SECURITIES AND EXCHANGE COMMISSION
                                 Washington, D.C.  20549
                                        FORM 10-Q

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

        For the Quarterly Period Ended June 30, 1998

                                             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)                                          Identification 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 .

     As of July 22, 1998, there were issued 9,916,766 shares of the Registrant's
Common Stock.  The Registrant's  voting common stock is traded  over-the-counter
and is listed on the Nasdaq National Market under the symbol "KFBI."


<PAGE>



                   KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS

Part I.     Financial Information
-------     ----------------------
Item 1.     Financial Statements                                         Page
                                                                        -------
            Consolidated Statements of Financial Condition
            (As of June 30, 1998 and September 30, 1997)                     3

            Consolidated Statements of Earnings (For the three months
            and nine months ended June 30, 1998 and 1997)                    4

            Consolidated Statement of Shareholders' Equity
            (For the years ended September 30, 1997 and 1996 and for
            the nine months ended June 30, 1998)                             5

            Consolidated Statements of Cash Flows (For the nine
            months ended June 30, 1998 and 1997)                         6 - 7

            Notes to Consolidated Financial Statements                  8 - 10

Item 2.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations                        11 - 15

Part II.    Other Information
--------    -------------------

Item 1.     Legal Proceedings                                               16

Item 2.     Changes in Securities                                           16

Item 3.     Defaults Upon Senior Securities                                 16

Item 4.     Submission of Matters to a Vote of Security Holders             16

Item 5.     Other Information                                               16

Item 6.     Exhibits and Reports on Form 8-K                                16

Signatures                                                                  17




































                                        2

<PAGE>
<TABLE>
<CAPTION>

                             KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                           CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                             AS OF JUNE 30, 1998 AND SEPTEMBER 30, 1997
                                             (Unaudited)



                                                                              June 30, 1998     September 30, 1997
ASSETS                                                                      ---------------        ---------------

<S>                                                                         <C>                    <C>            
Cash and due from banks .................................................   $    22,003,622        $    24,503,768
Interest earning deposits with banks ....................................         7,575,691              1,431,087
Federal funds sold and securities purchased under agreements to resell ..        20,918,913              6,108,341
                                                                            ---------------        ---------------
   Total cash and cash equivalents ......................................        50,498,226             32,043,196

Investment securities available for sale, at fair value
  (amortized cost: $217,827,959 and $261,869,234) .......................       219,190,532            261,846,320
Investment securities held to maturity, at amortized cost (fair
  value: $3,076,288 and $22,968,997) ....................................         3,039,654             22,937,314
Mortgage backed and related securities available for sale, at fair
  value (amortized cost: $47,281,107 and $64,097,246) ...................        47,681,455             64,868,633
Mortgage backed and related securities held to maturity, at amortized
  cost (fair value: $4,111,904 and $5,518,648) ..........................         4,079,097              5,446,957
Loans receivable, net ...................................................       640,759,774            551,463,590
Real estate owned .......................................................              --                     --
Premises and equipment, net .............................................        12,206,220             11,671,124
Stock in Federal Home Loan Bank of Seattle, at cost .....................         8,910,700              7,150,400
Accrued interest receivable .............................................         8,636,943              7,626,164
Core deposit intangible .................................................        11,844,187             13,083,695
Other assets ............................................................         1,841,479              1,940,655
                                                                            ---------------        ---------------
   Total assets .........................................................   $ 1,008,688,267        $   980,078,048
                                                                            ===============        ===============

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
  Deposit liabilities ...................................................   $   679,263,285        $   673,977,901
  Accrued interest on deposits ..........................................         1,185,124              1,215,745
  Advances from borrowers for taxes and insurance .......................         6,663,561              8,915,486
  Advances from Federal Home Loan Bank of Seattle .......................       160,000,000            129,000,000
  Short term borrowings .................................................        14,025,000             17,077,500
  Accrued interest on borrowings ........................................           293,485                512,716
  Pension liabilities ...................................................           823,087                727,140
  Deferred federal and state income taxes ...............................         2,334,273              1,911,573
  Other liabilities .....................................................         3,063,004              2,277,544
                                                                            ---------------        ---------------
    Total liabilities ...................................................       867,650,819            835,615,605
                                                                            ---------------        ---------------

SHAREHOLDERS' EQUITY
  Preferred stock, $.01 par value, 500,000 shares authorized; none issued              --                     --
  Common stock, $.01 par value, 35,000,000 shares authorized,
    June 30, 1998 -- 9,916,766 issued, 8,801,107 outstanding;
    September 30, 1997 -- 10,429,534 issued, 9,235,582 outstanding ......            99,168                104,295
  Additional paid-in-capital ............................................        82,305,875             92,601,639
  Retained earnings-substantially restricted ............................        69,175,655             64,744,995
  Unearned shares issued to ESOP ........................................        (7,095,212)            (7,829,200)
  Unearned shares issued to MRDP ........................................        (4,541,048)            (5,623,340)
  Net unrealized gain on securities available for sale, net of tax ......         1,093,010                464,054
                                                                            ---------------        ---------------
    Total shareholders' equity ..........................................       141,037,448            144,462,443
                                                                            ---------------        ---------------
    Total liabilities and shareholders' equity ..........................   $ 1,008,688,267        $   980,078,048
                                                                            ===============        ===============
<FN>



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

                                                                   3

<PAGE>
<TABLE>
<CAPTION>


                                                                KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                                                                    CONSOLIDATED STATEMENTS OF EARNINGS
                                                                                (Unaudited)




                                                               Three Months     Three Months      Nine Months      Nine Months
                                                                      Ended            Ended            Ended            Ended
                                                                   June 30,         June 30,         June 30,         June 30,
                                                                       1998             1997             1998             1997
                                                             --------------   --------------   --------------   --------------
INTEREST INCOME
<S>                                                          <C>              <C>              <C>              <C>           
  Loans receivable .......................................   $   12,805,756   $   10,421,417   $   36,285,128   $   29,894,602
  Mortgage backed and related securities .................          815,350        1,163,693        3,003,161        3,558,732
  Investment securities ..................................        3,610,547        1,318,728       11,506,858        3,984,913
  Federal funds sold and securities purchased
     under agreements to resell ..........................          223,879          158,120          563,839          606,464
  Interest earning deposits ..............................          254,666           19,251          476,387           48,663
                                                             --------------   --------------   --------------   --------------
    Total interest income ................................       17,710,198       13,081,209       51,835,373       38,093,374
                                                             --------------   --------------   --------------   --------------

