The following table sets forth the amount of the Company's certificates of deposit and other deposits by time remaining until maturity as of June 30, 2001.

(1)         Includes certificates of deposit of $100,000 or more from governmental and other public entities.

The Bank solicits certificates of deposit of $100,000 or greater ("jumbo certificates") from various state, county and local government units which carry rates which are negotiated at the time of deposit.  See Note 7 of "Notes to Consolidated Financial Statements.”  Deposits at June 30, 2001 and 2000 include $37.1 million and $45.2 million, respectively of deposits from one local governmental entity, the majority of which are demand accounts.

Borrowings.  Although deposits are the Bank's primary source of funds, the Bank's policy has been to utilize borrowings when they are a less costly source of funds or can be invested at a positive rate of return.

The Bank’s borrowings consist primarily of advances from the FHLB of Des Moines upon the security of its capital stock of the FHLB of Des Moines and certain of its mortgage loans and mortgage–backed securities.  Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.  At June 30, 2001, the Bank's FHLB advances totaled $100.7 million, representing 13.8% of total liabilities.  See Note 8 of  “Notes to Consolidated Financial Statements” for further detail of the Company’s borrowings.

The following table sets forth the maximum month-end balances and average balances of FHLB advances and other borrowings at the dates indicated.

The following table sets forth certain information as to the Bank's FHLB advances and other borrowings of the Company at the dates indicated.

Subsidiary Activities

As a federally chartered thrift institution, Home Federal is permitted by OTS regulations to invest up to 2% of its assets, or $15.7 million at June 30, 2001, in the stock of, or loans to, service corporation subsidiaries.  As of such date, the net book value of Home Federal's investment in and loans to its service corporations was approximately $344,000.  Home Federal may invest an additional 1% of its assets in service corporations where such additional funds are used for inner–city or community development purposes.  In addition to investments in service corporations, federal associations are permitted to invest an unlimited amount in operating subsidiaries engaged solely in activities which a federal association may engage in directly.

Home Federal has three subsidiary corporations, Hometown Insurors, Inc. ("Hometown"), Mid–America Service Corporation ("Mid–America") and PMD, Inc. ("PMD").

Hometown, located in Sioux Falls, South Dakota, provides a full line of insurance products to customers of Home Federal and members of the general public in Home Federal's market area.  Insurance products offered by Hometown include annuities and life, health, homeowners, and auto insurance and, to a lesser extent, certain commercial-related insurance products.  Home Federal had an investment in Hometown of $206,000 at June 30, 2001.  Hometown had a loss before tax of $187,000 for the 2001 fiscal year.  During fiscal year 2001, Home Federal infused capital of $225,000 into Hometown.

Mid-America is an appraisal company located in Sioux Falls, South Dakota, that provides residential appraisal services to Home Federal and other lenders in the Bank's market area.  At June 30, 2001, the Bank had a $137,000 investment in Mid–America.  Mid–America had income before tax of $26,000 for the 2001 fiscal year.

PMD, located in Sioux Falls, South Dakota, is engaged in the business of buying, selling and managing repossessed real estate properties.  At June 30, 2001, the Bank had a $1,000 investment in PMD.  PMD had no activity during fiscal year 2001.

In May, 1996 the Company formed a Limited Liability Company named HF Card Services L.L.C. (“HF Card Services”) and became the owner of 51% of the membership interest of this entity.  The Company became the owner of 100% of HF Card Services effective as of July 1998.  HF Card Services was established to provide secured, partially-secured and unsecured credit cards nationwide.  At June 30, 2001, the Company had a negative investment in HF Card Services of $7.6 million.  HF Card Services had a net loss before taxes of $675,000 for the 2001 fiscal year.  Based upon lack of performance, the Company ceased processing subprime credit card applications in March 1999.

HomeFirst Mortgage Corp. is a South Dakota Corporation which had an office in Omaha, Nebraska.  The Mortgage Corp. was a mortgage banking operation that originated one- to four- family residential loans which were sold into the secondary market.  At June 30, 2001, the Company had a $3.0 million investment in the Mortgage Corp.  The Mortgage Corp. had  income before tax of $81,000 for fiscal 2001 and  no activity during fiscal 2000.

The Mortgage Corp. resumed activity in August 2000 through the acquisition of Mid America Leasing., a company specializing in equipment finance leasing.  This acquisition expands the Company’s servicing options for commercial and municipal customers.  The Mortgage Corp. had in investment in Mid America Leasing of $2.3 million.  Mid America Leasing had income before tax of $177,000 for the 2001 fiscal year.

Competition

Home Federal faces strong competition, both in originating real estate and other loans and in attracting deposits. Competition in originating real estate loans comes primarily from other commercial banks, credit unions and mortgage bankers making loans secured by real estate located in the Bank's market areas. Commercial banks and finance companies provide vigorous competition in consumer lending.  The Bank competes for real estate and other loans principally on the basis of the quality of services it provides to borrowers, interest rates and loan fees it charges and the types of loans it originates.

The Bank attracts all of its deposits through its retail banking offices, primarily from the communities in which those retail banking offices are located; therefore, competition for those deposits is principally from other commercial banks and credit unions located in the same communities.  The Bank competes for these deposits by offering a variety of deposit accounts at competitive rates, convenient business hours, and convenient branch locations with interbranch deposit and withdrawal privileges at each.  There are approximately 26 financial institutions which compete for deposits in Minnehaha County.  According to information contained in reports prepared by the FDIC, the Bank is the third largest financial institution based on total deposits in Minnehaha County, excluding Citibank.  Management estimates that its deposit market share in Minnehaha County, where the majority of its deposits are located, is approximately 10%, excluding Citibank.

Employees

At June 30, 2001, the Bank had a total of 337 employees including 25 employees of the Bank's service corporations.  Mid America Leasing had a total of 5 employees not included in the Bank’s total.

The Bank's employees are not represented by any collective bargaining group.  Management considers its relations with its employees to be good.

