HF Financial 10Q 2001 Q2 Quarterly report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

/x/	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2000

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

Commission File Number 0-19772

HF FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Delaware		46-0418532
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
225 South Main Avenue, Sioux Falls, SD		57104
(Address of principal executive office)		(ZIP Code)

(605) 333-7556
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

As of February 9, 2001 there were 3,680,706 issued and outstanding shares of the Registrant's Common Stock, with $.01 par value.

HF FINANCIAL CORP.

FORM 10-Q
INDEX

			Page
PART I.		Financial Information
	Item 1.	Financial Statements (Unaudited):
		Consolidated Statements of Financial Condition As of December 31, 2000 and June 30, 2000	1
		Consolidated Statements of Income for the Three and Six Months Ended December 31, 2000 and 1999	2
		Consolidated Statement of Stockholders' Equity for the Six Months Ended December 31, 2000	3
		Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2000 and 1999	4 - 5
		Notes to Consolidated Financial Statements	6 - 8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	9 - 22
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
PART II.		Other Information
	Item 1.	Legal Proceedings	23
	Item 2.	Changes in Securities	23
	Item 3.	Defaults upon Senior Securities	23
	Item 4.	Submission of Matters to a Vote of Security Holders	23
	Item 5.	Other Information	23
	Item 6.	Exhibits and Reports on Form 8-K	23
	Signatures		24

Item 1.

HF FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in Thousands)

ASSETS

	December 31, 2000		June 30, 2000
	(Unaudited)
Cash and cash equivalents	$	64,582	$	26,417
Securities available for sale		60,541		60,445
Mortgage-backed securities available for sale		49,737		53,001
Loans receivable		549,820		542,494
Loans held for sale		5,450		8,257
Accrued interest receivable		5,906		5,346
Office properties and equipment, at cost, net of accumulated depreciation		13,473		13,717
Foreclosed real estate and other properties		1,626		1,594
Prepaid expenses and other assets		2,257		2,290
Mortgage servicing rights		2,386		2,171
Deferred income taxes		3,260		4,235
Cost in excess of net assets acquired		5,531		5,030

	$	764,569	$	724,997

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
	Deposits		$	579,470		$	545,497
	Advances from Federal Home Loan Bank and other borrowings			114,802			113,020
	Advances by borrowers for taxes and insurance			6,903			6,543
	Accrued interest payable			7,246			6,844
	Other liabilities			5,590			6,150

		Total liabilities		714,011			678,054

Stockholders' Equity
	Preferred stock, $.01 par value, 500,000 shares authorized, none outstanding			—			—
	Series A Junior Participating Preferred Stock, $1.00 stated value, 50,000 shares authorized, none outstanding			—			—
	Common stock, $.01 par value, 10,000,000 shares authorized, 4,785,915 and 4,769,314 shares issued at December 31, 2000 and June 30, 2000			48			48
	Additional paid-in capital			15,378			15,260
	Retained earnings, substantially restricted			51,662			49,824
	Unearned compensation			(113	)		(113	)
	Accumulated other comprehensive income (loss)			(292	)		(1,951	)
	Less cost of treasury stock, 1,105,209 shares			(16,125	)		(16,125	)

				50,558			46,943

			$	764,569		$	724,997

See Notes to Consolidated Financial Statements

HF FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

			Three Months Ended December 31,				Six Months Ended December 31,
			2000		1999		2000		1999
Interest and dividend income:
	Loans receivable		$	13,050	$	11,291	$	25,973	$	22,259
	Mortgage-backed securities			865		860		1,768		1,508
	Investment securities and interest-bearing deposits			1,192		839		2,126		1,685

				15,107		12,990		29,867		25,452

Interest expense:
	Deposits			7,412		5,567		14,279		10,892
	Advances from Federal Home Loan Bank and other borrowings			1,822		1,603		3,576		2,933

				9,234		7,170		17,855	��	13,825

		Net interest income		5,873		5,820		12,012		11,627
Provision for losses on loans				486		1,668		1,264		3,538

		Net interest income after provision for losses on loans		5,387		4,152		10,748		8,089

Noninterest income:
	Fees on deposits			914		674		1,788		1,339
	Credit card fee income			673		2,077		1,671		4,723
	Loan servicing income			405		342		767		668
	Commission and insurance income			331		253		695		516
	Loan fees and service charges			284		352		492		587
	Gain on sale of loans, net			202		193		353		396
	Other			246		196		491		441

				3,055		4,087		6,257		8,670

Noninterest expense:
	Compensation and employee benefits			3,345		3,110		6,821		6,126
	Other general and administrative expenses			1,106		1,075		2,345		2,242
	Occupancy and equipment			829		702		1,676		1,452
	Credit card processing expense			705		1,202		1,448		2,453
	Amortization of intangible assets			128		82		225		167
	Federal insurance premiums			66		68		131		165
	Other			29		53		57		83

				6,208		6,292		12,703		12,688

		Income before income taxes		2,234		1,947		4,302		4,071
Income tax expense				884		691		1,692		1,427

		Net income	$	1,350	$	1,256	$	2,610	$	2,644

Earnings per share:
	Basic		$	0.37	$	0.32	$	0.71	$	0.67

	Diluted		$	0.36	$	0.32	$	0.70	$	0.65

See Notes to Consolidated Financial Statements

HF FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Six Months Ended December 31, 2000

(Dollars In Thousands, Except Per Share Data)

(Unaudited)

			Common Stock		Additional Paid-In Capital		Retained Earnings			Unearned Compensation			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance, June 30, 2000			$	48	$	15,260	$	49,824		$	(113	)	$	(1,951	)	$	(16,125	)	$	46,943
Comprehensive income:
	Net income			—		—		2,610			—			—			—			2,610
	Net change in unrealized loss on securities available for sale, net of deferred taxes			—		—		—			—			1,659			—			1,659

		Comprehensive income		—		—		2,610			—			1,659			—			4,269
11,249 shares issued under Director Restricted Stock Plan				—		100		—			—			—			—			100
Exercise of stock options for 5,352 shares				—		18		—			—			—			—			18
Cash dividends paid ($0.21 per share) on common stock				—		—		(772	)		—			—			—			(772	)

