<PAGE>
                                   EXHIBIT 13

                       2000 Annual Report to Shareholders
                                       41
<PAGE>




CORPORATE  PROFILE  Klamath  First  Bancorp,  Inc.  (Nasdaq:  KFBI) is a unitary
savings and loan holding company,  headquartered in Klamath Falls,  Oregon.  The
Company's subsidiary,  Klamath First Federal Savings and Loan Association, has a
66 year history, dating back to 1934. The Company provides a diversified line of
loan and deposit  services to individuals,  families and small business  owners.
The  Company  recognizes  there is great  value in serving  both large and small
communities of Oregon, and will continue to serve these communities  through its
traditional  "hands on"  personal  banking  style  using  conventional  delivery
channels.  The  Company  will  also  give  customers  a  choice  whether  to use
alternative  delivery  channels such as ATMs,  telephone  banking,  and Internet
banking. At year-end,  Klamath First Bancorp, Inc. was operating from 36 offices
in 22 counties throughout Oregon.






                                TABLE OF CONTENTS

     Letter to our Shareholders...................................... 2

     Directors and Officers...........................................3

     Selected Consolidated Financial Data...........................4-5

     Financials....................................................7-36



                                       1
<PAGE>



LETTER TO OUR SHAREHOLDERS

Dear Shareholder:

The first year of the new millennium has been both  interesting  and challenging
for our company,  Klamath  First  Bancorp,  Inc. The effects of rising  interest
rates and a slowing economy have adversely  impacted the  construction  and home
buying sales  activities in our  marketplace  which,  as you know, have been our
mainstay  for quite some time.  Consumer  fascination  with the stock market has
also had a negative  impact on the savings and deposit growth at our bank and at
financial institutions across the country.

Several new  strategic  initiatives  were  implemented  this year to improve the
competitiveness  of our company in the  commercial  and small  business  lending
areas.  One  initiative  has been  expanding  our lending  activities to include
operating  lines of credit and  inventory  loans for  professional  and business
operations.  In  addition,  we are  pursuing a whole new look in the way we lend
money for residential real estate  purchases.  Although the cost of taking these
new initiatives may have impacted our earnings in 2000, we are encouraged by the
significant  growth in these new  lending  areas and are  confident  that we are
heading in the right direction for the long-term growth and profitability of our
company.

The focus of the company has  gradually  changed  from the  traditional  "single
family" home savings and loan association to a viable  competitor as a community
oriented full service  financial  institution.  Part of that  transition was the
addition of our new  subsidiary,  Klamath First Financial  Services,  which is a
full  service  brokerage  operation  that offers a wide range of  financial  and
investment services.

Also evident of our new direction are the  technological  advances we are making
in the delivery of our services to our  customers.  Twenty-four  hour  telephone
banking  has  quickly  changed  the way our  customers  do their  banking.  This
service,  complemented  with  expanding  our Web site to offer full  transaction
access to customer  accounts  through the  Internet,  will  further  enhance our
commitment  to providing  the latest and most  innovative  products and services
available today.

Other significant  activities during the year included the opening of our fourth
Jackson County branch in Central Point. Additionally, we have purchased property
to further expand our  competitive  positioning in some very strategic  markets.
These  activities  include a full service office in Redmond,  which is presently
under  construction,  and the purchase of property for a new branch in southwest
Medford.  Both of these  locations are in major growth areas and we believe that
these branches will add significant value to our franchise.

After 43 years with  Klamath  First  Federal,  President  and CEO  Gerald  Brown
retired.  An extensive  search was  undertaken to select a successor to lead the
company into the 21st Century. This has been completed and our new President and
CEO, Kermit Houser, will be in place November 15, 2000.

I am  confident  that we are laying the  foundation  to position  Klamath  First
Federal as the Community Bank in Oregon.

/s/ Rodney N. Murray
Chairman of the Board
Klamath First Bancorp, Inc.


                                       2
<PAGE>


                   DIRECTORS AND CORPORATE EXECUTIVE OFFICERS

             KLAMATH FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION and
                 KLAMATH FIRST BANCORP, INC. BOARD OF DIRECTORS

Bernard Z. Agrons       Retired;  Weyerhaeuser  Company  Vice President for  the
                        Eastern Oregon Region until 1981;  Former State
                        Representative in the Oregon State Legislature from 1983
                        to 1991

Timothy A. Bailey       Senior Vice President - Klamath Operations  for  Regence
                        Blue Cross/Blue Shield, a health insurance company

James D. Bocchi         Retired; President of  Klamath First Federal Savings and
                        Loan Association from 1984 until June 1994

William C. Dalton       Self employed, and former owner of W. C. Dalton and
                        Company, farming

J. Gillis Hannigan      Retired; Executive Vice President of Modoc Lumber in
                        Klamath Falls, Oregon, until January 1995

Kermit K. Houser        President and Chief Executive Officer of Klamath First
                        Federal Savings and Loan Association from November 2000

Rodney N. Murray        Director and Chairman of the Board, owner and operator
                        of Rodney Murray Ranch, former owner and manager and
                        President of Klamath Falls Creamery, Inc., located in
                        Klamath Falls, Oregon

Dianne E. Spires, CPA   Partner since 1986 with Rusth, Spires & Menefee, LLP, a
                        public accounting firm located in Klamath Falls and
                        Lakeview, Oregon

                          CORPORATE EXECUTIVE OFFICERS

Kermit K. Houser joined  Klamath First Federal in November 2000 as President and
Chief Executive Officer after a 29 year commercial  banking career that included
a variety of West Coast  management  positions in  national,  regional and state
chartered banks.

Robert  A.  Tucker  has  been  with  Klamath  First  Federal  Savings  and  Loan
Association  since 1973. He is currently Senior Vice President and Chief Lending
Officer  responsible  for all lending  functions of the  Association.  In his 27
years with the Association, Mr. Tucker has served in various positions including
Loan Officer,  Branch Manager,  and Chief Operating Officer  responsible for the
operations of the Association.

Frank X.  Hernandez  joined  Klamath  First  Federal  in 1991 as Human  Resource
Manager after an 11 year career with Oregon's  largest  commercial bank where he
was a District  Operations  Officer and Branch Manager.  He currently  serves as
Senior Vice President and Chief  Operating  Officer  responsible  for all of the
Association's  non-loan operations  including deposit  acquisition,  information
systems and investor relations.

Marshall J. Alexander has been with Klamath First Federal Savings and Loan since
1986. He began as the Association's Controller,  was promoted to Chief Financial
Officer in August 1994 and was named Senior Vice  President and Chief  Financial
Officer in November  1998.  Mr.  Alexander  brought  over ten years of financial
management  experience in both regional banks and small community banks prior to
joining the Association.  He is responsible for evaluating strategic shareholder
value  enhancements,  supervising  the accounting  department,  and managing the
investments of the Company.

   ADDITIONAL OFFICERS OF KLAMATH FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION

Robert L. Salley           Vice President
Gerald A. Page             Vice President
Carol Starkweather         Assistant Vice President
Craig M. Moore             Auditor/Corporate Counsel
Nora L. Boman              Treasurer
and all branch managers



                                       3
<PAGE>



SELECTED CONSOLIDATED FINANCIAL DATA

The following tables set forth certain  information  concerning the consolidated
financial  position and  consolidated  results of  operations  of Klamath  First
Bancorp,  Inc. (the "Company") at the dates and for the periods indicated.  This
information  does not purport to be complete  and should be read in  conjunction
with,  and is  qualified  in its  entirety  by  reference  to, the  Consolidated
Financial  Statements  and Notes  thereto  appearing  elsewhere  in this  Annual
Report.
<TABLE>
<CAPTION>



                                                                                     At September 30,
                                                          -------------------------------------------------------------------------
                                                             2000            1999             1998            1997            1996
                                                          --------      ----------       ----------        --------        --------
FINANCIAL CONDITION DATA                                                               (In thousands)

<S>                                                       <C>           <C>              <C>               <C>             <C>
Assets                                                    $995,575      $1,041,641       $1,031,302        $980,078        $671,969
Cash and cash equivalents                                   29,947          24,523           66,985          32,043          16,180
Loans receivable, net                                      729,037         739,793          668,146         551,825         473,556
Investment securities held to maturity                         724             560            2,889          22,937           9,827
Investment securities available for sale                   116,628         158,648          203,224         261,846          75,987
Mortgage-backed & related securities held to maturity        2,160           2,601            3,662           5,447           6,783
Mortgage-backed & related securities available for sale     75,331          72,695           43,336          64,869          74,109
Stock in FHLB of Seattle, at cost                           11,877          10,957           10,173           7,150           4,774
Advances from FHLB of Seattle                              173,000         197,000          167,000         129,000          90,000
Deposit liabilities                                        695,381         720,401          689,541         673,978         399,673
Shareholders' equity                                       108,725         109,585          145,081         144,462         153,411
</TABLE>
<TABLE>
<CAPTION>

                                                                                   Year Ended September 30,
                                                          -------------------------------------------------------------------------
                                                             2000            1999             1998            1997            1996
                                                          --------      ----------       ----------        --------        --------
SELECTED OPERATING DATA                                                     (In thousands, except per share data)

<S>                                                        <C>             <C>              <C>             <C>             <C>
Total interest income                                      $72,158         $71,691          $69,733         $54,167         $45,649
Total interest expense                                      40,756          38,382           37,848          29,856          23,286
                                                          --------      ----------       ----------        --------        --------
Net interest income                                         31,402          33,309           31,885          24,311          22,363
Provision for loan losses                                    1,764             932              674             370             120
                                                          --------      ----------       ----------        --------        --------
Net interest income after provision for loan losses         29,638          32,377           31,211          23,941          22,243
Non-interest income                                          4,094           3,629            3,202             810             522
BIF/SAIF Assessment                                             --              --               --              --           2,473
Non-interest expense                                        23,773          21,186           19,523          11,764           9,769
                                                          --------      ----------       ----------        --------        --------
Earnings before income taxes                                 9,959          14,820           14,890          12,987          10,523
Provision for income tax                                     3,533           5,665            5,339           4,429           4,413
                                                          --------      ----------       ----------        --------        --------
Net Earnings                                                $6,426          $9,155           $9,551          $8,558          $6,110
                                                          ========      ==========       ==========        ========        ========
Basic earnings per share                                     $0.94           $1.21            $1.05           $0.91           $0.56
</TABLE>


                                       4
<PAGE>


<TABLE>
<CAPTION>



                                                                             At or For the Year Ended September 30,
                                                           ------------------------------------------------------------------------
                                                             2000            1999             1998            1997            1996
                                                           -------         ------           ------           -----          -------
KEY OPERATING RATIOS

Performance Ratios
Return on average assets
<S>                                                        <C>             <C>              <C>             <C>             <C>
(net earnings divided by average assets)                     0.62%           0.88%            0.96%           1.14%           0.99%

Return on average equity
(net earnings divided by average equity)                     5.82%           7.55%            6.52%           5.85%           3.69%

Interest rate spread
(difference between average yield on interest-earning
assets and average cost of interest-bearing liabilities)     2.50%           2.73%            2.57%           2.28%           2.22%

Net interest margin (net interest income as a
percentage of average interest-earning assets)               3.14%           3.37%            3.36%           3.32%           3.65%

Average interest-earning assets to average
interest-bearing liabilities                               115.71%         116.47%          119.84%         125.58%         137.78%

Net interest income after provision for loan losses
to total non-interest expenses                             124.39%         152.82%          159.87%         203.51%         181.69%

Non-interest expense to average total assets                 2.29%           2.05%            1.96%           1.57%           1.99%

Efficiency ratio (non-interest expense divided by
net interest income plus non-interest income)               66.97%          57.36%           55.64%          46.83%          53.49%

Dividend payout ratio (dividends declared per share
divided by net earnings per share)                          54.79%          38.98%           34.50%          34.09%          44.64%

Book value per share                                       $16.25          $15.52           $16.30          $15.64          $14.98

Asset Quality Ratios
Allowance for loan losses to total loans at
end of period                                                0.54%           0.32%            0.28%           0.22%           0.19%

Non-performing assets to total assets                        0.16%           0.46%            0.05%           0.03%           0.04%

Non-performing loans to total loans, before net items        0.11%           0.43%            0.07%           0.04%           0.04%

Capital Ratios

Equity to assets ratio                                      10.92%          10.52%           14.07%          14.74%          22.83%

Tangible capital ratio                                      10.35%           8.91%            8.26%          11.06%          19.22%

Core capital ratio                                          10.35%           8.91%            8.26%          11.06%          19.22%

Risk-based capital ratio                                    20.30%          17.41%           16.13%          23.12%          42.41%

Other Data
Number of
Real estate loans outstanding                               8,807           9,297            9,155           8,393           7,704

Deposit accounts                                           85,706          85,112           82,585          82,032          38,651

Full service offices                                           35              34               34              32               7
</TABLE>



                                       5
<PAGE>


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

Special Note Regarding Forward-Looking Statements

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations   and  other   portions  of  this  Annual  Report   contain   certain
"forward-looking  statements"  concerning the future operations of Klamath First
Bancorp,  Inc.  Management  desires  to  take  advantage  of the  "safe  harbor"
provisions  of the  Private  Securities  Litigation  Reform  Act of 1995  and is
including this statement for the express  purpose of availing the Company of the
protections of such safe harbor with respect to all "forward-looking statements"
contained in the Annual Report.  We have  used  "forward-looking  statements" to
describe  future  plans  and  strategies,  including  our  expectations  of  the
Company's future financial results.  Management's  ability to predict results or
the effect of future plans or strategies is inherently uncertain.  Factors which
could affect actual results include  interest rate trends,  the general economic
climate in the  Company's  market  area and the  country as a whole  which could
affect the collectibility of loan balances, the ability to increase non-interest
income through expansion of new lines of business, the ability of the Company to
control costs and expenses,  competitive products and pricing,  loan delinquency
rates,  and changes in federal and state  regulation.  These  factors  should be
considered in evaluating the  "forward-looking  statements,"  and undue reliance
should not be placed on such statements.

General
Klamath First  Bancorp,  Inc. (the  "Company"),  an Oregon  corporation,  is the
unitary  savings and loan holding  company for Klamath First Federal Savings and
Loan Association (the "Association").

The  Association  is  a  traditional,   community-oriented,   savings  and  loan
association that focuses on hands-on  customer service within its primary market
area.  Accordingly,  the Association is primarily engaged in attracting deposits
from the general public through its offices and using those and other  available
sources of funds to originate  permanent  residential  one- to four-family  real
estate  loans  within  its market  area and,  to a lesser  but  growing  extent,
commercial real estate and multi-family residential loans and loans to consumers
and small businesses.

The Company's  profitability depends primarily on its net interest income, which
is the  difference  between  interest  and dividend  income on  interest-earning
assets,  principally  loans and investment  securities,  and interest expense on
interest-bearing  deposits  and  borrowings.  Because the  Company is  primarily
dependent on net interest  income for its  earnings,  the focus of the Company's
planning  is to devise and  employ  strategies  that  provide  stable,  positive
spreads  between  the  yield  on  interest-  bearing  assets  and  the  cost  of
interest-bearing  liabilities  in order to  maximize  the  dollar  amount of net
interest income.  The Company's net earnings are dependent,  to a lesser extent,
on the level of its non-interest income, such as service charges and other fees,
and the controlling of its non-interest  expense,  such as employee compensation
and benefits,  occupancy and equipment  expense,  deposit insurance premiums and
miscellaneous other expenses, as well as federal and state income taxes.

The Association is regulated by the Office of Thrift Supervision ("OTS") and its
deposits  are insured up to  applicable  limits  under the  Savings  Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation ("FDIC").

The  Association  is a  member  of  the  Federal  Home  Loan  Bank  system.  The
Association  conducts its  business  through 35 office  facilities  and one loan
production  office,  with the main office located in Klamath Falls,  Oregon. The
Association considers its primary market area to be the state of Oregon,
particularly the 22 counties in which the offices are located.


                                       6
<PAGE>



Federal Legislation

In Federal  legislation  enacted in 1996,  the reserve  method of accounting for
thrift bad debt reserves (including the percentage of taxable income method) was
repealed for tax years beginning  after December 31, 1995. The resulting  change
in accounting method triggers bad debt reserve recapture for post-1987  reserves
over a six-year  period,  thereby  generating an additional  tax  liability.  At
September 30, 2000 and 1999, the  Association's  post-1987  reserves amounted to
$3.2 million and $3.8 million,  respectively.  Pre-1988  reserves  would only be
subject to recapture if the institution  fails to qualify as a thrift. A special
provision  suspends  recapture  of  post-1987  reserves  for up to two years if,
during those years, the institution satisfies a " residential loan requirement."
Notwithstanding this special provision, however, recapture was required to begin
during the tax year ended September 30, 1999.

Market Risk and Asset/Liability Management

The  Company's  financial  performance  is  affected  by the  success of the fee
generating products it offers to its customers,  the credit quality of its loans
and securities,  and the extent to which its earnings are affected by changes in
interest  rates.  Credit risk is the risk that  borrowers  will become unable to
repay their debts.  The Company  utilizes no  derivatives to mitigate its credit
risk,  relying instead on strict  underwriting  standards,  loan review,  and an
adequate allowance for loan losses.

Interest  rate risk is the risk of loss in  principal  value and risk of earning
less net interest income due to changes in interest rates.  Put  simplistically,
savings  institutions  solicit  deposits  and lend the  funds  they  receive  to
borrowers.  The  difference  between  the  rate  paid on  deposits  and the rate
received on loans is the  interest  rate  spread.  If the rates paid on deposits
change,  or reprice,  with the same timing and  magnitude as the rates change on
the loans,  there is perfect  matching of  interest  rate  changes and thus,  no
change in interest rate spread and no interest rate risk. In actuality, interest
rates on deposits and other  liabilities  do not reprice at the same time and/or
with  the  same   magnitude   as  those  on   loans,   investments   and   other
interest-earning  assets. For example,  the Company primarily  originates fixed-
rate  residential  loans  for  its  portfolio.   Because  fixed-rate  loans,  by
definition,  do not reprice until payoff and because the majority of residential
loans have terms of 15 to 30 years (with actual  expected  lives of seven to ten
years),  the interest rate  characteristics of the loan portfolio do not exactly
match the  Company's  liabilities,  which  consist of deposits  with  maturities
ranging up to ten years and borrowings  which mature or reprice in five years or
less. When interest rates change, this mismatch creates changes in interest rate
spread that influence net interest income and result in interest rate risk.