Regulation

General.  The Bank is a federally chartered thrift institution, the deposits of which are federally insured and backed by the full faith and credit of the United States Government.  Accordingly, the Bank is subject to broad federal regulation and oversight extending to all its operations.  The Bank is a member of the FHLB of Des Moines and is subject to certain limited regulation by the Federal Reserve Board.  As the savings and loan holding company of the Bank, the Company also is subject to federal regulation and oversight.  The purpose of the regulation of the Company and other holding companies is to protect subsidiary savings associations where deposits are federally insured.

The Bank is a member of the Savings Association Insurance Fund (the "SAIF") and the deposits of the Bank are insured by the FDIC. Certain of these regulatory requirements and restrictions are discussed below or elsewhere in this document.  The following discussion is intended to be a summary of the material statutes, regulations and policies applicable to savings associations and their holding companies, and it does not purport to be a comprehensive discussion of such statutes, regulations and policies.

Regulation of Federal Savings Associations.  As an office of the Department of the Treasury, the OTS has extensive authority over the operations of federal savings associations, such as the Bank.  Pursuant to this authority, the Bank is required to file periodic reports with the OTS and is subject to periodic examinations by the OTS and the FDIC.  The last examination of the Bank by the OTS concluded on December 27, 2000. Examiners may require a federal savings association to provide for higher general or specific loan loss–reserves.

Assessments.  The OTS has established a schedule for the assessment of fees upon all savings associations to fund the operations of the OTS. A schedule of fees has also been established for the various types of applications and filings made by savings associations with the OTS.  In addition, the general assessment, paid on a semi–annual basis, is computed based upon the savings association's total assets, includ­ing consolidated subsidiaries, as reported in the association's latest quarterly thrift financial report.  Savings associations (unlike the Bank) that are classified as “troubled” are required to pay a 50% premium over the standard assessment. The Bank's OTS assessment (standard assessment) for the fiscal year ended June 30, 2001 was approximately $137,000.

The OTS has proposed amendments to its regulations that are intended to assess savings associations on a more equitable basis.  The proposed regulations would base the assessment for an individual savings association on three components:  the size of the association, on which the basic assessment would be based; the association’s supervisory condition, which would result in percentage increases for any savings institution with a composite rating of 3, 4 or 5 in its most recent safety and soundness examination; and the complexity of the association’s operations, which would result in percentage increases for a savings association that managed over $1 billion in trust assets, serviced for others loans aggregating more than $1 billion, or had certain off-balance sheet assets aggregating more than $1 billion.  In order to avoid a disproportionate impact on the smaller savings institutions, the OTS is proposing to permit the portion of the assessment based on assets size either under the current regulations or under the amended regulations.  Management believes that, assuming the proposed regulations are adopted as proposed, any change in its rate of OTS assessments will not be material.

Enforcement.  Under the Federal Deposit Insurance Act (the “FDI Act”), the OTS has primary enforcement responsibility over savings associations and has the authority to bring enforcement action against all “institution-affiliated parties,” including any controlling stockholder or any stockholder, attorney, appraiser or accountant who knowingly or recklessly participates in any violation of applicable law or regulation or breach of fiduciary duty or certain other wrongful actions that causes or is likely to cause a more than a minimal loss or other significant adverse effect on an insured savings association.  Civil penalties cover a wide range of violations and actions and range from $5,000 for each day during which violations of law, regulations, orders, and certain written agreements and conditions continue, up to $1 million per day for such violations if the person obtained a substantial pecuniary gain as a result of such violation or knowingly or recklessly caused a substantial loss to the institution.  Criminal penalties for certain financial institution crimes include fines of up to $1 million and imprisonment for up to 30 years.  In addition, regulators have substantial discretion to take enforcement action against an institution that fails to comply with its regulatory requirements, particularly with respect to its capital requirements.  Possible enforcement actions range from the imposition of a capital plan and capital directive to receivership, conservatorship, or the termination of deposit insurance.  Under the FDI Act, the FDIC has the authority to recommend to the Director of OTS that enforcement action be taken with respect to a particular savings association.  If action is not taken by the Director of the OTS, the FDIC has authority to take such action under certain circumstances.

Business Activities.  The Bank derives its lending and investment powers from the Home Owners’ Loan Act, as amended (the “HOLA”), and the regulations of the OTS thereunder.  Under these laws and regulations, the Bank may invest in mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities and certain other assets.  The Bank may also establish service corporations that may engage in activities not otherwise permissible for the Bank, including certain real estate equity investments and securities and insurance brokerage.  These investment powers are subject to various limitations, including (a) a prohibition against the acquisition of any corporate debt security that is not rated in one of the four highest rating categories; (b) a limit of 400% of an association’s capital on the aggregate amount of loans secured by non-residential real estate property; (c) a limit of 20% of an association’s assets on the aggregate amount of commercial loans, with the amount of commercial loans in excess of 10% of assets being limited to small business loans; (d) a limit of 35% of an association’s assets on the aggregate amount of consumer loans and acquisitions of certain debt securities; (e) a limit of 5% of assets on non-conforming loans (loans in excess of the specific limitations of the HOLA); and (f) a limit of the greater of 5% of assets or an association’s capital on certain construction loans made for the purpose of financing what is or is expected to become residential property.

Under the HOLA, savings associations are generally subject to the same limits on Loans to One Borrower as are imposed on national banks.  Generally, under these limits, a savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of the association’s unimpaired capital and surplus.  Additional amounts may be lent, not in excess of 10% of unimpaired capital and surplus, if such loans or extensions of credit are fully secured by readily-marketable collateral.  Such collateral is defined to include certain debt and equity securities and bullion, but generally does not include real estate.  At June 30, 2001, the Bank's lending limit under this restriction was $7.9 million.  In addition, the Bank may provide purchase money financing for the sale of any asset without regard to the Loans to One Borrower limitation so long as no new funds are advanced and the Bank is not placed in a more detrimental position than if it had held the asset.  Home Federal is in compliance with the loans–to–one-­borrower limitation.