Balance, December 31, 2000			$	48	$	15,378	$	51,662		$	(113	)	$	(292	)	$	(16,125	)	$	50,558

See Notes to Consolidated Financial Statements

HF FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)

				Six Months Ended December 31,
				2000			1999
CASH FLOWS FROM OPERATING ACTIVITIES
	Net income			$	2,610		$	2,644
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for losses on loans and leases			1,264			3,538
		Depreciation			942			784
		Amortization of premiums and discounts on securities available for sale, net			(24	)		(6	)
		Amortization of intangible assets			225			167
		Amortization of mortgage servicing rights			134			153
		Noncash issuance of common stock			100			98
		(Decrease) in deferred loan fees			(73	)		(718	)
		Loans originated for resale			(33,611	)		(39,680	)
		Proceeds from the sale of loans			36,771			45,643
		(Gain) on sale of loans, net			(353	)		(396	)
		Mortgage servicing rights capitalized			(87	)		(76	)
		Realized loss on sale of securities, net			—			2
		(Gains) losses and provision for losses on sales of foreclosed real estate and other properties, net			(1	)		27
		(Gain) loss on disposal of office properties and equipment, net			(11	)		6
		(Increase) in accrued interest receivable			(560	)		(191	)
		Decrease in prepaid expenses and other assets			33			371
		(Increase) in deferred income taxes			(42	)		—
		(Decrease) in accrued interest payable and other liabilities			(158	)		(485	)

			Net cash provided by operating activities	$	7,159		$	11,881

CASH FLOWS FROM INVESTING ACTIVITIES
	Loans and leases purchased				(11,341	)		(11,490	)
	Loans originated and held				(86,415	)		(110,485	)
	Principal collected on loans and leases				88,766			96,947
	Sale of participation interests in loans				—			5,500
	Mortgage-backed securities available for sale:
		Purchases			—			(19,908	)
		Repayments			4,744			4,977
	Securities available for sale:
		Sales and maturities			1,325			12,490
		Purchases			(201	)		(11,080	)
	Proceeds from sale of office properties and equipment				17			4
	Purchase of office properties and equipment				(704	)		(315	)
	Purchase of mortgage servicing rights				(262	)		(303	)
	Purchase of intangible assets				(726	)		(150	)
	Proceeds from sale of foreclosed real estate and other properties, net				442			596

		Net cash (used in) investing activities		$	(4,355	)	$	(33,217	)

See Notes to Consolidated Financial Statements

HF FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Dollars in Thousands)

(Unaudited)

				Six Months Ended December 31,
				2000			1999
CASH FLOWS FROM FINANCING ACTIVITIES
	Net increase (decrease) in deposit accounts			$	33,973		$	(3,360	)
	Proceeds of advances from Federal Home Loan
		Bank and other borrowings			227,081			162,500
	Payments on advances from Federal Home Loan
		Bank and other borrowings			(225,299	)		(129,088	)
	Increase in advances by borrowers for taxes and insurance				360			474
	Purchase of treasury stock				—			(3,168	)
	Proceeds from issuance of common stock				18			35
	Cash dividends paid				(772	)		(798	)

			Net cash provided by financing activities	$	35,361		$	26,595

			Increase in cash and cash equivalents	$	38,165		$	5,259
Cash and Cash Equivalents
	Beginning				26,417			16,671

	Ending			$	64,582		$	21,930

See Notes to Consolidated Financial Statements

HF FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For The Three and Six Months Ended December 31, 2000 and 1999

(Dollars in Thousands)

(Unaudited)

NOTE 1. SELECTED ACCOUNTING POLICIES

Basis of presentation:

The foregoing consolidated financial statements are unaudited. However, in the opinion of management, all adjustments (which consist of normal recurring accruals) necessary for a fair presentation of the consolidated financial statements have been included. Results for any interim period are not necessarily indicative of results to be expected for the year. The interim consolidated financial statements include the accounts of HF Financial Corp. (the "Company"), its subsidiaries, HomeFirst Mortgage Corp. (the "Mortgage Corp."), and the Mortgage Corp.'s subsidiary, HF Card Services L.L.C. (HF Card Services) and Home Federal Savings Bank, (the "Bank") and the Bank's subsidiaries.

NOTE 2. REGULATORY CAPITAL

The following table sets forth the Bank's compliance with its capital requirements at December 31, 2000:

		Amount		Percent
Tier I (core) capital:
	Required	$	22,433	3.00	%
	Actual		43,577	5.83
	Excess		21,144	2.83
Risk-based capital:
	Required	$	41,174	8.00	%
	Actual		50,022	9.72
	Excess		8,848	1.72

NOTE 3. EARNINGS PER SHARE

Basic earnings per share is computed by dividing income available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) during the period. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. The weighted average number of common shares outstanding for the three month period ended December 31, 2000 and 1999 was 3,677,943 and 3,896,038, respectively. The weighted average number of common shares outstanding for the six month period ended December 31, 2000 and 1999 was 3,677,041 and 3,970,165, respectively.

Dilutive earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive options outstanding had been exercised. The weighted average number of common and dilutive potential common shares outstanding for the three month period ended December 31, 2000 and 1999 was 3,727,426 and 3,966,150, respectively. The weighted average number of common and dilutive potential common shares outstanding for the six month period ended December 31, 2000 and 1999 was 3,726,721 and 4,047,106, respectively.

NOTE 4. SEGMENT INFORMATION

The management approach is used as the conceptual basis for identifying reportable segments and is based on the way that management organizes the segments within the enterprise for making operating decisions, allocating resources and monitoring performance.

The Company's reportable segments are banking, credit card and other. The "banking" segment is conducted through the subsidiary, Home Federal Savings Bank, and the "credit card" segment is conducted through the subsidiary, HF Card Services, L.L.C. The "other" segment is composed of smaller nonreportable segments, the parent company and inter-segment eliminations.