Changes  in  interest  rates  also  impact  the  fair  value of the  assets  and
liabilities  on the  Company's  balance  sheet,  expressed as changes in the net
portfolio value ("NPV"). NPV represents the market value of portfolio equity and
is equal to the market  value of assets  minus the market  value of  liabilities
plus or minus the estimated market value of off-balance sheet  instruments.  For
example,  the market  value of  investment  securities  and loans is impacted by
changes  in  interest  rates.  Fixed-rate  loans  and  investments  held  in the
Company's  portfolio  increase  in  market  value  if  interest  rates  decline.
Conversely,  the market value of  fixed-rate  portfolio  assets  decreases in an
increasing  interest rate environment.  It is generally assumed that assets with
adjustable  rates are less subject to market value  changes due to interest rate
fluctuations based on the premise that their rates will adjust with the market.



                                       7
<PAGE>



In December  1998,  the OTS issued  Thrift  Bulletin  13a ("TB 13a")  containing
guidance on the  management of interest rate risk and providing a description of
how the "Sensitivity to Market Risk" rating would be determined.  Sensitivity to
Market Risk  represents  the "S" component of the CAMELS rating which is used by
regulators  in  their  evaluation  of  financial   institutions.   The  OTS  has
established  detailed  minimum  guidelines  for two areas of interest  rate risk
management.   These  guidelines  establish  minimum  expectations  for  (1)  the
establishment  and  maintenance  of  board-approved   risk   limits  and  (2) an
institution's  ability  to  measure  their  interest  rate risk  exposure.  Each
thrift's board of directors is responsible for establishing  risk limits for the
institution. The interest rate risk limits are expected to include limits on the
change in NPV as well as limits on earnings sensitivity.


NPV limits  include  minimums for the NPV ratio which is  calculated by dividing
the NPV by the  present  value  of the  institution's  assets  for a given  rate
scenario.  The board should specify the minimum NPV ratio it is willing to allow
under  interest rate shifts of 100, 200, and 300 basis points up and down.  Both
the  NPV  limits  and  the  actual  NPV  forecast  calculations  play a role  in
determining a thrift's  Sensitivity  to Market Risk.  The prudence of the limits
and the compliance with board-prescribed limits are factors in the determination
of whether or not the institution's risk management is sufficient.  In addition,
the NPV ratio permitted by the institution's policies under an adverse 200 basis
point rate shift scenario is combined with the  institution's  current  interest
rate sensitivity to determine the  institution's  "Level of Interest Rate Risk."
The  level  of  interest  rate  risk is then  utilized  in  conjunction  with an
assessment  of the "Quality of Risk  Management  Practices" to determine the "S"
component of the CAMELS rating.

The Company's exposure to interest rate risk is reviewed on at least a quarterly
basis by the Board of Directors  and the Asset  Liability  Management  Committee
("ALCO"),  which includes senior management  representatives.  The ALCO monitors
and considers  methods of managing  interest rate risk by monitoring  changes in
NPV,  the NPV  ratio,  and net  interest  income  under  various  interest  rate
scenarios.  The ALCO attempts to manage the various  components of the Company's
balance sheet to minimize the impact of sudden and sustained changes in interest
rates on NPV and the NPV ratio.  If  potential  changes to NPV and the NPV ratio
resulting  from  hypothetical  interest  rate  swings  are not within the limits
established  by the Board,  the Board may direct  management to adjust its asset
and liability mix to bring interest rate risk within Board-approved limits.

NPV is  calculated  based on the net  present  value  of  estimated  cash  flows
utilizing market prepayment assumptions and market rates of interest provided by
independent   broker  quotations  and  other  public  sources.   Computation  of
forecasted  effects of hypothetical  interest rate changes are based on numerous
assumptions,   including   relative  levels  of  market  interest  rates,   loan
prepayments,  and deposit decay,  and should not be relied upon as indicative of
actual future results.  Further, the computations do not contemplate any actions
the ALCO could undertake in response to changes in interest rates.

The Company continues to originate primarily fixed-rate  residential loans. Some
of these loans are sold to Federal National Mortgage  Association  ("FNMA") with
servicing  retained while others are held in its  portfolio.  In order to reduce
the exposure to interest rate fluctuations, the Company has developed strategies
to manage its  liquidity,  shorten the  effective  maturities  and  increase the
repricing  of  certain  interest-earning  assets,  and  increase  the  effective
maturities  of  certain  interest-bearing  liabilities.  The  Company  has taken
several  actions to reduce interest rate risk. As part of the interest rate risk
management  plan, the Company  purchased a $10 million block of  adjustable-rate
single family  mortgages,  which generally reprice in one year. The Company also
purchased participations in  adjustable-rate  multi-family  and  commercial real


                                       8
<PAGE>



estate loans. Adjustable-rate borrowings from the FHLB of Seattle were converted
to longer  term  fixed-rate  borrowings.  The  Company  has  utilized  long-term
borrowings and deposit  marketing  programs to lengthen the term to repricing of
its  liabilities.  During 2000, when  originations of  adjustable-rate  mortgage
loans did not meet expectations, the Company accomplished its plan by purchasing
adjustable-rate mortgage-backed securities. The Company will continue to explore
opportunities in these areas.

The Company's Board of Directors had established  risk limits under the previous
OTS  guidance.  These  limits have been  revised and approved to bring them into
compliance with TB 13a. NPV values for the Association are regularly  calculated
internally and by the OTS based on regulatory  guidelines.  The following  table
presents  the  Association's  projected  change in NPV and the NPV ratio for the
various  rate  shock  levels as of  September  30,  2000  using  the  internally
generated  calculations.  The assets and liabilities at the parent company level
are not considered in the analysis.  The exclusion of holding company assets and
liabilities  does  not  have  a  significant  effect  on  the  analysis  of  NPV
sensitivity. All market rate sensitive instruments presented in these tables are
classified as either held-to-maturity or available-for-sale. The Association has
no trading securities.
<TABLE>
<CAPTION>

         PROJECTED CHANGES IN NET PORTFOLIO VALUE
         as of September 30, 2000
         (Dollars in thousands)

         Change in                        NPV                Sensitivity
         Interest Rates                 Ratio                    Measure
                                                           (Basis points)

         <S>                            <C>                        <C>
         200 basis point rise           10.79%                     (352)
         100 basis point rise           12.61%                     (170)
         Base Rate Scenario             14.31%                       --
         100 basis point decline        15.20%                       89
         200 basis point decline        14.81%                       50

</TABLE>

The  preceding  table  indicates  that at September  30, 2000, in the event of a
sudden  and  sustained   increase  in  prevailing  market  interest  rates,  the
Association's NPV and NPV ratio would be expected to decrease.  At September 30,
2000,  the  Association's  estimated  changes in these  measures were within the
targets established by the Board of Directors.

Certain  shortcomings  are  inherent in the method of analysis  presented in the
computation of NPV. Actual values may differ from those  projections  presented,
should market  conditions vary from  assumptions used in the calculation of NPV.
Certain  assets,  such as  adjustable-rate  loans,  have features which restrict
changes in interest rates on a short-term basis and over the life of the assets.
In  addition,  the  proportion  of  adjustable-rate  loans in the  Association's
portfolio could decrease in future periods if market interest rates remain at or
decrease below current levels due to refinance  activity.  Further, in the event
of a change in interest  rates,  prepayment  and early  withdrawal  levels would
likely deviate significantly from those assumed in the NPV. Finally, the ability
of many borrowers to repay their adjustable-rate  mortgage loans may decrease in
the event of interest rate increases.

A conventional  measure of interest rate sensitivity for savings institutions is
the   calculation  of  interest  rate  "gap."  This  measure  of  interest  rate
sensitivity is a measure of the difference  between amounts of  interest-earning
assets and interest-bearing  liabilities which either reprice or mature within a
given period of time.  The  difference,  or the interest rate  repricing  "gap,"
provides an  indication  of the extent to which an  institution's  interest rate
spread  will be  affected  by changes in  interest  rates.  A gap is  considered
positive when the amount of interest-rate  sensitive assets exceed the amount of
interest- rate sensitive liabilities, and is considered negative when the amount
of  interest-rate  sensitive  liabilities  exceeds  the amount of  interest-rate
sensitive  assets.  Generally,  during a period  of  rising  interest  rates,  a
negative  gap  within  shorter  maturities  would  result in a  decrease  in net
interest  income.  Conversely,  during a period of  falling  interest  rates,  a
negative  gap within  shorter  maturities  would  result in an  increase  in net
interest income.

At September 30, 2000, the Association's  one-year cumulative gap was a negative
8.31% of total assets compared to a negative 31.49% of total assets at September
30, 1999.



                                       9
<PAGE>



The following table sets forth certain  historical  information  relating to the
Company's  interest-earning  assets and  interest-bearing  liabilities  that are
estimated to mature or are scheduled to reprice within one year.
<TABLE>
<CAPTION>

                                                 At September 30,
                                      ---------------------------------------
                                         2000           1999            1998
                                      --------       --------        --------
                                                   (In thousands)
Earning assets maturing
<S>                                   <C>            <C>             <C>
or repricing within one year          $209,072       $188,286        $220,952

Interest-bearing liabilities
maturing or repricing
within one year                        291,681        516,161         552,929

Deficiency of earning assets
over interest-bearing liabilities
as a percent of total assets             (8.31%)       (31.49%)        (32.19%)

Percent of assets to liabilities
maturing or repricing
within one year                          71.68%         36.48%          39.96%
</TABLE>



                                       10
<PAGE>



INTEREST SENSITIVITY GAP ANALYSIS

The   following   table   presents   the   difference   between  the   Company's
interest-earning  assets  and  interest-bearing   liabilities  within  specified
maturities at September 30, 2000. This table does not  necessarily  indicate the
impact of general  interest rate movements on the Company's net interest  income
because  the  repricing  of  certain  assets  and   liabilities  is  subject  to
competitive and other limitations.  As a result,  certain assets and liabilities
indicated as maturing or otherwise  repricing within a stated period may in fact
mature or reprice at different times and at different volumes.

<TABLE>
<CAPTION>

ASSETS                 3 Months   > 3 Months   > 6 Months    > 1 to 3     > 3 to 5   > 5 to 10   > 10 to 20         > 20
                        or Less  to 6 Months    to 1 Year       Years        Years       Years        Years        Years       TOTAL
                       --------  -----------   ----------    --------     --------   ---------   ----------        -----     -------
Permanent 1-4 Mortgages:
<S>                    <C>          <C>          <C>        <C>          <C>         <C>          <C>           <C>         <C>
  Adjustable-rate        $3,543       $7,237      $14,635      $2,728       $7,228        $220          $--          $--     $35,591
  Fixed-rate              3,206        1,406        1,009       1,532        1,045      23,040       90,585      490,064     611,887

Other Mortgage Loans:
  Adjustable-rate           907        8,369        5,002       9,869        7,378          --           --           --      31,525
  Fixed-rate                397          113        4,886       4,077        8,040       8,725        5,890        6,953      39,081

Mortgage-Backed and
  Related Securities     62,024          784        2,415       4,978        2,004          --        4,028        1,410      77,643

Non-Real Estate Loans:
  Adjustable-rate         9,632          275        1,409         150           16          --           --           --      11,482
  Fixed-rate                811          450          436       1,445        4,845         901        1,304           --      10,192

Investment Securities    41,651       15,000       23,475      30,379        5,399       2,434       21,662        1,237     141,237
                       --------     --------     --------    --------     --------    --------     --------     --------    --------
     Total Rate
     Sensitive Assets  $122,171      $33,634      $53,267     $55,158      $35,955     $35,320     $123,469     $499,664    $958,638
                       ========     ========     ========    ========     ========    ========     ========     ========    ========
LIABILITIES

Deposits - Fixed
        Maturity        $85,711      $76,452      $67,095     $82,170      $39,686     $20,929         $605         $100    $372,748
Deposits - Interest
       Bearing Checking     476          476          953       6,684       12,041      23,367       22,991        5,197      72,185
Deposits - Money Market   7,915        7,915       15,831      29,351       15,053      25,158       46,582          355     148,160
Deposits - Passbook and
        Statement Savings   787          787        1,575       6,478        5,639      11,402        9,772       11,507      47,947
Other Interest Bearing
        Liabilities      13,000        7,708        5,000     123,000       35,000          --           --           --     183,708
                       --------     --------     --------    --------     --------    --------     --------     --------    --------
     Total Rate Sensitive
         Liabilities   $107,889      $93,338      $90,454    $247,683     $107,419     $80,856      $79,950      $17,159    $824,748
                       ========     ========     ========    ========     ========    ========     ========     ========    ========
Interest Rate
      Sensitivity Gap   $14,282     ($59,704)    ($37,187)  ($192,525)    ($71,464)   ($45,536)     $43,519     $482,505    $133,890

Cumulative Interest Rate
        Sensitivity     $14,282     ($45,422)    ($82,609)  ($275,134)   ($346,598)  ($392,134)   ($348,615)    $133,890

Sensitivity Gap to
        Total Assets       1.43%       (6.00%)      (3.74%)    (19.34%)      (7.18%)     (4.57%)       4.37%       48.46%

Cumulative Interest Rate
        Sensitivity Gap
        to Total Assets    1.43%       (4.57%)      (8.31%)    (27.65%)     (34.83%)    (39.40%)     (35.03%)      13.43%
</TABLE>




                                       11
<PAGE>

Liquidity and Capital Resources

The Company generates cash through operating  activities,  primarily as a result
of net income.  The  adjustments to reconcile net income to net cash provided by
operations during the periods presented consisted primarily of the provision for
loan losses,  depreciation and amortization,  stock-based  compensation expense,
amortization  of deferred  loan  origination  fees,  increases  or  decreases in
various  escrow  accounts  and  increases  or  decreases  in  other  assets  and
liabilities. The primary investing activity of the Association is lending, which
is funded with cash provided from operations and financing  activities,  as well
as proceeds from  amortization  and  prepayments  on existing loans and mortgage
backed and related securities.  For additional information about cash flows from
operating,  financing, and investing activities, see the Consolidated Statements
of Cash Flows included in the Consolidated Financial Statements.

The  Association is required under  applicable  federal  regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. government,
federal agency and other  investments  having  maturities of five years or less.
Current OTS  regulations  require  that a savings  association  maintain  liquid
assets of not less than 4.00% of its average daily  balance of net  withdrawable
deposit  accounts and  borrowings  payable in one year or less. At September 30,
2000, the  Association's  liquidity,  as measured for regulatory  purposes,  was
7.61%. The Company has borrowing agreements with banks that can be used if funds
are needed. (See Notes 9 and 10 to the Consolidated Financial Statements.)

OTS capital  regulations  require the Association to have: (i) tangible  capital
equal to 1.5% of  adjusted  total  assets,  (ii) core  capital  equal to 4.0% of
adjusted  total  assets,  and (iii) total  risk-based  capital  equal to 8.0% of
risk-weighted  assets.  At September 30, 2000, the Association was in compliance
with  all  regulatory  capital  requirements  effective  as of such  date,  with
tangible,  core and risk-based capital of 10.4%, 10.4% and 20.3%,  respectively.
(See Note 19 to Consolidated Financial Statements.)

Changes in Financial Condition

At September 30, 2000,  the  consolidated  assets of the Company  totaled $995.6
million,  a  decrease  of $46.0  million,  or 4.4%,  from  $1,041.6  million  at
September  30, 1999.  The  decrease in total assets was  primarily a result of a
$10.8 million net decrease in loans and a $41.9  million  decrease in investment
securities due to sales and maturities.

Total cash and cash  equivalents  increased $5.4 million,  or 22.1%,  from $24.5
million at  September  30, 1999 to $29.9  million at  September  30,  2000.  The
increase  is  primarily  the result of  investing  the  proceeds  of  investment
securities maturities in Federal funds.

Net loans receivable  decreased by $10.8 million,  or 1.5%, to $729.0 million at
September  30,  2000,  compared to $739.8  million at September  30,  1999.  The
decrease was primarily the result of reduced loan demand causing loan repayments
to exceed loan originations.

Investment  securities decreased $41.8 million, or 26.3%, from $159.2 million at
September 30, 1999 to $117.4  million at September  30, 2000.  This decrease was
the result of $33.7 million in scheduled maturities and sale of $10.1 million of
investment  securities  available  for  sale.  The  proceeds  from  the sale and
maturities were invested in Federal funds and used to reduce borrowings.  During
the year ended  September  30, 2000,  $27.3  million of principal  payments were
received on mortgage  backed and related  securities  ("MBS") thus  reducing the
balance of MBS. This reduction was more than offset by  the  purchase  of  $29.4


                                       12
<PAGE>



million in MBS,  resulting in a net increase in total MBS from $75.3  million at
September 30, 1999 to $77.5 million at September 30, 2000.

Real estate owned  decreased from $1.5 million at September 30, 1999 to $788,400
at September 30, 2000. The balance at September 30, 1999 consisted  primarily of
a motel  property  which was sold during the year ended  September 30, 2000. The
balance at September  30, 2000 consists of four single  family  residences  that
were previously construction loans.

Deposit  liabilities  decreased  $25.0 million,  or 3.5%, from $720.4 million at
September  30, 1999 to $695.4  million at September  30,  2000.  The decrease is
primarily related to certificates of deposit and reflects the Company's strategy
to rely on FHLB of Seattle borrowed funds which could be acquired at lower rates
than deposits with corresponding  terms. This approach controls interest expense
as well as managing scheduled liability maturities.

Advances from the FHLB of Seattle decreased from $197.0 million at September 30,
1999 to $173.0  million at  September  30, 2000.  Proceeds  from  maturities  of
investment  securities were used to reduce  borrowings during the fourth quarter
of 2000.

Total  shareholders'  equity decreased $860,902 from $109.6 million at September
30, 1999 to $108.7  million at September 30, 2000.  The decrease is the combined
effect of $6.3 million paid for stock  repurchases and $3.6 million in dividends
paid on common shares offset by net earnings for the year.

Asset Quality

Non-Performing Assets
At September 30, 2000, the ratio of non-performing  assets (including nonaccrual
loans,  accruing loans greater than 90 days  delinquent,  real estate owned, and
other  repossessed  assets)  to total  assets  was  0.16%,  down  from  0.46% at
September  30, 1999.  The decrease is primarily due to the sale of a significant
property  from real estate owned and payoff of a $1.5 million land loan that was
accounted  for on a nonaccrual  basis at September  30,  1999.  The  Association
intends to maintain asset quality by continuing its focus on one-to-four  family
lending.  With the  introduction of other lending options such as commercial and
multi-family  real estate  loans,  equity lines of credit,  other  consumer loan
products,  and commercial  loans,  the  Association  has evaluated the trade off
associated  with planned loan growth and the greater credit risk associated with
such forms of lending.