INTEREST EXPENSE
  Deposit liabilities ....................................        7,261,297        5,367,615       21,617,957       15,665,078
  Advances from FHLB of Seattle ..........................        2,210,515        1,629,471        5,648,181        4,569,220
  Other ..................................................          238,422          306,714          753,397          783,440
                                                             --------------   --------------   --------------   --------------
    Total interest expense ...............................        9,710,234        7,303,800       28,019,535       21,017,738
                                                             --------------   --------------   --------------   --------------
    Net interest income ..................................        7,999,964        5,777,409       23,815,838       17,075,636

Provision for loan losses ................................          198,000           45,000          364,000          315,000

                                                             --------------   --------------   --------------   --------------
    Net interest income after provision for
      loan losses ........................................        7,801,964        5,732,409       23,451,838       16,760,636
                                                             --------------   --------------   --------------   --------------

NON-INTEREST INCOME
  Fees and service charges ...............................          591,528           84,094        1,747,028          232,564
  Gain on sale of investments available for sale .........          189,661             --            189,661            2,143
  Gain on sale of real estate owned ......................             --               --               --             27,946
  Other income ...........................................           42,180           19,030          159,842           54,717
                                                             --------------   --------------   --------------   --------------
    Total non-interest income ............................          823,369          103,124        2,096,531          317,370
                                                             --------------   --------------   --------------   --------------
NON-INTEREST EXPENSE
  Compensation, employee benefits and related expense ....        2,361,607        1,588,430        7,258,946        4,820,042
  Occupancy expense ......................................          508,317          203,229        1,544,687          545,144
  Data processing expense ................................          246,640           87,226          720,339          303,237
  Insurance premium expense ..............................           43,007           65,214          216,205          310,321
  Loss on sale of investments available for sale .........             --               --               --             14,530
  Amortization of core deposit intangible ................          413,169             --          1,239,508             --
  Other expense ..........................................        1,259,609          499,561        3,569,060        1,496,686
                                                             --------------   --------------   --------------   --------------
    Total non-interest expense ...........................        4,832,349        2,443,660       14,548,745        7,489,960
                                                             --------------   --------------   --------------   --------------

Earnings before income taxes .............................        3,792,984        3,391,873       10,999,624        9,588,046

Provision for income tax .................................        1,302,438        1,342,100        4,155,231        3,143,909
                                                             --------------   --------------   --------------   --------------

Net earnings .............................................   $    2,490,546   $    2,049,773   $    6,844,393   $    6,444,137
                                                             ==============   ==============   ==============   ==============

Basic earnings per share .................................   $         0.28   $         0.22   $         0.75   $         0.68
Earnings per share - assuming full dilution ..............   $         0.26   $         0.22   $         0.71   $         0.66
Weighted average number of shares outstanding ............        8,995,455        9,132,741        9,155,540        9,536,833
Weighted average number of shares - assuming full dilution        9,441,551        9,464,496        9,637,894        9,804,425

<FN>

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

                                                                   4

<PAGE>
<TABLE>
<CAPTION>



                                                                KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                                                              CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                          FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1997 AND THE NINE MONTHS ENDED JUNE 30, 1998
                                                                                (Unaudited)


                                                                                                          Unrealized
                                                                                              Unearned   gain (loss)      
                                   Common   Common   Additional                 Unearned        shares on securities         Total
                                    Stock    Stock      paid-in    Retained  ESOP shares     issued to     available shareholders'
                                   Shares   Amount      capital    earnings      at cost    MRDP Trust      for sale        equity
                               ---------- -------- ------------ -----------  ----------- ------------- ------------- -------------
<S>                            <C>        <C>      <C>          <C>          <C>         <C>           <C>            <C>
Balance at October 1, 1995 ... 11,254,475 $122,331 $119,230,653 $ 55,811,362 $(9,786,500)  $      --     $  (692,781) $164,685,065

Cash dividends ...............       --       --           --     (2,838,680)       --            --            --      (2,838,680)


ESOP contribution ............     97,865     --        417,652         --       978,650          --            --       1,396,302

Unrealized loss on securities
  available for sale .........       --       --           --           --          --            --        (355,206)     (355,206)

Unearned shares issued to MRDP
  Trust ......................   (489,325)    --           --           --          --      (6,694,470)         --      (6,694,470)

Stock repurchased and  retired   (620,655)  (6,207)  (8,885,627)        --          --            --            --      (8,891,834)

Net earnings .................       --       --           --      6,109,797        --            --            --       6,109,797
                               ---------- -------- ------------ ------------ ----------- ------------- ------------- -------------
Balance at September 30, 1996  10,242,360  116,124  110,762,678   59,082,479  (8,807,850)   (6,694,470)   (1,047,987)  153,410,974

Cash dividends ...............       --       --           --     (2,895,234)       --            --            --      (2,895,234)

Unrealized gain on securities
  available for sale .........       --       --           --           --          --            --       1,512,041     1,512,041

Stock repurchased and retired  (1,182,936) (11,829) (18,866,299)        --          --            --            --     (18,878,128)

ESOP contribution ............     97,865     --        705,260         --       978,650          --            --       1,683,910

MRDP contribution ............     78,293     --           --           --          --       1,071,130          --       1,071,130

Net earnings .................       --       --           --      8,557,750        --            --            --       8,557,750
                               ---------- -------- ------------ ------------ ----------- ------------- ------------- -------------
Balance at September 30, 1997   9,235,582  104,295   92,601,639   64,744,995  (7,829,200)   (5,623,340)      464,054   144,462,443

Cash dividends ...............       --       --           --     (2,413,733)       --            --            --      (2,413,733)

Unrealized gain on securities
  available for sale .........       --       --           --           --          --            --         628,956       628,956

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

ESOP contribution ............       --       --        849,558         --       733,988          --            --       1,583,546

MRDP contribution ............     78,293     --           --           --          --       1,082,292          --       1,082,292

Exercise of stock options ....     31,317      313      410,722         --          --            --            --         411,035

