposal  1 -  Election  of  Directors"  in  the  Company's
definitive  proxy materials for its 2000 Annual Meeting of Stockholders  ("Proxy
Materials"),   which  is  incorporated  herein  by  reference.  For  information
regarding  delinquent filers and the disclosure required pursuant to Item 405 of
Regulation  S-B,  reference  is made to the  section  captioned  "Section  16(a)
Beneficial  Ownership  Reporting   Compliance"  in  the  Proxy  Statement  which
information is incorporated herein by reference.

                                       17
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION
--------------------------------

     The  information  contained  under  the  section  captioned  "Proposal  I -
Election of  Directors  -  Executive  Compensation"  in the Proxy  Statement  is
incorporated herein by reference.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------

     For  information  regarding  the security  ownership of certain  beneficial
owners,  reference is made to the sections  captioned  "Proposal I - Election of
Directors" and "Voting  Securities and Principal  Holders  Thereof" in the Proxy
Statement, which information is incorporated herein by reference.

     EQUITY  COMPENSATION  PLAN  INFORMATION.  The  following  table  sets forth
certain  information with respect to securities to be issued under the Company's
equity compensation plans as of June 30, 2002.
<TABLE>
<CAPTION>
                                                (a)                     (b)                     (c)
                                             Number of               Weighted-               Number of
                                         Securities To Be             Average          Securities Remaining
                                            Issued Upon           Exercise Price           Available for
                                            Exercise of           of Outstanding       Future Issuance Under
                                            Outstanding              Options,       Equity Compensation Plans
                                         Options, Warrants         Warrants and       (Excluding Securities
   Plan Category                            and Rights                Rights         Reflected in Column (a))
   -------------                            ----------                ------         -----------------------
<S>                                           <C>                    <C>                      <C>
Equity compensation plans
 approved by security holders:

         1992 Stock Option Plan               16,783                 $  9.08                   2,769
         2000 Long-term Incentive
            Compensation Plan                     --                 $    --                  65,000


Equity compensation plans not
 approved by security holders:                   N/A                     N/A                     N/A
------------------------------            --------------          -------------          --------------
Total                                         16,783                 $  9.08                  67,769
------------------------------            --------------          -------------          --------------
</TABLE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

     The information  required by this item is incorporated  herein by reference
to the  section  captioned  "Proposal I - Election  of  Directors"  of the Proxy
Statement.

ITEM 13.  EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
-------------------------------------------------

     (a)  LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
          ----------------------------------------------

          The  following  exhibits  are either  attached to or  incorporated  by
     reference in this Annual Report on Form 10-KSB.

               Description
               -----------

     3.1  Articles of Incorporation of HFB Financial Corporation *

     3.2  Bylaws of HFB Financial Corporation *

     4    Common Stock Certificate of HFB Financial Corporation *

     10.1 HFB Financial Corporation Stock Option Plan *

                                       18
<PAGE>

     10.2 Home Federal Bank, Federal Savings Bank Management *
          Recognition Plan

     10.3 Home Federal Bank, Federal Savings Bank Supplemental *
          Executive Retirement Plan

     10.4 2000 Long-Term Incentive Compensation Plan **

     10.5 Amended and Restated  Employment  Agreement between the Bank and David
          B. Cook

     10.6 Amended and Restated Employment Agreement between the Bank and Stanley
          Alexander, Jr.

     10.7 Amended and Restated Employment Agreement between the Bank and Kenneth
          Jones

     13   Portions  of the Annual  Report to  Stockholders  for the Fiscal  Year
          Ended June 30, 2002

     21   Subsidiaries of the Registrant

----------------
*    Incorporated by reference to the  Corporation's  Registration  Statement on
     Form S-1 (33-52308)  filed with the  Securities and Exchange  Commission on
     September 23, 1992.
**   Incorporated by reference to the Corporation's Annual Report on Form 10-KSB
     for the fiscal year ended June 30, 2000.

     (B)  REPORTS ON FORM 8-K.
          -------------------

          NONE.

                                       19

<PAGE>

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                   HFB FINANCIAL CORPORATION


                                   By: /s/ David B. Cook
                                       ------------------------------
                                           David B. Cook
                                           President and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


/s/ David B. Cook                                            September 25, 2002
-----------------
David B. Cook
President and Chief Executive Officer
and Director
(Principal Executive Officer)


/s/ Stanley Alexander, Jr.                                   September 25, 2002
--------------------------
Stanley Alexander, Jr.
Chief Financial Officer
(Principal Financial and Accounting Officer)


/s/ Kenneth V. Jones                                         September 25, 2002
--------------------
Kenneth V. Jones
Chief Operating Officer and Director


/s/ Roger Roper                                              September 25, 2002
---------------
Roger Roper
Vice President and Director


/s/ Frances Coffey Rasnic                                    September 25, 2002
-------------------------
Frances Coffey Rasnic
Director


/s/ Earl Burchfield                                          September 25, 2002
-------------------
Earl Burchfield
Secretary-Treasurer and Director


/s/ Robert V. Costanzo                                       September 25, 2002
----------------------
Robert V. Costanzo
Chairman and Director

                                       20
<PAGE>
RIDER 20A
                                 CERTIFICATIONS

I, David B. Cook, certify that:

     (1)  I have  reviewed  this  annual  report on Form  10-K of HFB  Financial
          Corporation;

     (2)  Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report; and

     (3)  Based on my knowledge,  the financial  statements and other  financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this annual report.



September 25, 2002

/s/ David B. Cook
-----------------
David B. Cook
Chief Executive Officer



I, Stanley Alexander, Jr., certify that:

     (1)  I have  reviewed  this  annual  report on Form  10-K of HFB  Financial
          Corporation;

     (2)  Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this annual report; and

     (3)  Based on my knowledge,  the financial  statements and other  financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this annual report.




September 25, 2002

/s/ Stanley Alexander, Jr.
--------------------------
Stanley Alexander, Jr.
Chief Financial Officer

                                       21
<PAGE>
EXHIBIT 21

                         SUBSIDIARIES OF THE REGISTRANT


Parent
------

HFB Financial Corporation

                                               State or Other
                                               Jurisdiction of       Percentage
Subsidiaries (1)                               Incorporation         Ownership
----------------                               -------------         ---------

Home Federal Bank Corporation                  Kentucky                 100%


Subsidiary of Home Federal Bank Corporation
-------------------------------------------

Home Service Corporation                       Kentucky                 100%



---------------
     (1)  The assets,  liabilities and operations of the subsidiary are included
          in the  consolidated  financial  statements  contained  in the  annual
          Report to Stockholders attached hereto as an exhibit.


                                       22
<PAGE>

                                HOME FEDERAL BANK

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

                            EMPLOYMENT AGREEMENT WITH
                                  DAVID B. COOK
                           --------------------------


         THIS  AGREEMENT  entered  into this 1st day of January 1, 2002,  by and
between Home Federal Bank,  (the "Bank"),  and David B. Cook (the  "Executive"),
effective  on  the  Effective  Date,  is an  amendment  and  restatement  of the
agreement  entered  into by and between the Bank and David B. Cook on January 1,
2001.

         WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Executive.

         NOW, THEREFORE, it is AGREED as follows:

         1.   Defined Terms

         When used anywhere in this  Agreement,  the following  terms shall have
the meaning set forth herein.

                    (a) "Board" shall mean the Board of Directors of the Bank.

                    (b) "Change in Control"  shall mean any one of the following
events: (i) the acquisition of ownership, holding or power to vote more than 25%
of the Bank's or the Company's voting stock, (ii) the acquisition of the ability
to control the election of a majority of the Bank's or the Company's  directors,
(iii) the acquisition of a controlling influence over the management or policies
of the Bank or the  Company  by any  person  or by  persons  acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or
(iv) during any period of two consecutive  years,  individuals  (the "Continuing
Directors")  who at the  beginning  of  such  period  constitute  the  Board  of
Directors of the Bank or the Company (the "Existing Board") cease for any reason
to constitute at least  two-thirds  thereof,  provided that any individual whose
election  or  nomination  for  election  as a member of the  Existing  Board was
approved by a vote of at least  two-thirds of the  Continuing  Directors then in
office shall be considered a Continuing Director. Notwithstanding the foregoing,
in the case of (i), (ii) and (iii)  hereof,  ownership or control of the Bank by
the Company  itself shall not  constitute  a Change in Control.  For purposes of
this paragraph only, the term "person" refers to an individual or a corporation,
partnership,   trust,   association,   joint  venture,  pool,  syndicate,   sole
proprietorship,  unincorporated  organization  or any other  form of entity  not
specifically listed herein.

                    (c) "Code" shall mean the Internal  Revenue Code of 1986, as
amended from time to time, and as  interpreted  through  applicable  rulings and
regulations in effect from time to time.

                                       23
<PAGE>

                    (d) "Code ss.280G  Maximum"  shall mean the product of  2.99
and his "base amount" as defined in Code ss.280G(b)(3).

                    (e) "Company" shall mean HFB Financial Corporation.

                    (f) "Disability" shall mean, for purposes of this Agreement,
a  physical  or mental  infirmity  which  impairs  the  Executive's  ability  to
substantially  perform his duties under this  Agreement and which results in the
Executive becoming eligible for long-term  disability  benefits under the Bank's
long-term  disability  plan (or,  if the Bank has no such plan in effect,  which
impairs the Executive's  ability to substantially  perform his duties under this
Agreement for a period of 180 consecutive days).

                    (g) "Effective Date" shall mean January 1, 2002.