Classified Assets
The Association has established a Classification  of Assets Committee that meets
at least  quarterly to approve and develop  action plans to resolve the problems
associated  with  the  assets.   They  also  review   recommendations   for  new
classifications  and make any  changes  in present  classifications,  as well as
making recommendations for the adequacy of reserves.

In  accordance  with  regulatory  requirements,   the  Association  reviews  and
classifies  on a regular  basis,  and as  appropriate,  its  assets as  "special
mention,"  "substandard,"  "doubtful,"  and  "loss."  All  nonaccrual  loans and
non-performing assets are included in classified assets.

Allowance for Loan Losses
The Association has established a systematic  methodology for  determination  of
provisions for loan losses.  The methodology is set forth in a formal policy and
takes into consideration the need for an overall general valuation  allowance as
well as specific allowances that are tied to individual  loans.   Provision  for
loan losses is recorded based on the Association's  evaluation of specific loans
in its  portfolio,  historical  loan loss  experience,  the  volume  and type of
lending,  geographic distribution of lending,  general economic conditions,  and
the existing level of the Association's allowance for loan losses.

The following  table sets forth at the dates  indicated the loan loss allowance,
charge-offs, and recoveries:
<TABLE>
<CAPTION>

                                          At or For the Year Ended September 30,
                                       -----------------------------------------
                                         2000              1999             1998
                                       -------           ------           ------
                                                      (In thousands)

<S>                                    <C>               <C>              <C>
General loan loss allowance            $4,062            $2,484           $1,947
Specific loss allowance                    20                --                3
Charge-offs                               607               398               20
Recoveries                                441                --               --
</TABLE>

                                       13
<PAGE>



COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 2000
AND 1999

General

The higher  interest rate  environment,  the inverted yield curve,  and low loan
volume had an adverse  effect on  earnings,  primarily  by lowering  loan demand
throughout the Company's  statewide  market.  This past fiscal year, the Company
operated  in an economy  that began with  rising  rates and a flat yield  curve,
where there was very little  difference  between short term and long term rates,
compared to the inverted  yield curve at the end of the year wherein  short term
rates were  higher  than long term rates.  Since most of the  Company's  deposit
products are priced to the short end of the maturity  curve and loans are priced
to the longer end of the  maturity  curve,  interest  rate  spread was  reduced.
Additionally,  retirement of the Company's President and Chief Executive Officer
resulted in one-time charges to expense. Net earnings decreased by $2.8 million,
or 29.8% from $9.2 million for the year ended September 30, 1999 to $6.4 million
for the year ended September 30, 2000.

Interest Income

Interest  income  increased  slightly  from  $71.7  million  for the year  ended
September 30, 1999 to $72.2 million for the year ended  September 30, 2000.  The
general  interest rate  environment  during the year showed  movement  toward an
inverted yield curve. Thus, yield on loans, which are long term, decreased while
yield on investment  securities  and MBS  increased  for the year.  The combined
result of these movements is reflected in the average yield on interest  earning
assets which decreased slightly from 7.25% for the year ended September 30, 1999
to 7.22% for the year ended September 30, 2000.

While average  loans  receivable  increased  $26.2  million,  the yield on loans
decreased  16 basis  points,  contributing  to the modest  $843,704  increase in
interest  income on loans.  Purchases of MBS boosted  interest  income on MBS by
$2.9 million.  This  increase was offset by a $2.1 million  decrease in interest
income on investment securities. The average balance of investments decreased by
$38.9 million, or 21.1%, for the year ended September 30, 2000 compared with the
same period in 1999.

Interest Expense

Interest expense  increased $2.4 million due to increases in interest expense on
FHLB borrowings.  Interest expense on deposits  remained stable at $28.4 million
for the year ended  September  30, 2000  compared to $29.0  million for the year
ended September 30, 1999.

Average  deposits  decreased by $16.4  million for the year ended  September 30,
2000 compared to the year ended  September  30, 1999 while the average  interest
paid on  interest-bearing  deposits  increased  slightly from 4.34% for the year
ended September 30, 1999 to 4.36% for the year ended September 30,2000. Interest
expense on FHLB  borrowings  increased  $3.1  million due to  increased  average
borrowings of $31.7 million.

As noted previously,  the general interest rate environment  during the year was
represented  by an  inverted  yield  curve.  The impact of this  environment  is
evident in the  decrease in  interest  rate spread from 2.73% for the year ended
September 30, 1999 to 2.50% for the year ended September 30, 2000.  While yields
on assets  decreased by 3 basis  points,  cost of interest  bearing  liabilities
increased by 20 basis points,  resulting in a lower spread for the current year.
Net   interest   margin   (net   interest   income  as  a  percent   of  average
interest-earning  assets)  also  decreased  from 3.37% for the fiscal year ended
September 30, 1999 to 3.14% for the year ended September 30, 2000.



                                       14
<PAGE>



AVERAGE BALANCES, NET INTEREST INCOME and YIELDS EARNED and RATES PAID

The following table presents,  for the periods indicated,  information regarding
average balances of assets and liabilities,  as well as the total dollar amounts
of interest income from average  interest-earning assets and interest expense on
average  interest-bearing  liabilities,  resultant yields, interest rate spread,
net interest margin and the ratio of average  interest-earning assets to average
interest-bearing  liabilities.  Dividends  received  are  included  as  interest
income.  The table does not  reflect  any effect of income  taxes.  All  average
balances  are based on month-end  balances.  Nonaccrual  loans are  reflected as
carrying a zero yield.

<TABLE>
<CAPTION>

                                                                          Year Ended September 30,
                                ----------------------------------------------------------------------------------------------------
                                               2000                               1999                              1998
                                ------------------------------     ------------------------------     ------------------------------
                                  Average               Yield/      Average                Yield/      Average               Yield/
                                  Balance    Interest     Rate      Balance     Interest     Rate      Balance    Interest     Rate
                                ---------    --------   ------     --------     --------   ------     --------    --------   -------
INTEREST-EARNING ASSETS                                                  (In thousands)

<S>                            <C>            <C>      <C>       <C>             <C>      <C>         <C>          <C>      <C>
Loans receivable                 $747,842     $57,134    7.64%     $721,658      $56,290    7.80%     $614,457     $49,508    8.06%
Mortgage backed and
  related securities               85,874       5,036    5.86%       38,284        2,104    5.50%       61,000       3,680    6.03%
Investment securities             145,504       8,737    6.00%      184,428       10,847    5.88%      233,715      14,149    6.05%
Federal funds sold                  3,224         180    5.59%       18,555          914    4.93%       16,820         917    5.45%
Interest earning deposits           5,552         312    5.63%       15,801          751    4.75%       16,108         862    5.35%
FHLB stock                         11,345         759    6.69%       10,471          785    7.50%        7,983         617    7.73%
                                ---------     -------              --------      -------              --------     -------
Total interest-earning assets     999,341      72,158    7.22%      989,197       71,691    7.25%      950,083      69,733    7.34%
Non-interest-earning assets        40,566                            45,314                             48,202
                                ---------    --------              --------     --------              --------    --------
Total Assets                   $1,039,907                        $1,034,511                           $998,285
                               ==========                        ==========                           ========

INTEREST-BEARING LIABILITIES

Tax and insurance reserve          $4,401        $ 89    2.02%       $5,326         $110    2.07%       $5,895        $145    2.47%
Passbook and statement
  savings                          53,890         959    1.78%       61,674        1,326    2.15%       62,333       1,683    2.70%
Interest-bearing checking          69,831         779    1.12%       71,107          873    1.23%       73,806       1,089    1.48%
Money market                      149,088       6,218    4.17%      131,534        5,096    3.87%      110,650       4,275    3.86%
Certificates of deposit           377,934      20,408    5.40%      402,809       21,679    5.38%      384,400      21,885    5.69%
FHLB advances/Short term
  borrowings                      208,508      12,303    5.90%      176,851        9,298    5.26%      155,712       8,771    5.63%
                                ---------      ------               -------       ------              --------      ------
Total interest-bearing
  liabilities                     863,652      40,756    4.72%      849,301       38,382    4.52%      792,796      37,848    4.77%
Non-interest-bearing
  liabilities                      65,762                            63,975                             59,037
                                ---------    --------              --------     --------              --------    --------
Total liabilities                 929,414                           913,276                            851,833
Shareholders' equity              110,493                           121,235                            146,452
                                ---------                           -------                            -------
Total Liabilities and
  Shareholders' Equity         $1,039,907                        $1,034,511                           $998,285
                               ==========     -------            ==========      -------              ========     -------
Net interest income                           $31,402                            $33,309                           $31,885
                                              =======                            =======                           =======
Interest rate spread                                     2.50%                              2.73%                             2.57%
                                                         ====                               ====                              ====
Net interest margin                                      3.14%                              3.37%                             3.36%
                                                         ====                               ====                              ====
Average interest-earning assets to
average interest-bearing liabilities                   115.71%                            116.47%                           119.84%
                                                       ======                             ======                            ======
</TABLE>


                                       15
<PAGE>


                              RATE/VOLUME ANALYSIS

The following  table sets forth the effects of changing rates and volumes on net
interest  income of the  Company.  Information  is provided  with respect to (i)
effects on interest income attributable to changes in volume (changes in average
volume multiplied by prior rate);  (ii) effects on interest income  attributable
to changes in rate (changes in rate  multiplied by prior  average  volume);  and
(iii)  changes in  rate/volume  (change in rate  multiplied by change in average
volume).


<TABLE>
<CAPTION>


                                                               For the Year Ended September 30,
                                     --------------------------------------------------------------------------------------
                                      1999 vs. 2000 Increase (Decrease) Due To     1998 vs. 1999 Increase (Decrease) Due To
                                     ------------------------------------------   -----------------------------------------
                                                                   Net Increase                                Net Increase
                                         Rate     Volume   Rate/Vol  (Decrease)      Rate     Volume   Rate/Vol  (Decrease)
                                     ---------   -------   --------  ----------   --------   -------   --------  ----------
INTEREST EARNING ASSETS                                                 (In thousands)

<S>                                   <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Loans .............................   ($1,156)   $ 2,042    ($   42)   $   844    ($1,580)   $ 8,637    ($  275)   $ 6,782
Mortgage backed and
  related securities ..............       141      2,615        176      2,932       (328)    (1,370)       122     (1,576)
Investment securities .............       227     (2,289)       (48)    (2,110)      (403)    (2,984)        85     (3,302)
Federal funds sold ................       122       (755)      (101)      (734)       (88)        95        (10)        (3)
Interest bearing deposits .........       137       (487)       (89)      (439)       (96)       (16)         1       (111)
FHLB stock ........................       (85)        66         (7)       (26)       (19)       192         (5)       168
                                      -------    -------    -------    -------    -------    -------    -------    -------
Total Interest-Earning Assets .....   ($  614)   $ 1,192    ($  111)   $   467    ($2,514)   $ 4,554    ($   82)   $ 1,958
                                      =======    =======    =======    =======    =======    =======    =======    =======


INTEREST BEARING LIABILITIES

Tax and insurance reserves ........   ($    2)   ($   19)       $--    ($   21)   ($   23)   ($   14)   $     2    ($   35)
Savings ...........................      (228)      (167)        28       (367)      (343)       (18)         4       (357)
Interest bearing checking .........       (80)       (16)         2        (94)      (183)       (40)         7       (216)
Money market ......................       390        680         52      1,122         12        807          2        821
Certificates of deposit ...........        72     (1,339)        (4)    (1,271)    (1,197)     1,048        (57)      (206)
FHLB advances/Short term borrowings     1,137      1,664        204      3,005       (584)     1,191        (80)       527
-----------------------------------   -------    -------    -------    -------    -------    -------    -------    -------
Total Interest-Bearing Liabilities    $ 1,289    $   803    $   282    $ 2,374    ($2,318)   $ 2,974    ($  122)   $   534
                                      =======    =======    =======    =======    =======    =======    =======    =======

Increase (Decrease) in Net Interest                                    ($1,907)                                    $ 1,424
Income                                                                 =======                                     =======

</TABLE>



                                       16
<PAGE>



Provision for Loan Losses

The provision for loan losses was $1.8 million,  recoveries  were $441,639,  and
charge offs were $606,999 during the year ended September 30, 2000 compared to a
provision for loan losses of $932,000,  with no  recoveries,  and charge offs of
$398,052 during the year ended  September 30, 1999.  Charge offs during the year
ended  September 30, 2000  primarily  related to write downs on commercial  real
estate.  The  related  loans were paid off or the  properties  were sold  during
fiscal year 2000.  Charge offs for the year ended  September 30, 1999  primarily
related to the  write-down of a $1.6 million  commercial  real estate loan.  The
underlying  property was acquired through  foreclosure in September 1999 and was
sold in September 2000.

Over the last 12 months, the composition of the loan portfolio has changed, with
increases in commercial  and consumer  loans,  which are considered to have more
associated  credit  risk than the  Company's  traditional  portfolio  of one- to
four-family   residential  mortgages.   Because  of  the  Company's  history  of
relatively low loan loss experience, it has historically maintained an allowance
for loan losses at a lower  percentage  of total  loans as  compared  with other
institutions with higher risk loan portfolios and higher loss experience.  Based
on  changes in the  composition  of the loan  portfolio  and  concerns  about an
economic  slow down in Oregon,  the Company  made the  decision to increase  the
allowance  for loan  losses  during  the year  ended  September  30,  2000.  The
increased  provision for loan losses reflects such changes in the composition of
the loan portfolio, although the Company's recent experience has not indicated a
deterioration  in loan quality.  At September  30, 1999,  the allowance for loan
losses  was  equal to 51.6% of  non-performing  assets  compared  to  251.5%  at
September 30, 2000.  The increase in the coverage ratio at year end 2000 was the
result of a  decrease  in  non-performing  assets as a result of the payoff of a
nonperforming  land  development  loan and the sale of a significant  commercial
real estate property held as real estate owned at September 30, 1999.

Non-Interest Income

Non-interest  income  increased  $465,056 or 12.8% to $4.1  million for the year
ended  September  30, 2000 from $3.6  million for the year ended  September  30,
1999.  During  the fourth  quarter of 1999,  the  Company  established  a retail
investment   subsidiary.   This  business   activity  added  $164,025  to  other
non-interest income during the year ended September 30, 2000.

Non-Interest Expense

Non-interest  expense  increased $2.6 million,  or 12.2%,  from a total of $21.2
million  for the prior year to $23.8  million for the year ended  September  30,
2000.  Compensation,  employee  benefits,  and related  expense  increased  $1.8
million,  or17.9%,  from $10.1 million for the year ended  September 30, 1999 to
$11.9 million for the same period of 2000. Of this increase, $570,000 relates to
severance accruals associated with the retirement of the Company's President and
Chief Executive  Officer.  The remaining  increase in compensation  expense is a
function of a routine  accounting  procedure  wherein a portion of  compensation
expense is allocated to the cost of originating  loans and such cost is deferred
and taken to  expense  over the life of the  loans.  Because  the number of loan
originations  decreased  significantly  for the year ended  September  30,  2000
compared to the previous  year,  less  compensation  cost was  allocated to loan
originations  and deferred,  resulting in an increase in  compensation  expense.
Other  expense  increased  $833,733,  or 14.21%,  from $5.9 million for the year
ended September 30, 1999 to $6.7 million for the current year. Of this increase,
$466,173 relates to expenses associated with foreclosure and disposition of real
estate owned and $248,945  relates to professional  service fees for recruitment
of executives and the hiring of a consulting firm for an operational  efficiency
project. The ratio of non-interest expense to average total assets was 2.29% and
2.05% for the years ended September 30, 2000 and1999, respectively.


                                       17
<PAGE>



Income Taxes

The provision for income taxes was $3.5 million for the year ended September 30,
2000, representing an effective tax rate of 35.5% compared with $5.7 million for
the year ended  September 30, 1999  representing an effective tax rate of 38.2%.
The lower  effective  rate for 2000  reflects the impact of increased  income on
tax-exempt  municipal  securities.  (See Note 11 to the  Consolidated  Financial
Statements.)

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1999
AND 1998

General

In September 1998, the Company's Board of Directors authorized the repurchase of
20% of the  Company's  outstanding  common stock via a "Modified  Dutch  Auction
Tender" (the "Offer").  The transaction was completed in January 1999. The Offer
contributed to the 15.24% increase in earnings per share from $1.05 for the year
ended  September  30,  1998 to $1.21  for the year  ended  September  30,  1999.
Similarly,  the Company's return on average equity improved by 15.80% from 6.52%
for the year ended  September 30, 1998 to 7.55% for the year ended September 30,
1999.

Interest Income

The $39.1 million increase in average interest earning assets  contributed to an
increase in interest  income of $2.0 million or 2.8% from $69.7  million for the
year ended  September 30, 1998 to $71.7 million for the year ended September 30,
1999.  An  increase  in average  loans  receivable  provided a net  increase  in
interest income that more than offset the decrease in interest income  resulting
from  completion  of the Offer in January 1999 which reduced  earning  assets by
$39.0 million.  The general interest rate environment during the year was one of
low but gradually  increasing  rates.  During the year ended September 30, 1998,
interest rates were stable  throughout  most of the year,  declining only in the
last quarter,  from July through  September.  As a result,  interest  rates were
lower overall during fiscal 1999 than in 1998.  This is reflected in the average
yield on  interest-earning  assets which  decreased  slightly from 7.34% for the
year ended September 30, 1998 to 7.25% for the year ended September 30, 1999.

An  increase  in loans  receivable  contributed  to a $6.8  million  increase in
interest  income on loans.  The  increase in loans  receivable  was  primarily a
result of the purchase of participation  loans and loan  originations  exceeding
loan refinancing, which resulted in net loan growth of $71.6 million for 1999.

The increase in interest  income on loans was  partially  offset by decreases in
interest income on investment securities, mortgage-backed and related securities
and interest-earning deposits. Cash and investment securities were liquidated to
provide  funds for  completion of the Offer in January  1999.  For example,  the
average  balance of investments  decreased by $49.3 million,  or 21.1%,  for the
year ended September 30, 1999 compared with the same period in 1998.

Interest Expense

Interest expense increased $533,255 due to increases in interest expense on FHLB
borrowings.  Interest  expense on deposits  remained stable at $29.0 million for
the year ended  September  30, 1999 compared to $28.9 million for the year ended
September 30, 1998.

Average  deposits  increased by $35.9  million for the year ended  September 30,
1999  compared to the year ended  September 30, 1998,  but the average  interest
paid on  interest-bearing  deposits decreased 24 basis points from 4.58% for the
year  ended  September 30, 1998 to 4.34% for  the year ended September 30, 1999.


