EXHIBIT 13





[FRONT COVER]

<PAGE>

Financial Highlights


FOR THE Six Months Ended 12/31/99
(Dollars in thousands, except share and per share amounts)

FOR Six Months
Net Income                           $ 3,975
Net Interest Income                  $16,221

PER COMMON SHARE
Net Income                            $ 0.89
Book Value                           $ 20.57

AT YEAR END
Assets                           $ 1,000,885
Loans                              $ 620,751
Deposits                           $ 658,404
Stockholders' Equity                $ 89,525
Shares Outstanding                 4,351,404

FINANCIAL RATIOS
Return on average assets               0.79%
Return on equity                       8.75%
Stockholders' equity
   to total assets                     8.94%
Net interest margin
   for the year                        3.50%
Non-performing assets
   to total assets                     0.31%

COMPANY FACTS
Deposit Accounts                      94,017
Loan Accounts                         25,559

Percent of Total Loan Portfolio

The  following  pie  charts  detail how the bank's  total  gross loan  portfolio
continues to become more diversified.

[GRAPHIC OMITTED]


                        June 30, 1998     June 30, 1999    December 31, 1999
                        -------------     -------------    -----------------
Agriculture                 5.2%              5.4%               5.4%
Commercial                 14.7%             18.1%              19.6%
Consumer                   23.5%             23.3%              23.0%
Construction                2.6%              2.0%               3.0%
Residential Mortgage       54.0%             51.2%              49.0%


<PAGE>


To Our Shareholders

     If it seems as though it hasn't been long since you last received an annual
report from WesterFed,  there's a good reason for that. It hasn't. In October of
1999, the WesterFed Board changed the Company's fiscal year to coincide with the
calendar year. Therefore, just six months after my first annual report letter to
you, I've drafted my second.

     You might be  tempted  to think  there's  little to  discuss  in the way of
accomplishments  given the shortened  time period.  I'm pleased to report,  that
couldn't be farther from the truth.

     WesterFed  reported  fourth quarter  earnings for 1999 of $2.0 million,  or
$0.45 per share (cash  earnings of $0.53 per share).  Earnings for the six-month
period  ended  December  31,  1999 were $4.0  million,  or $0.89 per share (cash
earnings of $1.05 per share).  These figures  reflect record per share earnings,
and follow on the heels of the Bank's  record  per share  earnings  for the year
($6.9 million, or $1.37 per share) outlined in our previous annual report.

     In only six months,  our streamlined  management team, our renewed focus on
forging  relationships  with clients,  and our ability to improve our efficiency
ratio have helped continue our financial growth.

     Consider what your management  team has been able to accomplish  since June
30, 1999.

     One of the primary goals  outlined in our 1999 annual report was to improve
our efficiency ratio, the ratio of non-interest  expense to net-interest  income
and non-interest  income,  and a leading indicator of a bank's financial health.
At the time, the ratio was 69.1%. In two quarters, we've improved that to 63.9%.
In other  words,  I'm  pleased to report  that we've  lowered  our cost of doing
business by 7.5%.  This  improved  efficiency  rating came by way of  management
reorganization and greater management accountability.

     Credit quality remains  favorable at Western  Security Bank. As of December
31, 1999, the Company had $3.1 million of non-performing  assets (0.31% of total
assets)  compared  to $4.2  million  (0.42%  of total  assets)  just six  months
earlier.  During the six-month period ended December 31, 1999, our provision for
loan losses was $880,000,  which was $370,000  greater than the same period last
year.  As of December  31,  1999,  the  Company's  allowance  for loan losses to
non-performing assets was 165.4% as compared to 121.1% at June 30, 1999.

     In  order to  enhance  the  value of our  stock,  your  Board of  Directors
approved, and management completed, a 5% repurchase of WesterFed Stock. A second
repurchase  of up to 7.5%  has  been  approved  for  calendar  year  2000.  This
repurchase is intended to enhance shareholder value in the coming year.

     Improving  customer  service is also a primary  goal for your Bank.  Toward
this end,  we are  pleased to  announce  several  accomplishments.  Our  Western
Security web site is up and running.  We reached out to consumers  through a new
image  campaign  and theme.  We began  offering  Compass,  a quarterly  economic
report,  to small businesses across the state. And our Y2K readiness program was
successful.  Not a single Y2K  related  incident  was  reported  in any  Western
Security branch.

     In the  interest of further  enhancing  Bank  efficiency  and  service,  we
announced the consolidation of two Missoula  branches,  and began constructing a
new branch on Reserve Street in Missoula.  In addition, we announced the sale of
six Eastern branches located in Glasgow,  Hardin,  Malta, Miles City, Plentywood
and Sidney to Stockman  Bank of Montana.  We expect  this  transaction  to close
during the second quarter of 2000.

     That's quite a lot to report in six months. But it's only the beginning.

     As the new millennium  dawns, the national economy is experiencing a rising
interest rate  environment.  Given our Bank's  interest rate  sensitive  balance
sheet, this could negatively  influence the Bank's profits. We intend to counter
any  potential   negative  impact  by  continuing  our  course  of  conservative
management.  It is more important  than ever to improve our efficiency  ratio by
lowering our cost of doing  business.  And it is imperative  that we continue to
provide new, innovative products, stress the importance of relationship banking,
and attract more small business depositors.

     In other words,  efficiency,  customer loyalty and new deposits will be our
keys to success in a rising interest rate environment.

     If we can make  progress  toward  these  goals - creating a more  efficient
management  and network  structure,  landing more small  business  clients,  and
selling more banking products per customer - my next letter, 12 months from now,
should be a pleasure to write as well.

     Sincerely,

     /s/ Ralph K. Holliday

     Ralph K. Holliday
     President and Chief Executive Officer

<PAGE>
WesterFed Financial Corporation and Subsidiaries

<TABLE>
<CAPTION>

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

                                             At December 31,                         At June 30,
                                             --------------- ---------------------------------------------------------
(Dollars in thousands, except per share data)      1999          1999      1998       1997(1)       1996       1995
                                             ---------------- --------- ------------ ----------  ----------  ---------
SELECTED FINANCIAL CONDITION DATA:
<S>                                            <C>          <C>           <C>          <C>         <C>        <C>
Total assets                                   $1,000,885   $1,007,349    $1,022,136   $955,639    $563,931   $563,285
Loans receivable, net and loans
  held for sale                                   620,751      631,371       657,293    630,277     368,193    313,121
Mortgage-backed securities, net                   158,948      151,749       126,433    149,169     104,947    143,825
Investment securities, FHLB stock
  and other interest-earning assets               144,745      139,271       155,351     98,885      64,108     82,375
Deposits                                          658,404      645,549       636,441    630,869     350,212    344,155
Borrowed funds and repurchase
  agreements                                      234,809      251,185       255,186    199,236     125,838    134,704
Stockholders' equity                               89,525       91,149       109,700    104,259      78,607     75,146
Book value per common share
  outstanding                                       20.57        20.08         19.64      18.74       17.88      17.09
Tangible book value per common
  share outstanding                                 16.40        15.93         16.01      14.99       17.88      17.09
</TABLE>

<TABLE>
<CAPTION>
Periods Ended:                         Six Months Ended
                                         December 31,                     Fiscal Years Ended June 30,
                                       ----------------  ---------------------------------------------------------------
                                              1999          1999           1998         1997(1)      1996        1995
                                       ----------------  -----------  ------------  -----------  ------------  ---------
SELECTED OPERATIONS DATA:
<S>                                      <C>            <C>           <C>          <C>           <C>          <C>
Total interest income                       $35,606        $70,798       $74,524      $51,260       $42,544      $37,783
Total interest expense                       19,385         39,244        42,286       28,407        24,737       20,984
                                           --------       --------      --------     --------      --------     --------
   Net interest income                       16,221         31,554        32,238       22,853        17,807       16,799
Provision for loan losses                     (880)        (1,300)         (840)        (400)            --           --
Non-interest income                           4,127          9,298         8,381        4,685         3,312        2,670
Non-interest expense                       (13,010)       (28,226)      (27,759)     (20,568)      (14,004)     (12,868)
                                           --------       --------      --------     --------      --------     --------
   Income before income taxes                 6,458         11,326        12,020        6,570         7,115        6,601
Income taxes                                (2,483)        (4,403)       (4,760)      (2,063)       (2,556)      (2,473)
                                           --------       --------      --------     --------      --------     --------
Net income                                   $3,975         $6,923        $7,260       $4,507        $4,559       $4,128
                                           ========       ========      ========     ========      ========     ========
Net income per common share - basic           $0.93          $1.43         $1.37        $1.01         $1.08       $ 1.01
                                           ========       ========      ========     ========      ========     ========
Net income per common share - diluted         $0.89          $1.37         $1.29        $0.96         $1.08        $1.01
                                           ========       ========      ========     ========      ========     ========
Dividends per share                           $0.32          $0.62         $0.54        $0.45         $0.36        $0.30
                                           ========       ========      ========     ========      ========     ========
Dividend payout ratio(2)                     34.41%         43.36%        39.42%       44.55%        33.33%       29.70%
                                           ========       ========      ========     ========      ========     ========
</TABLE>

<TABLE>
<CAPTION>
<S>                                        <C>            <C>           <C>          <C>           <C>          <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Return on assets (ratio of net income
     to average total assets)                 0.79%          0.70%         0.72%        0.65%         0.79%         0.76%
Return on equity (ratio of net income
     to average equity)                       8.75           6.93          6.73         5.15          5.90          5.54
Interest rate spread, at end of period        3.10           3.16          2.99         3.38          2.67          2.38
Net interest margin(3)                        3.50           3.46          3.46         3.53          3.23          3.23
Ratio of non-interest expense to
     average total assets                     2.58           2.84          2.74         2.98          2.43          2.47
Non-performing assets to total assets,
     at end of period                         0.31           0.42          0.49         0.25          0.13          0.10
Total allowance for loan losses to
     total non-performing assets            165.36         121.13         97.44       191.01        280.42        350.35
Stockholders' equity to total
     assets, at end of period                 8.94           9.05         10.73        10.91         13.94         13.34
Ratio of average interest-earning
     assets to average
     interest-bearing liabilities           103.59         104.69        105.74       110.57        113.58        113.51
Number of offices                             34             34            34           36            19            18

<FN>
-------------
(1)  Includes assets and liabilities from the Security  Bancorp  acquisition and
     operations for only four months of fiscal 1997.

(2)  Dividends per share divided by net income per share - basic.

(3)  Net interest income divided by average interest-bearing assets.
</FN>
</TABLE>

                                       4

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations
--------------------------------------------------------------------------------

                                     GENERAL

WesterFed  Financial  Corporation  ("WesterFed"  or the "Company") was formed as
part of the  conversion  of Western  Security  Bank  ("Western  Security" or the
"Bank"),  then known as Western Federal Savings Bank of Montana,  from a federal
mutual to a stock  savings  bank,  which was  completed  on January 6, 1994 (the
"Conversion").  Currently the Company has no business activity other than acting
as the  holding  company  for  Western  Security.  As a  result,  the  following
discussion relates primarily to the activities of the Bank.

The  Company's  results of operations  are  dependent  primarily on net interest
income  and fee  income.  Net  interest  income is the  difference  between  the
interest income earned on its loans,  mortgage-backed securities, and investment
portfolio and its cost of funds, consisting of interest paid on its deposits and
borrowed  money  ("spread").  The  Company's  results  of  operations  are  also
significantly   affected  by  general   economic  and  competitive   conditions,
particularly  changes in market interest rates,  government policies and actions
of regulatory authorities.

The Company serves the financial needs of communities throughout Montana through
its corporate office located in Missoula,  34 branch offices, one loan servicing
office and two loan processing  offices.  The Company attracts deposits from the
general public and uses the deposits,  together with borrowings and other funds,
to originate  loans secured by mortgages on  owner-occupied  one- to four-family
residences,  multi-family,  commercial, agriculture and construction real estate
loans and non real estate  commercial,  agriculture  and  consumer  loans in its
primary market areas.  The Company also invests in  mortgage-backed  securities,
investment securities and other short-term liquid assets.

On February 28, 1997, the Company  completed its acquisition of Security Bancorp
(the  "Acquisition"),  accounted for as a purchase  transaction and accordingly,
the  consolidated  statements  of income  include the results of  operations  of
Security  Bancorp  commencing  March 1,  1997.  Under  the  purchase  method  of
accounting,  assets and  liabilities  of Security  Bancorp are adjusted to their
estimated fair value and combined with the historical recorded book value of the
assets and  liabilities  of the  Company.  At the time of the  merger,  Security
Bancorp had assets on a consolidated basis of $372.6 million, deposits of $286.5
million and stockholders equity of $30.8 million. In addition,  as of such date,
Security  Bank,  a  federally  chartered  stock  savings  bank and wholly  owned
subsidiary  of  Security  Bancorp,  merged  with and into the Bank.  The name of
Western  Federal  Savings Bank was changed to Western  Security Bank in February
1998.

       CHANGES IN FINANCIAL CONDITION, JUNE 30, 1999 TO DECEMBER 31, 1999

Total assets  decreased  $6.4 million to $1.001  billion at December 31, 1999 as
compared  to  $1.007  billion  at June 30,  1999.  Loans  receivable  and  loans
available-for-sale decreased $10.6 million and other non-interest earning assets
decreased $8.5 million while investment securities, Federal Home Loan Bank stock
and all other interest earning assets increased $5.4 million and mortgage-backed
securities increased $7.2 million.  Total deposits increased $12.9 million while
borrowed  funds  and   repurchase   agreements   decreased   $16.4  million  and
stockholders' equity decreased $1.6 million.

Loans receivable and loans available-for-sale  decreased $10.6 million to $620.8
million at December  31,  1999 from $631.4  million at June 30, 1999.  The $10.6
million  decrease was the result of principal  repayments of $120.6  million and
the sale of loans  available  for sale of $41.6  million that  exceeded new loan
originations  of $151.6  million.  Included  in the  $151.6  million in new loan
originations  were $31.8 million in consumer loan originations and $37.3 million
in commercial and agriculture  loan  originations.  Loans receivable at December
31, 1999 included $78.8 million of commercial  real estate loans,  $11.6 million
of agriculture real estate loans and non-real estate  commercial and agriculture
loans of $45.4  million  and $22.8  million  respectively,  as compared to $71.2
million,  $11.4 million,  $40.2 million and $23.2 million respectively,  at June
30, 1999.  One- to four-family  residential  loans decreased  $16.2 million,  or
5.9%,  to $259.6  million at December  31, 1999 from $275.8  million at June 30,
1999.  This decrease is a result of the Bank's business  strategy of having more
commercial  bank-type  loans in its loan  portfolio  while  limiting  the Bank's
exposure to rising  interest  rates by reducing  longer term fixed rate mortgage
loans held in portfolio.

Mortgage-backed  securities increased $7.2 million to $158.9 million at December
31, 1999 from $151.7  million at June 30, 1999.  The $7.2  million  increase was
primarily  the  result  of the  purchase  of $23.0  million  of  mortgage-backed
securities that
                                       5

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


exceeded principal repayments of $13.8 million and the sale of $1.2 million of
securities. The $23.0 million of purchases were comprised of fifteen-year or
less fixed rate securities to partially offset the decline in the balances of
real estate mortgage loans.

Investment  securities,  FHLB stock and other interest  earning assets increased
$5.4 million to $144.7  million at December 31, 1999 from $139.3 million at June
30, 1999.  The $5.4 million increase was primarily the result of the purchase of
$17.8  million of  investment  securities,  an increase of $1.8  million in FHLB
stock and the cash surrender  value of life insurance  policies and increases in
interest-bearing  deposits and due from banks of $900,000,  partially  offset by
maturities and principal  payments of $12.1 million and the sale of $2.1 million
of investment securities available-for-sale.

Deposits  increased  $12.9  million to $658.4  million at December 31, 1999 from
$645.5  million at June 30, 1999.  Certificates  of deposit,  checking and money
market  accounts   increased  $4.9  million,   $7.6  million  and  $3.1  million
respectively,  while savings  accounts  decreased  $2.7 million.  This change in
deposit  mix is a  result  of the  Bank's  business  strategy  of  having a more
commercial  bank-type deposit mix while limiting the Bank's exposure to interest
rates due to reducing  interest  sensitive  certificates  of  deposit.  Interest
credited to deposit  accounts  for the six months  ending  December 31, 1999 was
$12.1 million.

Borrowed  funds and  repurchase  agreements  decreased  $16.4  million to $234.8
million at December 31, 1999 from $251.2 million at June 30, 1999.  The decrease
in borrowed funds was due to principal  repayments of $261.5 million,  partially
offset by a net  increase in  repurchase  agreements  of $1.0 million and $244.1
million of additional  new  borrowings.  The $244.1  million of  additional  new
borrowings  were  comprised of $21.3  million of advances of one year or more to
partially  fund new longer  term fixed rate  loans  added to the  portfolio  and
$222.8  million of borrowings  less than one year in maturity which were used to
fund short-term cash requirements.

Stockholders'  equity  decreased  $1.6 million to $89.5  million at December 31,
1999  from  $91.1  million  at  June  30,  1999.  This  decrease  was due to the
repurchase of 219,000 shares of common stock totaling $3.7 million, $1.3 million
for  dividends  declared  during the fiscal year and a decrease of $1.2  million
related to changes in unrealized losses associated with securities classified as
available-for-sale  being adjusted to market value in accordance  with Statement
of Financial  Accounting Standards No. 115. These decreases was partially offset
by increases in equity resulting from net income for the six month period ending
December 31, 1999 of $4.0 million, $218,000 related to contributions to Employee
Stock  Ownership  Plan and shares  earned and issued under the  Recognition  and
Retention  plan,  and the  issuance of 35,716 new common  shares with a recorded
value of $443,000 related to exercised stock options.