                    (h) "Expiration  Date" shall mean the date on which the term
of this Agreement  expires pursuant to Section 5 hereof (taking into account any
and all renewals of such term).

                    (i) "Good Reason"  shall mean any of the  following  events,
which has not been consented to in advance by the Executive in writing:  (i) the
requirement  that the  Executive  move his  personal  residence,  or perform his
principal executive functions,  more than 35 miles from his primary office as of
the later of the Effective Date and the most recent voluntary  relocation by the
Executive;  (ii) a material reduction in the Executive's base compensation under
this Agreement as the same may be increased from time to time; (iii) the failure
by the Bank to continue to provide the Executive with  compensation and benefits
provided under this Agreement as the same may be increased from time to time, or
with benefits  substantially  similar to those  provided to him under any of the
employee  benefit  plans in which  the  Executive  now or  hereafter  becomes  a
participant,  or the taking of any action by the Bank which  would  directly  or
indirectly  reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by him under this  Agreement;  (iv) the assignment to the
Executive  of  duties  and  responsibilities  materially  different  from  those
normally associated with his position; (v) a failure to reelect the Executive to
the Board of Directors of the Bank;  (vi) a material  diminution or reduction in
the   Executive's    responsibilities   or   authority    (including   reporting
responsibilities)  in connection  with his employment  with the Bank; or (vii) a
material  reduction in the  secretarial or other  administrative  support of the
Executive.

                    (j) "Just Cause" shall mean, in the good faith determination
of  the  Board,  the  Executive's  personal  dishonesty,  incompetence,  willful
misconduct,  breach of fiduciary duty  involving  personal  profit,  intentional
failure  to  perform  stated  duties,  willful  violation  of any  law,  rule or
regulation  (other  than  traffic  violations  or  similar  offenses)  or  final
cease-and-desist  order,  or material breach of any provision of this Agreement.
No act, or failure to act, on the Executive's part shall be considered "willful"
unless he has acted, or failed to act, with an absence of good faith and without
a reasonable  belief that his action or failure to act was in the best  interest
of the Bank.

                    (k) "Present Value" shall mean the applicable  federal rate,
as determined in accordance with the rules and regulations under Code ss.280G.

                                       24
<PAGE>

                    (l) "Protected  Period" shall mean the period that begins on
the date six  months  before a Change  in  Control  and ends on the later of the
second annual  anniversary  of the Change in Control or the  expiration  date of
this Agreement.

                    (m) "Trust"  shall mean a grantor  trust that is designed in
accordance  with Revenue  Procedure  92-64 and has a trustee  independent of the
Bank.

         2.  Employment.  The  Executive is employed as the  President and Chief
Executive  Officer of the Bank. The Executive  shall render such  administrative
and  management  services  for the  Bank as are  currently  rendered  and as are
customarily  performed by persons situated in a similar executive capacity.  The
Executive  shall also promote,  by  entertainment  or  otherwise,  as and to the
extent permitted by law, the business of the Bank. The Executive's  other duties
shall be such as the Board may from time to time  reasonably  direct,  including
normal duties as an officer of the Bank.

         3. Base  Compensation.  The Bank agrees to pay the Executive during the
term of this Agreement a salary at the rate of $162,000.00 per annum, payable in
cash not less  frequently than monthly.  The Board shall review,  not less often
than annually,  the rate of the Executive's  salary,  and in its sole discretion
may decide to increase his salary.

         4.  Discretionary  Bonuses.  The  Executive  shall  participate  in  an
equitable  manner  with all other  senior  management  employees  of the Bank in
discretionary  bonuses  that the Board may award from time to time to the Bank's
senior  management  employees.  No  other  compensation  provided  for  in  this
Agreement shall be deemed a substitute for the Executive's  right to participate
in such discretionary bonuses. Notwithstanding the foregoing, following a Change
in Control, the Executive shall receive  discretionary  bonuses that are made no
less  frequently  than,  and in annual amounts not less than, the average annual
discretionary  bonuses paid to the Executive  during each of the three  calendar
years immediately preceding the year in which such Change in Control occurs.

         5.  Other Benefits.

                    (a)  Participation  in Retirement,  Medical and Other Plans.
During  the  term  of  this  Agreement,  the  Executive  shall  be  eligible  to
participate  in the  following  benefit  plans  maintained  by the  Bank:  group
hospitalization,  disability, health, dental, sick leave, life insurance, travel
and/or accident  insurance,  auto  allowance/auto  lease,  retirement,  pension,
and/or other present or future qualified plans provided by the Bank,  generally,
which  benefits,  taken as a whole,  must be at least as  favorable  as those in
effect on the Effective Date.  Further, if the Executive retires from employment
with the Bank at or after age 55 and for a reason  other  than Just  Cause,  the
Bank shall provide the Executive and his legal dependents with medical insurance
coverage that is not less favorable than the coverage that the Bank provides for
its officers.  The Bank shall pay all premiums for this coverage,  shall provide
it for the Executive's  lifetime,  and agrees that this obligation shall survive
expiration of this Agreement.

                    (b) Employee  Benefits;  Expenses.  The  Executive  shall be
eligible to participate in any fringe benefits which are or may become available
to the Bank's senior  management  employees,  including  for example:  any stock
option  or  incentive  compensation  plans,  and any  other  benefits  which are
commensurate  with the  responsibilities  and  functions  to be performed by the
Executive  under this  Agreement.  The  Executive  shall be  reimbursed  for all
reasonable  out-of-pocket  business  expenses which he shall incur in connection
with his services

                                       25
<PAGE>

under this Agreement upon substantiation of such expenses in accordance with the
policies of the Bank.

         6. Term.  The Bank hereby  employs  the  Executive,  and the  Executive
hereby accepts such employment under this Agreement,  for the period  commencing
on the Effective  Date and ending 36 months  thereafter (or such earlier date as
is  determined  in  accordance  with Section 10).  Additionally,  on each annual
anniversary  date from the Effective  Date, the  Executive's  term of employment
shall be extended for an additional  one-year  period beyond the then  effective
expiration date, provided the Board determines in a duly adopted resolution that
the performance of the Executive has met the Board's requirements and standards,
and that this Agreement  shall be extended.  Only those members of the Board who
have no personal interest in this Employment Agreement shall discuss and vote on
the approval and subsequent review of this Agreement.

         In the event the Executive serves the full term of this Agreement,  and
the Bank does not offer to renew  this  Agreement  upon  substantially  the same
terms and conditions for an additional  three- year term, the Executive shall be
entitled to a severance  benefit equal to twelve months of his then current base
monthly salary, plus such vested employee benefits to which the Executive may be
entitled when due and payable.

         7.   Loyalty; Noncompetition.

                    (a) During the period of his employment hereunder and except
for illnesses,  reasonable  vacation periods,  and reasonable leaves of absence,
the Executive  shall devote all his full business time,  attention,  skill,  and
efforts to the faithful performance of his duties hereunder;  provided, however,
from time to time,  the  Executive  may serve on the boards of directors of, and
hold any other offices or positions in, companies or  organizations,  which will
not present any conflict of interest with the Bank or any of its subsidiaries or
affiliates,  or unfavorably  affect the  performance of the  Executive's  duties
pursuant  to this  Agreement,  or will not  violate  any  applicable  statute or
regulation.  "Full  business  time" is  hereby  defined  as that  amount of time
usually  devoted to like  companies by similarly  situated  executive  officers.
During the term of his employment under this Agreement,  the Executive shall not
engage in any business or activity contrary to the business affairs or interests
of the Bank, or be gainfully employed in any other position or job other than as
provided above.

                    (b) Nothing  contained  in this  Section  shall be deemed to
prevent or limit the  Executive's  right to invest in the capital stock or other
securities  of any business  dissimilar  from that of the Bank,  or, solely as a
passive or minority investor, in any business.

         8.  Standards.  The  Executive  shall  perform  his  duties  under this
Agreement  in  accordance  with  such  reasonable  standards  as the  Board  may
establish  from  time to time.  The Bank will  provide  the  Executive  with the
working  facilities and staff customary for similar executives and necessary for
him to perform his duties.

         9. Vacation and Sick Leave. At such reasonable times as the Board shall
in its discretion permit, the Executive shall be entitled,  without loss of pay,
to absent himself  voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:

                                       26
<PAGE>

                    (a) The Executive shall be entitled to an annual vacation in
accordance with the policies that the Board periodically  establishes for senior
management employees of the Bank.

                    (b)  The   Executive   shall  not  receive  any   additional
compensation from the Bank on account of his failure to take a vacation, and the
Executive  shall not  accumulate  unused  vacation or sick leave from one fiscal
year to the next, except in either case to the extent authorized by the Board.

                    (c)  In  addition  to  the  aforesaid  paid  vacations,  the
Executive shall be entitled  without loss of pay, to absent himself  voluntarily
from the performance of his employment with the Bank for such additional periods
of time and for such  valid  and  legitimate  reasons  as the  Board  may in its
discretion  determine.  Further, the Board may grant to the Executive a leave or
leaves of  absence,  with or  without  pay,  at such time or times and upon such
terms and conditions as such Board in its discretion may determine.

                    (d)   In  addition, the  Executive  shall be entitled  to an
annual sick leave benefit as established by the Board.

         10.  Termination  and  Termination  Pay.  Subject to Section 12 hereof,
the  Executive's  employment  hereunder  may be  terminated  under the following
circumstances:

                    (a)  Death.  The Executive's employment under this Agreement
shall terminate upon his death during the term of this Agreement, in which event
the  Executive's  estate shall be entitled to receive the  compensation  due the
Executive through the Agreement's Expiration Date.

