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,
                                                         ---------------------------------------------------------------
                                                              2001         2000        1999         1998         1997
                                                         -----------   ----------   ---------    ----------   ----------
FINANCIAL CONDITION DATA                                                               (In thousands)

<S>                                                       <C>          <C>          <C>          <C>          <C>
Assets ................................................   $1,468,572   $  995,575   $1,041,641   $1,031,302   $  980,078
Cash and cash equivalents .............................      118,389       29,947       24,523       66,985       32,043
Loans receivable, net .................................      679,990      729,037      739,793      668,146      551,825
Investment securities held to maturity ................          592          724          560        2,889       22,937
Investment securities available for sale ..............      154,676      116,628      158,648      203,224      261,846
Mortgage-backed & related securities held to maturity .        1,621        2,160        2,601        3,662        5,447
Mortgage-backed & related securities available for sale      421,638       75,331       72,695       43,336       64,869
Stock in FHLB of Seattle, at cost .....................       12,698       11,877       10,957       10,173        7,150
Advances from FHLB of Seattle .........................      168,000      173,000      197,000      167,000      129,000
Deposit liabilities ...................................    1,152,824      695,381      720,401      689,541      673,978
Shareholders' equity ..................................      114,141      108,725      109,585      145,081      144,462
</TABLE>
<TABLE>
<CAPTION>

                                                                                 Year Ended September 30,
                                                          ---------------------------------------------------------------
                                                              2001         2000         1999         1998         1997
                                                          ----------   ----------   ----------   ---------   ------------
SELECTED OPERATING DATA                                               (In thousands, except per share data)

<S>                                                       <C>          <C>          <C>          <C>          <C>
Total interest income .................................   $   70,133   $   72,158   $   71,691   $   69,733   $   54,167
Total interest expense ................................       40,751       40,756       38,382       37,848       29,856
                                                          ----------   ----------   ----------   ----------   ----------
Net interest income ...................................       29,382       31,402       33,309       31,885       24,311
Provision for loan losses .............................          387        1,764          932          674          370
                                                          ----------   ----------   ----------   ----------   ----------
Net interest income after provision for loan losses ...       28,995       29,638       32,377       31,211       23,941
Non-interest income ...................................       11,013        4,094        3,629        3,202          810
Non-interest expense ..................................       28,720       23,773       21,186       19,523       11,764
                                                          ----------   ----------   ----------   ----------   ----------
Earnings before income taxes ..........................       11,288        9,959       14,820       14,890       12,987
Provision for income tax ..............................        3,717        3,533        5,665        5,339        4,429
                                                          ----------   ----------   ----------   ----------   ----------
Net Earnings ..........................................   $    7,571   $    6,426   $    9,155   $    9,551   $    8,558
                                                          ==========   ==========   ==========   ==========   ==========
Basic earnings per share ..............................   $     1.14   $     0.94   $     1.21   $     1.05   $     0.91
                                                          ==========   ==========   ==========   ==========   ==========
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                            At or For the Year Ended September 30,
                                                               ----------------------------------------------------------
                                                                2001         2000         1999         1998         1997
                                                               ------       ------       ------      -------      -------
KEY OPERATING RATIOS

Performance Ratios

Return on average assets
<S>                                                       <C>          <C>          <C>          <C>          <C>
(net earnings divided by average assets) ..............         0.72%        0.62%        0.88%        0.96%        1.14%

Return on average equity
(net earnings divided by average equity) ..............         6.64%        5.82%        7.55%        6.52%        5.85%

Interest rate spread
(difference between average yield on interest-earning
assets and average cost of interest-bearing liabilities)        2.18%        2.50%        2.73%        2.57%        2.28%

Net interest margin (net interest income as a
percentage of average interest-earning assets) ........         2.93%        3.14%        3.37%        3.36%        3.32%

Average interest-earning assets to average
interest-bearing liabilities ..........................       118.37%      115.71%      116.47%      119.84%      125.58%

Net interest income after provision for loan losses
to total non-interest expenses ........................       100.96%      124.39%      152.82%      159.87%      203.51%

Non-interest expense to average total assets ..........         2.74%        2.29%        2.05%        1.96%        1.57%

Efficiency ratio (non-interest expense divided by
net interest income plus non-interest income) .........        55.48%       66.97%       57.36%       55.64%       46.83%

Dividend payout ratio (dividends declared per share
divided by net earnings per share) ....................        45.61%       54.79%       38.98%       34.50%       34.09%

Book value per share ..................................   $    17.40   $    16.25   $    15.52   $    16.30   $    15.64

Asset Quality Ratios

Allowance for loan losses to total loans at
end of period .........................................         1.13%        0.54%        0.32%        0.28%        0.22%
Non-performing assets to total assets .................         0.05%        0.16%        0.46%        0.05%        0.03%
Non-performing loans to total loans, before net items .         0.04%        0.11%        0.43%        0.07%        0.04%

Capital Ratios

Equity to assets ratio ................................         7.77%       10.92%       10.52%       14.07%       14.74%
Tangible capital ratio ................................         5.16%       10.35%        8.91%        8.26%       11.06%
Core capital ratio ....................................         5.16%       10.35%        8.91%        8.26%       11.06%
Risk-based capital ratio ..............................        10.36%       20.30%       17.41%       16.13%       23.12%


Other Data

Number of

Real estate loans outstanding .........................       12,624        8,807        9,297        9,155        8,393
Deposit accounts ......................................      111,542       85,706       85,112       82,585       82,032
Full service offices ..................................           52           35           34           34           32

</TABLE>



<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 progressive,  community-oriented financial institution that
focuses 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 and loans
on commercial real estate, multi-family residential properties, and to consumers
and  small  businesses  within  its  market  area.  While  the  Association  has
historically  emphasized  fixed-rate  mortgage lending, it has been diversifying
its loan  portfolio  by focusing on  increasing  the number of  originations  of
commercial real estate, multi-family residential loans, residential construction
loans,  commercial and industrial  loans,  small business loans and non-mortgage
consumer  loans.  A  significant  portion  of these  newer loan  products  carry
adjustable  rates,  higher yields,  or shorter terms than the traditional  fixed
rate mortgages.  This lending strategy is designed to enhance  earnings,  reduce
interest rate risk, and provide a more complete  range of financial  services to
customers and the local communities  served by the Association.  The acquisition
of 13 branches  from  Washington  Mutual Bank,  which was completed in September
2001, moves the Company strongly in this direction.

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

<PAGE>


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 53 office  facilities,  with the main
office located in Klamath Falls,  Oregon. The Association  considers its primary
market area to be the state of Oregon, particularly the 26 counties in which the
offices are located. During 2001, the Company expanded into the Tri- Cities area
of Washington state by opening in-store branches in Kennewick and Richland.

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, 2001 and 2000, the Association's post-1987 reserves
amounted to $2.6 million and $3.2 million, respectively. Pre-1988 reserves would
only be subject to  recapture if the  institution  fails to qualify as a thrift.
Recapture of post-1987  reserves 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 relies on strict  underwriting  standards,  loan
review, and an adequate allowance for loan losses to mitigate its credit risk.

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, historically the Company primarily
<PAGE>

originated  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.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.

The OTS Thrift  Bulletin 13a ("TB 13a") contains the prevailing  guidance on the
management  of  interest  rate  risk  and  provides  a  description  of how  the
"Sensitivity  to Market Risk" rating is to 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
<PAGE>

("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 has historically  originated primarily fixed-rate residential loans.
Today many of these  loans are sold to  Federal  National  Mortgage  Association
("FNMA")  with  servicing  retained,  others  are  sold to other  entities  with
servicing released,  while few 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.  During  the year  ended
September 30, 2001,  the Company  undertook  significant  projects to manage and
reduce  interest rate risk. In February  2001,  the Company  securitized  $190.3
million in fixed-rate  single family mortgage loans. The loans were sold to FNMA
with  servicing  retained and the resulting  FNMA MBS were recorded as available
for sale securities on the Company's books. Subsequently, the MBS were sold with
the two-fold  benefit of producing  $5.4 million in gain on sale of  investments
and eliminating long term fixed-rate assets from the interest rate risk profile.
The second significant event impacting interest rate risk was the acquisition of
13 branches from  Washington  Mutual Bank.  These are  commercial  bank branches
which included $118.8 million of commercial  loans and $50.7 million of consumer
loans. Most of these loans are adjustable rate shorter term loans. Cash obtained
in the transaction was primarily  invested in MBS and CMO's having shorter terms
than  conventional  single-family  mortgage  loans.  All these  events  serve to
improve the Company's interest rate risk position.

The  Company's  Board of  Directors  has  established  risk limits  which are in
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,  2001 and  2000,  using  the
regulatory 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.
<PAGE>




<TABLE>
<CAPTION>

PROJECTED CHANGES IN NET PORTFOLIO VALUE
                                    At September 30, 2001             At September 30, 2000
                                    ---------------------          -------------------------
Change in                           NPV       Sensitivity            NPV        Sensitivity
Interest Rates                      Ratio         Measure            Ratio          Measure
                                            (Basis points)                    (Basis points)
                                   -------  --------------          -------   --------------
                                                     (Dollars in thousands)

<S>                                 <C>          <C>                 <C>             <C>
200 basis point rise                5.22%        ($208)               7.40%          ($453)
100 basis point rise                6.53%          (77)               9.76%           (217)
Base Rate Scenario                  7.30%           --               11.93%             --
100 basis point decline             7.12%          (19)              13.61%            168
200 basis point decline             6.68%          (62)              14.28%            235
</TABLE>

The  improvement  noted in the  sensitivity  measure is a result of the  actions
taken as noted above,  including the sale of fixed-rate  single family  mortgage
loans and the  branch  acquisition  which  provided  a  portfolio  of  primarily
adjustable-rate and shorter term loans.

The  preceding  table  indicates  that at September  30, 2001, 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,
2001,  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
<PAGE>

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, 2001, the Association's  one-year cumulative gap was a negative
15.13% of total assets compared to a negative 8.31% of total assets at September
30,  2000.  The  increased  negative  balance is a result of the addition of the
deposits from the WAMU branches,  most of which are considered to reprice within
one year.