                                       6

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

                              RESULTS OF OPERATIONS

NET INTEREST  INCOME  ANALYSIS.  The  following  table  presents for the periods
indicated   the  total   dollar   amount  of  interest   income   from   average
interest-earning  assets  and the  resultant  yields,  as  well as the  interest
expense on average interest-bearing  liabilities,  expressed both in dollars and
rates. No tax equivalent  adjustments  were made.  Non-accruing  loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>

                                                                Six Months Ended              Six Months Ended
                                                                December 31, 1999             December 31, 1998
                                                        ----------------------------- -------------------------------
                                                        Average     Interest          Average      Interest
                                                        Outstanding Earned/   Yield/  Outstanding  Earned/    Yield/
                                                        Balance(1)   Paid     Rate(1) Balance(1)    Paid      Rate(1)
                                                        ----------- --------- ------- ------------ -------- ---------
                                                             (Dollars in Thousands)         (Dollars in Thousands)
<S>                                                     <C>       <C>       <C>       <C>          <C>      <C>
Interest-Earnings Assets:
Loans receivable(2)(3)                                   $624,230  $25,980     8.32%    $650,235    $27,670    8.51%
            Mortgage-backed securities                    161,611    5,270     6.52      116,978      3,920    6.70
            Investments                                   128,731    4,004     6.22      128,496      4,137    6.44
            Other interest-earning assets(4)                4,926      172     6.98       13,163        361    5.49
Cash surrender value of life insurance                      7,752      180     4.64        6,789        160    4.71
                                                         --------  -------     ----     --------    -------    ----
                        Total interest-earning assets    $927,250  $35,606     7.68%    $915,661    $36,248    7.92%
                                                         ========  =======     ====     ========    =======    ====
Interest-Bearing Liabilities:
            Certificates of deposit                      $364,503  $ 9,398     5.16%    $377,251    $10,692    5.67%
            Savings deposits                               89,566    1,097     2.45       91,179      1,223    2.68
            Demand and NOW deposits                       118,364      401     0.68      112,876        491    0.87
            Money market accounts                          77,405    1,546     3.99       59,213      1,182    3.99
                                                         --------  -------     ----     --------    -------    ----
                        Total deposits                    649,838   12,442     3.83      640,519     13,588    4.24
            FHLB advances and other borrowed money        245,249    6,943     5.66      226,623      6,842    6.04
                                                         --------  -------     ----     --------    -------    ----
Total interest-bearing liabilities                       $895,087  $19,385     4.33%    $867,142    $20,430    4.71%
                                                         ========  =======     ====     ========    =======    ====
Net interest income                                                $16,221                          $15,818
                                                                   =======                          =======
Net interest rate spread                                                       3.35%                           3.21%
                                                                               ====                            ====
Net interest=earning assets                              $ 32,163                       $ 48,519
                                                         ========                       ========
Net interest margin(5)                                                         3.50%                           3.45%
                                                                               ====                            ====
Average interest=earning assets to average
  interest=bearing liabilities                                      103.59%                          105.60%
                                                                    ======                           ======
<FN>
(1)  Based on average monthly balances.
(2)  Calculated net of deferred loan fees, loan discounts and loans in process.
(3)  Includes loans held for sale.
(4)  Includes primarily short-term liquid assets.
(5)  Net interest income divided by average interest-earning assets.
</FN>
</TABLE>

                                       7
<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                            Year Ended June 30, 1999     Year Ended June 30, 1998       Year Ended June 30, 1997(1)
                                         ----------------------------- -----------------------------  ------------------------------
                                           Average   Interest             Average  Interest             Average      Interest
                                         Outstanding  Earned/  Yield/  Outstanding  Earned/  Yield/   Outstanding    Earned/  Yield/
                                         Balance(2)    Paid    Rate(2)  Balance(2)   Paid    Rate(2)  Balance(2)       Paid  Rate(2)
                                          --------    -------   ----    --------    -------   ----     --------      ------   -----
                                                                             (Dollars in Thousands)
<S>                                     <C>          <C>      <C>      <C>          <C>      <C>        <C>         <C>      <C>
Interest-Earnings Assets:
Loans receivable(3)(4)                    $641,001    $53,773   8.39%    $662,536    $56,261   8.49%      $451,771   $37,923   8.39%
   Mortgage-backed securities              126,339      8,033   6.36      140,994      9,676   6.86        116,836     8,185   7.01
   Investments                             128,920      8,048   6.24      113,412      7,580   6.68         61,241     3,884   6.34
   Other interest-earning assets(5)          9,090        606   6.67        8,702        675   7.76         13,732     1,045   7.61
Cash surrender value of life insurance       6,842        338   4.94        6,540        332   5.08          4,187       223   5.33
                                          --------    -------   ----     --------    -------   ----       --------   -------   ----
   Total interest-earning assets          $912,192    $70,798   7.76%    $932,184   $ 74,524   7.99%      $647,767   $51,260   7.91%
                                          ========    =======   ====     ========    =======   ====       ========   =======   ====

Interest-Bearing Liabilities
   Certificates of deposit                $374,155    $20,444   5.46%    $380,726    $21,824   5.73%      $264,588   $14,986   5.66%
   Savings deposits                         90,586      2,264   2.50       96,966      2,658   2.74         76,829     2,223   2.89
   Demand and NOW deposits                 112,744        876   0.78      106,392      1,209   1.14         66,203       883   1.33
   Money market accounts                    64,481      2,503   3.88       52,496      2,112   4.02         31,873     1,146   3.60
                                          --------    -------   ----     --------    -------   ----       --------   -------   ----
     Total deposits                        641,966     26,087   4.06      636,580     27,803   4.37        439,493    19,238   4.38
FHLB advances and other borrowed money     229,389     13,157   5.74      244,964     14,483   5.91        146,413     9,169   6.26
                                          --------    -------   ----     --------    -------   ----       --------   -------   ----
Total interest-bearing liabilities        $871,355    $39,244   4.50%    $881,544    $42,286   4.80%      $585,906   $28,407   4.85%
                                          ========    =======   ====     ========    =======   ====       ========   =======   ====
Net interest income                                   $31,554                        $32,238                         $22,853
                                                      =======                        =======                         =======
Net interest rate spread                                        3.26%                          3.19%                           3.06%
                                                                ====                           ====                            ====
Net interest=earning assets               $ 40,837                       $ 50,640                         $ 61,861
                                          ========                       ========                         ========
Net interest margin(6)                                          3.46%                          3.46%                           3.53%
                                                                ====                           ====                            ====
Average interest=earning assets to average
   interest=bearing liabilities                       104.69%                        105.74%                         110.57%
                                                      ======                         ======                          ======
<FN>

(1)  Includes assets and liabilities from the Security  Bancorp  acquisition and
     operations for only four months of fiscal 1997.
(2)  based on average monthly balances.
(3)  Calculated net of deferred fees, loan discounts and loans in process.
(4)  Includes loans held for sale.
(5)  Includes primarily short-term liquid assets.
(6)  Net interest income divided by average interest-earning assets.

</FN>
</TABLE>

                                       8


<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

                              RATE/VOLUME ANALYSIS

The following table presents the dollar amount of changes in interest income and
interest expense for components of interest-earning  assets and interest-bearing
liabilities. It distinguishes between the increase related to higher outstanding
balances and that due to the volatility of interest rates.  For each category of
interest-earning  assets  and  interest-bearing   liabilities,   information  is
provided  on changes  attributable  to (I) changes in volume  (i.e.,  changes in
volume  multiplied  by old rate),  (ii)  changes in rate (i.e.,  changes in rate
multiplied  by old  volume),  (iii)  changes  in  rate-volume  (changes  in rate
multiplied by the change in volume), and (iv) the net change.
<TABLE>
<CAPTION>

                                                          December 31, 1999 vs December 31,1998
                                               ---------------------------------------------------
                                               Increase/(Decrease) Due To:
                                               ---------------------------   Rate/       Increase
                                                Volume         Rate          Volume      (Decrease)
                                               -------       -------        -------        -------
                                                               (In Thousands)
<S>                                          <C>           <C>            <C>            <C>
Interest-Earning Assets:
Loans receivable                               $(2,213)      $(1,216)       $ 1,739        $(1,690)
Mortgage-backed securities                       2,991          (211)        (1,430)         1,350
Investments                                        (60)         (208)           135           (133)
Other interest-earning assets                     (192)         (253)           256           (189)
Cash surrender value of life insurance              45            (5)           (20)            20
                                               -------       -------        -------        -------
Total interest-earning assets                  $   571       $(1,893)       $   680        $  (642)
                                               =======       =======        =======        =======
Interest-Bearing Liabilities:
Certificates of deposit                        $  (723)      $(1,928)       $ 1,357        $(1,294)
Savings deposits                                   (43)         (212)           129           (126)
Demand and NOW deposits                             48          (217)            79            (90)
Money market accounts                              726             2           (364)           364
                                               -------       -------        -------        -------
Total Deposits                                       8        (2,355)         1,201         (1,146)
FHLB advances and other borrowed money           1,125          (852)          (172)           101
                                               -------       -------        -------        -------
Total interest=bearing liabilities             $ 1,133       $(3,207)       $ 1,029        $(1,045)
                                               =======       =======        =======        =======
Changes to net interest income                 $  (562)      $ 1,314        $  (349)       $   403
                                               =======       =======        =======        =======

</TABLE>



                                       9

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                      June 30, 1999 vs June 30, 1998           June 30, 1998 vs June 30, 1997(1)
                                                  ---------------------------------------    ---------------------------------------
                                                  Increase/(Decrease) Due To:                Increase/(Decrease) Due To:
                                                  ---------------------------     Total      ---------------------------    Total
                                                                       Rate/     Increase                         Rate/    Increase
                                                   Volume     Rate     Volume   (Decrease)    Volume      Rate   Volume   (Decrease)
                                                  -------    -------    -----     -------     -------    -----    -----     -------
                                                                                    (In Thousands)
<S>                                              <C>        <C>        <C>       <C>         <C>        <C>      <C>       <C>
Interest-Earning Assets:
Loans receivable                                  $(1,829)   $  (682)   $  23     $(2,488)    $17,692    $ 443    $ 203     $18,338
Mortgage-backed securities                         (1,006)      (712)      75      (1,643)      1,693     (167)     (35)      1,491
Investments                                         2,107     (1,282)    (357)        468       3,596       51       49       3,696
Other interest-earning assets                        (386)       741     (424)        (69)        (63)    (327)      20        (370)
Cash surrender value of life insurance                 15         (9)      --           6         125      (10)      (6)        109
                                                  -------    -------    -----     -------     -------    -----    -----     -------
Total interest-earning assets                     $(1,099)   $(1,944)   $(683)    $(3,726)    $23,043    $ (10)   $ 231     $23,264
                                                  =======    =======    =====     =======     =======    =====    =====     =======
Interest-Bearing Liabilities:
Certificates of deposit                           $  (377)   $(1,020)   $  17     $(1,380)    $ 6,578    $ 180    $  80     $ 6,838
Savings deposits                                     (175)      (235)      16        (394)        583     (117)     (31)        435
Demand and NOW deposits                                72       (382)     (23)       (333)        536     (131)     (79)        326
Money market accounts                                 482        (74)     (17)        391         742      136       88         966
                                                  -------    -------    -----     -------     -------    -----    -----     -------
Total Deposits                                          2     (1,711)      (7)     (1,716)      8,439       68       58       8,565
FHLB advances and other borrowed money               (921)      (431)      26      (1,326)      6,070     (434)    (322)      5,314
                                                  -------    -------    -----     -------     -------    -----    -----     -------
Total interest-bearing liabilities                $  (919)   $(2,142)   $  19     $(3,042)    $14,509    $(366)   $(264)    $13,879
                                                  =======    =======    =====     =======     =======    =====    =====     =======
Changes to net interest income                    $  (180)   $   198    $(702)    $  (684)    $ 8,534    $ 356    $ 495     $ 9,385
                                                  =======    =======    =====     =======     =======    =====    =====     =======
<FN>
(1)  Includes  assets and  liabilities  from Security  Bancorp  acquisition  and
     operations for only four months of fiscal 1997.
</FN>
</TABLE>

                                       10

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

The  following  table sets forth the weighted  average  yields on the  Company's
interest-earning assets, the weighted average interest rates on interest-bearing
liabilities and the interest rate spread between the weighted average yields and
rates for the  Company  at the dates  indicated.  Non-accruing  loans  have been
included in the table as loans carrying a zero yield.

                                          At December 31,        At June 30,
                                          --------------- ----------------------
                                               1999        1999    1998  1997(1)
                                          --------------- ------- ------ -------
Weighted average yield on:
Loans receivable(2)(3)                            8.11%    8.01%   8.34%   8.49%
Mortgage-backed securities                        6.58     6.48    6.73    7.27
Investments                                       6.05     6.09    6.32    6.73
Other interest-earning assets                     5.11     5.46    6.15    5.58
Cash surrender value of life insurance            5.07     5.07    5.22    5.11
                                                 -----    -----   -----   -----
Combined weighted average yield on interest-
earning assets                                    7.52     7.46    7.78    8.08
                                                 -----    -----   -----   -----
Weighted average rate paid on:
Certificates of deposit                           5.32     5.21    5.77    5.52
Savings deposits                                  2.47     2.34    2.77    2.80
Demand and NOW deposits                           0.65     0.65    0.96    1.15
Money market accounts                             4.02     3.69    4.10    3.94
                                                 -----    -----   -----   -----
Total deposits                                    3.93     3.83    4.38    4.24
FHLB advances and other borrowed money            5.79     5.49    5.81    6.11
Collateralized mortgage obligations              11.46    11.48   11.48   11.37
                                                 -----    -----   -----   -----
Combined weighted average rate paid on
   interest-bearing liabilities                   4.42     4.30    4.79    4.70
                                                 -----    -----   -----   -----
Interest rate spread                              3.10%    3.16%   2.99%   3.38%
                                                 =====    =====   =====   =====


(1)  Includes assets and liabilities from Security Bancorp acquisition and
     operations for only four months of fiscal 1997.
(2)  Calculated net of deferred loan fees, loan discounts and loans in process.
(3)  Does not include interest on loans 90 days or more delinquent.

                                       11

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

The following table  summarizes the major components of the Company's net income
for the six months  ended  December 31, 1999 and for the last three fiscal years
and the changes which occurred between the periods shown:

<TABLE>
<CAPTION>

                               Six Months Ended December 31,                   Year Ended June 30,
                               ------------------------------  ---------------------------------------------------
Components of net income:              1999           1998            1999                  1998          1997(1)
                               -------------------  ---------  -------------------  -------------------  ---------
                                Amount      Change   Amount     Amount      Change   Amount     Change    Amount
                               ---------  --------  ---------  ---------  --------  ---------  --------  ---------
                                                               (In Thousands)
<S>                            <C>        <C>       <C>        <C>        <C>       <C>        <C>       <C>
Interest income                $ 35,606   $  (642)  $ 36,248   $ 70,798   $(3,726)  $ 74,524   $23,264   $ 51,260
Interest expense                 19,385    (1,045)    20,430     39,244    (3,042)    42,286    13,879     28,407
                               --------   -------   --------   --------   -------   --------   -------   --------
Net interest income              16,221       403     15,818     31,554      (684)    32,238     9,385     22,853
Provision for loan losses          (880)     (370)      (510)    (1,300)     (460)      (840)     (440)      (400)
Non-interest income               4,127      (577)     4,704      9,298       917      8,381     3,696      4,685
Non-interest expense            (13,010)      944    (13,954)   (28,226)     (467)   (27,759)   (7,191)   (20,568)
                               --------   -------   --------   --------   -------   --------   -------   --------
Income before income taxes        6,458       400      6,058     11,326      (694)    12,020     5,450      6,570
Income taxes                     (2,483)        8     (2,475)    (4,403)     (357)    (4,760)    2,697     (2,063)
                               --------   -------   --------   --------   -------   --------   -------   --------
Net income increase (decrease) $  3,975   $   392   $  3,583   $  6,923   $  (337)  $  7,260   $ 2,753   $  4,507
                               ========   =======   ========   ========   =======   ========   =======   ========

<FN>
(1)  Includes  assets and  liabilities  from Security  Bancorp  acquisition  and
     operations for only four months of fiscal 1997.
</FN>
</TABLE>

   COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
                              AND DECEMBER 31, 1998

 GENERAL. Net income increased $392,000 to $4.0 million for the six month period
ended  December  31, 1999 as  compared to $3.6  million for the same period last
year. The $392,000 increase in net income was comprised primarily of an increase
in net  interest  income of $403,000  and a $944,000  decrease  in  non-interest
expense,  partially  offset by a $370,000  increase in provision for loan losses
and a decrease in  non-interest  income of $577,000.  The  interest  rate spread
decreased to 3.10% at December  31, 1999 from 3.16% at June 30, 1999.  While the
Company  has  adopted  interest  rate risk  policies in an effort to protect net
interest income from  significant  increases in short term interest  rates,  the
Company's net income could still be adversely affected by a narrowing of its net
interest  rate  spread  expected  in a rising  interest  rate  environment.  See
"Quantitative and Qualitative Disclosures About Market Risk."

INTEREST INCOME. Interest income decreased $642,000 to $35.6 million for the six
month period ended December 31, 1999 from $36.2 million for the same period last
year.  This  decrease   resulted  from  a  decrease  in  the  average  yield  on
interest-earning  assets to 7.68% during the six month period ended December 31,
1999 from  7.92%  during  the same  period  last  year,  partially  offset by an
increase in the average  balance of interest  earning assets of $11.5 million to
$927.2  million  during the six month period ended December 31, 1999 from $915.7
million during the same period last year.

Interest  earned on loans  receivable  decreased $1.7 million due primarily to a
$26.0  million  decrease in the average  balance of loans  receivable  to $624.2
million  during the six month period ended December 31, 1999 from $650.2 million
during the same  period  last year.  In  addition,  the  average  yield on loans
decreased  to 8.32%  during the six month  period  ended  December 31, 1999 from
8.51% during the same period last year. The decrease in the yield during the six
month  period  ended  December  31,  1999  from the  same  period  last  year is
attributable to a general decline in interest rates during most of calendar year
1999 which  resulted  in loans  being  originated  at lower rates than the prior
year.

Interest earned on  mortgage-backed  securities  increased $1.4 million due to a
$44.6  million  increase in the average  balance of  mortgage-backed  securities
outstanding  to $161.6  million  during the six month period ended  December 31,
1999 from $117.0  million during the same period last year. The average yield on
mortgage-backed  securities decreased to 6.52% during the six month period ended
December 31, 1999 from 6.70%  during the same period last year as new  purchases
were completed at rates lower than the average portfolio rate.


                                       12

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

Interest  earned on  investment  securities  and other  interest-earning  assets
decreased  $322,000  due  primarily  to a $8.0  million  decrease in the average
balances to $133.7  million  during the six month period ended December 31, 1999
from $141.7  million  during the same period last year. The average yield earned
on investment  securities and other  interest-earning  assets decreased to 6.25%
during the six month period  ended  December 31, 1999 from 6.35% during the same
period last year.

INTEREST  EXPENSE.  Interest  expense  decreased  $1.0 million to $19.4  million
during the six month period ended  December 31, 1999 from $20.4  million  during
the same period last year. This decrease resulted from a decrease in the average
rate paid on  interest-bearing  liabilities to 4.33% during the six month period
ended December 31, 1999 from 4.71% during the same period last year. The average
balance  of  interest-bearing  liabilities  increased  $28.0  million  to $895.1
million  during the six month period ended December 31, 1999 from $867.1 million
during the same period last year.  Interest  expense on deposits  decreased $1.1
million  primarily due to a decrease in the average rate paid on certificates of
deposit to 5.16% during the six month period ended  December 31, 1999 from 5.67%
during the same period last year. The average balance of deposits increased $9.3
million to $649.8  million  during the six month period ended  December 31, 1999
from $640.5 million during the same period last year while the average rate paid
on deposits  decreased to 3.83%  during the six month period ended  December 31,
1999 from 4.24% during the same period last year.  The decrease in cost of funds
was the result of a general  decline in interest  rates  during the  majority of
calendar year 1999.

PROVISION FOR LOAN LOSSES.  The provision for loan losses increased  $370,000 to
$880,000 for the six month period ended  December 31, 1999 from $510,000 for the
same period last year.  The  increased  provision  for loan losses is  primarily
related to an increase in dealer finance and other consumer loans. The provision
for loan losses is  determined  by  management  as the amount to be added to the
allowance for loan losses after net charge-offs  have been deducted to bring the
allowance to a level which is considered  adequate to absorb losses  inherent in
the loan portfolio in accordance with generally accepted accounting  principles.
At December 31,  1999,  the Company had $3.1  million of  non-performing  assets
(representing  0.31% of total assets)  compared to $4.2 million at June 30, 1999
(representing  0.42% of total  assets).  At December 31,  1999,  the Company had
allowance  for loan  losses to  non-performing  assets of 165.4% as  compared to
121.1% at June 30,  1999.  Management's  evaluation  of the adequacy of its loan
loss  reserves,  the quality and  composition of the loan portfolio and economic
conditions in Montana resulted in the $880,000 provision for loan losses. Future
additions  to the  Company's  allowance  for loan  losses  and any change in the
related  ratio of the  allowance  for loan  losses to  non-performing  loans are
dependent upon the  performance  and composition of the Company's loan portfolio
and the amount of loans  charged off, the  economy,  inflation,  changes in real
estate  values and  interest  rates and the view of the  regulatory  authorities
toward adequate reserve levels. For additional information, see "Loan Quality."