		Three Months Ended December 31, 2000
		Banking			Credit Card			Other			Total
		(Dollars in Thousands)
Net interest income		$	5,494		$	109		$	270		$	5,873
Provision for losses on loans			(282	)		(178	)		(26	)		(486	)
Noninterest income			2,019			698			338			3,055
Noninterest expense			(4,902	)		(758	)		(548	)		(6,208	)

	Income (loss) before income taxes	$	2,329		$	(129	)	$	34		$	2,234

Total assets		$	745,591		$	6,723		$	12,255		$	764,569

		Three Months Ended December 31, 1999
		Banking			Credit Card			Other			Total
		(Dollars in Thousands)
Net interest income		$	5,572		$	104		$	144		$	5,820
Provision for losses on loans			(367	)		(1,301	)		—			(1,668	)
Noninterest income			1,801			2,073			213			4,087
Noninterest expense			(4,694	)		(1,291	)		(307	)		(6,292	)

	Income (loss) before income taxes	$	2,312		$	(415	)	$	50		$	1,947

Total assets		$	675,443		$	9,222		$	2,036		$	686,701

		Six Months Ended December 31, 2000
		Banking			Credit Card			Other			Total
		(Dollars in Thousands)
Net interest income		$	11,320		$	171		$	521		$	12,012
Provision for losses on loans			(694	)		(527	)		(43	)		(1,264	)
Noninterest income			3,909			1,665			683			6,257
Noninterest expense			(10,081	)		(1,557	)		(1,065	)		(12,703	)

	Income (loss) before income taxes	$	4,454		$	(248	)	$	96		$	4,302

Total assets		$	745,591		$	6,723		$	12,255		$	764,569

		Six Months Ended December 31, 1999
		Banking			Credit Card			Other			Total
		(Dollars in Thousands)
Net interest income		$	11,126		$	228		$	273		$	11,627
Provision for losses on loans			(667	)		(2,871	)		—			(3,538	)
Noninterest income			3,520			4,715			435			8,670
Noninterest expense			(9,410	)		(2,632	)		(646	)		(12,688	)

	Income (loss) before income taxes	$	4,569		$	(560	)	$	62		$	4,071

Total assets		$	675,443		$	9,222		$	2,036		$	686,701

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

General

HF Financial Corp. (the "Company") was incorporated under the laws of the State of Delaware in November 1991 for the purpose of owning all of the outstanding stock of Home Federal Savings Bank (the "Bank") issued in the mutual to stock conversion of the Bank. The Company acquired all of the outstanding stock of the Bank on April 8, 1992. 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 this entity. The Company became the owner of 100% of HF Card Services effective as of July 1998. The activities of the Company itself have no significant impact on the results of operations on a consolidated basis. Unless otherwise indicated, all activities discussed herein relate to the Company, and its direct and indirect subsidiaries, including without limitation, the Bank, HF Card Services and HomeFirst Mortgage Corp. (the "Mortgage Corp.").

HF Card Services was established to provide secured, partially-secured and unsecured credit cards nationwide. The target market for HF Card Services was subprime credit customers who have either an insufficient credit history or a negative credit history and are unable to obtain a credit card from more traditional card issuers. The Company ceased credit card applications in March 1999.

The Company's net income is primarily dependent upon the difference (or "spread") between the average yield earned on loans, mortgage-backed securities and investments and the average rate paid on deposits and borrowings, as well as the relative amounts of such assets and liabilities. The interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. The Company, like other financial institutions, is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different times, or on a different basis, than its interest-earning assets. To better insulate itself from such risk, the Company has, over the last few years, attempted to increase both numerically and on a percentage basis its holding of consumer and commercial loans. The Company has also decreased its ratio of fixed-rate to adjustable-rate loans. The Company's net income is also affected by, among other things, gains and losses on sales of foreclosed property, loans, mortgage-backed securities and securities available for sale, provisions for losses on loans, service charge fees, subsidiary activities, operating expenses and income taxes.

Forward-Looking Statements

This Form 10-Q and other reports issued by the Company, including reports filed with the Securities and Exchange Commission, may contain "forward-looking" statements that deal with future results, expectations, plans or performance. In addition, the Company's management may make such statements orally to the media, securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. These forward-looking statements might include one or more of the following:

•: Projections of income, revenues, earnings per share, dividends, capital expenditures, capital structure or other financial items.
•: Descriptions of plans or objectives of management for future operations, products or services.
•: Forecasts of future economic performance.
•: Descriptions of assumptions underlying or relating to such matters.

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," or words of similar meaning, or future or conditional verbs such as "will," "would," "should," "could" or "may."

The Company's future results may differ materially from historical performance, and forward-looking statements about the Company's expected financial results or other plans are subject to a number of risks and uncertainties. These include but are not limited to possible legislative changes and adverse economic, business and competitive developments such as shrinking interest margins; deposit outflows; reduced demand for financial services and loan products; changes in accounting policies or guidelines, or in monetary and fiscal policies of the federal government; changes in credit and other risks posed by the Company's loan portfolios; technological, computer-related or operational difficulties; adverse changes in securities markets; results of litigation; or other significant uncertainties.

Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

Financial Condition Data

At December 31, 2000, the Company had total assets of $764.6 million, an increase of $39.6 million from the level at June 30, 2000. The increase in assets was due primarily to an increase in cash and cash equivalents of $38.2 million and loans receivable of $7.3 million, offset by a decrease in mortgage-backed securities of $3.3 million and loans held for sale of $2.8 million. Deposits increased $34.0 million from the levels at June 30, 2000. In addition, stockholders' equity increased from $46.9 million at June 30, 2000 to $50.6 million at December 31, 2000, primarily due to net income of $2.6 million which was partially offset by the payment of cash dividends of $772,000.

The increase in loans receivable of $7.3 million was due primarily to purchases and originations of principal exceeding amortization and prepayments of principal.

The decrease in mortgage-backed securities of $3.3 million was primarily the result of amortization and prepayments of principal. Mortgage-backed securities were allowed to paydown without reinvestment during the first half of fiscal 2001.

The decrease in loans held for sale of $2.8 million was due to a decline in loans originated for sale into the secondary market at December 31, 2000.

