SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                  For the Fiscal Year Ended September 30, 2000

                                       OR

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

                         Commission File Number: 0-26556

                           KLAMATH FIRST BANCORP, INC.
             (Exact name of registrant as specified in its charter)

Oregon                                                                93-1180440
(State or other jurisdiction of incorporation                   (I.R.S. Employer
or organization)                                                    I.D. Number)

540 Main Street, Klamath Falls, Oregon                                     97601
 (Address of principal executive offices)                             (Zip Code)

Registrant's telephone number, including area code:               (541) 882-3444

Securities registered pursuant to Section 12(b) of the Act:                 None

Securities registered pursuant
to Section 12(g) of the Act:              Common Stock, par value $.01 per share
                                                                (Title of Class)

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

Indicate by check mark whether  disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's  knowledge,  in definitive  proxy or other  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendments to this Form 10-K. YES X NO

As of November 22, 2000,  there were issued and outstanding  7,318,726 shares of
the  Registrant's   common  stock.  The  Registrant's  voting  stock  is  traded
over-the-counter  and is listed on the Nasdaq  National  Market under the symbol
"KFBI." The aggregate  market value of the voting stock held by nonaffiliates of
the  Registrant,  based on the closing  sales price of the  Registrant's  common
stock as quoted on the Nasdaq  National  Market on November  22, 2000 of $11.50,
was $66,603,515.

                       DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of Registrant's  Annual Report to  Shareholders  for the Fiscal Year
Ended September 30, 2000 ("Annual Report") (Parts I and II).

2.  Portions of  Registrant's  Definitive  Proxy  Statement  for the 2000 Annual
Meeting of Shareholders (Part III).



<PAGE>

                                     PART I
Item 1.  Business

General

     Klamath  First  Bancorp,  Inc.  ("Company"),  an  Oregon  corporation,  was
organized on June 16, 1995 for the purpose of becoming  the holding  company for
Klamath  First Federal  Savings and Loan  Association  ("Association")  upon the
Association's  conversion  from a federal  mutual to a federal stock savings and
loan  association  ("Conversion").  The  Conversion  was completed on October 4,
1995.  At September  30, 2000,  the Company had total assets of $995.6  million,
total deposits of $695.4 million and shareholders' equity of $108.7 million. All
references to the Company herein include the Association where applicable.

     The  Association was organized in 1934. 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 also is a member
of the Federal Home Loan Bank ("FHLB") System through the FHLB of Seattle.

     In July 1997,  the  Association  acquired 25 former First  Interstate  Bank
branches  from Wells  Fargo Bank,  N.A.  The new  branches  are located in rural
communities throughout Oregon,  expanding and complementing the existing network
of branches. The acquisition was accounted for as a purchase and resulted in the
addition of approximately  $241.3 million in deposits on the acquisition date of
July 18, 1997.

     The Association is a  community-oriented  savings and loan association 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 within its
market area,  as well as  commercial  real estate and  multi-family  residential
loans, loans to consumers,  and loans for commercial purposes.  At September 30,
2000, permanent residential one- to four-family real estate loans totaled $639.2
million,  or  85.12% of total  loans.  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 loans,  multi-family  residential  loans,  residential  construction
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.  At September 30, 2000, the Association's  total loan
portfolio consisted of 89.38% fixed rate and 10.62% adjustable rate loans, after
deducting loans in process and non-performing loans.

Announcement of Stock Repurchase

     In May 2000,  the Company  announced  its intention to repurchase 5% of its
outstanding  common stock, or approximately  375,648 shares,  to be accomplished
through the open market over a twelve month  period.  As of September  30, 2000,
the Company had repurchased  125,000 shares, or 33.28% of the planned shares, at
a weighted average price of $11.20.

Market Area

     As a result of the branch  acquisition  in 1997, the  Association's  market
area expanded to include 33 locations in 22 of Oregon's 36 counties.  Since that
time three more branch  locations were added. The  Association's  primary market
area,  which  encompasses  the  State  of  Oregon  and  some  adjacent  areas of
California and Washington,  can be characterized  as a predominantly  rural area
containing  a number of  communities  that are  experiencing  moderate  to rapid
population  growth.  The  favorable   population  growth  in  the  market  area,
particularly  in  Southern  Oregon,  has been  supported  in  large  part by the
favorable  climate,  and by  favorable  real estate  values.  The economy of the
market  area is  still  based  primarily  on  agriculture  and  lumber  and wood
products, but is experiencing diversification into light

                                        1
<PAGE>

manufacturing,  health care and other services, and other sectors.  Tourism is a
significant industry in many regions of the market area including Central Oregon
and the Southern Oregon coast.

Yields Earned and Rates Paid

     The following table sets forth,  for the periods and at the date indicated,
the weighted  average  yields earned on  interest-earning  assets,  the weighted
average interest rates paid on  interest-bearing  liabilities,  and the interest
rate spread between the weighted average yields earned and rates paid.
<TABLE>
<CAPTION>

                                                                                Year Ended
                                                         At                     September 30,
                                                    September 30,       --------------------------
                                                        2000            2000       1999       1998
                                                    -------------       ----       ----       ----
Weighted average yield:
<S>                                                        <C>          <C>        <C>        <C>
   Loans receivable ..............................         7.56%        7.64%      7.80%      8.06%
   Mortgage backed and related securities ........         6.75         5.86       5.50       6.03
   Investment securities .........................         6.60         6.00       5.88       6.05
   Federal funds sold ............................         6.69         5.59       4.93       5.45
   Interest-earning deposits .....................         6.50         5.63       4.75       5.35
   FHLB stock ....................................         6.50         6.69       7.50       7.73

Combined weighted average yield on
 interest-bearing assets .........................         7.35         7.22       7.25       7.34
                                                    -------------       ----       ----       ----
Weighted average rate paid on:
   Tax and insurance reserve .....................         2.28         2.02       2.07       2.47
   Passbook and statement savings ................         2.31         1.78       2.15       2.70
   Interest-bearing checking .....................         1.14         1.12       1.23       1.48
   Money market ..................................         4.30         4.17       3.87       3.86
   Certificates of deposit .......................         5.98         5.40       5.38       5.69
   FHLB advances/Short term borrowings ...........         5.95         5.90       5.26       5.63

Combined weighted average rate on
 interest-bearing liabilities ....................         5.16         4.72       4.52       4.77
                                                    -------------       ----       ----       ----
Net interest spread ..............................         2.19%        2.50%      2.73%      2.57%
                                                    =============       ====       ====       ====
</TABLE>


Average Balances, Net Interest Income and Yields Earned and Rates Paid

     Reference is made to the section entitled "Average  Balances,  Net Interest
Income and Yields Earned and Rates Paid" on page 13 of the 2000 Annual Report to
Shareholders  ("Annual  Report"),   which  section  is  incorporated  herein  by
reference.

                                        2
<PAGE>

Interest Sensitivity Gap Analysis

     Reference  is  made  to the  section  entitled  "Interest  Sensitivity  Gap
Analysis" on page 10 of the Annual Report,  which section is incorporated herein
by reference.

Rate/Volume Analysis

     Reference is made to the section entitled "Rate/Volume Analysis" on page 14
of the Annual Report, which section is incorporated herein by reference.


Lending Activities

     General.  As a  federally  chartered  savings  and  loan  association,  the
Association has authority to originate and purchase loans secured by real estate
located  throughout the United States.  Notwithstanding  this nationwide lending
authority,  over 82% of the mortgage  loans in the  Association's  portfolio are
secured by  properties  located in Klamath,  Jackson and  Deschutes  counties in
Southern  and Central  Oregon.  With the  expanded  market area  provided by the
branch  acquisition in 1997, the Association's  mortgage lending has diversified
throughout the state of Oregon. It is management's intention,  subject to market
conditions,  that the Association will continue to originate  long-term mortgage
loans  for the  purchase,  construction  or  refinance  of  one- to  four-family
residential  real  estate to meet the needs of  customers  in our  market  area.
However,  to  enhance  interest  income  and  reduce  interest  rate  risk,  the
Association  is placing  increased  emphasis on the  origination  or purchase of
adjustable rate loans secured by one- to four-family  residential,  multi-family
residential  and  commercial  real  estate,  the  majority  of which are located
outside Klamath, Jackson, and Deschutes counties.  Subject to market conditions,
the  Association  sells  loans  to the  Federal  National  Mortgage  Association
("Fannie Mae").

     Permanent residential one- to four-family mortgage loans amounted to $639.2
million,  or 85.12%, of the Association's total loan portfolio before net items,
at  September  30,  2000.  The  Association  originates  other loans  secured by
multi-family  residential  and  commercial  real estate,  construction  and land
loans.  Those loans  amounted  to $90.0  million,  or 11.98%,  of the total loan
portfolio,  before net items,  at September 30, 2000.  Approximately  2.90%,  or
$21.8 million, of the Association's  total loan portfolio,  before net items, as
of September 30, 2000, consisted of non-real estate loans.

     Permissible  loans-to-one borrower by the Association are generally limited
to 15% of unimpaired capital and surplus. The Association's loan-to-one borrower
limitation  was $16.3 million at September 30, 2000. At September 30, 2000,  the
Association had 26 borrowing  relationships with outstanding  balances in excess
of $1.0 million,  the largest of which amounted to $5.9 million and consisted of
28 loans,  27 of which were  secured  by  commercial,  multi-  family and single
family real estate and one which is an unsecured line of credit.

     The  Association  has emphasized the  origination or purchase of adjustable
rate  loans in order to  increase  the  interest  rate  sensitivity  of its loan
portfolio.  The  Association  has been successful in expanding the production of
adjustable rate consumer loans and has purchased  adjustable rate single family,
multi-family   residential   and   non-residential   real  estate   loans.   See
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS  --  Market  Risk  and  Asset/Liability   Management"  and  "INTEREST
SENSITIVITY  GAP ANALYSIS" in the Annual  Report.  At September 30, 2000,  $78.6
million,  or 10.62% of loans in the  Association's  total loan portfolio,  after
loans in process and non-performing loans, consisted of adjustable rate loans.


                                        3
<PAGE>


Loan Portfolio  Analysis.  The following table sets forth the composition of the
loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>


                                                                              At September 30,
                                   -------------------------------------------------------------------------------------------------
                                           2000                1999                1998                1997               1996
                                   ------------------   -----------------    ----------------    ----------------   ----------------
                                     Amount   Percent     Amount  Percent      Amount Percent     Amount  Percent    Amount  Percent
                                   --------   -------   --------  -------    -------- -------    -------- -------   -------- -------
                                                                            (Dollars in thousands)


Real estate loans:
  Permanent residential
<S>                                <C>        <C>       <C>        <C>       <C>      <C>        <C>       <C>      <C>      <C>
    one- to four-family .........  $639,165    85.12%   $647,130    83.56%   $577,471  81.95%    $498,595   86.47%  $447,004  91.50%
  Multi-family residential ......    19,015     2.53      18,412     2.38      19,230   2.73       16,881    2.93      6,555   1.34
  Construction ..................    25,289     3.37      53,219     6.87      64,289   9.12       30,487    5.29     14,276   2.92
  Commercial ....................    42,277     5.63      37,079     4.79      29,457   4.18       22,639    3.93     15,645   3.20
  Land ..........................     3,394     0.45       2,064     0.27       2,185   0.31        1,586    0.27      1,152   0.24
                                   --------    -----    --------    -----    --------  -----     --------   -----   --------  -----
Total real estate loans .........   729,140    97.10     757,904    97.87     692,632  98.29      570,188   98.89    484,632  99.20
                                   --------    -----    --------    -----    --------  -----     --------   -----   --------  -----
Non-real estate loans:
  Savings accounts ..............     1,957     0.26       1,800     0.23       1,991   0.28        1,711    0.30      1,640   0.34
  Home improvement and home eq. .     8,338     1.11       6,726     0.87       5,750   0.82        3,486    0.60      1,977   0.40
  Other .........................    11,474     1.53       8,011     1.03       4,330   0.61        1,190    0.21        302   0.06
                                   --------    -----    --------    -----    --------  -----      --------   ----   --------  -----
Total non-real estate loans .....    21,769     2.90      16,537     2.13      12,071   1.71        6,387    1.11      3,919   0.80
                                   --------    -----    --------    -----    --------  -----      --------   ----   --------  -----
 Total loans ....................   750,909   100.00%    774,441   100.00%    704,703 100.00%     576,575  100.00%   488,551 100.00%
                                              ======               ======             ======               ======            ======
Less:
Undisbursed portion of loans ....    10,350               24,176               26,987              17,096              8,622
Deferred loan fees ..............     7,440                7,988                7,620               6,358              5,445
Allowance for loan losses .......     4,082                2,484                1,950               1,296                928
                                   --------             --------            ---------            --------           --------
Net loans .......................  $729,037             $739,793             $668,146            $551,825           $473,556
                                   ========             ========            =========            ========           ========
</TABLE>


                                        4
<PAGE>


     The following table sets forth the amount of fixed-rate and adjustable rate
loans, net of loans in process and non-performing  loans,  included in the total
loan portfolio at the dates indicated.
<TABLE>
<CAPTION>

                                            At September 30,
                               -----------------------------------------
                                      2000                   1999
                               -------------------    ------------------
                                Amount    Percent       Amount   Percent
                               --------   -------     --------   -------
                                         (Dollars in thousands)

<S>                            <C>         <C>         <C>        <C>
Fixed rate...................  $661,160     89.38%     $676,644    90.59%
Adjustable-rate..............    78,598     10.62        70,309     9.41
                               --------    ------      --------   ------
     Total...................  $739,758    100.00%     $746,953   100.00%
                               ========    ======      ========   ======
</TABLE>

     Permanent  Residential  One- to  Four-Family  Mortgage  Loans.  The primary
lending  activity  of the  Association  has been the  origination  of  permanent
residential one- to four-family  mortgage loans.  Management  believes that this
policy  of  focusing  on  single-family  residential  mortgage  loans  has  been
successful in contributing to interest  income while keeping  delinquencies  and
losses to a minimum.  At September 30, 2000,  $639.2 million,  or 85.12%, of the
Association's  total loan  portfolio,  before net items,  consisted of permanent
residential  one- to four-family  mortgage  loans.  As of such date, the average
balance of the Association's  permanent residential one- to four-family mortgage
loans was $75,924.