                    (b)  Disability.  The Bank  may  terminate  the  Executive's
employment after having  established the Executive's  Disability.  The Executive
shall be entitled  to the  compensation  and  benefits  provided  for under this
Agreement for (i) any period during the term of this  Agreement and prior to the
establishment of the Executive's Disability during which the Executive is unable
to work  due to the  physical  or  mental  infirmity,  or  (ii)  any  period  of
Disability which is prior to the Executive's  termination of employment pursuant
to this  Section;  provided  that any benefits  paid pursuant to the Bank's long
term disability  plan will continue as provided in such plan.  During any period
that the Executive shall receive disability  benefits and to the extent that the
Executive  shall be physically and mentally able to do so, he shall furnish such
information,  assistance and documents so as to assist in the continued  ongoing
business of the Bank and, if able,  shall make himself  available to the Bank to
undertake  reasonable  assignments  consistent  with his prior  position and his
physical and mental health. The Bank shall pay all reasonable  expenses incident
to  the  performance  of  any  assignment  given  to the  Executive  during  the
disability period.

                    (c) Just  Cause.  The Board may,  by  written  notice to the
Executive, immediately terminate his employment at any time, for Just Cause. The
Executive shall have no right to receive  compensation or other benefits for any
period after termination for Just Cause.

                    (d) Without Just Cause;  Constructive  Discharge.  The Board
may, by written notice to the Executive, immediately terminate his employment at
any time for a reason other than Just Cause,  in which event the Executive shall
be entitled to receive the  following  compensation  and  benefits  (unless such
termination  occurs during the Protected Period, in which

                                       27
<PAGE>

event the benefits and compensation provided for in Section 12 shall apply): (i)
the salary  provided  pursuant to Section 3 hereof,  up to the Expiration  Date,
plus said salary for an additional  12-month period, and (ii) at the Executive's
election  either (A) cash in an amount equal to the Present Value of the cost to
the Executive of obtaining all health, life, disability and other benefits which
the Executive  would have been eligible to participate in through the Expiration
Date based upon the benefit  levels  substantially  equal to those that the Bank
provided for the  Executive at the date of  termination  of  employment,  or (B)
continued  participation  under such Bank benefit plans  through the  Expiration
Date,   but  only  to  the  extent  the  Executive   continues  to  qualify  for
participation  therein;  provided  that in no event shall the total value of the
payments due under (i) and (ii) hereof  exceed three years' total  compensation.
All  amounts  payable  to the  Executive  shall be paid,  at the  option  of the
Executive,  either in periodic  payments  through the Expiration Date, or in one
lump sum within ten days of such  termination  (in which event he shall  receive
the Present Value of such periodic payments).

                    (e) Good Reason.  The Executive shall be entitled to receive
the compensation and benefits payable under subsection 10(d) hereof in the event
that he  voluntarily  terminates  employment  within  90 days of an  event  that
constitutes Good Reason,  (unless such voluntary  termination  occurs during the
Protected Period,  in which event the benefits and compensation  provided for in
Section 12 shall apply).

                    (f) Voluntary  Termination by Executive.  Subject to Section
12 hereof,  the Executive may  voluntarily  terminate  employment  with the Bank
during the term of this  Agreement,  upon at least 90 days' prior written notice
to the Board, in which case the Executive  shall receive only his  compensation,
vested rights and employee  benefits up to the date of his  termination  (unless
such termination occurs pursuant to Section 10(e) hereof or within the Protected
Period,  in which event the benefits and  compensation  provided for in Sections
10(d) or 12, as applicable, shall apply).

         11.  No Mitigation.  The  Executive  shall  not be required to mitigate
the amount of any  payment  provided  for in this  Agreement  by  seeking  other
employment  or otherwise  and no such payment  shall be offset or reduced by the
amount  of  any  compensation  or  benefits  provided  to the  Executive  in any
subsequent employment.

         12.  Change in Control.

                    (a)  Trigger  Events.  The  Executive  shall be  entitled to
collect the severance  benefits set forth in subsection  (b) hereof in the event
that either (i) the Executive  voluntarily  terminates employment either for any
reason other than Just Cause within the 30-day period beginning on the date of a
Change in Control, (ii) the Executive  voluntarily  terminates employment within
90 days of an event that both occurs during the Protected Period and constitutes
Good Reason,  or (iii) the Bank or its  successor(s) in interest  terminates the
Executive's employment without his written consent and for any reason other than
Just Cause during the Protected Period.

                    (b) Amount of Severance  Benefit.  If the Executive  becomes
entitled to collect  severance  benefits  pursuant to Section 12(a) hereof,  the
Bank shall pay the Executive a severance benefit equal to the difference between
the Code  ss.280G  Maximum  and the sum of any  other  "parachute  payments"  as
defined under Code  ss.280G(b)(2)  that the Executive receives on account of the
Change in Control.  Said sum shall be paid,  at the  election of the  Executive,
either  (i) in one lump  sum  within  ten  days of the  later of the date of the
Change in Control and the

                                       28
<PAGE>

Executive's last day of employment with the Bank, or (ii) periodic payments over
a period of up to sixty months with interest  accruing on unpaid  amounts at the
same rate that would be applied to determine  Present  Value.  In the event that
the  Executive  and the Bank jointly  agree that the  Executive has collected an
amount exceeding the Code ss.280G Maximum, the parties may agree in writing that
such excess shall be treated as a loan ab initio which the Executive shall repay
to the Bank, on terms and conditions mutually agreeable to the parties, together
with  interest  at  the   applicable   federal  rate  provided  for  in  Section
7872(f)(2)(B) of the Code.

                    (c)  Funding  of  Grantor  Trust  upon  Change  in  Control.
Notwithstanding  any other  provision of this  Agreement that may be contrary or
inconsistent  herewith,  not  later  than ten  business  days  after a Change in
Control,  the Bank  shall (i)  deposit  in a Trust an  amount  equal to the Code
ss.280G Maximum,  unless the Executive has previously provided a written release
of any claims  under this  Agreement,  and (ii) provide the trustee of the Trust
with a written  direction to hold said amount and any investment  return thereon
in a  segregated  account  for the benefit of the  Executive,  and to follow the
procedures  set forth in the next  paragraph  as to the payment of such  amounts
from the Trust. At any time or from time to time during the 27-consecutive month
period after a Change in Control,  the  Executive may provide the trustee of the
Trust with a written  notice  directing that the trustee pay to the Executive an
amount  designated  in the notice as being payable  pursuant to this  Agreement.
Within three business days after receiving said notice, the trustee of the Trust
shall pay the Executive the amount designated  therein in immediately  available
funds,  and shall  thereafter send the Bank a written notice  thereof.  Upon the
earlier of the Trust's  final  payment of all  amounts  due under the  following
paragraph or the date 27 months after the Change in Control,  the trustee of the
Trust  shall pay to the Bank the  entire  balance  remaining  in the  segregated
account  maintained  for the  benefit  of the  Executive.  The  Executive  shall
thereafter have no further interest in the Trust.

         13.  Indemnification.   The Bank agrees that its Bylaws  shall continue
to provide for indemnification of directors,  officers,  employees and agents of
the Bank, including the Executive,  during the full term of this Agreement,  and
to at all times provide adequate insurance for such purposes.

         14.  Reimbursement  of Executive for  Enforcement  Proceedings.  In the
event that any dispute arises between the Executive and the Bank as to the terms
or  interpretation  of  this  Agreement,  whether  instituted  by  formal  legal
proceedings  or  otherwise,  including  any action that the  Executive  takes to
defend against any action taken by the Bank,  the Executive  shall be reimbursed
for all costs and expenses,  including reasonable  attorneys' fees, arising from
such dispute, proceedings or actions, provided that the Executive obtains either
a written  settlement or a final judgement by a court of competent  jurisdiction
substantially in his favor. Such reimbursement  shall be paid within ten days of
the  Executive's  furnishing to the Bank written  evidence,  which may be in the
form,  among  other  things,  of a cancelled  check or receipt,  of any costs or
expenses incurred by the Executive.

         15.  Federal  Income Tax Withholding. The Bank may withhold all federal
and state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.

         16.  Successors and Assigns.

                    (a) Bank.  This  Agreement  shall not be  assignable  by the
Bank,  provided that this Agreement shall inure to the benefit of and be binding
upon any corporate or other

                                       29
<PAGE>

successor of the Bank which shall acquire,  directly or  indirectly,  by merger,
consolidation,  purchase or otherwise, all or substantially all of the assets or
stock of the Bank, as the case may be.

                    (b) Executive.  Since the Bank is contracting for the unique
and personal  skills of the  Executive,  the Executive  shall be precluded  from
assigning or delegating his rights or duties  hereunder  without first obtaining
the  written  consent  of the Bank;  provided,  however,  that  nothing  in this
paragraph  shall  preclude (i) the Executive  from  designating a beneficiary to
receive any benefit  payable  hereunder  upon his death,  or (ii) the executors,
administrators,  or other legal  representatives  of the Executive or his estate
from assigning any rights hereunder to the person or persons entitled thereunto.

                    (c)  Attachment.  Except as required by law, no right of the
Executive  to  receive  payments  under  this  Agreement  shall  be  subject  to
anticipation,  commutation,  alienation, sale, assignment,  encumbrance, charge,
pledge, or hypothecation or to exclusion, attachment, levy or similar process or
assignment by operation of law, and any attempt,  voluntary or  involuntary,  to
effect any such action shall be null, void and of no effect.