The $34.0 million increase in deposits was primarily due to an increase in demand accounts of $1.1 million, money market accounts of $23.3 million and certificates of deposit of $20.5 million offset by a decrease in savings accounts of $10.9 million. As of December 31, 2000, the Bank had total deposits from one local governmental entity of $34.3 million compared to $45.2 million at June 30, 2000. This decrease is seasonal and is comparable to the last two years.

Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.

Average Balances, Interest Rates and Yields. The following table presents for the periods indicated the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, and the net interest margin. The table does not reflect any effect of income taxes. All average balances are monthly average balances and include the balances of nonaccruing loans. The yields and

costs for the three and six months ended December 31, 2000 and 1999 include fees which are considered adjustments to yield.

			THREE MONTHS ENDED DECEMBER 31,
			2000						1999
			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate		Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate
			(Dollars in Thousands)
Interest-earning assets:
	Loans receivable (1)		$	566,385	$	13,050	9.14	%	$	522,221	$	11,291	8.60	%
	Mortgage-backed securities			51,549		865	6.66	%		52,772		860	6.48	%
	Other investment securities (2)			71,504		1,079	5.99	%		53,123		763	5.71	%
	FHLB stock			6,322		113	7.09	%		6,042		76	5.00	%

Total interest-earning assets			$	695,760	$	15,107	8.61	%	$	634,158	$	12,990	8.15	%

	Noninterest-earning assets			39,332						41,180

Total assets			$	735,092					$	675,338

Interest-bearing liabilities:
Deposits:
	Checking and money market		$	192,937	$	2,017	4.15	%	$	153,984	$	1,144	2.96	%
	Savings			36,259		357	3.91	%		42,482		333	3.12	%
	Certificates of deposit			318,063		5,038	6.28	%		296,790		4,090	5.48	%

		Total deposits	$	547,259	$	7,412	5.37	%	$	493,256	$	5,567	4.49	%
	FHLB advances and other borrowings			117,105		1,822	6.17	%		114,313		1,603	5.58	%

Total interest-bearing liabilities			$	664,364	$	9,234	5.51	%	$	607,569	$	7,170	4.69	%

	Other liabilities			21,232						20,792

Total liabilities			$	685,596					$	628,361
	Equity			49,496						46,977

Total liabilities and equity			$	735,092					$	675,338

Net interest income; interest rate spread					$	5,873	3.10	%			$	5,820	3.45	%

Net interest margin (3)							3.35	%					3.65	%

(1): Includes interest on accruing loans past due 90 days or more.
(2): Includes primarily U.S. Government and agency securities.
(3): Net interest margin is net interest income divided by average interest-earning assets.

			SIX MONTHS ENDED DECEMBER 31,
			2000						1999
			Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate		Average Outstanding Balance		Interest Earned/ Paid		Yield/ Rate
			(Dollars in Thousands)
Interest-earning assets:
	Loans receivable (1)		$	565,053	$	25,973	9.12	%	$	518,626	$	22,259	8.54	%
	Mortgage-backed securities			52,704		1,768	6.65	%		47,524		1,508	6.31	%
	Other investment securities (2)			63,661		1,904	5.93	%		53,718		1,504	5.57	%
	FHLB stock			6,226		222	7.07	%		5,666		181	6.35	%

Total interest-earning assets			$	687,644	$	29,867	8.62	%	$	625,534	$	25,452	8.09	%

	Noninterest-earning assets			37,214						39,069

Total assets			$	724,858					$	664,603

Interest-bearing liabilities:
Deposits:
	Checking and money market		$	188,426	$	3,841	4.04	%	$	151,721	$	2,197	2.88	%
	Savings			40,489		814	3.99	%		44,618		684	3.05	%
	Certificates of deposit			309,907		9,624	6.16	%		293,902		8,011	5.42	%

		Total deposits	$	538,822	$	14,279	5.26	%	$	490,241	$	10,892	4.42	%
	FHLB advances and other borrowings			115,818		3,576	6.12	%		105,734		2,933	5.52	%

Total interest-bearing liabilities			$	654,640	$	17,855	5.41	%	$	595,975	$	13,825	4.61	%

	Other liabilities			21,479						20,903

Total liabilities			$	676,119					$	616,878
	Equity			48,739						47,725

Total liabilities and equity			$	724,858					$	664,603

Net interest income; interest rate spread					$	12,012	3.21	%			$	11,627	3.48	%

Net interest margin (3)							3.47	%					3.70	%

(1): Includes interest on accruing loans past due 90 days or more.
(2): Includes primarily U.S. Government and agency securities.
(3): Net interest margin is net interest income divided by average interest-earning assets.

Rate/Volume Analysis of Net Interest Income

The following schedule presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increases and decreases due to fluctuating outstanding balances that are due to the levels and volatility of interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.

			Three Months Ended December 31, 2000 vs 1999							Six Months Ended December 31, 2000 vs 1999
			Increase (Decrease) Due to Volume			Increase Due to Rate		Total Increase		Increase (Decrease) Due to Volume			Increase Due to Rate		Total Increase
			(Dollars in Thousands)
Interest-earning assets:
	Loans receivable(1)		$	1,003		$	756	$	1,759	$	2,096		$	1,618	$	3,714
	Mortgage-backed securities			(19	)		24		5		171			89		260
	Other investment securities(2)			271			44		315		290			110		400
	FHLB stock			5			33		38		19			22		41

Total interest-earning assets			$	1,260		$	857	$	2,117	$	2,576		$	1,839	$	4,415

Interest-bearing liabilities:
Deposits:
	Checking and money market		$	351		$	523	$	874	$	644		$	1,001	$	1,645
	Savings			(55	)		79		24		(72	)		202		130
	Certificates of deposit			321			626		947		478			1,134		1,612

		Total deposits		617			1,228		1,845		1,050			2,337		3,387
FHLB advances and other borrowings				43			176		219		299			344		643

Total interest-bearing liabilities			$	660		$	1,404	$	2,064	$	1,349		$	2,681	$	4,030

Net interest income increase								$	53						$	385

(1) Includes interest on accruing loans past due 90 days or more.