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,
                                    --------------------------------------------
                                          2001           2000             1999
                                    ------------    -----------     ------------
                                            (In thousands)
Earning assets maturing
<S>                                 <C>             <C>             <C>
or repricing within one year ....   $   318,777     $   209,072     $   188,286

Interest-bearing liabilities
maturing or repricing
within one year .................       541,016         291,681         516,161

Deficiency of earning assets
over interest-bearing liabilities
as a percent of total assets ....        (15.13%)         (8.31%)        (31.49%)

Percent of assets to liabilities
maturing or repricing
within one year .................         58.92%          71.68%          36.48%
</TABLE>

<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, 2001. 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
                                --------  -----------  ----------  --------  --------  ---------  ----------  --------  ----------
<S>                             <C>        <C>         <C>         <C>      <C>        <C>         <C>        <C>       <C>
Permanent 1-4 Mortgages:
  Adjustable-rate                 $3,279       $6,184     $13,037    $4,827   $10,218        $--         $--       $--     $37,545
  Fixed-rate                         747          168         847     1,508     1,207     17,075      48,083   316,771     386,406

Other Mortgage Loans:
  Adjustable-rate                  9,259       11,091       9,689    44,111    24,331      1,640          --        --     100,121
  Fixed-rate                       2,612           10       1,280     5,289     6,292     11,915       8,608     5,470      41,476

Mortgage-Backed Securities        52,629          525       1,565    16,440    10,057    112,368      68,844   158,832     421,260

Non-Real Estate Loans:
  Adjustable-rate                 48,394        2,436       4,553     7,623     3,026         --          21        --      66,053
  Fixed-rate                       2,463        1,021       1,450     6,916    12,183     12,789      22,053     1,802      60,677

Investment Securities            120,387           --      25,151    47,203    19,861        398      30,108     2,316     245,424
                              ----------   ----------  ----------  --------  --------  ---------  ----------  --------  ----------
  Total Rate Sensitive Assets   $239,770      $21,435     $57,572  $133,917   $87,175   $156,185    $177,717  $485,191  $1,358,962
                              ==========   ==========  ==========  ========  ========  =========  ==========  ========  ==========
LIABILITIES

Deposits - Fixed Maturity       $145,916     $121,611     $98,682  $106,100   $44,055    $26,643        $778      $100    $543,885
Deposits - Interest Bearing
   Checking                        2,732        2,732       5,464     6,083    16,147     39,055      33,007    11,536     116,756
Deposits - Money Market           12,250       12,250      24,500    69,724    31,966     44,316      88,319       568     283,893
Deposits - Passbook and
   Statement Savings                 854          854       1,708     8,828     9,450     18,868      17,486    19,598      77,646
Other Interest Bearing
   Liabilities                    56,463           --      55,000    38,000    25,000         --          --        --     174,463
                              ----------   ----------  ----------  --------  --------  ---------  ----------  --------  ----------
  Total Rate Sensitive          $218,215     $137,447    $185,354  $228,735  $126,618   $128,882    $139,590   $31,802  $1,196,643
    Liabilities
                              ==========   ==========  ==========  ========  ========  =========  ==========  ========  ==========
Interest Rate Sensitivity Gap    $21,555   ($116,012)  ($127,782)  ($94,818) ($39,443)   $27,303     $38,127  $453,389    $162,319

Cumulative Interest Rate
        Sensitivity Gap          $21,555    ($94,457)  ($222,239) ($317,057)($356,500) ($329,197)  ($291,070) $162,319

Sensitivity Gap to Total
  Assets                           1.47%      (7.90%)     (8.70%)    (6.46%)   (2.69%)     1.86%       2.60%    30.87%

Cumulative Interest Rate
  Sensitivity Gap to Total
  Assets                           1.47%      (6.43%)    (15.13%)   (21.59%)  (24.28%)   (22.42%)    (19.82%)   11.05%
</TABLE>
<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,  net  gain on the  sale  of  investment  and  mortgage-backed
securities,  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,
2001, the  Association's  liquidity,  as measured for regulatory  purposes,  was
32.2%. The Company has borrowing agreements with banks that can be used if funds
are needed. (See Notes 10 and 11 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, 2001, the Association was in compliance
with  all  regulatory  capital  requirements  effective  as of such  date,  with
tangible,  core and risk-based  capital of 5.2%,  5.2% and 10.4%,  respectively.
(See Note 21 to Consolidated Financial Statements.)

Changes in Financial Condition

At  September  30, 2001,  the  consolidated  assets of the Company  totaled $1.5
billion,  an  increase  of $473.0  million,  or 47.5%,  from  $995.6  million at
September 30, 2000. The increase in total assets relates  directly to the branch
purchase from  Washington  Mutual Bank completed in September 2001. The purchase
consisted of $ 202.0 million in cash, $179.3 million in loans and $423.5 million
in deposits.

Total cash and cash equivalents  increased $88.4 million,  or 295.3%, from $29.9
million at  September  30, 2000 to $118.4  million at September  30,  2001.  The
increase is primarily the result of the cash from the acquisition  being held in
Federal funds while other appropriate investment alternatives are researched.
<PAGE>

Net loans receivable  decreased by $49.0 million,  or 6.7%, to $680.0 million at
September  30,  2001,  compared to $729.0  million at September  30,  2000.  The
decrease  is  the  combined   result  of  the  $190.3   million  loan  sale  and
securitization  which reduced the loan  portfolio  offset by the addition of the
$179.3 million in loans purchased with the branches from Washington Mutual Bank.

Investment  securities increased $37.9 million, or 32.3%, from $117.4 million at
September 30, 2000 to $155.3  million at September  30, 2001.  This increase was
the result of $78.5  million in purchases  offset by $33.6  million in scheduled
maturities  and sale of $10.4  million of  investment  securities  available for
sale.  During the year ended  September  30,  2001,  $47.0  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 $383.2  million in MBS,  resulting  in a net increase in total MBS from $77.5
million at  September  30, 2000 to $423.3  million at September  30,  2001.  The
purchases of investment  securities and MBS were funded by the proceeds from the
sale of MBS  resulting  from the loan  securitization  and cash  obtained in the
branch acquisition.

Real estate owned  decreased  from $788,400 at September 30, 2000 to $445,855 at
September 30, 2001.  The balance at September 30, 2001 consists of single family
residences.  The balance at September  30, 2000  consisted of four single family
residences  that were previously  construction  loans and which were sold during
the year ended September 30, 2001.

Other assets  increased  $7.3 million from $1.6 million at September 30, 2000 to
$8.9 million at September 30, 2001.  The majority of the increase  consists of a
$4.1 million  receivable  from  Washington  Mutual Bank ("WAMU")  related to the
final  settlement  for the branch  acquisition  and a$1.5  million  increase  in
mortgage servicing rights as a result of the loan securitization.

Deposit  liabilities  increased $457.4 million, or 65.8%, from $695.4 million at
September  30, 2000 to $1.2  billion at  September  30,  2000.  The  increase is
directly related to the WAMU branch acquisition which included $423.5 million in
deposits.

Advances from the FHLB of Seattle decreased from $173.0 million at September 30,
2000 to $168.0  million at  September  30, 2001.  Proceeds  from  maturities  of
investment securities were used to reduce borrowings during the first quarter of
2001.

Total  shareholders'  equity  increased  $5.4  million  from  $108.7  million at
September 30, 2000 to $114.1  million at September 30, 2000. The increase is the
combined  effect of $7.4 million paid for stock  repurchases and $3.5 million in
dividends  paid on common  shares  offset by net  earnings for the year and $3.2
million proceeds from exercise of stock options.
<PAGE>

Asset Quality

Non-Performing Assets

At September 30, 2001, 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  0.05%,  down  from  0.16% at
September  30,  2000.  The  decrease  is due to a  reduction  in the  balance of
nonaccrual  loans from  $418,000 at September  30, 2000 to $271,000 at September
30, 2001 and sales of properties from real estate owned. The Association intends
to maintain asset quality by continuing its focus on conscientious underwriting.
With the expansion 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,
                                                   ------------------------------------------
                                                     2001              2000              1999
                                                   ------            ------            ------
                                                              (In thousands)

<S>                                                <C>               <C>               <C>
General loan loss allowance                        $7,951            $4,062            $2,484
Specific loss allowance                                --                20                --
Charge-offs                                            90               307               398
Recoveries                                             42               441                --

</TABLE>
<PAGE>


COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30,
2001 AND 2000

General
Significant  transactions  marked this fiscal  year,  as the Company  positioned
itself for growth in the future.  The impact of strategic  decisions had a mixed
impact on earnings.  The sale and securitization of $190.3 million in fixed-rate
single family  mortgages left the Company  holding the resulting MBS. The timing
of the  securitization  provided  the  opportunity  to  sell  the  MBS at a gain
totaling $5.4 million before tax.  Ultimately,  the  transaction  removed $190.3
million in long term  fixed-rate  assets from the interest rate risk profile and
provided significant earnings.  The other transaction that impacted most aspects
of the  Company  was the  WAMU  branch  acquisition.  As  discussed  above,  the
transaction  contributed  significantly to loan and deposit  balances,  added 13
locations, and introduced 124 employees to the Klamath First family.

This past fiscal  year,  the Company  operated  in an economy  that  experienced
declining  interest rates and a gradual return to a more normal yield curve,  in
contrast to the inverted  yield curve at the end of the prior year wherein short
term rates were higher than long term rates. However, with the rapidly declining
rates  and  strategic  decisions  to  make  the  balance  sheet  less  liability
sensitive, interest rate spread continues to be squeezed. Net earnings increased
by $1.1  million,  or 17.8% from $6.4 million for the year ended  September  30,
2000 to $7.6 million for the year ended September 30, 2001.

Interest Income
Interest  income  decreased from $72.2 million for the year ended  September 30,
2000 to $70.1  million  for the year  ended  September  30,  2001.  The  general
interest rate environment  during the year showed  declining  interest rates but
movement toward a more normal yield curve.  Rates on short term investments such
as Federal funds and interest-earning  deposits decreased sharply over the year.
Of course,  interest  income was  negatively  impacted by the  reduction in loan
balances with the  securitization  of loans in February 2001. The acquisition of
loans with the WAMU branches  boosted the loan balances but only  contributed to
interest income for part of one month. The combined result of these movements is
reflected in the average yield on interest  earning assets which  decreased from
7.22%  for the  year  ended  September  30,  2000 to 6.99%  for the  year  ended
September 30, 2001.

While average loans  receivable  decreased  $136.7  million,  the yield on loans
increased 22 basis  points,  resulting  in a $9.1  million  decrease in interest
income  on  loans.  Purchases  of MBS  boosted  interest  income  on MBS by $6.6
million.  This increase was offset by a $1.4 million decrease in interest income
on investment securities.  The average balance of investments decreased by $16.3
million,  or 11.2%, for the year ended September 30, 2001 compared with the same
period in 2000.

Interest Expense
Interest  expense  remained  constant  at $40.8  million.  Interest  expense  on
deposits  increased $1.9 million from $28.4 million for the year ended September
30, 2000 to $30.3 million for the year ended September 30, 2001.
<PAGE>

Average  deposits  decreased by $19.9  million for the year ended  September 30,
2001 compared to the year ended  September  30, 2000 while the average  interest
paid on  interest-bearing  deposits  increased  slightly from 4.34% for the year
ended September 30, 2000 to 4.52% for the year ended September 30,2000. Interest
expense on FHLB  borrowings  decreased  $2.1  million due to  decreased  average
borrowings of $34.7 million.

As noted previously,  the general interest rate environment  during the year was
represented  by a normalizing  yield curve with much lower rates  throughout the
curve  and  especially  lower  on the  short  maturities.  The  impact  of  this
environment  is evident in the  decrease in interest  rate spread from 2.50% for
the year ended  September  30,  2000 to 2.18% for the year ended  September  30,
2001.  While  yields on assets  decreased by 23 basis  points,  cost of interest
bearing  liabilities  increased by 18 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 3.14% for the fiscal year
ended September 30, 2000 to 2.93% for the year ended September 30, 2001.