NON-INTEREST  INCOME.  Non-interest  income  decreased  $577,000 to $4.1 million
during the six month period ended December 31, 1999 from $4.7 million during the
same period last year. The $577,000 decrease  resulted  primarily from decreases
in loan  origination  fees on  loans  sold  and net  gain on sale of  loans  and
securities   available-for-sale  of  $764,000,   while  service  fees  increased
$208,000.  The increasing  interest rate environment that existed during the six
month period ended December 31, 1999 reduced loan refinance activity,  resulting
in a decrease in loans sold to $41.6  million  during the six month period ended
December 31, 1999 as compared to $66.6 million during the same period last year.
Seasonal  fluctuations  in loan  volume  and a  decline  in loan  volume  due to
increased interest rates could continue to adversely affect origination fees and
gains on sale of loans available-for-sale.

NON-INTEREST EXPENSE. Non-interest expense decreased $944,000, or 6.8%, to $13.0
million  during the six month period ended  December 31, 1999 from $14.0 million
during the same period last year. Compensation and employee benefits,  equipment
and  furnishings  expense and other expenses  decreased  $436,000,  $110,000 and
$339,000  respectively while marketing and advertising  increased $102,000.  The
Company's  efficiency ratio, (the ratio of non-interest  expense to net interest
income  and  non-interest  income)  was 63.94%  for the six month  period  ended
December  31, 1999 as  compared to 67.99% for the same period last year,  a 6.0%
reduction.  The efficiency ratio without intangibles  amortization  decreased to
60.63% for the six month  period  ended  December 31, 1999 as compared to 64.36%
for the same period last year, a 5.8% reduction.

INCOME TAXES.  Income tax expense  decreased  $8,000 even though  pre-tax income
increased $400,000. The Company's effective tax rate decreased slightly to 38.4%
for the six month period ended  December 31, 1999 from 38.9% for the fiscal year
ended June 30, 1999.

                                       13

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

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

GENERAL. Net income decreased $337,000 to $6.9 million for the fiscal year ended
June 30,  1999 as  compared  to $7.3  million for the fiscal year ended June 30,
1998.  The  $337,000  decrease in net income was  comprised of a decrease in net
interest income of $684,000,  a $467,000 increase in non-interest  expense and a
$460,000  increase  in  provision  for loan  losses,  offset by an  increase  in
non-interest  income of  $917,000  and a  decrease  in  income  tax  expense  of
$357,000.  The  interest  rate spread  increased  to 3.16% at June 30, 1999 from
2.99% at June 30, 1998.

INTEREST INCOME. Interest income decreased $3.7 million to $70.8 million for the
fiscal  year ended June 30,  1999 from $74.5  million  for the fiscal year ended
June 30, 1998. This decrease  resulted from a decrease in the average balance of
interest  earning  assets of $20.0 million to $912.2  million during fiscal 1999
from $932.2  million  during  fiscal 1998 and a decrease in the average yield on
interest-earning  assets to 7.76% during  fiscal 1999 from 7.99%  during  fiscal
1998.

Interest  earned on loans  receivable  decreased $2.5 million due primarily to a
$21.5  million  decrease in the average  balance of loans  receivable  to $641.0
million  during fiscal 1999 from $662.5 million during fiscal 1998. In addition,
the average  yield on loans  decreased  to 8.39%  during  fiscal 1999 from 8.49%
during fiscal 1998. The decrease in the average balance of loans  receivable was
the result of the sale of  $105.0 million of  loans  available-for-sale and loan
repayments  of $279.0  million  that  exceeded new loan  originations  of $357.9
million. The decline in interest rates during the fiscal year contributed to the
decline in the yield on the loan portfolio.

Interest  earned  on  mortgage-backed  securities  decreased  $1.6  million  due
primarily to a $14.7 million decrease in the average balance of  mortgage-backed
securities  outstanding to $126.3 million during fiscal 1999 from $141.0 million
during  fiscal  1998.  The  decrease in the average  balance of  mortgage-backed
securities  was  primarily  the result of a general  decline in  interest  rates
during the fiscal year that resulted in repayments of principal of $31.8 million
and also  contributed  to the decrease in the average  yield on  mortgage-backed
securities to 6.36% during fiscal 1999 from 6.86% during fiscal 1998.

Interest earned on investment  securities  increased $468,000 due primarily to a
$15.5 million increase in the average balance of investment securities to $128.9
million  during the fiscal year 1999 from $113.4 million during fiscal 1998. The
average yield earned on investment  securities  decreased to 6.24% during fiscal
year 1999 from 6.68%  during the same period last year due to a general  decline
in interest rates during fiscal 1999.

INTEREST  EXPENSE.  Interest expense  decreased $3.1 million to $39.2 million in
fiscal 1999 from $42.3  million in fiscal 1998.  This  decrease  resulted from a
decrease in the average balance of interest-bearing liabilities of $10.1 million
to $871.4  million during fiscal 1999 from $881.5 million during fiscal 1998 and
a decrease in the average  rate paid on  interest-bearing  liabilities  to 4.50%
during fiscal 1999 from 4.80% during fiscal 1998.  Interest  expense on deposits
decreased $1.7 million  primarily due to a decrease in the rate paid on deposits
to 4.06% during fiscal 1999 from 4.37% during fiscal 1998.  The average  balance
of deposits  increased  $5.4 million to $642.0  million  during fiscal 1999 from
$636.6 million during fiscal 1998.  Interest  expense on FHLB advances and other
borrowed money decreased $1.3 million to $13.2 million in fiscal 1999 from $14.5
million  in  fiscal  1998.  The  average  rate paid on FHLB  advances  and other
borrowed  money also  decreased  to 5.74%  during  fiscal 1999 from 5.91% during
fiscal 1998 and was primarily the result of a general  decline in interest rates
during fiscal 1999.

PROVISION FOR LOAN LOSSES.  The provision for loan losses increased  $460,000 to
$1.3  million for fiscal year 1999 from  $840,000 for the same period last year.
The  increased  provision  for loan losses is primarily  related to the consumer
loan dealer finance  program.  At June 30, 1999, the Company had $4.2 million of
non-performing  assets  (representing  0.42% of total  assets)  compared to $5.0
million at June 30, 1998 (representing 0.49% of total assets). At June 30, 1999,
the Company had allowance for loan losses to non-performing assets of 121.13% as
compared to 97.44% at June 30, 1998.  Management's evaluation of the adequacy of
its loan loss  reserves,  the quality and  composition of the loan portfolio and
economic  conditions in Montana resulted in the $1.3 million  provision for loan
losses.

NON-INTEREST  INCOME.  Non-interest income increased $917,000 to $9.3 million in
fiscal 1999 from $8.4  million  during  1998.  The  $917,000  increase  resulted
primarily from increases in fees and service fees, net gain on sale of loans and
securities  available-for-sale  and other operating income of $350,000,  $96,000
and $471,000 respectively. The low interest rate environment
                                       14

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

that existed during fiscal 1999 produced strong mortgage loan refinance activity
which  resulted in $3.7  million of loan  origination  fees and gains on sale of
loans  available-for-sale  as compared to $3.2  million for the same period last
year.  Seasonal  fluctuations in loan volume and a decline in loan volume due to
increased  interest rates could adversely  affect  origination fees and gains on
sale of loans  available-for-  sale.  Included in non-interest income for fiscal
1999 is a net gain of $314,000  from the sale of the Bank's credit card program,
the sale of a building,  life insurance  proceeds and the write down of mortgage
servicing rights that reduced servicing fee income on loans serviced for others.

NON-INTEREST  EXPENSE.  Non-interest expense increased $467,000 to $28.2 million
in fiscal 1999 from $27.8  million in fiscal  1998.  Compensation  and  employee
benefits and equipment and furnishings  expense increased  $546,000 and $467,000
respectively  while occupancy,  marketing and other expense decreased  $118,000,
$173,000 and $276,000 respectively.  Included in non-interest expense for fiscal
1999 is $834,000 related to year 2000 readiness  expenditures,  early retirement
incentives for certain executive officers,  non-recurring  professional fees and
data center conversion costs.

INCOME TAXES.  Income tax expenses decreased $357,000 to $4.4 million for fiscal
1999 from $4.8  million for fiscal  1998.  The  $357,000  decrease in income tax
expense was  primarily  the result of the decrease in income  before  income tax
expense of  $694,000  and the  non-tax  deductibility  of  $666,000  of goodwill
amortization for fiscal 1999.

        COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1998
                                AND JUNE 30, 1997

GENERAL.  Net income  increased $2.8 million to $7.3 million for the fiscal year
ended June 30, 1998 as  compared to $4.5  million for the fiscal year ended June
30,  1997.  Included in net income for the fiscal year ended June 30, 1997 was a
one-time  after-tax  charge to  earnings of $1.4  million,  levied on all thrift
institutions,  to recapitalize the Savings Association  Insurance Fund ("SAIF").
The $2.8  million  increase  in net income was  comprised  of an increase in net
interest  income of $9.4  million and a $3.7  million  increase in  non-interest
income,  offset by an  increase  in  non-interest  expense of $7.2  million,  an
increase in provision  for loan losses of $440,000 and an increase in income tax
expense of $2.7 million.  Only four months of combined operations resulting from
the  Acquisition  are  included in net income for the fiscal year ended June 30,
1997.

INTEREST  INCOME.  Interest income  increased $23.2 million to $74.5 million for
the fiscal year ended June 30, 1998 from $51.3 million for the fiscal year ended
June 30, 1997. This increase resulted from an increase in the average balance of
interest  earning  assets of $284.4 million to $932.2 million during fiscal 1998
from $647.8  million  during fiscal 1997 and an increase in the average yield on
interest-earning  assets to 7.99% during  fiscal 1998 from 7.91%  during  fiscal
1997.

Interest earned on loans  receivable  increased $18.3 million due primarily to a
$210.7  million  increase in the average  balance of loans  receivable to $662.5
million  during fiscal 1998 from $451.8 million during fiscal 1997. In addition,
the average  yield on loans  increased  to 8.49%  during  fiscal 1998 from 8.39%
during fiscal 1997. The increase in the average balance of loans  receivable and
the  increase in yield was  primarily  the result of having the higher  yielding
loans from the  Acquisition  for the full fiscal year 1998 as compared to only a
portion for fiscal 1997.

Interest  earned  on  mortgage-backed  securities  increased  $1.5  million  due
primarily to a $24.2 million increase in the average balance of  mortgage-backed
securities  outstanding to $141.0 million during fiscal 1998 from $116.8 million
during  fiscal  1997.  The  increase in the average  balance of  mortgage-backed
securities was the result of having the mortgage-backed  securities purchased in
the  Acquisition for the full fiscal year 1998 as compared to only a portion for
fiscal 1997.

Interest earned on investment securities increased $3.7 million due primarily to
a $52.2  million  increase in the average  balance of  investment  securities to
$113.4  million  during the fiscal year 1998 from $61.2  million  during  fiscal
1997. The increase in the average balance of investment securities was primarily
the result of having the securities  purchased in the  Acquisition  for the full
fiscal year 1998 as  compared  to a portion for fiscal 1997 and the  purchase of
securities in excess of maturities and sales.

Interest  earned on other  interest-earning  assets and cash surrender  value of
life  insurance  decreased  $261,000 due  primarily to a decrease in the average
balance of other interest-earning assets of $2.7 million to $15.2 million during
fiscal 1998 from $17.9 million during fiscal 1997.


                                       15

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

INTEREST  EXPENSE.  Interest expense increased $13.9 million to $42.3 million in
fiscal 1998 from $28.4 million in fiscal 1997.  This  increase  resulted from an
increase  in the  average  balance  of  interest-bearing  liabilities  of $295.6
million to $881.5  million  during fiscal 1998 from $585.9 million during fiscal
1997.  Interest expense on deposits  increased $8.6 million  primarily due to an
increase in the average  balance of deposits of $197.1 million to $636.6 million
during fiscal 1998 from $439.5 million during fiscal 1997. The average rate paid
on deposits  decreased  slightly to 4.37%  during  fiscal 1998 from 4.38% during
fiscal 1997.  The increase in the average  balance of deposits was the result of
the purchase of $287.0 million of deposits  related to the Acquisition in fiscal
1997.  Interest expense on FHLB advances and other borrowed money increased $5.3
million to $14.5  million in fiscal 1998 from $9.2 million in fiscal 1997.  This
increase was the result of an increase of $98.6  million in the average  balance
of FHLB advances and other  borrowed  money to $245.0 million during fiscal 1998
from $146.4  million  during  fiscal  1997.  The  increase in FHLB  advances was
primarily to fund the growth in investment securities.

PROVISION FOR LOAN LOSSES. The Company provided $840,000 for loan losses for the
fiscal year ended June 30, 1998. At June 30, 1998,  the Company had $5.0 million
of non-performing  assets  (representing 0.49% of total assets) compared to $2.4
million at June 30, 1997 (representing 0.25% of total assets). At June 30, 1998,
the Company had allowance for loan losses to non-performing  assets of 97.44% as
compared to 191.01% at June 30, 1997. Management's evaluation of the adequacy of
its  loan  loss  reserves,  the  quality  of the  loan  portfolio  and  economic
conditions in Montana resulted in the $840,000 provision for loan losses.

NON-INTEREST INCOME.  Non-interest income increased $3.7 million to $8.4 million
in fiscal 1998 from $4.7 million during 1997. The $3.7 million increase resulted
from increases in loan origination fees, service fees, net gain on sale of loans
and securities  available-for-sale  and other operating  income of $1.6 million,
$1.5 million,  $375,000 and $268,000 respectively.  The $1.6 million increase in
loan  origination fees was primarily the result of increased loan production and
the subsequent sale of loans to the secondary  markets.  The lower interest rate
environment in fiscal 1998 as compared to the prior year resulted in substantial
increases in loan refinancing  volume and the loan  origination  volume also was
greater than the prior year due to a full year of loan  production  as result of
the  Acquisition.  The $1.5 million  increase in service fees was  primarily the
result of increases in checking fees and ATM fees from the promotion of checking
accounts and the increased fee income received on transaction accounts purchased
in the  Acquisition  and were  earned for the full  fiscal 1998 as compared to a
portion of fiscal 1997.

NON-INTEREST  EXPENSE.  Non-interest  expense  increased  $7.2  million to $27.8
million in fiscal  1998 from  $20.6  million in fiscal  1997.  The $7.2  million
increase was primarily the result of the Acquisition and the resulting  expenses
for the full  fiscal  year 1998 as  compared  to a portion  of fiscal  1997.  In
addition, expenses in excess of $700,000 were incurred in the conversion of data
centers and approximately $3.0 million of new equipment was purchased related to
the data center conversion,  resulting in increased  depreciation  costs. Fiscal
1997 included a one-time $2.3 million  special  assessment to  recapitalize  the
SAIF.

INCOME  TAXES.  Income tax expenses  increased  $2.7 million to $4.8 million for
fiscal 1998 from $2.1  million for fiscal  1997.  The $2.7  million  increase in
income tax expense  was  primarily  the result of an  increase in income  before
income tax expense of $5.4 million and the non-tax  deductibility of $633,000 of
goodwill amortization for fiscal 1998.

                                  LOAN QUALITY

Total  non-performing  assets decreased $1.1 million to $3.1 million at December
31, 1999 from $4.2  million at June 30,  1999.  The $1.1  million  decrease  was
primarily the result of a $747,000  decrease in consumer  non-performing  loans.
Non-performing  assets as a  percentage  of total  assets  decreased to 0.31% at
December 31, 1999 from 0.42% at June 30, 1999. The 0.31% ratio is  substantially
less than the national  composite  for thrifts of 0.65% at  September  30, 1999,
which is the  latest  available  information  reported  by the  Office of Thrift
Supervision.  In addition to  non-performing  loans and foreclosed  assets as of
December 31, 1999,  there were no  additional  loans  identified  by the Company
with respect to which  information  known about the possible  credit problems of
the  borrowers  or  the  cash  flows  of the  security  properties  have  caused
management  to have some  concerns as to the ability of the  borrowers to comply
with present loan repayment  terms and which may result in the future  inclusion
of such items in the non-performing asset categories.


                                       16

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

As a financial  institution,  the Company's  primary component of market risk is
interest rate volatility.  Fluctuations in interest rates will ultimately impact
both the  level  of  income  and  expense  recorded  on a large  portion  of the
Company's assets and liabilities,  and the market value of all  interest-earning
assets and interest-bearing liabilities,  other than those which possess a short
term to maturity.  All significant interest rate risk management  procedures are
performed at the Bank level. Based upon the Company's nature of operations,  the
Company is not subject to foreign currency exchange or commodity price risk. The
Company's loan portfolio is concentrated  primarily  within the State of Montana
and is subject to risks  associated  with the local economy.  See "Comparison of
Operating  Results for the Six Months  Ended  December 31, 1999 and December 31,
1998 - Provision for Loan Losses." The Company does not own any trading assets.

In an attempt to manage its  exposure to changes in interest  rates,  management
closely  monitors  the  Bank's  interest  rate  risk  position.  The Bank has an
Asset/Liability  Management  Committee  consisting of certain  members of senior
management and two non-employee members of the Board of Directors (the "Board").
This committee  meets to review the Bank's interest rate risk position and makes
recommendations for adjusting such position to the Board. In addition, the Board
reviews on a quarterly basis the Bank's  interest rate risk position,  including
simulations  of the  effect on the  Bank's  capital  of  various  interest  rate
scenarios.   The  Bank  also   engages   outside   consultants   to  advise  the
Asset/Liability Management Committee on asset/liability issues and strategies.

The Bank has an Investment Committee consisting of certain members of the senior
management  which meets at least monthly to review the Bank's interest rate risk
position  using the  Office of Thrift  Supervision  ("OTS")  and other  internal
models  simulating  the effect on the Bank's  capital or net interest  income in
various interest rate scenarios.  The Investment Committee makes recommendations
for adjusting such position to the Bank's Asset/Liability  Management Committee.
The  Asset/Liability   Management  Committee  reviews  the  Bank's  investments,
mortgage-backed securities, loan portfolio, loan production,  borrowed funds and
deposit structure.  The Committees develop investment strategies and oversee the
timing  and  implementation  of  transactions  to  assure  attainment  of  Board
objectives in the most effective manner.

In managing its  asset/liability  mix, the Bank,  depending on the  relationship
between long- and  short-term  interest  rates,  market  conditions and consumer
preference,  may place somewhat  greater emphasis on maximizing its net interest
margin than on more closely matching the interest rate sensitivity of its assets
and  liabilities  in an effort to improve  its net  interest  income  Management
believes that the increased net interest income resulting from a mismatch in the
maturity of its asset and liability  portfolios can, during periods of declining
or stable interest  rates,  provide high enough returns to justify the increased
exposure  to  negative  effects  which can result  from  sudden  and  unexpected
increases in interest rates.

To the extent  consistent  with its interest  rate spread  objectives,  the Bank
attempts  to reduce  its  interest  rate risk and has taken a number of steps to
more closely match the maturities of its assets and  liabilities.  To accomplish
this  objective the Bank has focused its lending  efforts on the  origination of
non-residential  real-estate  loans and consumer  loans for its  portfolio  with
shorter  terms to maturity or terms to interest  rate  adjustment.  The Bank has
also  increased  its  marketing   effort  to  increase  the  Bank's  balance  of
non-interest bearing demand accounts. The non-residential loans being originated
for portfolio  generally  mature or change  interest  rates within five to seven
years as  compared  to the  origination  of fixed rate  fifteen  and thirty year
residential  mortgages.  During the six month period ended December 31, 1999 the
Bank sold $41.6 million of primarily 30 year-fixed  rate 1-4 family  residential
mortgage  loans to the  secondary  market in an attempt to limit its exposure to
rising interest rates.

In addition,  depending on the Bank's interest rate risk position,  the Bank may
also sell or  convert  to  Federal  Home  Loan  Mortgage  Corporation  ("FHLMC")
participation   certificates  ("PC's")  newly  originated  30-year,   fixed-rate
residential  loans.  The Bank  securitizes  such loans to limit  credit risk and
increase its liquidity. The Bank's policy is to carry FHLMC PC's created in this
manner  in its  "available-for-sale"  portfolio  until a  rising  interest  rate
scenario or the need for liquidity dictates their sale.