Net earnings .................       --       --           --      6,844,393        --            --            --       6,844,393
                               ---------- -------- ------------ ------------ ----------- ------------- -------------  ------------
Balance at June 30, 1998 .....  8,801,107 $ 99,168 $ 82,305,875 $ 69,175,655 $(7,095,212)$  (4,541,048)$   1,093,010  $141,037,448
                               ========== ======== ============ ============ =========== ============= =============  ============
<FN>


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










                                                                   5

<PAGE>
<TABLE>
<CAPTION>


                                                                        KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                                                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                     FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
                                                                                        (Unaudited)


                                                                         Nine Months Ended       Nine Months Ended
                                                                                   June 30,               June 30,
                                                                                       1998                   1997
                                                                            ---------------        ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                         <C>                    <C>            
    Net earnings ........................................................   $     6,844,393        $     6,444,137

ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
    Depreciation and amortization .......................................         2,099,424                276,792
    Provision for loan losses ...........................................           343,226                313,631
    Compensation expense related to ESOP benefit ........................         1,583,544              1,199,156
    Compensation expense related to MRDP Trust ..........................         1,082,292              1,071,130
    Net amortization of premiums (discounts)  paid on
      investment and mortgage backed and related securities .............          (118,332)               329,399
    Increase in deferred loan fees, net of amortization .................           957,607                626,530
    Net amortization of premiums (discounts) on purchased loans .........            14,673                   (244)
    Net gain on sale of real estate owned and
      premises and equipment ............................................              --                   (3,234)
    Net (gain) loss on sale of investment and mortgage
      backed and related securities .....................................          (189,661)                12,387
    FHLB stock dividend .................................................          (444,100)              (353,700)
CHANGES IN ASSETS AND LIABILITIES
    Accrued interest receivable .........................................        (1,010,779)              (551,886)
    Other assets ........................................................           (20,824)            (2,822,158)
    Accrued interest on deposit liabilities .............................           (30,621)               (13,436)
    Accrued interest on borrowings ......................................          (219,231)               372,092
    Pension liabilities .................................................            95,947                101,511
    Deferred federal and state income taxes .............................            37,210                652,825
    Other liabilities ...................................................           926,963             (1,849,030)
                                                                            ---------------        ---------------
Net cash provided by operating activities ...............................        11,951,731              5,805,902
                                                                            ---------------        ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
    Proceeds from maturity of investment securities
      held to maturity ..................................................        20,000,000             31,949,466
    Proceeds from maturity of investment securities
      available for sale ................................................        77,180,000              2,000,000
    Principal repayments received on mortgage
       backed and related securities held to maturity ...................         1,345,395                845,737
    Principal repayments received on mortgage
       backed and related securities available for sale .................        17,092,223             14,430,838
    Principal repayments received on loans ..............................        85,321,765             40,509,940
    Loan originations ...................................................      (170,838,668)           (99,355,177)
    Loans purchased .....................................................        (5,094,787)                  --
    Purchase of investment securities held
      to maturity .......................................................              --              (41,843,264)
    Purchase of investment securities available
      for sale ..........................................................       (41,817,595)            (7,862,997)
    Purchase of mortgage backed and related
      securities available for sale .....................................       (10,040,575)           (14,850,705)
    Purchase of FHLB stock ..............................................        (1,316,200)            (4,307,500)
    Proceeds from sale of FHLB stock ....................................              --                2,425,900
    Proceeds from sale of investment securities
      available for sale ................................................         9,014,539             16,066,044
    Proceeds from sale of mortgage backed and related
      securities available for sale .....................................         9,656,938              5,743,267
    Proceeds from sale of real estate owned and
      premises and equipment ............................................              --                   72,717
    Purchases of premises and equipment .................................        (1,275,012)              (642,325)
                                                                            ---------------        ---------------
Net cash used in investing activities ...................................       (10,771,977)           (54,818,059)
                                                                            ---------------        ---------------
</TABLE>


                                                                    6

<PAGE>
<TABLE>
<CAPTION>


                                                                        KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                                                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                     FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997
                                                                                        (Unaudited)
                                                                                        (Continued)

                                                                         Nine Months Ended       Nine Months Ended
                                                                                   June 30,               June 30,
                                                                                       1998                   1997
                                                                            ---------------        ---------------

CASH FLOWS FROM FINANCING ACTIVITIES

<S>                                                                            <C>                    <C>          
    Net increase/(decrease) in deposit
     liabilities ........................................................      $  5,285,384           $ 18,531,965
    Proceeds from FHLB advances .........................................       139,000,000            157,000,000
    Repayments of FHLB advances .........................................      (108,000,000)          (110,000,000)
    Proceeds from short term borrowings .................................        70,156,821             56,538,250
    Repayments of short term borrowings .................................       (73,209,321)           (52,559,650)
    Stock retirement ....................................................       (11,561,483)           (18,878,128)
    Stock options exercised .............................................           411,035                   --
    Net change in advances from borrowers for tax and insurance .........        (2,251,925)            (1,670,321)
    Dividends paid ......................................................        (2,555,235)            (2,409,588)
                                                                            ---------------        ---------------
Net cash provided by financing activities ...............................        17,275,276             46,552,528
                                                                            ---------------        ---------------
Net (decrease) increase in cash and cash
  equivalents ...........................................................        18,455,030             (2,459,629)

Cash and cash equivalents at beginning
  of period .............................................................        32,043,196             16,179,633
                                                                            ---------------        ---------------
Cash and cash equivalents at end of period ..............................      $ 50,498,226           $ 13,720,004
                                                                            ===============        ===============
SUPPLEMENTAL SCHEDULE OF INTEREST AND
INCOME TAXES PAID
    Interest paid .......................................................      $ 28,171,707           $ 20,659,080
    Income taxes paid ...................................................         4,195,275              2,431,459

SUPPLEMENTAL SCHEDULE OF NONCASH
  INVESTING ACTIVITIES
    Net unrealized gain on securities
      available for sale ................................................      $    628,956           $  1,158,512
    Dividends declared and accrued in other
      liabilities .......................................................           892,509                783,842











<FN>


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


                                                                   7

<PAGE>


                   KLAMATH FIRST BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1. BASIS OF PRESENTATION

In the opinion of Management, the accompanying unaudited consolidated statements
contain all  adjustments  necessary  for a fair  presentation  of Klamath  First
Bancorp,  Inc.'s (the  "Company")  financial  condition as of June 30, 1998, the
results of operations for the three and nine months ended June 30, 1998 and 1997
and the cash flows for the nine  months  ended June 30,  1998 and 1997.  Certain
information  and note  disclosures  normally  included in  financial  statements
prepared in accordance with generally accepted  accounting  principles have been
omitted  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission.   These  consolidated   financial   statements  should  be  read  in
conjunction  with  the  consolidated  financial  statements  and  notes  thereto
included in the Company's Annual Report on Form 10- K. The results of operations
for the three and nine months ended June 30, 1998 are not necessarily indicative
of the results which may be expected for the entire fiscal year.

2. ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>



Activity in allowance for loan losses is summarized as follows:

                                                  June 30,      September 30,
                                                      1998               1997
                                           ---------------    ---------------
<S>                                        <C>                <C>            
Balance, beginning of year .............   $     1,296,451    $       927,820
Charge-offs ............................           (20,774)            (1,369)
Additions ..............................           364,000            370,000
                                           ---------------    ---------------

Balance, end of period .................   $     1,639,677    $     1,296,451
                                           ===============    ===============

</TABLE>

3. ADVANCES FROM FEDERAL HOME LOAN BANK

Borrowings at June 30, 1998 consisted of four short term advances totaling $43.0
million and ten long term advances totaling $117.0 million from the Federal Home
Loan Bank of Seattle ("FHLB").  The advances are  collateralized in aggregate by
certain  mortgages  or deeds of trust,  securities  of the U.S.  Government  and
agencies thereof and cash on deposit with the FHLB.

Scheduled maturities of advances from the FHLB were as follows:

<TABLE>



                                     June 30, 1998                                  September 30, 1997
                       ------------   -----------   -------------        ------------   ----------   -------------
                                         Range of        Weighted                         Range of        Weighted
                                         interest         average                         interest         average
                             Amount         rates   interest rate              Amount        rates   interest rate
                       ------------   -----------   -------------        ------------   -----------  -------------
<S>                    <C>            <C>                   <C>          <C>             <C>                 <C>  
Due within one year    $ 43,000,000   5.56%-5.80%           5.65%        $ 59,000,000    5.57%-6.70%         5.66%

After one but within
five years .........    117,000,000   5.09%-5.74%           5.41%          70,000,000    5.39%-5.84%         5.59%
                      -------------                                      ------------
                       $160,000,000                                      $129,000,000
                      =============                                      ============
</TABLE>



                                                                   8

<PAGE>


4. SHORT TERM BORROWINGS

Securities  sold under  agreements to  repurchase  totaled $14.0 million with an
interest rate of 5.70%. All of the agreements are due within 60 days.

5. REGULATORY CAPITAL

The following table  illustrates the compliance by Klamath First Federal Savings
and Loan Association (the  "Association") with currently  applicable  regulatory
capital requirements at June 30, 1998:

<TABLE>
<CAPTION>

                                                                                                 Categorized as "Well
                                                                    For Capital                    Capitalized" Under
                                                                       Adequacy                     Prompt Corrective
                                   Actual                              Purposes                      Action Provision
                             ------------   -----                  ------------   -----                  ------------       -----
                                  Amount   Ratio                        Amount   Ratio                        Amount       Ratio
                             ------------   -----                  ------------   -----                  ------------       -----
As of June 30, 1998:
<S>                          <C>            <C>                    <C>             <C>                   <C>                <C>  
Total Capital: ...........   $106,553,041   21.8%                  $ 39,023,248    8.0%                  $ 48,779,060       10.0%
 (To Risk Weighted Assets)
Tier I Capital: ..........    104,913,364   21.5%                           N/A    N/A                     29,267,436        6.0%
 (To Risk Weighted Assets)
Tier I Capital: ..........    104,913,364   10.9%                    28,815,625    3.0%                    48,026,042        5.0%
 (To Total Assets)
Tangible Capital: ........    104,913,364   10.9%                    14,407,813    1.5%                           N/A        N/A
 (To Tangible Assets)

</TABLE>

6. SHAREHOLDERS' EQUITY

In April  1998,  the  Company  received  approval  from  the  Office  of  Thrift
Supervision  to  repurchase  5%, or  521,477,  of its  outstanding  shares.  The
repurchase program was begun on April 24, 1998 and completed by May 31,1998. The
shares were repurchased at an average price of $21.22.  On April 9, 1998, 22,608
shares  were  repurchased  at $22.03 per share  related to release of shares for
MRDP awards.

7. EARNINGS PER SHARE

Earnings per share ("EPS") is computed in accordance with Statement of Financial
Accounting  Standards  ("SFAS") No. 128, "Earnings per Share," which was adopted
by the Company as of December  31,  1997.  EPS for all prior  periods  have been
restated to reflect the  adoption.  Diluted EPS is computed  using the  treasury
stock  method,  giving  effect to potential  additional  common shares that were
outstanding  during the period.  Potential dilutive common shares include shares
held by the Company's  Employee Stock Ownership Plan ("ESOP") that are committed
for release,  shares  awarded but not released  under the  Company's  Management
Recognition and Development  Plan ("MRDP"),  and stock options granted under the
Stock Option

                                        9
<PAGE>

Plan.  Following is a summary of the effect of dilutive  securities  on weighted
average  number  of  shares   (denominator)   for  the  basic  and  diluted  EPS
calculations. There are no resulting adjustments to net earnings.
<TABLE>
<CAPTION>


                                                                    For the Nine Months Ended
                                                            June 30, 1998                  June 30, 1997
                                                          ---------------                ---------------
<S>                                                               <C>                            <C>    
Effect of Dilutive Securities on Number of Shares
MRDP shares ...........................................            66,256                         40,476
ESOP shares ...........................................            36,599                         36,599
Stock options .........................................           379,499                        190,517
                                                          ---------------                ---------------
Total Dilutive Securities .............................           482,354                        267,592
                                                          ===============                ===============
</TABLE>
<TABLE>
<CAPTION>

                                                                   For the  Three Months Ended
                                                            June 30, 1998                  June 30, 1997
                                                          ---------------                ---------------
Effect of Dilutive Securities on Number of Shares
<S>                                                               <C>                            <C>    
MRDP shares ...........................................            37,651                         35,758
ESOP shares ...........................................            60,998                         60,995
Stock options .........................................           347,447                        235,002
                                                          ---------------                ---------------
Total Dilutive Securities .............................           446,096                        331,755
                                                          ===============                ===============
</TABLE>

8. BRANCH ACQUISITION

On March 5, 1997, the Company entered into a definitive agreement to purchase 25
branches from Wells Fargo Bank, N.A. The transaction closed as scheduled on July
18, 1997.  The  transaction  was  accounted  for as a purchase  under  generally
accepted   accounting   principles.   The  purchase   included   assumption   of
approximately  $241.3  million in deposit  liabilities  and  purchase  of branch
facilities and other assets of  approximately  $6.3 million.  As a result of the
transaction, the Company recorded $13.4 million in core deposit intangible which
is being  amortized over 8.1 years.  The acquired  branches are located in rural
Oregon  communities,  extending  the  Association's  market to 33  offices in 22
counties throughout the state.