(2) Includes primarily U. S. Government and agency securities.

Asset Quality

In accordance with the Company's internal classification of assets policy, management evaluates the loan portfolio on a monthly basis to identify loss potential and determine the adequacy of the allowance for loan losses. The following table sets forth the amounts and categories of the Company's nonperforming assets for the periods indicated.

			Nonperforming Assets As Of
			December 31, 2000			June 30, 2000
			(Dollars in Thousands)
Nonaccruing loans:
	One- to four-family		$	482		$	551
	Commercial			165			165
	Multi-family			—			—
	Commercial business			1,569			971
	Consumer			725			317
	Agriculture			8			31
	Credit cards			—			—
	Mobile homes			10			43

		Total	$	2,959		$	2,078

Accruing loans delinquent more than 90 days:
	One- to four-family		$	—		$	—
	Commercial			—			—
	Multi-family			—			—
	Commercial business			—			—
	Consumer			—			—
	Agriculture			23			—
	Credit cards			444			514
	Mobile homes			—			—

		Total	$	467		$	514

Foreclosed assets:(2)
	One- to four-family		$	202		$	214
	Commercial			—			—
	Multi-family			—			—
	Commercial business			—			—
	Consumer			109			67
	Agriculture			—			—
	Credit cards			—			—
	Mobile homes			17			15

		Total	$	328		$	296

Total nonperforming assets			$	3,754		$	2,888

Ratio of nonperforming assets to total assets				0.49	%		0.40	%

Ratio of nonperforming loans to total loans(1)				0.61	%		0.46	%

(1) Nonperforming loans include nonaccruing loans and loans delinquent more than 90 days.

(2) Total foreclosed assets does not include land held for development.

Loans are generally classified as non-accrual when there are reasonable doubts as to the collectibility of principal and/or interest or when payment becomes 90 days past due, except loans which are well secured and in the process of collection. Interest collections on non-accrual loans, for which the ultimate collectability of principal is uncertain, are applied as principal reductions. Otherwise, such collections are applied to interest income when received. Credit card loans remain in accrual status until 120 days, when accrued interest income on the loan is taken out of income.

Nonperforming assets increased to $3.8 million at December 31, 2000 from $2.9 million at June 30, 2000, an increase of $866,000. In addition, the ratio of nonperforming assets to total assets, which is one indicator of credit risk exposure, increased slightly to 0.49% at December 31, 2000 as compared to 0.40% at June 30, 2000.

Nonaccruing loans increased to $3.0 million at December 31, 2000 from $2.1 million at June 30, 2000, an increase of $881,000. Included in nonaccruing loans at December 31, 2000 were eight loans totaling $482,000 secured by one- to four-family real estate, three loans in the amount of $165,000 secured by commercial real estate, thirteen loans totaling $1.6 million secured by commercial business, three mobile home loans totaling $10,000, thirty-three consumer loans totaling $725,000 and one agriculture loan totaling $8,000. For the three and six months ended December 31, 2000, an additional $57,000 and $77,000 of interest income, respectively, would have been recognized on loans accounted for on a nonaccrual basis had such loans been current in accordance with their original terms.

Accruing credit card loans delinquent more than 90 days decreased to $444,000 at December 31, 2000 from $514,000 at June 30, 2000. A total of $1.3 million of credit card loans were delinquent 30 days at December 31, 2000 as compared to $1.7 million at June 30, 2000. Net credit card loan charge-offs for the six months ended December 31, 2000 were $1.9 million as compared to $6.3 million for the same period in fiscal 2000. Using historical stratification data on the current product, management expects credit card loan write-offs not to exceed $2.2 million in the next six months. Of this amount about 75% will be a charge-off against allowance for credit card loan losses, of which the Company currently maintains an allowance for credit card loan losses equal to 20% of the outstanding credit card loan balance, or about $1.6 million. The remaining 25% will be charged against deferred credit card fee income, interest income and credit card fee income in future periods.

Foreclosed assets increased from $296,000 at June 30, 2000 to $328,000 at December 31, 2000, an increase of $32,000.

At December 31, 2000, the Bank had approximately $27.2 million of other loans of concern that management has determined need to be closely monitored because of possible credit problems of the borrowers or the cash flows of the secured properties. These loans were considered in determining the adequacy of the allowance for possible loan losses. The allowance for possible loan losses is established based on management's evaluation of the risks inherent in the loan portfolio and changes in the nature and volume of loan activity. Such evaluation, which includes a review of all loans for which full collectability may not be reasonably assured, considers the estimated fair market value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an adequate loan loss allowance. Although the Company's management believes that the December 31, 2000 recorded allowance for loan losses was adequate to provide for potential losses on the related loans, there can be no assurance that the allowance existing at December 31, 2000 will be adequate in the future.

The following table sets forth information with respect to activity in the Company's allowance for loan losses during the periods indicated.

			Six Months Ended
			12/31/2000			12/31/1999
			(Dollars in Thousands)
Balance at beginning of period			$	8,475		$	11,991

Charge-offs:
	One- to four-family			(18	)		(7	)
	Commercial			—			—
	Multi-family			—			—
	Commercial business			(20	)		—
	Consumer			(584	)		(435	)
	Agriculture			—			(11	)
	Credit cards			(2,014	)		(6,588	)
	Mobile homes			(27	)		(14	)

		Total charge-offs	$	(2,663	)	$	(7,055	)

Recoveries:
	One- to four-family		$	—		$	11
	Commercial			—			6
	Multi-family			—			—
	Commercial business			—			—
	Consumer			145			134
	Agriculture			—			—
	Credit cards			134			268
	Mobile homes			3			24

		Total recoveries	$	282		$	443

		Net (charge-offs)	$	(2,381	)	$	(6,612	)
Additions charged to operations				1,264			3,538
Additions from acquisition				97			—

Balance at end of period			$	7,455		$	8,917

Ratio of net (charge-offs) during the period to average loans outstanding during the period				(0.42	)%		(1.27	)%

Ratio of allowance for loan losses to total loans at end of period				1.32	%		1.70	%

Ratio of allowance for loan losses to nonperforming loans at end of period (1)				217.60	%		546.38	%

(1): Nonperforming loans include nonaccruing loans and accruing loans delinquent more than 90 days.