     The Association  presently  originates  both fixed-rate  mortgage loans and
adjustable  rate mortgages  ("ARMs")  secured by one- to four-family  properties
with terms of 15 to 30 years. Historically,  most of the loans originated by the
Association   have  been  fixed  rate  loans  secured  by  one-  to  four-family
properties.  At September 30, 2000, $611.9 million, or 82.71% of the total loans
after  loans in  process  and  non-performing  loans  were  fixed  rate  one- to
four-family loans and $35.6 million,  or 4.81%, were ARM loans.  Borrower demand
for ARM loans  versus  fixed-rate  mortgage  loans is a function of the level of
interest rates,  the  expectations of changes in the level of interest rates and
the difference between the initial interest rates and fees charged for each type
of loan. The relative amount of fixed-rate mortgage loans and ARM loans that can
be  originated  at any time is  largely  determined  by the demand for each in a
competitive environment.

     The  Association  qualifies the ARM loan borrower  based on the  borrower's
ability  to repay the loan  using  the  fully  indexed  rate.  As a result,  the
Association  believes that the potential for  delinquencies  and defaults on ARM
loans when rates adjust upwards is lessened.

     The  loan  fees  charged,  interest  rates  and  other  provisions  of  the
Association's  ARM loans are  determined by the  Association on the basis of its
own pricing criteria and competitive market  conditions.  At September 30, 2000,
the Association  charged origination fees ranging from 1.00% to 1.75% on its ARM
loans.

     In an attempt to increase  adjustable rate mortgages in the loan portfolio,
the  Association  uses below market  "teaser" rates which are  competitive  with
other  institutions  originating  mortgages in the Association's  primary market
area.  Initially,  ARM loans are priced at the competitive teaser rate and after
one year reprice at 2.875% over the One-Year  Constant  Maturity  Treasury  Bill
Index,  with a maximum  increase  or decrease of 2.00% in any one year and 6.00%
over the life of the loan. The  Association  has also  introduced  variable rate
loan  products  that bear fixed rates for the first three or five years and then
reprice  annually  thereafter.  As a supplement to origination of ARM loans, the
Association  purchases ARMs from other  institutions  when suitable loans can be
found which meet its underwriting criteria.

     The retention of ARM loans in the Association's loan portfolio helps reduce
the  Association's  exposure to changes in interest rates.  There are,  however,
unquantifiable  credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that, during periods
of  rising  interest  rates,  the risk of default on ARM loans may increase as a

                                        5
<PAGE>


result  of  repricing  with  increased  costs  to the  borrower.  The ARM  loans
originated by the Association  generally provide, as a marketing incentive,  for
initial rates of interest  below the rates which would apply were the adjustment
index used for pricing  initially  (discounting).  Increased risks of default or
delinquency could occur because of discounting the rate.  Another  consideration
is that although ARM loans allow the  Association to increase the sensitivity of
its asset base to changes in the  interest  rates,  the extent of this  interest
sensitivity  is limited by the periodic and lifetime  interest  rate  adjustment
limits.  Because of these considerations,  the Association has no assurance that
yields on ARM loans will be sufficient to offset increases in the  Association's
cost of funds.

     The loan-to-value ratio, maturity and other provisions of the loans made by
the  Association  generally  have  reflected  the  policy  of  making  loans  in
accordance  with sound lending  practices,  market  conditions and  underwriting
standards established by the Association.  The Association's lending policies on
permanent  residential  one- to four-family  mortgage loans  generally limit the
maximum  loan-to-value  ratio to 97% of the  lesser  of the  appraised  value or
purchase price of the property.  All permanent  residential  one- to four-family
mortgage loans in excess of an 80% loan-to-value  ratio require private mortgage
insurance.

     The Association also has a limited amount of  non-owner-occupied  permanent
residential one- to four-family mortgage loans in its portfolio. These loans are
underwritten  using  generally  the same  criteria as  owner-occupied  permanent
residential  one-  to  four-family  mortgage  loans,  except  that  the  maximum
loan-to-value  ratio is generally  80% of the lesser of the  appraised  value or
purchase  price of the  property  and such loans are  generally  provided  at an
interest rate higher than owner-occupied loans.

     The  Association   offers   fixed-rate,   permanent   residential  one-  to
four-family  mortgage  loans  with  terms of 15 to 30 years.  Substantially  all
permanent one- to four-family loans have original  contractual terms to maturity
of 30 years.  Such loans are  amortized on a monthly  basis with  principal  and
interest  due each month and  customarily  include  "due-on-sale"  clauses.  The
Association   enforces   due-on-sale  clauses  to  the  extent  permitted  under
applicable laws.  Substantially all of the Association's mortgage loan portfolio
consists of conventional loans.

     Historically,  the  Association has not originated  significant  amounts of
mortgage loans on second  residences.  However,  with the branch offices in Bend
and the loan center in Redmond, located near popular ski areas and other outdoor
activities,  and the branches  along the Southern  Oregon  coast,  located in an
increasingly  popular resort and vacation area,  the  Association  believes that
there is an  opportunity  to engage in such lending within the parameters of its
current underwriting policies. At September 30, 2000, $4.7 million, or 0.62%, of
the Association's loan portfolio consisted of loans on second homes.

     Commercial  and  Multi-Family   Real  Estate  Loans.  The  Association  has
historically  engaged in a limited amount of  multi-family  and commercial  real
estate lending.  The Association  purchases  participations  in loans secured by
multi-family  and  commercial  real estate in order to  increase  the balance of
adjustable rate loans in the portfolio.  See "-- Loan  Originations,  Purchases,
and Sales." At September 30, 2000, $19.0 million, or 2.53%, of the Association's
total loan portfolio,  before net items,  consisted of loans secured by existing
multi-family  residential  real  estate  and $42.3  million,  or  5.63%,  of the
Association's total loan portfolio, before net items, consisted of loans secured
by  existing   commercial  real  estate.   The   Association's   commercial  and
multi-family  real  estate  loans  primarily  include  loans  secured  by office
buildings,  small  shopping  centers,  churches,   mini-storage  warehouses  and
apartment buildings.  All of the Association's  commercial and multi-family real
estate  loans are secured by  properties  located in the  Association's  primary
market area. The average outstanding balance of commercial and multi-family real
estate loans was $276,092 at September 30, 2000, the largest of which was a $2.3
million  commercial real estate loan secured by a medical office building.  This
loan has performed in accordance with its terms since origination.  Originations
of commercial real estate and  multi-family  residential real estate amounted to
11.09%,  5.74%, and 3.20% of the  Association's  total loan  originations in the
fiscal  years ended  September  30,  2000,  1999,  and 1998,  respectively.  The
Association  also  purchased  $2.4  million  in  multi-family  residential  loan
participations and $937,000 in commercial real estate participations  during the

                                        6
<PAGE>


year  ended   September  30,  1999  and  $507,600  in  commercial   real  estate
participations during the year ended September 30, 2000.

     The  Association's  commercial and multi-family  loans generally have terms
which  range  up to 25  years  and  loan-to-value  ratios  of  up  to  75%.  The
Association  currently  originates  fixed and  adjustable  rate  commercial  and
multi-family  real  estate  loans.   Commercial  real  estate  and  multi-family
adjustable rate loans are priced to be competitive with other commercial lenders
in the  Association's  market  area.  A variety of terms are  available  to meet
specific  commercial  and  multi-family   residential  financing  needs.  As  of
September  30,  2000,  $31.5  million,  or 4.26%,  after  loans in  process  and
non-performing  loans,  of  other  mortgage  loans,   including  commercial  and
multi-family residential real estate loans, had adjustable rates of interest.

     Multi-family  residential  and commercial  real estate lending is generally
considered to involve a higher degree of risk than permanent residential one- to
four-family  lending.  Such  lending  typically  involves  large  loan  balances
concentrated in a single borrower or groups of related  borrowers.  In addition,
the  payment  experience  on loans  secured by  income-producing  properties  is
typically  dependent  on the  successful  operation  of the related  real estate
project and thus may be subject to a greater extent to adverse conditions in the
real  estate  market or in the  economy  generally.  The  Association  generally
attempts to mitigate the risks  associated  with  multi-family  residential  and
commercial  real estate  lending by, among other  things,  lending on collateral
located in its market area and following strict  underwriting  standards.  Loans
considered  for purchase are  subjected  to the same  underwriting  standards as
those originated in- house.

     Construction  Loans. The Association  makes all-in-one  construction  loans
(construction loans that convert to permanent  financing) to individuals for the
construction of their single-family residences. The Association also makes loans
to builders  for the  construction  of  single-family  residences  which are not
presold at the time of origination ("speculative loans"). Permanent construction
loans generally begin to amortize as permanent  residential  one- to four-family
mortgage loans within one year of origination unless extended. Speculative loans
are scheduled to pay off in 12 to 18 months. At September 30, 2000, construction
loans amounted to $25.3 million (including $13.2 million of speculative  loans),
or 3.37%, of the  Association's  total loan portfolio before net items.  Much of
the Company's speculative construction lending had been in the Portland,  Oregon
market.  There was a softening  in the market due to rising  interest  rates and
oversupply  in that  market.  As a result,  construction  loan volume  decreased
significantly during the year ended September 30, 2000.  Permanent  construction
loans have rates and terms which generally match the non-construction loans then
offered by the  Association,  except that  during the  construction  phase,  the
borrower pays only interest on the loan.  The  Association's  construction  loan
agreements  generally  provide that loan proceeds are disbursed in increments as
construction  progresses.  The Association  periodically reviews the progress of
the underlying  construction  project through  physical  inspections.  Permanent
construction loans are underwritten pursuant to the same general guidelines used
for  originating  permanent one- to four-family  loans.  Permanent  construction
lending is generally limited to the Association's primary market area.

     Construction  financing is generally  considered to involve a higher degree
of risk of loss than financing on improved,  owner-occupied  real estate because
of the  uncertainties  of  construction,  including  the  possibility  of  costs
exceeding the initial estimates and, in the case of speculative  loans, the need
to  obtain a  purchaser.  The  Association  has  sought  to  minimize  the risks
associated with permanent construction lending by limiting construction loans to
qualified  owner-occupied  borrowers  with  construction  performed by qualified
state licensed  builders  located  primarily in the  Association's  market area.
During  1997,  the  Association  began  originating  construction  loans  in the
Portland,  Oregon  metropolitan area through mortgage  brokers.  These loans are
underwritten using the same standards as loans from the branch locations.

     The  Association's  underwriting  criteria  are  designed to  evaluate  and
minimize the risks of each construction  loan.  Interim  construction  loans are
qualified at permanent  rates in order to ensure the  capability of the borrower
to repay the loan.

     Loan proceeds are disbursed only as construction progresses and inspections
warrant.  These loans are  underwritten  to the same  standards  and to the same
terms and requirements as one- to four-family purchase  mortgage  loans,  except
                                        7
<PAGE>


the loans provide for  disbursement of funds during a construction  period of up
to one year.  During this  period,  the  borrower  is  required to make  monthly
payments of accrued  interest on the  outstanding  loan  balance.  Disbursements
during  the  construction  period  are  limited  to no more than the  percent of
completion.  Up to 97%  loan-to-value  upon  completion of  construction  may be
disbursed if private mortgage insurance above 80% loan-to-value is in place.

     Land Loans.  The Association  makes loans to individuals for the purpose of
acquiring  land upon  which to build  their  permanent  residence.  These  loans
generally have 20 year amortization  periods, with a balloon payment due in five
years, and maximum  loan-to-value  ratios of 80%. As of September 30, 2000, $3.4
million,  or 0.45%, of the Association's  total loan portfolio consisted of land
loans.

     Non-Real  Estate Loans.  Non-real  estate  lending is a growing part of the
Association's  business.  During 1997, the  Association  introduced  several new
business  and consumer  loan  products,  including  home equity lines of credit,
automobile and  recreational  vehicle loans,  and personal and business lines of
credit,  among others.  Non-real  estate loans  generally  have shorter terms to
maturity or repricing and higher  interest  rates than real estate loans.  As of
September 30, 2000,  $21.8 million,  or 2.90%, of the  Association's  total loan
portfolio  consisted of non-real estate loans. As of that date, $2.0 million, or
0.26%, of total loans were secured by savings  accounts.  At September 30, 2000,
$1.6  million,  or 0.21%,  of non-real  estate  loans  consisted of Title I home
improvement  loans insured by the Federal  Housing  Administration  and most are
secured by liens on the real property.  Other non-real estate loans at September
30, 2000  include  $4.3 million in consumer  automobile  loans,  $2.0 million in
unsecured  business  lines of credit and $1.3  million in  commercial  equipment
loans.


     Loan  Maturity  and  Repricing.  The  following  table sets  forth  certain
information  at September  30, 2000  regarding the dollar amount of total loans,
after loans in process and non-performing  loans,  maturing in the Association's
portfolio,  based on the contractual terms to maturity or repricing date. Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less.

<TABLE>
<CAPTION>

                                         After One Year
                       Within One Year  Through 5 Years   After 5 Years       Total
                       ---------------  ---------------   -------------   ----------
                                         (In thousands)

Permanent residential
   one- to four-family:
<S>                       <C>             <C>             <C>             <C>
  Adjustable rate .....   $   25,415      $    9,956      $      220      $   35,591
  Fixed rate ..........        5,621           2,577         603,689         611,887
Other mortgage loans:
  Adjustable rate .....       14,278          17,247            --            31,525
  Fixed rate ..........        5,396          12,117          21,568          39,081
Non-real estate loans:
   Adjustable rate ....       11,316             166            --            11,482
   Fixed rate .........        1,697           6,290           2,205          10,192
                          ----------      ----------      ----------      ----------
    Total loans .......   $   63,723      $   48,353      $  627,682      $  739,758
                          ==========      ==========      ==========      ==========
</TABLE>

     Scheduled  contractual  amortization  of loans does not  reflect the actual
term  of the  Association's  loan  portfolio.  The  average  life  of  loans  is
substantially  less than their  contractual  terms  because of  prepayments  and
due-on-sale  clauses,  which  gives  the  Association  the  right to  declare  a
conventional loan immediately due and payable in the event,  among other things,
that the borrower  sells the real property  subject to the mortgage and the loan
is not repaid.

     The dollar amount of all loans, net of loans in process and  non-performing
loans,  due one year after  September 30, 2000,  which have fixed interest rates
and have adjustable rates, was $648.4 million and $27.6 million, respectively.

                                        8
<PAGE>

     Loan  Commitments.   The  Association  issues  commitments  for  fixed  and
adjustable rate loans  conditioned  upon the occurrence of certain events.  Such
commitments are made on specified terms and conditions and are honored for up to
45 days from  commitment.  The Association had outstanding  loan  commitments of
approximately  $16.4 million at September 30, 2000 consisting of $3.8 million of
variable rate loans and $12.6 million of fixed rate loans.  See Note 18 of Notes
to the Consolidated Financial Statements.