Safety and Soundness Standards.  Pursuant to the FDI Act, as amended by FDICIA and the Riegle Community Development and Regulatory Improvement Act of 1994 (the “Community Development Act”), the OTS and the federal bank regulatory agencies have adopted, effective August 9, 1995, a set of guidelines prescribing safety and soundness standards pursuant to FDICIA, as amended.  The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings, and compensation, fees and benefits.  In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.  The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder.  In addition, the OTS adopted regulations that authorize, but do not require, the OTS to order an institution that has been given notice by the OTS that it is not satisfying any of such safety and soundness standards to submit a compliance plan.  If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the OTS must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized association is subject under the “prompt corrective action” provisions of FDICIA.  If an institution fails to comply with such an order, the OTS may seek to enforce such order in judicial proceedings and to impose civil money penalties.

Accounting Standards.  The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (“FIRREA”) requires the OTS to establish accounting standards to be applicable to all savings associations for purposes of complying with regulations, except to the extent otherwise specified in the capital standards.  Such standards must incorporate generally accepted accounting standards to the same degree as is prescribed by federal banking agencies for banks, or may be more stringent than such requirements.

Insurance of Accounts and Regulation by the FDIC.  The Bank is a member of the SAIF, which is administered by the FDIC. Savings deposits are insured up to $100,000 per insured member (as defined by law and regulation) by the FDIC and such insurance is backed by the full faith and credit of the United States Government.  As insurer, the FDIC imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC–insured institutions.  It also may prohibit any FDIC–insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious risk to the FDIC.  The FDIC also has the authority to initiate enforcement actions against savings associations, after giving the OTS an opportunity to take such action, and may terminate the deposit insurance if it determines that the institution has engaged or is engaging in unsafe or unsound practices, or is in an unsafe or unsound condition.

On September 30, 1996, Congress passed and President Clinton signed into law The Deposit Insurance Funds Act of 1996 (“Funds Act”) to resolve the deposit insurance premium disparity.  The Funds Act also included extensive regulatory relief for banks and thrifts. The Funds Act included a one–time special assessment on SAIF deposits to be imposed to bring the fund's reserve ratio to the statutory required 1.25 percent.  The assessment rate was 65.7 basis points on deposits as of March 31, 1995 resulting in an assessment of $2.6 million on the Bank’s deposits as recorded of March 31, 1995 which was paid on November 29, 1996.  In addition, the Funds Act includes the following items which affect SAIF members:  (1) Pro–rata sharing of the Financing Corporation ("FICO") obligation among Bank Insurance Fund ("BIF”) and SAIF members began January 1, 2000.  From 1997 through 1999, partial sharing occurred, with SAIF deposits assessed 6.44 basis points and BIF deposits 1.29 basis points  (2) The FDIC is prohibited from setting the semi-annual assessment at a rate in excess of that needed to maintain or meet the required reserve ratio.  Until the funds are merged, the FDIC is permitted to rebate or credit excess premiums to BIF members only  (3) For a three–year period, the banking regulators are authorized to prevent SAIF insured institutions from "facilitating or encouraging" customers to shift their deposits to BIF–insured affiliates for the purpose of evading the SAIF premium  and (4) Pro–rata FICO sharing began and the ban on deposit shifting ended on January 1, 2000.  As a result of these changes in the Funds Act, the Bank’s deposit assessment was decreased.

FDICIA also authorizes the FDIC to implement a risk–based deposit insurance assessment system.  Pursuant to this requirement, the FDIC adopted a transitional risk–based assessment system, effective January 1, 1993, under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums, ranging from .23% to .31% of deposits, based upon their level of capital and supervisory evaluation.  The permanent system, adopted in June 1993 and effective January 1, 1994, continues the risk classification system established under the transitional rule.  Under this system, institutions classified as well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1 or core capital to risk–weighted assets ("Tier 1 risk–based capital") of at least 6% and a risk–based capital ratio of at least 10%) and considered healthy would pay the lowest premium while institutions that are less than adequately capitalized (i.e., core and Tier 1 risk–based capital ratios of less than 4% or a risk–based capital ratio of less than 8%) and considered of substantial supervisory concern would pay the highest premium.  Assessments currently range from 0.0% of deposits for institutions in the highest category to 0.27% of deposits for institutions in the lowest category.  Risk classification of all insured institutions will be made by the FDIC for each semi–annual assessment period.

The financing corporations created by FIRREA and the Competitive Equality Banking Act of 1987 are also empowered to assess premiums on savings associations to help fund the liquidation or sale of troubled savings associations.  Such premiums cannot, however, exceed the amount of SAIF assessments and are paid in lieu thereof.

The FDIC has adopted regulations that generally prohibit payments to directors, officers and employees contingent upon termination of their affiliation with an FDIC–insured institution or its holding company (i.e., "golden parachute payments") if the payment is received after or in contemplation of, among other things, insolvency, or a determination that the institution or holding company is in "troubled condition.”  Certain types of employee benefit plans are not subject to the prohibition.  The regulations would also generally prohibit certain indemnification payments for civil money penalties or other enforcement action.

Regulatory Capital Requirements.  Federally insured savings associations, such as the Bank, are required to maintain a minimum level of regulatory capital.  The OTS has established capital standards, including a tangible capital requirement, a leverage ratio (or core capital) requirement and a risk–based capital requirement applicable to such savings associations.  These capital requirements must be generally as stringent as the comparable capital requirements for national banks.  The OTS is also authorized to impose capital requirements in excess of these standards on individual associations on a case–by–case basis.

The capital regulations require tangible capital not less than 1.5% of adjusted total assets (as defined by regulation).  Tangible capital generally includes common stockholders' equity and retained income, and certain noncumulative perpetual preferred stock and related earnings on withdrawable accounts and deposits that qualify as core capital.  In addition, all intangible assets, other than a limited amount of purchased mortgage servicing rights and other categories must be deducted from tangible capital.  At June 30, 2001, Home Federal had $2.8 million of unamortized loan servicing rights, none of which were required to be deducted from tangible capital.

The OTS regulations establish special capitalization requirements for savings associations that own subsidiaries.  Under these regulations certain subsidiaries are consolidated for capital purposes and others are excluded from assets and capital.  In determining compliance with the capital requirements, all subsidiaries engaged solely in activities permissible for national banks or engaged in certain other activities solely as agent for its customers such as mortgage banking activities are “includable” subsidiaries that are consolidated for capital purposes in proportion to the association's level of ownership, including the assets of includable subsidiaries in which the association has a minority interest that is not consolidated for GAAP purposes.  All subsidiaries of the Bank are includable subsidiaries.