The distribution of the Company's allowance for loan losses at the dates indicated is summarized as follows:

		At December 31, 2000				At June 30, 2000
		Amount		Percent of Loans in Each Category to Total Loans		Amount		Percent of Loans in Each Category to Total Loans
		(Dollars in Thousands)
One- to four-family		$	1,339	22.63	%	$	1,299	23.23	%
Commercial and multi-family real estate(1)			1,446	24.45	%		1,442	25.79	%
Commercial business			989	16.73	%		844	15.10	%
Consumer(2)			1,675	28.31	%		1,536	27.47	%
Agricultural			332	5.62	%		323	5.77	%
Credit cards			1,623	1.41	%		2,976	1.66	%
Mobile homes			51	0.85	%		55	0.98	%

	Total	$	7,455	100.00	%	$	8,475	100.00	%

(1): Includes construction loans.
(2): Excludes allowance for loan losses relating to mobile home loans and credit card loans.

The allowance for loan losses was $7.5 million at December 31, 2000 as compared to $8.5 million at June 30, 2000. The ratio of the allowance for loan losses to total loans was 1.32% at December 31, 2000 and 1.52% at June 30, 2000. The Company's management has considered nonperforming assets and other assets of concern in establishing the allowance for loan losses. The Company continues to monitor its allowance for possible loan losses and make future additions or reductions in light of the level of loans in its portfolio and as economic conditions dictate.

The current level of the allowance for loan losses is a result of management's assessment of the risks within the portfolio based on the information revealed in credit reporting processes. The Company utilizes a risk-rating system on all commercial business, agricultural, construction and multi-family and commercial real estate loans, including purchased loans, that exceed $250,000. A monthly credit review is performed on all types of loans to establish the necessary reserve based on the estimated risk within the portfolio. This assessment of risk takes into account the composition of the loan portfolio, historical loss experience for each loan category, previous loan experience, concentrations of credit, current economic conditions and other factors that in management's judgment deserve recognition. As of December 31, 2000, $1.6 million of the $7.5 million allowance for loan losses was reserved for the credit card loan portfolio. Regulators have reviewed the Company's methodology for determining allowance requirements on the Company's loan portfolio and have made no recommendations for increases in the allowances during the six month period ended December 31, 2000 and year ended June 30, 2000.

Comparison of the Six Months Ended December 31, 2000 and December 31, 1999

General. The Company's net income decreased $34,000 for the six months ended December 31, 2000 as compared to the six months ended December 31, 1999. As discussed in more detail below, this decrease was due primarily to a decrease in noninterest income of $2.4 million, an increase in noninterest expense of $15,000 and an increase in income tax expense of $265,000 which were partially offset by an increase in net interest income of $385,000 and a decrease in the provision for losses on loans of $2.3 million.

Interest Income. Interest income increased $4.4 million from $25.5 million for the six months ended December 31, 1999 to $29.9 million for the six months ended December 31, 2000. The $62.1 million increase of average earning assets resulted in a $2.6 million increase in interest income. The average yield on interest-earning assets increased from 8.09% to 8.62% for the six months ended December 31, 1999 and December 31, 2000, respectively.

Interest Expense. Interest expense increased $4.0 million from $13.8 million for the six months ended December 31, 1999 to $17.9 million for the six months ended December 31, 2000. A $2.7 million increase in interest expense was the result of the increase in the average rate paid on interest-bearing liabilities from 4.61% to 5.41% for the six months ended December 31, 1999 and December 31, 2000, respectively. In addition, the average balance of interest-bearing liabilities increased $58.7 million at December 31, 2000 as compared to the same period in the prior fiscal year.

Net Interest Income. The Company's net interest income for the six months ended December 31, 2000 increased $385,000 to $12.0 million compared to $11.6 million for the same period in fiscal 2000. The increase in net interest income reflects an overall increase in net earning assets offset by a reduction in the net interest spread on average earning assets to 3.21% for the six months ended December 31, 2000 from 3.48% for the same period in fiscal 2000.

During the six months ended December 31, 2000, the Company increased its average balances of commercial and consumer loans. The Company anticipates activity in this type of lending to continue in future years, subject to market demand. In addition, the Company sells the majority of conventional single-family residential real estate loan originations into the secondary market. Net interest income is expected to trend upward as a result of this lending activity as interest rate yields are generally higher on these types of loans compared to the yield provided by conventional single-family residential real estate loans. This lending activity is considered to carry a higher level of risk due to the nature of the collateral and the size of the individual loans. As such, the Company anticipates continued increases in its allowance for loan losses.

Provision for Losses on Loans. During the six months ended December 31, 2000, the Company recorded a provision for losses on loans of $1.3 million as compared to $3.5 million for the six months ended December 31, 1999, a decrease of $2.3 million. A majority of the decrease is related to reduction of the subprime credit card loan portfolio from $12.9 million at December 31, 1999 to $7.9 million at December 31, 2000. See "Asset Quality" for further discussion.

Noninterest Income. Noninterest income was $6.3 million for the six months ended December 31, 2000 as compared to $8.7 million for the six months ended December 31, 1999, a decrease of $2.4 million.

The decrease in credit card fee income of $3.1 million for the six months ended December 31, 2000 as compared to the same period in fiscal 2000 is primarily due to a decrease in fees received on unsecured credit cards. This is a result of the credit card portfolio decreasing from to $12.9 million at December 31, 1999 as compared to $7.9 million at December 31, 2000. The fee income represents interchange fees, annual/monthly fees, late fees and other miscellaneous fees. This credit card program was initiated in fiscal 1997. The Company ceased credit card applications in March 1999. This

decreased the level of these fees. Interest income on credit card loans is included in interest income on loans.

Fees on deposits increased $449,000 due to an increase in volume from deposits acquired in new branch acquisitions/openings during the last half of fiscal 2000 and the first quarter of fiscal 2001.

Commission and insurance income from the sale of financial and insurance products increased $179,000 primarily due to a greater emphasis on the production of noninterest income revenue.