     Loan  Solicitation and Processing.  The Association  originates real estate
and other loans at each of its  offices.  Loan  originations  are  obtained by a
variety of sources, including mortgage brokers,  developers,  builders, existing
customers,  newspapers,  radio,  periodical  advertising and walk-in  customers,
although  referrals  from  local  realtors  has been the  primary  source.  Loan
applications are taken by lending personnel,  and the loan processing department
obtains credit reports, appraisals and other documentation involved with a loan.
All of the  Association's  lending is subject to its  written  nondiscriminatory
underwriting  standards,   loan  origination  procedures  and  lending  policies
prescribed by the  Association's  Board of Directors.  Property  valuations  are
required on all real estate loans and are prepared by employees  experienced  in
the  field  of  real  estate  or  by  independent  appraisers  approved  by  the
Association's  Board of  Directors.  Additionally,  all  appraisals  on loans in
excess of $250,000 must meet applicable regulatory standards.

     The  Association's   loan  approval  process  is  intended  to  assess  the
borrower's ability to repay the loan, the viability of the loan, the adequacy of
the  value of the  property  that will  secure  the  loan,  and,  in the case of
commercial and multi-family  real estate loans, the cash flow of the project and
the quality of management involved with the project.  The Association  generally
requires title insurance on all loans and also that borrowers  provide  evidence
of fire and extended casualty insurance in amounts and through insurers that are
acceptable to the  Association.  A loan  application file is first reviewed by a
loan officer of the  Association,  then is submitted to underwriting and finally
is presented to the loan committee for approval.  The  Association can generally
make  loan  commitments,  subject  to  property  valuation  and  possible  other
conditions  of approval,  in three to five days if income and credit data of the
borrower are readily available.

     Loan  Originations,  Purchases and Sales.  The  Association  has originated
substantially all of the loans in its portfolio. During the year ended September
30, 2000, the Association  originated $97.2 million in total loans,  compared to
$224.2  million  in  the  same  period  of  1999.  The  reduced  level  of  loan
originations was attributable to increasing  interest rates. The Association has
a program to sell loans to Fannie Mae.  Through  this  program,  $6.3 million in
fixed rate loans were sold  during the year ended  September  30,  2000,  all of
which were one- to  four-family  mortgages.  Servicing was retained on all loans
sold.

     The Association  has purchased  permanent  residential  one- to four-family
mortgage loans on detached  residences  from various  localities  throughout the
Western United States, primarily Oregon, Washington, and California. These loans
were underwritten on the same basis as permanent residential one- to four-family
real estate loans  originated by the  Association.  At September  30, 2000,  the
balance of such loans was $9.5 million.

     The  Association  also purchases  multi-family  and commercial  real estate
mortgage  loans secured by properties  within the  Association's  primary market
area.  At September  30,  2000,  the balance of such  purchased  loans was $17.0
million.  These  loans were  underwritten  on the same  basis as  similar  loans
originated by the Association.



                                        9
<PAGE>


     The following table shows total loans originated,  purchased and sold, loan
reductions  and the net increase in the  Association's  loans during the periods
indicated.
<TABLE>
<CAPTION>

                                                   Year Ended September 30,
                                         -----------------------------------------
                                             2000           1999           1998
                                         -----------    -----------    -----------
                                                       (In thousands)

<S>                                      <C>            <C>            <C>
Total net loans at beginning of period   $   739,793    $   668,146    $   551,825
                                         -----------    -----------    -----------
Loans originated and purchased:
 Real estate loans originated (1) ....        81,671        209,723        219,790
 Real estate loans purchased .........           508         15,500          7,792
 Non-real estate loans originated ....        15,575         14,471         12,684
                                         -----------    -----------    -----------
   Total loans originated ............        97,754        239,694        240,266
                                         -----------    -----------    -----------
Loan reductions:
 Principal paydowns ..................       (98,853)      (159,161)      (122,029)
 Loans sold ..........................        (6,315)        (5,584)          --
 Other reductions (2) ................        (3,342)        (3,302)        (1,916)
                                         -----------    -----------    -----------
    Total loan reductions ............      (108,510)      (168,047)      (123,945)
                                         -----------    -----------    -----------
Total net loans at end of period .....   $   729,037    $   739,793    $   668,146
                                         ===========    ===========    ===========
<FN>

(1)  Includes  decreases/increases from loans-in-process.
(2)  Includes net reductions due to deferred loans fees,  discounts net of
     amortization, provision for loan loss and transfers to real estate owned.
</FN>
</TABLE>

     Loan  Origination  and Other Fees. In addition to interest earned on loans,
the  Association  receives  loan  origination  fees or "points" for  originating
loans.  Loan points are a percentage of the principal  amount of the real estate
loan and are charged to the borrower in connection  with the  origination of the
loan.  The  amount  of  points  charged  by the  Association  varies,  though it
generally is 1.00% on permanent loans and 1.75% on construction loans.

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
91, which deals with the accounting for non-refundable fees and costs associated
with originating or acquiring loans, the Association's loan origination fees and
certain related direct loan origination costs are offset,  and the resulting net
amount is deferred  and  amortized  as income over the  contractual  life of the
related loans as an adjustment to the yield of such loans,  or until the loan is
paid in full. At September  30, 2000,  the  Association  had $7.4 million of net
loan fees which had been  deferred and are being  recognized  as income over the
contractual maturities of the related loans.


                                       10
<PAGE>

Asset Quality

     Delinquent  Loans.  The following table sets forth  information  concerning
delinquent  loans at September 30, 2000, in dollar amount and as a percentage of
the  Association's  total loan portfolio.  The amounts  presented  represent the
total  outstanding  principal  balances  of the related  loans,  rather than the
actual payment amounts which are past due.
<TABLE>
<CAPTION>

                         Permanent residential
                              1-4 family           Construction        Non-Real Estate             Total
                         ---------------------   ------------------   -------------------   ------------------
                         Amount     Percentage   Amount  Percentage   Amount   Percentage   Amount  Percentage
                         ------    -----------   ------  ----------   ------   ----------   ------  ----------
                                                          (Dollars in thousands)

Loans delinquent
<S>                        <C>      <C>            <C>       <C>         <C>       <C>       <C>        <C>
 for 90 days and more...   $496     0.06%          $219      0.03%       $95       0.01%     $810       0.10%
</TABLE>

     Delinquency Procedures. When a borrower fails to make a required payment on
a loan,  the  Association  attempts to cure the  delinquency  by contacting  the
borrower.  In the case of loans past due, appropriate late notices are generated
on the seventh and fifteenth days after the due date. If the  delinquency is not
cured,  the borrower is contacted by telephone  the  twenty-fifth  day after the
payment is due.

     For real estate loans, in the event a loan is past due for 30 days or more,
the Association will attempt to arrange an in-person interview with the borrower
to  determine  the  nature of the  delinquency;  based  upon the  results of the
interview  and its review of the loan status,  the  Association  may negotiate a
repayment program with the borrower.  If a loan remains past due at 60 days, the
Association performs an in-depth review of the loan status, the condition of the
property and the circumstances of the borrower.  If appropriate,  an alternative
payment  plan is  established.  At 90 days past due,  a letter  prepared  by the
Association is sent to the borrower  describing the steps to be taken to collect
the loan, including acceptance of a voluntary  deed-in-lieu of foreclosure,  and
of the initiation of foreclosure proceedings.  A decision as to whether and when
to  initiate  foreclosure  proceedings  is made by senior  management,  with the
assistance of legal counsel, at the direction of the Board of Directors.

     For consumer loans, at 60 days past due a letter demanding  payment is sent
to the borrower.  If the delinquency is not cured prior to becoming 90 days past
due,  repossession  procedures are implemented for  collateralized  loans. At 90
days past due,  consumer loans are generally  charged off and sent to an outside
collection agency.

     Non-Performing  Assets. The Association's  non-performing assets consist of
non-accrual loans,  accruing loans greater than 90 days delinquent,  real estate
owned and other  repossessed  assets.  All loans are reviewed on a regular basis
and are placed on a non-accrual  status when, in the opinion of management,  the
collection  of additional  interest is deemed  insufficient  to warrant  further
accrual.  Generally, the Association places all loans more than 90 days past due
on  non-accrual  status.  Uncollectible  interest on loans is  charged-off or an
allowance  for  losses  is  established  by a charge  to  earnings  equal to all
interest previously accrued and 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  acquired by  foreclosure  is  classified  as real estate owned
until such time as it is sold. See Note 1 of Notes to the Consolidated Financial
Statements.  When such property is acquired,  it is recorded at the lower of the
balance of the loan on the  property at the date of  acquisition  (not to exceed
the  net  realizable  value)  or the  estimated  fair  value.  Costs,  excluding
interest, relating to holding the property are expensed as incurred.  Valuations
are  periodically  performed  by  management  and an  allowance  for  losses  is
established  by a charge to  operations  if the  carrying  value of the property
exceeds its estimated net realizable  value.  From time to time, the Association
also acquires personal property which is classified as other repossessed  assets
and is carried on the books at  estimated  fair market  value and disposed of as
soon as commercially reasonable.

                                       11
<PAGE>


     As of September 30, 2000,  the  Association's  total  non-performing  loans
amounted to $810,000,  or 0.21% of total loans, before net items,  compared with
$3.3 million,  or 0.43% of total loans, before net items, at September 30, 1999.
The decrease relates  primarily to two loans placed on nonaccrual  status during
1999, a $1.5 million land development loan and a $925,711 commercial real estate
loan secured by an apartment complex. The land loan was paid off during the year
ended September 30, 2000 and the other property was sold after foreclosure.  The
balance at  September  30,  2000  relates to four  construction  loans on single
family residences.

     Real estate owned  decreased  from the prior year  primarily as a result of
the sale of a significant  commercial real estate property during the year ended
September 30, 2000.

     The  following   table  sets  forth  the  amounts  and  categories  of  the
Association's  non-performing assets at the dates indicated. The Association had
no material troubled debt restructurings as defined by SFAS No. 15 at any of the
dates indicated.
<TABLE>
<CAPTION>

                                                                         At September 30,
                                             -----------------------------------------------------------------
                                                2000          1999          1998          1997          1996
                                             ----------   ----------    ----------    ----------    ----------
                                                                    (Dollars in thousands)

Non-accruing loans:
<S>                                         <C>           <C>           <C>           <C>           <C>
    One- to four-family real estate .....   $      715    $      915    $      513    $      245    $      191
    Commercial real estate ..............           --         2,400            --            --            --
    Consumer ............................           95            --            11             9            --
Accruing loans greater than 90
  days delinquent .......................           --            --            --            --            --
                                            ----------    ----------    ----------    ----------    ----------
    Total non-performing loans ..........          810         3,315           524           254           191
                                            ----------    ----------    ----------    ----------    ----------
Real estate owned .......................          788         1,495            --            --            69
Other repossessed assets ................           --            --            --            --            --
                                            ----------    ----------    ----------    ----------    ----------
    Total repossessed assets ............          788         1,495            --            --            69
                                            ----------    ----------    ----------    ----------    ----------
    Total non-performing assets .........   $    1,598    $    4,810    $      524    $      254    $      260
                                            ==========    ==========    ==========    ==========    ==========
Total non-performing assets as a
  percentage of total assets ............         0.16%         0.46%         0.05%         0.03%         0.04%
                                                  ====          ====          ====          ====          ====
Total non-performing loans as a
  percentage of total loans,
  before net items ......................         0.21%         0.62%         0.07%         0.04%         0.04%
                                                  ====          ====          ====          ====          ====
Allowance for loan losses as a
  percentage of total non-performing
  assets ................................       255.44%        51.64%       372.14%       510.38%       356.92%
                                                ======         =====        ======        ======        ======
Allowance for loan losses as a percentage
  of total non-performing loans .........       503.95%        74.93%       372.14%       510.38%       485.86%
                                                ======         =====        ======        ======        ======
</TABLE>


     For the year ended  September  30,  2000,  the amount of gross  income that
would have been  recorded  in the period  then  ended if  non-accrual  loans and
troubled debt restructurings had been current according to their original terms,
and the amount of interest  income on such loans that was included in net income
for each of such periods,  were, in both cases,  less than 1% of total  interest
income.


                                       12
<PAGE>


     Classified Assets.  Federal  regulations  require that each insured savings
association  classify its assets on a regular basis. In addition,  in connection
with examinations of insured  institutions,  federal examiners have authority to
identify  problem  assets and, if  appropriate,  classify  them.  There are four
categories used to classify problem assets:  "special  mention,"  "substandard,"
"doubtful,"  and "loss."  Special  mention assets are not considered  classified
assets,  but are assets of  questionable  quality  that have  potential  or past
weaknesses that deserve management's close attention and monitoring. Substandard
assets have one or more defined weaknesses and are characterized by the distinct
possibility  that  the  insured  institution  will  sustain  some  loss  if  the
deficiencies  are  not  corrected.   Doubtful  assets  have  the  weaknesses  of
substandard assets with the additional  characteristic  that the weaknesses make
collection  or  liquidation  in full on the basis of currently  existing  facts,
conditions and values questionable,  and there is a high possibility of loss. An
asset classified loss is considered  uncollectible and of such little value that
continuance as an asset of the  institution is not  warranted.  Special  mention
assets and assets  classified as substandard or doubtful require the institution
to establish general  allowances for loan losses. If an asset or portion thereof
is classified  loss,  the insured  institution  must either  establish  specific
allowances  for loan  losses in the  amount of 100% of the  portion of the asset
classified loss or charge-off such amount.  General loss allowances  established
to cover possible losses related to special mention assets and assets classified
substandard  or  doubtful  may  be  included  in  determining  an  institution's
regulatory capital,  while specific valuation  allowances for loan losses do not
qualify as regulatory  capital.  Federal  examiners may disagree with an insured
institution's classifications and the amounts reserved.

     As of September  30, 2000,  total  classified  assets  amounted to 0.16% of
total assets,  a significant  decrease from 0.46% at September 30, 1999.  Assets
classified  substandard  at September 30, 2000 totaled $1.7 million and included
$358,288 in one- to  four-family  construction  loans and $812,400 in foreclosed
real  estate  consisting  of  single  family  residences  that  were  originally
speculative  construction loans. Assets classified  substandard at September 30,
1999 totaled $4.8 million and included a $1.5 million land  development  loan, a
$925,711 loan on a 40-unit apartment complex, and a $1.4 million commercial real
estate  property  obtained  through  foreclosure.  These problem assets were not
concentrated in any one market area. The land  development loan was paid off and
the other two assets were sold in fiscal year 2000.