                                       18
<PAGE>



This decrease was a result of the lower interest rate scenario  during the year.
Interest  expense on FHLB  borrowings  increased  $1.2  million due to increased
average borrowings of $32.7 million.

As noted previously,  the general interest rate environment  during the year was
one of low rates which gradually increased during the year. In this environment,
the  Company  improved  its  interest  rate spread from 2.57% for the year ended
September 30, 1998 to 2.73% for the year ended September 30, 1999.  While yields
on assets  decreased by 9 basis  points,  cost of  interest-bearing  liabilities
decreased  by 25 basis  points,  resulting  in a greater  spread for the current
year.  Net  interest  margin  (net  interest  income  as a  percent  of  average
interest-earning  assets)  remained  constant  comparing  the fiscal  year ended
September  30,  1999 to 1998.  The  increase  in  non-interest-bearing  checking
deposits through  checking  account  campaigns had a positive impact by reducing
overall cost of funds.

Provision for Loan Losses

The  provision for loan losses was $932,000,  recoveries  were zero,  and charge
offs were  $398,052  during the year ended  September  30,  1999  compared  to a
provision of $674,000, with no recoveries, and charge offs of $20,774 during the
year ended September 30, 1998. Charge offs for the year ended September 30, 1999
primarily  relate to the  write-down  of a $1.6 million  commercial  real estate
participation  loan. The underlying property was acquired through foreclosure in
September 1999.

As the Company grew during fiscal 1999,  the  composition  of the loan portfolio
changed,  with  relatively  high levels of  construction  loans and increases in
commercial and consumer loans, which are considered to have more associated risk
than the  Company's  traditional  portfolio of one- to four- family  residential
mortgages.  Because  of the  Company's  history  of  relatively  low  loan  loss
experience,  it has  historically  maintained  an allowance for loan losses at a
lower percentage of total loans as compared with other  institutions with higher
risk loan  portfolios and higher loss  experience.  The increased  provision for
loan losses  reflected such changes in the  composition  of the loan  portfolio,
although the Company's  recent  experience had not indicated a deterioration  in
loan quality.  The balance of  non-performing  loans had increased during fiscal
year  1999,  primarily  as a  result  of the  addition  of a $1.5  million  land
development  loan which was paid off in fiscal 2000. At September 30, 1998,  the
allowance for loan losses was equal to 372.1% of non-performing  assets compared
to 51.6% at September 30, 1999.  The decrease in the coverage  ratio at year end
1999 was the result of an increase in  non-performing  assets as a result of the
aforementioned  nonperforming  land  development  loan and foreclosure of a $1.6
million  commercial  real estate  property.  The foreclosed real estate has been
recorded at estimated  fair value of $1.4  million.  The Company  views these as
isolated problem assets, not a market or underwriting trend.

Non-Interest Income

Non-interest  income  increased  $427,264 or 13.3% to $3.6  million for the year
ended  September  30, 1999 from $3.2  million for the year ended  September  30,
1998. The increase was primarily attributable to increases in fee income related
to the increase in deposit accounts subject to service charges.

Non-Interest Expense

Non-interest  expense  increased  $1.7 million,  or 8.5%,  from a total of $19.5
million  for the prior year to $21.2  million for the year ended  September  30,
1999.  Compensation,  employee benefits, and related expense increased $479,677,
or 5.0%,  from $9.6  million  for the year  ended  September  30,  1998 to $10.1
million  for the same  period of 1999.  Occupancy  expense  increased  from $2.1



                                       19
<PAGE>



million for the year ended September 30, 1998 to $2.2 million for the year ended
September  30,  1999.  These  modest  increases  were due to the addition of two
branches and  expenditures on equipment  related to preparing for the Year 2000.
Sale of mortgage-backed and related securities and real estate owned resulted in
a loss of $137,140  during the year ended September 30, 1999 compared to zero in
the previous year. Other expense  increased $1.0 million,  from $4.9 million for
the year ended  September 30, 1998 to $5.9 million for the year ended  September
30, 1999. The increase primarily resulted from recognition of $515,000 of losses
in the third  quarter of 1999  related to the Wells  Fargo  branch  integration.
Management  believes  this  loss is an  isolated  item and  does not  anticipate
additional  charges.  The ratio of non-interest  expense to average total assets
was  2.05%  and  1.96%  for  the  years  ended  September  30,  1999  and  1998,
respectively.

Income Taxes

The provision for income taxes was $5.7 million for the year ended September 30,
1999, representing an effective tax rate of 38.2% compared with $5.3 million for
the year ended  September 30, 1998  representing an effective tax rate of 35.9%.
The lower effective rate for 1998 reflects the impact of a one year reduction in
the  state  tax rate for  Oregon.  (See  Note 11 to the  Consolidated  Financial
Statements.)



                                       20
<PAGE>



COMMON STOCK INFORMATION

Since  October 4, 1995,  the  Company's  common stock has traded on the National
Association of Security Dealers Automated  Quotation  ("Nasdaq") National Market
under the symbol  "KFBI".  As of September  30, 2000,  there were  approximately
1,386 shareholders of record.  This total does not reflect the number of persons
or entities who hold stock in nominee or "street" name through various brokerage
firms.

The high and low common stock prices by quarter were as follows:
<TABLE>
<CAPTION>

                                 Year Ended September 30,
                       ------------------------------------------
                               2000                   1999
                       ------------------      ------------------
                         High        Low        High         Low
                       ------      ------      ------      ------
<S>                    <C>         <C>         <C>         <C>
First quarter          $13.13      $11.38      $19.38      $16.00
Second quarter          11.81       10.31       19.00       15.00
Third quarter           12.00        9.75       17.00       14.63
Fourth quarter          13.44       11.00       15.06       12.63
</TABLE>

The cash dividends declared by quarter were as follows:
<TABLE>
<CAPTION>

                                         Year Ended September 30,
                                        --------------------------
                                          2000               1999
                                        -------             ------
<S>                                     <C>                 <C>
First quarter                           $0.125              $0.095
Second quarter                           0.130               0.120
Third quarter                            0.130               0.120
Fourth quarter                           0.130               0.125
</TABLE>

Any dividend  payments by the Company are subject to the sole  discretion of the
Board of Directors and depend primarily on the ability of the Association to pay
dividends  to the  Company.  Under  Federal  regulations,  the dollar  amount of
dividends a federal  savings  association  may pay depends on the  association's
capital  surplus  position and recent net income.  Generally,  if an association
satisfies its regulatory capital requirements,  it may make dividend payments up
to the limits  prescribed in the OTS regulations.  However,  an institution that
has  converted to the stock form of ownership  may not declare or pay a dividend
on, or repurchase any of, its common stock if the effect thereof would cause the
regulatory  capital of the  institution to be reduced below the amount  required
for the  liquidation  account  which  was  established  in  accordance  with OTS
regulations and the association's Plan of Conversion.  In addition,  earnings of
the  association  appropriated  to bad debt  reserves  and  deducted for federal
income tax  purposes are not  available  for payment of cash  dividends  without
payment of taxes at the then current tax rate by the  association  on the amount
removed from the  reserves  for such  distributions.  The  Association  does not
contemplate  any  distributions  that  would  limit the  Association's  bad debt
deduction or create federal tax liabilities.




                                       21
<PAGE>




Independent Auditors' Report



Board of Directors
Klamath First Bancorp, Inc.
Klamath Falls, Oregon


     We have audited the  accompanying  consolidated  balance  sheets of Klamath
First Bancorp,  Inc. and Subsidiary (the "Company") as of September 30, 2000 and
1999, and the related consolidated statements of earnings, shareholders' equity,
and cash flows for each of the three  years in the period  ended  September  30,
2000. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

     In our opinion,  such consolidated  financial statements present fairly, in
all material respects, the financial position of Klamath First Bancorp, Inc. and
Subsidiary as of September 30, 2000 and 1999 and the results of their operations
and their cash flows for each of the three years in the period  ended  September
30, 2000, in conformity with  accounting  principles  generally  accepted in the
United States of America.



\s\ Deloitte & Touche LLP
Portland, Oregon
October 27, 2000



                                       22
<PAGE>

<TABLE>
<CAPTION>


                   KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

                                                                         September 30, 2000  September 30, 1999
ASSETS                                                                   ------------------  ------------------

<S>                                                                         <C>                <C>
Cash and due from banks .................................................   $    19,998,788    $    21,123,217
Interest bearing deposits with banks ....................................         2,077,359          1,231,516
Federal funds sold and securities
  purchased under agreements to resell ..................................         7,870,453          2,167,856
                                                                            ---------------    ---------------
   Total cash and cash equivalents ......................................        29,946,600         24,522,589

Investment securities available for sale, at fair value
  (amortized cost: $118,689,247 and $161,112,272) .......................       116,627,756        158,648,057
Investment securities held to maturity, at amortized cost (fair
  value: $726,889 and $577,455) .........................................           723,838            559,512
Mortgage backed and related securities available for sale, at fair
  value (amortized cost: $75,483,569 and $73,075,553) ...................        75,331,311         72,695,555
Mortgage backed and related securities held to maturity, at amortized
  cost (fair value: $2,145,918 and $2,596,408) ..........................         2,159,868          2,600,920
Loans receivable, net ...................................................       729,036,847        739,793,403
Real estate owned and repossessed assets ................................           788,400          1,494,890
Premises and equipment, net .............................................        12,727,570         11,581,923
Stock in Federal Home Loan Bank of Seattle, at cost .....................        11,876,500         10,957,300
Accrued interest receivable .............................................         6,432,073          7,153,818
Deferred federal and state income taxes .................................           230,893               --
Core deposit intangible .................................................         8,125,664          9,778,341
Other assets ............................................................         1,567,318          1,855,032
                                                                            ---------------    ---------------
   Total assets .........................................................   $   995,574,638    $ 1,041,641,340
                                                                            ===============    ===============

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
  Deposit liabilities ...................................................   $   695,380,871    $   720,401,112
  Accrued interest on deposit liabilities ...............................         1,185,076          1,184,471
  Advances from borrowers for taxes and insurance .......................         9,653,376          9,758,627
  Advances from Federal Home Loan Bank of Seattle .......................       173,000,000        197,000,000
  Short term borrowings .................................................         3,000,000               --
  Accrued interest on borrowings ........................................           857,163             34,484
  Pension liabilities ...................................................           887,896            833,644
  Deferred federal and state income taxes ...............................              --              579,727
  Other liabilities .....................................................         2,885,695          2,263,812
                                                                            ---------------    ---------------
    Total liabilities ...................................................       886,850,077        932,055,877
                                                                            ---------------    ---------------
Commitments and contingent liabilities

Shareholders' Equity

  Preferred stock, $.01 par value, 500,000 shares authorized; none issued              --                 --
  Common stock, $.01 par value, 35,000,000 shares authorized,
   September 30, 2000 - 7,366,226 issued, 6,692,428 outstanding
   September 30, 1999 - 7,908,377 issued, 7,062,092 outstanding .........            73,662             79,084
  Additional paid-in capital ............................................        37,701,796         43,794,535
  Retained earnings-substantially restricted ............................        79,713,255         76,866,452
  Unearned shares issued to ESOP ........................................        (4,893,250)        (5,871,900)
  Unearned shares issued to MRDP ........................................        (2,498,378)        (3,519,296)
  Accumulated other comprehensive loss ..................................        (1,372,524)        (1,763,412)
                                                                            ---------------    ---------------
    Total shareholders' equity ..........................................       108,724,561        109,585,463
                                                                            ---------------    ---------------
    Total liabilities and shareholders' equity ..........................   $   995,574,638    $ 1,041,641,340
                                                                            ===============    ===============

</TABLE>

      See notes to consolidated financial statements.


                                       23
<PAGE>

<TABLE>
<CAPTION>
                   KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF EARNINGS


                                                              Year Ended             Year Ended              Year Ended
                                                           September 30,          September 30,           September 30,
                                                                    2000                   1999                    1998
                                                          --------------         --------------          --------------
INTEREST INCOME
<S>                                                          <C>                    <C>                     <C>
  Loans receivable                                           $57,133,422            $56,289,718             $49,508,126
  Mortgage backed and related securities                       5,035,957              2,103,881               3,679,740
  Investment securities                                        9,495,804             11,631,439              14,766,471
  Federal funds sold and securities purchased under
     agreements to resell                                        180,253                914,584                 916,847
  Interest bearing deposits                                      312,293                751,218                 862,086
                                                          --------------         --------------          --------------
    Total interest income                                     72,157,729             71,690,840              69,733,270
                                                          --------------         --------------          --------------
INTEREST EXPENSE
  Deposit liabilities                                         28,363,916             28,974,568              28,931,749
  Advances from FHLB of Seattle                               12,184,341              9,121,190               7,921,570
  Other                                                          207,963                285,848                 995,032
                                                          --------------         --------------          --------------
    Total interest expense                                    40,756,220             38,381,606              37,848,351
                                                          --------------         --------------          --------------
    Net interest income                                       31,401,509             33,309,234              31,884,919

Provision for loan losses                                      1,764,000                932,000                 674,000

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

    Net interest income after provision for
      loan losses                                             29,637,509             32,377,234              31,210,919
                                                          --------------         --------------          --------------

NON-INTEREST INCOME
  Fees and service charges                                     3,212,434              2,935,700               2,410,239
  Gain on sale of investments                                      6,836                329,435                 440,750
  Gain on sale of real estate owned                              154,661                 29,266                      --
  Other income                                                   720,743                335,217                 351,365
                                                          --------------         --------------          --------------
    Total non-interest income                                  4,094,674              3,629,618               3,202,354
                                                          --------------         --------------          --------------
NON-INTEREST EXPENSE
  Compensation, employee benefits and related expense         11,898,041             10,096,000               9,616,323
  Occupancy expense                                            2,413,316              2,221,900               2,091,830
  Data processing expense                                        913,531                915,434                 963,475
  Insurance premium expense                                      186,557                295,950                 289,592
  Loss on sale of investments                                         --                112,255                      --
  Loss on sale of real estate owned                                7,863                 24,885                      --
  Amortization of core deposit intangible                      1,652,677              1,652,677               1,652,677
  Other expense                                                6,700,888              5,867,155               4,908,907
                                                          --------------         --------------          --------------
    Total non-interest expense                                23,772,873             21,186,256              19,522,804
                                                          --------------         --------------          --------------
Earnings before income taxes                                   9,959,310             14,820,596              14,890,469

Provision for income taxes                                     3,533,158              5,665,403               5,339,432
                                                          --------------         --------------          --------------

Net earnings                                                  $6,426,152             $9,155,193              $9,551,037
                                                          ==============         ==============          ==============

Earnings per common share - basic                                  $0.94                  $1.21                   $1.05
Earnings per common share - fully diluted                          $0.94                  $1.18                   $1.00
Weighted average common shares outstanding - basic             6,822,025              7,564,415               9,115,404
Weighted average common shares outstanding -  with dilution    6,822,025              7,748,527               9,521,249
</TABLE>

     See notes to consolidated financial statements.


                                       24
<PAGE>

                   KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                 Unearned     Unearned    Accumulated
                              Common       Common    Additional                    shares       shares          other         Total
                               stock        stock       paid-in     Retained       issued       issued  comprehensive  shareholders'
                              shares       amount       capital     earnings      to ESOP      to MRDP  income (loss)        equity
                         -----------    ---------  ------------  -----------   ---------- ------------  ------------- -------------

Balance at
<S>                       <C>            <C>        <C>          <C>          <C>          <C>            <C>          <C>
     October 1, 1997 ...   9,235,582     $104,295   $92,601,639  $64,744,995  ($7,829,200) ($5,623,340)      $464,054  $144,462,443

Cash dividends .........        --           --            --     (3,244,587)        --           --             --      (3,244,587)

Stock repurchased
     and retired .......    (544,085)      (5,440)  (11,556,044)        --           --           --             --     (11,561,484)

ESOP contribution ......      97,865         --       1,029,866         --        978,650         --             --       2,008,516

MRDP contribution ......      78,293         --            --           --           --      1,086,475           --       1,086,475

Exercise of
     stock options .....      31,317          313       410,722         --           --           --             --         411,035
                         -----------    ---------  ------------   -----------  ---------- ------------  ------------- -------------
                           8,898,972       99,168    82,486,183   61,500,408   (6,850,550)  (4,536,865)       464,054   133,162,398

Comprehensive income
 Net earnings.........                                             9,551,037                                              9,551,037
 Other comprehensive
 income:
  Unrealized gain on
  securities, net of
  tax and reclassif-
  ication adjustment (1)                                                                                    2,367,520     2,367,520
                                                                                                                      -------------
  Total comprehensive
  income..............                                                                                                   11,918,557
                         -----------    ---------  ------------   -----------  ---------- ------------  ------------- -------------
Balance at
  September 30, 1998 ...   8,898,972       99,168    82,486,183   71,051,445   (6,850,550)  (4,536,865)     2,831,574   145,080,955

Cash dividends .........        --           --            --     (3,340,186)        --           --             --      (3,340,186)

Stock repurchased
     and retired .......  (2,008,389)     (20,084)  (39,314,056)        --           --           --             --     (39,334,140)

ESOP contribution ......      97,865         --         602,287         --        978,650         --             --       1,580,937

MRDP contribution ......      73,644         --          20,121         --           --      1,017,569           --       1,037,690
                         -----------    ---------  ------------   -----------  ---------- ------------  ------------- -------------
                           7,062,092       79,084    43,794,535   67,711,259   (5,871,900)  (3,519,296)     2,831,574   105,025,256

Comprehensive income
 Net earnings                                                      9,155,193                                              9,155,193
 Other comprehensive
 income:
  Unrealized loss on
  securities, net of
  tax and reclassif-
  ication adjustment (2)                                                                                   (4,594,986)   (4,594,986)
                                                                                                                      -------------
  Total comprehensive
  income                                                                                                                  4,560,207
                         -----------    ---------  ------------   -----------  ---------- ------------  ------------- -------------
Balance at
  September 30, 1999 ...   7,062,092       79,084    43,794,535   76,866,452   (5,871,900)  (3,519,296)    (1,763,412)  109,585,463
</TABLE>


                                       25
<PAGE>

                   KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                  (CONTINUED)
<TABLE>
<CAPTION>
                                                                                 Unearned     Unearned    Accumulated
                              Common       Common    Additional                    shares       shares          other         Total
                               stock        stock       paid-in     Retained       issued       issued  comprehensive  shareholders'
                              shares       amount       capital     earnings      to ESOP      to MRDP  income (loss)        equity
                         -----------    ---------  ------------  -----------   ---------- ------------  ------------- -------------
<S>                       <C>            <C>        <C>          <C>          <C>          <C>            <C>          <C>
Cash dividends .........        --           --            --     (3,579,349)        --           --             --      (3,579,349)

Stock repurchased
     and retired .......    (542,151)      (5,422)   (6,249,273)        --           --           --             --      (6,254,695)

ESOP contribution ......      97,865         --         142,826         --        978,650         --             --       1,121,476

MRDP contribution ......      74,622         --          13,708         --           --      1,020,918           --       1,034,626
                         -----------    ---------  ------------   -----------  ---------- ------------  ------------- -------------
                           6,692,428       73,662    37,701,796   73,287,103   (4,893,250)  (2,498,378)    (1,763,412)  101,907,521

Comprehensive income
 Net earnings                                                      6,426,152                                              6,426,152
 Other comprehensive
 income:
  Unrealized gain on
  securities, net of
  tax and reclassif-
  ication adjustment (3)                                                                                      390,888       390,888
                                                                                                                      -------------
  Total comprehensive
  income                                                                                                                  6,817,040
                         -----------    ---------  ------------   -----------  ---------- ------------  ------------- -------------
Balance at
September 30, 2000 .....   6,692,428     $73,662    $37,701,796  $79,713,255  ($4,893,250) ($2,498,378)   ($1,372,524) $108,724,561
                         ===========    =========  ============   ===========  ========== ============  ============= =============


<FN>

(1) Net unrealized holding gain on securities of $2,429,643 (net of $1,451,061 tax expense) less reclassification adjustment for net
gains included in net earnings of $62,123 (net of $38,075 tax expense)
(2) Net unrealized holding loss on securities of $4,332,997 (net of $2,816,282 tax benefit) less reclassification adjustment
for net gains  included in net earnings of $261,989 (net of $160,574 tax expense)
(3)   Net unrealized holding gain on securities of $440,870 (net of $270,211 tax expense) less reclassification  adjustment
for net gains  included in net earnings of $49,982 (net of $30,634 tax expense)
</FN>
</TABLE>

See notes to consolidated financial statements.