         17.   Amendments.  No amendments or additions to this  Agreement  shall
be binding  unless made in writing and signed by all of the  parties,  except as
herein otherwise specifically provided.

         18.   Applicable Law.  Except to the extent preempted  by Federal  law,
the laws of the State of Kentucky  shall govern this  Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.

         19.   Severability.  The  provisions of this Agreement  shall be deemed
severable and the  invalidity  or  unenforceability  of any provision  shall not
affect the validity or enforceability of the other provisions hereof.

         20.   Entire Agreement. This Agreement, together with any understanding
or  modifications  thereof  as  agreed  to in  writing  by  the  parties,  shall
constitute the entire  agreement  between the parties hereto and shall supersede
any prior agreement between the parties.

         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
                                             HOME FEDERAL BANK
Witnessed by:


______________________                       By:________________________________
Acting Secretary                                Its Chairman of the Board

                                             EXECUTIVE

Witnessed by:


______________________                       ___________________________________
Acting Secretary                                   David B. Cook

                                       30

<PAGE>
                                HOME FEDERAL BANK

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

                            EMPLOYMENT AGREEMENT WITH
                             STANLEY ALEXANDER, JR.
                           --------------------------


         THIS  AGREEMENT  entered  into this 1st day of  January,  2002,  by and
between  Home  Federal  Bank,  (the  "Bank"),  and Stanley  Alexander,  Jr. (the
"Executive"),  effective on the Effective  Date, is an amendment and restatement
of the agreement entered into by and between the Bank and Stanley Alexander, Jr.
on January 1, 2001.

         WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Executive.

         NOW, THEREFORE, it is AGREED as follows:

         1.    Defined Terms

         When used anywhere in this  Agreement,  the following terms shall  have
the meaning set forth  herein.

                    (a) "Board" shall mean the Board of Directors of the Bank.

                    (b) "Change in Control"  shall mean any one of the following
events: (i) the acquisition of ownership, holding or power to vote more than 25%
of the Bank's or the Company's voting stock, (ii) the acquisition of the ability
to control the election of a majority of the Bank's or the Company's  directors,
(iii) the acquisition of a controlling influence over the management or policies
of the Bank or the  Company  by any  person  or by  persons  acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or
(iv) during any period of two consecutive  years,  individuals  (the "Continuing
Directors")  who at the  beginning  of  such  period  constitute  the  Board  of
Directors of the Bank or the Company (the "Existing Board") cease for any reason
to constitute at least  two-thirds  thereof,  provided that any individual whose
election  or  nomination  for  election  as a member of the  Existing  Board was
approved by a vote of at least  two-thirds of the  Continuing  Directors then in
office shall be considered a Continuing Director. Notwithstanding the foregoing,
in the case of (i), (ii) and (iii)  hereof,  ownership or control of the Bank by
the Company  itself shall not  constitute  a Change in Control.  For purposes of
this paragraph only, the term "person" refers to an individual or a corporation,
partnership,   trust,   association,   joint  venture,  pool,  syndicate,   sole
proprietorship,  unincorporated  organization  or any other  form of entity  not
specifically listed herein.

                    (c) "Code" shall mean the Internal  Revenue Code of 1986, as
amended from time to time, and as  interpreted  through  applicable  rulings and
regulations in effect from time to time.

                    (d)  "Code ss.280G  Maximum"  shall mean the product of 2.99
and his "base amount" as defined in Code ss.280G(b)(3).

                                       31
<PAGE>

                    (e) "Company" shall mean HFB Financial Corporation.

                    (f) "Disability" shall mean, for purposes of this Agreement,
a  physical  or mental  infirmity  which  impairs  the  Executive's  ability  to
substantially  perform his duties under this  Agreement and which results in the
Executive becoming eligible for long-term  disability  benefits under the Bank's
long-term  disability  plan (or,  if the Bank has no such plan in effect,  which
impairs the Executive's  ability to substantially  perform his duties under this
Agreement for a period of 180 consecutive days).

                    (g) "Effective Date" shall mean January 1, 2002.

                    (h) "Expiration  Date" shall mean the date on which the term
of this Agreement  expires pursuant to Section 5 hereof (taking into account any
and all renewals of such term).

                    (i) "Good Reason"  shall mean any of the  following  events,
which has not been consented to in advance by the Executive in writing:  (i) the
requirement  that the  Executive  move his  personal  residence,  or perform his
principal executive functions,  more than 35 miles from his primary office as of
the later of the Effective Date and the most recent voluntary  relocation by the
Executive;  (ii) a material reduction in the Executive's base compensation under
this Agreement as the same may be increased from time to time; (iii) the failure
by the Bank to continue to provide the Executive with  compensation and benefits
provided under this Agreement as the same may be increased from time to time, or
with benefits  substantially  similar to those  provided to him under any of the
employee  benefit  plans in which  the  Executive  now or  hereafter  becomes  a
participant,  or the taking of any action by the Bank which  would  directly  or
indirectly  reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by him under this  Agreement;  (iv) the assignment to the
Executive  of  duties  and  responsibilities  materially  different  from  those
normally associated with his position; (v) a failure to reelect the Executive to
the Board of Directors of the Bank;  (vi) a material  diminution or reduction in
the   Executive's    responsibilities   or   authority    (including   reporting
responsibilities)  in connection  with his employment  with the Bank; or (vii) a
material  reduction in the  secretarial or other  administrative  support of the
Executive.

                    (j) "Just Cause" shall mean, in the good faith determination
of  the  Board,  the  Executive's  personal  dishonesty,  incompetence,  willful
misconduct,  breach of fiduciary duty  involving  personal  profit,  intentional
failure  to  perform  stated  duties,  willful  violation  of any  law,  rule or
regulation  (other  than  traffic  violations  or  similar  offenses)  or  final
cease-and-desist  order,  or material breach of any provision of this Agreement.
No act, or failure to act, on the Executive's part shall be considered "willful"
unless he has acted, or failed to act, with an absence of good faith and without
a reasonable  belief that his action or failure to act was in the best  interest
of the Bank.

                    (k) "Present Value" shall mean the applicable  federal rate,
as determined in accordance with the rules and regulations under Code ss.280G.

                    (l) "Protected  Period" shall mean the period that begins on
the date six  months  before a Change  in  Control  and ends on the later of the
second annual  anniversary  of the Change in Control or the  expiration  date of
this Agreement.

                                       32
<PAGE>

                    (m) "Trust"  shall mean a grantor  trust that is designed in
accordance  with Revenue  Procedure  92-64 and has a trustee  independent of the
Bank.

         2. Employment. The Executive is employed as the Chief Financial Officer
of the Bank.  The  Executive  shall render such  administrative  and  management
services for the Bank as are currently rendered and as are customarily performed
by persons situated in a similar  executive  capacity,  including as a full-time
employee and officer of the Bank,  service on the Bank's Audit,  Asset/Liability
Management and Investment  Committees which meet regularly.  The Executive shall
also promote,  by entertainment or otherwise,  as and to the extent permitted by
law, the business of the Bank. The Executive's other duties shall be such as the
Board may from time to time  reasonably  direct,  including  normal duties as an
officer of the Bank.

         3. Base  Compensation.  The Bank agrees to pay the Executive during the
term of this Agreement a salary at the rate of $80,000.00 per annum,  payable in
cash not less  frequently than monthly.  The Board shall review,  not less often
than annually,  the rate of the Executive's  salary,  and in its sole discretion
may decide to increase his salary.

         4.  Discretionary  Bonuses.  The  Executive  shall  participate  in  an
equitable  manner  with all other  senior  management  employees  of the Bank in
discretionary  bonuses  that the Board may award from time to time to the Bank's
senior  management  employees.  No  other  compensation  provided  for  in  this
Agreement shall be deemed a substitute for the Executive's  right to participate
in such discretionary bonuses. Notwithstanding the foregoing, following a Change
in Control, the Executive shall receive  discretionary  bonuses that are made no
less  frequently  than,  and in annual amounts not less than, the average annual
discretionary  bonuses paid to the Executive  during each of the three  calendar
years immediately preceding the year in which such Change in Control occurs.

         5.  Other Benefits.

                    (a)  Participation  in Retirement,  Medical and Other Plans.
During  the  term  of  this  Agreement,  the  Executive  shall  be  eligible  to
participate  in the  following  benefit  plans  maintained  by the  Bank:  group
hospitalization,  disability, health, dental, sick leave, life insurance, travel
and/or accident  insurance,  auto  allowance/auto  lease,  retirement,  pension,
and/or other present or future qualified plans provided by the Bank,  generally,
which  benefits,  taken as a whole,  must be at least as  favorable  as those in
effect on the Effective Date.  Further, if the Executive retires from employment
with the Bank at or after age 55 and for a reason  other  than Just  Cause,  the
Bank shall provide the Executive and his legal dependents with medical insurance
coverage that is not less favorable than the coverage that the Bank provides for
its officers.  The Bank shall pay all premiums for this coverage,  shall provide
it for the Executive's  lifetime,  and agrees that this obligation shall survive
expiration of this Agreement.

                    (b) Employee  Benefits;  Expenses.  The  Executive  shall be
eligible to participate in any fringe benefits which are or may become available
to the Bank's senior  management  employees,  including  for example:  any stock
option  or  incentive  compensation  plans,  and any  other  benefits  which are
commensurate  with the  responsibilities  and  functions  to be performed by the
Executive  under this  Agreement.  The  Executive  shall be  reimbursed  for all
reasonable  out-of-pocket  business  expenses which he shall incur in connection
with his services under this Agreement upon  substantiation  of such expenses in
accordance with the policies of the Bank.