     Allowance for Loan Losses. The allowance for loan losses is maintained at a
level  considered  adequate by management to provide for anticipated loan losses
based  on  management's   assessment  of  various  factors  affecting  the  loan
portfolio, including a review of all loans for which full collectibility may not
be reasonably  assured,  an overall  evaluation of the quality of the underlying
collateral,  economic  conditions,  historical  loan loss  experience  and other
factors  that  warrant  recognition  in  providing  for an  adequate  loan  loss
allowance.  While management believes it uses the best information  available to
determine the  allowance for loan losses,  unforeseen  market  conditions  could
result in adjustments to the allowance for loan losses and net earnings could be
significantly   affected,   if  circumstances   differ  substantially  from  the
assumptions used in making the final  determination.  At September 30, 2000, the
Association had an allowance for loan losses of $4.1 million, which was equal to
255.44% of non-performing assets and 0.54% of total loans.

     Provisions  for loan  losses  are  charged to  earnings  to bring the total
allowance  for  loan  losses  to  a  level  deemed  appropriate  by  management.
Management  considers  historical loan loss  experience,  the volume and type of
lending  conducted  by  the  Association,  industry  standards,  the  amount  of
non-performing assets, general economic conditions  (particularly as they relate
to  the   Association's   market  area),   and  other  factors  related  to  the
collectibility of the Association's loan portfolio in their determination of the
adequacy of the  allowance and the  provision.  The  provisions  for loan losses
charged  against  income for the years ended  September 30, 2000,  1999 and 1998
were $1.8 million,  $932,000,  and $674,000,  respectively.  Management believes
that the amount  maintained in the allowance will be adequate to absorb possible
losses in the portfolio.


                                       13
<PAGE>



     The  following  table  sets  forth for the  periods  indicated  information
regarding  changes  in  the  Association's   allowance  for  loan  losses.   All
information is before net items.
<TABLE>
<CAPTION>


                                                                        Year Ended September 30,
                                            --------------------------------------------------------------------------------
                                                 2000              1999             1998             1997             1996
                                            ------------     ------------     ------------     ------------     ------------
                                                                          (Dollars in thousands)

<S>                                         <C>              <C>              <C>              <C>              <C>
Total loans outstanding .................   $    750,909     $    774,441     $    704,703     $    576,575     $    488,551
                                            ============     ============     ============     ============     ============
Average loans outstanding ...............   $    747,842     $    721,658     $    614,457     $    515,555     $    440,510
                                            ============     ============     ============     ============     ============
Allowance at beginning of period ........   $      2,484     $      1,950     $      1,296     $        928     $        808

Charge-offs .............................           (607)            (398)             (20)              (2)            --

Recoveries ..............................            441             --               --               --               --

Provision for loan losses ...............          1,764              932              674              370              120
                                            ------------     ------------     ------------     ------------     ------------
Allowance at end of period ..............   $      4,082     $      2,484     $      1,950     $      1,296     $        928
                                            ============     ============     ============     ============     ============
Allowance for loan losses as a percentage
 of total loans outstanding .............           0.54%            0.32%            0.28%            0.22%            0.19%
                                                    ====             ====             ====             ====             ====
Ratio of net charge-offs to average loans
 outstanding during the period ..........           0.02%            0.06%             --%              --%              --%
                                                    ====             ====             ====             ====             ====
</TABLE>

                                       14
<PAGE>


     The  following  table sets forth the  breakdown of the  allowance  for loan
losses by loan category and summarizes the percentage of total loans, before net
items,  in each  category  to  total  loans,  before  net  items,  at the  dates
indicated.
<TABLE>
<CAPTION>

                                                                     At September 30,
                   ----------------------------------------------------------------------------------------------------------------
                                       2000                                 1999                                  1998
                   --------------------------------------  -----------------------------------  -----------------------------------
                                  Percent of                           Percent of                            Percent of
                       Amount   Allowance in   Percent of    Amount  Allowance in   Percent of     Amount  Allowance in  Percent of
                           of    Category to  Total Loans        of   Category to  Total Loans         of   Category to Total Loans
                    Allowance    Total Loans  by Category  Allowance  Total Loans  by Category  Allowance   Total Loans by Category
                   ----------   ------------  -----------  --------- ------------  -----------  ---------  ------------ -----------
                                                                 (Dollars in thousands)

Permanent residential
<S>                 <C>                 <C>       <C>      <C>               <C>       <C>      <C>               <C>       <C>
1-4 family .......  $    1,449          0.19%      85.12%  $  1,103          0.14%      83.56%  $  1,141          0.16%      81.95%
Multi-family
 residential .....         365          0.05        2.53        267          0.03        2.38        124          0.02        2.73
Construction .....         420          0.05        3.37        221          0.03        6.87        116          0.02        9.12
Commercial .......       1,403          0.19        5.63        730          0.09        4.79        444          0.07        4.18
Land .............         168          0.02        0.45         28            --        0.27         29            --        0.31
Non-real estate ..         277          0.04        2.90        135          0.02        2.13         96          0.01        1.71
                    ----------          ----      ------   --------         -----      ------   --------          ----      ------

   Total .........  $    4,082          0.54%     100.00%  $  2,484          0.31%     100.00%  $  1,950          0.28%     100.00%
                    ==========                    ======   ========                    ======   ========                    ======
</TABLE>

<TABLE>
<CAPTION>
                                                    At September 30,
                     -----------------------------------------------------------------------------
                                        1997                                  1996
                     -------------------------------------  --------------------------------------
                                   Percent of                            Percent of
                        Amount   Allowance in   Percent of     Amount  Allowance in     Percent of
                            of    Category to  Total Loans         of   Category to    Total Loans
                     Allowance    Total Loans  by Category  Allowance   Total Loans    by Category
                     ---------   ------------  -----------  ---------  ------------    -----------
                                                     (Dollars in thousands)

Permanent residential
<S>                     <C>             <C>       <C>        <C>             <C>        <C>
1-4 family .........    $  887          0.15%      86.51%    $   925         0.19%       91.50%
Multi-family
 residential........       121          0.02        2.93          --           --         1.34
Construction .......        --            --        5.31          --           --         2.92
Commercial .........       250          0.04        3.93          --           --         3.20
Land ...............        12            --        0.27          --           --         0.24
Non-real estate ....        26          0.01        1.05           3           --         0.80
                        ------          ----      ------     -------         ----       ------

   Total ............   $1,296          0.22%     100.00%    $   928         0.19%      100.00%
                        ======          ====      ======     =======         ====       ======
</TABLE>

                                       15
<PAGE>


     Although the Association believes that it has established its allowance for
loan  losses  in  accordance  with  generally  accepted  accounting   principles
("GAAP"),  there  can  be  no  assurance  that  regulators,   in  reviewing  the
Association's loan portfolio,  will not request the Association to significantly
increase its allowance for loan losses,  thereby reducing the  Association's net
worth and earnings.  In addition,  because future events affecting borrowers and
collateral  cannot be predicted with  certainty,  there can be no assurance that
the existing allowance for loan losses is adequate or that substantial increases
will not be necessary should the quality of any loans deteriorate as a result of
the  factors  discussed  above.  Any  material  increase  in the  allowance  may
adversely affect the Association's financial condition and results of operation.

Investment Activities

     Federally  chartered  savings  institutions have the authority to invest in
securities of various federal agencies,  certain insured certificates of deposit
of banks and savings  institutions,  certain  bankers'  acceptances,  repurchase
agreements  and  federal  funds.  Subject  to  various  restrictions,  federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally  chartered savings  institution is otherwise
authorized to make directly.  OTS regulations  restrict investments in corporate
debt  securities  of any  one  issuer  in  excess  of  15% of the  Association's
unimpaired capital and unimpaired  surplus,  as defined by federal  regulations,
which totaled  $108.9  million at September 30, 2000,  plus an additional 10% if
the  investments  are  fully  secured  by  readily  marketable  collateral.  See
"REGULATION  --  Federal  Regulation  of  Savings  Associations  -- Loans to One
Borrower"  for a discussion  of  additional  restrictions  on the  Association's
investment activities.

     The investment securities portfolio is managed in accordance with a written
investment  policy  adopted by the Board of Directors  and  administered  by the
Investment  Committee,  which  consists of the President and four Board members.
Generally,  the investment policy is to invest funds among various categories of
investments  and maturities  based upon the need for  liquidity,  to achieve the
proper balance  between its desire to minimize risk and maximize  yield,  and to
fulfill the  asset/liability  management  policy.  The  President  and the Chief
Financial  Officer may  independently  invest up to 1.0% of total  assets of the
Company  within  the  parameters  set  forth  in the  Investment  Policy,  to be
subsequently  reviewed  with the  Investment  Committee at their next  scheduled
meeting.  Transactions  or investments  in any one security  determined by type,
maturity  and  coupon  in  excess of $10.0  million  or 1.0% of  assets  are not
permitted.

     Investment securities held to maturity are carried at cost and adjusted for
amortization  of premiums and accretion of discounts.  As of September 30, 2000,
the investment  securities  portfolio held to maturity  consisted of $266,838 in
tax-exempt  securities issued by states and municipalities and $457,000 in other
obligations.  Securities  to be held  for  indefinite  periods  of time  and not
intended to be held to maturity are classified as available for sale and carried
at fair value.  Securities available for sale include securities that management
intends to use as part of its  asset/liability  management  strategy that may be
sold in response to changes in interest rates or significant prepayment risks or
both. As of September 30, 2000,  the portfolio of securities  available for sale
consisted of $48.8 million in securities  issued by the U.S.  Treasury and other
federal  government  agencies,  $24.9 million in tax exempt securities issued by
states and  municipalities,  and $42.9  million in  investment  grade  corporate
investments.

     During the years  ended  September  30,  2000,  1999 and 1998,  neither the
Company nor the Association  held any  off-balance  sheet  derivative  financial
instruments in their  investment  portfolios to which the provisions of SFAS No.
119,  "Disclosure  about  Derivative  Financial  Instruments  and Fair  Value of
Financial Instruments," would apply.



                                       16
<PAGE>


     The  following  tables  set  forth  certain  information  relating  to  the
investment  securities  portfolio held to maturity and securities  available for
sale at the dates indicated.
<TABLE>
<CAPTION>


                                                                  At September 30,
                                    ---------------------------------------------------------------------------
                                                 2000                     1999                     1998
                                    -----------------------   -----------------------   -----------------------
                                     Amortized         Fair    Amortized         Fair    Amortized         Fair
                                          Cost        Value         Cost        Value         Cost        Value
                                    ----------   ----------   ----------   ----------   ----------   ----------
                                                                (Dollars in thousands)
Held to maturity:
<S>                                 <C>          <C>          <C>          <C>          <C>          <C>
  State and municipal obligations   $      267   $      270   $      560   $      577   $      889   $      926
  Corporate obligations .........           --           --           --           --        2,000        2,002
  Other obligations .............          457          457           --           --           --           --

Available for sale:
  U.S. Government obligations ...       49,190       48,786       74,227       73,960      102,620      105,454
  State and municipal obligations       25,600       24,943       24,848       23,881       17,406       18,103
  Corporate obligations .........       43,899       42,899       62,037       60,807       79,225       79,667
                                    ----------   ----------   ----------   ----------   ----------   ----------
    Total .......................   $  119,413   $  117,355   $  161,672   $  159,225   $  202,140   $  206,152
                                    ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>



                                       17
<PAGE>

<TABLE>
<CAPTION>


                                                                  At September 30,
                                     ---------------------------------------------------------------------------
                                              2000                      1999                      1998
                                     -----------------------   -----------------------   -----------------------
                                     Amortized    Percent of   Amortized    Percent of   Amortized    Percent of
                                          Cost     Portfolio        Cost     Portfolio        Cost     Portfolio
                                     ----------   ----------   ---------    ----------   ---------    ----------
                                                              (Dollars in thousands)
Held to maturity:
<S>                                 <C>              <C>      <C>              <C>      <C>              <C>
  State and municipal obligations   $      267         0.22%  $      560         0.35%  $      889         0.44%
  Corporate obligations .........           --           --           --           --        2,000         0.99
  Other obligations .............          457         0.38           --           --           --           --

Available for sale:
  U.S. Government obligations ...       49,190        41.20       74,227        45.91      102,620        50.77
  State and municipal obligations       25,600        21.44       24,848        15.37       17,406         8.61
  Corporate obligations .........       43,899        36.76       62,037        38.37       79,225        39.19
                                    ----------   ----------   ----------   ----------   ----------   ----------
    Total .......................   $  119,413       100.00%  $  161,672       100.00%  $  202,140       100.00%
                                    ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>


     The following  table sets forth the maturities and weighted  average yields
of the debt securities in the investment portfolio at September 30, 2000.
<TABLE>
<CAPTION>

                                One Year         After One Through     After Five Through         After Ten
                                or Less             Five Years             Ten Years                Years            Totals
                          ----------------   ---------------------     ------------------     ----------------       ------
                           Amount    Yield      Amount       Yield     Amount       Yield      Amount    Yield
                          -------    -----   ---------       -----     ------       -----     -------    -----
                                                                 (Dollars in thousands)
Held to maturity:

  State and municipal
<S>                      <C>         <C>     <C>             <C>      <C>          <C>       <C>           <C>     <C>
     obligations ......  $    --       --    $     267       9.96%    $  --         --       $   --         --        $ 267
  Other obligations ...       --       --          --         --         --         --           457       8.07         457
Available for sale:
  U.S. Government
   obligations ........    24,005    6.01%      25,185       5.99%       --         --            --        --       49,190
  State and municipal
   obligations ........       425    6.69%         586       6.00%       398       6.17%       24,191      7.61%     25,600
  Corporate obligations    14,046    5.96%      10,026       6.47%       --         --         19,827      7.31%     43,899
                         --------            ---------                ------                  -------              --------
    Total .............  $ 38,476            $  36,064                $  398                  $44,475              $119,413
                         ========            =========                ======                  =======              ========
</TABLE>


     At September 30, 2000 the  Association  did not hold any securities  from a
single issuer, other than the U.S. Government, whose aggregate book value was in
excess of 10% of the Company's stockholders' equity, or $10.9 million.


                                       18
<PAGE>


Mortgage-Backed and Related Securities

     At September  30,  2000,  the  Company's  net  mortgage-backed  and related
securities totaled $77.5 million at fair value ($77.6 million at amortized cost)
and had a weighted average yield of 6.75%. At September 30, 2000,  86.59% of the
mortgage-backed and related securities were adjustable rate securities.

     Mortgage-backed and related securities ("MBS") can be divided into two main
groups.  The  first  group,  called  mortgage   participation   certificates  or
pass-through  certificates,  typically represents a participation  interest in a
pool of  single-family  or  multi-family  mortgages.  The principal and interest
payments on these  mortgages are passed from the mortgage  originators,  through
intermediaries  (generally  U.S.  Government  agencies and government  sponsored
enterprises)  that pool and resell the  participation  interests  in the form of
securities,  to investors such as the Company. Such U.S. Government agencies and
government sponsored  enterprises,  which guarantee the payment of principal and
interest  to  investors,  primarily  include  the  Federal  Home  Loan  Mortgage
Corporation  ("FHLMC"),  Fannie Mae  (formerly  the  Federal  National  Mortgage
Association), the Government National Mortgage Association ("GNMA") and the U.S.
Small Business Administration ("SBA").