                                       26
<PAGE>



                   KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>



                                                                       Year Ended       Year Ended       Year Ended
                                                                    September 30,    September 30,    September 30,
                                                                             2000             1999             1998
                                                                    -------------    -------------    -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                 <C>              <C>              <C>
    Net earnings ................................................   $   6,426,152    $   9,155,193    $   9,551,037

ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    Depreciation and amortization ...............................       2,927,853        2,896,271        2,815,615
    Provision for deferred taxes ................................      (1,050,197)        (259,935)         293,310
    Provision for loan losses ...................................       1,764,000          932,000          674,000
    Provision for losses on real estate owned ...................         120,000             --               --
    Compensation expense related to ESOP benefit ................       1,121,476        1,580,937        2,008,516
    Compensation expense related to MRDP Trust ..................       1,034,626        1,037,690        1,086,475
    Net amortization of premiums paid on
      investment and mortgage backed and related securities .....         266,018          134,979           21,994
    Increase(decrease) in deferred loan fees, net of amortization        (547,429)         367,781        1,262,418
    Net (gain) loss on sale of real estate owned and
      premises and equipment ....................................        (177,493)          (4,381)           3,196
    Net gain on sale of investment and mortgage
      backed and related securities .............................          (6,836)        (217,179)        (440,750)
    FHLB stock dividend .........................................        (758,300)        (784,400)        (617,000)
CHANGES IN ASSETS AND LIABILITIES
    Accrued interest receivable .................................         721,745          317,899          154,447
    Other assets ................................................         127,714         (377,868)        (218,359)
    Accrued interest on deposit liabilities .....................             605         (107,313)          76,039
    Accrued interest on borrowings ..............................         822,679         (179,473)        (298,759)
    Pension liabilities .........................................          54,252           54,252           52,252
    Other liabilities ...........................................         984,855          264,936          131,341
                                                                    -------------    -------------    -------------
Net cash provided by operating activities .......................      13,831,720       14,811,389       16,555,772
                                                                    -------------    -------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from maturity of investment securities
      held to maturity ..........................................         290,000       82,455,000       20,150,000
    Proceeds from maturity of investment securities
      available for sale ........................................      33,360,000       48,572,000      104,180,000
    Principal repayments received on mortgage
       backed and related securities held to maturity ...........         434,252        1,044,871        1,755,918
    Principal repayments received on mortgage
       backed and related securities available for sale .........      26,859,810       15,311,695       24,664,174
    Principal repayments received on loans ......................      99,031,327      159,160,842      122,009,359
    Loan originations ...........................................     (97,246,615)    (224,193,434)    (232,474,655)
    Loans purchased .............................................        (507,600)     (15,500,495)      (7,792,061)
    Loans sold ..................................................       6,315,261        5,584,065             --
    Purchase of investment securities held
      to maturity ...............................................        (457,000)     (79,711,523)            --
    Purchase of investment securities available
      for sale ..................................................      (1,110,000)     (22,147,855)     (60,366,913)
    Purchase of mortgage backed and related
      securities available for sale .............................     (29,396,069)     (55,536,014)     (13,202,490)
    Purchase of FHLB stock ......................................        (160,900)            --         (2,405,500)
    Proceeds from sale of investment securities
      available for sale ........................................      10,051,563       11,834,420       19,388,451
    Proceeds from sale of mortgage backed and related
      securities available for sale .............................            --          9,454,776        9,656,938
    Proceeds from sale of real estate owned and
      premises and equipment ....................................       2,722,397          514,710             --
    Purchases of premises and equipment .........................      (2,271,628)        (321,050)      (1,682,477)
                                                                    -------------    -------------    -------------
Net cash provided by (used in) investing activities .............      47,914,798      (63,477,992)     (16,119,256)
                                                                    -------------    -------------    -------------
</TABLE>



                                       27
<PAGE>



                   KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)
<TABLE>
<CAPTION>

                                                                      Year Ended        Year Ended      Year  Ended
                                                                   September 30,     September 30,    September 30,
                                                                            2000              1999             1998
                                                                   ---------------   --------------   --------------
CASH FLOWS FROM FINANCING ACTIVITIES

<S>                                                                 <C>              <C>              <C>
    Net increase(decrease) in deposit liabilities ...............   ($ 25,020,241)   $  30,859,767    $  15,563,444
    Proceeds from FHLB advances .................................     614,650,000      160,000,000      179,000,000
    Repayments of FHLB advances .................................    (638,650,000)    (130,000,000)    (141,000,000)
    Proceeds from short term borrowings .........................       3,700,000        8,595,000       88,343,199
    Repayments of short term borrowings .........................        (700,000)     (20,707,500)     (93,308,199)
    Stock repurchase and  retirement ............................      (6,254,695)     (39,334,140)     (11,561,483)
    Proceeds from exercise of stock options .....................            --               --            411,035
    Advances from borrowers for taxes and insurance .............        (105,251)         337,836          505,305
    Dividends paid ..............................................      (3,942,320)      (3,547,040)      (3,447,744)
                                                                    -------------    -------------    -------------
Net cash provided by (used in)  financing activities ............     (56,322,507)       6,203,923       34,505,557
                                                                    -------------    -------------    -------------
Net (decrease) increase in cash and cash
  equivalents ...................................................       5,424,011      (42,462,680)      34,942,073

Cash and cash equivalents at beginning
  of year .......................................................      24,522,589       66,985,269       32,043,196
                                                                    -------------    -------------    -------------
Cash and cash equivalents at end of year ........................   $  29,946,600    $  24,522,589    $  66,985,269
                                                                    =============    =============    =============
SUPPLEMENTAL SCHEDULE OF INTEREST AND
INCOME
  TAXES PAID
    Interest paid ...............................................   $  39,932,938    $  38,668,392    $  38,071,070
    Income taxes paid ...........................................       4,745,000        5,866,000        5,808,299

SUPPLEMENTAL SCHEDULE OF NONCASH
  INVESTING ACTIVITIES

    Net unrealized gain (loss) on securities
      available for sale, net of tax ............................   $     390,888    ($  4,594,986)   $   2,367,520
    Dividends declared and accrued in other
      liabilities ...............................................         957,609          988,547          892,509
   Loans transferred to real estate owned .......................       2,291,059        2,002,219               --
   Write down of real estate owned ..............................         343,450               --             --

</TABLE>







    See notes to consolidated financial statements.



                                       28
<PAGE>



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

Principles of Consolidation
The  consolidated  financial  statements  include the accounts of Klamath  First
Bancorp,  Inc. (the  "Company") and its  wholly-owned  subsidiary  Klamath First
Federal  Savings  and  Loan  Association  (the  "Association"),   including  the
Association's  subsidiaries,   Klamath  First  Financial  Services  and  Pacific
Cascades  Financial,  Inc. All intercompany  accounts and transactions have been
eliminated in consolidation.

Nature of Operations
The Company provides banking and limited  non-banking  services to its customers
who  are  located   throughout  the  state  of  Oregon,   principally  in  rural
communities.  These  services  primarily  include  attracting  deposits from the
general public and using such funds,  together with other borrowings,  to invest
in  various  real  estate  loans,  consumer  and  commercial  loans,  investment
securities and mortgage backed and related securities.

Use of Estimates in the Presentation of the Financial Statements
The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
assumptions.  These  assumptions  result in  estimates  that affect the reported
amounts of certain assets and  liabilities  and disclosure of contingent  assets
and liabilities at the date of the financial statements and the reported amounts
of related revenue and expense during the reporting period. Actual results could
differ from those estimates.

Cash Equivalents
The Company considers cash and due from banks, interest bearing deposits held at
domestic banks,  federal funds sold, and security  resale  agreements to be cash
and cash equivalents for purposes of the Consolidated Statements of Cash Flows.

Investment Securities
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting  for Certain  Investments in Debt and Equity  Securities,  investment
securities held to maturity are stated at amortized cost only if the Company has
the  positive  intent  and the  ability  to hold  the  securities  to  maturity.
Securities  available for sale,  including mutual funds, and trading  securities
are stated at fair value.  Unrealized  gains and losses from  available for sale
securities  are excluded from earnings and reported (net of tax) as a net amount
in a separate component of shareholders'  equity until realized.  Realized gains
and losses on the sale of  securities,  recognized on a specific  identification
basis, and valuation  adjustments of trading account  securities are included in
non-interest  income or expense.  Net  unrealized  gains or losses on securities
resulting from an other than temporary  decline in the fair value are recognized
in earnings when incurred.

Stock Investments
The  Company  holds  stock in the  Federal  Home Loan Bank of Seattle  ("FHLB of
Seattle"). This investment is carried at the lower of cost or fair value.


                                       29
<PAGE>


Loans
Loans held for investment are stated at the principal amount outstanding, net of
deferred loan fees and unearned income.  Loan origination fees,  commitment fees
and certain direct loan  origination  costs are  capitalized and recognized as a
yield  adjustment  over the lives of the loans  using the level-  yield  method.
Unearned  discounts are accreted to income over the average lives of the related
loans using the level yield method, adjusted for estimated prepayments.

Interest  income is recorded  as earned.  Management  ceases to accrue  interest
income on any loan that  becomes 90 days or more  delinquent  and  reverses  all
interest accrued up to that time. Thereafter, interest income is accrued only if
and when, in management's opinion, projected cash proceeds are deemed sufficient
to repay both principal and interest.  All loans for which interest is not being
accrued are referred to as loans on nonaccrual status.

Allowance for Loan Losses
The allowance for loan losses is established to absorb known and inherent losses
in the loan  portfolio.  Allowances  for losses on specific  problem real estate
loans and real estate owned are charged to earnings when it is  determined  that
the value of these  loans and  properties,  in the  judgment of  management,  is
impaired.  In addition to specific reserves,  the Company also maintains general
provisions  for loan losses based on evaluating  known and inherent risks in the
loan  portfolio,  including  management's  continuing  analysis  of the  factors
underlying the quality of the loan  portfolio.  These factors include changes in
the size and  composition of the loan  portfolio,  actual loan loss  experience,
current and anticipated  economic  conditions,  detailed  analysis of individual
loans for which full collectibility may not be assured, and determination of the
existence and realizable  value of the  collateral  and guarantees  securing the
loans.  The reserve is an estimate  based upon factors and trends  identified by
management at the time financial statements are prepared.  The ultimate recovery
of loans is susceptible  to future market factors beyond the Company's  control,
which may  result in losses or  recoveries  differing  significantly  from those
provided  in  the  consolidated  financial  statements.  In  addition,   various
regulatory  agencies,   as  an  integral  part  of  their  examination  process,
periodically review the Company's valuation  allowances on loans and real estate
owned.

Delinquent  interest  on  loans  past due 90 days or more is  charged  off or an
allowance  established  by a charge to income equal to all  interest  previously
accrued.  Interest is  subsequently  recognized only to the extent cash payments
are  received  until  delinquent  interest is paid in full and, in  management's
judgment,  the  borrower's  ability  to make  periodic  interest  and  principal
payments  is back to  normal,  in which  case the loan is  returned  to  accrual
status.

Real Estate Owned
Property acquired through  foreclosure or deed in lieu of foreclosure is carried
at the lower of  estimated  fair value,  less  estimated  costs to sell,  or the
balance of the loan on the  property at date of  acquisition,  not to exceed net
realizable  value.  Costs  excluding  interest,  relating to the  improvement of
property are  capitalized,  whereas those  relating to acquiring and holding the
property are charged to expense.

Premises and Equipment
Premises  and  equipment  are  stated  at cost  less  accumulated  depreciation.
Depreciation is generally computed on the straight-line basis over the estimated
useful  lives of the various  classes of assets from their  respective  dates of
acquisition.  Estimated  useful lives range up to 30 years for buildings,  up to
the lease term for  leasehold  improvements,  three years for  automobiles,  and
three to 15 years for furniture and equipment.


                                       30
<PAGE>



Mortgage Servicing
Fees earned for servicing loans are reported as income when the related mortgage
loan  payments are  collected.  Loan  servicing  costs are charged to expense as
incurred.

The Company  accounts for mortgage  servicing rights in accordance with SFAS No.
125,   Accounting   for  Transfers   and  Servicing  of  Financial   Assets  and
Extinguishment of Liabilities. SFAS No. 125 requires the Company to allocate the
total cost of all mortgage loans sold, whether  originated or purchased,  to the
mortgage  servicing  rights and the loans (without  mortgage  servicing  rights)
based on their  relative fair values if it is practicable to estimate those fair
values.

Core Deposit Intangible
On July 18, 1997 the Company assumed $241.3 million of deposits from Wells Fargo
Bank, N.A. for a core deposit premium of $16.4 million.  In conjunction with the
assumption of these deposits the Company also acquired 25 branch  facilities (24
owned and one leased) located  throughout  Oregon.  In accordance with generally
accepted accounting  principles for purchase  transactions,  the assets acquired
and liabilities assumed were recorded at fair value and the core deposit premium
was  allocated  to premises  and  equipment in the amount of $3.0 million and to
core  deposit  intangible  in the amount of $13.4  million.  The  recorded  core
deposit intangible is being amortized to non-interest expense on a straight-line
basis over 8.1 years.

Income Taxes
The Company  accounts for income taxes using the asset and  liability  method of
accounting  for  income  taxes.  Under  this  method,  deferred  tax  assets and
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and  liabilities  and their  respective  tax  bases.  Deferred  tax  assets  and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered or settled.

Employee Stock Ownership Plan
The Company  sponsors an Employee Stock  Ownership  Plan  ("ESOP").  The ESOP is
accounted  for in  accordance  with the American  Institute of Certified  Public
Accountants  ("AICPA")  Statement of Position  93-6,  Employer's  Accounting for
Employee Stock  Ownership  Plans.  Accordingly,  the shares held by the ESOP are
reported as unearned  shares issued to the employee stock  ownership plan in the
balance  sheets.  The plan  authorizes  release  of the  shares  over a ten-year
period,  of which  five  years  are  remaining.  As  shares  are  released  from
collateral,  compensation  expense is recorded  equal to the then current market
price of the shares,  and the shares become  outstanding  for earnings per share
calculations.

Management Recognition and Development Plan
The Company sponsors a Management Recognition and Development Plan ("MRDP"). The
MRDP  is  accounted  for  in  accordance  with  SFAS  No.  123,  Accounting  for
Stock-Based  Compensation.  The plan authorizes the grant of common stock shares
to certain  officers and directors,  which vest over a five-year period in equal
installments.  The Company recognizes  compensation expense in the amount of the
fair value of the common stock in accordance  with the vesting  schedule  during
the years in which the shares are payable.  When the MRDP awards are  allocated,
the common stock shares become common stock  equivalents  for earnings per share
calculations.

Stock Based Compensation
The Company accounts for stock option grants using the intrinsic value method as
prescribed in Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and  related  interpretations.   Under  the intrinsic


                                       31
<PAGE>



value  based  method,  compensation  cost for stock  options is  measured as the
excess,  if any,  of the  quoted  market  price of stock at grant  date over the
amount an employee must pay to acquire the stock.  Stock options  granted by the
Company have no intrinsic  value at the grant date and,  under APB No. 25, there
is no compensation expense to be recorded.

SFAS No. 123, Accounting for Stock-Based Compensation,  encourages, but does not
require,   companies  to  record  compensation  cost  for  stock-based  employee
compensation plans at fair value. The fair value approach measures  compensation
costs based on factors such as the term of the option, the market price at grant
date, and the option  exercise price,  with expense  recognized over the vesting
period.  See Note 15 for the pro forma  effect on net  earnings and earnings per
share as if the fair value method had been used.

Recently Issued Accounting Pronouncements

In June 1998,  SFAS No. 133,  Accounting for Derivative  Instruments and Hedging
Activities,  was  issued.  SFAS No. 133  establishes  accounting  and  reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts  (collectively referred to as derivatives),  and for
hedging  activities.  The effective  date of this  Statement was deferred by the
issuance of SFAS No. 137,  Accounting  for  Derivative  Instruments  and Hedging
Activities - Deferral of the Effective  Date of FASB Statement No. 133. SFAS No.
133  was  also  amended  by  SFAS  No 138,  Accounting  for  Certain  Derivative
Instruments  and Certain Hedging  Activities.  The adoption of this Statement in
2001 is not expected to have a material  impact on the  financial  statements of
the Company.

(2) Cash and Due from Banks

The Company is required to maintain an average  reserve balance with the Federal
Reserve Bank, or maintain such reserve  balance in the form of cash.  The amount
of this required reserve balance was approximately  $801,000 and $3.0 million at
September  30,  2000 and 1999,  respectively,  and was met by  holding  cash and
maintaining an average  balance with the Federal  Reserve Bank in excess of this
amount.