<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,
                           --------------------------------------------------------------------------------------------------------
                                           2001                                 2000                                1999
                           -------------------------------     --------------------------------     -------------------------------
                              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             $611,095     $48,051    7.86%       $747,842      $57,134    7.64%       $721,658     $56,290    7.80%
Mortgage backed and
  related securities          192,976      11,611    6.02%         85,874        5,036    5.86%         38,284       2,104    5.50%
Investment securities         129,171       7,282    5.64%        145,504        8,737    6.00%        184,428      10,847    5.88%
Federal funds sold             38,686       1,599    4.13%          3,224          180    5.59%         18,555         914    4.93%
Interest earning deposits      18,930         768    4.06%          5,552          312    5.63%         15,801         751    4.75%
FHLB stock                     12,175         822    6.75%         11,345          759    6.69%         10,471         785    7.50%
                           ----------    --------              ----------     --------              ----------    --------
Total interest-earning
  assets                    1,003,033      70,133    6.99%        999,341       72,158    7.22%        989,197      71,691    7.25%
Non-interest-earning
  assets                       44,817                              40,566                               45,314
                           ----------    --------   ------     ----------     --------   ------     ----------    --------   ------
Total Assets               $1,047,850                          $1,039,907                           $1,034,511
                           ==========                          ==========                           ==========
INTEREST-BEARING LIABILITIES

Tax and insurance
  reserve                      $2,952        $114    3.85%         $4,401         $ 89    2.02%         $5,326        $110    2.07%
Passbook and statement
  savings                      47,278       1,067    2.26%         53,890          959    1.78%         61,674       1,326    2.15%
Interest-bearing checking      75,070         812    1.08%         69,831          779    1.12%         71,107         873    1.23%
Money market                  164,523       6,332    3.85%        149,088        6,218    4.17%        131,534       5,096    3.87%
Certificates of deposit       383,796      22,093    5.76%        377,934       20,408    5.40%        402,809      21,679    5.38%
FHLB advances/Short term      173,786      10,333    5.95%        208,508       12,303    5.90%        176,851       9,298    5.26%
  borrowings               ----------    --------   ------     ----------     --------   ------     ----------    --------   ------
Total interest-bearing
  liabilities                 847,405      40,751    4.81%        863,652       40,756    4.72%        849,301      38,382    4.52%
Non-interest-bearing
  liabilities                  86,406                              65,762                               63,975
                           ----------    --------   ------     ----------     --------   ------     ----------    --------   ------
Total liabilities             933,811                             929,414                              913,276
Shareholders' equity          114,039                             110,493                              121,235
                           ----------                          ----------                           ----------
Total Liabilities and
  Shareholders' Equity     $1,047,850                          $1,039,907                           $1,034,511
                           ==========                          ==========                           ==========
Net interest income                       $29,382                              $31,402                             $33,309
                                         ========                              =======                             =======
Interest rate spread                                 2.18%                                2.50%                               2.73%
                                                    ======                               ======                              ======
Net interest margin                                  2.93%                                3.14%                               3.37%
                                                    ======                               ======                              ======
Average interest-earning
  assets to averate
  interest-bearing
  liabilites                                       118.37%                              115.71%                             116.47%
                                                   =======                              =======                             =======

</TABLE>
<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                                                For the Year
                                      Ended September 30,                                           Ended September 30,
                        -------------------------------------------------          ------------------------------------------------
                                         2000 VS 2001                                                1999 VS 2000
                                  Increase (Decrease)Due To                                      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                   $1,670      ($10,447)         ($306)      ($9,083)         ($1,156)       $2,042           ($42)       $844
Mortgage backed and
  related securities       131         6,281            163         6,575              141         2,615            176       2,932
Investment securities     (534)         (981)            60        (1,455)             227        (2,289)           (48)     (2,110)
Federal funds sold         (47)        1,982           (516)        1,419              122          (755)          (101)       (734)
Interest bearing
  deposits                 (87)          752           (209)          456              137          (487)           (89)       (439)
FHLB stock                   7            56             --            63              (85)           66             (7)        (26)
                        ------       -------          -----       -------          -------        ------         ------       -----
Total Interest-Earning  $1,140       ($2,357)         ($808)      ($2,025)           ($614)       $1,192          ($111)      $ 467
  Assets                ======       =======          =====       =======          =======        ======         ======       =====

INTEREST BEARING LIABILITIES

Tax and insurance
  reserves                 $81          ($29)          ($27)          $25              ($2)         ($19)           $--        ($21)
Savings                    257          (118)           (31)          108             (228)         (167)            28        (367)
Interest bearing
  checking                 (27)           59              1            33              (80)          (16)             2         (94)
Money market              (479)          644            (51)          114              390           680             52       1,122
Certificates of
  deposit                1,347           317             21         1,685               72        (1,339)           ( 4)     (1,271)
FHLB advances/              96        (2,049)           (17)       (1,970)           1,137         1,664            204       3,005
  Short term borrowings
                        ------       -------          -----       -------          -------        ------         ------       -----
Total Interest-Bearing  $1,275       ($1,176)         ($104)          ($5)          $1,289          $803           $282      $2,374
  Liabilities           ======       =======          =====       =======          =======        ======         ======       =====
Increase (Decrease)                                               ($2,020)                                                  ($1,907)
  Net Interest Income                                             =======                                                     =====
</TABLE>
<PAGE>

Provision for Loan Losses
The provision for loan losses was $387,000,  recoveries were $42,406, and charge
offs were  $90,173  during the year  ended  September  30,  2001  compared  to a
provision for loan losses of $1.8  million,  with  $441,639 of  recoveries,  and
charge offs of $606,999  during the year ended  September 30, 2000.  Charge offs
during the year ended September 30, 2001 related primarily to construction loans
from one borrower and various consumer loans.  Charge offs during the year ended
September 30, 2000 primarily related to write downs on commercial real estate.

The  provision  for loan losses for the year ended  September 30, 2001 was lower
than for the previous year because the strategy to sell newly originated one- to
four-family loans in the secondary market meant that few loans were added to the
loan  portfolio.  The  loans  added in the  branch  acquisition  were  allocated
allowance  as part of the  purchase  accounting  and  thus  did not  impact  the
provision for the current year.

Over the last 12 months,  the  composition  of the loan  portfolio  has  changed
dramatically, with significant 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.  As part of
the branch acquisition,  an appropriate loan loss allowance was allocated to the
acquired  loans.  At September 30, 2000, the allowance for loan losses was equal
to 251.5% of  non-performing  assets compared to 1,108.9% at September 30, 2001.
The increase in the coverage ratio at year end 2001 was the result of a decrease
in  non-performing  assets and a higher  allowance which  incorporates  the risk
factors  associated  with the  significant  increase in commercial  and consumer
loans.

Non-Interest Income
Non-interest  income increased $6.9 million,  or 169.0% to $11.0 million for the
year ended September 30, 2001 from $4.1 million for the year ended September 30,
2000. The Company realized $5.4 million in gains on sales of investments when it
sold MBS resulting from securitization of single family mortgage loans. However,
disregarding  the gain on sale of  investments,  there  remains  a $1.6  million
increase in  non-interest  income from $4.1 million for the year ended September
30, 2000 to $5.6 million for the year ended  September 30, 2001. The increase is
the result of continued  improvement in fees and service  charges and a $487,000
increase in gain on sales of mortgage loans.
<PAGE>

Non-Interest Expense
Non-interest  expense  increased $4.9 million,  or 20.8%,  from a total of $23.8
million  for the prior year to $28.7  million for the year ended  September  30,
2001.  Compensation,  employee  benefits,  and related  expense  increased  $2.6
million,  or21.4%,  from $11.9 million for the year ended  September 30, 2000 to
$14.4 million for the same period of 2001. Of this increase, $388,000 relates to
early retirement accruals associated with the termination of the defined-benefit
pension plan and retirement of five of the Company's long-time employees.  Other
increases in  compensation  expense  arose from the addition of 124 employees as
part of the WAMU branch  acquisition  and other back office  personnel  added to
handle the increased activity  resulting from a 48% increase in accounts.  Other
expense  increased $1.7 million,  or 25.5%, from $6.7 million for the year ended
September 30, 2000 to $8.4 million for the current year. Increases were noted as
a result of the branch  acquisition,  opening of the Redmond,  Oregon branch and
opening of four new in-store  branches.  For example,  postage expense increased
$247,803,  and supplies expense increased  $114,937.  Professional  service fees
increased  $118,174 with items relating to  recruitment of executives,  training
enhancements, and the hiring of a consulting firm for a commercial loan project.
Expense  related to loan pools sold to FNMA  totaled  $419,289 and is a new cost
associated with the  securitization of mortgage loans. The ratio of non-interest
expense  to  average  total  assets  was 2.74%  and  2.29%  for the years  ended
September 30, 2001 and 2000, respectively.

Income Taxes
The provision for income taxes was $3.7 million for the year ended September 30,
2001, representing an effective tax rate of 32.9% compared with $3.5 million for
the year ended  September 30, 2000  representing an effective tax rate of 35.5%.
The decrease in effective  tax rate for 2001 is primarily  due to an of increase
in income on tax-exempt  municipal  securities and the effect of $270,000 in tax
refunds  received  during this fiscal year  related to amended tax returns for a
prior year. (See Note 12 to the Consolidated Financial Statements.)

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.  During the year ended September 30,
2000, 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 fiscal 2000 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.
<PAGE>

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 ended
September 30, 2000 was  represented  by an inverted  yield curve.  The impact of
this  environment was 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.

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.

During the year ended  September 30, 2000, the composition of the loan portfolio
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 had 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.  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.
<PAGE>


Non-Interest Expense
Non-interest  expense  increased $2.6 million,  or 12.2%,  from a total of $21.2
million  for the year ended  September  30,  1999 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.

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 12 to the  Consolidated  Financial
Statements.)
<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, 2001,  there were  approximately
1,319 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,
                                    -------------------------------------------------------
                                            2001                                2000
                                    --------------------            -----------------------
                                     High            Low              High            Low
                                    ------        ------            ------           ------
<S>                                 <C>           <C>               <C>              <C>
First quarter                       $12.88        $11.50            $13.13           $11.38
Second quarter                       14.00         12.13             11.81            10.31
Third quarter                        14.89         12.95             12.00             9.75
Fourth quarter                       15.20         12.70             13.44            11.00

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

                                            Year Ended September 30,
                                    -------------------------------------------------------
                                            2001                                2000
                                    --------------------            -----------------------
<S>                                       <C>                                 <C>
First quarter                             $0.130                              $0.125
Second quarter                             0.130                               0.130
Third quarter                              0.130                               0.130
Fourth quarter                             0.130                               0.130
</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.
<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  Subsidiaries  (the "Company")  as of September 30, 2001 and
2000, and the related consolidated statements of earnings, shareholders' equity,
and cash flows for each of the three  years in the period  ended  September  30,
2001. 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
Subsidiaries  as of  September  30,  2001  and  2000  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
September 30, 2001, in conformity with accounting  principles generally accepted
in the United States of America.