     The second group,  called  collateralized  mortgage  obligations  ("CMOs"),
consists of securities  created from and secured by the  securities in the first
group  described  above.  CMOs are an example of a security called a derivative,
because they are derived from mortgage pass-through securities.  Underwriters of
CMOs create these  securities  by dividing up the interest  and  principal  cash
flows from the pools of mortgages  and selling  these  different  slices of cash
flows as a new and different  class of individual  securities or  "tranches." At
September  30, 2000,  the Company held $17.8  million of CMOs,  comprised of two
classes,  planned  amortization class tranches ("PACs") and Floaters.  The least
volatile  CMOs are PACs.  With PAC  tranches,  the yields,  average  lives,  and
lockout periods when no payments are received are designed to closely follow the
actual  performance  of the  underlying  MBS. PACs are available in a variety of
short term  maturities,  usually two, three,  five, or seven years. CMO floaters
are similar to  adjustable  rate  mortgages;  they carry an  interest  rate that
changes in a fixed relationship to an interest rate index,  typically the London
Interbank  Offer Rate ("LIBOR").  Floaters  usually have caps that determine the
highest  interest  that  can be  paid  by the  securities.  Except  for  caps on
floaters,  PACs and floaters may help to manage  interest  rate risk by reducing
asset duration.  They also may help manage price volatility since they typically
have short  maturities  or coupons  that reset  monthly or  quarterly to reflect
changes in the index rate.

     MBS typically are issued with stated principal amounts,  and the securities
are backed by pools of mortgages  that have loans with interest  rates that fall
within a specific range and have varying  maturities.  MBS generally  yield less
than the loans  that  underlie  such  securities  because of the cost of payment
guarantees  and credit  enhancements.  In addition,  MBS are usually more liquid
than  individual  mortgage  loans  and  may be  used  to  collateralize  certain
liabilities  and  obligations  of the Company.  These types of  securities  also
permit the Association to optimize its regulatory  capital because they have low
risk weighting.

     Expected maturities of MBS will differ from contractual  maturities because
borrowers may have the right to call or prepay  obligations with or without call
or  prepayment  penalties.  Prepayments  that are faster  than  anticipated  may
shorten the life of the security  and may result in a loss of any premiums  paid
and thereby  reduce the net yield on such  securities.  Although  prepayments of
underlying  mortgages  depend on many factors,  including the type of mortgages,
the  coupon  rate,  the  age of  mortgages,  the  geographical  location  of the
underlying  real estate  collateralizing  the  mortgages  and general  levels of
market  interest  rates,  the  difference  between  the  interest  rates  on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most  significant  determinant  of the rate of  prepayments.  During  periods of
declining  mortgage  interest  rates,  if the  coupon  rate  of  the  underlying
mortgages  exceeds the  prevailing  market  interest  rates offered for mortgage
loans,  refinancing  generally  increases and  accelerates the prepayment of the
underlying  mortgages and the related security.  Under such  circumstances,  the
Company  may be subject to  reinvestment  risk  because,  to the extent that the
Company's MBS amortize or prepay faster than anticipated, the Company may not be
able to reinvest the proceeds of such repayments and prepayments at a comparable
rate.


                                       19
<PAGE>


     The  following  tables  set  forth  certain  information  relating  to  the
mortgage-backed and related securities  portfolio held to maturity and available
for sale at the dates indicated.
<TABLE>
<CAPTION>

                                                                   At September 30,
                                    ---------------------------------------------------------------------------
                                                2000                      1999                      1998
                                    -----------------------   -----------------------   -----------------------
                                     Amortized         Fair    Amortized         Fair    Amortized         Fair
                                          Cost        Value         Cost        Value         Cost        Value
                                    ----------   ----------   ----------   ----------   ---------- ------------
                                                               (Dollars in thousands)
Held to maturity:
<S>                                 <C>          <C>          <C>          <C>          <C>          <C>
  GNMA ..........................   $    2,160   $    2,146   $    2,601   $    2,596   $    3,662   $    3,696

Available for sale:

  Fannie Mae ....................       13,498       13,598       24,319       24,410       12,866       12,985
  FHLMC .........................       32,902       33,282       18,375       18,371       14,722       15,158
  GNMA ..........................       10,728       10,681       11,783       11,768        3,619        3,662
  SBA ...........................           --           --           --           --       11,535       11,531
  CMOs ..........................       18,355       17,770       18,598       18,146           --           --
                                    ----------    ---------   ----------   ----------   ----------   ----------
    Total .......................   $   77,643   $   77,477   $   75,676   $   75,291   $   46,404   $   47,032
                                    ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>
<TABLE>
<CAPTION>

                                                                   At September 30,
                                   ----------------------------------------------------------------------------
                                              2000                      1999                      1998
                                   -------------------------  ------------------------  -----------------------
                                     Amortized    Percent of   Amortized    Percent of   Amortized   Percent of
                                          Cost     Portfolio        Cost     Portfolio        Cost    Portfolio
                                   -----------    ----------  ----------    ----------  ----------   ----------
                                                                (Dollars in thousands)
Held to maturity:
<S>                                 <C>              <C>      <C>              <C>      <C>              <C>
  GNMA ..........................   $    2,160         2.78%  $    2,601         3.44%  $    3,662         7.89%

Available for sale:

  Fannie Mae ....................       13,498        17.38       24,319        32.13       12,866        27.73
  FHLMC .........................       32,902        42.38       18,375        24.28       14,722        31.72
  GNMA ..........................       10,728        13.82       11,783        15.57        3,619         7.80
  SBA ...........................           --           --           --           --       11,535        24.86
  CMOs ..........................       18,355        23.64       18,598        24.58           --           --
                                    ----------       ------   ----------       ------   ----------       ------
    Total .......................   $   77,643       100.00%  $   75,676       100.00%  $   46,404       100.00%
                                    ==========       ======   ==========       ======   ==========       ======
</TABLE>


Interest-Earning Deposits

     The  Company  also had  interest-earning  deposits  in the FHLB of  Seattle
amounting  to $4.4  million  and $1.3  million at  September  30, 2000 and 1999,
respectively.

Deposit Activities and Other Sources of Funds

     General.  Deposits are the primary  source of the  Association's  funds for
lending and other investment purposes. In addition to deposits,  the Association
derives funds from loan principal  repayments.  Loan repayments are a relatively
stable  source of funds,  while deposit  inflows and outflows are  significantly
influenced by general interest  rates  and  money market conditions.  Borrowings

                                       20
<PAGE>


may  be  used  on a  short-term  basis  to  compensate  for  reductions  in  the
availability of funds from other sources. They may also be used on a longer term
basis for general business purposes.

     Deposits.  The Association's deposits are attracted principally from within
the Association's  primary market area through the offering of a broad selection
of deposit  instruments,  including  checking  accounts,  money  market  deposit
accounts,  passbook and statement savings accounts, and certificates of deposit.
Included among these deposit products are individual  retirement account ("IRA")
certificates  of  approximately  $87.4  million at September  30, 2000.  Deposit
account terms vary,  with the principal  differences  being the minimum  balance
required,  the time  period the funds must  remain on deposit  and the  interest
rate.

     Beginning in 1996, the Association  began  accepting  deposits from outside
its primary market area through both private placements and brokered deposits if
the terms of the deposits fit the Association's specific needs and are at a rate
lower than the rates on similar maturity borrowings through the FHLB of Seattle.
At September 30, 2000, these deposits  totaled $10.4 million,  or 1.50% of total
deposits.

     Interest rates paid, maturity terms,  service fees and withdrawal penalties
are established by the Association on a periodic basis.  Determination  of rates
and terms are predicated on funds acquisition and liquidity requirements,  rates
paid by competitors, growth goals and federal regulations.

     For the year ended  September 30, 2000, the  Association  experienced a net
decrease in deposits (before interest  credited) of $49.7 million.  The decrease
is primarily  related to  certificates  of deposit and  reflects  the  Company's
strategy  to rely on FHLB of Seattle  borrowed  funds which could be acquired at
lower  rates  than  deposits  with  corresponding  terms.  The  Association  has
conducted a special checking account campaign in an effort to attract and retain
low cost deposits. See "-- Borrowings."

     At September 30, 2000, certificate accounts maturing during the year ending
September 30, 2001 totaled $162.2 million. Based on historical  experience,  the
Association  expects  that  a  significant  amount  will  be  renewed  with  the
Association at maturity.  In the event a significant amount of such accounts are
not renewed at maturity,  the Association  would not expect a resultant  adverse
impact on  operations  and  liquidity  because  of the  Association's  borrowing
capacity. See "-- Borrowings."

     In the unlikely event the  Association is  liquidated,  depositors  will be
entitled to full payment of their  deposit  accounts  prior to any payment being
made  to  the  Company,  which  is the  sole  shareholder  of  the  Association.
Substantially all of the Association's  depositors are residents of the State of
Oregon.


                                       21
<PAGE>


     The  following  table  indicates  the amount of  certificate  accounts with
balances of $100,000 or greater by time remaining until maturity as of September
30, 2000.

<TABLE>
<CAPTION>

                                                                  Certificate
                       Maturity Period                               Accounts
                       ----------------                         --------------
                                                                (In thousands)

<S>                                                                    <C>
           Three months or less..........................              $13,321
           Over three through six months.................               13,780
           Over six through twelve months................               13,099
           Over twelve months............................               41,688
                                                                       -------
             Total.......................................              $81,888
                                                                       =======
</TABLE>

     The following table sets forth the deposit balances in the various types of
deposit accounts offered by the Association at the dates indicated.

<TABLE>
<CAPTION>

                                                                           At September 30,
                                 ----------------------------------------------------------------------------------------
                                              2000                              1999                        1998
                                 -------------------------------   -------------------------------   --------------------
                                              Percent                           Percent                           Percent
                                                   of  Increase                      of  Increase                      of
                                   Amount       Total (Decrease)     Amount       Total (Decrease)     Amount       Total
                                 --------    -------- ----------   ---------    ------- ----------   --------     -------
                                                                  (Dollars in thousands)

<S>                              <C>           <C>     <C>         <C>           <C>     <C>         <C>           <C>
Certificates of deposit ......   $372,748       53.60% ($19,338)   $392,086       54.43% ($ 3,265)   $395,351       57.33%
                                 --------    -------- ----------   ---------    ------- ----------   --------     -------
Transaction accounts:

Non-interest checking ........     54,340        7.81     2,021      52,319        7.26     4,772      47,547        6.90
Interest-bearing checking ....     72,186       10.38     4,883      67,303        9.34    (3,258)     70,561       10.23
Passbook and statement savings     47,947        6.90   (11,843)     59,790        8.30    (1,624)     61,414        8.91
Money market deposits ........    148,160       21.31      (743)    148,903       20.67    34,235     114,668       16.63
                                 --------    -------- ----------   ---------    ------- ----------   --------     -------
Total transaction accounts ...    322,633       46.40    (5,682)    328,315       45.57    34,125     294,190       42.67
                                 --------    -------- ----------   ---------    ------- ----------   --------     -------
Total deposits ...............   $695,381      100.00% ($25,020)   $720,401      100.00%  $30,860    $689,541      100.00%
                                 ========    ======== =========    ========     ======= ==========   ========     =======
</TABLE>

     The following  table sets forth the deposit  activities of the  Association
for the periods indicated.
<TABLE>
<CAPTION>

                                                           Year Ended September 30,
                                                    ------------------------------------
                                                      2000           1999         1998
                                                    --------       --------     --------
                                                           (Dollars in thousands)

<S>                                                 <C>            <C>          <C>
Beginning balance................................   $720,401       $689,541     $673,978
                                                    --------       --------     --------
Net inflow (outflow) of deposits before
 interest credited...............................    (49,728)         6,251       (8,753)
Interest credited................................     24,708         24,609       24,316
                                                    --------       --------     --------
Net increase (decrease) in deposits..............    (25,020)        30,860       15,563
                                                    --------       --------     --------
Ending balance...................................   $695,381       $720,401     $689,541
                                                    ========       ========     ========
</TABLE>

     Borrowings.  Deposit  liabilities  are the primary  source of funds for the
Association's  lending and investment  activities  and for its general  business
purposes.   The  Association  may  rely  upon advances from the FHLB of Seattle,

                                       22
<PAGE>


reverse repurchase  agreements and bank lines of credit to supplement its supply
of  lendable  funds and to meet  deposit  withdrawal  requirements.  The FHLB of
Seattle serves as the Association's primary borrowing source after deposits.

     The FHLB of Seattle  functions as a central  reserve bank providing  credit
for  savings  and  loan   associations   and  certain  other  member   financial
institutions.  As a member,  the Association is required to own capital stock in
the FHLB of Seattle and is  authorized  to apply for advances on the security of
certain of its mortgage loans and other assets (principally securities which are
obligations  of,  or  guaranteed  by,  the  U.S.  Government)  provided  certain
creditworthiness  standards have been met. Advances are made pursuant to several
different  credit  programs.  Each credit  program has its own interest rate and
range of  maturities.  Depending  on the program,  limitations  on the amount of
advances are based on the financial  condition of the member institution and the
adequacy of  collateral  pledged to secure the credit.  As a member of the FHLB,
the  Association  maintains a credit line that is a percentage of its regulatory
assets,  subject to collateral  requirements.  At September 30, 2000, the credit
line was 30% of total assets of the Association.  Advances are collateralized in
aggregate, as provided for in the Advances, Security and Deposit Agreements with
the FHLB,  by certain  mortgages  or deeds of trust and  securities  of the U.S.
Government and agencies thereof.

     For a portion of the year ended  September 30, 1999, 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 these repurchase  agreements were delivered to the  broker-dealer who
arranged  the  transaction.  All of the reverse  repurchase  agreements  matured
during the quarter ended March 31, 1999 and were not renewed.  Average  balances
and rates on the reverse repurchase  agreements for the year ended September 30,
1999 are included below.

     The Company has  established  credit lines at two commercial  banks.  These
credit  lines  represent  aggregate  borrowing  capacity  of $21.7  million.  At
September 30, 2000, borrowings under these lines of credit totaled $3.0 million.