                                       33
<PAGE>

         6. Term.  The Bank hereby  employs  the  Executive,  and the  Executive
hereby accepts such employment under this Agreement,  for the period  commencing
on the Effective  Date and ending 36 months  thereafter (or such earlier date as
is  determined  in  accordance  with Section 10).  Additionally,  on each annual
anniversary  date from the Effective  Date, the  Executive's  term of employment
shall be extended for an additional  one-year  period beyond the then  effective
expiration date, provided the Board determines in a duly adopted resolution that
the performance of the Executive has met the Board's requirements and standards,
and that this Agreement  shall be extended.  Only those members of the Board who
have no personal interest in this Employment Agreement shall discuss and vote on
the approval and subsequent review of this Agreement.

         In the event the Executive serves the full term of this Agreement,  and
the Bank does not offer to renew  this  Agreement  upon  substantially  the same
terms and conditions for an additional  three- year term, the Executive shall be
entitled to a severance  benefit equal to twelve months of his then current base
monthly salary, plus such vested employee benefits to which the Executive may be
entitled when due and payable.

         7.  Loyalty; Noncompetition.

                    (a) During the period of his employment hereunder and except
for illnesses,  reasonable  vacation periods,  and reasonable leaves of absence,
the Executive  shall devote all his full business time,  attention,  skill,  and
efforts to the faithful performance of his duties hereunder;  provided, however,
from time to time,  the  Executive  may serve on the boards of directors of, and
hold any other offices or positions in, companies or  organizations,  which will
not present any conflict of interest with the Bank or any of its subsidiaries or
affiliates,  or unfavorably  affect the  performance of the  Executive's  duties
pursuant  to this  Agreement,  or will not  violate  any  applicable  statute or
regulation.  "Full  business  time" is  hereby  defined  as that  amount of time
usually  devoted to like  companies by similarly  situated  executive  officers.
During the term of his employment under this Agreement,  the Executive shall not
engage in any business or activity contrary to the business affairs or interests
of the Bank, or be gainfully employed in any other position or job other than as
provided above.

                    (b) Nothing  contained  in this  Section  shall be deemed to
prevent or limit the  Executive's  right to invest in the capital stock or other
securities  of any business  dissimilar  from that of the Bank,  or, solely as a
passive or minority investor, in any business.

         8.  Standards.  The  Executive  shall  perform  his  duties  under this
Agreement  in  accordance  with  such  reasonable  standards  as the  Board  may
establish  from  time to time.  The Bank will  provide  the  Executive  with the
working  facilities and staff customary for similar executives and necessary for
him to perform his duties.

         9. Vacation and Sick Leave. At such reasonable times as the Board shall
in its discretion permit, the Executive shall be entitled,  without loss of pay,
to absent himself  voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:

                    (a) The Executive shall be entitled to an annual vacation in
accordance with the policies that the Board periodically  establishes for senior
management employees of the Bank.

                                       34
<PAGE>

                    (b)  The   Executive   shall  not  receive  any   additional
compensation from the Bank on account of his failure to take a vacation, and the
Executive  shall not  accumulate  unused  vacation or sick leave from one fiscal
year to the next, except in either case to the extent authorized by the Board.

                    (c)  In  addition  to  the  aforesaid  paid  vacations,  the
Executive shall be entitled  without loss of pay, to absent himself  voluntarily
from the performance of his employment with the Bank for such additional periods
of time and for such  valid  and  legitimate  reasons  as the  Board  may in its
discretion  determine.  Further, the Board may grant to the Executive a leave or
leaves of  absence,  with or  without  pay,  at such time or times and upon such
terms and conditions as such Board in its discretion may determine.

                    (d)  In  addition,  the  Executive  shall be entitled  to an
annual sick leave benefit as established by the Board.

         10.  Termination and Termination Pay. Subject to Section 12 hereof, the
Executive's   employment   hereunder  may  be  terminated  under  the  following
circumstances:

                    (a) Death.  The Executive's  employment under this Agreement
shall terminate upon his death during the term of this Agreement, in which event
the  Executive's  estate shall be entitled to receive the  compensation  due the
Executive through the Agreement's Expiration Date.

                    (b)  Disability.  The Bank  may  terminate  the  Executive's
employment after having  established the Executive's  Disability.  The Executive
shall be entitled  to the  compensation  and  benefits  provided  for under this
Agreement for (i) any period during the term of this  Agreement and prior to the
establishment of the Executive's Disability during which the Executive is unable
to work  due to the  physical  or  mental  infirmity,  or  (ii)  any  period  of
Disability which is prior to the Executive's  termination of employment pursuant
to this  Section;  provided  that any benefits  paid pursuant to the Bank's long
term disability  plan will continue as provided in such plan.  During any period
that the Executive shall receive disability  benefits and to the extent that the
Executive  shall be physically and mentally able to do so, he shall furnish such
information,  assistance and documents so as to assist in the continued  ongoing
business of the Bank and, if able,  shall make himself  available to the Bank to
undertake  reasonable  assignments  consistent  with his prior  position and his
physical and mental health. The Bank shall pay all reasonable  expenses incident
to  the  performance  of  any  assignment  given  to the  Executive  during  the
disability period.

                    (c) Just  Cause.  The Board may,  by  written  notice to the
Executive, immediately terminate his employment at any time, for Just Cause. The
Executive shall have no right to receive  compensation or other benefits for any
period after termination for Just Cause.

                    (d) Without Just Cause;  Constructive  Discharge.  The Board
may, by written notice to the Executive, immediately terminate his employment at
any time for a reason other than Just Cause,  in which event the Executive shall
be entitled to receive the  following  compensation  and  benefits  (unless such
termination  occurs during the Protected Period, in which event the benefits and
compensation  provided for in Section 12 shall apply):  (i) the salary  provided
pursuant to Section 3 hereof, up to the Expiration Date, plus said salary for an
additional 12-month period, and (ii) at the Executive's election either (A) cash
in an  amount  equal  to the  Present  Value  of the  cost to the  Executive  of
obtaining all health, life, disability and

                                       35
<PAGE>

other  benefits  which the Executive  would have been eligible to participate in
through the Expiration Date based upon the benefit levels substantially equal to
those that the Bank  provided for the  Executive at the date of  termination  of
employment, or (B) continued participation under such Bank benefit plans through
the Expiration  Date, but only to the extent the Executive  continues to qualify
for  participation  therein;  provided that in no event shall the total value of
the  payments  due  under  (i)  and  (ii)  hereof   exceed  three  years'  total
compensation.  All amounts payable to the Executive shall be paid, at the option
of the Executive, either in periodic payments through the Expiration Date, or in
one lump  sum  within  ten days of such  termination  (in  which  event he shall
receive the Present Value of such periodic payments).

                    (e) Good Reason.  The Executive shall be entitled to receive
the compensation and benefits payable under subsection 10(d) hereof in the event
that he  voluntarily  terminates  employment  within  90 days of an  event  that
constitutes Good Reason,  (unless such voluntary  termination  occurs during the
Protected Period,  in which event the benefits and compensation  provided for in
Section 12 shall apply).

                    (f) Voluntary  Termination by Executive.  Subject to Section
12 hereof,  the Executive may  voluntarily  terminate  employment  with the Bank
during the term of this  Agreement,  upon at least 90 days' prior written notice
to the Board, in which case the Executive  shall receive only his  compensation,
vested rights and employee  benefits up to the date of his  termination  (unless
such termination occurs pursuant to Section 10(e) hereof or within the Protected
Period,  in which event the benefits and  compensation  provided for in Sections
10(d) or 12, as applicable, shall apply).

         11.   No  Mitigation.  The Executive shall not be required to  mitigate
the amount of any  payment  provided  for in this  Agreement  by  seeking  other
employment  or otherwise  and no such payment  shall be offset or reduced by the
amount  of  any  compensation  or  benefits  provided  to the  Executive  in any
subsequent employment.

         12.   Change in Control.

                    (a)  Trigger  Events.  The  Executive  shall be  entitled to
collect the severance  benefits set forth in subsection  (b) hereof in the event
that either (i) the Executive  voluntarily  terminates employment either for any
reason other than Just Cause within the 30-day period beginning on the date of a
Change in Control, (ii) the Executive  voluntarily  terminates employment within
90 days of an event that both occurs during the Protected Period and constitutes
Good Reason,  or (iii) the Bank or its  successor(s) in interest  terminates the
Executive's employment without his written consent and for any reason other than
Just Cause during the Protected Period.

                    (b) Amount of Severance  Benefit.  If the Executive  becomes
entitled to collect  severance  benefits  pursuant to Section 12(a) hereof,  the
Bank shall pay the Executive a severance benefit equal to the difference between
the Code  ss.280G  Maximum  and the sum of any  other  "parachute  payments"  as
defined under Code  ss.280G(b)(2)  that the Executive receives on account of the
Change in Control.  Said sum shall be paid,  at the  election of the  Executive,
either  (i) in one lump  sum  within  ten  days of the  later of the date of the
Change in Control and the  Executive's  last day of employment with the Bank, or
(ii)  periodic  payments  over a period  of up to  sixty  months  with  interest
accruing on unpaid  amounts at the same rate that would be applied to  determine
Present  Value.  In the event that the Executive and the Bank jointly agree that
the Executive has collected an amount  exceeding the Code ss.280G  Maximum,  the
parties  may agree

                                       36
<PAGE>

in writing  that such  excess  shall be  treated  as a loan ab initio  which the
Executive shall repay to the Bank, on terms and conditions mutually agreeable to
the parties,  together with interest at the applicable federal rate provided for
in Section 7872(f)(2)(B) of the Code.