9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes requirements for
disclosure of  comprehensive  income and becomes  effective for years  beginning
after December 15, 1997.  Reclassification  of earlier financial  statements for
comparative  purposes is required.  In June 1997,  the FASB also issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No.131 redefines how operating  segments are determined and requires  disclosure
of certain financial and descriptive  information about the Company's  operating
segments.  This  statement  supercedes  SFAS No. 14,  "Financial  Reporting  for
Segments of Business  Enterprises." The new standard becomes effective for years
beginning  after  December 15, 1997, and requires that  comparative  information
from  earlier  periods  be  restated  to  conform  to the  requirements  of this
standard. The adoption of these statements is not expected to be material to the
Company.



                                       10
<PAGE>


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


Safe Harbor Clause. This report contains certain  "forward-looking  statements."
The Company  desires to take  advantage of the "safe  harbor"  provisions of the
Private Securities Litigation Reform Act of 1995 and is including this statement
for the express purpose of availing itself of the protection of such safe harbor
with respect to all of such forward-looking  statements.  These  forward-looking
statements, which are included in Management's Discussion and Analysis, describe
future plans or  strategies  and include the  Company's  expectations  of future
financial  results.  The words "believe,"  "expect,"  "anticipate,"  "estimate,"
"project," and similar  expressions  identify  forward-looking  statements.  The
Company's ability to predict results or the effect of future plans or strategies
is  inherently  uncertain.  Factors which could affect  actual  results  include
interest rate trends,  the general economic climate in the Company's market area
and the country as a whole,  loan delinquency  rates, and changes in federal and
state  regulation.   These  factors  should  be  considered  in  evaluating  the
forward-looking  statements,  and undue  reliance  should  not be placed on such
statements.

General

The Company, an Oregon corporation,  became the unitary savings and loan holding
company for the Association upon the  Association's  conversion from a federally
chartered  mutual to a federally  chartered  stock savings and loan  association
("Conversion")  on October 4, 1995.  At June 30,  1998,  the  Company  had total
consolidated assets of $1,008.7 million and consolidated shareholders' equity of
$141.0  million.  The Company is currently not engaged in any business  activity
other than holding the stock of the  Association  and  investing  excess cash in
investment  securities.  Accordingly,  the information set forth in this report,
including  financial  statements  and related  data,  relates  primarily  to the
Association.

As a traditional, community-oriented,  savings and loan, the Association focuses
on customer service within its principal market area. The Association's  primary
market  activity is attracting  deposits from the general public and using those
and other available sources of funds to originate permanent  residential one- to
four-family  real estate loans  within its market area and, to a lesser  extent,
loans on commercial property and multi-family  dwellings. To supplement internal
growth  generated  through its branch network,  the  Association  also purchases
Oregon-based  commercial  real estate and  multi-family  residential  loans from
other Oregon financial institutions, as well as using mortgage brokers to locate
mortgage loans that meet our existing conservative underwriting standards within
and outside of the current branch market areas.

Net  interest  income,  which is the  difference  between  interest and dividend
income on interest-earning  assets,  primarily loans and investment  securities,
and interest expense on interest-bearing  deposits and borrowings,  is the major
source of profit for the Company.  Because the Company depends  primarily on net
interest  income for its earnings,  the focus of the Company's  management is to
create and  implement  strategies  that will provide  stable,  positive  spreads
between the yield on  interest-earning  assets and the cost of  interest-bearing
liabilities. Such strategies include a variable rate home equity lending program
that has an interest rate tied to the Wall Street Journal  published  prime rate
with an  additional  margin  of 2.0%  and  expansion  of non-  interest  bearing
checking accounts through the branch acquisition and new deposit products.  To a
lesser  degree,  the  net  earnings  of the  Company  rely on the  level  of its
non-interest income. The Company is aggressively  pursuing strategies to improve
its service charge and fee income, and control its non-interest  expense,  which
includes employee  compensation and benefits,  occupancy and equipment  expense,
deposit insurance premiums, core deposit premium amortization, and miscellaneous
other expenses, as well as federal and state income tax expense. The Wells Fargo
branch  acquisition  continues to  contribute  to  improvement  of the Company's
non-interest  income by  providing a larger  customer  base to generate  service
charge and fee income.

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

The Association is a member of the Federal Home Loan Bank of Seattle, conducting
its  business  through  thirty-three  office  facilities,  with the main  office
located in Klamath Falls,  Oregon.  The primary market areas of the  Association
are the state of Oregon and adjoining areas of California and Washington.

                                       11
<PAGE>

Year 2000 Readiness

As with other  organizations,  the data processing  programs used by the Company
were originally  designed to recognize  calendar years by their last two digits.
Calculations  performed using these truncated  fields may not work properly with
dates beyond 1999. Correct  processing of date oriented  information is critical
to the operation of all financial institutions. Failure of these processes could
severely hinder the ability to continue operations and provide customer service.
Because of the critical nature of the issue, the Company established a committee
early in 1997 to address "Year 2000" issues. The committee has chosen to use the
Office  of  Thrift  Supervision  Year  2000  Checklist  as a guide for Year 2000
preparation.  The  committee  is  also  using  a Year  2000  Testing  Guide  and
Contingency Guide provided by Sheshunoff Information Systems, Inc. to complement
the OTS checklist. Additionally, the Association recently hired a full time Year
2000 coordinator to further implement our Year 2000 plan on a timely basis. Data
processing for the Company is provided by a third party service bureau. Software
purchased  from a service  bureau  affiliate  is used for  applications  such as
accounts payable, investment portfolio accounting, and fixed assets. The service
bureau has stated that all their processing, including application software used
for fixed assets, accounts payable, and investment portfolio accounting, is Year
2000 ready as of June 30, 1998. The Company will commence testing  procedures of
service bureau applications in December 1998.