Additionally,  since the  mid-1980's,  the Bank has used  interest rate exchange
(i.e.,  "swap" and "cap")  agreements to assist in  synthetically  extending the
life of  interest-bearing  liabilities.  Under  the  Bank's  current  investment
policy,  the Bank may engage in swap and cap  agreements  with the Federal  Home
Loan Bank ("FHLB") of Seattle or certain investment firms approved in the Bank's
investment policy.

                                       17

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

At December 31, 1999,  the Bank was a party to one $5.0 million  notional amount
interest rate exchange  agreement with an investment firm.  Historically,  swaps
and caps have been used to reduce the  Bank's  cost of funds  during  periods of
high  interest  rates;  however,  in the interest rate  environment  experienced
during  most of 1999 this cap had the effect of  increasing  the Bank's  cost of
funds.  During the six months ended  December 31, 1999, the increase in the cost
of funds  attributable to these swaps and caps was $11,000.  The Bank's interest
rate cap expires in July, 2000.

At December 31, 1999 the Bank did not have any interest rate swap  agreements in
place.

The Board of  Directors  reviews  the  level of  interest  rate risk  management
activity on a quarterly basis. Currently,  the Board of Directors has authorized
management to engage in interest rate swaps and caps with notional  principal of
up to $108  million.  An  increase  in this  type of  activity  may  result in a
decrease  in the  Bank's  income  in the  future if  interest  rates do not rise
significantly. See Note 16 of the Notes to Consolidated Financial Statements.

OTS  regulations  provide a Net  Portfolio  Value  ("NPV") and an Interest  Rate
Sensitivity Measure approach to the quantification of interest rate risk. NPV is
defined  as  the  net  present  value  of  an  institution's   existing  assets,
liabilities,  and off-balance sheet contracts.  An institution's NPV ratio for a
given  interest rate scenario is calculated by dividing the net portfolio  value
that would  result in that  scenario by the present  value of the  institution's
assets in that same scenario and is expressed in percentage terms. The NPV ratio
is analogous to the capital-to-assets  ratio used to measure regulatory capital,
but NPV is measured in economic  values (or present values) in a particular rate
scenario.  Interest Rate Sensitivity  Measure is the magnitude of the decline in
an  institution's  NPV ratio that occurs as a result of an adverse rate shock of
200 basis points.  The measure  equals the difference  between an  institution's
pre-shock  NPV ratio and its  post-shock  NPV ratio,  and is  expressed in basis
points.  The Bank's  Asset/Liability  Management  Committee has  established the
minimum level of interest rate risk that they are willing to allow under current
interest rates and for a range of hypothetical  interest rate  scenarios.  There
are six scenarios represented by immediate, permanent, parallel movements in the
term  structure  of  interest  rates of plus and minus 100,  200,  and 300 basis
points from the actual term structure at quarter end.

Presented  below,  as of December  31,  1999,  is an OTS  analysis of the Bank's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts in the yield curve, in 100 basis point  increments,  up and down
300 basis points.  Assumptions used in calculating the amounts in this table are
OTS assumptions.

                      Actual at December 31, 1999     Actual at June 30, 1999
                          as Measured by OTS             as Measured by OTS
                     ----------------------------  ----------------------------
                      NPV as a % of PV of assets    NPV as a % of PV of assets
    Change in Market ----------------------------  ----------------------------
     Interest Rate                    Change                        Change
    (Basis Points)   NPV Ratio   (Basis Points)     NPV Ratio    (Basis Points)
   ---------------- ----------   --------------    ------------  --------------
         +300          5.41%         -277              6.51%         -271
         +200          6.42%         -176              7.55%         -167
         +100          7.37%          -81              8.48%          -74
         -0-           8.18%          -0-              9.22%          -0-
         -100          8.75%          +57              9.71%          +49
         -200          9.14%          +96             10.05%          +84
         -300          9.43%         +125             10.40%         +118


The OTS has  established  guidelines for  determining the level of interest rate
risk for an OTS regulated  institution and has developed an interagency  uniform
ratings  system  establishing  several  levels of interest rate risk:  "minimal,
"moderate",  "significant,"  "high'" and "imminent threat." Based on a 200 basis
point  increase  in  interest  rates the  Bank's  post-shock  6.42 % NPV  ratio,
representing  a 176 basis  point  change  from the 8.18%  pre-shock  NPV  ratio,
indicates a risk rating of "minimal" for the Bank at December 31, 1999.

                                       18

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

Management has  structured its assets and  liabilities to attempt to control its
exposure to interest  rate risk.  In the event of a 300 basis point  decrease in
interest rates, the Bank would experience a 125 basis point increase in NPV in a
declining  rate  environment  and a 277 basis  point  decrease  in a rising rate
environment.  During periods of rising rates,  the value of monetary  assets and
monetary liabilities declines.  Conversely, during periods of falling rates, the
value of  monetary  assets and  liabilities  increases.  However,  the amount of
change in value of specific  assets and  liabilities  due to changes in rates is
not the same in a rising  rate  environment  as in a  falling  rate  environment
(i.e.,  the amount of value increase under a specific rate decline may not equal
the amount of value decrease under an identical  upward rate movement).  The 277
basis  point  decrease  in NPV as a result  of a 300  basis  point  increase  in
interest  rates  indicates  that the Bank is  susceptible  to a reduction in net
interest  income in a rising interest rate  environment due to  interest-bearing
liabilities potentially repricing more rapidly than interest-earning assets.

In evaluating the Bank's  exposure to interest rate risk,  certain  shortcomings
inherent  in the method of analysis  presented  in the  foregoing  table must be
considered.  For  example,  although  certain  assets and  liabilities  may have
similar maturities or periods to repricing,  they may react in different degrees
to changes in market interest  rates.  Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates,  while  interest  rates on other  types may lag behind  changes in market
rates.  Further,  in the event of a change in interest  rates,  prepayments  and
early withdrawal levels would likely deviate significantly from those assumed in
calculating the table.  Finally,  the ability of many borrowers to service their
debt may decrease in the event of an interest rate  increase.  As a result,  the
actual effect of changing  interest  rates may differ from that presented in the
foregoing table.

                         LIQUIDITY AND CAPITAL RESOURCES

The  Company's  primary  sources of funds are new  deposits  and the  payment of
principal  and  interest  on  loans,  mortgage-backed  securities  and  maturing
investments.  The holding  company is dependent on the payment of principal  and
interest on it's  investments  and dividends from Western  Security Bank.  While
maturities and scheduled  amortization of loans and  mortgage-backed  securities
are a predictable  source of funds,  deposit flows and mortgage  prepayments are
greatly   influenced  by  market   interest  rates,   economic   conditions  and
competition.  In a period of declining  interest rates,  it is anticipated  that
mortgage  prepayments would increase.  As a result, these proceeds from mortgage
prepayments would be invested in lower yielding loans or other investments which
have the effect of  reducing  interest  income.  In a period of rising  interest
rates,  it is  anticipated  that  mortgage  prepayments  would  decrease and the
proceeds from such  prepayments  would be invested in higher  yielding  loans or
investments which would have the effect of increasing interest income.

The Company's liquidity,  represented by cash and cash equivalents,  is a result
of its  operating,  investing and financing  activities.  These  activities  are
summarized below for the six months ended December 31, 1999 and the fiscal years
ended June 30, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
                                                  For the Six
                                                  Months Ended      For the Year Ended
                                                  December 31,           June 30,
                                                  ------------ -----------------------------
                                                      1999      1999      1998       1997(1)
                                                  ------------ ------- ----------- ---------
                                                                (In Thousands)

<S>                                               <C>        <C>        <C>        <C>
Net Income                                        $  3,975   $  6,923   $  7,260   $  4,507
Adjustments to reconcile net income to net
cash provided by operating activities               13,960     32,740     23,475     19,598
                                                  --------   --------   --------   --------
Net cash provided by operating activities           17,935     39,663     30,735     24,105
Net cash provided (used) by investing activities      (341)     4,606    (51,101)   (21,642)
Net cash provided (used) by financing activities   (20,397)   (44,391)    32,275      1,397
                                                  --------   --------   --------   --------
Net increase (decrease) in cash and cash
 equivalents                                        (2,803)      (122)    11,909      3,860
Cash and cash equivalents at beginning of period    28,946     29,068     17,159     13,299
                                                  --------   --------   --------   --------
Cash and cash equivalents at end of period        $ 26,143   $ 28,946   $ 29,068   $ 17,159
                                                  ========   ========   ========   ========
<FN>
(1)  Includes  assets and  liabilities  from Security  Bancorp  acquisition  and
     operations for only four months of fiscal 1997.
</FN>
</TABLE>

                                       19

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

The primary investing activities of the Company are the origination of loans and
the purchase of investment and mortgage-backed securities. During the six months
ended December 31, 1999 and the fiscal years ended June 30, 1999, 1998 and 1997,
the Company's loan originations totaled $151.6 million,  $357.9 million,  $366.7
million and $226.8 million, respectively.

Purchases of mortgage-backed  securities  totaled $23.0 million,  $58.5 million,
$7.0 million and $98.4  million for the six months  ended  December 31, 1999 and
the fiscal years ended June 30, 1999, 1998 and 1997, respectively.  Purchases of
investment securities totaled $17.8 million,  $146.1 million, $148.8 million and
$109.7  million for the six months ended  December 31, 1999 and the fiscal years
ended June 30, 1999, 1998 and 1997, respectively. Mortgage-backed securities and
investment  securities purchased in fiscal 1997 included $91.4 million and $20.0
million respectively, related to the Acquisition.

During  fiscal  1997 a net $10.8  million of cash  ($26.8  million  paid in cash
consideration  and direct  Acquisition costs less $16.0 million in cash and cash
equivalents purchased) was used to acquire Security Bancorp.

During the six months  ended  December  31, 1999 and the fiscal years ended June
30, 1999, 1998 and 1997, investing activities were funded primarily by principal
repayments on loans and mortgage-backed securities and investment securities and
the maturity of  investment  securities  and the sale of loans,  mortgage-backed
securities and  investments  totaling $191.4  million,  $573.9  million,  $474.2
million, and $313.5 million for the respective fiscal years.

The major  sources of cash flows from  financing  activities  are  increases  in
deposits into savings accounts and additional borrowings. The major uses of cash
flows from  financing  activities  are  withdrawals  from  deposit  accounts and
payments on borrowings. For the fiscal year ended June 30, 1998 and 1997 the net
increase  in cash flows from  financing  activities  was $32.3  million and $1.4
million  respectively,  and a net decrease of $44.4  million for the fiscal year
ended June 30, 1999 and $20.4 million  during the six months ended  December 31,
1999.

The Bank is required to maintain  minimum  levels of liquid assets as defined by
OTS regulations.  This requirement,  which may be waived at the direction of the
OTS  depending  upon  economic  conditions  and deposit  flows,  is based upon a
percentage of deposits and short-term borrowings.  The required ratio is 4%. The
Bank's regulatory liquidity ratio was 15.99 % at December 31, 1999.

The Bank's  most  liquid  assets  are cash and cash in banks and highly  liquid,
short-term  investments.  The levels of these assets are dependent on the Bank's
operating, financing, lending, and investing activities during any given period.
At December  31,  1999,  the Bank's  regulatory  liquid  assets  totaled  $117.5
million.

Liquidity  management for the Bank is both a daily and long-term function of the
Company's management strategy. Excess funds are generally invested in short-term
investments such as FHLB certificates of deposit and overnight  investments.  If
the Bank should  require funds beyond its ability to generate  them  internally,
additional  sources of funds are available through the use of FHLB advances.  At
December 31, 1999,  the Bank had outstanding borrowings of $234.8 million, which
included $226.8 million of FHLB advances,  $7.7 million of repurchase agreements
and $309,000 of collateralized mortgage obligations and other borrowed money.

At December 31, 1999,  the Bank had  outstanding  commitments to originate loans
of $9.0 million,  of which $2.4 million was at fixed interest rates. These loans
are to be secured by properties  located in the Bank's primary market areas. The
Bank  anticipates  that it will  have  sufficient  funds  available  to meet its
current loan  commitments.  Certificates of deposit  scheduled to mature in less
than one year from December 31, 1999 totaled $292.7 million.

                     IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated  Financial  Statements and Notes thereto  presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial  position and operating results in terms of
historical  dollars without  considering the changes in the relative  purchasing
power of money over time due to inflation.  The impact of inflation is reflected
in the  increased  cost of the  Company's  operations.  Unlike  most  industrial
companies,  nearly all the assets and liabilities of the Company are monetary in
nature.  As a result,  interest  rates  have a greater  impact on the  Company's
performance  than do the effects of general levels of inflation.  Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.

                                       20

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

                                    DIVIDENDS

The Board of  Directors  intends  to  continue  the  payment of  quarterly  cash
dividends, dependent on the results of operations and financial condition of the
Bank, tax  considerations,  industry  standards,  economic  conditions,  general
business practices and other factors.  The Company's ability to pay dividends is
dependent  on the dividend  payments it receives  from its  subsidiary,  Western
Security,  whose  payments are subject to regulations  and the Bank's  continued
compliance with all regulatory capital requirements.  See Note 3 of the Notes to
Consolidated  Financial Statements for information  regarding limitations of the
Bank's ability to pay dividends to the Company.

                           FORWARD LOOKING STATEMENTS

When used in this annual report or other public shareholder  communications,  or
in oral  statements made with the approval of an authorized  executive  officer,
the words or phrases "will likely  result," "are expected to," "will  continue,"
"is anticipated," "estimate," "project,"  "significantly" or similar expressions
are intended to identify "forward-looking  statements" within the meaning of the
Private Securities  Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue  reliance on any  forward-looking  statements,  which
speak only as of the date  made,  and to advise  readers  that  various  factors
including regional and national economic conditions, changes in levels of market
interest rates, credit risks of lending  activities,  competitive and regulatory
factors  could  affect  the Bank's  financial  performance  and could  cause the
Company's  actual  results for future  periods to differ  materially  from those
anticipated or projected.

The Company does not undertake,  and specifically  disclaims,  any obligation to
publicly  release  the  result  of  any  revisions  which  may  be  made  to any
forward-looking   statements  to  reflect  the   occurrence  of  anticipated  or
unanticipated events or circumstances after the date of such statements.


                                       21


<PAGE>








                          Independent Auditors' Report



The Board of Directors
WesterFed Financial Corporation:

We have  audited  the  accompanying  consolidated  balance  sheets of  WesterFed
Financial  Corporation  and  subsidiaries  as of December  31, 1999 and June 30,
1999, and the related  consolidated  statements of income,  stockholders' equity
and comprehensive  income,  and cash flows for the six months ended December 31,
1999 and for each of the years in the  three-year  period  ended June 30,  1999.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of WesterFed Financial
Corporation and  subsidiaries as of December 31, 1999 and June 30, 1999, and the
results  of their  operations  and their  cash  flows for the six  months  ended
December 31, 1999 and for each of the years in the three-year  period ended June
30, 1999 in conformity with generally accepted accounting principles.


/s/ KPMG LLP

Billings, Montana
March 10, 2000


                                       22

<PAGE>


WesterFed Financial Corporation and Subsidiaries

Consolidated Balance Sheets
--------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)
                                                       December 31,   June 30,
                                                           1999        1999
                                                       ------------ -----------
Assets
Cash and due from banks................................$   20,233   $   25,867
Interest-bearing bank deposits.........................     5,910        3,079
                                                       ----------   ----------
         Cash and cash equivalents.....................    26,143       28,946

Interest-bearing deposits..............................       100        1,985
Investment securities available-for-sale...............   106,212      103,441
Investment securities, at amortized cost
     (estimated fair value of $9,195 at
     December 31, 1999 and $9,255 at June 30, 1999)....     9,205        9,235
Mortgage-backed securities available-for-sale..........    81,276       68,029
Mortgage-backed securities, at amortized cost
     (estimated fair value of $77,926 at
     December 31, 1999 and $85,252 at June 30, 1999)...    77,672       83,720
Loans available-for-sale...............................     4,470        3,740
Loans receivable, net..................................   616,281      627,631
Interest receivable....................................     7,492        7,635
Stock in Federal Home Loan Bank of Seattle, at cost....    15,154       14,615
Premises and equipment, net............................    27,477       28,269
Core deposit intangible................................     3,401        3,741
Goodwill ..............................................    14,763       15,096
Cash surrender value of life insurance policies........     8,164        6,916
Other assets...........................................     3,075        4,350
                                                       ----------   ----------
                                                       $1,000,885   $1,007,349
                                                       ==========   ==========
Liabilities and Stockholders' Equity
Deposits...............................................$  658,404   $  645,549
Repurchase agreements..................................     7,731        6,702
Borrowed funds.........................................   227,078      244,483
Advances from borrowers for taxes and insurance........     3,296        3,302
Income taxes - current and deferred....................       597        1,552
Accrued interest payable...............................     6,476        6,156
Accrued expenses and other liabilities.................     7,778        8,456
                                                       ----------   ----------
         Total liabilities.............................   911,360      916,200
                                                       ----------   ----------
Stockholders' equity:
     Preferred stock, $.01 par value, 5,000,000
        shares authorized; none outstanding............         -            -
     Common stock, $.01 par value, 10,000,000
         shares authorized;  5,904,661 shares issued,
         4,351,404 outstanding at December 31, 1999;
         5,872,807 shares issued, 4,538,557
         outstanding at June 30, 1999..................        56           56
     Paid-in capital...................................    70,040       69,572
     Common stock acquired by ESOP/RRP.................    (2,090)      (2,216)
     Treasury stock, at cost; 1,553,257
         at December 31, 1999 and
         1,334,250 at June 30, 1999....................   (28,974)     (25,319)
     Accumulated other comprehensive loss..............    (2,930)      (1,717)
     Retained earnings.................................    53,423       50,773
                                                       ----------   ----------
         Total stockholders' equity....................    89,525       91,149
                                                       ----------   ----------
Commitments and contingencies
                                                       $1,000,885   $1,007,349
                                                       ==========   ==========
Book value per common share outstanding................$    20.57   $    20.08
                                                       ==========   ==========

See accompanying notes to consolidated financial statements.