At June 30, 2001, the Bank had Tier I (Core) capital equal to $45.9 million, or 5.96% of adjusted total assets, which is $30.8 million above the minimum leverage ratio requirement of 4% as in effect on that date.

The capital standards also require core capital equal to at least 4% of adjusted total assets (as defined by regulation).  Core capital generally consists of tangible capital plus certain intangible assets, and up to 25% of other intangibles which meet certain separate salability and market valuation tests.  At June 30, 2001, the Bank had $4.7 million in intangible assets which were subject to these tests.  The amount of servicing rights includable as core capital is limited to 50% of such capital.

Effective December 31, 1990, national banks were required to maintain a ratio of core capital to adjusted total assets not less than 3%.  Only those national banks that receive a composite rating of one (the highest rating) under the "CAMELS" rating system for commercial banks and that, in general, are considered strong banking organizations will qualify for the 3% requirement.  All other national banks must maintain a core capital ratio of 3% plus an additional 100 to 200 basis points that would be established on a case–by–case basis.  As required by federal law, the OTS has proposed a rule revising its minimum core capital requirement to be no less stringent than that imposed on national banks.  The OTS has proposed that only those savings associations rated a composite one (the highest rating) under the MACRO rating system for savings associations will be permitted to operate at or near the regulatory minimum leverage ratio of 3%. All other savings associations will be required to maintain a minimum leverage ratio of 3% plus at least an additional 100 to 200 basis points.  The OTS will assess each individual savings association through the supervisory process on a case–by–case basis to determine the applicable requirement. No assurance can be given as to the final form of any such regulation, the date of its effectiveness or the requirement applicable to the Bank.

The OTS risk–based capital requirement requires savings associations to have total capital of at least 8% of risk–weighted assets.  Total capital consists of core capital, as defined above, and supplementary capital.  Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk–weighted assets.  Supplementary capital may be used to satisfy the risk–based requirement only to the extent of core capital up to 100% of core capital.  At June 30, 2001, Home Federal had no capital instruments that qualified as supplementary capital and $6.4 million of general loss reserves, which was not in excess of 1.25% of risk–weighted assets.

Certain exclusions from capital and assets are required to be made for the purpose of calculating total capital, in addition to the adjustments required for calculating core capital.  Such exclusions consist of equity investments (as defined by regulation) and that portion of land loans and nonresidential construction loans in excess of an 80% loan–to–value ratio and reciprocal holdings of qualifying capital instruments.  Home Federal had no such exclusions from capital and assets at June 30, 2001.

In determining the amount of risk–weighted assets, all assets, including certain off–balance sheet items, will be multiplied by the appropriate risk weight based on the risks inherent in the type of assets.  The risk weights assigned by the OTS for principal categories of assets are (i) 0% for cash and securities issued by the U.S. Government or unconditionally backed by the full faith and credit of the U.S. Government, (ii) 20% for securities (other than equity securities) issued by U.S. Government sponsored agencies, high quality mortgage-backed securities  and mortgage–backed securities issued by, or fully guaranteed as to principal and interest by, the FNMA or the FHLMC except for those classes with residual characteristics or stripped mortgaged–related securities, (iii) 50% for prudently underwritten permanent one– to four–family first lien mortgage loans not more than 90 days delinquent and having a loan–to–value ratio of not more than 80% at origination unless insured to such ratio by an insurer approved by FNMA or FHLMC, and (iv) 100% for all other loans and investments, including consumer loans, commercial loans, repossessed and loans more than 90 days past due.

On June 30, 2001, the Bank had total risk based capital of $52.3 million (including $45.9 million in core capital and $6.4 million in qualifying supplementary capital) and risk–weighted assets of $526.9 million (including $1.3 million in converted off–balance sheet assets), or total capital of 9.93% of risk–weighted assets.  This amount was $10.2 million above the 8.0% requirement in effect on that date.

The following table sets forth Home Federal's compliance with its capital requirements at June 30, 2001.

Under FDICIA all the Federal banking agencies, including the OTS, must revise their risk–based capital requirements to ensure that such requirements account for interest rate risk, concentration of credit risk and the risks of non–traditional activities, and that they reflect the actual performance of and expected loss on multi–family loans.

The OTS has adopted a final rule which requires every savings association with more than normal interest rate risk to deduct from total capital an amount equal to 50% of its interest–rate risk exposure multiplied by the market value of its assets.  This exposure is a measure of the potential decline in the market value of portfolio equity of a savings association greater than 2%, based upon a hypothetical 200 basis point increase or decrease in interest rates (whichever results in a greater decline) affecting on– and off–balance sheet assets and liabilities.  Given Home Federal's capital position, this rule is not expected to have a material impact on its financial condition or results of operations.  The OTS has delayed implementation of this Rule as of June 30, 2001.

Pursuant to FDICIA, the Federal banking agencies, including the OTS, have also proposed regulations authorizing the agencies to require a depository institution to maintain additional total capital to account for concentration of credit risk and the risk of non–traditional activities.  No assurance can be given as to the final form of any such regulation.

Prompt Corrective Action Standards.  The OTS and the FDIC are authorized and, under certain circumstances, required to take certain actions against any association that fails to meet its capital requirements. The OTS is generally required to take action to restrict the activities of an "undercapitalized association" (generally defined to be one with less than either a 4% core ratio, a Tier 1 risked–based capital ratio or an 8% risk-based capital ratio).  Any such association must submit a capital restoration plan and until such plan is approved by the OTS may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions.  The OTS is authorized to impose the additional restrictions, discussed below that are applicable to significantly undercapitalized associations.

As a condition to the approval of the capital restoration plan, any company controlling an undercapitalized association must agree that it will enter into a limited capital maintenance guarantee with respect to the institution's achievement of its capital requirements.

Any savings association that fails to comply with its capital plan or is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios of less than 3% or a risk–based capital ratio of less than 6%) must be subject to one or more of the additional specified actions and operating restrictions mandated by FDICIA.  These actions and restrictions include requiring the issuance of additional voting securities; limitations on asset growth; mandated asset reduction; changes in senior management; divestiture, merger or acquisition of the association; restrictions on executive compensation; and any other action the OTS deems appropriate.