Critical  data  processing  applications,  in addition to those  provided by the
service  bureau,  have  been  identified.  These  include  applications  such as
electronic  processing  through the  Federal  Reserve  Bank and ATM  processing.
Testing  procedures for these  applications  are in the process of  development.
Contingency  plans are also being developed by each department.  The contingency
plans address actions to be taken to continue  operations in the event of system
failure  due to areas  that  cannot  be  tested  in  advance,  such as power and
telephone service, which are vital to business continuation.

All personal computers ("PCs") and related software  throughout the Company have
been inventoried and tested for Year 2000  capability.  The company is using two
testing methods for PC certification of Year 2000  compatibility.  PCs must pass
both tests to be considered  ready for Year 2000. As of June 30, 1998,  over 90%
of the Company's PCs and software are Year 2000 compatible. Those PCs identified
as non-Year  2000  compatible  will be replaced by the end of 1998.  The Company
believes that the Year 2000 issue will not pose significant operational problems
and is not  anticipated  to be material to its financial  position or results of
operations in any given year. As of June 30, 1998,  the Company  estimates  that
total Year 2000  implementation  costs will not exceed $200,000 and are expected
to be expensed over the next 18 months,  impacting fiscal years ending September
1998,  1999, and 2000.  This estimate is based on information  available at June
30, 1998, and may be revised as additional  information  and actual costs become
available.

Branch Acquisition

The  Association   completed  the  purchase  of  25  branches  in  rural  Oregon
communities  from Wells  Fargo  Bank,  N.A. on July 18,  1997.  The  transaction
included  purchase of  approximately  $241.3 million in deposits and purchase of
branch facilities including  buildings,  improvements and furniture and fixtures
with a book value of $2.0 million.  This acquisition  expanded the Association's
market area to include 32 branches and one loan center in 22 Oregon counties. In
twelve  of the  locations,  the  newly  acquired  branch  is the only  financial
institution  in the community.  The acquired  offices are located in communities
which are compatible with, and complement, the Association's current markets and
philosophy.  While no loans were  acquired in the  transaction,  the addition of
these  branches  creates  new markets for the  Association's  lending  products,
including the expanded consumer and commercial product  offerings.  Based on the
latest branch profitability analysis, all the branches are now profitable.

The purchase of deposit  liabilities  increased  total  Association  deposits by
approximately  $241.3 million and increased the number of deposit  accounts from
40,000  to  82,000.  Approximately  23,000  of the  purchased  accounts,  $140.9
million,   were  demand  deposits  carrying  a  lower  interest  cost  than  the
Association's  previous  deposit mix. As a result the Association  experienced a
reduction in cost of funds.  The  acquisition  also resulted in the recording of
$13.4  million of core deposit  intangible,  which is being  amortized  over 8.1
years.  The impact of the branch  acquisition  is evident in  comparison  of the
results of  operations  for the three and nine  months  ended June 30,  1998 and
1997, as discussed under non-interest income and non-interest expense.



                                       12
<PAGE>

Changes in Financial Condition

At June 30,  1998,  the  consolidated  assets of the  Company  totaled  $1,008.7
million,  an  increase  of $28.6  million,  or 2.92%,  from  $980.1  million  at
September  30, 1997.  The increase in total assets was  primarily  the result of
loan  growth  which was  funded by  maturities  of  investments  and  additional
borrowing from the FHLB of Seattle.

Net loans receivable increased by $89.3 million, or 16.19%, to $640.8 million at
June 30, 1998,  compared to $551.5  million at September 30, 1997.  The increase
was primarily the result of continued new loan demand exceeding loan repayments,
augmented by the Company's  purchase of $5.1 million in higher yielding loans on
multi-family  residential  and  commercial  properties in Oregon during the nine
months ended June 30, 1998.

Investment securities decreased $62.6 million, or 21.97%, from $284.8 million at
September  30, 1997 to $222.2  million at June 30, 1998.  This  decrease was the
result of scheduled  maturities plus $49.2 million in securities  called. A call
provision  grants the issuer of a security the option of buying back all or part
of the issue  prior to  maturity.  The Company  also sold $19.0  million of U.S.
Treasury and mortgage backed  securities  during the quarter ended June 30, 1998
to fund loan demand.

Deposit  liabilities  increased $5.3 million,  or 0.79%,  from $674.0 million at
September 30, 1997 to $679.3 million at June 30, 1998. Management attributes the
increase to the maintaining of competitive  rates in our market areas as well as
the  use of an  automated  on-line  personal  computer-based  system  to  market
deposits  nationally.  Interest  credited on accounts  also  contributed  to the
increase.  The increase in deposits has been experienced  throughout the network
of 32 branches.

Advances  from  borrowers for taxes and  insurance  decreased  $2.2 million from
September  30, 1997 to June 30,  1998.  The  decrease is the result of using the
reserves to pay the  required  real estate taxes due on the  Association's  loan
receivable  portfolio in December  partially  offset by collection of taxes from
borrowers.

Advances  from the FHLB of Seattle  increased  $31.0  million,  or 24.03%,  from
$129.0  million  at  September  30,  1997 to $160.0  million  at June 30,  1998.
Proceeds from borrowings were used to fund loan originations.

Total shareholders' equity decreased $3.5 million, or 2.37%, from $144.5 million
at  September  30,  1997 to $141.0  million at June 30,  1998.  The  decrease is
primarily the result of the 5% stock repurchase program which began on April 24,
1998 and was  completed  by May 31,  1998.  Through  this  program,  the Company
repurchased 521,477 shares,  reducing equity by $11.6 million. This decrease was
partially  offset by the  addition of $6.8  million in earnings  for the year to
date, augmented by $628,956 in unrealized gains on securities available for sale
during the nine month period from September 30, 1997 to June 30, 1998.