\s\ Deloitte & Touche LLP
Portland, Oregon
November 20, 2001

<PAGE>
<TABLE>
<CAPTION>


                                        KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
                                                CONSOLIDATED BALANCE  SHEETS


                                                                       September 30, 2001                    September 30, 2000
ASSETS                                                                 ------------------                    ------------------
<S>                                                                        <C>                                     <C>

Cash and due from banks                                                       $40,446,042                           $19,998,788
Interest bearing deposits with banks                                            3,791,252                             2,077,359
Federal funds sold and securities purchased under agreements to                74,151,272                             7,870,453
resell
                                                                           --------------                          ------------
   Total cash and cash equivalents                                            118,388,566                            29,946,600

Investment securities available for sale, at fair value
  (amortized cost: $154,190,611 and $118,689,247)                             154,675,760                           116,627,756
Investment securities held to maturity, at amortized cost (fair
  value: $594,429 and $726,889)                                                   592,388                               723,838
Mortgage backed and related securities available for sale, at fair
  value (amortized cost: $419,639,650 and $75,483,569)                        421,637,670                            75,331,311
Mortgage backed and related securities held to maturity, at amortized
  cost (fair value: $1,642,174 and $2,145,918)                                  1,620,612                             2,159,868
Loans receivable, net                                                         679,990,308                           729,036,847
Real estate owned and repossessed assets                                          445,855                               788,400
Premises and equipment, net                                                    16,911,912                            12,727,570
Stock in Federal Home Loan Bank of Seattle, at cost                            12,698,000                            11,876,500
Accrued interest receivable                                                     8,657,586                             6,432,073
Deferred federal and state income taxes                                                --                               230,893
Core deposit intangible and other intangible assets                            44,088,926                             8,125,664
Other assets                                                                    8,864,227                             1,567,318
                                                                           --------------                          ------------
   Total assets                                                            $1,468,571,810                          $995,574,638
                                                                           ==============                          ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities

  Deposit liabilities                                                      $1,152,824,144                          $695,380,871
  Accrued interest on deposit liabilities                                       1,574,606                             1,185,076
  Advances from borrowers for taxes and insurance                               6,637,994                             9,653,376
  Advances from Federal Home Loan Bank of Seattle                             168,000,000                           173,000,000
  Short term borrowings                                                         1,700,000                             3,000,000
  Accrued interest on borrowings                                                  801,743                               857,163
  Pension liabilities                                                             942,148                               887,896
  Deferred federal and state income taxes                                         597,345                                    --
  Other liabilities                                                             6,799,241                             2,885,695
                                                                           --------------                          ------------
    Total liabilities                                                       1,339,877,221                           886,850,077
                                                                           --------------                          ------------
Mandatorily redeemable preferred securities                                    14,553,684                                    --
                                                                           --------------                          ------------

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, 2001 - 7,060,667 issued, 6,561,461 outstanding
   September 30, 2000 - 7,366,226 issued, 6,692,428 outstanding                    70,607                                73,662
  Additional paid-in capital                                                   33,926,796                            37,701,796
  Retained earnings-substantially restricted                                   83,816,307                            79,713,255
  Unearned shares issued to ESOP                                               (3,913,510)                           (4,893,250)
  Unearned shares issued to MRDP                                               (1,298,859)                           (2,498,378)
  Accumulated other comprehensive loss                                          1,539,564                            (1,372,524)
                                                                           --------------                          ------------
    Total shareholders' equity                                                114,140,905                           108,724,561
                                                                           --------------                          ------------
    Total liabilities and shareholders' equity                             $1,468,571,810                          $995,574,638
                                                                           ==============                          ============

<FN>
      See notes to consolidated financial statements.
</FN>

</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                                                                  KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
                                                                       CONSOLIDATED STATEMENTS OF EARNINGS


                                                              Year Ended             Year Ended              Year Ended
                                                           September 30,          September 30,           September 30,
                                                                    2001                   2000                    1999
                                                          --------------         --------------          --------------
INTEREST INCOME
<S>                                                          <C>                    <C>                     <C>
  Loans receivable                                           $48,051,228            $57,133,422             $56,289,718
  Mortgage backed and related securities                      11,611,184              5,035,957               2,103,881
  Investment securities                                        8,103,318              9,495,804              11,631,439
  Federal funds sold and securities purchased under
     agreements to resell                                      1,598,662                180,253                 914,584
  Interest bearing deposits                                      768,192                312,293                 751,218
                                                          --------------         --------------          --------------
    Total interest income                                     70,132,584             72,157,729              71,690,840
                                                          --------------         --------------          --------------
INTEREST EXPENSE
  Deposit liabilities                                         30,304,271             28,363,916              28,974,568
  Advances from FHLB of Seattle                               10,065,991             12,184,341               9,121,190
  Other                                                          380,579                207,963                 285,848
                                                          --------------         --------------          --------------
    Total interest expense                                    40,750,841             40,756,220              38,381,606
                                                          --------------         --------------          --------------
    Net interest income                                       29,381,743             31,401,509              33,309,234

Provision for loan losses                                        387,000              1,764,000                 932,000
                                                          --------------         --------------          --------------

    Net interest income after provision for
      loan losses                                             28,994,743             29,637,509              32,377,234
                                                          --------------         --------------          --------------

NON-INTEREST INCOME
  Fees and service charges                                     4,293,983              3,212,434               2,935,700
  Gain on sale of investments                                  5,374,723                  6,836                 329,435
  Gain on sale of real estate owned                               86,927                154,661                  29,266
  Other income                                                 1,258,030                720,743                 335,217
                                                          --------------         --------------          --------------
    Total non-interest income                                 11,013,663              4,094,674               3,629,618
                                                          --------------         --------------          --------------
NON-INTEREST EXPENSE
  Compensation, employee benefits and related expense         14,448,997             11,898,041              10,096,000
  Occupancy expense                                            2,858,504              2,413,316               2,221,900
  Data processing expense                                      1,007,040                913,531                 915,434
  Insurance premium expense                                      133,407                186,557                 295,950
  Loss on sale of investments                                     30,632                     --                 112,255
  Loss on sale of real estate owned                               39,911                  7,863                  24,885
  Amortization of core deposit intangible                      1,794,330              1,652,677               1,652,677
  Other expense                                                8,407,323              6,700,888               5,867,155
                                                          --------------         --------------          --------------
    Total non-interest expense                                28,720,144             23,772,873              21,186,256
                                                          --------------         --------------          --------------
Earnings before income taxes                                  11,288,262              9,959,310              14,820,596

Provision for income taxes                                     3,717,260              3,533,158               5,665,403
                                                          --------------         --------------          --------------

Net earnings                                                  $7,571,002             $6,426,152              $9,155,193
                                                               =========              =========               =========

Earnings per common share - basic                                  $1.14                  $0.94                   $1.21
Earnings per common share - fully diluted                          $1.13                  $0.94                   $1.18
Weighted average common shares outstanding - basic             6,627,200              6,822,025               7,564,415
Weighted average common shares outstanding -  with dilution    6,702,045              6,822,025               7,748,527
<FN>

     See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                        KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                                                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>

Balance at October 1, 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          (2,008,389)(20,084) (39,314,056)          --           --            --             --   (39,334,140)
  retired
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 reclassification                                                                            (4,594,986)   (4,594,986)
       adjustment (1)
                                                                                                                       -------------
          Total comprehensive                                                                                             4,560,207
            income
                               ---------- -------  -----------  -----------  ------------  ------------  ------------  -------------
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

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 reclassification
     adjustment (2)                                                                                           390,888       390,888
                                                                                                                       -------------
       Total comprehensive                                                                                                6,817,040
         income
                               ---------- -------  -----------  -----------  ------------  ------------  ------------- -------------
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                        KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                                                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                         --      --           --   (3,467,950)           --            --             --   (3,467,950)

Stock repurchased and retired    (550,221) (5,502)  (7,393,921)          --            --            --             --   (7,399,423)

ESOP contribution                  97,974      --      396,471           --       979,740            --             --    1,376,211

MRDP contribution                  76,618      --       13,708           --            --     1,199,519             --    1,213,227

Exercise of stock options         244,662   2,447    3,208,742           --            --            --             --    3,211,189
                               ---------- -------  -----------  -----------  ------------  ------------  ------------- -------------
                                6,561,461  70,607   33,926,796   76,245,305    (3,913,510)   (1,298,859)    (1,372,524) 103,657,815

Comprehensive income
   Net earnings                                                   7,571,002                                               7,571,002
   Other comprehensive income:
     Unrealized gain on
     securities, net of
     tax and reclassification                                                                                 2,912,088   2,912,088
     adjustment(3)
                                                                                                                       -------------
       Total comprehensive                                                                                               10,483,090
         income
                               ---------- -------  -----------  -----------  ------------  ------------  ------------- -------------
Balance at September 30, 2001   6,561,461 $70,607  $33,926,796  $83,816,307   ($3,913,510)  ($1,298,859)    $1,539,564 $114,140,905
                               ========== =======  ===========  ===========  ============  ============  ============= =============
<FN>

(1)   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)
(2)   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)
(3)   Net unrealized holding gain on securities of $2,893,883 (net of $1,773,670 tax expense) less reclassification  adjustment
for net losses included in net earnings of $18,205 (net of $11,158 tax expense)

See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                              KLAMATH FIRST BANCORP, INC. AND SUBSIDIARIES
                                                  CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                            Year Ended          Year Ended          Year Ended
                                                                    September 30, 2001  September 30, 2000  September 30, 1999
                                                                    ------------------  ------------------  ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                       <C>                 <C>                 <C>
    Net earnings ........................................................ $  7,571,002        $  6,426,152        $  9,155,193

ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    Depreciation and amortization .......................................    3,161,017           2,927,853           2,896,271
    Provision for deferred taxes ........................................     (956,590)         (1,050,197)           (259,935)
    Provision for loan losses ...........................................      387,000           1,764,000             932,000
    Provision for losses on real estate owned ...........................         --               120,000                --
    Compensation expense related to ESOP benefit ........................    1,376,211           1,121,476           1,580,937
    Compensation expense related to MRDP Trust ..........................    1,213,227           1,034,626           1,037,690
    Net amortization of premiums paid on
      investment and mortgage backed and related securities .............      249,371             266,018             134,979
    Increase(decrease) in deferred loan fees, net of amortization .......   (2,848,812)           (547,429)            367,781
    Net (gain) loss on sale of real estate owned and
      premises and equipment ............................................       39,452            (177,493)             (4,381)
    Net gain on sale of investment and mortgage
      backed and related securities .....................................   (5,344,091)             (6,836)           (217,179)
    FHLB stock dividend .................................................     (821,500)           (758,300)           (784,400)
CHANGES IN ASSETS AND LIABILITIES
    Accrued interest receivable .........................................   (2,225,513)            721,745             317,899
    Other assets ........................................................   (7,456,909)            127,714            (377,868)
    Accrued interest on deposit liabilities .............................      389,530                 605            (107,313)
    Accrued interest on borrowings ......................................      (55,420)            822,679            (179,473)
    Pension liabilities .................................................       54,252              54,252              54,252
    Other liabilities ...................................................    3,194,579             984,855             264,936
                                                                          ------------        ------------        ------------
Net cash provided by (used in) operating activities .....................   (2,073,194)         13,831,720          14,811,389
                                                                          ------------        ------------        ------------
CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from maturity of investment securities
      held to maturity ..................................................      130,000             290,000          82,455,000
    Proceeds from maturity of investment securities
      available for sale ................................................   33,425,000          33,360,000          48,572,000
    Principal repayments received on mortgage
       backed and related securities held to maturity ...................      531,435             434,252           1,044,871
    Principal repayments received on mortgage
       backed and related securities available for sale .................   46,429,807          26,859,810          15,311,695
    Principal repayments received on loans ..............................  145,496,311          99,031,327         159,160,842
    Loan originations ................................................... (136,492,447)        (97,246,615)       (224,193,434)
    Loans purchased .....................................................         --              (507,600)        (15,500,495)
    Loans sold ..........................................................   30,708,858           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 ..........................................................  (78,456,931)         (1,110,000)        (22,147,855)
    Purchase of mortgage backed and related
      securities available for sale ..................................... (383,198,597)        (29,396,069)        (55,536,014)
    Purchase of FHLB stock ..............................................         --              (160,900)               --
    Proceeds from sale of investment securities
      available for sale ................................................   10,367,746          10,051,563          11,834,420
    Proceeds from sale of mortgage backed and related
      securities available for sale .....................................  187,991,361                --             9,454,776
    Proceeds from sale of real estate owned and
      premises and equipment ............................................    1,261,175           2,722,397             514,710
    Investment in real estate owned .....................................      (86,742)                 --                  --
    Purchases of premises and equipment .................................   (5,392,241)         (2,271,628)           (321,050)
    Acquisitions, net of cash acquired ..................................  206,548,213                  --                  --
                                                                          ------------        ------------        ------------
Net cash provided by (used in) investing activities .....................   59,262,948          47,914,798         (63,477,992)
                                                                          ------------        ------------        ------------
<PAGE>
<CAPTION>