                    (c)  Funding  of  Grantor  Trust  upon  Change  in  Control.
Notwithstanding  any other  provision of this  Agreement that may be contrary or
inconsistent  herewith,  not  later  than ten  business  days  after a Change in
Control,  the Bank  shall (i)  deposit  in a Trust an  amount  equal to the Code
ss.280G Maximum,  unless the Executive has previously provided a written release
of any claims  under this  Agreement,  and (ii) provide the trustee of the Trust
with a written  direction to hold said amount and any investment  return thereon
in a  segregated  account  for the benefit of the  Executive,  and to follow the
procedures  set forth in the next  paragraph  as to the payment of such  amounts
from the Trust. At any time or from time to time during the 27-consecutive month
period after a Change in Control,  the  Executive may provide the trustee of the
Trust with a written  notice  directing that the trustee pay to the Executive an
amount  designated  in the notice as being payable  pursuant to this  Agreement.
Within three business days after receiving said notice, the trustee of the Trust
shall pay the Executive the amount designated  therein in immediately  available
funds,  and shall  thereafter send the Bank a written notice  thereof.  Upon the
earlier of the Trust's  final  payment of all  amounts  due under the  following
paragraph or the date 27 months after the Change in Control,  the trustee of the
Trust  shall pay to the Bank the  entire  balance  remaining  in the  segregated
account  maintained  for the  benefit  of the  Executive.  The  Executive  shall
thereafter have no further interest in the Trust.

         13.  Indemnification.   The  Bank agrees that its Bylaws shall continue
to provide for indemnification of directors,  officers,  employees and agents of
the Bank, including the Executive,  during the full term of this Agreement,  and
to at all times provide adequate insurance for such purposes.

         14.  Reimbursement  of Executive for  Enforcement  Proceedings.  In the
event that any dispute arises between the Executive and the Bank as to the terms
or  interpretation  of  this  Agreement,  whether  instituted  by  formal  legal
proceedings  or  otherwise,  including  any action that the  Executive  takes to
defend against any action taken by the Bank,  the Executive  shall be reimbursed
for all costs and expenses,  including reasonable  attorneys' fees, arising from
such dispute, proceedings or actions, provided that the Executive obtains either
a written  settlement or a final judgement by a court of competent  jurisdiction
substantially in his favor. Such reimbursement  shall be paid within ten days of
the  Executive's  furnishing to the Bank written  evidence,  which may be in the
form,  among  other  things,  of a cancelled  check or receipt,  of any costs or
expenses incurred by the Executive.

         15.  Federal Income Tax Withholding.  The Bank may withhold all federal
and state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.

         16.  Successors and Assigns.

                    (a) Bank.  This  Agreement  shall not be  assignable  by the
Bank,  provided that this Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Bank which shall acquire,  directly
or  indirectly,  by  merger,  consolidation,   purchase  or  otherwise,  all  or
substantially all of the assets or stock of the Bank, as the case may be.

                                       37
<PAGE>

                    (b) Executive.  Since the Bank is contracting for the unique
and personal  skills of the  Executive,  the Executive  shall be precluded  from
assigning or delegating his rights or duties  hereunder  without first obtaining
the  written  consent  of the Bank;  provided,  however,  that  nothing  in this
paragraph  shall  preclude (i) the Executive  from  designating a beneficiary to
receive any benefit  payable  hereunder  upon his death,  or (ii) the executors,
administrators,  or other legal  representatives  of the Executive or his estate
from assigning any rights hereunder to the person or persons entitled thereunto.

                    (c)  Attachment.  Except as required by law, no right of the
Executive  to  receive  payments  under  this  Agreement  shall  be  subject  to
anticipation,  commutation,  alienation, sale, assignment,  encumbrance, charge,
pledge, or hypothecation or to exclusion, attachment, levy or similar process or
assignment by operation of law, and any attempt,  voluntary or  involuntary,  to
effect any such action shall be null, void and of no effect.

         17.  Amendments.  No  amendments  or additions  to this Agreement shall
be binding  unless made in writing and signed by all of the  parties,  except as
herein otherwise specifically provided.

         18.  Applicable  Law.  Except to the extent preempted  by Federal  law,
the laws of the State of Kentucky  shall govern this  Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.

         19.  Severability.  The  provisions of  this Agreement  shall be deemed
severable and the  invalidity  or  unenforceability  of any provision  shall not
affect the validity or enforceability of the other provisions hereof.

         20.  Entire Agreement.  This Agreement, together with any understanding
or  modifications  thereof  as  agreed  to in  writing  by  the  parties,  shall
constitute the entire  agreement  between the parties hereto and shall supersede
any prior agreement between the parties.

         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
                                        HOME FEDERAL BANK
Witnessed by:


________________________________        By:_____________________________________
Acting Secretary                           Its Chairman of the Board

                                        EXECUTIVE

Witnessed by:


________________________________        ________________________________________
Acting Secretary                               Stanley Alexander, Jr.

                                       38
<PAGE>

                                HOME FEDERAL BANK

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

                            EMPLOYMENT AGREEMENT WITH
                                KENNETH V. JONES
                           --------------------------


         THIS  AGREEMENT  entered  into this 1st day of  January,  2002,  by and
between Home Federal Bank, (the "Bank"), and Kenneth V. Jones (the "Executive"),
effective  on  the  Effective  Date,  is an  amendment  and  restatement  of the
agreement  entered  into by and between the Bank and Kenneth V. Jones on January
1, 2001.

         WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Executive.

         NOW, THEREFORE, it is AGREED as follows:

         1.   Defined Terms

         When used anywhere in this  Agreement,  the following  terms shall have
the meaning set forth  herein.

                    (a) "Board" shall mean the Board of Directors of the Bank.

                    (b) "Change in Control"  shall mean any one of the following
events: (i) the acquisition of ownership, holding or power to vote more than 25%
of the Bank's or the Company's voting stock, (ii) the acquisition of the ability
to control the election of a majority of the Bank's or the Company's  directors,
(iii) the acquisition of a controlling influence over the management or policies
of the Bank or the  Company  by any  person  or by  persons  acting as a "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934), or
(iv) during any period of two consecutive  years,  individuals  (the "Continuing
Directors")  who at the  beginning  of  such  period  constitute  the  Board  of
Directors of the Bank or the Company (the "Existing Board") cease for any reason
to constitute at least  two-thirds  thereof,  provided that any individual whose
election  or  nomination  for  election  as a member of the  Existing  Board was
approved by a vote of at least  two-thirds of the  Continuing  Directors then in
office shall be considered a Continuing Director. Notwithstanding the foregoing,
in the case of (i), (ii) and (iii)  hereof,  ownership or control of the Bank by
the Company  itself shall not  constitute  a Change in Control.  For purposes of
this paragraph only, the term "person" refers to an individual or a corporation,
partnership,   trust,   association,   joint  venture,  pool,  syndicate,   sole
proprietorship,  unincorporated  organization  or any other  form of entity  not
specifically listed herein.

                                       39
<PAGE>

                    (c) "Code" shall mean the Internal  Revenue Code of 1986, as
amended from time to time, and as  interpreted  through  applicable  rulings and
regulations in effect from time to time.

                    (d) "Code  ss.280G  Maximum" shall mean the product of 1 and
his "base amount" as defined in Code ss.280G(b)(3).

                    (e) "Company" shall mean HFB Financial Corporation.

                    (f) "Disability" shall mean, for purposes of this Agreement,
a  physical  or mental  infirmity  which  impairs  the  Executive's  ability  to
substantially  perform his duties under this  Agreement and which results in the
Executive becoming eligible for long-term  disability  benefits under the Bank's
long-term  disability  plan (or,  if the Bank has no such plan in effect,  which
impairs the Executive's  ability to substantially  perform his duties under this
Agreement for a period of 180 consecutive days).

                    (g) "Effective Date" shall mean January 1, 2002.

                    (h) "Expiration  Date" shall mean the date on which the term
of this Agreement  expires pursuant to Section 5 hereof (taking into account any
and all renewals of such term).

                    (i) "Good Reason"  shall mean any of the  following  events,
which has not been consented to in advance by the Executive in writing:  (i) the
requirement  that the  Executive  move his  personal  residence,  or perform his
principal executive functions,  more than 35 miles from his primary office as of
the later of the Effective Date and the most recent voluntary  relocation by the
Executive;  (ii) a material reduction in the Executive's base compensation under
this Agreement as the same may be increased from time to time; (iii) the failure
by the Bank to continue to provide the Executive with  compensation and benefits
provided under this Agreement as the same may be increased from time to time, or
with benefits  substantially  similar to those  provided to him under any of the
employee  benefit  plans in which  the  Executive  now or  hereafter  becomes  a
participant,  or the taking of any action by the Bank which  would  directly  or
indirectly  reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by him under this  Agreement;  (iv) the assignment to the
Executive  of  duties  and  responsibilities  materially  different  from  those
normally associated with his position; (v) a failure to reelect the Executive to
the Board of Directors of the Bank;  (vi) a material  diminution or reduction in
the   Executive's    responsibilities   or   authority    (including   reporting
responsibilities)  in connection  with his employment  with the Bank; or (vii) a
material  reduction in the  secretarial or other  administrative  support of the
Executive.