     The following table sets forth certain information  regarding borrowings by
the Company and Association at the end of and during the periods indicated:
<TABLE>
<CAPTION>

                                                     At September 30,
                                                     ----------------
                                                     2000        1999
                                                     -----      -----
Weighted average rate paid on:
<S>                                                  <C>         <C>
  FHLB advances ........................             5.90%       5.34%
  Short term borrowings ................             9.01%         --
</TABLE>
<TABLE>
<CAPTION>


                                               Year Ended September 30,
                                            ---------------------------
                                                  2000           1999
                                            ------------  -------------
                                                (Dollars in thousands)
Maximum amount outstanding at any month end:
<S>                                        <C>            <C>
  FHLB advances ........................   $   230,000    $   197,000
  Reverse repurchase agreements ........            --          8,095
  Short term borrowings ................         3,000             --

Approximate average balance:
  FHLB advances ........................       207,218        173,740
  Reverse repurchase agreements ........            --          3,105
  Short term borrowings ................         1,290             --

Approximate weighted average rate paid on:
  FHLB advances ........................          5.80%          5.25%
  Reverse repurchase agreements ........            --           5.72
   Short term borrowings ...............          9.34             --
</TABLE>

                                       23
<PAGE>


                          REGULATION OF THE ASSOCIATION

General

     The  Association  is  subject  to  extensive  regulation,  examination  and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by the
Home Owners Loan Act and, in certain  respects,  the Federal  Deposit  Insurance
Act,  and the  regulations  issued  by the OTS and the FDIC to  implement  these
statutes.  These  laws and  regulations  delineate  the nature and extent of the
activities in which federal savings associations may engage.  Lending activities
and other investments must comply with various statutory and regulatory  capital
requirements.  In addition,  the Association's  relationship with its depositors
and borrowers is also regulated to a great extent, especially in such matters as
the ownership of deposit accounts and the form and content of the  Association's
mortgage documents. The Association is required to file reports with the OTS and
the FDIC  concerning  its  activities  and  financial  condition  in addition to
obtaining  regulatory approvals prior to entering into certain transactions such
as mergers with, or  acquisitions  of, other financial  institutions.  There are
periodic  examinations  by the OTS and the  FDIC  to  review  the  Association's
compliance with various regulatory  requirements.  The regulatory structure also
gives the regulatory  authorities  extensive discretion in connection with their
supervisory  and  enforcement  activities and  examination  policies,  including
policies with respect to the  classification  of assets and the establishment of
adequate  loan  loss  reserves  for  regulatory  purposes.  Any  change  in such
policies,  whether  by the OTS,  the FDIC or  Congress,  could  have a  material
adverse impact on the Company, the Association and their operations.

Federal Regulation of Savings Associations

     Office of Thrift Supervision. The OTS is an office in the Department of the
Treasury subject to the general oversight of the Secretary of the Treasury.  The
OTS has extensive authority over the operations of savings  associations.  Among
other functions,  the OTS issues and enforces  regulations  affecting  federally
insured savings associations and regularly examines these institutions.

     All savings associations are required to pay assessments to the OTS to fund
the agency's operations.  The general assessments,  paid on a semi-annual basis,
are  determined  based on the  savings  association's  total  assets,  including
consolidated subsidiaries.  The Association's OTS assessment for the fiscal year
ended September 30, 2000 was $188,140.

     Federal Home Loan Bank System. The FHLB System,  consisting of 12 FHLBs, is
under the  jurisdiction  of the Federal  Housing  Finance  Board  ("FHFB").  The
designated  duties of the FHFB are to  supervise  the FHLBs,  to ensure that the
FHLBs carry out their housing finance  mission,  to ensure that the FHLBs remain
adequately  capitalized and able to raise funds in the capital  markets,  and to
ensure that the FHLBs operate in a safe and sound manner.

     The Association, as a member of the FHLB of Seattle, is required to acquire
and hold  shares of capital  stock in the FHLB of Seattle in an amount  equal to
the  greater  of (i)  1.0% of the  aggregate  outstanding  principal  amount  of
residential  mortgage loans, home purchase contracts and similar  obligations at
the beginning of each year, or (ii) 1/20 of its advances (i.e., borrowings) from
the FHLB of Seattle. The Association is in compliance with this requirement with
an investment in FHLB of Seattle stock of $11.9 million at September 30, 2000.

     Among other benefits, the FHLB provides a central credit facility primarily
for member  institutions.  It is funded primarily from proceeds derived from the
sale of  consolidated  obligations  of the FHLB  System.  It makes  advances  to
members in accordance  with policies and procedures  established by the FHFB and
the Board of Directors of the FHLB of Seattle.

                                       24
<PAGE>


     Federal Deposit Insurance  Corporation.  The FDIC is an independent federal
agency established originally to insure the deposits, up to prescribed statutory
limits,  of federally  insured banks and to preserve the safety and soundness of
the banking industry.  The FDIC maintains two separate insurance funds: the Bank
Insurance  Fund ("BIF") and the SAIF.  The  Association's  deposit  accounts are
insured by the FDIC under the SAIF to the maximum  extent  permitted  by law. As
insurer of the Association's deposits, the FDIC has examination, supervisory and
enforcement authority over all savings associations.

     Under  applicable  regulations,  the FDIC assigns an  institution to one of
three capital categories based on the institution's financial information, as of
the  reporting  period  ending seven months before the  assessment  period.  The
capital categories are: (i) well-capitalized,  (ii) adequately  capitalized,  or
(iii)  undercapitalized.   An  institution  is  also  placed  in  one  of  three
supervisory subcategories within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory  evaluation  provided
to the FDIC by the institution's  primary federal regulator and information that
the FDIC determines to be relevant to the institution's  financial condition and
the risk posed to the deposit insurance funds. An institution's  assessment rate
depends on the capital category and supervisory category to which it is assigned
with the most well-capitalized, healthy institutions receiving the lowest rates.

     Effective  January 1, 1997,  the premium  schedule for BIF and SAIF insured
institutions  ranged  from  0  to  27  basis  points.   However,   SAIF  insured
institutions  and BIF  insured  institutions  are  required  to pay a  Financing
Corporation  assessment in order to fund the interest on bonds issued to resolve
thrift failures in the 1980s.  This amount is currently equal to about six basis
points for each $100 in domestic  deposits  for SAIF  members  while BIF insured
institutions pay an assessment equal to about 1.50 basis points for each $100 in
domestic deposits. These assessments,  which may be revised based upon the level
of BIF and SAIF deposits, will continue until the bonds mature in the year 2015.

     The  FDIC  is  authorized  to  raise  the   assessment   rates  in  certain
circumstances.  The FDIC has exercised this authority  several times in the past
and may raise insurance  premiums in the future.  If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Association.

     Under the FDIA,  insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound  practices,  is in
an unsafe or unsound  condition  to  continue  operations  or has  violated  any
applicable law, regulation,  rule, order or condition imposed by the FDIC or the
OTS.  Management of the Association does not know of any practice,  condition or
violation that might lead to termination of deposit insurance.

     Liquidity Requirements.  Under OTS regulations, each savings institution is
required to maintain an average daily  balance of specified  liquid assets equal
to a  monthly  average  of not  less  than a  specified  percentage  of its  net
withdrawable  accounts  deposit  plus  short-term  borrowings.   This  liquidity
requirement  is currently 4%, but may be changed from time to time by the OTS to
any amount within the range of 4% to 10%. Monetary  penalties may be imposed for
failure to meet liquidity  requirements.  The Association has never been subject
to monetary penalties for failure to meet its liquidity requirements.


                                       25
<PAGE>


     Prompt Corrective Action.  The OTS is required to take certain  supervisory
actions against  undercapitalized  savings  associations,  the severity of which
depends upon the  institution's  degree of  undercapitalization.  Generally,  an
institution  that has a ratio of total capital to  risk-weighted  assets of less
than 8%, a ratio of Tier I (core) capital to  risk-weighted  assets of less than
4%, or a ratio of core  capital to total  assets of less than 4% (3% or less for
institutions  with  the  highest   examination   rating)  is  considered  to  be
"undercapitalized."  An institution  that has a total  risk-based  capital ratio
less than 6%, a Tier I capital ratio of less than 3% or a leverage ratio that is
less  than  3% is  considered  to be  "significantly  undercapitalized"  and  an
institution that has a tangible capital to assets ratio equal to or less than 2%
is deemed to be "critically  undercapitalized."  Subject to a narrow  exception,
the  OTS is  required  to  appoint  a  receiver  or  conservator  for a  savings
institution that is "critically  undercapitalized." OTS regulations also require
that a capital restoration plan be filed with the OTS within 45 days of the date
a  savings   institution   receives   notice  that  it  is   "undercapitalized,"
"significantly  undercapitalized" or "critically  undercapitalized."  Compliance
with the plan must be guaranteed by any parent  holding  company in an amount of
up to the lesser of 5% of the  institution's  assets or the amount  which  would
bring the institution into compliance with all capital  standards.  In addition,
numerous  mandatory  supervisory  actions  become  immediately  applicable to an
undercapitalized   institution,   including,   but  not  limited  to,  increased
monitoring by regulators and restrictions on growth,  capital  distributions and
expansion.  The OTS  also  could  take  any  one of a  number  of  discretionary
supervisory  actions,  including  the  issuance of a capital  directive  and the
replacement of senior executive officers and directors.

     At  September  30,  2000,  the   Association   was   categorized  as  "well
capitalized" under the prompt corrective action regulations of the OTS.

     Standards for Safety and Soundness. The federal banking regulatory agencies
have   prescribed,   by  regulation,   standards  for  all  insured   depository
institutions  relating  to:  (i) internal  controls,   information  systems  and
internal  audit systems;  (ii) loan  documentation;  (iii) credit  underwriting;
(iv) interest rate risk exposure;  (v) asset growth;  (vi) asset quality;  (vii)
earnings;  and  (viii) compensation,   fees  and  benefits  ("Guidelines").  The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital  becomes  impaired.  If the OTS determines  that the  Association
fails to meet any standard prescribed by the Guidelines,  the agency may require
the Association to submit to the agency an acceptable plan to achieve compliance
with the standard. Management is aware of no conditions relating to these safety
and soundness standards which would require submission of a plan of compliance.

     Qualified  Thrift  Lender Test.  All savings  associations,  including  the
Association,  are  required to meet a qualified  thrift  lender  ("QTL") test to
avoid certain  restrictions  on their  operations.  This test requires a savings
association  to have  at  least  65% of its  portfolio  assets  (as  defined  by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative,  the savings  association
may maintain 60% of its assets in those assets specified in Section  7701(a)(19)
of the Internal Revenue Code ("Code").  Under either test, such assets primarily
consist of residential  housing related loans and investments.  At September 30,
2000, the Association met the test and its QTL percentage was 83.39%.

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

                                       26
<PAGE>


     Capital Requirements.  Federally insured savings associations,  such as the
Association, are required to maintain a minimum level of regulatory capital. The
OTS has established capital standards, including a tangible capital requirement,
a  leverage  ratio  (or  core  capital)  requirement  and a  risk-based  capital
requirement applicable to such savings associations.

     The  capital  regulations  require  tangible  capital  of at least  1.5% of
adjusted  total assets (as defined by  regulation).  At September 30, 2000,  the
Association had tangible  capital of $102.2 million,  or 10.4% of adjusted total
assets,  which is approximately  $87.4 million above the minimum  requirement of
1.5% of adjusted total assets in effect on that date. At September 30, 2000, the
Association  had $8.1 million of  intangible  assets  consisting of core deposit
intangible related to the Wells Fargo branch acquisition in 1997.

     The capital  standards also require core capital equal to at least 3% to 4%
of adjusted total assets, depending on an institution's supervisory rating. Core
capital  generally  consists of tangible  capital.  At September  30, 2000,  the
Association had core capital equal to $102.2 million, or 10.4% of adjusted total
assets, which is $62.7million above the minimum leverage ratio requirement of 4%
as in effect on that date.

     The OTS risk-based  requirement requires savings associations to have total
capital of at least 8% of risk-weighted  assets.  Total capital consists of core
capital,  as defined above, and  supplementary  capital.  Supplementary  capital
consists of certain  permanent  and  maturing  capital  instruments  that do not
qualify as core capital and general  valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital.

     In determining the amount of risk-weighted  assets,  all assets,  including
certain  off-balance sheet items, are multiplied by a risk weight,  ranging from
0% to 100%,  based on the risk inherent in the type of asset.  For example,  the
OTS has assigned a risk weight of 50% for prudently  underwritten permanent one-
to- four family first lien mortgage  loans not more than 90 days  delinquent and
having a loan-to-value  ratio of not more than 80% at origination unless insured
to such ratio by an insurer approved by Fannie Mae or FHLMC.

     On September 30, 2000,  the  Association  had total  risk-based  capital of
approximately $106.1 million,  including $102.2 million in core capital and $3.9
million in qualifying  supplementary capital, and risk-weighted assets of $522.7
million,  or total  capital of 20.3% of  risk-weighted  assets.  This amount was
$64.3million above the 8% requirement in effect on that date.

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

     The OTS is also generally  authorized to reclassify an  association  into a
lower capital category and impose the  restrictions  applicable to such category
if the institution is engaged in unsafe or unsound  practices or is in an unsafe
or unsound condition.

     The  imposition  by the OTS or the  FDIC of any of  these  measures  on the
Company  or the  Association  may have a  substantial  adverse  effect  on their
operations and profitability.

                                       27
<PAGE>


     Limitations on Capital Distributions.  The OTS imposes various restrictions
on savings  associations with respect to their ability to make  distributions of
capital,  which include  dividends,  stock redemptions or repurchases,  cash-out
mergers  and other  transactions  charged to the capital  account.  The OTS also
prohibits a savings  association  from declaring or paying any dividends or from
repurchasing  any of its stock if, as a result of such  action,  the  regulatory
capital of the  association  would be reduced  below the amount  required  to be
maintained  for the  liquidation  account  established  in  connection  with the
association's mutual to stock conversion.

     The  Association  may make a  capital  distribution  without  OTS  approval
provided  that the  Association  notify the OTS 30 days before it  declares  the
capital  distribution  and  that the  following  requirements  are met:  (i) the
Association  has  a  regulatory  rating  in  one  of  the  two  top  examination
categories,  (ii) the Association is not of supervisory concern, and will remain
adequately or well  capitalized,  as defined in the OTS prompt corrective action
regulations,  following the proposed  distribution,  and (iii) the  distribution
does not exceed the Association's net income for the calendar  year-to-date plus
retained  net income for the previous  two  calendar  years (less any  dividends
previously paid). If the Association does not meet these stated requirements, it
must  obtain  the  prior  approval  of the OTS  before  declaring  any  proposed
distributions.