                                              KLAMATH FIRST BANCORP, INC  AND SUBSIDIARIES
                                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                               (Continued)
                                                                            Year Ended          Year Ended          Year Ended
                                                                    September 30, 2001  September 30, 2000  September 30, 1999
                                                                    ------------------  ------------------  ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
<S>                                                                       <C>                 <C>                 <C>
    Net increase(decrease) in deposit liabilities ....................... $ 33,986,127        ($25,020,241)       $ 30,859,767
    Proceeds from FHLB advances .........................................    2,000,000         614,650,000         160,000,000
    Repayments of FHLB advances .........................................   (7,000,000)       (638,650,000)       (130,000,000)
    Proceeds from short term borrowings .................................    3,400,000           3,700,000           8,595,000
    Repayments of short term borrowings .................................   (4,700,000)           (700,000)        (20,707,500)
    Issuance of mandatorily redeemable preferred stock ..................   14,553,684                --                  --
    Stock repurchase and  retirement ....................................   (7,399,423)         (6,254,695)        (39,334,140)
    Proceeds from exercise of stock options .............................    3,211,189                --                  --
    Advances from borrowers for taxes and insurance .....................   (3,015,382)           (105,251)            337,836
    Dividends paid ......................................................   (3,783,983)         (3,942,320)         (3,547,040)
                                                                          ------------        ------------        ------------
Net cash provided by (used in)  financing activities ....................   31,252,212         (56,322,507)          6,203,923
                                                                          ------------        ------------        ------------
Net (decrease) increase in cash and cash
  equivalents ...........................................................   88,441,966           5,424,011         (42,462,680)

Cash and cash equivalents at beginning
  of year ...............................................................   29,946,600          24,522,589          66,985,269
                                                                          ------------        ------------        ------------
Cash and cash equivalents at end of year ................................ $118,388,566        $ 29,946,600        $ 24,522,589
                                                                          ============        ============        ============
SUPPLEMENTAL SCHEDULE OF INTEREST AND
INCOME
  INCOME TAXES PAID
    Interest paid ....................................................... $ 42,020,217        $ 39,932,938        $ 38,668,392
    Income taxes paid ...................................................    3,930,000           4,745,000           5,866,000

SUPPLEMENTAL SCHEDULE OF NONCASH
  INVESTING ACTIVITIES

    Net unrealized gain (loss) on securities
      available for sale ................................................ $  2,912,088        $    390,888        ($ 4,594,986)
    Dividends declared and accrued in other
      liabilities .......................................................      934,233             957,609             988,547
   Loans transferred to real estate owne ................................      870,128           2,291,059           2,002,219
   Write down of real estate owned ......................................         --               343,450                --
   Loans securitized and recorded as mortgage-backed
      securities available for sale .....................................  190,300,518                --                  --

<FN>

    See notes to consolidated financial statements.
</FN>
</TABLE>
<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 subsidiaries, Klamath Capital
Trust  I  and  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  and in  adjoining  areas of
Washington State. 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
For purposes of the Consolidated Statements of Cash Flows, 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, all of which mature within 90 days.

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 historical cost.
<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 are  charged to  earnings  when it is  determined  that the value of these
loans 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,  geographic  concentrations,
actual loan loss experience,  current 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 allowance 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 allowance on loans.

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.
<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 ("MSR") in accordance with
SFAS No. 140,  Accounting  for Transfers  and Servicing of Financial  Assets and
Extinguishment of Liabilities. SFAS No. 140 requires the Company to allocate the
total cost of all mortgage loans sold, whether  originated or purchased,  to the
MSR and the loans  (without  MSR) based on their  relative  fair values if it is
practicable to estimate those fair values.

MSR  are  capitalized  at  their  allocated  carrying  value  and  amortized  in
proportion to, and over the period of, estimated future net servicing income.

The  Company  assesses  impairment  of the MSR based on the fair  value of those
rights.  For purposes of measuring  impairment,  the MSR are stratified based on
interest rate characteristics  (fixed-rate and  adjustable-rate),  as well as by
coupon rate. In order to determine the fair value of the MSR, the Company uses a
model  that  estimates  the  present  value  of  expected   future  cash  flows.
Assumptions  used in the model include  market  discount  rates and  anticipated
prepayment  speeds.  In  addition,  the  Company  uses  market  comparables  for
estimates of the cost of servicing,  inflation  rates and ancillary  income.  No
impairment  allowance was  considered  necessary at September  30, 2001.  Future
interest rate decreases could have a negative impact on the recorded MSR.

Intangible Assets
In conjunction  with branch  acquisitions,  the Company has recorded  intangible
assets,  including core deposit  intangible and other  intangible  assets.  Core
deposit  intangibles are amortized over the estimated  average remaining life of
the deposit base acquired.  Other intangible  assets are amortized over a period
no greater than the estimated remaining life of the long term assets acquired.

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  four  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.
<PAGE>

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.  Compenstaion expense for the years ended September 30, 2001, 2000
and 1999 was $1.0 million, $1.3 million and $1.0 million, respectively.

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
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 2001, the FASB issued SFAS No. 141, Business Combinations.  SFAS No. 141
requires  the  purchase  method  of  accounting  for all  business  combinations
initiated  after June 30, 2001 and eliminates the  pooling-of-interests  method.
The  Company  does not  believe  that the  adoption  of SFAS No. 141 will have a
material impact on its consolidated financial statements.

In June 2001,  the FASB  issued  SFAS No.  142,  Goodwill  and Other  Intangible
Assets,  which is effective for fiscal years  beginning after December 15, 2001.
SFAS No. 142 will  require that  goodwill no longer be amortized  and instead be
tested for  impairment at least  annually.  In addition,  the standard  includes
provisions  for the  accounting  and  reporting of certain  existing  recognized
intangibles  and goodwill.  Management is currently  evaluating  the impact that
SFAS No. 142 may have on its consolidated financial statements.

In August 2001,  the FASB issued SFAS No. 144,  Accounting for the Impairment of
Disposal of Long-Lived  Assets,  which is effective  for fiscal years  beginning
after  December  15,  2001.  This  statement  supersedes  SFAS  No.  121 and the
accounting and reporting  provisions of Accounting  Principles Board Opinion No.
30 for the  disposal  of a segment  of a  business.  The  Company  is  currently
evaluating the impact that adoption of SFAS No. 144 may have on the consolidated
financial statements.
<PAGE>

(2)      Acquisition

On September 7, 2001, the Company  completed the acquisition of 13 branches from
Washington  Mutual.  These  branches  are located  along the Oregon coast and in
northeastern  Oregon,  complementing  and expanding the existing branch network.
The  transaction,  which was accounted for as a purchase in accordance with SFAS
No. 72,  Accounting for Certain  Acquisitions  of Bank and Thrift  Institutions,
included acquisition of $179.3 million in loans and assumption of $423.5 million
in deposit  liabilities.  The  balance  sheet at  September  30,  2001  reflects
inclusion of all assets and liabilities  related to the transaction.  Income and
expense  related to the transaction and operation of the branches for the period
from  September  7, 2001 to  September  30,  2001 are  reflected  in the  income
statement.  As a result of this  transaction,  the Company recorded core deposit
intangible of $15.0 million which will be amortized  over the estimated  life of
the deposit base.  The Company also recorded  other  intangible  assets of $24.1
million related to the transaction.

(3) 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  $766,000 and $801,000 at
September  30,  2001 and 2000,  respectively,  and was met by  holding  cash and
maintaining an average  balance with the Federal  Reserve Bank in excess of this
amount.

(4) 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, 2001
                                           -------------------------------------------------------------------------
                                              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               $15,003,079                    $435,049            $--        $15,438,128
    Maturing after one year through
     five years                             15,200,000                     251,500             --         15,451,500
   Maturing after five years and through
     ten years                               9,916,677                      45,223             --          9,961,900

  State and municipal obligations
    Maturing after one year through
     five years                                585,530                      12,993             --            598,523
    Maturing after five years through
     ten years                                 397,962                       7,610             --            405,572
    Maturing after ten years                31,967,069                     746,540         77,519         32,636,090

  Corporate obligations
    Maturing within one year                10,011,936                     185,414             --         10,197,350
    Maturing after one year through
     five years                             35,562,330                     942,817             --         36,505,147
    Maturing after ten years                19,830,093                          --      1,814,343         18,015,750

  Federal agency preferred stock
     Maturing after ten years                15,715,936                         --        250,136         15,465,800
                                           ------------                 ----------     -----------      ------------
                                           $154,190,612                 $2,627,146     $2,141,998       $154,675,760
                                           ============                 ==========     ===========      ============
</TABLE>
<PAGE>
<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, 2001
                                           -------------------------------------------------------------------------
                                              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                  $135,388                     $2,041             $--          $137,429
  Other obligations
     Maturing after ten years                   457,000                         --              --           457,000
                                           ------------                 ----------     -----------      ------------
                                               $592,388                     $2,041             $--          $594,429
                                             ==========                 ==========      ==========        ==========
</TABLE>
<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 and
<S>                                            <C>                          <C>               <C>           <C>
     within 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>

<PAGE>
<TABLE>
<CAPTION>


                                                                   September 30, 2001
                                           -------------------------------------------------------------------------

                                              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                      $ 1,315,698                 $   27,973        $     --      $  1,343,671
  CMO's maturing after one year
    through five years                       25,958,997                    174,744              --        26,133,741

  FHLMC maturing after one year
    through five years                       10,057,380                    104,104              --        10,161,484

  FNMA maturing after five years
    through ten years                        10,057,489                    165,138              --        10,222,627

  CMO's maturing after five years
     through  ten years                      90,827,507                     67,227         608,387        90,286,347

  FNMA maturing after ten years              45,459,792                    200,295          32,745        45,627,342

  FHLMC maturing after ten years              9,480,629                    155,121             197         9,635,553

  GNMA maturing after ten years               6,816,570                    160,234              --         6,976,804

  CMO's  maturing after ten years           219,665,588                  1,693,975         109,462       221,250,101
                                           ------------                 ----------     -----------      ------------
                                           $419,639,650                 $2,748,811        $750,791      $421,637,670
                                           ============                 ==========     ===========      ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                                                   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, 2001
                                           -------------------------------------------------------------------------

                                              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             $1,620,612                     $21,562            $--         $1,642,174
                                           ============                 ==========     ===========      ============
</TABLE>
<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>

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.