                                       23
<PAGE>


WesterFed Financial Corporation and Subsidiaries

Consolidated Statements of Income
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>

                                              Six Months
                                                 Ended         Year Ended June 30,
                                              December 31,
                                              ------------ -----------------------------
                                                 31, 1999    1999      1998       1997
                                              ------------ --------- ---------  --------
<S>                                              <C>       <C>        <C>        <C>
Interest income:
     Loans receivable..........................  $25,980   $53,773    $56,261    $37,923
     Mortgage-backed securities................    5,270     8,033      9,676      8,185
     Investment securities.....................    4,004     8,048      7,580      3,884
     Interest-bearing deposits.................      172       606        675      1,045
     Other.....................................      180       338        332        223
                                                 -------   -------    -------    -------
              Total interest income............   35,606    70,798     74,524     51,260
                                                 -------   -------    -------    -------
Interest expense:
     NOW and money market demand...............    1,947     3,379      3,321      2,029
     Savings  .................................    1,097     2,264      2,658      2,223
     Certificates of deposit...................    9,398    20,444     21,824     14,986
                                                 -------   -------    -------    -------
                                                  12,442    26,087     27,803     19,238
     Borrowed funds and repurchase agreements..    6,943    13,157     14,483      9,169
                                                 -------   -------    -------    -------
              Total interest expense...........   19,385    39,244     42,286     28,407
                                                 -------   -------    -------    -------
         Net interest income...................   16,221    31,554     32,238     22,853
Provision for loan losses......................      880     1,300        840        400
                                                 -------   -------    -------    -------
              Net interest income after provision
                  for loan losses..............   15,341    30,254     31,398     22,453
                                                 -------   -------    -------    -------
Non-interest income:
     Loan origination fees on loans sold.......      957     2,633      2,268        667
     Service fees..............................    2,600     4,471      4,486      3,034
     Net gain on sale of loans and securities
         available-for-sale....................      290     1,149      1,053        678
     Other.....................................      280     1,045        574        306
                                                 -------   -------    -------    -------
              Total non-interest income........    4,127     9,298      8,381      4,685
                                                 -------   -------    -------    -------
Non-interest expense:
     Compensation and employee benefits........    6,156    13,695     13,149      9,342
     Net occupancy expense of premises.........      943     2,035      2,153      1,373
     Equipment and furnishings.................      985     2,313      1,846      1,009
     Data processing...........................      820     1,627      1,644        962
     Deposit insurance premium.................      170       344        358        517
     SAIF assessment...........................        -         -          -      2,297
     Intangibles amortization..................      673     1,443      1,391        532
     Marketing and advertising.................      475       616        789        571
     Other.....................................    2,788     6,153      6,429      3,965
                                                 -------   -------    -------    -------
              Total non-interest expense.......   13,010    28,226     27,759     20,568
                                                 -------   -------    -------    -------
              Income before income taxes.......    6,458    11,326     12,020      6,570

Income taxes...................................    2,483     4,403      4,760      2,063
                                                 -------   -------    -------    -------
              Net income.......................  $ 3,975   $ 6,923    $ 7,260    $ 4,507
                                                 =======   =======    =======    =======
Net income per common share:
     Basic.....................................  $  0.93   $  1.43    $  1.37    $  1.01
                                                 =======   =======    =======    =======
     Diluted...................................  $  0.89   $  1.37    $  1.29    $   .96
                                                 =======   =======    =======    =======
</TABLE>


See accompanying notes to consolidated financial statements.

                                       24

<PAGE>


WesterFed Financial Corporation and Subsidiaries

Consolidated Statements of Stockholders' Equity and Comprehensive Income
--------------------------------------------------------------------------------
 (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                       Accumulated
                                                                                          other
                                                  Common  Paid-in    ESOP/   Treasury  comprehensive  Retained
                                                  stock   capital     RRP     Stock    income (loss)  earnings  Total
                                                --------  -------   -------  -------- --------------  -------- --------
<S>                                             <C>       <C>       <C>       <C>        <C>          <C>      <C>
Balance at June 30, 1996....................    $   46    $45,451   $(3,558)  $(3,079)   $   (226)    $39,973  $ 78,607

Comprehensive income:
 Net income for the year ended June 30, 1997         -          -         -         -           -       4,507     4,507
 Unrealized gain on securities
   available-for-sale, net
   of reclassification adjustment                    -          -         -         -         191           -       191
                                                                                                               --------
      Total comprehensive income                                                                                  4,698

ESOP shares committed to be released........         -        265       227         -           -           -       492

Amortization of RRP.........................         -          -       499         -           -           -       499

Shares forfeited by RRP participants
     (195 shares)...........................         -          -         2        (2)          -           -         -

Common stock acquired by RRP (5,418 shares).         -        106      (106)        -           -           -         -

Common stock options exercised
    (13,768 shares).........................         -        184         -         -           -           -       184

Common stock issued (534 shares)............         -         10         -         -           -           -        10

Security Bancorp acquisition:
     Issuance of 1,150,175 shares,
         net of issuance costs of $200......        10     21,052         -         -           -           -    21,062
     Issuance of options allowing holders to
         acquire 94,696 shares..............         -        873         -         -           -           -       873

Cash dividends declared ($.45 per share)....         -          -         -         -           -      (2,166)   (2,166)
                                               -------    -------   -------   -------      ------     -------  --------
Balance at June 30, 1997....................        56     67,941    (2,936)   (3,081)        (35)     42,314  $104,259

Comprehensive income:
     Net income for the year ended
        June 30, 1998.......................         -          -         -         -           -       7,260     7,260
     Unrealized gain on securities
        available-for-sale, net
        of reclassification adjustment......         -          -         -         -          58           -        58
                                                                                                               --------
               Total comprehensive income                                                                         7,318

Purchase of treasury stock, at cost -
    17,500 shares...........................         -          -         -      (379)          -           -      (379)

ESOP shares committed to be released........         -        425       227         -           -           -       652

Amortization of RRP.........................         -          -       188         -           -           -       188

Shares forfeited by RRP participants
     (75 shares)                                     -          -         1        (1)          -           -         -

Common stock options exercised (37,978 shares)       -        557         -         -           -           -       557

Cash dividends declared ($.54 per share)....         -          -         -         -           -      (2,895)   (2,895)
                                               -------    -------   -------   -------      ------     -------  --------
Balance at June 30, 1998....................        56     68,923    (2,520)   (3,461)         23      46,679   109,700
</TABLE>



                                                                     (Continued)

                                       25
<PAGE>


WesterFed Financial Corporation and Subsidiaries

Consolidated Statements of Stockholders' Equity
 and Comprehensive Income, Continued
--------------------------------------------------------------------------------
 (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                                       Accumulated
                                                                                          other
                                                  Common  Paid-in    ESOP/   Treasury  comprehensive  Retained
                                                  stock   capital     RRP     Stock    income (loss)  earnings  Total
                                                --------  -------   -------  -------- --------------  -------- --------
<S>                                             <C>       <C>       <C>       <C>        <C>          <C>      <C>
Balance at June 30, 1998....................    $   56    $68,923   $(2,520)  $  (3,461) $     23     $46,679  $109,700

Comprehensive income:
     Net income for the year ended June 30,
     1999...................................         -          -         -           -         -       6,923     6,923
     Unrealized loss on securities
        available-for-sale, net
        of reclassification adjustment......         -          -         -           -    (1,740)          -    (1,740)
                                                                                                               --------
        Total comprehensive income                                                                                5,183

Purchase of 1,082,854 shares of treasury
     stock, net of acquisition costs of $200.        -          -         -     (21,858)        -           -   (21,858)

ESOP shares committed to be released........         -        245       227           -         -           -       472

Amortization of RRP.........................         -          -        77           -         -           -        77

Common stock options exercised (36,116 shares)       -        404         -           -         -           -       404

Cash dividends declared ($.62 per share)....        -           -         -           -         -      (2,829)   (2,829)
                                               -------    -------   -------     -------    ------     -------  --------
Balance at June 30, 1999....................        56     69,572    (2,216)    (25,319)   (1,717)     50,773    91,149

Comprehensive income:
     Net income for the six months
     ended December 31, 1999................         -          -          -          -         -       3,975     3,975
     Unrealized loss on securities
         available-for-sale, net
         of reclassification adjustment.....         -          -          -          -    (1,213)          -    (1,213)
                                                                                                               --------
         Total comprehensive income                                                                               2,762

Purchase of 219,006 shares of treasury
     stock, at cost.........................         -          -          -     (3,655)        -           -    (3,655)

ESOP shares committed to be released........         -         92        113          -         -           -       205

Amortization of RRP.........................         -          -         13          -         -           -        13

Common stock options exercised (35,716 shares)       -        443          -          -         -           -       443

Security Bancorp shares not exchanged
          (3,862 shares)....................         -        (67)         -          -         -           -       (67)

Cash dividends declared ($0.315 per share)..         -          -         -           -         -      (1,325)   (1,325)
                                               -------    -------   -------     -------     ------    -------  --------
Balance at December 31, 1999................    $   56     70,040    (2,090)    (28,974)    (2,930)    53,423    89,525
                                               =======    =======   =======     =======     ======    =======  ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       26

<PAGE>


WesterFed Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
                                                     Six Months
                                                        Ended         Year Ended June 30,
                                                    December 31, ----------------------------
                                                        1999        1999     1998      1997
                                                    ------------ --------- --------- --------
<S>                                                  <C>       <C>       <C>       <C>
Net cash provided by operating activities......      $  17,935    39,663    30,735    24,105
                                                     ---------  --------  --------  --------
Cash flows from investing activities:
     Decrease (increase) in interest-bearing
         deposits..............................          1,885    (1,885)    1,900     1,000
     Purchases of:
         FHLB stock............................              -         -    (1,129)        -
         Investment securities.................              -         -    (5,483)   (9,956)
         Investment securities available-for-sale      (17,844) (146,138) (143,279)  (79,804)
         Mortgage-backed securities............              -         -         -    (5,950)
         Mortgage-backed securities
              available-for-sale...............        (23,020)  (58,499)   (6,990)     (983)
     Proceeds from maturities:
         Investment securities.................             38     7,636    16,316     9,351
         Investment securities available-for-sale       11,600   127,651    70,545    61,289
     Proceeds from sales of:
         Investment securities available-for-sale        2,107    21,961    16,065     5,192
         Mortgage-backed securities
              available-for-sale...............          1,207         -     3,222    31,937
         Real estate owned.....................            321       204         -         -
     Principal payments from:
         Investment securities available-for-sale          444       748       437       385
         Mortgage-backed securities............          6,151    18,782    15,661     8,897
         Mortgage-backed securities
              available-for-sale...............          7,609    12,981    10,955    14,113
     Decrease (increase) in loans receivable, net       10,532    21,557   (24,516)  (43,911)
     Proceeds from sales of premises and
         equipment.............................             33       611     1,162         -
     Purchases of premises and equipment.......           (317)   (1,003)   (5,682)   (2,426)
     Purchase of life insurance policies.......         (1,087)        -      (285)        -
     Acquisition of Security Bancorp, net of cash
         and net cash equivalents acquired
         of $16,013............................              -         -         -   (10,776)
                                                     ---------  --------  --------  --------
              Net cash provided by (used in)
                  investing activities.........           (341)    4,606   (51,101)  (21,642)
                                                     ---------  --------  --------  --------
Cash flows from financing activities:
     Net change in deposits....................            755   (15,212)  (21,366)  (25,093)
     Net change in repurchase agreements.......          1,029       469    (1,553)      974
     Proceeds from borrowings..................        244,100   319,560   344,165   136,090
     Payments on borrowings....................       (261,527) (324,078) (286,719) (108,606)
     Net change in advances from borrowers for
         taxes and insurance...................             (6)     (750)      299      (295)
     Dividends paid to stockholders............         (1,536)   (2,926)   (2,729)   (1,867)
     Proceeds from exercise of options and
         stock issuances.......................            443       404       557       194
     Payments to acquire treasury stock........         (3,655)  (21,858)     (379)        -
                                                     ---------  --------  --------  --------
              Net cash provided by (used in)
                  financing activities.........        (20,397)  (44,391)   32,275     1,397
                                                     ---------  --------  --------  --------
Net increase (decrease) in cash and cash equivalents    (2,803)     (122)   11,909     3,860

Cash and cash equivalents at beginning of period        28,946    29,068    17,159    13,299
                                                     ---------  --------  --------  --------
Cash and cash equivalents at end of period.....      $  26,143    28,946    29,068    17,159
                                                     =========  ========  ========  ========
</TABLE>


See accompanying notes to consolidated financial statements.

                                       27

<PAGE>


WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation

WesterFed  Financial   Corporation   ("WesterFed,"  and  collectively  with  its
subsidiary,  the "Company") serves the financial needs of communities located in
western  and  central  Montana  through  its  wholly-owned  subsidiary,  Western
Security Bank (the "Bank"),  a federally  chartered savings bank. In addition to
traditional  financial  institution  services,  the Company provides  insurance,
investment  and other  related  services  through  Western  Security  Investment
Services,  Inc.,  Service  Corporation  of Montana  and Monte Mac I,  Inc.,  all
wholly-owned subsidiaries of the Bank.

The Company's consolidated financial statements have been prepared in conformity
with generally  accepted  accounting  principles.  All significant  intercompany
balances and transactions  have been eliminated in  consolidation.  In preparing
the consolidated financial statements,  management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance  sheet and revenues and expenses for the period.  Actual
results could differ significantly from those estimates.

Material  estimates that are particularly  susceptible to significant  change in
the near-term  relate to the  determination  of the allowance for loan losses. A
substantial  portion of the  Company's  loans are secured by  collateral  in the
state of Montana. Accordingly, as with most financial institutions in the market
area, the  collectibility of a substantial  portion of the carrying value of the
Company's loan portfolio is susceptible to changes in market conditions.

Management believes the allowance for loan losses is adequate.  While management
uses available information to recognize losses on loans, future additions to the
allowance  may be  necessary  based on changes  in  economic  conditions  in the
Company's  market area and the composition of the loan  portfolio.  In addition,
various regulatory  agencies,  as an integral part of their examination process,
periodically  review the Company's  allowance for loan losses. Such agencies may
require the  Company to  recognize  additions  to the  allowance  based on their
judgments about information available to them at the time of their examination.

Segment Reporting

The Company currently  operates in one significant  business segment - community
banking.  Management evaluates the Company's performance and allocates resources
to this segment based on consolidated  performance  measurements consistent with
those of the consolidated financial statements.

Cash Equivalents

For purposes of the statements of cash flows, cash equivalents  consist of daily
interest  demand   deposits,   non-interest-bearing   deposits  with  banks  and
interest-bearing deposits having original maturities of three months or less.

At December 31, 1999, the Company was required to have  aggregate  reserves with
the Federal Reserve Bank of approximately $8,634.

Investment and Mortgage-Backed Securities

Investment and mortgage-backed securities  available-for-sale include securities
that management intends to use as part of its overall asset/liability management
strategy  and that may be sold in  response  to  changes in  interest  rates and
resultant    prepayment   risk   and   other   related    factors.    Securities
available-for-sale  are carried at fair value,  and unrealized  gains and losses
(net of related tax  effects)  are  excluded  from  earnings  and  included as a
separate component of stockholders'  equity. Upon realization,  gains and losses
are included in earnings using the specific  identification  method.  Investment
securities  and  mortgage-backed  securities,  other  than those  designated  as
available-for-sale  or trading,  are comprised of debt  securities for which the
Bank has  positive  intent and  ability to hold to  maturity  and are carried at
cost.  Declines  in the fair value of  held-to-maturity  and  available-for-sale
securities  below  their  cost that are deemed to be other  than  temporary  are
reflected  in earnings as realized  losses.  All  securities  are  adjusted  for
amortization of premiums and accretion of discounts using the level-yield method
over the estimated lives of the securities.

                                       28

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)

Management   determines  the  appropriate   classification   of  investment  and
mortgage-backed securities at the purchase date.

Stock in Federal Home Loan Bank

Member  institutions of the Federal Home Loan Bank (FHLB) system are required to
hold common stock of its district FHLB according to predetermined  formulas. The
FHLB provides a source of borrowed  funds for the Company which are secured,  in
part, by this FHLB stock.

Loans Receivable, Net

Loans receivable, other than loans available-for-sale,  are stated at the unpaid
principal  balance,  net of premiums,  unearned  discounts,  net  deferred  loan
origination fees, and the allowance for loan losses.

Loans are placed on nonaccrual  status when  collection of principal or interest
is  considered  doubtful  (generally  loans past due 90 days or more).  Interest
income previously  accrued on these loans, but not yet received,  is reversed in
the current period. Interest subsequently recovered is credited to income in the
period  collected.  Discounts  are accreted and premiums are amortized to income
using the level-yield method over the estimated lives of the loans.

Loan fees and certain direct loan  origination  costs are deferred,  and the net
fee or cost is recognized in interest income using the  level-yield  method over
the contractual life of the individual loans,  adjusted for actual  prepayments.
Amortization of deferred loan  origination  fees are suspended during periods in
which the related loan is on nonaccrual status.

Loans  available-for-sale  are carried at the lower of cost or market  using the
aggregate method. Valuation adjustments, if applicable, are reflected in current
operations.  Gains and losses on sales,  resulting from the  difference  between
sales  proceeds  and the  underlying  carrying  value,  are  recorded  using the
specific  identification  method.  A sale is  recognized  when  control over the
underlying loan is surrendered and exchanged for consideration.

Management determines the appropriate  classification of loans as either held to
maturity or available-for-sale at origination, in conjunction with the Company's
overall asset/liability management strategy.

The cost of loan  servicing  rights is included in other assets and amortized in
proportion to, and over the period of, estimated net servicing revenues.

The carrying  value of loan  servicing  rights and the  amortization  thereon is
periodically  evaluated in relation to estimated future net servicing  revenues.
Servicing  assets are evaluated for impairment  based upon the fair value of the
rights as compared to amortized  cost.  Impairment is determined by  stratifying
rights by predominant  characteristics,  such as interest rates and terms.  Fair
value  is   determined   using   prices  for   similar   assets   with   similar
characteristics,  when  available,  or based upon  discounted  cash flows  using
market-based assumptions. Impairment is recognized through a valuation allowance
for an  individual  stratum,  to the  extent  that  fair  value is less than the
capitalized amount for the stratum.

Allowance for Loan Losses

The  allowance  for  loan  losses  is based on  management's  evaluation  of the
adequacy of the  allowance,  including an assessment of known and inherent risks
in the portfolio,  review of individual  loans for adverse  situations  that may
affect the borrower's  ability to repay,  the estimated  value of any underlying
collateral, and consideration of current economic conditions.

Additions  to the  allowance  arise  from  charges  to  operations  through  the
provision  for loan losses or from the  recovery of amounts  previously  charged
off. The  allowance is reduced by loan  charge-offs.  Loans are charged off when
management  believes  there  has been  permanent  impairment  of their  carrying
values.

                                       29

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)

The Company also  provides an allowance  for losses on specific  loans which are
deemed  to  be  impaired.  Groups  of  small  balance  homogeneous  basis  loans
(generally   the  Company's   consumer   loans)  are  evaluated  for  impairment
collectively. A loan is considered impaired when, based upon current information
and events, it is probable that the Bank will be unable to collect,  on a timely
basis,  all principal  and interest  according to the  contractual  terms of the
loan's  original  agreement.  When a specific loan is determined to be impaired,
the allowance for possible loan losses is increased  through a charge to expense
for the amount of the  impairment.  For all  non-consumer  loans,  impairment is
measured  based  on  value  of  the  underlying  collateral.  The  value  of the
underlying  collateral  is  determined  by reducing the  collateral's  estimated
current value by anticipated selling costs. The Company's impaired loans are the
same as those non-consumer loans currently reported as non-accrual.  The Company
recognizes  interest  income on  impaired  loans  only to the  extent  that cash
payments are received.

Real Estate Owned

Real estate owned is recorded at the fair value at the date of acquisition, with
a charge  to the  allowance  for loan  losses  for any  excess of cost over fair
value.  Subsequently,  real estate owned is carried at the lower of cost or fair
value,  less  estimated  selling  costs.  Certain  costs  incurred in  preparing
properties  for  sale  are  capitalized,  and  expenses  of  holding  foreclosed
properties are charged to operations as incurred.  Other assets include $168 and
$370 of real estate and other personal property acquired through  foreclosure at
December 31, 1999 and June 30, 1999, respectively.

Cash Surrender Value of Life Insurance

The Company has acquired life insurance  policies covering certain key employees
for which the Company is the  beneficiary.  The Company makes one-time  lump-sum
payments as key  employees  are  identified.  Earnings on the premiums  paid are
expected to exceed future premiums and expenses associated with the policies and
thus result in an increase in the cash surrender value of the policies.

Premises and Equipment

Premises and equipment,  including leasehold  improvements,  are stated at cost,
less accumulated  amortization and  depreciation.  Depreciation and amortization
are computed using the  straight-line  and double declining balance methods over
the estimated useful lives of the assets or leases ranging from 5 to 40 years.

Goodwill

Goodwill  reflects the excess of cost over fair value of identifiable net assets
which  were  acquired  during  1997.   Goodwill  is  amortized  over  25  years.
Accumulated  amortization  as of December  31, 1999 and June 30, 1999 was $1,832
and $1,499, respectively.