                                       32
<PAGE>


(3) Investments and Mortgage Backed Securities

Amortized cost and approximate  fair value of securities  available for sale and
held to maturity are summarized by type and maturity as follows:
<TABLE>
<CAPTION>

                                                             September 30, 2000
                                        -------------------------------------------------------
                                          Amortized            Gross Unrealized            Fair
                                              cost          Gains         Losses          value
                                        ----------     ----------   ------------   ------------
INVESTMENT SECURITIES AVAILABLE-FOR-SALE

  U.S. Government obligations
<S>                                   <C>            <C>            <C>            <C>
    Maturing within one year ......   $ 24,003,818          $--     $     67,408   $ 23,936,410
    Maturing after one year through
     five years ...................     25,185,824           --          336,629     24,849,195


  State and municipal obligations
    Maturing within one year ......        425,353          1,407           --          426,760
    Maturing after one year through
     five years ...................        585,742           --           14,888        570,854
    Maturing after five years through
     ten years ....................        397,752           --           15,988        381,764
    Maturing after ten years ......     24,191,641         79,483        707,211     23,563,913

  Corporate obligations
    Maturing within one year ......     14,045,495           --           58,538     13,986,957
    Maturing after one year through
     five years ...................     10,026,335           --          216,032      9,810,303
    Maturing after ten years ......     19,827,287           --          725,687     19,101,600
                                      ------------   ------------   ------------   ------------
                                      $118,689,247   $     80,890   $  2,142,381   $116,627,756
                                      ============   ============   ============   ============
</TABLE>
<TABLE>
<CAPTION>

                                                            September 30, 1999
                                      ---------------------------------------------------------
                                         Amortized            Gross Unrealized             Fair
                                              cost          Gains         Losses          value
                                      ------------   ------------   ------------   ------------
INVESTMENT SECURITIES AVAILABLE-FOR-SALE

  U.S. Government obligations
<S>                                   <C>            <C>            <C>            <C>
  Maturing within one year ........   $ 15,014,112   $     18,266   $     40,190   $ 14,992,188
  Maturing after one year through
   five years .....................     59,212,960         88,398        333,544     58,967,814


State and municipal obligations
  Maturing within one year ........        572,115          4,223           --          576,338
  Maturing after one year through
   five years .....................        801,572          2,701         17,217        787,056
  Maturing after five years through
   ten years ......................        198,414           --           10,190        188,224
  Maturing after ten years ........     23,275,612         15,017        961,272     22,329,357

Corporate obligations
  Maturing within one year ........     21,053,101         36,346        171,277     20,918,170
  Maturing after one year through
   five years .....................     21,159,327           --          289,867     20,869,460
  Maturing after ten years ........     19,825,059           --          805,609     19,019,450
                                      ------------   ------------   ------------   ------------
                                      $161,112,272   $    164,951   $  2,629,166   $158,648,057
                                      ============   ============   ============   ============
</TABLE>

                                       33
<PAGE>

<TABLE>
<CAPTION>

                                                                   September 30, 2000
                                      ---------------------------------------------------------
                                         Amortized            Gross Unrealized             Fair
                                              cost          Gains         Losses          value
                                      ------------   ------------      ----------  ------------
INVESTMENT SECURITIES HELD-TO-MATURITY

  State and municipal obligations
     Maturing after one year through
<S>                                   <C>            <C>                     <C>   <C>
     five years ...................   $    266,838   $      3,051            $--   $    269,889

  Other obligations
     Maturing after ten years .....        457,000           --               --        457,000
                                      ------------   ------------   ------------   ------------
                                      $    723,838   $      3,051            $--   $    726,889
                                      ============   ============   ============   ============
</TABLE>
<TABLE>
<CAPTION>



                                                            September 30, 1999
                                      ---------------------------------------------------------
                                         Amortized            Gross Unrealized             Fair
                                              cost          Gains         Losses          value
                                      ------------   ------------   ------------   ------------
INVESTMENT SECURITIES HELD-TO-MATURITY

  State and municipal obligations
<S>                                   <C>            <C>                     <C>   <C>
    Maturing within one year ......   $    170,376   $        438            $--   $    170,814
    Maturing after one year through
     five years ...................        389,136         17,505             --        406,641
                                      ------------   ------------   ------------   ------------
                                      $    559,512   $     17,943            $--   $    577,455
                                      ============   ============   ============   ============

</TABLE>



                                       34
<PAGE>


<TABLE>
<CAPTION>

MORTGAGE-BACKED AND RELATED SECURITIES
                                                             September 30, 2000
                                      ---------------------------------------------------------
                                         Amortized            Gross Unrealized             Fair
                                              cost          Gains         Losses          value
                                      ------------     ----------      ----------  ------------
MORTGAGE-BACKED AND RELATED SECURITIES AVAILABLE-FOR-SALE

  FNMA maturing after one year
<S>                                   <C>            <C>            <C>            <C>
     through five years ...........   $  2,004,350          $--     $     26,164   $  1,978,186

  CMO's maturing after one year
    through five years ............      4,977,970           --           57,870      4,920,100

  FNMA maturing after ten years ...     11,494,099        125,826            423     11,619,502

  FHLMC maturing after ten years ..     32,902,232        390,912         10,707     33,282,437

  GNMA maturing after ten years ...     10,727,693           --           46,770     10,680,923

  CMO's  maturing after ten years .     13,377,225           --          527,062     12,850,163
                                      ------------   ------------   ------------   ------------
                                      $ 75,483,569   $    516,738   $    668,996   $ 75,331,311
                                      ============   ============   ============   ============
</TABLE>
<TABLE>
<CAPTION>


                                                             September 30, 1999
                                      ---------------------------------------------------------
                                         Amortized             Gross Unrealized            Fair
                                              cost          Gains         Losses          value
                                      ------------   ------------   ------------   ------------
MORTGAGE-BACKED AND RELATED SECURITIES AVAILABLE-FOR-SALE

  FNMA maturing after one year
<S>                                   <C>            <C>            <C>            <C>
     through five years ...........   $  2,469,286            $--   $     25,043   $  2,444,243

  CMO's maturing after one year
    through five years ............      4,969,296             --         55,346      4,913,950

  FNMA maturing after ten years ...     21,849,523        116,867            228     21,966,162

  FHLMC maturing after ten years ..     18,375,619         26,201         31,314     18,370,506

  GNMA maturing after ten years ...     11,783,245          3,738         18,918     11,768,065

  CMO's  maturing after ten years .     13,628,584           --          395,955     13,232,629
                                      ------------   ------------   ------------   ------------

                                      $ 73,075,553   $    146,806   $    526,804   $ 72,695,555
                                      ============   ============   ============   ============
</TABLE>

                                       35
<PAGE>

<TABLE>
<CAPTION>

                                                           September 30, 2000
                                      ---------------------------------------------------------
                                         Amortized            Gross Unrealized             Fair
                                              cost          Gains         Losses          value
                                      ------------   ------------   ------------   ------------
MORTGAGE-BACKED AND RELATED SECURITIES HELD-TO-MATURITY

<S>                                   <C>            <C>            <C>            <C>
  GNMA maturing after ten years ...   $  2,159,868   $         31   $     13,981   $  2,145,918
                                      ============   ============   ============   ============
</TABLE>
<TABLE>
<CAPTION>



                                                            September 30, 1999
                                      ---------------------------------------------------------
                                         Amortized             Gross Unrealized             Fair
                                              cost          Gains         Losses          value
                                      ------------   ------------   ------------   ------------
MORTGAGE-BACKED AND RELATED SECURITIES HELD-TO-MATURITY

<S>                                   <C>            <C>            <C>            <C>
  GNMA maturing after ten years ...   $  2,600,920   $      3,289   $      7,801   $  2,596,408
                                      ============   ============   ============   ============
</TABLE>

Expected  maturities of mortgage backed and related  securities will differ from
contractual  maturities  because  borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.



                                       36
<PAGE>



At September 30, 2000 and 1999, the Company  pledged  securities  totaling $50.4
million and $35.6 million,  respectively,  to secure certain public deposits and
for other purposes as required or permitted by law.

The Company has also pledged securities of $2.1 million and zero to secure short
term borrowings at September 30, 2000 and 1999, respectively. (See Note 10.)

(4)  Loans receivable
<TABLE>
<CAPTION>
                                                       September 30,
                                             ------------------------------
                                                      2000             1999
                                             -------------    -------------
Real estate loans
<S>                                          <C>              <C>
  Permanent residential 1-4 family .......   $ 639,165,006    $ 647,130,329
  Multi-family residential ...............      19,015,537       18,411,762
  Construction ...........................      25,288,607       53,219,452
  Commercial .............................      42,276,796       37,078,809
  Land ...................................       3,394,070        2,064,037
                                             -------------    -------------
     Total real estate loans .............     729,140,016      757,904,389
                                             -------------    -------------
Non-real estate loans
  Savings account ........................       1,956,817        1,800,234
  Home improvement and home equity .......       8,338,029        6,725,721
  Other ..................................      11,474,207        8,010,808
                                             -------------    -------------
     Total non-real estate loans .........      21,769,053       16,536,763
                                             -------------    -------------
     Total loans .........................     750,909,069      774,441,152

Less
  Undisbursed portion of loans ...........      10,349,686       24,176,425
  Deferred loan fees .....................       7,440,271        7,987,699
  Allowance for loan losses ..............       4,082,265        2,483,625
                                             -------------    -------------
                                             $ 729,036,847    $ 739,793,403
                                             =============    =============
</TABLE>

The weighted  average  interest rate on loans at September 30, 2000 and 1999 was
7.56% and 7.47%, respectively.

Included in loans  receivable  are  $199,935  of loans held for sale.  All these
loans are one- to  four-family  mortgage  loans.  In the aggregate  there was no
lower of cost or market adjustment required; fair value approximates cost.

Loans to  employees,  officers,  and  directors  totaled  $8.8 million and $10.9
million at September 30, 2000 and 1999, respectively.

Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>


                                                      Year Ended September 30,
                                          -----------------------------------------------
                                                2000            1999             1998
                                          -------------    -------------    -------------
<S>                                       <C>              <C>              <C>
Balance, beginning of year ............   $   2,483,625    $   1,949,677    $   1,296,451
Charge offs ...........................        (606,999)        (398,052)         (20,774)
Recoveries ............................         441,639               --             --
Additions .............................       1,764,000          932,000          674,000
                                          -------------    -------------    -------------
Balance, end of year ..................   $   4,082,265    $   2,483,625    $   1,949,677
                                          =============    =============    =============
</TABLE>


Impaired loans at September 30, 2000 totaled  $171,254.  Specifically  allocated
loan  loss  reserves  related  to  these  loans  totaled  $19,500.  The  average
investment in impaired loans for the year ended September 30, 2000 was $582,811.
There  were no  impaired  loans at  September  30,  1999 or during the year then
ended.

                                       37
<PAGE>


(5) Premises and Equipment

Premises and equipment consist of the following:
<TABLE>
<CAPTION>

                                                         September 30,
                                               ------------------------------
                                                     2000             1999
                                               -------------    -------------
<S>                                            <C>              <C>
Land .....................................     $   2,828,648    $   2,476,807
Office buildings and construction in progress     11,033,130       10,470,855
Furniture, fixtures and equipment ........         5,137,130        4,464,622
Automobiles ..............................            38,856           38,856
Less accumulated depreciation ............        (6,310,194)      (5,869,217)
                                               -------------    -------------
                                               $  12,727,570    $  11,581,923
                                               =============    =============
</TABLE>

Depreciation  expense was $1.1 million,  $1.1 million,  and $1.0 million for the
years ended September 30, 2000, 1999, and 1998, respectively.

(6)   Accrued Interest Receivable

The following is a summary of accrued interest receivable:
<TABLE>
<CAPTION>
                                                      September 30,
                                             ------------------------------
                                                   2000             1999
                                             -------------    -------------
<S>                                          <C>              <C>
Loans receivable .........................   $   3,996,223    $   4,335,013
Mortgage backed and related securities ...         623,884          478,635
Investment securities ....................       1,811,966        2,340,170
                                             -------------    -------------
                                             $   6,432,073    $   7,153,818
                                             =============    =============
</TABLE>


(7)      Mortgage Servicing Rights

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated  balance  sheets.  The unpaid  principal  balance of mortgage loans
serviced for others was $11.6 million and $6.1 million at September 30, 2000 and
1999,  respectively.  During the year ended  September  30,  1999,  the  Company
initiated  a program  to sell loans to FNMA which  resulted  in the  significant
increase  in loans  serviced  for  others.  The  mortgage  servicing  rights are
included in other assets in the consolidated balance sheets.

The  changes in the balance of  capitalized  mortgage  servicing  rights were as
follows:
<TABLE>
<CAPTION>

                                                                        Year Ended September 30,
                                                             -----------------------------------------------
                                                                   2000              1999            1998
                                                             -------------    -------------    -------------
<S>                                                          <C>              <C>                        <C>
Balance, beginning of year ...............................   $      52,432              $--              $--
Additions ................................................          59,868           53,789               --
Amortization of mortgage servicing rights ................         (16,880)          (1,357)              --
                                                             -------------    -------------    -------------

Balance, end of year .....................................   $      95,420    $      52,432              $--
                                                             =============    =============    =============
</TABLE>




                                       38
<PAGE>


(8)   Deposit Liabilities

The following is a summary of deposit liabilities:
<TABLE>
<CAPTION>

                                                     September 30,
                                 ------------------------------------------------
                                           2000                    1999
                                 -----------------------  -----------------------
                                       Amount    Percent        Amount    Percent
                                 ------------   --------  ------------    -------
Checking accounts, non-interest
<S>                              <C>               <C>    <C>               <C>
 bearing .....................   $ 54,339,904        7.8% $ 52,318,958        7.3%
                                 ------------    -------  ------------    -------
Interest-bearing checking ....     72,185,571       10.4    67,303,245        9.3
                                 ------------    -------  ------------    -------
Passbook and statement savings     47,946,711        6.9    59,790,124        8.3
                                 ------------    -------  ------------    -------
Money market deposits ........    148,160,284       21.3   148,902,589       20.7
                                 ------------    -------  ------------    -------
Certificates of deposit
 Less than 4% ................        747,623        0.1     4,893,194        0.7
 4.00% to 5.99% ..............    244,183,723       35.1   340,945,349       47.3
 6.00% to 7.99% ..............    123,987,117       17.8    36,072,270        5.0
 8.00% to 9.99% ..............      3,829,938        0.6    10,175,383        1.4
                                 ------------    -------  ------------    -------
                                  372,748,401       53.6   392,086,196       54.4
                                 ------------    -------  ------------    -------
                                 $695,380,871      100.0% $720,401,112      100.0%
                                 ============    =======  ============    =======
</TABLE>


The following is a summary of interest expense on deposits:
<TABLE>
<CAPTION>

                                                        Year Ended September 30,
                                           ---------------------------------------------
                                                 2000            1999            1998
                                           -------------   -------------   -------------
<S>                                        <C>             <C>             <C>
Interest-bearing checking ..............   $     779,335   $     873,211   $   1,088,777
Passbook and statement savings .........         958,558       1,326,259       1,683,101
Money market ...........................       6,217,783       5,096,134       4,275,419
Certificates of deposit ................      20,575,944      21,767,895      21,990,525
                                           -------------   -------------   -------------
                                              28,531,620      29,063,499      29,037,822
Less early withdrawal
 penalties .............................         167,704          88,931         106,073
                                           -------------   -------------   -------------
  Net interest on deposits .............   $  28,363,916   $  28,974,568   $  28,931,749
                                           =============   =============   =============
</TABLE>

                                       39
<PAGE>

<TABLE>
<CAPTION>

At September 30, 2000, deposit maturities are as
follows:

<S>                                                   <C>
Within 1 year                                         $551,890,110
1 year to 3 years                                       82,170,477
3 years to 5 years                                      39,685,703
Thereafter                                              21,634,581
                                                      ------------
                                                      $695,380,871
                                                      ============
</TABLE>

<TABLE>
<CAPTION>

Weighted average interest rates at September 30 are as follows:

                                                     2000              1999
                                                  ----------        ----------
<S>                                                   <C>              <C>
Interest-bearing checking ................            1.14%            1.14%
Passbook and statement savings ...........            2.31%            1.76%
Money market .............................            4.30%            4.04%
Certificates of deposit ..................            5.98%            5.28%
Weighted average rate for all deposits ...            4.77%            4.27%
</TABLE>

Deposits  in excess of $100,000  totaled  $146.3  million and $149.9  million at
September  30, 2000 and 1999,  respectively.  Deposits in excess of $100,000 are
not insured by the Federal Deposit Insurance Corporation ("FDIC").



                                       40
<PAGE>


(9)   Advances from FHLB

As a member of the FHLB of Seattle, the Association maintains a credit line that
is a percentage of its total  regulatory  assets,  subject to  collateralization
requirements.  At September  30,  2000,  the credit line was 30 percent of total
assets of the  Association.  Advances are  collateralized  in the aggregate,  as
provided for in the Advances,  Security and Deposit  Agreements with the FHLB of
Seattle,  by certain  mortgages or deeds of trust,  and  securities  of the U.S.
Government and agencies thereof. At September 30, 2000 the minimum book value of
eligible collateral for these borrowings was $203.3 million.



Scheduled maturities of advances from the FHLB were as follows:
<TABLE>
<CAPTION>



                                         September 30, 2000                                September 30, 1999
                        ------------------------------------------------------  ------------------------------------------------
                                                 Range of             Weighted                     Range of            Weighted
                                                 interest              average                     interest             average
                              Amount                rates        interest rate        Amount          rates       interest rate
                        --------------      --------------      --------------  ------------   --------------     --------------
<S>                     <C>                  <C>                        <C>     <C>            <C>                        <C>
Due within one year .   $  5,000,000                 5.70%              5.70%   $         --              --                --

After one but within
five years ..........     10,000,000                 6.65%              6.65%     40,000,000   5.39% - 5.70%              5.43%

After five but within
ten years ...........    158,000,000         4.77% - 7.05%              5.86%    157,000,000   4.77% - 5.87%              5.32%
                       -------------                                            ------------
                        $173,000,000                                            $197,000,000
                       =============                                            ============
</TABLE>


Financial  data  pertaining  to the  weighted  average  cost,  the level of FHLB
advances and the related interest expense are as follows:
<TABLE>
<CAPTION>


                                                                                 Year Ended September 30,
                                                                    ------------------------------------------------
                                                                          2000             1999             1998
                                                                    --------------   --------------   --------------
<S>                                                                 <C>              <C>              <C>
Weighted average interest rate at end of year ...................            5.90%            5.34%            5.26%
Weighted daily average interest rate during the year ............            5.88%            5.25%            5.62%
Daily average FHLB advances .....................................   $ 207,218,306    $ 173,739,726    $ 141,016,438
Maximum FHLB advances at any month end ..........................     230,000,000      197,000,000      167,000,000
Interest expense during the year ................................      12,184,341        9,121,190        7,921,570
</TABLE>




                                       41
<PAGE>



(10)  Short Term Borrowings

The Company had short term  borrowings of $3.0 million and zero at September 30,
2000 and 1999,  respectively.  The  borrowings  consisted of two lines of credit
with Key Bank in the  amounts  of $1.7  million  and $5.0  million.  The line of
credit for $1.7 million was fully  disbursed  and $1.3 million was  disbursed on
the $5.0 million line of credit at September  30, 2000.  The Company also had an
unused line of credit  totaling $15.0 million with U.S.  National Bank of Oregon
at  September  30,  2000 and 1999.  The Company is in  compliance  with all debt
covenants imposed by the lenders.