     In  the  event  the  Association's   capital  falls  below  its  regulatory
requirements  or the OTS  notifies  it that  it is in need of more  than  normal
supervision,  the Association's  ability to make capital  distributions  will be
restricted.  In addition,  no  distribution  will be made if the  Association is
notified by the OTS that a proposed  capital  distribution  would  constitute an
unsafe  and  unsound  practice,  which  would  otherwise  be  permitted  by  the
regulation.

     Loans to One Borrower.  Federal law provides that savings  institutions are
generally subject to the national bank limit on loans to one borrower. A savings
institution may not make a loan or extend credit to a single or related group of
borrowers in excess of 15% of its unimpaired capital and surplus.  An additional
amount may be lent, equal to 10% of unimpaired  capital and surplus,  if secured
by  specified   readily-marketable   collateral.  At  September  30,  2000,  the
Association's limit on loans to one borrower was $16.3 million. At September 30,
2000, the  Association's  largest  aggregate amount of loans to one borrower was
$5.9million, all of which were performing according to their original terms.

     Activities  of  Associations  and  Their   Subsidiaries.   When  a  savings
association  establishes  or acquires a subsidiary  or elects to conduct any new
activity  through  a  subsidiary  that the  association  controls,  the  savings
association  must notify the FDIC and the OTS 30 days in advance and provide the
information each agency may, by regulation,  require.  Savings associations also
must  conduct  the  activities  of  subsidiaries  in  accordance  with  existing
regulations and orders.

     The OTS may determine that the continuation by a savings association of its
ownership  control of, or its  relationship  to, the  subsidiary  constitutes  a
serious risk to the safety,  soundness or  stability  of the  association  or is
inconsistent  with sound  banking  practices  or with the  purposes of the FDIA.
Based upon that  determination,  the FDIC or the OTS has the  authority to order
the savings association to divest itself of control of the subsidiary.  The FDIC
also may  determine by regulation  or order that any specific  activity  poses a
serious  threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.

     Transactions  with  Affiliates.   Savings  associations  must  comply  with
Sections 23A and 23B of the Federal  Reserve Act relative to  transactions  with
affiliates  in the  same  manner  and  to  the  same  extent  as if the  savings
association were a Federal Reserve member Association.  Generally,  transactions
between  a  savings  association  or its  subsidiaries  and its  affiliates  are
required to be on terms as favorable to the  association  as  transactions  with
non-affiliates.  In addition, certain of these transactions, such as loans to an
affiliate,  are  restricted  to  a  percentage  of  the  association's  capital.
Affiliates of the Association include the Company and any company which is under
common control with the Association.  In addition, a savings association may not
lend to any  affiliate  engaged  in  activities  not  permissible  for a savings
association  holding company or acquire the securities of most  affiliates.  The
OTS  has the  discretion  to  treat  subsidiaries  of  savings  associations  as
affiliates on a case by case basis.

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

                                       28
<PAGE>


     Community  Reinvestment Act. Under the federal  Community  Reinvestment Act
("CAR"),  all federally-  insured  financial  institutions have a continuing and
affirmative  obligation  consistent with safe and sound  operations to help meet
all the credit needs of its  delineated  community.  The CAR does not  establish
specific  lending  requirements  or programs nor does it limit an  institution's
discretion  to develop the types of products and  services  that it believes are
best suited to meet all the credit needs of its  delineated  community.  The CAR
requires  the  federal   banking   agencies,   in  connection   with  regulatory
examinations,  to assess an institution's  record of meeting the credit needs of
its  delineated  community  and to take such record into  account in  evaluating
regulatory  applications  to  establish  a new branch  office  that will  accept
deposits,  relocate an existing office, or merge or consolidate with, or acquire
the  assets  or assume  the  liabilities  of, a  federally  regulated  financial
institution,   among  others.   The  CAR  requires   public   disclosure  of  an
institution's CAR rating. The Association received a "satisfactory"  rating as a
result of its latest evaluation.

     Regulatory  and  Criminal  Enforcement  Provisions.  The  OTS  has  primary
enforcement  responsibility  over savings  institutions and has the authority to
bring   action   against   all   "institution-affiliated   parties,"   including
stockholders,  and any attorneys,  appraisers and  accountants  who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution.  Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers or directors,
receivership,   conservatorship  or  termination  of  deposit  insurance.  Civil
penalties cover a wide range of violations and can amount to $27,500 per day, or
$1.1 million per day in especially egregious cases. Under the FDIA, the FDIC has
the authority to recommend to the Director of the OTS that enforcement action be
taken with respect to a particular savings  institution.  If action is not taken
by the  Director,  the FDIC has  authority  to take such  action  under  certain
circumstances.  Federal  law also  establishes  criminal  penalties  for certain
violations.



                                       29

<PAGE>

                            REGULATION OF THE COMPANY

General

     The  Company  is a unitary  savings  and loan  holding  company  within the
meaning of the HOLA. As such,  it is  registered  with the OTS and is subject to
OTS  regulations,  examinations,  supervision  and reporting  requirements.  The
Company is also subject to the information, proxy solicitation,  insider trading
restrictions,  and other requirements of the Securities Exchange Act of 1934, as
amended.

Company Acquisitions

     The HOLA and OTS regulations issued thereunder generally prohibit a savings
and loan holding company,  without prior OTS approval,  from acquiring more than
5% of the voting  stock of any other  savings  association  or savings  and loan
holding  company or controlling the assets  thereof.  They also prohibit,  among
other things, any director or officer of a savings and loan holding company,  or
any  individual  who owns or controls more than 25% of the voting shares of such
holding  company,  from  acquiring  control  of any  savings  association  not a
subsidiary of such savings and loan holding  company,  unless the acquisition is
approved by the OTS.

Holding Company Activities

     As a unitary savings and loan holding company, the Company generally is not
subject to activity  restrictions.  If the Company  acquires  control of another
savings association as a separate subsidiary, it would become a multiple savings
and  loan  holding  company.  There  generally  are  more  restrictions  on  the
activities of a multiple savings and loan holding company than a unitary savings
and loan holding company.  Specifically,  if either federally insured subsidiary
savings  association  fails to meet the QTL test,  the activities of the Company
and any of its subsidiaries  (other than the Company or other federally  insured
subsidiary  savings   associations)  would  thereafter  be  subject  to  further
restrictions.  The HOLA provides that,  among other things,  no multiple savings
and  loan  holding  company  or  subsidiary  thereof  which  is not  an  insured
association  shall commence or continue for more than two years after becoming a
multiple savings and loan association holding company or subsidiary thereof, any
business activity other than: (i) furnishing or performing  management  services
for a subsidiary  insured  institution,  (ii) conducting an insurance  agency or
escrow  business,  (iii) holding,  managing,  or liquidating  assets owned by or
acquired  from a  subsidiary  insured  institution,  (iv)  holding  or  managing
properties used or occupied by a subsidiary insured  institution,  (v) acting as
trustee  under  deeds  of  trust,  (vi)  those  activities  previously  directly
authorized  by  regulation  as of March 5,  1987 to be  engaged  in by  multiple
holding  companies or (vii) those  activities  authorized by the Federal Reserve
Board as permissible for bank holding  companies,  unless the OTS by regulation,
prohibits  or limits such  activities  for savings and loan  holding  companies.
Those activities described in (vii) above also must be approved by the OTS prior
to being engaged in by a multiple holding company.

Potential Impact of Current Legislation on Future Results of Operations

     On  November  12,  1999,  the  Gramm-Leach-Bliley  Act (the "GLB  Act") was
enacted into law. The GLB Act made sweeping changes in the financial services in
which various types of financial  institutions  may engage.  The  Glass-Steagull
Act,  which  generally  prevented  banks from  affiliating  with  securities and
insurance firms,  was repealed.  A new "financial  holding  company," which owns
only  well  capitalized  and  well  managed  depository  institutions,  will  be
permitted to engage in a variety of financial  activities,  including  insurance
and securities underwriting and agency activities.

     The GLB Act permits unitary savings and loan holding companies in existence
on May 4, 1999,  including the Company,  to continue to engage in all activities
that they were  permitted to engage in prior to the  enactment of the Act.  Such
activities  are  essentially  unlimited,  provided  that the  thrift  subsidiary
remains a qualified  thrift lender.  Any thrift holding company formed after May
4, 1999, will be subject to the same restrictions as a multiple  thrift holding.

                                       30
<PAGE>


In addition,  a unitary thrift holding  company in existence on May 4, 1999, may
be sold only to a financial  holding company  engaged in activities  permissible
for multiple savings and loan holding companies.

     The GLB Act is not expected to have a material  effect on the activities in
which the Company and the  Association  currently  engage,  except to the extent
that competition with other types of financial institutions may increase as they
engage in activities not permitted prior to enactment of the GLB Act.

Affiliate Restrictions

     The affiliate restrictions contained in Sections 23A and 23B of the Federal
Reserve Act apply to all federally  insured  savings  associations  and any such
"affiliate." A savings and loan holding company,  its subsidiaries and any other
company under common control are considered affiliates of the subsidiary savings
association  under  the HOLA.  Generally,  Sections  23A and 23B:  (i) limit the
extent  to which the  insured  association  or its  subsidiaries  may  engage in
certain covered transactions with an affiliate to an amount equal to 10% of such
institution's  capital and surplus,  and contain an aggregate  limit on all such
transactions  with all  affiliates to an amount equal to 20% of such capital and
surplus,  and (ii) require that all such transactions be on terms  substantially
the same, or at least as favorable to the  institution or  subsidiary,  as those
provided to a non-affiliate.  The term "covered transaction" includes the making
of loans, purchase of assets, issuance of a guarantee and other similar types of
transactions.  Also, a savings association may not make any loan to an affiliate
unless the affiliate is engaged only in activities  permissible for bank holding
companies.  Only the Federal Reserve may grant  exemptions from the restrictions
of  Sections  23A  and  23B.  The  OTS,  however,   may  impose  more  stringent
restrictions on savings associations for reasons of safety and soundness.

Qualified Thrift Lender Test

     The HOLA  requires  any savings and loan holding  company  that  controls a
savings  association  that fails the QTL test, as explained  under "-- Qualified
Thrift  Lender  Test,"  must,  within  one year  after  the  date on  which  the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.


                                    TAXATION

Federal Taxation

     General.  The Company and the  Association  report their income on a fiscal
year basis using the  accrual  method of  accounting  and are subject to federal
income taxation in the same manner as other corporations,  with some exceptions.
The  following  discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to the
Company and the Association.

     Bad  Debt  Reserve.   Historically,   savings   institutions  such  as  the
Association  which met certain  definitional  tests  primarily  related to their
assets and the nature of their business  ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual  additions  thereto,  which
may have been deducted in arriving at their taxable  income.  The  Association's
deductions with respect to "qualifying real property loans," which are generally
loans  secured by certain  interest in real  property,  were  computed  using an
amount based on the Association's  actual taxable income,  computed with certain
modifications  and reduced by the amount of any permitted  additions to the non-
qualifying reserve. Each year the Association selected the most favorable way to
calculate the deduction attributable to an addition to the tax bad debt reserve.

     The  provisions  repealing the current thrift bad debt rules were passed by
Congress as part of "The Small  Business  Job  Protection  Act of 1996." The new
rules eliminated the 8% of taxable income method for deducting  additions to the
tax bad debt reserves for all thrifts for tax years beginning after December 31,
1995. These rules also require that all institutions recapture all or a  portion

                                       31
<PAGE>


of their  bad debt  reserves  added  since  the base  year  (last  taxable  year
beginning  before January 1, 1988).  The Association  has previously  recorded a
deferred tax liability equal to the bad debt recapture and as such the new rules
will have no effect on net income or federal  income tax  expense.  For  taxable
years  beginning after December 31, 1995, the  Association's  bad debt deduction
will be determined on the basis of net charge-offs  during the taxable year. The
new rules allow an  institution  to suspend bad debt reserve  recapture  for the
1996 and 1997 tax years if the institution's lending activity for those years is
equal to or greater than the institution's average mortgage lending activity for
the six taxable years  preceding 1996 adjusted for inflation.  For this purpose,
only home purchase or home  improvement  loans are included and the  institution
can elect to have the tax years with the  highest  and lowest  lending  activity
removed from the average calculation. If an institution is permitted to postpone
the reserve  recapture,  it must begin its six year  recapture no later than the
1998 tax year  (fiscal  year ending  September  30, 1999 for the  Company).  The
unrecaptured  base year reserves will not be subject to recapture as long as the
institution  continues  to carry on the business of banking.  In  addition,  the
balance of the pre-1988 bad debt  reserves  continue to be subject to provisions
of present law referred to below that  require  recapture in the case of certain
excess distributions to shareholders.

     Distributions.  To the  extent  that  the  Association  makes  "nondividend
distributions" to the Company,  such  distributions will be considered to result
in  distributions  from the balance of its bad debt  reserves as of December 31,
1987 (or a lesser amount if the  Association's  loan portfolio  decreased  since
December  31, 1987) and then from the  supplemental  reserve for losses on loans
("Excess  Distributions"),  and an amount based on the Excess Distributions will
be included  in the  Association's  taxable  income.  Nondividend  distributions
include  distributions  in excess of the  Association's  current and accumulated
earnings and profits,  distributions in redemption of stock and distributions in
partial  or  complete   liquidation.   However,   dividends   paid  out  of  the
Association's  current or  accumulated  earnings and profits,  as calculated for
federal income tax purposes,  will not be considered to result in a distribution
from the Association's bad debt reserve. The amount of additional taxable income
created from an Excess  Distribution  is an amount that, when reduced by the tax
attributable  to the  income,  is equal to the amount of the  distribution.  The
Association does not intend to pay dividends that would result in a recapture of
any portion of its tax bad debt reserve.

     Corporate  Alternative  Minimum Tax. The Internal  Revenue Code of 1986, as
amended ("Code") imposes  a tax on alternative  minimum  taxable income ("AMTI")
at a rate of 20%.  The excess of the tax bad debt  reserve  deduction  using the
percentage  of taxable  income  method over the  deduction  that would have been
allowable  under the  experience  method is  treated  as a  preference  item for
purposes of computing the AMTI.  In addition,  only 90% of AMTI can be offset by
net operating  loss  carryovers.  AMTI is increased by an amount equal to 75% of
the amount by which the Association's adjusted current earnings exceeds its AMTI
(determined  without  regard to this  preference  and prior to reduction for net
operating  losses).  For taxable years  beginning  after  December 31, 1986, and
before  January 1,  1996,  an  environmental  tax of 0.12% of the excess of AMTI
(with  certain  modification)  over $2.0  million is  imposed  on  corporations,
including the Association,  whether or not an Alternative Minimum Tax ("AMT") is
paid.