Core Deposit Intangible

Core  deposit   intangible   represents  the   intangible   value  of  depositor
relationships  resulting from deposit  liabilities assumed in a 1997 acquisition
and is amortized using an accelerated method based on an estimated runoff of the
related  deposits,  not  exceeding  10  years.  Accumulated  amortization  as of
December 31, 1999 and June 30, 1999 was $2,207 and $1,867, respectively.

Long-Lived Assets

Long-lived  tangible and intangible  assets including  goodwill are reviewed for
impairment  whenever events or circumstances  provide evidence that suggests the
carrying  amount of the  asset may not be  recoverable.  An  impairment  loss is
recognized  if the sum of the  undiscounted  expected  future cash flows is less
than the carrying  amount of the asset.  The amount of the  impairment  loss, if
any, is based on the asset's fair value which may be  estimated  by  discounting
the expected future cash flows.

Income Taxes

Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and  liabilities  are measured using the enacted tax
rates  applicable  to  taxable  income  for the years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period that includes the enactment date.

                                       30

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)

WesterFed and its subsidiaries  file  consolidated  Federal and state income tax
returns.

Financial Instruments

The Company  periodically  enters into interest rate exchange agreements (Swaps)
and interest rate cap agreements  (Caps) as part of its overall  asset/liability
management  strategies.  Estimated  amounts to be  received  or paid on the Swap
settlement  dates  are  accrued  when  realized.  The net Swap  settlements  are
reflected  in  interest  expense.  Transaction  fees on Caps  are  amortized  to
interest  expense  over the life of the  related  Caps  using the  straight-line
method. Any payments received on Caps are reflected in operations.

Stock Based Compensation

The cost of stock based compensation  issued to third parties is measured at the
grant  date  based on the fair  value of the  award.  For  grants to  employees,
compensation  cost is the excess of the  market  price of the stock at the grant
date over the amount an employee must pay to acquire the stock.


Comprehensive Income

Comprehensive   income  includes  net  income,  as  well  as  other  changes  in
stockholders'  equity that result from  transactions  and economic  events other
than those with  stockholders.  The Company's only significant  element of other
comprehensive  income  is  unrealized  gains and  losses  on  available-for-sale
securities.

Earnings Per Share

Basic  earnings  per common  share is  calculated  by dividing net income by the
weighted  average  number of common  shares  outstanding  during the period less
unvested RRP and unallocated  ESOP shares.  Diluted earnings per common share is
calculated  by  dividing  net income by the  weighted  average  number of common
shares used to compute basic EPS plus the incremental amount of potential common
stock determined by the treasury stock method.

Reclassifications

Certain  reclassifications  have been made to the June 30,  1999,  1998 and 1997
financial statements to conform with the December 31, 1999 presentation.

(2)    CHANGE IN FISCAL YEAR

Effective  December  31, 1999,  WesterFed  changed its  reporting  period from a
fiscal  year  ended  June 30 to a  calendar  year end.  Accordingly,  results of
operations for the  transition  period ended December 31, 1999 cover a six-month
period.  The following  statements of income present  financial data for the six
months ended  December 31, 1999 and the comparable six month period of the prior
year. These statements are for comparative purposes only.

                                                              Six Months Ended
                                                                December 31,
                                                            --------------------
                                                              1999       1998
                                                            --------- ----------
                                                                     (Unaudited)

Interest income............................................ $ 35,606    36,248
Interest expense...........................................   19,385    20,430
                                                            --------  --------
     Net interest income...................................   16,221    15,818

Provision for loan losses..................................     (880)     (510)
                                                            --------  --------
     Net interest income after provision for loan losses...   15,341    15,308

                                       31

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)


                                                              Six Months Ended
                                                                December 31,
                                                            --------------------
                                                              1999       1998
                                                            --------- ----------
                                                                     (Unaudited)

Noninterest income......................................... $  4,127     4,704
Noninterest expense........................................  (13,010)  (13,954)
                                                            --------  --------
     Income before income tax expense......................    6,458     6,058

Income tax expense.........................................   (2,483)   (2,475)
                                                            --------  --------
     Net income............................................ $  3,975     3,583
                                                            ========  ========
Net income per common share:
     Basic................................................. $   0.93      0.67
                                                            ========  ========
     Diluted............................................... $   0.89      0.64
                                                            ========  ========


(3)    REGULATORY MATTERS

WesterFed's ability to pay dividends is dependent upon the dividends it receives
from the  Bank,  which are  subject  to  regulations  and the  Bank's  continued
compliance with all regulatory  capital  requirements as specified by the Office
of Thrift  Supervision  (OTS).  A "Tier 1"  institution,  which is defined as an
institution   that  has  capital   immediately   prior  to  a  proposed  capital
distribution  that is equal to or greater than the amount of its fully phased-in
capital  requirement,  is  authorized  to make  capital  distributions  during a
calendar  year up to the  higher of 100% of its net  income to date  during  the
calendar year plus the amount that would reduce by one-half its surplus  capital
ratio at the  beginning of the calendar  year, or 75% of its net income over the
most recent four-quarter period. The Bank is a Tier 1 institution.

The OTS has amended its capital distribution regulation effective April 1, 1999.
Associations  that are  subsidiaries  of a savings and loan holding company must
file a notice with the OTS at least 30 days before the proposed declaration of a
dividend  or  approval  of the  proposed  capital  distribution  by its Board of
Directors.  In addition,  the savings institution now must obtain prior approval
from the OTS if it fails to meet  certain  regulatory  conditions  or if,  after
giving  effect  to  the  proposed   distribution,   the  institution's   capital
distributions  in a calendar year would exceed its  year-to-date net income plus
retained net income for the preceding two years or the association  would not be
at least adequately capitalized.

The Bank may also not declare or pay a cash dividend on, or  repurchase  any of,
its common stock if the effect thereof would cause the regulatory capital of the
Bank to be reduced below the amount  required for a liquidation  account,  which
was established at the date the Bank completed its conversion from a mutual to a
stock form of savings bank.

Capital standards require the Bank to have minimum  regulatory  tangible capital
equal to 1.5% of adjusted total assets, a minimum 3.0% core capital ratio and an
8.0%  risk-based  capital  ratio.  In addition,  federal  banking  agencies have
adopted  regulations which establish a system for prompt  regulatory  corrective
action with respect to depository institutions which do not meet minimum capital
requirements.  The "prompt corrective action" (PCA) regulations established five
categories  related to the level of capital of the depository  institution:  (1)
well-capitalized,   (2)  adequately  capitalized,  (3)  under-capitalized,   (4)
significantly undercapitalized, and (5) critically undercapitalized. At December
31,  1999  and  June  30,  1999,  the  most  recent  notification  from  the OTS
categorized the Bank as well capitalized for PCA purposes.

                                       32
<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)


The Bank's compliance with capital requirements follows:
<TABLE>
<CAPTION>
                                                                       Minimum to         Minimum
                                                                     be adequately       to be well
                                                                   capitalized under capitalized under
                                                                   prompt corrective prompt corrective
                                                      Actual       action provision  action provision
                                              ------------------- ------------------ -----------------
                                              Amount       Ratio    Amount    Ratio   Amount    Ratio
                                              ---------   ------- ---------  ------- --------  -------
<S>                                           <C>        <C>     <C>        <C>    <C>        <C>
As of December 31, 1999:
 Total capital (to risk-weighted assets)....  $74,336      12.09%  $49,179    8.00%  $61,473    10.00%
 Core (Tier 1) capital (to risk-weighted
     assets)................................   69,142      11.25    24,589    4.00    36,884     6.00
 Core (Tier 1) capital (to adjusted
     assets)................................   69,142       7.06    39,177    4.00    48,971     5.00
 Tangible capital (to tangible assets)         69,142       7.06    14,691    1.50    14,691     1.50
                                              =======     ======   =======   =====   =======    =====
As of June 30, 1999:
 Total capital (to risk-weighted assets)....  $76,384      12.26%  $49,830    8.00%  $62,287    10.00%
 Core (Tier 1) capital (to risk-weighted
     assets)................................   71,275      11.44    24,915    4.00    37,372     6.00
 Core (Tier 1) capital (to adjusted
     assets)................................   71,275       7.23    39,447    4.00    49,309     5.00
 Tangible capital (to tangible assets)......   71,275       7.23    14,793    1.50    14,793     1.50
                                              =======     ======   =======   =====   =======    =====
</TABLE>

The following is a reconciliation of total stockholders'  equity as shown on the
consolidated balance sheet and tangible,  core and risk-based regulatory capital
of the Bank at December 31, 1999 and June 30, 1999:
<TABLE>
<CAPTION>

                                                                                    December 31,         June 30,
                                                                                        1999               1999
                                                                                  ------------------  ---------------
<S>                                                                                <C>                  <C>
Total stockholders' equity......................................................   $    89,525              91,149
     Less: Nonqualifying equity of WesterFed and nonqualifying subsidiaries.....        (4,622)             (2,160)
           Goodwill and other intangibles.......................................       (18,164)            (18,837)
           Nonqualifying purchased mortgage loan servicing......................          (527)               (602)
           Unrealized losses on certain securities available-for-sale...........         2,930               1,725
                                                                                   -----------            --------
Tangible and Core capital.......................................................        69,142              71,275

     Add:Allowance for loan losses..............................................         5,161               5,079
           Unrealized gain on certain available-for-sale equity securities......            33                  30
                                                                                   -----------            --------
Risk-based capital..............................................................   $    74,336              76,384
                                                                                   ===========            ========
</TABLE>

                                       33

<PAGE>


WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


(4)    INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities follow:
<TABLE>
<CAPTION>

                                                                              December 31, 1999
                                                          -----------------------------------------------------------
                                                                              Gross         Gross         Estimated
                                                             Amortized     unrealized    unrealized         fair
                                                               cost           gains        losses           value
                                                          --------------- -------------- --------------- ------------
<S>                                                       <C>             <C>            <C>             <C>
Investment securities held-to-maturity:
Corporate obligations................................     $     6,991            7            (17)            6,981
Other investments....................................           2,214            -             -              2,214
                                                          -----------        -----         ------           -------
     Total investment securities held-to-maturity....     $     9,205            7            (17)            9,195
                                                          ===========        =====         ======           =======
Investment securities available-for-sale:
Federal agency obligations...........................     $    87,331           -          (2,164)           85,167
Corporate obligations................................          18,432            6           (378)           18,060
Other................................................           2,893           92             -              2,985
                                                          -----------        -----         ------           -------
     Total investment securities available-for-sale..     $   108,656           98         (2,542)          106,212
                                                          ===========        =====         ======           =======
</TABLE>
<TABLE>
<CAPTION>

                                                                                June 30, 1999
                                                          -----------------------------------------------------------
                                                                              Gross         Gross         Estimated
                                                             Amortized     unrealized    unrealized         fair
                                                               cost           gains        losses           value
                                                          --------------- -------------- --------------- ------------
<S>                                                       <C>             <C>            <C>             <C>
Investment securities held-to-maturity:
Corporate obligations................................     $     6,985           16             (6)            6,995
Other investments....................................           2,250           10             -              2,260
                                                          -----------        -----         ------           -------
     Total investment securities held-to-maturity....     $     9,235           26             (6)            9,255
                                                          ===========        =====         ======           =======
Investment securities available-for-sale:
Federal agency obligations...........................     $    81,323            2         (1,340)           79,985
Corporate obligations................................          23,509           32           (167)           23,374
Other................................................               3           79             -                 82
                                                          -----------        -----         ------           -------
     Total investment securities available-for-sale..     $   104,835          113         (1,507)          103,441
                                                          ===========        =====         ======           =======
</TABLE>

Expected  maturities may differ from contractual  maturities because issuers may
have the  right to call or repay  obligations  at par value  without  prepayment
penalties.  The cost  and  estimated  fair  value of  investment  securities  at
December 31, 1999, by contractual maturity, are shown below:
                                                                   Fair
                                                       Cost        value
                                                  ------------  ----------
Investment securities held-to-maturity
Due in:
     Less than one year.......................... $     2,997      3,004
     One to five years...........................       4,232      4,215
     Five to ten years...........................         330        330
     After ten years.............................       1,646      1,646
                                                  -----------   --------
                                                  $     9,205      9,195
                                                  ===========   ========

                                       34

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

                                                                   Fair
                                                     Cost          value
                                                  ------------  ----------
Investment securities available-for-sale
Due in:
     Less than one year.........................  $     5,564       5,534
     One to five years..........................       95,770      93,460
     Five to ten years..........................        2,649       2,618
     After ten years............................        4,580       4,434
     Other......................................           93         166
                                                  -----------   ---------
                                                  $   108,656     106,212
                                                  ===========   =========

Gross proceeds from sales of investment  securities  available-for-sale  for the
six months ended  December 31, 1999 and for the years ended June 30, 1999,  1998
and 1997 were $2,107,  $21,961,  $16,065 and $5,192,  respectively.  These sales
resulted  in  gross  gains  of $8,  $89,  $68 and $18 for the six  months  ended
December  31,  1999 and for the  years  ended  June  30,  1999,  1998 and  1997,
respectively,  and gross  losses of $0, $0, $0 and $34 for the six months  ended
December  31,  1999 and for the  years  ended  June  30,  1999,  1998 and  1997,
respectively.

Pursuant to a collateral  agreement  with the FHLB,  all  unpledged,  qualifying
investment securities, including those available-for-sale, are pledged to secure
advances from the FHLB.

(5)    MORTGAGE-BACKED SECURITIES

A summary of mortgage-backed securities follows:

<TABLE>
<CAPTION>
                                                                              December 31, 1999
                                                          ----------------------------------------------------------
                                                                              Gross         Gross         Estimated
                                                             Amortized     unrealized    unrealized         fair
                                                               cost           gains        losses           value
                                                          --------------- ------------- --------------- ------------
<S>                                                       <C>              <C>          <C>             <C>
Mortgage-backed securities held-to-maturity:
Collateralized mortgage obligations - federal agency..    $    42,957           706          (26)            43,637
FHLMC    .............................................         23,101            11         (403)            22,709
GNMA .................................................          9,765            21          (30)             9,756
Other.................................................          1,849             -          (25)             1,824
                                                          -----------       -------      -------         ----------
     Total mortgage-backed securities
         held-to-maturity.............................    $    77,672           738         (484)            77,926
                                                          ===========       =======      =======         ==========
Mortgage-backed securities available-for-sale:
Collateralized mortgage obligations - federal agency..    $    20,806            13         (940)            19,879
FHLMC    .............................................         13,759           188         (415)            13,532
GNMA .................................................         24,249             2         (495)            23,756
FNMA .................................................         20,005            26         (644)            19,387
Other.................................................          4,744             -          (22)             4,722
                                                          -----------       -------      -------         ----------
     Total mortgage-backed securities
         available-for-sale...........................    $    83,563           229       (2,516)            81,276
                                                          ===========       =======      =======         ==========
</TABLE>

                                       35
<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                June 30, 1999
                                                          ----------------------------------------------------------
                                                                              Gross         Gross         Estimated
                                                             Amortized     unrealized    unrealized         fair
                                                               cost           gains        losses           value
                                                          -------------- -------------- --------------- ------------
<S>                                                       <C>             <C>            <C>           <C>
Mortgage-backed securities held-to-maturity:
Collateralized mortgage obligations - federal agency..    $    43,292         1,142           (8)           44,426
FHLMC    .............................................         27,587           219          (26)           27,780
GNMA .................................................         10,774            21           (6)           10,789
Other.................................................          2,067           218          (28)            2,257
                                                          -----------       -------      -------           -------
     Total mortgage-backed securities
         held-to-maturity.............................    $    83,720         1,600          (68)           85,252
                                                          ===========       =======      =======           =======
Mortgage-backed securities available-for-sale:
Collateralized mortgage obligations - federal agency..    $    22,444            13         (647)           21,810
FHLMC    .............................................         15,216            30         (201)           15,045
GNMA .................................................          8,381             -         (151)            8,230
FNMA .................................................         17,442            35         (456)           17,021
Other.................................................          5,923             -            -             5,923
                                                          -----------       -------      -------           -------
     Total mortgage-backed securities
         available-for-sale...........................    $    69,406            78       (1,455)           68,029
                                                          ===========       =======      =======           =======
</TABLE>

Gross proceeds from sales of mortgage-backed  securities  available-for-sale for
the six months  ended  December  31, 1999 and for the years ended June 30, 1999,
1998 and 1997 were $1,207,  $0, $3,222 and $31,937,  resulting in gross gains of
$5, $0, $40 and $76 and gross losses of $0, $0, $11 and $19, respectively.

Expected  maturities of mortgage-backed  securities will differ from contractual
maturities  because  issuers  may have the right to prepay  obligations  with or
without  penalties.  The contractual  weighted  average life of  mortgage-backed
securities is approximately 16 years at December 31, 1999.

Mortgaged  backed  securities  with  amortized  cost of $38,621  and  $31,674 at
December 31, 1999 and June 30, 1999, respectively, were pledged to secure public
deposits and securities sold under repurchase agreements. The approximate market
value of  securities  pledged at December 31, 1999 and June 30, 1999 was $38,597
and $31,949, respectively.

Mortgage-backed  securities  with a  recorded  value of  approximately  $849 and
$1,039  have been  pledged  to secure  collateralized  mortgage  obligations  at
December 31, 1999 and June 30, 1999, respectively.

                                       36

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

(6)    LOANS RECEIVABLE

A summary of loans receivable follows:
                                                       December 31,    June 30,
                                                           1999          1999
                                                     --------------- -----------
Loans secured by real estate:
     1-4 residential units..........................  $    259,570     275,792
     5 or more residential units....................        35,563      41,619
     Construction...................................        18,775      12,542
     Commercial.....................................        78,833      71,221
     Agriculture....................................        11,625      11,421
     Other nonresidential...........................         8,348       4,445
     FHA insured or VA guaranteed...................         6,781      10,122
                                                       -----------   ---------
         Total real estate loans ...................       419,495     427,162
Less:
     Net deferred loan origination fees.............        (1,145)     (1,144)
     Undisbursed loan funds.........................        (5,240)     (3,611)
     Purchased discounts............................          (852)       (954)
     Allowance for loan losses......................        (2,353)     (2,219)
                                                       -----------   ---------
         Net real estate loans......................       409,905     419,234

Other loans:
     Commercial (Non real estate)...................        45,361      40,237
     Agriculture (Non real estate)..................        22,825      23,193
     Loans to depositors, secured by deposits.......         1,387       1,745
     Indirect consumer loans........................        54,418      66,406
     Other consumer loans - real estate secured.....        36,153      39,031
     Other consumer loans...........................        53,510      44,385
     Allowance for loan losses......................        (2,808)     (2,860)
                                                       -----------   ---------
         Net other loans............................       210,846     212,137
                                                       -----------   ---------
Net loans...........................................       620,751     631,371
Less loans available-for-sale.......................        (4,470)     (3,740)
                                                       -----------   ---------
Loans receivable, net...............................   $   616,281     627,631
                                                       ===========   =========
A summary of nonperforming loans follows:
<TABLE>
<CAPTION>
                                                                          June 30,
                                                      December 31, --------------------
                                                          1999      1999    1998   1997
                                                       ----------- ------- ------- ----
<S>                                                      <C>       <C>     <C>    <C>
Nonaccrual loans.....................................    $2,893    3,049   3,989  1,517
Loans 90 days or more delinquent and still accruing..        60      775     626    836
                                                         ------    -----   -----  -----
     Total nonperforming loans.......................    $2,953    3,824   4,615  2,353
                                                         ======    =====   =====  =====
Contractual interest due.............................    $  193      223     271     71
                                                         ======    =====   =====  =====
</TABLE>

                                       37

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

Interest  income  recognized  on  nonaccrual  loans  during the six months ended
December  31,  1999 and for the years  ended  June 30,  1999,  1998 and 1997 was
insignificant.  At  December  31,  1999,  there  were  no  commitments  to  lend
additional funds to borrowers whose loans are classified as nonperforming.