At September 30, 2001 and 2000, the Company  pledged  securities  totaling $42.0
million and $50.4 million,  respectively,  to secure certain public deposits and
for other purposes as required or permitted by law.

The Company has also  pledged  securities  of $1.5  million and $2.1  million to
secure short term borrowings at September 30, 2001 and 2000, respectively.  (See
Note 11.)
<PAGE>

(5)  Loans receivable
<TABLE>
<CAPTION>
                                                                    September 30,
                                                      --------------------------------------
                                                           2001                     2000
                                                      -------------             ------------
Real estate loans
<S>                                                    <C>                      <C>
  Permanent residential 1-4 family                     $421,499,010             $639,165,006
  Multi-family residential                               23,257,194               19,015,537
  Construction                                           21,673,519               25,288,607
  Agricultural                                            4,218,263                       --
  Commercial                                             99,318,389               42,276,796
  Land                                                    3,696,487                3,394,070
                                                      -------------             ------------
     Total real estate loans                            573,662,862              729,140,016
                                                      -------------             ------------
Non-real estate loans
  Savings account                                         2,090,840                1,956,817
  Home improvement and home equity                       50,464,521                8,338,029
  Other consumer                                         18,696,626               10,837,934
  Commercial                                             56,098,520                  636,273
                                                       ------------            -------------
     Total non-real estate loans                        127,350,507               21,769,053
                                                       ------------            -------------
     Total loans                                        701,013,369              750,909,069

Less
  Undisbursed portion of loans                            8,472,757               10,349,686
  Deferred loan fees                                      4,599,624                7,440,271
  Allowance for loan losses                               7,950,680                4,082,265
                                                       ------------             ------------
                                                       $679,990,308             $729,036,847
                                                       ============             ============
</TABLE>

The weighted  average  interest rate on loans at September 30, 2001 and 2000 was
7.92% and 7.56%, respectively.

Included in loans receivable are $77,500 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.

Aggregate loans to officers and directors, all of which were current, consist of
the following (in thousands):
<TABLE>
<CAPTION>


                                                         Year Ended September 30,
                                    --------------------------------------------------------------------
                                          2001                       2000                       1999
                                    --------------             --------------             --------------
<S>                                      <C>                        <C>                        <C>
Beginning balance                        $2,089                     $2,380                     $1,933
Originations                              1,227                         83                        490
Principal repayments                       (326)                      (374)                       (43)
                                    --------------             --------------             --------------
Ending balance                           $2,990                     $2,089                     $2,380
                                    ==============             ==============             ==============
</TABLE>
<PAGE>

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


                                                                            Year Ended September 30,
                                                     --------------------------------------------------------------------
                                                               2001                       2000                       1999
                                                     --------------             --------------             --------------
<S>                                                      <C>                        <C>                        <C>
Balance, beginning of year                               $4,082,265                 $2,483,625                 $1,949,677
Charge offs                                                 (90,173)                  (606,999)                  (398,052)
Recoveries                                                   42,406                    441,639                         --
Additions                                                   387,000                  1,764,000                    932,000
Acquisitions                                              3,761,024                         --                         --
Allowance reclassified with loan securitization            (231,842)                        --                         --
                                                     --------------             --------------             --------------
Balance, end of year                                     $7,950,680                 $4,082,265                 $2,483,625
                                                         ==========                 ==========                 ==========
</TABLE>

There  were no  impaired  loans or  specifically  allocated  loan loss  reserves
related to impaired  loans at September  30,  2001.  The average  investment  in
impaired loans for the year ended September 30, 2001 was $33,226. 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.
<PAGE>

(6) Premises and Equipment

Premises and equipment consist of the following:
<TABLE>
<CAPTION>
                                                              September 30,
                                                     ------------------------------
                                                         2001               2000
                                                     -----------        -----------
<S>                                                  <C>                <C>
Land                                                 $ 2,828,648        $ 2,828,648
Office buildings and construction in progress         13,022,085         11,033,130
Furniture, fixtures and equipment                      8,021,564          5,137,130
Automobiles                                               38,856             38,856
Less accumulated depreciation                         (6,999,241)        (6,310,194)
                                                     ------------       ------------
                                                     $16,911,912        $12,727,570
                                                     ===========        ===========
</TABLE>

Depreciation  expense was $1.2 million,  $1.1 million,  and $1.1 million for the
years ended September 30, 2001, 2000, and 1999, respectively.

(7)   Accrued Interest Receivable

The following is a summary of accrued interest receivable:
<TABLE>
<CAPTION>

                                                          September 30,
                                                 -------------------------------
                                                     2001                2000
                                                 -----------         -----------
<S>                                              <C>                 <C>
Loans receivable                                 $ 4,557,093         $ 3,996,223
Mortgage backed and related securities             2,212,276             623,884
Investment securities                              1,881,592           1,811,966
Federal funds sold and securities purchased
   under agreements to resell                          6,625                  --
                                                 -----------         -----------
                                                 $ 8,657,586         $ 6,432,073
                                                 ===========         ===========
</TABLE>

(8)      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 $186.4 million and $11.6.1 million at September 30, 2001
and 2000,  respectively.  The  mortgage  servicing  rights are included in other
assets in the consolidated balance sheets.

During the quarter  ended March 31,  2001,  the Company  sold $190.3  million in
seasoned  fixed-rate single-family  loans to FNMA. The mortgages were aggregated
into 14 pools and  securitized  with the  resulting  MBS being  retained  by the
Company and classified as available for sale. The loans were sold with servicing
retained by the Company.

The fair value of MSR was determined  using a discounted cash flow model,  which
incorporates  the  expected  life of the loans,  estimated  costs to service the
loans,  servicing  fees to be received,  and other factors.  Mortgage  servicing
rights were valued at $1.7 million.  The key assumptions used to initially value
the MSR recorded in 2001 included a constant  prepayment rate ("CPR") of 20%, an
average  life of 6.3  years  and a  discount  rate of 10%.  The  Company  pays a
guarantee fee to FNMA as part of the  securitization and servicing of the loans,
thus  transferring all credit risk to FNMA. The final resulting basis in the MBS
recorded was $185.9  million.  As of September  30, 2001,  all the resulting MBS
have been sold with a gain of $5.4 million.
<PAGE>

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

                                                                       Year Ended September 30,
                                                             ------------------------------------------
                                                                  2001            2000           1999
                                                             -----------        -------         -------
<S>                                                           <C>               <C>             <C>
Balance, beginning of year                                    $   95,420        $52,432         $    --
Additions for loans securitized                                1,653,830             --              --
Additions for other loans sold                                    54,693         59,868          53,789
Amortization of servicing rights for loans securitized          (167,857)            --              --
Amortization of servicing rights for other loans sold            (39,156)       (16,880)         (1,357)
                                                              -----------      --------         -------
Balance, end of year                                          $1,596,930        $95,420         $52,432
                                                              ===========      ========         =======
</TABLE>

(9)   Deposit Liabilities
The following is a summary of deposit liabilities:
<TABLE>
<CAPTION>

                                                                                September 30,
                                                          ----------------------------------------------------------
                                                                     2001                            2000
                                                          --------------------------      --------------------------
                                                              Amount         Percent          Amount         Percent
                                                          ----------      ----------      ----------      ----------

Checking accounts, non-interest
<S>                                                   <C>                     <C>       <C>                   <C>
 bearing                                              $  130,649,571           11.3%    $ 54,339,904            7.8%
                                                          ----------      ----------      ----------      ----------

Interest-bearing checking                                116,755,784            10.1      72,185,571            10.4
                                                          ----------      ----------      ----------      ----------

Passbook and statement savings                            77,646,048             6.7      47,946,711             6.9
                                                          ----------      ----------      ----------      ----------

Money market deposits                                    283,893,020            24.6     148,160,284            21.3
                                                          ----------      ----------      ----------      ----------
Certificates of deposit
 Less than 4%                                            136,034,530            11.8         747,623             0.1
 4.00% to 5.99%                                          209,800,703            18.2     244,183,723            35.1
 6.00% to 7.99%                                          197,755,646            17.2     123,987,117            17.8
 8.00% to 9.99%                                              288,842             0.1       3,829,938             0.6
                                                      --------------      ----------      ----------      ----------
                                                         543,879,721            47.3     372,748,401            53.6
                                                      --------------      ----------      ----------      ----------
                                                      $1,152,824,144          100.0%    $695,380,871          100.0%
                                                      ==============       =========       =========       =========
</TABLE>

The following is a summary of interest expense on
deposits:
<TABLE>
<CAPTION>
                                               Year Ended September 30,
                                      ------------------------------------------
                                         2001            2000            1999
                                      ----------      ----------      ----------
<S>                                  <C>             <C>             <C>
Interest-bearing checking            $   812,210     $   779,335     $   873,211
Passbook and statement savings         1,066,607         958,558       1,326,259
Money market                           6,332,507       6,217,783       5,096,134
Certificates of deposit               22,199,640      20,575,944      21,767,895
                                      ----------      ----------      ----------
                                      30,410,964      28,531,620      29,063,499
Less early withdrawal
 penalties                               106,693         167,704          88,931
                                      ----------      ----------      ----------
  Net interest on deposits           $30,304,271     $28,363,916     $28,974,568
                                     ===========     ===========     ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

At September 30, 2001, deposit maturities are as
follows:

<S>                                                     <C>
Within 1 year                                           $267,521,763
1 year to 3 years                                        204,782,345
3 years to 5 years                                        44,054,403
Thereafter                                                27,521,210
                                                        ------------
                                                        $543,879,721
                                                        ============
</TABLE>

Weighted average interest rates at September 30
are as follows:
<TABLE>
<CAPTION>

                                                           2001            2000
                                                        --------         -------
<S>                                                        <C>             <C>
Interest-bearing checking                                  1.37%           1.14%
Passbook and statement savings                             2.05%           2.31%
Money market                                               3.21%           4.30%
Certificates of deposit                                    5.32%           5.98%
Weighted average rate for all deposits                     4.03%           4.77%
</TABLE>

Deposits  in excess of $100,000  totaled  $280.9  million and $146.3  million at
September  30, 2001 and 2000,  respectively.  Deposits in excess of $100,000 are
not insured by the Federal Deposit Insurance Corporation ("FDIC").

<PAGE>

(10)   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,  2001,  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, 2001 the minimum book value of
eligible collateral for these borrowings was $200.1 million.