     Dividends-Received  Deduction. The Company may exclude from its income 100%
of dividends  received from the  Association as a member of the same  affiliated
group of corporations.  The corporate  dividends-received deduction is generally
70% in the case of dividends received from unaffiliated  corporations with which
the Company and the Association will not file a consolidated tax return,  except
that if the  Company  or the  Association  owns  more than 20% of the stock of a
corporation  distributing a dividend,  then 80% of any dividends received may be
deducted.

     Other Federal Tax Matters. There have not been any Internal Revenue Service
audits of the Company's or the  Association's  federal income tax returns during
the past five years.

Oregon Taxation

     The Company and the Association are subject to an Oregon  corporate  excise
tax at a  statutory  rate of 6.6%  of  income.  Neither  the  Company's  nor the
Association's  state income tax returns  have been audited  during the past five
years.


                                       32
<PAGE>


Competition

     The  Association  originates  most of its loans to and accepts  most of its
deposits  from  residents  of its market  area.  The  Association  is the oldest
financial  institution  headquartered in Klamath Falls. The Association believes
that it is a major competitor in the markets in which it operates.  Nonetheless,
the Association faces competition in attracting  deposits and making real estate
loans from various financial institutions, including banks, savings associations
and  mortgage  brokers.  In  addition,  the  Association  has  faced  additional
significant  competition  for  investors'  funds from  short-term  money  market
securities  and  other  corporate  and  government  securities.   The  financial
institution  industry in the Association's market area is characterized by a mix
of local independent  financial  institutions and offices of larger out-of-state
financial institutions, including several multi-national bank holding companies.
The ability of the Association to attract and retain savings deposits depends on
its ability to generally  provide a rate of return and liquidity risk comparable
to that offered by competing investment opportunities.  The Association competes
for loans  principally  through the interest  rates and loan fees it charges and
the efficiency and quality of services it provides  borrowers.  Competition  may
increase as restrictions on the interstate operations of financial  institutions
continue to be reduced.

Personnel

     As of  September  30,  2000,  the  Association  had  229  full-time  and 56
part-time  employees.   The  employees  are  not  represented  by  a  collective
bargaining unit. The Association believes its relationship with its employees is
good.

     Executive  Officers.  The following  table sets forth  certain  information
regarding the executive officers of the Company.
<TABLE>
<CAPTION>

Name                         Age(1)        Position
<S>                           <C>        <C>

Kermit K. Houser              57         President and Chief Executive Officer

Robert A. Tucker              52         Senior Vice President and
                                                Chief Lending Officer/Secretary

Frank X. Hernandez            45         Senior Vice President and
                                                Chief Operating Officer

Marshall J. Alexander         49         Senior Vice President and
                                                Chief Financial Officer
<FN>

______________
(1)     At September 30, 2000.

</FN>
</TABLE>


     Kermit K. Houser has served as President and Chief Executive Officer of the
Company and the Association  since November 2000,  replacing Gerald V. Brown who
resigned August 2000. Mr. Houser was previously  employed in various  capacities
by Bank of America  from 1991 to November  2000,  as senior vice  president  and
manager for  commercial  banking,  executive  vice  president  and senior credit
officer,  and most recently as senior vice  president  and market  executive for
Bank of America's South Valley commercial  banking, in Fresno,  California.  Mr.
Houser has 29 years  experience  in  banking,  and has been an active  member of
numerous civic and community organizations.

     Robert A. Tucker has been  employed by the  Association  since 1973. He has
served  as  Senior  Vice  President  since  November  1989.  He  served as Chief
Operating  Officer from March 1997 to June 1998 and has served as Chief  Lending
Officer and Secretary since July 1998.

     Frank X.  Hernandez  has been  employed by the  Association  since 1991. He
served as Human Resources  Officer until July 1998 when he was appointed  Senior
Vice President and Chief Operating Officer.

     Marshall J. Alexander has been employed by the  Association  since 1986. He
has served as Vice President and Chief  Financial  Officer since August 1994 and
was named a Senior Vice President in November 1998.



                                       33
<PAGE>


Item 2.        Properties

     The following  table sets forth the location of the  Association's  offices
and  other  facilities  used  in  operations  as  well  as  certain   additional
information relating to these offices and facilities as of September 30, 2000.
<TABLE>
<CAPTION>

                                 Year                                 Square
Description/Address            Opened       Leased/Owned             Footage
---------------------------    --------     ------------             --------
Main Office

<S>                              <C>            <C>                    <C>
540 Main Street                  1939           Owned                  25,660
Klamath Falls, Oregon

Branch Offices

2943 South Sixth Street          1972           Owned                   3,820
Klamath Falls, Oregon

2323 Dahlia Street               1979           Owned                   1,876
Klamath Falls, Oregon

512 Walker Avenue                1977           Owned                   4,216
Ashland, Oregon

1420 East McAndrews Road         1990           Owned                   4,006
Medford, Oregon

61515 S. Highway 97              1993           Owned                   5,415
Bend, Oregon

2300 Madison Street              1995           Owned                   5,000
Klamath Falls, Oregon

721 Chetco Avenue                1997           Owned                   5,409
Brookings, Oregon

293 North Broadway               1997           Owned                   5,087
Burns, Oregon

111 West Main Street             1997           Owned                   1,958
Carlton, Oregon

103 South Main Street            1997           Owned                   2,235
Condon, Oregon

259 North Adams                  1997           Owned                   5,803
Coquille, Oregon

106 Southwest 1st Street         1997           Owned                   4,700
Enterprise, Oregon
</TABLE>



                                       34
<PAGE>
<TABLE>
<CAPTION>


                                 Year                                 Square
Description/Address            Opened        Leased/Owned            Footage
---------------------------    --------     -------------            --------
<S>                              <C>            <C>                    <C>
555 1st Street                   1997           Owned                   1,844
Fossil, Oregon

708 Garibaldi Avenue             1997           Owned                   1,400
Garibaldi, Oregon

29804 Ellensburg Avenue          1997           Owned                   3,136
Gold Beach, Oregon

111 North Main Street            1997           Owned                   4,586
Heppner, Oregon

810 South Highway 395            1997           Leased                  6,000
Hermiston, Oregon

200 West Main Street             1997           Owned                   4,552
John Day, Oregon

1 South E Street                 1997           Owned                   5,714
Lakeview, Oregon

206 East Front Street            1997           Owned                   2,920
Merrill, Oregon

165 North 5th Street             1997           Owned                   2,370
Monroe, Oregon

217 Main Street                  1997           Owned                   6,067
Nyssa, Oregon

48257 East 1st Street            1997           Owned                   3,290
Oakridge, Oregon

227 West Main Street             1997           Owned                   2,182
Pilot Rock, Oregon

716 Northeast Highway 101        1997           Owned                   2,337
Port Orford, Oregon

178 Northwest Front Street       1997           Owned                   2,353
Prairie City, Oregon

315 North Main Street            1997           Owned                   3,638
Riddle, Oregon

38770 North Main Street          1997           Owned                   2,997
Scio, Oregon

</TABLE>


                                       35

<PAGE>
<TABLE>
<CAPTION>

                                 Year                                  Square
Description/Address            Opened        Leased/Owned             Footage
---------------------------    --------     -------------            --------
<S>                              <C>            <C>                    <C>
508 Main Street                  1997           Owned                   2,282
Moro, Oregon

144 South Main Street            1997           Owned                   2,146
Union, Oregon

165 North Maple Street           1997           Owned                   2,192
Yamhill, Oregon

475 NE Windy Knolls Drive        1998           Owned                   3,120
Bend, Oregon

185 East California              1998           Owned                   2,116
Jacksonville, Oregon

1217 Plaza Boulevard, Suite A    2000           Leased                  2,400
Central Point, Oregon

Loan Center

585 SW 6th, Suite #2             1996           Leased                    900
Redmond, Oregon

Loan Processing Center

600 Main Street                  1998           Leased                  2,800
Klamath Falls, Oregon
</TABLE>

     The net book value of the  Association's  investment in office,  properties
and equipment  totaled $12.7 million at September 30, 2000.  See Note 5 of Notes
to the Consolidated Financial Statements in the Annual Report.

Item 3.        Legal Proceedings

     Periodically,  there have been various  claims and lawsuits  involving  the
Association,   mainly  as  a  defendant,   such  as  claims  to  enforce  liens,
condemnation  proceedings on properties in which the Association  holds security
interests,  claims involving the making and servicing of real property loans and
other issues incident to the  Association's  business.  The Association is not a
party to any pending legal  proceedings  that it believes  would have a material
adverse effect on the financial condition or operations of the Association.

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended September 30, 2000.


                                       36
<PAGE>


                                     PART II

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

     The  information  contained  under  the  section  captioned  "Common  Stock
Information"  on  page  16 of  the  Annual  Report  is  incorporated  herein  by
reference.

Item 6.        Selected Financial Data

     The   information   contained   under  the  section   captioned   "Selected
Consolidated  Financial  Data"  on  pages  4  and  5 of  the  Annual  Report  is
incorporated herein by reference.

Item 7.        Management's Discussion and  Analysis of Financial  Condition and
               Results of Operations

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

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk

     The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Market Risk and
Asset/Liability  Management"  beginning  on  page  7 of  the  Annual  Report  is
incorporated herein by reference.

Item 8.         Financial Statements and Supplementary Data

        (a)     Financial Statements
                Independent Auditors' Report*
                Consolidated Balance Sheets as of September 30, 2000 and 1999*
                Consolidated Statements of Earnings for the Years Ended
                     September 30, 2000, 1999 and 1998*
                Consolidated Statements of Shareholders' Equity for the Years
                     Ended September 30, 2000, 1999 and 1998*
                Consolidated Statements of Cash Flows for the Years Ended
                     September 30, 2000, 1999 and 1998*
                Notes to the Consolidated Financial Statements*

*    Included  in  the  Annual   Report   attached  as  Exhibit  13  hereto  and
     incorporated  herein by reference.  All schedules  have been omitted as the
     required information is either inapplicable or included in the Consolidated
     Financial Statements or related Notes contained in the Annual Report.

         (b)    Supplementary Data

     The  information  entitled  "Consolidated   Supplemental  Data  -  Selected
Quarterly Financial Data" on page 36 of the Annual Report is incorporated herein
by reference.

Item 9.        Changes in and Disagreements with Accountants  on  Accounting and
               Financial Disclosure

     There  have  been  no  changes  in or  disagreements  with  Accountants  on
accounting and financial disclosure during the year ended September 30, 2000.



                                       37
<PAGE>


                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

     The  information  contained  under  the  section  captioned  "Proposal  I -
Election of Directors"  contained in the Company's Proxy Statement,  and "Part I
-- Business -- Personnel -- Executive  Officers" of this report, is incorporated
herein by  reference.  Reference  is made to the cover  page of this  report for
information regarding compliance with Section 16(a) of the Exchange Act.

Item 11.  Executive Compensation

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

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     (a) Security Ownership of Certain Beneficial Owners

          Information  required by this item is incorporated herein by reference
          to the section  captioned  "Security  Ownership of Certain  Beneficial
          Owners and Management" of the Proxy Statement.

     (b) Security Ownership of Management

          The  information  required  by this  item is  incorporated  herein  by
          reference  to  the  sections  captioned  "Proposal  I  -  Election  of
          Directors" and "Security  Ownership of Certain  Beneficial  owners and
          Management" of the Proxy Statement.

     (c) Changes in Control

          The Company is not aware of any arrangements,  including any pledge by
          any person of securities of the Company, the operation of which may at
          a subsequent date result in a change in control of the Company.

     The information  required by this item is incorporated  herein by reference
to the sections  captioned  "Proposal I - Election of  Directors"  and "Security
Ownership of Certain Beneficial Owners and Management" of the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

     The  information  set  forth  under the  section  captioned  "Proposal  I -
Election of Directors - Certain  Transactions with the Association" in the Proxy
Statement is incorporated herein by reference.


                                       38
<PAGE>


                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a) Exhibits

         3(a)          Articles of Incorporation of the Registrant*
         3(b)          Bylaws of the Registrant*
        10(a)          Employment Agreement with Gerald V. Brown***
        10(b)          Employment Agreement with Marshall J. Alexander***
        10(c)          Employment Agreement with Robert A. Tucker***
        10(d)          Employment Agreement with Frank X. Hernandez****
        10(e)          1996 Stock Option Plan**
        10(f)          1996 Management Recognition and Development Plan**
        13             Annual Report to Shareholders
        22             Subsidiaries of the Registrant
        23             Consent of Deloitte & Touche LLP with respect to
                        financial statements of the Registrant
        27             Financial Data Schedule
___________________
*       Incorporated by reference to the Registrant's Registration Statement on
        Form S-1, filed on June 19, 1995.
**      Incorporated by reference to the Registrant's Definitive Proxy Statement
        for the 1996 Annual Meeting of Shareholders.
***     Incorporated by reference to the Registrant's Annual Report on Form 10-K
        for the year ended September 30, 1995.
****    Incorporated by reference to the Registrant's Annual Report on Form 10-K
        for the year ended September 30, 1998.

     (b) Reports on Form 8-K

     Reference is made to the  Company's  Current  Reports on Form 8-K dated May
     26, 2000,  announcing  the  resignation of Gerald V. Brown as President and
     Chief Executive  Officer,  and November 2, 2000,  announcing that Kermit K.
     Houser was the new President and Chief Executive Officer of the Company and
     the Association, effective November 15, 2000, which are incorporated herein
     by reference.


                                       39

<PAGE>

                                   SIGNATURES

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

                           KLAMATH FIRST BANCORP, INC.


Date:  December 28, 2000           By:     /s/ Kermit K. Houser
                                           Kermit K. Houser
                                           President and Chief Executive Officer

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

SIGNATURES                                TITLE                       DATE

/s/ Kermit K. Houser               President, Chief            December 28, 2000
Kermit K. Houser                   Executive Officer and
                                   Director (Principal
                                   Executive Officer)

/s/ Marshall J. Alexander          Senior Vice President and   December 28, 2000
Marshall J. Alexander              Chief Financial Officer
                                   (Principal Financial
                                   and Accounting Officer)

/s/ Rodney N. Murray               Chairman of the Board       December 28, 2000
Rodney N. Murray                   of Directors


/s/ Bernard Z. Agrons              Director                    December 28, 2000
Bernard Z. Agrons


/s/ Timothy A. Bailey              Director                    December 28, 2000
Timothy A. Bailey


/s/ James D. Bocchi                Director                    December 28, 2000
James D. Bocchi

/s/ William C. Dalton              Director                    December 28, 2000
William C. Dalton

/s/ J. Gillis Hannigan             Director                    December 28, 2000
J. Gillis Hannigan

/s/ Dianne E. Spires               Director                    December 28, 2000
Dianne E. Spires




                                       40

<PAGE>