Impaired  loans at  December  31,  1999 and June 30, 1999 are $2,385 and $1,837,
respectively, of which no impairment allowance was deemed necessary. The average
recorded investment in impaired loans for the six months ended December 31, 1999
and for the years ended June 30, 1999, 1998 and 1997 was  approximately  $2,111,
$2,161,  $1,715 and $483,  respectively.  Interest income recognized on impaired
loans for the six months  ended  December  31, 1999 and for the years ended June
30, 1999, 1998 and 1997 was not significant.

An analysis of the allowance for loan losses follows:

                                   Six Months
                                      Ended          Year Ended June 30,
                                   December 31, --------------------------
                                       1999       1999    1998      1997
                                  ------------  -------- -------- --------
Balance at beginning of period... $    5,079     4,907    4,651     2,005
Reserves acquired................         -         -        -      2,481
Provision charged to operations..        880     1,300      840       400
Charge-offs......................       (986)   (1,228)    (637)     (253)
Recoveries.......................        188       100       53        18
                                  ----------   -------   ------    ------
Balance at end of period......... $    5,161     5,079    4,907     4,651
                                  ==========   =======   ======    ======

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated  financial  statements.  The unpaid  balances  of these  loans were
approximately $219,800,  $223,400 and $260,300 at December 31, 1999 and June 30,
1999 and 1998, respectively.

Mortgage  servicing  rights are  included  in other  assets and an  analysis  of
activity follows:

                                   Six Months
                                      Ended         Year Ended June 30,
                                    December 31, --------------------------
                                        1999      1999      1998     1997
                                   ------------- -------- -------- --------
Balance at beginning of period.... $   602       1,062     1,239       132
Additions.........................      15          23        37     1,221
Amortization......................     (90)       (213)     (214)     (114)
Provision for impairment..........       -        (270)        -         -
                                   -------     -------    ------    ------
Balance at end of period.......... $   527         602     1,062     1,239
                                   =======     =======    ======    ======

At December 31, 1999, carrying value approximates fair value.

                                       38

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


(7)    INTEREST RECEIVABLE

A summary of interest receivable follows:
                                       December 31,       June 30,
                                          1999              1999
                                     ---------------    ------------

Loans..............................  $    4,445            4,736
Mortgage-backed securities.........         884              795
Investment securities..............       2,160            2,096
Interest-bearing deposits..........           3                8
                                     ----------          -------
                                     $    7,492            7,635
                                     ==========          =======


(8)    PREMISES AND EQUIPMENT

Premises and equipment is summarized as follows:
                                                     December 31,    June 30,
                                                         1999          1999
                                                    --------------- ---------
Land..............................................  $    5,822        5,822
Office buildings and leasehold improvements.......      26,847       26,609
Furniture, fixtures and equipment.................      10,814       10,887
                                                    ----------    ---------
                                                        43,483       43,318
Less accumulated depreciation and amortization....     (16,006)     (15,049)
                                                    ----------    ---------
                                                    $   27,477       28,269
                                                    ==========    =========

(9)    DEPOSITS

Deposits are summarized as follows:

                                       December 31,   June 30,
                                           1999         1999
                                      -------------  ----------
Certificates of deposit..............   $  371,486    366,569
Savings accounts.....................       87,206     89,975
Money market accounts................       78,482     75,398
NOW accounts  .......................       82,506     77,899
                                        ----------  ---------
     Total interest-bearing..........      619,680    609,841
Noninterest-bearing demand...........       38,724     35,708
                                        ----------  ---------
                                        $  658,404    645,549
                                        ==========  =========

                                       39

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


Certificates of deposit at December 31, 1999 mature as follows:
<TABLE>
<CAPTION>

                                                  Less     One to     Two to     Three      Four to
                                                  than       two       three    to four      five     There-
                                                one year    years      years     years       years     after      Total
                                             ----------- ----------- --------- ---------- --------- --------- ----------
<S>      <C>                                 <C>         <C>         <C>         <C>        <C>     <C>       <C>
2.00% to 3.99%............................   $    3,361        41         33          7          1        -       3,443
4.00% to 4.99%............................       84,207    11,447      1,798        181        260        -      97,893
5.00% to 5.99%............................      114,612    33,544      6,127      2,324      1,962       39     158,608
6.00% to 6.99%............................       42,687     7,122      4,713      1,358         30        -      55,910
7.00% to 8.99%............................        2,286         -          7          -          -        -       2,293
                                             ----------   -------    -------     ------    -------   ------   ---------
                                                247,153    52,154     12,678      3,870      2,253       39     318,147
Jumbo ($100,000 or more)..................       45,560     5,380      1,188      1,096        115        -      53,339
                                             ----------   -------    -------     ------    -------   ------   ---------
     Total certificates of deposit........   $  292,713    57,534     13,866      4,966      2,368       39     371,486
                                             ==========   =======    =======     ======    =======   ======   =========
</TABLE>

(10)   REPURCHASE AGREEMENTS

Repurchase  agreements  generally mature on the next banking day. The securities
underlying  agreements to repurchase are for the same securities originally sold
and are held in a custody  account by a third  party.  For the six months  ended
December  31, 1999 and for the year ended June 30, 1999,  securities  sold under
agreements to repurchase averaged approximately $7,995 and $6,568, respectively.
The maximum  outstanding  at any month end during the six months ended  December
31,  1999 and for the year  ended  June 30,  1999 was  approximately  $9,568 and
$7,211, respectively. Interest rates at December 31, 1999 and June 30, 1999 were
4.92% and 4.22%, respectively.


(11)   BORROWED FUNDS

Advances from the FHLB and other borrowings are summarized as follows:
                                              December 31,    June 30,
                                                  1999          1999
                                            --------------   -----------

Advances from FHLB........................  $    226,769        244,048
Collateralized mortgage obligations.......           123            242
8.5% contract payable.....................           186            193
                                            ------------       --------
                                            $    227,078        244,483
                                            ============       ========

Advances from FHLB bear interest at rates from 4.62% to 8.11% (weighted  average
rate of 5.83% at December 31, 1999). Principal requirements are presented at the
earlier of call or maturity date as follows:

           Years ending December 31,
         -----------------------------
                2000................................ $ 138,410
                2001................................    25,334
                2002................................    39,448
                2003................................     6,324
                2004................................     6,074
                Thereafter..........................    11,179
                                                     ---------
                                                     $ 226,769
                                                     =========

                                       40

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


Advances  from the FHLB are  secured by  pledges  of FHLB  stock of $15,154  and
$14,615 at December  31,  1999 and June 30,  1999,  respectively,  and a blanket
assignment of the Bank's unpledged,  qualifying mortgage loans,  mortgage-backed
securities and investment securities.

The contract  payable requires monthly payments of principal and interest of $3,
maturing in November 2016. The contract payable is secured by real estate.


The Bank has amounts  available  for  borrowing  under the FHLB Cash  Management
Advance  Program up to  $101,715.  There were no amounts  outstanding  under the
program as of December 31, 1999 and June 30, 1999.


(12)   OTHER COMPREHENSIVE INCOME

A summary of the  reclassification  amounts  and  related  tax effects for other
comprehensive income follows:
<TABLE>
<CAPTION>

                                                     Six Months Ended     Year Ended June 30,
                                                       December 31,    -------------------------
                                                           1999         1999     1998      1997
                                                     ----------------- -------- -------- -------
<S>                                                     <C>        <C>         <C>      <C>
Disclosure of reclassification amount:
     Unrealized and realized  holding
         gains (losses)  arising during the
         period, net of income tax expense
         (benefit) of $(742),  $(1,032),
         $73 and $133 for the six months ended
         December 31, 1999 and the years ended
         June 30, 1999, 1998 and 1997, respectively..... $ (1,205)    (1,685)     118      216

     Less reclassification adjustment for
         gains included in net  income, net
         of income tax of $5, $36, $37 and
         $16 for the  six months ended December
         31, 1999 and the years ended
         June 30, 1999, 1998 and 1997, respectively....        (8)       (55)     (60)     (25)
                                                         --------    -------   ------   ------
Net unrealized gain (loss) on
     available-for-sale securities ....................  $ (1,213)    (1,740)      58      191
                                                         ========    =======   ======   ======
</TABLE>

(13)   INCOME TAXES

A summary of the provision for income taxes follows:

                                 Six Months
                                    Ended          Year Ended June 30,
                                December 31, -------------------------------
                                    1999          1999      1998      1997
                              -------------- ---------- ---------- ---------
Federal:
     Current...............   $    2,034        3,469      3,582      2,095
     Deferred..............            2          141        315       (408)
                              ----------     --------    -------    -------
                                   2,036        3,610      3,897      1,687
                              ----------     --------    -------    -------
State:
     Current...............          426          762        753        440
     Deferred..............           21           31        110        (64)
                              ----------     --------    -------    -------
                                     447          793        863        376
                              ----------     --------    -------    -------
                              $    2,483        4,403      4,760      2,063
                              ==========     ========    =======    =======

                                       41

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

The effective  tax rates for the six months ended  December 31, 1999 and for the
years  ended June 30,  1999,  1998 and 1997 are 38.4%,  38.9%,  39.6% and 31.4%,
respectively.  A  reconciliation  between  income  tax  expense  and the  amount
computed by multiplying the applicable  statutory federal income tax rate of 34%
follows:
<TABLE>
<CAPTION>
                                                          Six Months
                                                             Ended          Year Ended June 30,
                                                          December 31,  ---------------------------
                                                              1999        1999      1998      1997
                                                         -------------- --------- --------- -------
<S>                                                      <C>             <C>       <C>       <C>
Computed "expected" Federal tax expense..............    $    2,196      3,851     4,086     2,234
Earnings and payout on life insurance policies.......           (56)      (147)      (99)      (53)
State income taxes, net of Federal income tax benefit           301        523       567       248
Reversal of deferred taxes - cash surrender value
   increases.........................................             -          -         -      (397)
Goodwill amortization................................           113        226       215        68
Low income housing credit............................           (75)       (75)      (77)      (74)
Other    ............................................             4         25        68        37
                                                         ----------     ------    ------    ------
                                                         $    2,483      4,403     4,760     2,063
                                                         ==========     ======    ======    ======
</TABLE>

The tax effects of temporary  differences  that give rise to deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
                                                                                        December 31,      June 30,
                                                                                            1999            1999
                                                                                      ----------------   -----------
<S>                                                                                    <C>               <C>
Deferred tax assets:
     Loans, principally allowance for loan losses...................................   $    1,985            1,954
     Purchased excess tax bases.....................................................        1,106            1,165
     Loans, principally differences in bases........................................          328              367
     Deposits, principally difference in bases......................................           11               45
     Investment securities, principally differences in bases........................          633              639
     Employee benefits, principally deferred compensation and accrued vacation......        1,194            1,315
     Market value adjustment of investment securities and mortgage-backed securities
         available-for-sale.........................................................        1,801            1,054
                                                                                       ----------         --------
              Gross deferred income tax assets......................................        7,058            6,539
                                                                                       ----------         --------
Deferred tax liabilities:
     FHLB stock dividends...........................................................        3,614            3,407
     Core deposit intangible........................................................        1,308            1,438
     Deferred loan fees and origination costs.......................................          340              367
     Life insurance contract income.................................................           49               48
     Loans, due primarily to tax bad debt reserves in excess of base year amount....          284              488
     Loan servicing premium.........................................................          104              125
     Fixed assets, principally difference in bases and depreciation.................        1,576            1,572
     Other..........................................................................          341              376
                                                                                       ----------         --------
              Gross deferred income tax liabilities.................................        7,616            7,821
                                                                                       ----------         --------
              Net deferred income tax liability.....................................   $      558            1,282
                                                                                       ==========         ========
</TABLE>

                                       42
<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent upon the existence of, or generation of, taxable income in the periods
which those  temporary  differences  are  deductible.  Management  considers the
scheduled  reversal of deferred tax liabilities,  taxes paid in carryback years,
projected  future  taxable  income,  and tax planning  strategies in making this
assessment. Based upon the level of historical taxable income and projection for
future  taxable  income  over the  periods  which the  deferred  tax  assets are
deductible, at December 31, 1999, management believes it is more likely than not
that the Company will realize the benefits of these deductible differences.

(14)   COMMITMENTS AND CONTINGENCIES

The Company leases certain land, premises and equipment from third parties under
operating  leases.  Total rental  expense for the six months ended  December 31,
1999 and for the years ended June 30, 1999,  1998 and 1997 was $97,  $198,  $197
and $114,  respectively.  The total future minimum rental  commitments  required
under operating leases that have initial or remaining  noncancelable lease terms
in excess of one year at December 31, 1999 are as follows:

          Years ended December 31,                  Amount
    ---------------------------------------     ----------------
                    2000                          $    204
                    2001                               141
                    2002                               134
                    2003                               134
                    2004                               134
                 Thereafter                          1,294
                                                  --------
     Total minimum future rental expense          $  2,041
                                                  ========

The  Company  is the lessor of office  space in  certain  of its  branch  office
buildings under operating leases expiring in future years. Management expects as
operating  leases expire in the normal course of business,  they will be renewed
or replaced by leases on other  properties at current market rental rates at the
time of  renewal.  Approximate  minimum  future  rentals  to be  received  under
non-cancelable leases subsequent to December 31, 1999 are as follows:

          Years ended December 31,                    Amount
    ---------------------------------------     ----------------
                    2000                          $    764
                    2001                               394
                    2002                               245
                    2003                               150
                    2004                                71
                 Thereafter                              -
                                                  --------
     Total minimum future rental income           $  1,624
                                                  ========

The Bank is a defendant in various matters of litigation generally incidental to
its business.  In the opinion of management,  following  consultation with legal
counsel,  liabilities  arising from these  proceedings,  if any, will not have a
material impact on the Company's  liquidity,  financial  condition or results of
operations.

On February  15,  2000 the  Company  announced  the  authorization  of a plan to
repurchase  up to 7.5% of its  outstanding  shares in the open  market  during a
twelve month period depending on market conditions.

                                       43

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

(15)   EMPLOYEE BENEFIT PLANS

Employee Stock Ownership Plan (ESOP)

Effective  July 1, 1993 the Board of Directors  approved the adoption of an ESOP
covering  substantially  all  employees.  The ESOP  purchased  354,933 shares of
WesterFed's  common stock for $10 per share in connection with the conversion to
stock  ownership.  The ESOP borrowed $3,549 from WesterFed to fund the purchase,
evidenced  by a note  receivable  recorded by  WesterFed,  secured by the common
stock purchased by the ESOP. The terms of the note require  quarterly  principal
payments from the ESOP of approximately $57, bearing interest at 7.26%, maturing
December 2008.  Contributions  of cash or common stock are made from the Bank to
the ESOP at the discretion of the Board of Directors. Dividends on common shares
held by the ESOP are paid to the ESOP and, together with Bank contributions, are
used by the ESOP to repay  principal and interest on the  outstanding  note. For
financial reporting  purposes,  the note receivable is classified as a reduction
of consolidated  stockholders' equity and amounts paid to WesterFed for interest
have been eliminated in  consolidation.  The dividends on the  unallocated  ESOP
shares  are  not  recorded  as  dividends  in  the  consolidated  statements  of
stockholders' equity.

The Company  records  compensation  expense equal to the fair value of shares at
the date such shares are made  available for  allocation  to plan  participants'
accounts.  Shares become  available  for  allocation as the ESOP repays the note
receivable recorded by WesterFed. The Company recognized expense relating to the
ESOP of $150, $372, $580 and $444 for the six months ended December 31, 1999 and
the years ended June 30, 1999, 1998 and 1997, respectively.

The ESOP shares were as follows:

                             December 31,    June 30,
                                 1999          1999
                             ------------   -----------
Allocated shares.........       179,128       166,774
Unallocated shares.......       175,805       188,159
                                -------       -------
   Original ESOP
     common shares.......       354,933       354,933
Shares distributed to
   participants..........       (31,718)      (24,756)
                                -------       -------
Common shares held
   by ESOP...............       323,215       330,177
                                =======       =======

At December 31, 1999, the fair value of the unallocated shares was approximately
$2,681.

Stock Option and Incentive Plan

The  stockholders  have  approved a Stock Option and  Incentive  Plan (the Stock
Option Plan).  The terms of the Stock Option Plan provide for the granting of up
to 443,665 shares of common stock to certain  officers and directors.  The Stock
Option Plan provides for the granting of incentive  stock options,  nonqualified
stock options,  stock appreciation rights, limited stock appreciation rights, or
restricted stock, or any combination thereof (collectively, the Awards).

At June 30, 1997,  the Company had granted all options  available  (the options)
under the Stock Option Plan. The term of the outstanding  options may not exceed
10 years from the date the  options are  granted.  Stock  options are  generally
granted at an option  price of not less than the fair market  value at the grant
date. For incentive  stock options,  a maximum of 10,000 shares per Stock Option
Plan  participant  are  exercisable  per year.  All stock  options  awarded were
exercisable at the grant date.

Equity Incentive Plan

In  conjunction  with the  acquisition  of Security  Bancorp  (see Note 25), the
stockholders of the Company  approved the Equity  Incentive Plan (the "Incentive
Plan").  The Incentive  Plan provides for granting  various awards to directors,
officers,  and employees of WesterFed or any of its subsidiary  corporations  of
various awards up to 250,000 shares of Common Stock. The Incentive Plan provides
for  awards  in the form of stock  options,  stock  appreciation  rights,  other
securities and property and restricted stock (collectively, Incentive Awards).

                                       44

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

The Company has granted Incentive Awards in the form of stock options during the
six months ended  December 31, 1999 and the year ended June 30, 1999 which allow
holders to acquire  48,500 and 50,000 common shares,  respectively.  The term of
the options may not exceed 15 years from the date the options are  granted.  The
exercise  price for the purchase of shares  subject to a stock option may not be
less than 100% of the market  value of the  shares  covered by the option on the
date of grant. During any calendar year, no participant may be granted Incentive
Awards under the Incentive Plan with respect to more than 50,000  shares.  There
were no awards granted in the year ended June 30, 1998.

The Board of Directors  of the Company  periodically  grants stock  options on a
discretionary  basis  to  employees.  During  the  year  ended  June  30,  1999,
discretionary  options  were  granted  for the option  holder to acquire  10,000
shares.  There were no such grants in the six months ended  December 31, 1999 or
the year ended June 30, 1998.


Recognition and Retention Plan (RRP)

Under the RRP, common stock has been granted to certain officers,  directors and
employees.  Deferred  compensation  is  recorded  at the date of the stock award
based on the fair value of the shares  granted.  Vesting  occurs in four  equal,
annual  installments and the related deferred  compensation is expensed over the
same  period.  For  financial   reporting  purposes  the  unamortized   deferred
compensation balance is classified as a reduction of consolidated  stockholders'
equity.  Officers,  directors and employees  awarded shares retain voting rights
and, if dividends are paid,  dividend  privileges during the vesting period. RRP
compensation  expense of $13,  $77,  $188 and $499 has been recorded for the six
months ended  December 31, 1999 and for the years ended June 30, 1999,  1998 and
1997, respectively.