Scheduled maturities of advances from the FHLB were as follows:

<TABLE>
<CAPTION>


                                           September 30, 2001                                       September 30, 2000
                           --------------------------------------------------     --------------------------------------------------
                                                    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          $ 10,000,000               3.60%          3.60%       $  5,000,000                5.70%           5.70%

After one but within
five years                             --                  --            --          10,000,000                6.65%           6.65%

After five but within
ten years                     158,000,000       4.77% - 7.05%          5.86%        158,000,000        4.77% - 7.05%           5.86%
                           --------------                                          ------------
                             $168,000,000                                          $173,000,000
                             ============                                          ============
</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,
                                                          -----------------------------------------
                                                                 2001                       2000                    1999
                                                          --------------             --------------          --------------
<S>                                                         <C>                        <C>                     <C>
Weighted average interest rate at end of year                      5.73%                      5.90%                   5.34%
Weighted daily average interest rate during the year               5.90%                      5.88%                   5.25%
Daily average FHLB advances                                 $170,520,548               $207,218,306            $173,739,726
Maximum FHLB advances at any month end                       173,000,000                230,000,000             197,000,000
Interest expense during the year                              10,065,991                 12,184,341               9,121,190
</TABLE>

<PAGE>

(11)  Short Term Borrowings

The  Company  had short term  borrowings  of $1.7  million  and $3.0  million at
September 30, 2001 and 2000, respectively. At September 30, 2001, the borrowings
consisted  of one line of credit  with Key Bank that was fully  disbursed.  This
line carries  interest based on one-month  LIBOR plus 1.95%,  which was 5.58% at
September 30, 2001.  The borrowings at September 30, 2000 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, 2001 and 2000. 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,
                                                        ---------------------------------------------------
                                                              2001              2000             1999
                                                        ---------------  ---------------    ---------------
<S>                                                     <C>               <C>              <C>
Weighted average interest rate at end of year                 5.58%             9.01%              --
Weighted daily average interest rate
   during the year                                            8.22%             9.34%            5.72%
Daily average of short term borrowings                  $3,265,205        $1,289,617       $       --
Daily average of securities sold
   under agreements to repurchase                               --                --        3,105,336
Maximum short term borrowings at
   any month end                                         6,400,000         3,000,000               --
Maximum securities sold under
   agreements to repurchase at any
   month end                                                    --                --        8,095,000
Interest expense during the year                           268,447           120,413          177,568
</TABLE>


<PAGE>


(12) Taxes on Income

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

                                                        Year Ended September 30,
                                            ---------------------------------------------
                                                2001               2000            1999
                                            ----------         ----------      ----------
Current Taxes
<S>                                         <C>                <C>             <C>
Federal                                     $3,560,966         $3,735,797      $4,842,232
State                                          835,250            847,558       1,065,157
                                            ----------         ----------      ----------
Current tax provision                        4,396,216          4,583,355       5,907,389
                                            ----------         ----------      ----------
Deferred Taxes
Federal                                       (564,904)          (873,784)       (201,337)
State                                         (114,052)          (176,413)        (40,649)
                                            ----------         ----------      ----------
Deferred tax provision (benefit)              (678,956)        (1,050,197)       (241,986)
                                            ----------         ----------      ----------
Provision for income taxes                  $3,717,260         $3,533,158      $5,665,403
                                            ==========         ==========      ==========
</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,
                                                --------------------------------
                                                 2001         2000         1999
                                                ------       ------        -----
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                             4.2          4.4          4.5
Nondeductible ESOP compensation
   expense                                        1.1          0.5          1.4
Deductible MRDP compensation
  expense                                          --          1.6         (0.1)
Interest income on municipal securities          (4.1)        (4.1)        (2.2)
Other                                            (3.3)        (1.9)        (0.4)
                                                ------        ----         -----
Income tax expense included in the
statement of earnings                            32.9%        35.5%        38.2%
                                                 ====         ====         ====
</TABLE>
<PAGE>

Deferred  income  taxes at  September  30,  2001 and 2000  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,
                                                              ----------------------------
                                                                 2001              2000
                                                              ----------        ----------
DEFERRED TAX ASSETS

<S>                                                           <C>               <C>
Allowance for losses on loans                                 $1,908,133        $1,603,922
Pension liability                                                370,170           348,854
Unearned ESOP shares                                             392,295           397,360
Core deposit premium                                           1,255,293           956,599
Basis difference in fixed assets                                 587,537                --
Unrealized loss on securities available for sale                      --           841,224
Other                                                             25,870                --
                                                              ----------        ----------
Total gross deferred tax assets                                4,539,298         4,147,959
                                                              ----------        ----------
DEFERRED TAX LIABILITIES

FHLB stock dividends                                           1,514,843         1,192,076
Capitalized loan servicing income                                627,434                --
Capitalized conversion costs                                     306,687                --
Unrealized gain on securities available for sale                 647,859                --
Deferred loan fees                                               900,473         1,303,241
Tax bad debt reserve in excess of base-
   year reserve                                                  723,698           972,280
Other                                                            415,649           449,469
                                                              ----------        ----------
Total gross deferred tax liabilities                           5,136,643         3,917,066
                                                              ----------        ----------
Net deferred tax asset (liability)                             ($597,345)       $  230,893
                                                              ==========        ==========
</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, 2001, 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.

(13)   Mandatorily Redeemable Preferred Securities

In July 2001, the Company issued $15 million of mandatorily redeemable preferred
securities  through a subsidiary grantor trust. The Trust holds debt instruments
of the parent company  purchased  with the proceeds of the securities  issuance.
The capital  qualifying  securities  bear interest at a floating rate indexed to
six-month  LIBOR and mature in July 2031.  At September  30, 2001,  the interest
rate was 7.57%.  The Company has the right to redeem the  securities  after five
years at a premium,  and after ten years at par.  Certain  changes in tax law or
Office of Thrift Supervision  regulations regarding the treatment of the capital
securities  as core  capital  could  result in early  redemption,  at par,  or a
shortening in the maturity of the securities.
<PAGE>

(14)  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.

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, 2001, loan commitments  amounted to approximately $20.8 million
comprised  of $5.8 million in variable  rate loans  ranging from 5.75% to 12.00%
and $15.0 million in fixed rate loans ranging from 5.50% to 14.00%. At September
30, 2001, 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 65% 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.


(15)  Shareholders' Equity

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.

(16)     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.
<PAGE>
<TABLE>
<CAPTION>

                                                              For the Year Ended September 30,
                                                -------------------------------------------------------
                                                     2001                2000               1999
                                                ----------------   ------------------  ----------------

Weighted average common
<S>                                                    <C>                  <C>               <C>
shares outstanding - basic                             6,627,200            6,822,025         7,564,415
                                               -----------------   ------------------  ----------------
Effect of Dilutive Securities on Number of Shares:
MRDP shares                                                9,252                   --            23,923
Stock options                                             65,593                   --           160,189
                                               -----------------   ------------------  ----------------
Total Dilutive Securities                                 74,845                   --           184,112
                                               -----------------   ------------------  ----------------
Weighted average common shares
 outstanding - with dilution                           6,702,045            6,822,025         7,748,527
                                               =================   ==================  ================
</TABLE>

Options to purchase 924,096 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
at September 30, 2000 because their effect would not have been dilutive.

<PAGE>

(17) Employee Benefit Plans

Employee Retirement Plan
As of  September  30,  2001,  the  Company  terminated  its  participation  in a
multiple-employer  trusteed pension plan ("Plan") covering all employees with at
least one year of service  and which paid  direct  pensions  to certain  retired
employees.  Benefits  were based on years of service with the Company and salary
excluding bonuses,  fees,  commissions,  etc.  Participants were vested in their
accrued  benefits  after five years of  service.  Pension  expense of  $452,592,
$367,916,  and $40,828 was incurred  during the years ended  September 30, 2001,
2000, and 1999, respectively.  Separate actuarial valuations, including computed
value of  vested  benefits,  were not made  with  respect  to each  contributing
employer,  nor are the plan assets so segregated by the trustee.  As part of the
termination  of the plan,  early  retirement  was  offered to certain  long-time
employees of the Company.  The Company  recorded expense of $378,887 in the year
ended September 30, 20001 related to these retirements.

Effective  October  1,  2001,  the  Company  implemented  a 401(k)  plan for all
employees.  The Company  will match 50% of the  employee  contributions  up to a
maximum of 6% the employee's compensation.

Postretirement Benefit Plan
The Company has an unfunded 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 years ended September 30, 2001 and 2000 is presented
below. Information for fiscal year 1999 is not available.
<TABLE>
<CAPTION>
                                                                   Year Ended September 30,
                                                              ----------------------------------
                                                                2001                      2000
                                                              --------                  --------
<S>                                                           <C>                       <C>
Change in benefit obligation
Benefit obligation at beginning of year                       $324,279                  $193,861
Service cost                                                    27,386                    24,276
Interest cost                                                   25,852                    23,937
Actuarial changes                                               35,109                    92,453
Benefits paid                                                  (11,165)                  (10,248)
                                                              --------                  --------
Benefit obligation at end of year                             $401,461                  $324,279
                                                              ========                  ========
Components of net periodic benefit cost
Service cost                                                   $27,386                  $ 24,276
Interest cost                                                   25,852                    23,937
Recognition of changes in actuarial
assumptions, prior service cost, benefit
changes, and actuarial gains and losses                          9,475                     9,475
                                                               -------                  --------
Net periodic benefit cost                                      $62,713                   $57,688
                                                               =======                   =======
</TABLE>
For measurement of the net periodic cost of the  postretirement  benefit plan, a
7.5% annual increase in the medical care trend rate was assumed for 2001 through
2004,  a 6.5% annual  increase  was assumed for 2005  through  2009,  and a 5.5%
annual increase was assumed for years 2010 and thereafter.  The assumed discount
rate was 7.5% for 2001 and 2000.

If the assumed  medical trend rates were increased by 1%, the September 30, 2001
benefit obligation would increase from $401,461 to $487,072 and the net periodic
benefit cost for the year ended  September 30, 2001 would  increase from $62,713
to $77,736.
<PAGE>

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, 2001,  2000,
and 1999 were $71,052, $71,052, and $71,052, respectively. At September 30, 2001
and  2000,  the  projected   benefit   obligation  was  $942,148  and  $887,896,
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, 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
Granted                                            207,500               $12.412
Exercised                                         (244,662)              $13.125
Canceled                                                --                    --
                                                   -------               -------
Outstanding, September 30, 2000                    879,096               $13.154
                                                   =======               =======
</TABLE>

At September 30, 2001,  3,664 shares were  available for future grants under the
Stock Plan.

<PAGE>

Additional information regarding options outstanding as of September 30, 2001 is
as follows:
<TABLE>
<CAPTION>

                                                                Weighted Avg.
Range of                   Options            Options           Remaining
Exercise Prices            Outstanding        Exercisable       Contractual Life
----------------           -----------        -----------       ----------------
<S>                         <C>                   <C>                    <C>
         $13.125            648,353               648,353                4.5
         $20.577             23,243                13,947                6.1
 $11.625-$13.144            207,500                    --                9.3
                           ---------            ---------
                            879,096               662,300
                           ========             =========
</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
2001,  1998 and 1996 were $2.03,  $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,
                               --------------------------------------------
                                  2001              2000            1999
                               ----------        ----------      ----------
Net earnings:
<S>                            <C>               <C>             <C>
     As reported               $7,571,002        $6,426,152      $9,155,193
     Pro forma                  7,457,552         5,885,826       8,642,299
Earnings per common
share - basic:
     As reported                    $1.14             $0.94           $1.21
     Pro forma                      $1.13             $0.86           $1.14
Earnings per common
share - fully diluted:
     As reported                    $1.13             $0.94           $1.18
     Pro forma                      $1.11             $0.86           $1.12
</TABLE>

The Company's  calculations  were made using the  Black-Scholes  option  pricing
model with the following weighted average assumptions:
<TABLE>
<CAPTION>

                                    2001             1998              1996
                                    Grant            Grant             Grant
                                  -------         --------            -------
<S>                                <C>             <C>                 <C>
Risk free interest rates            5.09%           5.79%               6.33%
Expected dividend                   4.33%           1.75%               1.75%
Expected lives, in years             3.3             7.5                 7.5
Expected volatility                28.73%          23.24%              19.63%
</TABLE>

<PAGE>

(18) 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 $3.9 million and $4.9 million at September  30, 2001
and 2000,  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 $1.4 million, $1.1 million, and
$1.6  million  for  the  years  ended   September  30,  2001,   2000  and  1999,
respectively,   and  approximately   98,000  shares  were  allocated  among  the
participants in each of those years.