Noninterest Expense. Noninterest expense increased $15,000 as compared to the same period in the prior fiscal year primarily due to increases in compensation and employee benefits of $695,000, other general and administrative expenses of $103,000 and occupancy and equipment of $224,000 (increases primarily related to three new bank branches opened and two non-bank operations acquired since September of 1999) offset by a decrease in credit card processing expenses of $1.0 million. This expense represents costs for collecting loans and servicing credit cards for the unsecured credit card program.

Income tax expense. The Company's income tax expense for the six months ended December 31, 2000 was $1.7 million as compared to $1.4 million for the six months ended December 31, 1999, an increase of $265,000. This increase was primarily due to the increase in the Company's effective tax rate from 35.05% for the six months ended December 31, 1999 to 39.33% for the six months ended December 31, 2000.

Comparison of the Three Months Ended December 31, 2000 and December 31, 1999

General. The Company's net income increased $94,000 to $1.4 million for the three months ended December 31, 2000 as compared to $1.3 million for the three months ended December 31, 1999. As discussed in more detail below, this increase was due primarily to an increase in net interest income of $53,000, a decrease in provision for losses on loans of $1.2 million and a decrease in noninterest expense of $84,000 which were partially offset by an decrease in noninterest income of $1.0 million and an increase in income tax expense of $193,000.

Interest Income. Interest income increased $2.1 million from $13.0 million for the three months ended December 31, 1999 to $15.1 million for the three months ended December 31, 2000. The $61.6 million increase of average earning assets resulted in a $1.3 million increase in interest income. The average yield on interest-earning assets increased from 8.15% to 8.61% for the three months ended December 31, 1999 and December 31, 2000, respectively.

Interest Expense. Interest expense increased $2.1 million from $7.2 million for the three months ended December 31, 1999 to $9.2 million for the three months ended December 31, 2000. A $1.4 million increase in interest expense was the result of the increase in the average rate paid on interest-bearing liabilities from 4.69% to 5.51% for the three months ended December 31, 1999 and December 31, 2000, respectively. In addition, the average balance of interest-bearing liabilities increased $56.8 million at December 31, 2000 as compared to the same period in the prior fiscal year.

Net Interest Income. The Company's net interest income for the three months ended December 31, 2000 increased $53,000 to $5.9 million compared to $5.8 million for the same period in fiscal 2000. The increase in net interest income reflects an overall increase in net earning assets offset by a reduction in the net interest spread on average earning assets to 3.10% for the three months ended December 31, 2000 from 3.45% for the same period in fiscal 2000.

During the three months ended December 31, 2000, the Company increased its average balances of commercial and consumer loans. The Company anticipates activity in this type of lending to continue in future years, subject to market demand. In addition, the Company sells the majority of conventional single-family residential real estate loan originations into the secondary market. Net interest income is

expected to trend upward as a result of this lending activity as interest rate yields are generally higher on these types of loans compared to the yield provided by conventional single-family residential real estate loans. This lending activity is considered to carry a higher level of risk due to the nature of the collateral and the size of the individual loans. As such, the Company anticipates continued increases in its allowance for loan losses.

Provision for Losses on Loans. During the three months ended December 31, 2000, the Company recorded a provision for losses on loans of $486,000 as compared to $1.7 million for the three months ended December 31, 1999, a decrease of $1.2 million. A majority of the decrease is related to reduction of the subprime credit card loan portfolio from $12.9 million at December 31, 1999 to $7.9 million at December 31, 2000. See "Asset Quality" for further discussion.

Noninterest Income. Noninterest income was $3.1 million for the three months ended December 31, 2000 as compared to $4.1 million for the three months ended December 31, 1999, a decrease of $1.0 million.

The decrease in credit card fee income of $1.4 million for the three months ended December 31, 2000 as compared to the same period in fiscal 2000 is primarily due to a decrease in fees received on unsecured credit cards. This is a result of the credit card portfolio decreasing from to $12.9 million at December 31, 1999 as compared to $7.9 million at December 31, 2000. The fee income represents interchange fees, annual/monthly fees, late fees and other miscellaneous fees. This credit card program was initiated in fiscal 1997. The Company ceased credit card applications in March 1999. This decreased the level of these fees. Interest income on credit card loans is included in interest income on loans.

Fees on deposits increased $240,000 due to an increase in volume from deposits acquired in new branch acquisitions/openings during the last half of fiscal 2000 and the first quarter of fiscal 2001.

Commission and insurance income from the sale of financial and insurance products increased $78,000 primarily due to a greater emphasis on the production of noninterest income revenue.

Noninterest Expense. Noninterest expense decreased $84,000 as compared to the same period in the prior fiscal year primarily due to a decrease in credit card processing expenses of $497,000 offset by increases in compensation and employee benefits of $235,000, occupancy and equipment of $127,000 and amortization of intangible assets of $46,000 (increases primarily related to three new bank branches opened and two non-bank operations acquired since September of 1999). Credit card processing expenses represent costs for collecting loans and servicing credit cards for the unsecured credit card program.

Income tax expense. The Company's income tax expense for the three months ended December 31, 2000 was $884,000 as compared to $691,000 for the three months ended December 31, 1999, an increase of $193,000. This increase was primarily due to the increase in the Company's effective tax rate from 35.49% for the three months ended December 31, 1999 to 39.57% for the three months ended December 31, 2000.

Liquidity and Capital Resources

The Bank's primary sources of funds are deposits, FHLB advances, amortization and prepayments of loan principal (including mortgage-backed securities) and, to a lesser extent, sales of mortgage loans, sales and/or maturities of securities, mortgage-backed securities, and short-term investments. While scheduled loan payments and maturing securities are relatively predictable, deposit flows and loan prepayments are more influenced by interest rates, general economic conditions, and competition. The Bank attempts to price its deposits to meet its asset/liability objectives consistent with local market conditions. Excess balances are invested in overnight funds.