                    (j) "Just Cause" shall mean, in the good faith determination
of  the  Board,  the  Executive's  personal  dishonesty,  incompetence,  willful
misconduct,  breach of fiduciary duty  involving  personal  profit,  intentional
failure  to  perform  stated  duties,  willful  violation  of any  law,  rule or
regulation  (other  than  traffic  violations  or  similar  offenses)  or  final
cease-and-desist  order,  or material breach of any provision of this Agreement.
No act, or failure to act, on the

                                       40
<PAGE>

Executive's part shall be considered "willful" unless he has acted, or failed to
act,  with an absence of good faith and  without a  reasonable  belief  that his
action or failure to act was in the best interest of the Bank.

                    (k) "Present Value" shall mean the applicable  federal rate,
as determined in accordance with the rules and regulations under Code ss.280G.

                    (l) "Protected  Period" shall mean the period that begins on
the date six  months  before a Change  in  Control  and ends on the later of the
second annual  anniversary  of the Change in Control or the  expiration  date of
this Agreement.

                    (m) "Trust"  shall mean a grantor  trust that is designed in
accordance  with Revenue  Procedure  92-64 and has a trustee  independent of the
Bank.

         2. Employment. The Executive is employed as Chief Operations Officer of
the Bank. The Executive shall render such administrative and management services
for the Bank as are  currently  rendered  and as are  customarily  performed  by
persons  situated  in a similar  executive  capacity,  including  as a full-time
employee  and  officer  of  the  Bank,  service  on the  Bank's  Asset/Liability
Management and Investment  Committees which meet regularly.  The Executive shall
also promote,  by entertainment or otherwise,  as and to the extent permitted by
law, the business of the Bank. The Executive's other duties shall be such as the
Board may from time to time  reasonably  direct,  including  normal duties as an
officer of the Bank.

         3. Base  Compensation.  The Bank agrees to pay the Executive during the
term of this Agreement a salary at the rate of $95,000.00 per annum,  payable in
cash not less  frequently than monthly.  The Board shall review,  not less often
than annually,  the rate of the Executive's  salary,  and in its sole discretion
may decide to increase his salary.

         4.  Discretionary  Bonuses.  The  Executive  shall  participate  in  an
equitable  manner  with all other  senior  management  employees  of the Bank in
discretionary  bonuses  that the Board may award from time to time to the Bank's
senior  management  employees.  No  other  compensation  provided  for  in  this
Agreement shall be deemed a substitute for the Executive's  right to participate
in such discretionary bonuses. Notwithstanding the foregoing, following a Change
in Control, the Executive shall receive  discretionary  bonuses that are made no
less  frequently  than,  and in annual amounts not less than, the average annual
discretionary bonuses paid to the Executive during the calendar year immediately
preceding the year in which such Change in Control occurs.

         5.  Other Benefits.

                    (a)  Participation  in Retirement,  Medical and Other Plans.
During  the  term  of  this  Agreement,  the  Executive  shall  be  eligible  to
participate  in the  following  benefit  plans  maintained  by the  Bank:  group
hospitalization,  disability, health, dental, sick leave, life insurance, travel
and/or accident  insurance,  auto  allowance/auto  lease,  retirement,  pension,
and/or other present or future qualified plans provided by the Bank,  generally,
which  benefits,

                                       41
<PAGE>

taken  as a  whole,  must be at least as  favorable  as those in  effect  on the
Effective Date.  Further, if the Executive retires from employment with the Bank
at or after  age 55 and for a reason  other  than  Just  Cause,  the Bank  shall
provide the Executive and his legal dependents with medical  insurance  coverage
that is not less  favorable  than the  coverage  that the Bank  provides for its
officers.  The Bank shall pay all premiums for this  coverage,  shall provide it
for the  Executive's  lifetime,  and agrees that this  obligation  shall survive
expiration of this Agreement.

                    (b) Employee  Benefits;  Expenses.  The  Executive  shall be
eligible to participate in any fringe benefits which are or may become available
to the Bank's senior  management  employees,  including  for example:  any stock
option  or  incentive  compensation  plans,  and any  other  benefits  which are
commensurate  with the  responsibilities  and  functions  to be performed by the
Executive  under this  Agreement.  The  Executive  shall be  reimbursed  for all
reasonable  out-of-pocket  business  expenses which he shall incur in connection
with his services under this Agreement upon  substantiation  of such expenses in
accordance with the policies of the Bank.

         6. Term.  The Bank hereby  employs  the  Executive,  and the  Executive
hereby accepts such employment under this Agreement,  for the period  commencing
on the Effective  Date and ending 36 months  thereafter (or such earlier date as
is  determined  in  accordance  with Section 10).  Additionally,  on each annual
anniversary  date from the Effective  Date, the  Executive's  term of employment
shall be extended for an additional  two-year  period beyond the then  effective
expiration date, provided the Board determines in a duly adopted resolution that
the performance of the Executive has met the Board's requirements and standards,
and that this Agreement  shall be extended.  Only those members of the Board who
have no personal interest in this Employment Agreement shall discuss and vote on
the approval and subsequent review of this Agreement.

         In the event the Executive serves the full term of this Agreement,  and
the Bank does not offer to renew  this  Agreement  upon  substantially  the same
terms and  conditions for an additional  two- year term, the Executive  shall be
entitled to a severance  benefit equal to twelve months of his then current base
monthly salary, plus such vested employee benefits to which the Executive may be
entitled when due and payable.

         7.  Loyalty; Noncompetition.

                    (a) During the period of his employment hereunder and except
for illnesses,  reasonable  vacation periods,  and reasonable leaves of absence,
the Executive  shall devote all his full business time,  attention,  skill,  and
efforts to the faithful performance of his duties hereunder;  provided, however,
from time to time,  the  Executive  may serve on the boards of directors of, and
hold any other offices or positions in, companies or  organizations,  which will
not present any conflict of interest with the Bank or any of its subsidiaries or
affiliates,  or unfavorably  affect the  performance of the  Executive's  duties
pursuant  to this  Agreement,  or will not  violate  any  applicable  statute or
regulation.  "Full  business  time" is  hereby  defined  as that  amount of time
usually  devoted to like  companies by similarly  situated  executive  officers.
During the term of his employment under this Agreement,  the Executive shall not
engage in any business or activity

                                       42
<PAGE>

contrary to the  business  affairs or  interests  of the Bank,  or be  gainfully
employed in any other position or job other than as provided above.

                    (b) Nothing  contained  in this  Section  shall be deemed to
prevent or limit the  Executive's  right to invest in the capital stock or other
securities  of any business  dissimilar  from that of the Bank,  or, solely as a
passive or minority investor, in any business.

         8.  Standards.  The  Executive  shall  perform  his  duties  under this
Agreement  in  accordance  with  such  reasonable  standards  as the  Board  may
establish  from  time to time.  The Bank will  provide  the  Executive  with the
working  facilities and staff customary for similar executives and necessary for
him to perform his duties.

         9. Vacation and Sick Leave. At such reasonable times as the Board shall
in its discretion permit, the Executive shall be entitled,  without loss of pay,
to absent himself  voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:

                    (a) The Executive shall be entitled to an annual vacation in
accordance with the policies that the Board periodically  establishes for senior
management employees of the Bank.

                    (b)  The   Executive   shall  not  receive  any   additional
compensation from the Bank on account of his failure to take a vacation, and the
Executive  shall not  accumulate  unused  vacation or sick leave from one fiscal
year to the next, except in either case to the extent authorized by the Board.

                    (c)  In  addition  to  the  aforesaid  paid  vacations,  the
Executive shall be entitled  without loss of pay, to absent himself  voluntarily
from the performance of his employment with the Bank for such additional periods
of time and for such  valid  and  legitimate  reasons  as the  Board  may in its
discretion  determine.  Further, the Board may grant to the Executive a leave or
leaves of  absence,  with or  without  pay,  at such time or times and upon such
terms and conditions as such Board in its discretion may determine.

                    (d)  In  addition,  the  Executive  shall be entitled  to an
annual sick leave benefit as established by the Board.

         10.  Termination and Termination Pay. Subject to Section 12 hereof, the
Executive's   employment   hereunder  may  be  terminated  under  the  following
circumstances:

                    (a) Death.  The Executive's  employment under this Agreement
shall terminate upon his death during the term of this Agreement, in which event
the  Executive's  estate shall be entitled to receive the  compensation  due the
Executive through the Agreement's Expiration Date.

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<PAGE>

                    (b)  Disability.  The Bank  may  terminate  the  Executive's
employment after having  established the Executive's  Disability.  The Executive
shall be entitled  to the  compensation  and  benefits  provided  for under this
Agreement for (i) any period during the term of this  Agreement and prior to the
establishment of the Executive's Disability during which the Executive is unable
to work  due to the  physical  or  mental  infirmity,  or  (ii)  any  period  of
Disability which is prior to the Executive's  termination of employment pursuant
to this  Section;  provided  that any benefits  paid pursuant to the Bank's long
term disability  plan will continue as provided in such plan.  During any period
that the Executive shall receive disability  benefits and to the extent that the
Executive  shall be physically and mentally able to do so, he shall furnish such
information,  assistance and documents so as to assist in the continued  ongoing
business of the Bank and, if able,  shall make himself  available to the Bank to
undertake  reasonable  assignments  consistent  with his prior  position and his
physical and mental health. The Bank shall pay all reasonable  expenses incident
to  the  performance  of  any  assignment  given  to the  Executive  during  the
disability period.