During the year ended September 30, 1998, the Company sold,  under agreements to
repurchase,  specific  securities  of the U.S.  government  and its agencies and
other approved  investments to a  broker-dealer.  The securities  underlying the
agreement with the  broker-dealer  were delivered to the dealer who arranged the
transaction.  Securities  delivered to  broker-dealers  may be loaned out in the
ordinary course of operations.  All these agreements  matured during the quarter
ended March 31, 1999 and were not renewed.

Financial data pertaining to the weighted  average cost, the level of short term
borrowings and securities sold under  agreements to repurchase,  and the related
interest expense are as follows:
<TABLE>
<CAPTION>

                                                                                    Year Ended September 30,
                                                                   -------------------------------------------------
                                                                           2000              1999             1998
                                                                   ---------------    --------------  --------- ----
<S>                                                                 <C>                 <C>             <C>
Weighted average interest rate at end of year ...................            9.01%              --             5.65%
Weighted daily average interest rate
   during the year ..............................................            9.34%            5.72%            5.80%
Daily average of short term borrowings ..........................   $   1,289,617       $       --      $        --
Daily average of securities sold
   under agreements to repurchase ...............................              --        3,105,336       14,669,203
Maximum short term borrowings at
   any month end ................................................       3,000,000               --               --
Maximum securities sold under
   agreements to repurchase at any
   month end ....................................................              --        8,095,000       17,077,500
Interest expense during the year ................................         120,413          177,568          850,122
</TABLE>




                                       42
<PAGE>



(11) Taxes on Income

The following is a summary of income tax expense:
<TABLE>
<CAPTION>

                                                                                Year Ended September 30,
                                                                    -----------------------------------------------
                                                                          2000             1999             1998
                                                                    -------------    -------------    -------------
Current Taxes
<S>                                                                 <C>              <C>              <C>
Federal .........................................................   $   3,735,797    $   4,842,232    $   4,771,653
State ...........................................................         847,558        1,065,157          468,978
                                                                    -------------    -------------    -------------
Current tax provision ...........................................       4,583,355        5,907,389        5,240,631
                                                                    -------------    -------------    -------------
Deferred Taxes
Federal .........................................................        (873,784)        (201,337)          82,204
State ...........................................................        (176,413)         (40,649)          16,597
                                                                    -------------    -------------    -------------
Deferred tax provision (benefit) ................................      (1,050,197)        (241,986)          98,801
                                                                    -------------    -------------    -------------
Provision for income taxes ......................................   $   3,533,158    $   5,665,403    $   5,339,432
                                                                    =============    =============    =============
</TABLE>

An analysis of income tax expense,  setting  forth the reasons for the variation
from the  "expected"  federal  corporate  income tax rate and the effective rate
provided, is as follows:
<TABLE>
<CAPTION>
                                               Year Ended September 30,
                                            -----------------------------
                                              2000       1999       1998
                                            -------    -------    -------
Federal income taxes computed at
<S>                                           <C>        <C>        <C>
statutory rate ........................       35.0%      35.0%      35.0%

Tax effect of:

State income taxes, net of Federal
   income tax benefit .................        4.4        4.5        2.1
Nondeductible ESOP compensation
   expense ............................        0.5        1.4        2.4
Deductible MRDP compensation
  expense .............................        1.6       (0.1)      (1.5)
Interest income on municipal securities       (4.1)      (2.2)        --
Elimination of valuation allowance ....         --         --       (1.5)
Other .................................       (1.9)      (0.4)      (0.6)
                                            ------     ------     ------
Income tax expense included in the
statement of earnings .................       35.5%      38.2%      35.9%
                                            ======     ======     ======
</TABLE>

                                       43
<PAGE>


Deferred  income  taxes at  September  30,  2000 and 1999  reflect the impact of
"temporary  differences" between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws.

The tax  effects  of  temporary  differences  which  give rise to a  significant
portion of deferred tax assets and deferred tax liabilities are as follows:

<TABLE>
<CAPTION>
                                                              September 30,
                                                     ------------------------------
                                                           2000             1999
                                                     -------------    -------------
DEFERRED TAX ASSETS

<S>                                                  <C>              <C>
Allowance for losses on loans ....................   $   1,603,922    $     975,816
Pension liability ................................         348,854          327,539
Unearned ESOP shares .............................         397,360          371,290
Unrealized loss on securities available for sale..         841,224        1,080,801
Core deposit premium .............................         956,599          657,904
                                                     -------------     ------------
Total gross deferred tax assets ..................       4,147,959        3,413,350
                                                     -------------     ------------
DEFERRED TAX LIABILITIES

FHLB stock dividends .............................       1,192,076          894,222
Deferred loan fees ...............................       1,303,241        1,262,694
Tax bad debt reserve in excess of base-
   year reserve ..................................         972,280        1,224,537
Other ............................................         449,469          611,624
                                                     -------------    -------------
Total gross deferred tax liabilities .............       3,917,066        3,993,077
                                                     -------------    -------------
Net deferred tax asset (liability) ...............   $     230,893    ($    579,727)
                                                     =============    =============
</TABLE>

The Company has  qualified  under  provisions  of the  Internal  Revenue Code to
compute  federal  income  taxes after  deductions  of  additions to the bad debt
reserves.  At September 30, 2000, the Company had a taxable temporary difference
of  approximately  $10.5 million that arose before 1988 (base-year  amount).  In
accordance  with SFAS No.  109,  Accounting  for Income  Taxes,  a deferred  tax
liability has not been recognized for the temporary difference.  Management does
not expect this temporary difference to reverse in the foreseeable future.




                                       44
<PAGE>


(12)     Commitments and Contingencies

In the  ordinary  course  of  business,  the  Company  has  various  outstanding
commitments  and  contingencies  that  are  not  reflected  in the  accompanying
consolidated  financial statements.  In addition,  the Company is a defendant in
certain claims and legal actions arising in the ordinary course of business.  In
the opinion of management,  after consultation with legal counsel,  the ultimate
disposition  of these matters is not expected to have a material  adverse effect
on the consolidated financial condition of the Company.

(13)     Shareholders' Equity

In  September  1998,  the  Board  of  Directors  authorized  the  repurchase  of
approximately  20  percent  of  the  Company's  outstanding  common  stock.  The
repurchase was completed  through a "Modified Dutch Auction  Tender." Under this
procedure, the Company's shareholders were given the opportunity to sell part or
all of their  shares to the Company at a price of not less than $18.00 per share
and not more than  $20.00 per share.  Results  of the offer  were  finalized  on
January 15,  1999 when the Company  announced  purchase of  1,984,090  shares at
$19.50 per  share.  This  represents  approximately  85.9  percent of the shares
tendered at $19.50 per share or below,  and 64.7 percent of all shares tendered.
The cost of the shares purchased was approximately $39.3 million.  The effect of
the  transaction  is  reflected  in a reduction  in cash and  investments  and a
reduction in equity.

The table below summarizes  repurchases of the Company's common stock which were
approved by the Board of Directors and completed by management.
<TABLE>
<CAPTION>

Month Completed           Number of Shares                Average Price
<S>                            <C>                             <C>
September 1996                   620,655                       $14.33
January 1997                   1,161,247                        15.91
May 1998                         521,477                        21.22
January 1999                   1,984,040                        19.50
December 1999                    395,419                        11.68
</TABLE>

In May 2000, the Company  announced its intent to repurchase five percent of the
outstanding  common stock, or approximately  375,648 shares. As of September 30,
2000, the Company had  repurchased  33.28% of the shares to be  repurchased,  or
125,000 shares, at a weighted average price per share of $11.20.

In 2000,  1999, and 1998,  vested portions of awarded MRDP shares were released.
Many of the recipients of this award had the Company withhold and retire some of
their shares to pay the  associated  taxes.  This further  reduced the number of
shares  outstanding  by  21,732,  24,299 and 22,608  shares,  respectively,  and
reduced equity by $236,336, $353,407 and $498,054, respectively.

At the time of conversion,  the Association established a liquidation account in
an amount  equal to its retained  earnings as of June 30, 1995,  the date of the
latest statement of financial condition used in the final conversion prospectus.
The  liquidation  account  will  be  maintained  for  the  benefit  of  eligible
withdrawable  account holders who have maintained  their deposit accounts in the
Association  after  conversion.  In the event of a complete  liquidation  of the
Association (and only in such an event),  eligible depositors who have continued
to  maintain  accounts  will be  entitled  to  receive a  distribution  from the
liquidation  account before any  liquidation  may be made with respect to common
stock.  The  Association  may not  declare or pay cash  dividends  if the effect
thereof would reduce its regulatory  capital  below  the amount required for the
liquidation account.

The Company's Articles of Incorporation authorize the issuance of 500,000 shares
of preferred  stock,  having a par value of $.01 per share, in series and to fix
and state the  powers,  designations,  preferences  and  relative  rights of the
shares of such series,  and the  qualifications,  limitations  and  restrictions
thereof.


                                       45
<PAGE>

(14)     Earnings Per Share

Earnings per share ("EPS") is computed in accordance with SFAS No. 128, Earnings
per Share.  Shares held by the Company's ESOP that are committed for release are
considered  contingently  issuable shares and are included in the computation of
basic EPS.  Diluted EPS is computed  using the  treasury  stock  method,  giving
effect to potential  additional  common shares that were outstanding  during the
period. Potential dilutive common shares include shares awarded but not released
under the Company's MRDP, and stock options granted under the Stock Option Plan.
Following is a summary of the effect of dilutive  securities on weighted average
number of shares (denominator) for the basic and diluted EPS calculations. There
are no resulting adjustments to net earnings.
<TABLE>
<CAPTION>

                                                                             For the Year Ended September 30,
                                                                       --------------------------------------------
                                                                          2000             1999             1998
                                                                       ----------    -------------    -------------
Weighted average common
<S>                                                                     <C>              <C>              <C>
shares outstanding - basic ......................................       6,822,025        7,564,415        9,115,404
                                                                       ----------    -------------    -------------
Effect of Dilutive Securities on Number of Shares:
MRDP shares .....................................................            --             23,923           64,188
Stock options ...................................................            --            160,189          341,657
                                                                       ----------    -------------    -------------
Total Dilutive Securities .......................................            --            184,112          405,845
                                                                       ----------    -------------    -------------
Weighted average common shares

 outstanding - with dilution ....................................       6,822,025        7,748,527        9,521,249
                                                                       ==========    =============    =============
</TABLE>

Options to purchase 916,258 shares of common stock were outstanding at September
30,  2000 but were not  included in the  computation  of diluted EPS because the
options'  exercise  prices were  greater  than the average  market  price of the
common  shares.  Additionally,  80,006 shares awarded under the MRDP but not yet
released to the individuals  were not included in the computation of diluted EPS
because their effect would not have been dilutive.


                                       46
<PAGE>


(15) Employee Benefit Plans

Employee Retirement Plan

The Company is a member of a  multiple-employer  trusteed  pension plan ("Plan")
covering  all  employees  with at least  one  year of  service  and pays  direct
pensions to certain  retired  employees.  Benefits are based on years of service
with  the  Company  and  salary  excluding  bonuses,  fees,  commissions,   etc.
Participants  are vested in their accrued  benefits after five years of service.
Pension expense of $367,916, $40,828, and $180,000 was incurred during the years
ended  September 30, 2000,  1999,  and 1998,  respectively.  Separate  actuarial
valuations,  including  computed  value of  vested  benefits,  are not made with
respect to each contributing  employer, nor are the plan assets so segregated by
the trustee.  The Plan had an over-funded  accumulated  benefit of approximately
$439.9 million at June 30, 2000.

Postretirement Benefit Plan

The Company has a  postretirement  benefit  plan for  certain  retirees  and all
currently  active  employees who retire with at least ten years of service.  The
plan provides for payment of all or a portion of the Medicare Supplement premium
for qualified retirees and their spouses.

Information  related to the year ended  September  30, 2000 is presented  below.
Information for fiscal years 1999 and 1998 is not available.
<TABLE>
<CAPTION>

                                                     Year Ended September 30,
                                                              2000
                                                      -----------------------
Change in benefit obligation
<S>                                                       <C>
Benefit obligation at beginning of year                   $193,861
Service cost                                                24,276
Interest cost                                               23,937
Actuarial changes                                           92,453
Benefits paid                                              (10,248)
                                                          --------
Benefit obligation at end of year                         $324,279
                                                          ========

Components of net periodic benefit cost
Service cost                                              $ 24,276
Interest cost                                               23,937
Recognition of changes in actuarial
assumptions, prior service cost, benefit
changes, and actuarial gains and losses                      9,475
                                                           -------
Net periodic benefit cost                                  $57,688
                                                           =======
</TABLE>

Director Deferred Compensation Plan

The Company also has an unfunded  supplemental  benefits plan to provide members
of the Board of Directors with supplemental  retirement  benefits.  Supplemental
benefits are based on monthly fees approved by the Compensation Committee of the
Board.  Pension costs  recognized for the years ended September 30, 2000,  1999,
and 1998 were $71,052, $71,052, and $71,052, respectively. At September 30, 2000
and  1999,  the  projected   benefit   obligation  was  $887,896  and  $833,644,
respectively.


                                       47
<PAGE>



Management Recognition and Development Plan

In  February  1996,  the Board of  Directors  approved a MRDP for the benefit of
officers and non-employee directors which authorizes the grant of 489,325 common
stock shares.  The MRDP was approved by the Company's  shareholders  on April 9,
1996.  Those  eligible  to receive  benefits  under the MRDP are  determined  by
members of a committee appointed by the Board of Directors of the Company.  MRDP
awards vest over a five-year period in equal installments  beginning on April 9,
1997  (the  first  anniversary  of the  effective  date of the MRDP) or upon the
participant's death or disability. On April 9, 1996, 391,459 shares were awarded
to officers and directors.  On November 19, 1997 a new award of 6,116 shares was
made to a  director.  On  January  4,  1999 a new  award of 4,893 was made to an
officer.  During 1998,  17,616 shares awarded under the plan were forfeited upon
resignation  of an  officer.  The  Company  recognizes  compensation  expense in
accordance  with the vesting  schedule  during the years in which the shares are
payable  based  on the  fair  value  of the  common  stock  on the  grant  date.
Compensation  expense for the years ended  September 30, 2000, 1999 and 1998 was
$1.3 million, $1.0 million and $1.1 million, respectively.

Stock Option Plan

In February  1996,  the Board of  Directors  adopted a Stock Option Plan ("Stock
Plan") for the benefit of certain  employees and  directors.  The Stock Plan was
approved by the Company's  shareholders  on April 9, 1996. The maximum number of
common shares which may be issued under the Stock Plan is 1,223,313  shares with
a maximum term of ten years for each option from the date of grant.  The initial
awards  were  granted on April 9, 1996 at the fair value of the common  stock on
that date ($13.125).  All initial awards vest in equal  installments over a five
year period from the grant date and expire during April 2006.  Unvested  options
become immediately exercisable in the event of death or disability.

Option activity under the Stock Plan is as follows:

<TABLE>
<CAPTION>

                                                                     Weighted
                                                  Number of           Average
                                                     Shares    Exercise Price
                                           ----------------    --------------

<S>                                                <C>                <C>
Outstanding, October 1, 1997                        971,308           $13.125
Granted                                              23,243           $20.577
Exercised                                          (31,317)           $13.125
Canceled                                           (46,976)           $13.125
                                                   -------            -------
Outstanding, September 30, 1998                    916,258            $13.314

Granted                                                 --                 --
Exercised                                               --                 --
Canceled                                                --                 --
                                                   -------            -------
Outstanding, September 30, 1999                    916,258            $13.314

Granted                                                 --                 --
Exercised                                               --                 --
Canceled                                                --                 --
                                                   -------            -------
Outstanding, September 30, 2000                    916,258            $13.314
                                                   =======            =======
</TABLE>



                                       48
<PAGE>




At September 30, 2000, 275,738 shares were available for future grants under the
Stock Plan.

Additional information regarding options outstanding as of September 30, 2000 is
as follows:
<TABLE>
<CAPTION>

                                                          Weighted Avg.
       Range of          Options          Options           Remaining
Exercise Prices      Outstanding      Exercisable       Contractual Life
---------------      -----------      -----------       ----------------
<S>   <C>               <C>               <C>                   <C>
      $13.125           893,015           714,412               5.5
      $20.577            23,243             9,297               7.1
                       --------          --------
                        916,258           723,709
                        =======           =======
</TABLE>

Additional Stock Plan Information

As  discussed in Note 1, the Company  continues  to account for its  stock-based
awards using the intrinsic  value method in accordance  with APB Opinion No. 25,
Accounting  for  Stock  Issued to  Employees  and its  related  interpretations.
Accordingly,  no  compensation  expense  has been  recognized  in the  financial
statements for employee stock arrangements.

SFAS No. 123, Accounting for Stock-Based Compensation requires the disclosure of
pro forma net income and  earnings  per share had the  Company  adopted the fair
value method as of the  beginning  of fiscal 1996.  Under SFAS No. 123, the fair
value of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate fair value of
freely tradable, fully transferable options without vesting restrictions,  which
significantly  differ from the Company's stock option awards.  These models also
require  subjective  assumptions,  including  future stock price  volatility and
expected time to exercise, which greatly affect the calculated values.