Results of Operations

     Comparison of Nine Months Ended June 30, 1998 and 1997

General.  Income  before taxes  increased  $1.4  million,  or 14.72%,  from $9.6
million  for the nine months  ended June 30, 1997 to $11.0  million for the same
period ended June 30, 1998.  Due to an increase in the  effective  tax rate from
32.8% for the nine months ended June 30, 1997 to 37.8% for the nine months ended
June 30,  1998,  net  earnings  increased  at a lower  level  of  6.21%  for the
comparable  nine month periods.  See further  discussion  under "Income  Taxes."
Increases in net interest income and  non-interest  income were partially offset
by increases in non-interest expense.

Interest  Income.  Additional  interest  income  generated by the $260.7 million
increase in average interest earning assets  contributed to an increase of $13.7
million in interest  income for the nine months ended June 30, 1998  compared to
1997.  Of this  increase,  $7.5 million is  attributable  to increased  interest
income on investment  securities  and $6.4 million to increased  income on loans
receivable, partially offset by a decrease in interest income on mortgage backed
and related  securities.  The average yield on interest earning assets decreased
12 basis  points to 7.34% for the nine months  ended June 30,  1998  compared to
7.46% for the same period ended June 30, 1997.  Average yield decreased  because
investments,  which  have  a  lower  yield  than  loans,  represented  a  larger
proportion  of earning  assets for the nine months  ended June 30, 1998 than for
the same period ended June 30, 1997.  Investments  increased as a proportion  of

                                       13
<PAGE>

earning  assets after  proceeds  from the branch  acquisition  were  invested in
securities until the funds can be rolled into loans.  Changes in the yield curve
during the last year,  which has shifted  downward more than 100 basis points at
the long  end and has  flattened  at the  short  end,  also  contributed  to the
decrease in yield on earning  assets.  Offsetting  the  decrease in yield is the
Company's increased  investment in higher yielding  construction  lending in the
Portland, Oregon metropolitan area. In spite of the lower yields experienced for
the period,  interest  rate spread (the  difference  between the rates earned on
interest  earning  assets and the rates paid on  interest  bearing  liabilities)
improved  from 2.23% to 2.57% and  interest  rate  margin (net  interest  income
divided  by  average  interest  earning  assets)  improved  from  3.34% to 3.37%
comparing the nine month periods.

Interest Expense. Interest expense on deposit liabilities increased $6.0 million
for the nine months ended June 30, 1998  compared to the same period in 1997 due
to deposit  balances  added  through  the  branch  acquisition.  Although  total
deposits  increased  by $261.1  million  comparing  June 30,  1997 to 1998,  the
average  interest paid on  interest-bearing  deposits  decreased 56 basis points
from 5.12% for the nine months  ended June 30, 1997 to 4.56% for the same period
ended June 30, 1998.  Both the increase in deposit  balances and the decrease in
the rate paid on deposits are  primarily a result of the deposits  acquired with
the Wells Fargo branch  acquisition which consisted of 17% non-interest  bearing
deposit  accounts.  The average  balance of FHLB advances  increased from $108.5
million for the nine months  ended June 30, 1997 to $133.4  million for the same
period ended June 30, 1998 resulting in an increase in interest on FHLB advances
of $1.1 million for the nine months ended June 30, 1998  compared  with the same
period ended June 30, 1997.

Provision for Loan Losses.  The provision for loan losses was $364,000 and there
were charge offs of $20,000  during the nine months ended June 30, 1998 compared
to a $315,000  provision  and charge offs of $1,369 during the nine months ended
June 30,  1997.  At June 30,  1998 the  allowance  for loan  losses was equal to
356.52% of non-performing  assets compared to 510.24% at September 30, 1997. The
decrease in the coverage  ratio was the result of an increase in  non-performing
loans from  $254,000 at  September  30, 1997 to $460,000 at June 30,  1998.  The
increase in non-performing loans relates to the addition of one loan on a single
family dwelling.

Non-Interest  Income.  Non-interest income increased $1.8 million, or 560.6%, to
$2.1 million for the nine months ended June 30, 1998 from  $317,370 for the nine
months ended June 30, 1997. The increase was  attributable  to $189,661 gains on
sales of U.S.  Treasury and mortgage backed securities as well as a $1.5 million
increase in fee income  related to the increase in deposit  accounts  subject to
service charges.

Non-Interest  Expense.  Non-interest  expense  increased  $7.0  million to $14.5
million  for the nine  months  ended June 30,  1998,  from $7.5  million for the
comparable period in 1997. Of this increase, $2.4 million was attributable to an
increase in  compensation  and benefit expense in 1998,  reflecting  addition of
staff  related to the Wells Fargo  acquisition  and an increase in  compensation
expense for the ESOP.  Occupancy  expense  increased  from $545,144 for the nine
months ended June 30, 1997 to $1,544,687 for the nine months ended June 30, 1998
due to the addition of the 25 acquired  branches.  Amortization  of core deposit
intangible  related to the acquisition  totaled $1.2 million for the nine months
ended June 30,  1998.  There was no  comparable  expense in the prior year.  The
branch  acquisition also impacted other expense which increased $2.1 million for
the nine months ended June 30, 1998 from the same period of 1997. Increases were
primarily seen in postage and courier, telephone, and supply expenses which were
up $529,130  year to date.  Expansion  of checking  accounts  and their  related
servicing, debit card service, and ATM machines and card servicing resulted in a
$719,790  increase  in the  related  expenses  which are also  included in other
expense. These increases were partially offset by a $94,116 reduction in deposit
insurance  premiums resulting from reduced assessment rates beginning January 1,
1997.  The ratio of  non-interest  expense to average total assets was 1.96% and
1.44% for the nine months ended June 30, 1998 and 1997, respectively.

Income Taxes. The provision for income taxes increased $1.0 million for the nine
months  ended June 30, 1998  compared  with the prior  year.  During the quarter
ended March 31, 1997, the Company  recognized a tax benefit of $648,837  related
to loss on sale of the U.S.  federal  securities  bond fund in the  fiscal  year
ended  September 30, 1996.  Recognition of the benefit reduced the effective tax
rate for the nine months ended June 30, 1997 as compared to the same period this
year. The balance of the increase is  attributable  to higher  earnings for this
period.