An association that becomes "critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is subject to further restrictions on its activities in addition to those applicable to significantly undercapitalized associations.  The FDIC must restrict the activities of a critically undercapitalized association and, among other things, prohibit any material transaction outside the ordinary course of business or engaging in certain transactions with affiliates, without the approval of the FDIC.  The OTS must appoint a receiver (or conservator with the concurrence of the FDIC) for a savings association, with certain limited exceptions, within 90 days after it becomes critically undercapitalized.

Any undercapitalized association is also subject to other possible enforcement actions by the OTS or the FDIC.  Such actions could include a capital directive, a cease–and–desist order, civil money penalties, the establishment of restrictions on all aspects of the association's operations or the appointment of a receiver or conservator or a forced merger into another institution.  The grounds for appointment of a conservator or receiver include substantially insufficient capital and losses or likely losses that will deplete substantially all capital with no reasonable prospect for replenishment of capital without federal assistance.

If the OTS determines that an association is in an unsafe or unsound condition or is engaged in an unsafe or unsound practice it is authorized to reclassify a well–capitalized association as an adequately capitalized association and if the association is adequately capitalized, to impose the restrictions applicable to an undercapitalized association.

The imposition by the OTS or the FDIC of any of these measures on the Bank may have a substantial adverse effect on the Bank's and the Company's operations and profitability and the value of the Company's Common Stock.  The Company's shareholders do not have preemptive rights, and therefore, if the Company is directed by the OTS or the FDIC to issue additional shares of Common Stock, such issuance may result in the dilution in the percentage of ownership of the Company of those persons owning shares of the Company's Common Stock.

Limitations on Dividends and Other Capital Distributions.  OTS regulations impose various restrictions or requirements on associations with respect to their ability to pay dividends or make other distributions of capital.  OTS regulations prohibit an association from declaring or paying any dividends or from repurchasing any of its stock if, as a result, the regulatory capital of the association would be reduced below the amount required to be maintained for the liquidation account established in connection with its mutual to stock conversion.

The OTS utilizes a three–tiered approach to permit associations, based on their capital level and supervisory condition, to make capital distributions which include dividends, stock redemptions or repurchases, cash–out mergers, and other transactions charged to the capital account.  See "Regulatory Capital Requirements.”

Generally, Tier I associations, which are associations that before and after the proposed distribution meet their fully phased-in capital requirements, may make capital distributions during any calendar year equal to the greater of 100% of net income for the year–to–date plus 50% of the amount by which the lesser of the association's tangible, core or risk–based capital exceeds its fully phased–in capital requirement for such capital component, as measured at the beginning of the calendar year, or the amount authorized for a Tier 2 association.  However, a Tier 1 association deemed to be in need of more than normal supervision by the OTS may be downgraded to a Tier 2 or Tier 3 association as a result of such a determination.

Tier 2 associations, which are associations that before and after the proposed distribution meet their current minimum capital requirements, may make capital distributions of up to 75% of net income over the most recent four–quarter period.

Tier 3 associations (which are associations that do not meet current minimum capital requirements) that propose to make any capital distribution and Tier 2 associations that propose to make a capital distribution in excess of the noted safe harbor level must obtain OTS approval written prior to making such distribution.  Tier 2 associations proposing to make a capital distribution within the safe harbor provisions and Tier 1 associations proposing to make any capital distribution need only submit written notice to the OTS 30 days prior to such distribution.  The Bank is classified as a Tier I association.

As a subsidiary of the Company, the Bank is required to give the OTS 30 days' notice prior to declaring any dividend on its stock.  The OTS may object to the distribution during that 30-day period based on safety and soundness concerns.

The OTS has proposed regulations that would simplify the existing procedures governing capital distributions by savings associations.  Under the proposed regulations, the approval of the OTS would be required only for capital distributions by an association that is deemed to be in troubled condition or that is undercapitalized or would be undercapitalized after the capital distribution.  A savings association would be able to make a capital distribution without notice to or approval of the OTS if it is not held by a savings association holding company, is not deemed to be in troubled condition, has received either of the two highest composite supervisory ratings and would continue to be adequately capitalized after such distribution.  Notice would have to be given to the OTS by any association that is held by a savings association holding company or that had received a composite supervisory rating below the highest two composite supervisory ratings.  An association’s capital rating would be determined under the prompt corrective action regulations.

Liquidity.  All savings associations, including Home Federal, are required to maintain an average daily balance of liquid assets (cash, certain time deposits, bankers’ acceptances, specified United States Government, state or federal agency obligations, shares of certain mutual funds and certain corporate debt securities and commercial paper) in each calendar quarter equal to a certain percentage of the sum of its average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less.  Furthermore, every savings association must maintain sufficient liquidity to ensure its safe and sound operation.  For a discussion of what the Bank includes in liquid assets, see "Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”  This liquid asset ratio requirement has varied from time to time (between 0% and 10%) depending upon economic conditions and savings flows of all savings associations.  At the present time, the minimum liquid asset ratio is 0%.

Monetary penalties may be imposed upon associations for violations of the liquid asset ratio requirement.  At June 30, 2001, the Bank was in compliance with the liquidity requirements, with the overall liquid asset ratio at 14.3%.

Accounting For Investments.  An OTS policy statement applicable to all savings associations clarifies and re–emphasizes that the investment activities of a savings association must be in compliance with approved and documented investment policies and strategies, and must be accounted for in accordance with Generally Accepted Accounting Principles “GAAP.”  Under the policy statement, management must support its classification of and accounting for loans and securities (i.e., whether held for investment, sale or trading) with appropriate documentation.  The Bank is in compliance with these rules.

The OTS has adopted an amendment to its accounting regulations, which may be made more stringent than GAAP by the OTS, to require that transactions be reported in a manner that best reflects their underlying economic substance and inherent risk and that financial reports must incorporate any other accounting regulations or orders prescribed by the OTS.