                    (c) Just  Cause.  The Board may,  by  written  notice to the
Executive, immediately terminate his employment at any time, for Just Cause. The
Executive shall have no right to receive  compensation or other benefits for any
period after termination for Just Cause.

                    (d) Without Just Cause;  Constructive  Discharge.  The Board
may, by written notice to the Executive, immediately terminate his employment at
any time for a reason other than Just Cause,  in which event the Executive shall
be entitled to receive the  following  compensation  and  benefits  (unless such
termination  occurs during the Protected Period, in which event the benefits and
compensation  provided for in Section 12 shall apply):  (i) the salary  provided
pursuant to Section 3 hereof, up to the Expiration Date, plus said salary for an
additional 12-month period, and (ii) at the Executive's election either (A) cash
in an  amount  equal  to the  Present  Value  of the  cost to the  Executive  of
obtaining all health,  life,  disability  and other benefits which the Executive
would have been eligible to  participate  in through the  Expiration  Date based
upon the benefit levels  substantially equal to those that the Bank provided for
the  Executive  at the  date of  termination  of  employment,  or (B)  continued
participation  under such Bank benefit plans through the  Expiration  Date,  but
only to the extent the Executive continues to qualify for participation therein;
provided  that in no event shall the total value of the  payments  due under (i)
and (ii) hereof exceed three years' total  compensation.  All amounts payable to
the Executive shall be paid, at the option of the Executive,  either in periodic
payments through the Expiration Date, or in one lump sum within ten days of such
termination  (in which event he shall receive the Present Value of such periodic
payments).

                    (e) Good Reason.  The Executive shall be entitled to receive
the compensation and benefits payable under subsection 10(d) hereof in the event
that he  voluntarily  terminates  employment  within  90 days of an  event  that
constitutes Good Reason,  (unless such voluntary  termination  occurs during the
Protected Period,  in which event the benefits and compensation  provided for in
Section 12 shall apply).

                    (f) Voluntary  Termination by Executive.  Subject to Section
12 hereof,  the Executive may  voluntarily  terminate  employment  with the Bank
during the term of this

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<PAGE>

Agreement,  upon at least 90 days' prior written  notice to the Board,  in which
case the  Executive  shall  receive  only his  compensation,  vested  rights and
employee  benefits up to the date of his  termination  (unless such  termination
occurs pursuant to Section 10(e) hereof or within the Protected Period, in which
event the benefits  and  compensation  provided for in Sections  10(d) or 12, as
applicable, shall apply).

         11.  No Mitigation.  The Executive  shall not be required  to  mitigate
the amount of any  payment  provided  for in this  Agreement  by  seeking  other
employment  or otherwise  and no such payment  shall be offset or reduced by the
amount  of  any  compensation  or  benefits  provided  to the  Executive  in any
subsequent employment.

         12.  Change in Control.

                    (a)  Trigger  Events.  The  Executive  shall be  entitled to
collect the severance  benefits set forth in subsection  (b) hereof in the event
that either (i) the Executive  voluntarily  terminates employment either for any
reason other than Just Cause within the 30-day period beginning on the date of a
Change in Control, (ii) the Executive  voluntarily  terminates employment within
90 days of an event that both occurs during the Protected Period and constitutes
Good Reason,  or (iii) the Bank or its  successor(s) in interest  terminates the
Executive's employment without his written consent and for any reason other than
Just Cause during the Protected Period.

                    (b) Amount of Severance  Benefit.  If the Executive  becomes
entitled to collect  severance  benefits  pursuant to Section 12(a) hereof,  the
Bank shall pay the Executive a severance benefit equal to the difference between
the Code  ss.280G  Maximum  and the sum of any  other  "parachute  payments"  as
defined under Code  ss.280G(b)(2)  that the Executive receives on account of the
Change in Control.  Said sum shall be paid,  at the  election of the  Executive,
either  (i) in one lump  sum  within  ten  days of the  later of the date of the
Change in Control and the  Executive's  last day of employment with the Bank, or
(ii)  periodic  payments  over a period  of up to  sixty  months  with  interest
accruing on unpaid  amounts at the same rate that would be applied to  determine
Present  Value.  In the event that the Executive and the Bank jointly agree that
the Executive has collected an amount  exceeding the Code ss.280G  Maximum,  the
parties  may agree in  writing  that such  excess  shall be treated as a loan ab
initio  which the  Executive  shall repay to the Bank,  on terms and  conditions
mutually  agreeable to the parties,  together  with  interest at the  applicable
federal rate provided for in Section 7872(f)(2)(B) of the Code.

                    (c)  Funding  of  Grantor  Trust  upon  Change  in  Control.
Notwithstanding  any other  provision of this  Agreement that may be contrary or
inconsistent  herewith,  not  later  than ten  business  days  after a Change in
Control,  the Bank  shall (i)  deposit  in a Trust an  amount  equal to the Code
ss.280G Maximum,  unless the Executive has previously provided a written release
of any claims  under this  Agreement,  and (ii) provide the trustee of the Trust
with a written  direction to hold said amount and any investment  return thereon
in a  segregated  account  for the benefit of the  Executive,  and to follow the
procedures  set forth in the next  paragraph  as to the payment of such  amounts
from the Trust. At any time or from time to time during the 27-consecutive month
period after a Change in Control,  the  Executive may provide the trustee of the

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<PAGE>

Trust with a written  notice  directing that the trustee pay to the Executive an
amount  designated  in the notice as being payable  pursuant to this  Agreement.
Within three business days after receiving said notice, the trustee of the Trust
shall pay the Executive the amount designated  therein in immediately  available
funds,  and shall  thereafter send the Bank a written notice  thereof.  Upon the
earlier of the Trust's  final  payment of all  amounts  due under the  following
paragraph or the date 27 months after the Change in Control,  the trustee of the
Trust  shall pay to the Bank the  entire  balance  remaining  in the  segregated
account  maintained  for the  benefit  of the  Executive.  The  Executive  shall
thereafter have no further interest in the Trust.

         13.  Indemnification. The Bank agrees that its Bylaws  shall   continue
to provide for indemnification of directors,  officers,  employees and agents of
the Bank, including the Executive,  during the full term of this Agreement,  and
to at all times provide adequate insurance for such purposes.

         14.  Reimbursement  of Executive for  Enforcement  Proceedings.  In the
event that any dispute arises between the Executive and the Bank as to the terms
or  interpretation  of  this  Agreement,  whether  instituted  by  formal  legal
proceedings  or  otherwise,  including  any action that the  Executive  takes to
defend against any action taken by the Bank,  the Executive  shall be reimbursed
for all costs and expenses,  including reasonable  attorneys' fees, arising from
such dispute, proceedings or actions, provided that the Executive obtains either
a written  settlement or a final judgement by a court of competent  jurisdiction
substantially in his favor. Such reimbursement  shall be paid within ten days of
the  Executive's  furnishing to the Bank written  evidence,  which may be in the
form,  among  other  things,  of a cancelled  check or receipt,  of any costs or
expenses incurred by the Executive.

         15.  Federal Income Tax Withholding.  The Bank may withhold all federal
and state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.

         16.  Successors and Assigns.

                    (a) Bank.  This  Agreement  shall not be  assignable  by the
Bank,  provided that this Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Bank which shall acquire,  directly
or  indirectly,  by  merger,  consolidation,   purchase  or  otherwise,  all  or
substantially all of the assets or stock of the Bank, as the case may be.

                    (b) Executive.  Since the Bank is contracting for the unique
and personal  skills of the  Executive,  the Executive  shall be precluded  from
assigning or delegating his rights or duties  hereunder  without first obtaining
the  written  consent  of the Bank;  provided,  however,  that  nothing  in this
paragraph  shall  preclude (i) the Executive  from  designating a beneficiary to
receive any benefit  payable  hereunder  upon his death,  or (ii) the executors,
administrators,  or other legal  representatives  of the Executive or his estate
from assigning any rights hereunder to the person or persons entitled thereunto.

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<PAGE>

                    (c)  Attachment.  Except as required by law, no right of the
Executive  to  receive  payments  under  this  Agreement  shall  be  subject  to
anticipation,  commutation,  alienation, sale, assignment,  encumbrance, charge,
pledge, or hypothecation or to exclusion, attachment, levy or similar process or
assignment by operation of law, and any attempt,  voluntary or  involuntary,  to
effect any such action shall be null, void and of no effect.

         17.  Amendments.  No amendments or additions to this Agreement shall be
binding  unless  made in  writing  and signed by all of the  parties,  except as
herein otherwise specifically provided.

         18.  Applicable Law.  Except to the extent preempted  by  Federal  law,
the laws of the State of Kentucky  shall govern this  Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.

         19.  Severability.  The provisions of  this  Agreement  shall be deemed
severable and the  invalidity  or  unenforceability  of any provision  shall not
affect the validity or enforceability of the other provisions hereof.

         20.  Entire Agreement.  This Agreement, together with any understanding
or  modifications  thereof  as  agreed  to in  writing  by  the  parties,  shall
constitute the entire  agreement  between the parties hereto and shall supersede
any prior agreement between the parties.

         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.
                                               HOME FEDERAL BANK
Witnessed by:


________________________________               By:______________________________
Acting Secretary                                  Its Chairman of the Board

                                               EXECUTIVE
Witnessed by:


________________________________               _________________________________
Acting Secretary                                        Kenneth V. Jones

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