<PAGE>

(19) 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, 2001                       September 30, 2000
                                           ----------------------------------       --------------------------------
                                                Carrying                 Fair            Carrying               Fair
                                                  amount                value              amount              value
Financial Assets                           -------------        -------------       -------------       ------------

<S>                                        <C>                  <C>                  <C>                <C>
Cash and due from banks                    $  40,446,042        $  40,446,042        $ 19,998,788       $ 19,998,788
Interest earning deposits with banks           3,791,252            3,791,252           2,077,359          2,077,359
Federal funds sold and
securities purchased under
agreements to resell                          74,151,272           74,151,272           7,870,453          7,870,453
Investment securities
available for sale                           154,675,760          154,675,760         116,627,756        116,627,756
Investment securities held
to maturity                                      592,388              594,429             723,838            726,889
Mortgage-backed and related
securities available for sale                421,637,670          421,637,670          75,331,311         75,331,311
Mortgage-backed and related
securities held to maturity                    1,620,612            1,642,174           2,159,868          2,145,918
Loans receivable, net                        679,990,308          708,259,917         729,036,847        702,505,736
FHLB stock                                    12,698,000           12,698,000          11,876,500         11,876,500

Financial Liabilities

Deposit liabilities                        1,152,824,144        1,170,696,536         695,380,871        694,624,273
FHLB advances                                168,000,000          172,328,142         173,000,000        158,850,040
Short term borrowings                          1,700,000            1,700,000           3,000,000          3,000,000
Mandatorily redeemable preferred securities   14,553,684           14,553,684                  --                 --
</TABLE>

Fair value estimates, methods, and assumptions are set forth below :

Investments  and  Mortgage-Backed  Securities - Fair values were based on quoted
market rates and dealer quotes.

Loans  Receivable - Loans were priced using a discounted  cash flow method.  The
discount rate was the rate currently offered on similar products.

No adjustment was made to the  entry-value  interest rates for changes in credit
of performing  loans for which there are not known credit  concerns.  Management
believes that the risk factor embedded in the entry-value  interest rates, along
with the general  reserves  applicable to the loan portfolio for which there are
no  known  credit  concerns,  result  in a fair  valuation  of such  loans on an
entry-value basis.

Deposits  - The  fair  value  of  deposits  with  no  stated  maturity  such  as
non-interest-bearing  demand  deposits,  savings,  NOW accounts and money market
accounts  was equal to the  amount  payable  on  demand.  The fair value of time
deposits with stated  maturity was based on the discounted  value of contractual
cash flows.  The discount rate was estimated using rates currently  available in
the local market.

Federal Home Loan Bank  Advances - The fair value of FHLB  advances was based on
the  discounted  cash flow method.  The discount rate was estimated  using rates
currently available from FHLB.

Other - The carrying value of other financial instruments was determined to be a
reasonable estimate of their fair value.
<PAGE>

Limitations - The fair value estimates  presented herein were based on pertinent
information  available to management as of September 30, 2001 and 2000. Although
management  was not aware of any  factors  that would  significantly  affect the
estimated  fair  value  amounts,  such  amounts  have not  been  comprehensively
revalued  for  purposes  of  these  financial  statements  on those  dates  and,
therefore,  current  estimates of fair value may differ  significantly  from the
amounts presented herein.

Fair  value  estimates  were based on  existing  financial  instruments  without
attempting to estimate the value of anticipated future business.  The fair value
has not been  estimated  for assets  and  liabilities  that were not  considered
financial instruments.

(20) 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, 2001.

As of September 30, 2001, 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 2001 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 2001  financial  statements  cannot be  presently
determined.

<PAGE>

The  Association's  actual and required  minimum capital ratios are presented in
the following table:
<TABLE>
<CAPTION>
                                                                                                            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:                       $81,046,601           10.4%          $62,600,992        8.0%      $78,251,240           10.0%
  (To Risk Weighted Assets)
 Tier I Capital:                       73,162,799            9.3%               N/A           N/A        46,950,744            6.0%
  (To Risk Weighted Assets)
 Tier I Capital:                       73,162,799            5.2%           56,671,203        4.0%       70,839,004            5.0%
  (To Total Assets)
 Tangible Capital:                     73,162,799            5.2%           21,251,701        1.5%            N/A              N/A
  (To Tangible Assets)

As of September 30, 2000
 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)
</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,
                                         ---------------------------------------
                                              2001                     2000
                                        --------------             -------------

<S>                                      <C>                       <C>
Association's equity                     $ 118,772,559             $108,921,434
Unrealized securities (gains)losses         (1,520,834)               1,356,040
Core deposit intangible                    (44,088,926)              (8,125,664)
                                           -----------              -----------
Tangible capital                            73,162,799              102,151,810
General valuation allowances                 7,883,802                3,944,506
                                           -----------              -----------
Total capital                              $81,046,601             $106,096,316
                                           ===========             ============
</TABLE>

<PAGE>


(21) Parent Company Financial Information

Condensed  financial  information as of September 30, 2001 and 2000 and for each
of the three years in the period ended  September  30, 2001,  for Klamath  First
Bancorp,  Inc.  is  presented  and  should  be  read  in  conjunction  with  the
consolidated financial statements and the notes thereto:


BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                       September 30,
                                                          ------------------------------------
                                                                2001                   2000
                                                          -------------           ------------
Assets

<S>                                                        <C>                    <C>
Cash and cash equivalents                                  $  5,637,989           $    731,987
Investment and mortgage backed securities                     1,500,584              2,138,224
Investment in wholly-owned subsidiary                       118,772,559            108,921,434
Other assets                                                  5,269,368              1,266,667
                                                           ------------           ------------
Total assets                                               $131,180,500           $113,058,312
                                                           ============           ============
Liabilities

Short-term borrowings                                        $1,700,000             $3,000,000
Other liabilities                                               785,911              1,333,751
                                                           ------------            -----------
Total liabilities                                             2,485,911              4,333,751
                                                           ------------            -----------
Mandatorily redeemable preferred securities                  14,553,684                     --
                                                           ------------            -----------
Shareholders' equity

Common stock                                                     70,607                 73,662
Additional paid-in capital                                   33,926,796             37,701,796
Retained earnings                                            85,355,871             78,340,731
Unearned ESOP shares at cost                                (3,913,510)            (4,893,250)
Unearned MRDP shares at cost                                (1,298,859)            (2,498,378)
                                                           ------------           ------------
Total shareholders' equity                                  114,140,905            108,724,561
                                                           ------------           ------------
Total liabilities and shareholders' equity                 $131,180,500           $113,058,312
                                                           ============           ============
</TABLE>
<PAGE>

STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
                                                                            Year Ended September 30,
                                                            ---------------------------------------------------------
                                                                2001                   2000                   1999
                                                            -----------             ----------             ----------
<S>                                                          <C>                    <C>                    <C>
Equity in undistributed income of subsidiary                 $8,271,234             $7,065,690             $9,221,480
Total interest income                                           730,727                789,684              1,675,756
Total interest expense                                          268,185                120,412                177,568
Non-interest income                                                  --                    203                     77
Non-interest expense                                          1,641,346              1,746,138              1,631,674
                                                             ----------             ----------             ----------
Earnings before income taxes                                  7,092,430              5,989,027              9,088,071
Provision for income taxes                                     (478,572)              (437,125)               (67,122)
                                                             ----------             ----------             ----------
Net earnings                                                 $7,571,002             $6,426,152             $9,155,193
                                                             ==========             ==========             ==========
</TABLE>


STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                        Year Ended September 30,
                                                             --------------------------------------------------------
                                                                2001                   2000                   1999
                                                             ----------             ----------            -----------
<S>                                                         <C>                     <C>                   <C>
Net cash flows from operating activities                    $ 8,229,769             $  721,914            $   963,814
                                                             ----------             ----------            -----------
Cash flows from investing activities
Investment in subsidiary                                    (10,306,546)              (278,916)              (302,892)
Maturity of investment and mortgage- backed securities          683,893                610,081             76,275,337
Purchase of investment and mortgage-backed securities                --                     --            (58,814,489)
                                                             ----------             ----------            -----------
Net cash flows provided by (used in) investing activities    (9,622,653)               331,165             17,157,956
                                                             ----------             ----------            -----------
Cash flows from financing activities
Cost of ESOP shares released                                    979,740                978,650                978,650
Proceeds from short-term borrowings                           3,400,000              3,700,000              8,095,000
Repayments of short-term borrowings                          (4,700,000)              (700,000)           (20,207,500)
Issuance of mandatorily redeemable preferred securities      14,553,684                     --                     --
Stock repurchase and retirement                              (7,399,423)            (6,254,695)           (39,334,140)
Stock options exercised                                       3,211,189                     --                     --
Dividends paid                                               (3,746,304)            (3,889,202)            (3,547,040)
                                                             ----------             ----------            -----------
Net cash flows provided by (used in) financing activities     6,298,886             (6,165,247)           (54,015,030)
                                                             ----------            ------------           ------------
Net decrease in cash and cash equivalents                     4,906,002             (5,112,168)           (35,893,260)

Cash and cash equivalents beginning of year                     731,987              5,844,155             41,737,415
                                                             ----------             ----------             ----------
Cash and cash equivalents end of year                        $5,637,989               $731,987             $5,844,155
                                                             ==========               ========             ==========
</TABLE>


<PAGE>


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


                                                                       Year Ended September 30, 2001
                                                        ---------------------------------------------------------
                                                         December           March            June       September
                                                        ----------       ---------       ---------      ---------
                                                                   (In thousands, except per share data)

<S>                                                       <C>             <C>             <C>             <C>
Total interest income                                     $17,816         $17,450         $16,782         $18,085
Total interest expense                                     10,338          10,153           9,916          10,344
                                                           ------          ------          ------          ------
Net interest income                                         7,478           7,297           6,866           7,741
Provision for loan losses                                     228             153               3               3
                                                           ------          ------          ------          ------
Net interest income after provision                         7,250           7,144           6,863           7,738
Non-interest income                                         1,114           3,708           3,200           2,991
Non-interest expense                                        5,783           6,209           6,862           9,866
                                                           ------          ------          ------          ------
Earnings before income taxes                                2,581           4,643           3,201             863
Provision for income tax                                      896           1,688           1,085              48
                                                           ------          ------          ------          ------
Net earnings                                               $1,685          $2,955          $2,116            $815
                                                           ======          ======          ======           =====
Net earnings per share - basic                              $0.25           $0.45           $0.32           $0.12
                                                           ======          ======          ======           =====
Net earnings per share - fully diluted                      $0.25           $0.45           $0.31           $0.12
                                                           ======          ======          ======           =====
</TABLE>
<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 tax                                    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
                                                           ======          ======          ======           =====
</TABLE>


<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                              Executive 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 30, 2002
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 30, 2001 shall
10 Commerce Drive                                    be those entitled to notice
Cranford, NJ 07016-3572                              of and to vote at the
800-866-1340                                         meeting.