Branching.  Subject to certain limitations, the HOLA and the OTS regulations permit federally chartered savings associations to establish branches in any state of the United States.  The authority to establish such branches is available (a) in states that expressly authorize branches of savings associations located in another state or (b) to an association that qualifies as a “domestic building and loan association” under the Internal Revenue Code of 1986, which imposes qualification requirements similar to those for a “qualified thrift lender” under the HOLA.  See “QTL Test.”  The authority for a federal savings association to establish an interstate branch network would facilitate a geographic diversification of the association’s activities.  This authority under the HOLA and the OTS regulations preempts any state law purporting to regulate branching by federal savings associations.

Community Reinvestment.  Under the Community Reinvestment Act (the “CRA”), as implemented by OTS regulations, a savings association has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods.  The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA.  The CRA requires the OTS, in connection with its examination of a savings association, to assess the association’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such association.  The CRA also requires all institutions to make public disclosure of their CRA ratings.  The Association received an  “Outstanding” CRA rating in its most recent examination.

The CRA regulations rate an institution based on its actual performance in meeting community needs.  In particular, the rating system focuses on three tests:  (a) a lending test, to evaluate the institution’s record of making loans in its assessment areas; (b) an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and (c) a service test, to evaluate the institution’s delivery of services through its branches, ATMs and other offices.  The amended CRA regulations also clarify how an institution’s CRA performance would be considered in the application process.

Qualified Thrift Lender Test.  All savings associations, including the Bank, are required to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on their operations.  This test requires a savings association to have at least 65% of its portfolio assets (which consists of total assets less the sum of goodwill and other intangible assets, properties used to conduct the savings association's business and specified liquid assets not exceeding 20% of total assets) in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis.  At June 30, 2001, the Bank maintained 80.35% of its portfolio assets in qualified thrift investments, and thus met the test.  The Bank has always met the QTL test since its inception.

Loans and mortgage–backed securities secured by domestic residential housing, FHLB stock, credit card loans, educational loans and certain small business loans as well as certain obligations of the Federal Savings and Loan Insurance Corporation (“FSLIC”), the FDIC and certain other related entities may be included in qualifying thrift investments without limit.  FHLMC and FNMA stock and certain other housing–related and non–residential real estate loans and investments, including loans to develop churches, nursing homes, hospitals and schools, and consumer loans and investments in subsidiaries engaged in housing–related activities may also be included, in varying amounts, not to exceed 20% of portfolio assets.

Any savings association that fails to meet the QTL test must either convert to a national bank charter or operate under certain restrictions on its activities, unless it requalifies as a QTL and thereafter remains a QTL.  If an association does not requalify and converts to a national bank charter, it must remain SAIF-insured until the FDIC permits it to transfer to the Bank Insurance Fund.  If an association that fails the test has not yet requalified and has not converted to a national bank, its new investments and activities are limited to those permissible for both a savings association and a national bank, and it is limited to national bank branching rights in its home state.  In addition, the association is immediately ineligible to receive any new FHLB borrowings and is subject to national bank limits for payment of dividends.  If such association has not requalified or converted to a national bank within three years after the failure, it must divest of all investments and cease all activities and dispose of any investments not permissible for a national bank.  In addition, it must repay promptly any outstanding FHLB borrowings, which may result in prepayment penalties.  A savings association that has failed the QTL test may requalify under the QTL test and be free of such limitations, but it may do so only once.  If any association that fails the QTL test is controlled by a holding company, then within one year after the failure, the holding company must register as a bank holding company and become subject to all restrictions on bank holding companies.  See "Holding Company Regulation.”

Transactions with Affiliates.  The Bank’s authority to engage in transactions with its “affiliates” is limited by the OTS regulations and by Sections 23A and 23B of the Federal Reserve Act (the “FRA”).  In general, an affiliate of the Association is any company that controls the Association or any other company that is controlled by a company that controls the Association, excluding the Association’s subsidiaries other than those that are insured depository institutions.  The OTS regulations prohibit a savings association (a) from lending to any of its affiliates that is engaged in activities that are not permissible for bank holding companies under Section 4(c) of the BHC Act and (b) from purchasing the securities of any affiliate other than a subsidiary.  Section 23A limits the aggregate amount of transactions with any individual affiliate to 10% of the capital and surplus of the savings association and also limits the aggregate amount of transactions with all affiliates to 20% of the savings association’s capital and surplus.  Extensions of credit to affiliates are required to be secured by collateral in an amount and of a type described in Section 23A, and the purchase of low quality assets from affiliates is generally prohibited.  Section 23B provides that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the association as those prevailing at the time for comparable transactions with non-affiliated companies.  In the absence of comparable transactions, such transactions may only occur under terms and circumstances, including credit standards, that in good faith would be offered to or would apply to non-affiliated companies.

The Association’s authority to extend credit to its directors, executive officers, and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the FRB thereunder.  Among other things, these provisions require that extensions of credit to insiders (a) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (b) not exceed certain limitations on the amount of the association’s capital.  In addition, extensions of credit in excess of certain limits must be approved by the association’s board of directors.

Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations enforced by the OTS.  These conflict of interest regulations and other statutes also impose restrictions on loans to such persons and their related interests.  Among other things, such loans must be made on terms substantially the same as those for loans to unaffiliated individuals.

Real Estate Lending Standards.  The OTS and the other federal banking agencies adopted regulations to prescribe standards for extensions of credit that (a) are secured by real estate or (b) are made for the purpose of financing the construction of improvements on real estate.  The OTS regulations require each savings association to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices and appropriate to the size of the association and the nature and scope of its real estate lending activities.  The standards also must be consistent with accompanying OTS guidelines, which include loan-to-value ratios for the different types of real estate loans.  Associations are also permitted to make a limited amount of loans that do not conform to the proposed loan-to-value limitations so long as such exceptions are reviewed and justified appropriately.  The guidelines also list a number of lending situations in which exceptions to the loan-to-value standards are justified.

Holding Company Regulation.  The Company is a unitary savings and loan holding company subject to regulatory oversight by the OTS.  As such, the Company is registered with and files reports with the OTS and is subject to regulation and examination by the OTS.  In addition, the OTS has enforcement authority over the Company and its non–savings association subsidiaries which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association.