Federal regulations have historically required the Bank to maintain minimum levels of liquid assets. The required percentage has varied from time to time based upon economic conditions and savings flows and is currently 4% of net withdrawable savings deposits and current borrowings. Liquid assets for purposes of this ratio include cash, certain time deposits, U.S. government and corporate securities and other obligations generally having remaining maturities of less than five years. The Bank has historically maintained its liquidity ratio at a level in excess of that required by these regulations. At December 31, 2000, the Bank's liquidity ratio was 9.42%.

Liquidity management is both a daily and long-term responsibility of management. The Bank adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) projected loan sales, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits, and (v) the objectives of its asset/liability management program. Excess liquidity is invested generally in interest-bearing overnight deposits and other short-term government and agency obligations. During the six months ended December 31, 2000, the Bank generated funds internally that allowed it to pay down FHLB advances and decrease borrowings with the FHLB by $7.2 million. See "Financial Condition Data" for further discussion.

The Bank anticipates that it will have sufficient funds available to meet current loan commitments. At December 31, 2000, the Bank had outstanding commitments to originate or purchase loans of $16.8 million and to sell loans of $9.9 million. At December 31, 2000, the Bank had no commitments to purchase or sell securities.

Although deposits are the Bank's primary source of funds, the Bank's policy has been to utilize borrowings where the funds can be invested in either loans or securities at a positive rate of return or to use the funds for short term liquidity purposes. See "Financial Condition Data" for further analysis.

The Company currently has in effect a stock buy back program in which up to 10% of the common stock of the Company outstanding on March 26, 2000 may be acquired through March 31, 2001. No shares of common stock have been purchased pursuant to this current program. Pursuant to a series of stock buy back programs initiated by the Company since 1996, the Company has purchased an aggregate of 1,105,209 shares of common stock through December 31, 2000.

Savings institutions insured by the Federal Deposit Insurance Corporation are required by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") to meet three regulatory capital requirements. If a requirement is not met, regulatory authorities may take legal or administrative actions, including restrictions on growth or operations or, in extreme cases, seizure. Institutions not in compliance may apply for an exemption from the requirements and submit a recapitalization plan. Under these capital requirements, at December 31, 2000, the Bank met all current capital requirements.

The Office of Thrift Supervision ("OTS") has adopted a core capital requirement for savings institutions comparable to the requirement for national banks. The OTS core capital requirement is 3% of total adjusted assets for thrifts that receive the highest supervisory rating for safety and soundness. The Bank had core capital of 5.83% at December 31, 2000.

Pursuant to the Federal Deposit Insurance Corporation Insurance Act ("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.

Impact of Inflation and Changing Prices

The Consolidated Financial Statements and Notes thereto presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial

position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Bank's operations. Unlike most industrial companies, nearly all the assets and liabilities of the Bank are monetary in nature. As a result, interest rates have a greater impact on the Bank's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign exchange rate risk and commodity price risk, do not arise in the normal course of the Company's business activities.

The composition of the Bank's balance sheet results in maturity mismatches between interest-earning assets and interest-bearing liabilities. The scheduled maturities of the Bank's fixed rate interest-earning assets are longer than the scheduled maturities of its fixed rate interest-bearing liabilities. This mismatch exposes the Bank to interest rate risk. In a rising rate scenario, as measured by the OTS interest rate risk exposure simulation model, the estimated market or portfolio value ("PV") of the Bank's assets would decline in value to a greater degree than the change in the PV of the Bank's liabilities, thereby reducing net portfolio value ("NPV"), the estimated market value of its shareholders' equity.

As of June 30, 2000, under a rate shock scenario of plus 200 basis points ("bp"), the Bank's pre-shock NPV ratio (NPV as a % of PV of assets) was estimated in the OTS model to be 9.78%. The post-shock NPV ratio was estimated to be 9.33%, a decline of 45bp. As of September 30, 2000, the most recent report available, the post-shock ratio for a 200 bp decrease in market interest rates was estimated to be 8.11%, a decrease of 76bp from the pre-shock NPV ratio estimate of 8.87%.

In managing market risk and the asset/liability mix, the Bank has placed its emphasis on developing a portfolio in which, to the extent practicable, assets and liabilities reprice within similar periods. The effect of this policy will generally be to reduce the Bank's sensitivity to interest rate changes. The goal of this policy is to provide a relatively consistent level of net interest income in varying interest rate cycles and to minimize the potential for significant fluctuations from period to period.

HF FINANCIAL CORP.

FORM 10-Q

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings
		None
Item 2.	Changes in Securities
		None
Item 3.	Defaults upon Senior Securities
		None
Item 4.	Submission of Matters to a Vote of Security Holders

The following matters were submitted to a vote by the stockholders of HF Financial Corp. at the Annual Meeting of Stockholders on November 15, 2000:

a.: Election of Board of Directors of the Company.

Paul H. Hallem*	For: 2,935,073	Vote Withheld: 424,938
JoEllen G. Koerner*	For: 2,932,136	Vote Withheld: 427,875
Wm. G. Pederson*	For: 2,933,903	Vote Withheld: 426,108
*Terms to expire 2003.

Continuing Board of Directors—Curtis L. Hage, Robert L. Hanson, Kevin T. Kirby, Jeffrey G. Parker, and Thomas L. VanWyhe.

b.: Ratification of the re-appointment of McGladrey & Pullen, LLP as the Company's auditors for fiscal year ending June 30, 2001.

	Number of Votes	Percentage of Votes Actually Cast
For	3,315,856	98.69	%
Against	30,957	0.92	%
Abstain	13,198	0.39	%

Item 5.	Other Information
		None
Item 6.	Exhibits and Reports on Form 8-K
		None

No other information is required to be filed under Part II of the form.

HF FINANCIAL CORP.

FORM 10-Q
SIGNATURES

Pursuant to the requirements 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.

		HF FINANCIAL CORP.
			(Registrant)
Date:	February 9, 2001	by	/s/ CURTIS L. HAGE Curtis L. Hage, Chairman, President And Chief Executive Officer (Duly Authorized Officer)
Date:	February 9, 2001	by	/s/ BRENT E. JOHNSON Brent E. Johnson, Senior Vice President, Chief Financial Officer And Treasurer (Principal Financial and Accounting Officer)