     Comparison of Three Months Ended June 30, 1998 and 1997

General.  Earnings before taxes increased $401,111, or 11.83%, from $3.4 million
for the quarter ended June 30, 1997 to $3.8 million for this quarter  1998.  Net

                                       14
<PAGE>

income  increased  $440,773,  or 21.5%,  from $2.0  million for the three months
ended June 30, 1997 to $2.5  million for the three  months  ended June 30, 1998.
Increases in net interest income and  non-interest  income were partially offset
by increases in non-interest  expense.  These changes are all resultant from the
branch  acquisition  in July 1997  which  doubled  the number of  employees  and
tripled  the  number of  branches  for the  Association.  The  acquisition  also
resulted in the recording of core deposit  intangible  which amortizes at a rate
of $413,169 per quarter, representing the price paid for lower cost deposits.

Interest  Income.  Additional  interest  income  generated by the $269.6 million
increase in average interest  earning assets  contributed to an increase of $4.6
million in interest  income for the three months ended June 30, 1998 compared to
1997.  Of this  increase,  $2.3 million is  attributable  to increased  interest
income on investment  securities  and $2.4 million to increased  income on loans
receivable.  The average  yield on interest  earning  assets  decreased 18 basis
points to 7.33% for the three months  ended June 30, 1998  compared to 7.51% for
the same period ended June 30, 1997.  Average  yield  decreased  for the reasons
noted  previously,  because  investments,  which have a lower  yield than loans,
represented  a larger  proportion  of earning  assets for the three months ended
June 30,  1998 than for the same period  ended June 30, 1997 and overall  yields
are lower due to the downward  shift in the yield  curve.  In spite of the lower
yields experienced for the period,  interest rate spread (the difference between
the rates  earned on  interest  earning  assets and the rates  paid on  interest
bearing liabilities)  improved from 2.26% to 2.55%,  influenced by lower cost of
deposits  and  higher  yielding  construction  lending in the  Portland,  Oregon
metropolitan area.  Interest rate margin (net interest income divided by average
interest  earning  assets)  remained  consistent  when comparing the three month
periods.

Interest Expense. Interest expense on deposit liabilities increased $1.9 million
for the three  months  ended June 30, 1998  compared to the same period in 1997.
Although total deposits  increased by $261.1 million  comparing June 30, 1997 to
1998, the average interest paid on interest-bearing  deposits decreased 56 basis
points from 5.13% for the three months ended June 30, 1997 to 4.57% for the same
period  ended June 30,  1998.  Both the  increase  in deposit  balances  and the
decrease in the rate paid on  deposits  are  primarily a result of the  deposits
acquired  with  the  Wells  Fargo  branch  acquisition  which  consisted  of 17%
non-interest  bearing  deposit  accounts.  The average  balance of FHLB advances
increased from $114.6 million for the three months ended June 30, 1997 to $159.7
million for the same  period  ended June 30,  1998  resulting  in an increase in
interest on FHLB  advances of $581,044  for the three months ended June 30, 1998
compared with the same period ended June 30, 1997.

Provision for Loan Losses.  The provision for loan losses was $198,000 and there
were charge offs of $20,000 during the three months ended June 30, 1998 compared
to a $45,000  provision  and $1,369 of charge offs during the three months ended
June 30,  1997.  During the  quarter  ended June 30,  1998,  the  provision  was
increased in response to the high level of loan portfolio growth.

Non-Interest  Income.  Non-interest  income increased  $720,245,  or 698.43%, to
$823,369 for the three  months  ended June 30, 1998 from  $103,124 for the three
months  ended June 30,  1997.  The  increase  was  primarily  attributable  to a
$507,434  increase in fee income  related to the  increase  in deposit  accounts
subject to service  charges and $189,661 of gains on sales of U.S.  Treasury and
mortgage backed securities.

Non-Interest  Expense.  Non-interest  expense  increased  $2.4  million  to $4.8
million for the three  months  ended June 30,  1998,  from $2.4  million for the
comparable  period in 1997. Of this increase,  $773,177 was  attributable  to an
increase in  compensation  and benefit expense in 1998,  reflecting  addition of
staff  related to the Wells Fargo  acquisition  and an increase in  compensation
expense for the ESOP.  Occupancy  expense  increased from $203,229 for the three
months  ended June 30, 1997 to $508,317 for the three months ended June 30, 1998
due to  the  addition  of the 25  acquired  branches.  Other  expense  increased
$760,048  from $499,561 for the three months ended June 30, 1997 to $1.3 million
for the same period ended June 30, 1998.  This  increase  reflects the impact of
the branch acquisition, with postage and courier, telephone, and supply expenses
increasing  $175,473 and  expenses  related to ATMs,  debit cards,  and checking
accounts  increasing  $195,071.  The ratio of non-  interest  expense to average
total  assets was 1.90% and 1.38% for the three  months  ended June 30, 1998 and
1997, respectively.

Income Taxes.  The provision  for income taxes  decreased  $39,662 for the three
months ended June 30, 1998 compared with the prior year.  The effective tax rate
for the fiscal year ended September 30, 1998 is lower than the prior year due to
a reduction in the state tax rate for the current year.

                                       15
<PAGE>


                           PART II - OTHER INFORMATION

Item 1.   Legal Proceedings

          The Company is involved in various claims and legal actions arising in
          the  normal  course  of  business.   Management  believes  that  these
          proceedings will not result in a material loss to the Company.


Item 2.   Changes in Securities

          Not applicable.


Item 3.   Defaults Upon Senior Securities

          Not applicable.


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

          Not applicable.


Item 5.   Other Information

          Not applicable.


Item 6.   Exhibits and Reports on Form 8-K

          a)  Not applicable.

          b)  No Current Reports on Form 8-K were filed during the quarter ended
          June 30, 1998.




                                       16
<PAGE>

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                                         KLAMATH FIRST BANCORP, INC.

Date:       August 14, 1998              By:   /s/ Gerald V. Brown
                                         -------------------------------
                                         Gerald V. Brown, President and
                                         Chief Executive Officer


Date:       August 14, 1998              By:   /s/ Marshall Jay Alexander
                                         --------------------------------
                                         Marshall Jay Alexander, Vice President
                                         and Chief Financial Officer




































                                       17
<PAGE>

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                                         KLAMATH FIRST BANCORP, INC.

Date: August 14, 1998 By:
                                         --------------------------------------
                                         Gerald V. Brown, President and
                                         Chief Executive Officer


Date: August 14, 1998 By:
                                         --------------------------------------
                                         Marshall Jay Alexander, Vice President
                                         and Chief Financial Officer




                                       17
<PAGE>