As a unitary savings and loan holding company, the Company generally is not subject to activity restrictions.  If the Company acquires control of another savings association as a separate subsidiary, it would become a multiple savings and loan holding company, and the activities of the Company and any of its subsidiaries (other than the Bank or any other SAIF–insured savings association) would become subject to such restrictions unless such other associations each qualify as a QTL and were acquired in a supervisory acquisition.

If the Bank fails the QTL test, the Company must obtain the approval of the OTS prior to continuing after such failure, directly or through its other subsidiaries, any business activity other than those approved for multiple savings and loan holding companies or their subsidiaries.  In addition, within one year of such failure the Company must register as, and will become subject to, the restrictions applicable to bank holding companies.  The activities authorized for a bank holding company are more limited than are the activities authorized for a unitary or multiple savings and loan holding company.  See "Qualified Thrift Lender Test."

Federal Securities Law.  The stock of the Company is registered with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended (the "Exchange Act").  The Company is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Exchange Act.

Company stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration or unless sold in accordance with certain resale restrictions.  If the Company meets specified current public information requirements, each affiliate of the Company is able to sell in the public market, without registration, a limited number of shares in any three–month period.

Federal Reserve System.  The Federal Reserve Board (FRB) requires all depository institutions to maintain non–interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts).  The FRB regulations generally require that reserves be maintained in the amount of 3% of the aggregate of transaction accounts up to $39.3 million.  The amount of aggregate transaction accounts in excess of $39.3 million are currently subject to a reserve ratio of 10%, which ratio the FRB may adjust between 8% and 12%.  The FRB regulations currently exempt $5.0 million of otherwise reservable balances from the reserve requirements, which exemption is adjusted by the FRB at the end of each year.  At June 30, 2001, the Bank was in compliance with these reserve requirements.  The balances maintained to meet the reserve requirements imposed by the Federal Reserve Board may be used to satisfy liquidity requirements that may be imposed by the OTS. See "Liquidity."

Savings associations are authorized to borrow from the Federal Reserve Bank (“FRB”)"discount window," but Federal Reserve Board regulations require associations to exhaust other reasonable alternative sources of funds, including FHLB borrowings, before borrowing from the FRB.

Federal Home Loan Bank System.  The Bank is a member of the FHLB of Des Moines, which is one of 12 regional FHLBs, that administers the home financing credit function of savings associations.  Each FHLB serves as a reserve or central bank for its members within its assigned region.  It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB System.  It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the FHLB.  These policies and procedures are subject to the regulation and oversight of the Federal Housing Finance Board.  All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB.  In addition, all long–term advances are required to provide funds for residential home financing.

As a member, Home Federal is required to purchase and maintain stock in the FHLB of Des Moines.  At June 30, 2001, Home Federal had $6.3 million in FHLB stock, which was in compliance with this requirement.  In past years, the Bank has received substantial dividends on its FHLB stock.  Over the past five fiscal years such dividends have averaged 6.59% and were 6.07% for fiscal year 2001.

Under federal law, the FHLBs are required to provide funds for the resolution of troubled savings associations and to contribute to low and moderately–priced housing programs through direct loans or interest subsidies on advances targeted for community investment and low– and moderate–income housing projects.  These contributions have affected adversely the level of FHLB dividends paid and could continue to do so in the future.  These contributions could also have an adverse effect on the value of FHLB stock in the future. A reduction in value of the Bank's FHLB stock may result in a corresponding reduction in Home Federal's capital.

For the fiscal year ended June 30, 2001, dividends paid by the FHLB of Des Moines to Home Federal totaled approximately $351,000, which constitutes a $36,000 decrease in the amount of dividends received in fiscal 2000.

Federal and State Taxation

The Company and subsidiaries file a consolidated federal income tax return on a fiscal year basis.  The Bank is allowed bad debt deductions based on actual charge-offs.

In addition to the regular income tax, corporations, including savings associations such as the Bank, generally are subject to a minimum tax.  An alternative minimum tax is imposed at a minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a corporation's regular taxable income (with certain adjustments) and tax preference items, less any available exemption.  The alternative minimum tax is imposed to the extent it exceeds the corporation's regular income tax and net operating losses can offset no more than 90% of alternative minimum taxable income.

To the extent earnings appropriated to a savings association's bad debt reserves for "qualifying real property loans" and deducted for federal income tax purposes exceed the allowable amount of such reserves computed under the experience method and to the extent of the association's supplemental reserves for losses on loans ("Excess"), such Excess may not, without adverse tax consequences, be utilized for the payment of cash dividends or other distributions to a shareholder (including distributions on redemption, dissolution or liquidation) or for any other purpose (except to absorb bad debt losses).  As of June 30, 2001, the Bank's Excess for tax purposes totaled approximately $4.8 million.

The Bank and its consolidated subsidiaries have been audited by the IRS with respect to consolidated federal income tax returns through 1985. With respect to years examined by the IRS, all deficiencies have been satisfied.

South Dakota Taxation.  The Bank is subject to the South Dakota franchise tax to the extent that such corporations are engaged in business in the state of South Dakota. South Dakota does not have a corporate income tax.  The franchise tax will be imposed at a rate of 6% on franchise taxable income which is computed in the same manner as federal taxable income with some minor variations to comply with South Dakota law, other than the carryover of net operating losses which is not permitted under South Dakota law.  A South Dakota return of franchise tax must be filed annually.

Minnesota Taxation.  The Bank is subject to the Minnesota Corporate Income tax to the extent that such corporations are engaged in business in the state of Minnesota.  The Corporate Income tax is imposed at a rate of 9.8% on  corporate taxable income which is computed in the same manner as federal taxable income with some minor variations to comply with Minnesota law.  A Minnesota return of Corporate Income tax must be filed annually.

Delaware Taxation.  As a Delaware holding company, the Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual fee to the State of Delaware.  The Company is also subject to an annual franchise tax imposed by the State of Delaware.

Executive Officers of the Company
The following information as to the business experience during the past five years is supplied with respect to executive officers of the Company and the Bank.