The weighted  average  grant-date  fair value of options  granted  during fiscal
years  1998  and  1996  were  $6.65  and  $4.12,  respectively.   The  Company's
calculations are based on a multiple option  valuation  approach and forfeitures
are  recognized  as they  occur.  Had  compensation  cost for these  awards been
determined under SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>


                                                       Year Ended September 30,
                                            --------------------------------------------
                                               2000              1999            1998
                                            ----------        ----------      ----------
Net earnings:
<S>                                         <C>               <C>             <C>
                  As reported               $6,426,152        $9,155,193      $9,551,037
                  Pro forma                  5,885,826         8,642,299       9,040,753
Earnings per common share - basic
                  As reported                    $0.94             $1.21           $1.05
                  Pro forma                      $0.86             $1.14           $0.99
Earnings per common share - fully
diluted:
                  As reported                    $0.94             $1.18           $1.00
                  Pro forma                      $0.86             $1.12           $0.95

</TABLE>


The Company's  calculations  were made using the  Black-Scholes  option  pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
                                    November 1997          April 1996
                                            Grant               Grant
                                    -------------          ----------
<S>                                        <C>                 <C>
Risk free interest rates                    5.79%               6.33%
Expected dividend                           1.75%               1.75%
Expected lives, in years                     7.5                 7.5
Expected volatility                        23.24%              19.63%
</TABLE>



                                       49
<PAGE>



(16) Employee Stock Ownership Plan

As part of the stock  conversion  consummated  on October 4, 1995,  the  Company
established  an ESOP  for  all  employees  that  are age 21 or  older  and  have
completed two years of service with the Company.  The ESOP  borrowed  $9,786,500
from the  Company and used the funds to  purchase  978,650  shares of the common
stock of the Company issued in the conversion  which would be distributed over a
ten year  period.  The  loan  will be  repaid  principally  from  the  Company's
discretionary contributions to the ESOP over a period of ten years. The loan had
an  outstanding  balance of $4.9 million and $5.9 million at September  30, 2000
and 1999,  respectively,  and an interest rate of 8.75%.  The loan obligation of
the  ESOP is  considered  unearned  compensation  and,  as such,  recorded  as a
reduction of the Company's  shareholders'  equity.  Both the loan obligation and
the unearned  compensation  are reduced by the amount of loan repayments made by
the ESOP. Shares purchased with the loan proceeds are held in a suspense account
for allocation  among  participants as the loan is repaid.  Contributions to the
ESOP  and  shares  released  from  the  suspense  account  are  allocated  among
participants on the basis of  compensation  in the year of allocation.  Benefits
are fully vested at all times under the ESOP.  Forfeitures  are  reallocated  to
remaining plan participants and may reduce the Company's contributions. Benefits
may be payable on retirement,  death,  disability,  or separation  from service.
Since the Company's annual  contributions  are  discretionary,  benefits payable
under the ESOP cannot be  estimated.  Compensation  expense is recognized to the
extent  of the fair  value of  shares  committed  to be  released.  The  Company
recorded  compensation expense under the ESOP of $1.1 million, $1.6 million, and
$2.0  million  for  the  years  ended   September  30,  2000,   1999  and  1998,
respectively, and 97,865 shares were allocated among the participants in each of
those years.



                                       50
<PAGE>




(17) Fair Value of Financial Instruments

Financial  instruments  have been construed to generally mean cash or a contract
that implies an  obligation to deliver cash or another  financial  instrument to
another entity.
<TABLE>
<CAPTION>


                                                 September 30, 2000              September 30, 1999
                                         -----------------------------   -----------------------------
                                              Carrying            Fair        Carrying            Fair
                                                amount           value          amount           value
                                         -------------   -------------   -------------   -------------
Financial Assets

<S>                                      <C>             <C>             <C>             <C>
Cash and due from banks ..............   $  19,998,788   $  19,998,788   $  21,123,217   $  21,123,217
Interest earning deposits with banks .       2,077,359       2,077,359       1,231,516       1,231,516
Federal funds sold and
securities purchased under
agreements to resell .................       7,870,453       7,870,453       2,167,856       2,167,856
Investment securities
available for sale ...................     116,627,756     116,627,756     158,648,057     158,648,057
Investment securities held
to maturity ..........................         723,838         726,889         559,512         577,455
Mortgage backed and related
securities available for sale ........      75,331,311      75,331,311      72,695,555      72,695,555
Mortgage backed and related
securities held to maturity ..........       2,159,868       2,145,918       2,600,920       2,596,408
Loans receivable, net ................     729,036,847     702,505,736     739,793,403     714,285,234
FHLB stock ...........................      11,876,500      11,876,500      10,957,300      10,957,300

Financial Liabilities

Deposit liabilities ..................     695,380,871     694,624,273     720,401,112     722,373,174
FHLB advances ........................     173,000,000     158,850,040     197,000,000     192,637,192
Short term borrowings ................       3,000,000       3,000,000              --              --
</TABLE>


(18) Financial Instruments with Off-Balance Sheet Risk and Concentrations of
Credit Risk

The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the  financing  need of its  customers.  These
financial  instruments  generally  include  commitments  to originate  mortgage,
commercial and consumer loans.  Those instruments  involve,  to varying degrees,
elements of credit and interest rate risk in excess of the amount  recognized in
the balance sheet. The Company's maximum exposure to credit loss in the event of
nonperformance by the borrower is represented by the contractual amount of those
instruments.  The Company uses the same credit policies in making commitments as
it does for  on-balance  sheet  instruments.  Commitments  to extend  credit are
conditional  45 day  agreements  to lend to a customer  subject to the Company's
usual terms and conditions.

At September 30, 2000, loan commitments  amounted to approximately $16.4 million
comprised  of $3.8 million in variable  rate loans  ranging from 7.13% to 13.00%
and $12.6 million in fixed rate loans ranging from 6.75% to 11.00%. At September
30, 2000, the Company had no commitments to sell loans to FNMA.

The Company  originates  residential  real estate loans and, to a lesser extent,
commercial  and  multi-family  real estate and consumer  loans.  Over 82% of the
mortgage loans in the Association's  portfolio are secured by properties located
in Klamath,  Jackson,  and Deschutes counties in Southern and Central Oregon. An
economic  downturn  in these areas  would  likely have a negative  impact on the
Company's results of operations depending on the severity of the downturn.

                                       51
<PAGE>

(19) Regulatory Capital Requirements

The  Company  is  not  subject  to  any  regulatory  capital  requirements.  The
Association,  however,  is subject to various  regulatory  capital  requirements
administered  by the  Office  of Thrift  Supervision  ("OTS").  Failure  to meet
minimum  capital  requirements  can  initiate  certain  mandatory  and  possibly
additional discretionary action by regulators that, if undertaken,  could have a
direct material effect on the Association's financial statements.  Under capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
the Association must meet specific capital guidelines that involve  quantitative
measures of the Association's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory  accounting  practices.  The  Association's
capital amounts and classification are also subject to qualitative  judgments by
the regulators about components, risk weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Association to maintain minimum amounts and ratios of total and Tier
I capital  to  risk-weighted  assets,  of Tier I capital  to total  assets,  and
tangible  capital to tangible assets (set forth in the table below).  Management
believes that the Association  meets all capital adequacy  requirements to which
it is subject as of September 30, 2000.

As of September 30, 2000, the most recent  notification from the OTS categorized
the Association as "well capitalized" under the regulatory  framework for prompt
corrective action. To be categorized as "well-capitalized," the Association must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set  forth in the  table.  There  are no  conditions  or  events  since  that
notification that management believes have changed the institution's category.

At periodic  intervals,  the OTS and FDIC routinely  examine the  Association as
part of their  legally  prescribed  oversight of the thrift  industry.  Based on
these examinations,  the regulators can direct that the Association's  financial
statements be adjusted in accordance with their findings.  A future  examination
by the OTS or the FDIC could include a review of certain  transactions  or other
amounts reported in the Association's 2000 financial statements.  In view of the
uncertain  regulatory  environment in which the  Association  now operates,  the
extent,  if any, to which a forthcoming  regulatory  examination  may ultimately
result in  adjustments  to the 2000  financial  statements  cannot be  presently
determined.



                                       52
<PAGE>


The  Association's  actual and required  minimum capital ratios are presented in
the following table:
<TABLE>
<CAPTION>
                                                                                            To Be
                                                                             Categorized as "Well
                                                                               Capitalized" Under
                                                               For Capital      Prompt Corrective
                                        Actual           Adequacy Purposes       Action Provision
                              ---------------------  ---------------------  ----------------------
                                   Amount     Ratio       Amount     Ratio       Amount     Ratio
                              ------------   ------  ------------   ------  ------------   -------
As of September 30, 2000
<S>                           <C>              <C>   <C>               <C>  <C>              <C>
 Total Capital: ...........   $106,096,316     20.3% $ 41,816,560      8.0% $ 52,270,700     10.0%
  (To Risk Weighted Assets)
 Tier I Capital: ..........    102,151,810     19.5%          N/A      N/A    31,362,420      6.0%
  (To Risk Weighted Assets)
 Tier I Capital: ..........    102,151,810     10.4%   39,472,851      4.0%   49,341,064      5.0%
  (To Total Assets)
 Tangible Capital: ........    102,151,810     10.4%   14,802,319      1.5%          N/A      N/A
  (To Tangible Assets)

As of September 30, 1999
 Total Capital: ...........   $ 95,495,327     17.4% $ 42,888,616      8.0% $ 53,610,770     10.0%
  (To Risk Weighted Assets)
 Tier I Capital: ..........     93,011,702     17.0%          N/A      N/A    32,166,462      6.0%
  (To Risk Weighted Assets)
 Tier I Capital: ..........     93,011,702      8.9%   30,832,614      3.0%   51,387,690      5.0%
  (To Total Assets)
 Tangible Capital: ........     93,011,702      8.9%   15,416,307      1.5%          N/A      N/A
  (To Tangible Assets)
</TABLE>


The following table is a reconciliation of the Association's capital, calculated
according to generally accepted  accounting  principles,  to regulatory tangible
and risk-based capital:
<TABLE>
<CAPTION>

                                September 30, 2000           September 30, 1999
                                ------------------           ------------------
<S>                                  <C>                           <C>
Association's equity                 $ 108,921,434                 $101,042,299
Unrealized securities losses             1,356,040                    1,747,744
Core deposit intangible                 (8,125,664)                  (9,778,341)
                                       -----------                  -----------
Tangible capital                       102,151,810                   93,011,702
General valuation allowances             3,944,506                    2,483,625
                                       -----------                  -----------
Total capital                         $106,096,316                  $95,495,327
                                       ===========                  ===========
</TABLE>




                                       53
<PAGE>


(20) Parent Company Financial Information

Condensed financial information as of and for the years ended September 30, 2000
and 1999,  for Klamath  First  Bancorp,  Inc. is presented and should be read in
conjunction with the consolidated financial statements and the notes thereto.

<TABLE>
<CAPTION>

BALANCE SHEETS
                                                       September 30,
                                             ------------------------------
                                                   2000              1999
                                             -------------    -------------
Assets
<S>                                          <C>              <C>
Cash and cash equivalents ................   $     731,987    $   5,844,155
Investment and mortgage backed securities        2,138,224        2,762,506
Investment in wholly-owned subsidiary ....     108,921,434      101,042,299
Other assets .............................       1,266,667        1,034,776
                                             -------------    -------------
Total assets .............................   $ 113,058,312    $ 110,683,736
                                             =============    =============
Liabilities

Short-term borrowings ....................   $   3,000,000    $        --
Other liabilities ........................       1,333,751        1,098,273
                                             -------------    -------------
Total liabilities ........................       4,333,751        1,098,273
                                             -------------    -------------
Shareholders' equity

Common stock .............................          73,662           79,084
Additional paid-in capital ...............      37,701,796       43,794,535
Retained earnings ........................      78,340,731       75,103,040
Unearned ESOP shares at cost .............      (4,893,250)      (5,871,900)
Unearned MRDP shares at cost .............      (2,498,378)      (3,519,296)
                                             -------------    -------------
Total shareholders' equity ...............     108,724,561      109,585,463
                                             -------------    -------------
Total liabilities and shareholders' equity   $ 113,058,312    $ 110,683,736
                                             =============    =============
</TABLE>
<TABLE>
<CAPTION>

STATEMENTS OF EARNINGS
                                                 Year Ended September 30,
                                             ------------------------------
                                                   2000             1999
                                             -------------    -------------
<S>                                          <C>              <C>
Equity in undistributed income of subsidiary $   7,065,690    $   9,221,480
Total interest income ....................         789,684        1,675,756
Total interest expense ...................         120,412          177,568
Non-interest income ......................             203               77
Non-interest expense .....................       1,746,138        1,631,674
                                             -------------    -------------
Earnings before income taxes .............       5,989,027        9,088,071
Provision for income taxes ...............        (437,125)         (67,122)
                                             -------------    -------------
Net earnings .............................   $   6,426,152    $   9,155,193
                                             =============    =============
</TABLE>

                                       54
<PAGE>

<TABLE>
<CAPTION>

STATEMENTS OF CASH FLOWS
                                                   Year Ended September 30,
                                             ------------------------------
                                                    2000            1999
                                             -------------    -------------
<S>                                          <C>              <C>
Net cash flows from operating activities .   $     721,914    $     963,814
                                             -------------    -------------
Cash flows from investing activities
Investment in subsidiary .................        (278,916)        (302,892)
Maturity of investment and
        mortgage- backed securities ......         610,081       76,275,337
Purchase of investment and
        mortgage-backed securities .......            --        (58,814,489)
                                             -------------    -------------
Net cash flows from investing activities .         331,165       17,157,956
                                             -------------    -------------
Cash flows from financing activities
Cost of ESOP shares released .............         978,650          978,650
Proceeds from short-term borrowings ......       3,700,000        8,095,000
Repayments of short-term borrowings ......        (700,000)     (20,207,500)
Stock repurchase and retirement ..........      (6,254,695)     (39,334,140)
Dividends paid ...........................      (3,889,202)      (3,547,040)
                                             -------------    -------------
Net cash flows used in financing activities     (6,165,247)     (54,015,030)
                                             -------------    -------------
Net decrease in cash and cash equivalents       (5,112,168)     (35,893,260)

Cash and cash equivalents beginning of year      5,844,155       41,737,415
                                             -------------    -------------
Cash and cash equivalents end of year ....   $     731,987    $   5,844,155
                                             =============    =============

</TABLE>


                                       55
<PAGE>



Consolidated Supplemental Data
Selected Quarterly Financial Data
(unaudited)
<TABLE>
<CAPTION>

                                                   Year Ended September 30, 2000
                                         -------------------------------------------------
                                           December        March         June    September
                                         ----------   ----------   ----------   ----------
                                                (In thousands, except per share data)
<S>                                      <C>          <C>          <C>          <C>
Total interest income ................   $   18,050   $   18,141   $   18,235   $   17,731
Total interest expense ...............        9,813       10,238       10,414       10,291
                                         ----------   ----------   ----------   ----------
Net interest income ..................        8,237        7,903        7,821        7,440
Provision for loan losses ............          108          200          228        1,228
                                         ----------   ----------   ----------   ----------
Net interest income after provision ..        8,129        7,703        7,593        6,212
Non-interest income ..................        1,032          926        1,036        1,100
Non-interest expense .................        5,866        5,571        5,659        6,677
                                         ----------   ----------   ----------   ----------
Earnings before income taxes .........        3,295        3,058        2,970          635
Provision for income taxes ...........        1,266        1,184        1,044           38
                                         ----------   ----------   ----------   ----------
Net earnings .........................  $     2,029   $    1,874   $    1,926   $      597
                                         ==========   ==========   ==========   ==========
Net earnings per share - basic .......  $      0.29   $     0.28   $     0.28   $     0.09
                                         ==========   ==========   ==========   ==========
Net earnings per share - fully diluted  $      0.29   $     0.28   $     0.28   $     0.09
                                         ==========   ==========   ==========   ==========
<CAPTION>

                                                   Year Ended September 30, 1999
                                         -------------------------------------------------
                                           December        March         June   September
                                         ----------   ----------   ----------   ----------
                                                 (In thousands, except per share data)
<S>                                      <C>          <C>          <C>          <C>
Total interest income ................   $   18,278   $   17,686   $   17,802   $   17,925
Total interest expense ...............        9,788        9,461        9,441        9,692
                                         ----------   ----------   ----------   ----------
Net interest income ..................        8,490        8,225        8,361        8,233
Provision for loan losses ............          123          303          243          263
                                         ----------   ----------   ----------   ----------
Net interest income after provision ..        8,367        7,922        8,118        7,970
Non-interest income ..................          899          946          827          957
Non-interest expense .................        5,075        5,064        5,763        5,284
                                         ----------   ----------   ----------   ----------
Earnings before income taxes .........        4,191        3,804        3,182        3,643
Provision for income taxes ...........        1,737        1,509        1,292        1,127
                                         ----------   ----------   ----------   ----------
Net earnings .........................   $    2,454   $    2,295   $    1,890   $    2,516
                                         ==========   ==========   ==========   ==========
Net earnings per share - basic .......   $     0.28   $     0.32   $     0.27   $     0.36
                                         ==========   ==========   ==========   ==========
Net earnings per share - fully diluted   $     0.27   $     0.31   $     0.26   $     0.35
                                         ==========   ==========   ==========   ==========
</TABLE>



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<PAGE>



Klamath First Bancorp, Inc.
Corporate Information

Corporate                                Common Stock
Headquarters                             Traded over-the-counter/
540 Main Street                          Nasdaq National Market
Klamath Falls, OR 97601                  Nasdaq Symbol: KFBI
541-882-3444
                                         Form 10-K
Independent                              Information
Auditors                                 Available without charge
Deloitte & Touche LLP                    to shareholders of record
Suite 3900                               upon written request to:
111 SW Fifth Avenue                         Marshall Alexander
Portland, OR 97204-3698                     Senior Vice President -
503-222-1341                                Chief Financial Officer
                                            Klamath First Bancorp, Inc.
Corporate Counsel                           540 Main Street
Craig M. Moore                              Klamath Falls, Or 97601
540 Main Street
Klamath Falls, OR 97601                  Annual Meeting
541-882-3444                             The annual meeting of
                                         shareholders will be held
Special Counsel                          Wednesday,
Breyer & Associates PC                   January 24, 2001
1100 New York Avenue N.W.                beginning at 2:00 p.m.,
Suite 700 East                           Pacific Time at:
Washington, DC 20005                        The Shilo Inn
202-737-7900                                2500 Almond Street
                                            Klamath Falls, OR 97601.
                                         Shareholders of record as
Transfer Agent                           of the close of business on
Registrar & Transfer Co.                 November 22, 2000 shall
10 Commerce Drive                        be those entitled to notice
Cranford, NJ 07016-3572                  of and to vote at the
800-866-1340                             meeting.


                                       57
<PAGE>