Curtis L. Hage - Mr. Hage, age 55, is Chairman, President and Chief Executive Officer of the Company.  He was elected Chairman of the Board of Directors of the Company in September 1996 and has held the position of President and Chief Executive Officer since February 1991.  Prior to such time, Mr. Hage served as Executive Vice President of the Bank since 1986.  Since joining the Association in 1968, he served in various capacities prior to being elected Executive Vice President.  Mr. Hage received his M.B.A. from the University of South Dakota and attended the Graduate School of Savings Institution Management at the University of Texas.

Gene F. Uher- Mr. Uher, age 53, is Executive Vice President/Chief Operations Officer and Secretary of the Company, a position he has held since March 1997.  He was employed as Executive Vice President for Packers Bank, Omaha, Nebraska from 1996 until joining Home Federal.  Prior to that time, he was employed as Executive Vice President/Chief Operating Officer for Conservative Savings Bank, F.S.B., Omaha, Nebraska from 1989 to 1996.  Mr. Uher received his B.A. degree from Lincoln School of Commerce, Lincoln, Nebraska.  He is a graduate of the School of Executive Development at University of Connecticut.

David A. Brown – Mr. Brown, age 39, is Senior Vice President/Commercial Banking, a position he has held since November 1999.  Prior to joining Home Federal, Mr. Brown served as Vice President/Manager Commercial Banking at Firstar Bank, Sioux City, Iowa, a position he held since December 1998.  Mr. Brown received his Masters of Business Administration and a B.S. in Business Administration from University of South Dakota.

Jack P. Hearst – Mr. Hearst, age 49, is Senior Vice President/Subsidiary Operations, a position he has held since November 2000.  Prior to such time he served as Vice President/Credit Cards from March 1999.  He was employed by Citicorp-Corporate Control and Risk Assessment as the Audit Director for Citicorp. Bankcards prior to joining the Bank.  Mr. Hearst received a B.S. from the University of Missouri.

Mary F. Hitzemann - Ms. Hitzemann, age 48, is Senior Vice President/Human Resources, a position she has held since October 1993.  Ms. Hitzemann joined Home Federal in January 1993.  Prior to that time, she was employed as Vice President of Human Resources for Rapid City Regional Hospital from May 1989 to May 1992.  Ms. Hitzemann received her B.A. degree from Augustana College.

Terry L. Kappes - Mr. Kappes, age 47, is Senior Vice President/Retail Banking, a position he has held since June 1998.  Prior to that time, he was employed with Bank One - Colorado, Grand Junction, Colorado from 1993 until joining Home Federal with his most recent position being Senior Vice President/Retail Market Manager.  Mr. Kappes served as Senior Vice President for First Bank System, Billings, Montana from 1988 to 1991 and First Bank of South Dakota, Sioux Falls, South Dakota from 1977 to 1988.  Mr. Kappes received his B.A. degree from Oral Roberts University, Tulsa, Oklahoma.

John E. Roers - Mr. Roers, age 54, is Senior Vice President/Agricultural Lending, a position he has held since joining Home Federal on October 31, 1995.  Prior to that time, he was employed as Agricultural Loan Officer and Department Manager for Western Bank, Sioux Falls (then First Bank) from June 1981 to October 1996 and for Western Bank, Marshall, Minnesota from February 1974 to May 1981.  Mr. Roers received his Bachelor of Science and Masters of Science from North Dakota State University.

Mark S. Sivertson- Mr. Sivertson, age 43, is Senior Vice President/Trust Officer, a position he has held since July 1996.  He joined Home Federal in February 1995 as Vice President/Trust Officer.  Prior to joining Home Federal, Mr. Sivertson was Vice President and Trust Officer in charge of the Investment Management and Trust Department at Western Bank.  He holds a law degree from the University of North Dakota and the Certified Trust Financial Advisor designation from the American Bankers Association.

Gary L. Smith – Mr. Smith, age 47, is Senior Vice President/Information Systems, a position he has held since July 1998.  Mr. Smith joined Home Federal in 1979 and was promoted to Vice President in 1988.  He received his B.S. from the University of South Dakota.

Michael H. Zimmerman - Mr. Zimmerman, age 48, is Senior Vice President/Senior Retail Lending Officer, a position he has held since joining Home Federal in August 1996.  Prior to that time, he was employed as Vice President/Mortgage Loan Manager for First Trust and Savings Bank, Cedar Rapids, Iowa from October 1995 to August 1996 and as Vice President/Eastern Regional Manager for Homeland Savings Bank FSB, Waterloo, Iowa from May 1995 to October 1995; and as Vice President/ Manager Real Estate Lending for Homeland Bank, N.A., Waterloo, Iowa from August 1992 to April 1995.  Mr. Zimmerman received his B.A. from Dana College, Blair, Nebraska.

Cristie M. Lawson – Ms. Lawson, age 32, is Vice President/Controller for the Bank.  Ms. Lawson joined the Bank in March 1995 as Staff Accountant.  She has held various positions of increasing responsibility within the Accounting Department and was promoted to her current position in July 2000. Ms. Lawson received her B.A. from Augustana College.

Item 2.  Properties

The Company and the Bank conduct their business at their main office located at 225 S. Main at 11th, Sioux Falls, South Dakota, 57104.  Currently, the Bank also conducts business from 30 other retail banking locations located in its primary market area.

The Bank owns each of its branch offices, except for nine offices that it leases.  The total net book value of the Company's premises and equipment (including land, building and leasehold improvements and furniture, fixtures and equipment) at June 30, 2001 was $13.8 million.  See Note 6 of "Notes to Consolidated Financial Statements.”

Item 3.  Legal Proceedings

The Company, Home Federal and its subsidiaries are involved as plaintiff or defendant in various legal actions arising in the normal course of their businesses.  While the ultimate outcome of these proceedings cannot be predicted with certainty, it is the opinion of management, after consultation with counsel representing Home Federal and the Company in the proceedings, that the resolution of these proceedings should not have a material effect on the Company's consolidated financial position or results of operations.

Item 4.  Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended June 30, 2001.

PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

Stock Listing

The Company’s Common stock is traded under the symbol “HFFC” on the NASDAQ National Market System.

The following table sets forth the range of high and low sale prices for the Company’s Common Stock for each of the fiscal quarters of the two years ended June 30, 2001 and 2000.  Quotations for such periods are as reported by NASDAQ for National Market System issues.