The following  table reflects option activity for both the Stock Option Plan and
Incentive Plan:
<TABLE>
<CAPTION>

                                                                          Common    Weighted Average
                                                                          Shares    Exercise Price
                                                                         ---------  ----------------
<S>                                                                       <C>             <C>
Year ending June 30, 1997:
     Options outstanding, beginning of period..........................   419,707         $10.08
     Granted in conjunction with acquisition of Security Bancorp.......    94,696           9.27
     Granted...........................................................    72,169          20.51
     Exercised.........................................................   (13,768)         13.36
                                                                          -------
     Outstanding, end of period........................................   572,804          11.25
                                                                          =======
     Exercisable, end of period........................................   519,869          10.43
                                                                          =======
Year ending June 30, 1998:
     Granted...........................................................         -              -
     Exercised.........................................................   (37,978)         14.67
                                                                          -------
     Outstanding, end of period........................................   534,826          11.34
                                                                          =======
     Exercisable, end of period........................................   533,340          11.34
                                                                          =======
Year ending June 30, 1999:
     Granted...........................................................    60,000          16.16
     Exercised.........................................................   (36,116)         11.19
                                                                          -------
     Outstanding, end of period........................................   558,710          12.11
                                                                          =======
     Exercisable, end of period........................................   483,510          11.20
                                                                          =======
</TABLE>
                                       45

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


                                          Common         Weighted Average
                                          Shares          Exercise Price
                                         --------        -----------------
Six months ending December 31, 1999:
     Granted............................   48,500         $     16.50
     Exercised..........................  (35,716)              12.40
                                          -------
     Outstanding, end of period.........  571,494               12.61
                                          =======
     Exercisable, end of period.........  447,794               11.30
                                          =======

Information  regarding options  outstanding and exercisable at December 31, 1999
follows:

                         Options Outstanding            Options Exercisable
                  ------------------------------------ ----------------------
                                            Weighted
     Range of                 Weighted       average              Weighted
     exercise     Common       average       remain     Common     average
       price      shares   exercise price life in yrs.  shares exercise price
---------------- -------- --------------- ------------ ------- --------------
 $  3.65 - 6.54   13,350   $    5.94           2.6      13,350   $   5.94
  10.00 - 12.72  377,475       10.28           4.1     377,475      10.28
  16.16 - 21.50  180,669       17.99           8.6      56,969      19.30
                 -------                               -------
                 571,494       12.61           5.5     447,794      11.30
                 =======                               =======

No  compensation  cost has been  recognized  in the  consolidated  statements of
income for options granted under the plans.  Had  compensation  cost for options
granted been determined  based on the estimated fair value of the options issued
at the dates of grant,  the  Company's  net income  and income per common  share
amounts would have been as follows:

                          Six Months
                            Ended        Year Ended June 30,
                         December 31, ----------------------------
                            1999       1999      1998      1997
                          ----------- -------- ---------- --------
Net income, as reported... $3,975     6,923      7,260      4,507
                           ======     =====      =====      =====
Net income, pro forma..... $3,929     6,865      7,228      4,367
                           ======     =====      =====      =====
Income per common share:
     As reported:
     Basic................ $ 0.93       1.43       1.37      1.01
                           ======     =====      =====      =====
     Diluted.............. $ 0.89       1.37       1.29       .96
                           ======     =====      =====      =====
     Pro forma:
     Basic................ $ 0.92       1.42       1.36       .98
                           ======     =====      =====      =====
     Diluted.............. $ 0.88       1.35       1.29       .93
                           ======     =====      =====      =====

                                       46

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

The fair value of the options  granted  was  estimated  using the  Black-Scholes
model with the  following  assumptions:  for the six months  ended  December 31,
1999; dividend yield of 2.5%; expected life of 7 years; volatility of 21%; and a
risk-free  interest  rate of 6.3%;  for the year ended June 30,  1999;  dividend
yield of 2.6%;  expected  life of 5 years;  volatility  of 22%;  and a risk-free
interest rate of 5.6%; for the year ended June 30, 1997: dividend yield of 2.4%,
expected  life of 7 years,  volatility  of 19% and a risk-free  interest rate of
6.4%. No options were granted  during the year ended June 30, 1998.  The average
fair value of options granted for the six months ended December 31, 1999 and for
the years ended June 30, 1999 and 1997 was $3.81, $4.40 and $6.91, respectively.
Additional awards in future years are anticipated.

Pension Plan

The Company  participates in a non-contributory  multi-employer  defined benefit
pension  plan  covering  substantially  all  employees.  Actuarially  determined
pension  costs are funded as  accrued.  Separate  actuarial  valuations  are not
prepared for each employer in the plan.  Substantially  all employees who attain
the age of 21 years and complete one year of service are eligible to participate
in this plan.  Retirement  benefits are based upon a formula  utilizing years of
service and average compensation,  as defined. Participants are vested 100% upon
the  completion  of five years of  service.  Total  pension  expense,  including
administrative  charges,  was  approximately  $16,  $33, $20 and $48 for the six
months ended  December 31, 1999 and for the years ended June 30, 1999,  1998 and
1997, respectively.

Former Security Bank employees were included in a noncontributory multi-employer
trustee defined benefit pension plan.  Actuarially determined pension costs were
funded  as  required  by  the  plan  trustee.  Contributions  to  the  plan  and
administrative  charges amounted to approximately $38 during the year ended June
30, 1997.  Effective  February 1997,  the employees of the former  Security Bank
were included in the Company's  non-contributory  multi-employer defined benefit
pension plan.

Deferred Compensation Agreements

The Company has entered into deferred  compensation  agreements with certain key
employees that provide for  predetermined  periodic payments over 10 to 15 years
upon retirement or death. The agreements specify a vesting schedule, but are not
eligible for benefits if termination  occurs prior to completing  three years of
service  beginning on the date of the agreement.  In the event of acquisition of
the Company by a third party, the deferred  compensation  agreements require any
successor corporation to assume the obligations of the agreements.

Amounts expensed under these agreements totaled  approximately  $109, $154, $346
and $86 for the six months ended  December 31, 1999 and the years ended June 30,
1999, 1998 and 1997, respectively.

Savings Plan

The Company has adopted an employee  savings  plan. To be eligible for the plan,
an  employee   must  complete  one  year  of  full  time   employment.   Company
contributions match 50% of an employee's contributions, up to a maximum of 3% of
the  participating  employee's  wages.  Savings  plan expense for the six months
ended  December  31, 1999 and for the years ended June 30,  1999,  1998 and 1997
totaled approximately $89, $166, $184 and $103, respectively.

Employment Agreements

The Company has entered into  employment  contracts with certain senior officers
that provide benefits under certain conditions  following a termination  without
cause or a change in control of the Company.

(16)   FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal course of business to meet the  financing  needs of its customers and
to reduce its own exposure to fluctuations  in interest  rates.  These financial
instruments   include  commitments  to  extend  credit  and  interest  rate  cap
agreements.  These instruments  involve, to varying degrees,  elements of credit
and interest rate risk in

                                       47

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

excess of amounts recognized in the consolidated balance sheets. The contract or
notional  amounts of these  instruments  reflect the extent of  involvement  the
Company has in particular classes of financial instruments.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making  commitments  and  conditional  obligations as it
does for  on-balance-sheet  instruments.  For interest rate cap agreements,  the
contract or notional  amounts do not  represent  exposure  to credit  loss.  The
Company controls the credit risk of those instruments  through credit approvals,
limits, and monitoring procedures.

Commitments to Extend Credit

Commitments to extend credit are as follows:

                             December 31,      June 30,
                                 1999            1999
                            ----------          -------
Fixed rate...............   $    2,435            4,745
Variable rate............        6,559           17,840
                            ----------          -------
                            $    8,994           22,585
                            ==========          =======

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have terms which  specify  commitment  periods of 45 days at interest
rates  which  approximate  current  market  rates,   adjusted  for  management's
assessment of the creditworthiness of the customer. In some cases, customers may
be required to pay a fee for the Company's commitment to lend. Since many of the
commitments  are  expected  to  expire  without  being  drawn  upon,  the  total
commitment amounts do not necessarily  represent future cash  requirements.  The
Company evaluates each customer's  creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary,  upon extension of credit is
based on management's evaluation of the counterparty. Collateral held varies but
may include personal property,  residential real property,  and income-producing
commercial properties.

Interest Rate Cap

At December 31, 1999, the Company ha a $5,000  notional amount interest rate cap
agreement  expiring  July 2000.  The  interest  rate cap entitles the Company to
receive interest payments in exchange for payment of a transaction fee, provided
the  three-month  LIBOR exceeds 6%. The  transaction fee paid in connection with
the  interest  rate  cap  agreement  is  amortized  to  interest  expense  as an
adjustment of the interest cost of liabilities. Interest rate cap agreements are
used to  manage  interest  rate  risk by  synthetically  extending  the  life of
interest-bearing liabilities.

(17)   RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standard  (SFAS) No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards  requiring  that  every  derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
balance sheet as either an asset or liability  measured at its fair value.  SFAS
No. 133  requires  that  changes in the  derivative's  fair value be  recognized
currently  in  earnings  unless  specific  hedge  accounting  criteria  are met.
Management  is  currently  assessing  the  effect,  if  any,  on  its  financial
statements of  implementing  SFAS No. 133. The Company will be required to adopt
the standard on January 1, 2001.

                                       48
<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

(18)   RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES

The  reconciliation  of net income to net cash provided by operating  activities
follows:
<TABLE>
<CAPTION>
                                                          Six Months
                                                             Ended               Year Ended June 30,
                                                          December 31,   ------------------------------------------
                                                              1999           1999           1998            1997
                                                         -------------  -----------     -----------     ----------
<S>                                                      <C>            <C>             <C>             <C>
Net income...........................................    $   3,975         6,923           7,260           4,507
Adjustments to reconcile net income to net cash
     provided by operating activities:
         Amortization of:
              Deferred loan origination fees.........         (186)         (470)           (440)           (439)
              Premiums and discounts on securities,
                  loans and borrowings...............         (260)         (632)           (900)         (1,138)
         RRP deferred compensation...................           13            77             188             499
         ESOP shares committed to be released........          205           472             652             492
         Provision for loan losses...................          880         1,300             840             400
         Net (gain) loss on sales of:
              Mortgage-backed securities
                  available-for-sale.................           (5)            -             (29)            (57)
              Investment securities available-
                  for-sale...........................           (8)          (89)            (68)             16
              Loans..................................         (277)       (1,060)           (956)           (637)
              Real estate owned......................           26           (13)              -               -
              Premises and equipment.................          (12)         (276)            (17)              -
         Depreciation and amortization of premises
              and equipment..........................        1,088         2,488           2,147           1,208
         Goodwill and core deposit amortization......          673         1,443           1,391             532
         Federal Home Loan Bank stock
              dividends..............................         (539)       (1,055)           (975)           (712)
         Origination of loans available-for-sale.....      (41,609)     (105,129)        (96,520)        (54,396)
         Proceeds from sales of loans available-
              for-sale...............................       41,156       109,370          94,254          55,300
         Decrease (increase) in interest
              receivable.............................          143           143            (821)           (562)
         Interest expense credited to deposit
              accounts...............................       12,100        24,320          26,938          18,704
         Changes in other assets and liabilities.....          572         1,851          (2,209)            388
                                                         ---------      --------         -------         -------
              Net cash provided by operating
                  activities.........................    $  17,935        39,663          30,735          24,105
                                                         =========      ========         =======         =======
</TABLE>
                                       49


<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

(19)   NON-CASH INVESTING AND FINANCING ACTIVITIES

On December  21, 1999,  the Company  declared a dividend of  approximately  $697
which is recorded in accrued  expenses  and other  liabilities  at December  31,
1999.

On June 24, 1999, the Company declared a dividend of approximately $908 which is
recorded in accrued expenses and other liabilities at June 30, 1999.

On June 23, 1998, the Company declared a dividend of approximately  $1,005 which
is recorded in accrued expenses and other liabilities at June 30, 1998.

On June 24, 1997, the Company declared a dividend of approximately $839 which is
recorded in accrued expenses and other liabilities at June 30, 1997.

During the year ended June 30, 1997,  the Company  issued common stock under the
RRP and recorded deferred compensation of approximately $106.

Real  estate  owned  acquired  through  foreclosures  of  loans  receivable  was
approximately $227, $559 and $546 for the six months ended December 31, 1999 and
for the years ended June 30, 1999 and 1998,  respectively.  No real estate owned
was acquired during the year ended June 30, 1997.

Treasury  stock of  approximately  $1 and $2 was recorded due to  forfeitures of
unearned RRP shares for the year ended June 30, 1998 and 1997, respectively.

In  conjunction  with the  acquisition of Security  Bancorp,  the Company issued
common  shares  valued at $21,062 and stock  options with an intrinsic  value of
$873.

During the six months  ended  December  31, 1999,  the Company  reduced  paid-in
capital  and  recorded  a  liability  in the amount of $67  related to  Security
Bancorp shares not tendered for Company shares. Company shares had been provided
in escrow for the exchange, however, will now be paid in cash upon redemption.

In conjunction with the acquisition of Security Bancorp during 1997, the Company
received  assets with fair value of $376.4  million and assumed  liabilities  of
$343.6 million.

(20)   FAIR VALUE OF FINANCIAL INSTRUMENTS

The following fair value estimates, methods and assumptions were used to measure
the fair value of each class of financial  instrument  for which it is practical
to estimate that value.

For cash and short-term investments,  the carrying amount was considered to be a
reasonable estimate of fair value.

For investment and mortgage-backed  securities, fair values were based on quoted
market prices or dealer quotes. If a quoted market price was not available, fair
values were estimated using quoted market prices for similar securities.

For FHLB stock,  the carrying amount was considered to be a reasonable  estimate
of fair value.

Fair values were estimated for portfolios of performing and nonperforming  loans
with similar financial characteristics. For certain similar categories of loans,
such as residential mortgages, home equity loans, non-residential mortgages, and
consumer  loans,  fair value was  estimated  using the quoted  market prices for
securities   backed  by  similar  loans,   adjusted  for   differences  in  loan
characteristics.  The fair value of other performing loan types was estimated by
discounting  the future cash flows using market  discount rates that reflect the
credit, collateral, and interest rate risk inherent in the loan.

The fair  values  of  commitments  to  extend  credit  at fixed  rates  were not
significant at December 31, 1999 and June 30, 1999.

The fair value of demand  deposits,  savings  deposits and money market accounts
were the amounts  payable on demand at December 31, 1999 and June 30, 1999.  The
fair value of certificates of deposit is estimated based on the discounted value
of  contractual  cash flows using rates  derived  from the U.S.  Treasury  yield
curve, adjusted for certificate redemption features.

                                       50
<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

For short-term borrowings, the carrying amount was considered to be a reasonable
estimate of fair value.

The fair value for long-term  borrowings was based upon the discounted  value of
the cash  flows.  The  discount  rates  utilized  were based on rates  currently
available with similar terms and maturities.

The estimated fair values of financial instruments are as follows:
<TABLE>
<CAPTION>

                                                         December 31, 1999         June 30, 1999
                                                        ---------------------- ----------------------
                                                         Carrying     Fair      Carrying      Fair
                                                           value      value       value       value
                                                        ---------  ----------- -----------  ---------
<S>                                                      <C>          <C>          <C>         <C>
Financial assets:
     Cash and cash equivalents.....................      $ 26,143     26,143       28,946      28,946
     Interest-bearing deposits.....................           100        100        1,985       1,985
     Investment securities available-for-sale......       106,212    106,212      103,441     103,441
     Investment securities.........................         9,205      9,195        9,235       9,255
     Mortgage-backed securities available-for-sale.        81,276     81,276       68,029      68,029
     Mortgage-backed securities....................        77,672     77,926       83,720      85,252
     Loans available-for-sale......................         4,470      4,470        3,740       3,740
     Loans, net....................................       616,281    602,658      627,631     624,583
     Stock in FHLB of Seattle......................        15,154     15,154       14,615      14,615

Financial liabilities:
     Deposits......................................      $658,404    656,813      645,549     644,574
     Repurchase agreements.........................         7,731      7,731        6,702       6,702
     Borrowed funds................................       227,078    224,663      244,483     243,467

Off-balance-sheet items:
     Interest rate cap agreements:
         notional amount of $5,000.................             -          4            -           9
                                                         ========   ========     ========    ========
</TABLE>

Limitations

The foregoing fair value  estimates are made at a specific point in time,  based
on pertinent market data and relevant  information on the financial  instrument.
These estimates do not include any premium or discount that could result from an
offer to sell,  at one time,  the  entire  holdings  of a  particular  financial
instrument or category thereof. Since no market exists for a substantial portion
of the financial  instruments,  fair value estimates were  necessarily  based on
judgments  with respect to future  expected loss  experience,  current  economic
conditions, risk assessments of various financial instruments involving a myriad
of individual borrowers, and other factors. Given the innately subjective nature
of these  estimates,  the  uncertainties  surrounding  them and the  matters  of
significant  judgment that must be applied,  these fair value estimations cannot
be  calculated  with  precision.   Modifications  in  such   assumptions   could
meaningfully alter these estimates.

Since these fair value  approximations  were made solely for on- and off-balance
sheet  financial  instruments,  no  attempt  was made to  estimate  the value of
anticipated  future business and the value of nonfinancial  statement assets and
liabilities.  Other  important  elements  which are not  deemed to be  financial
assets or liabilities  include the value of the Company's retail branch delivery
system,  its existing  core deposit  base,  premises and equipment and goodwill.
Further,  certain tax implications  related to the realization of the unrealized
gains and losses could have a substantial  impact on these fair value  estimates
and have not been incorporated into any of the estimates.

                                       51

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

(21)   WESTERFED INFORMATION

The  summarized   condensed   financial   information  for  WesterFed  Financial
Corporation  as of and for the six months ended  December 31, 1999 and as of and
for the year ended June 30, 1999 are presented below:

Condensed Balance Sheets                                 December 31, June 30,
                                                             1999       1999
                                                         ----------- ----------
Assets:
     Cash and cash equivalents...........................  $    268       116
     Interest-bearing and due from banks deposits........     2,096       383
     Investment securities available-for-sale............     1,636     1,099
     Other assets........................................        47        46
     Investment in subsidiaries..........................    86,335    90,426
                                                           --------   -------
              Total assets...............................  $ 90,382    92,070
                                                           ========   =======
Liabilities and Stockholders' Equity:
     Other liabilities...................................  $    857       921
     Stockholders' Equity:
         Common stock....................................        44        56
         Additional paid-in capital......................    70,040    69,572
         Common stock acquired by ESOP/RRP...............    (2,090)   (2,216)
         Treasury stock at cost..........................   (28,962)  (25,319)
         Accumulated other comprehensive loss............    (2,930)   (1,717)
         Retained earnings...............................    53,423    50,773
                                                           --------   -------
              Total stockholders' equity.................    89,525    91,149
                                                           --------   -------
              Total liabilities and stockholders' equity.  $ 90,382    92,070
                                                           ========   =======

                                          Six Months
                                            Ended        Year Ended June 30,
                                         December 31, ------------------------
Condensed Statements of Income               1999       1999     1998    1997
                                          ----------- --------- ------- ------
Dividends from the Bank....................  $ 7,000   20,000   5,000   14,000
Interest income............................       39      266     233      735
Non-interest expense.......................     (234)    (653)   (677)    (428)
                                             -------  -------  ------  -------
     Income before income taxes............    6,805   19,613   4,556   14,307
Income tax benefit (expense)...............       70      120      79     (140)
                                             -------  -------  ------  -------
     Income before undistributed
      earnings of subsidiaries.............    6,875   19,733   4,635   14,167

Undistributed (distributions in excess
     of) earnings of subsidiaries..........   (2,900) (12,810)  2,625   (9,660)
                                             -------  -------  ------  -------
     Net income............................  $ 3,975    6,923   7,260    4,507
                                             =======  =======  ======  =======

                                       52
<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                          Six Months
                                                            Ended                Year Ended June 30,
                                                          December 31, -------------------------------------------
Condensed Statements of Cash Flows                            1999            1999            1998           1997
                                                            --------        -------          ------        -------
<S>                                                         <C>             <C>             <C>            <C>
Operating Activities:
     Net income for the period.......................       $  3,975          6,923           7,260          4,507
     Adjustments to reconcile net income to net
       cash provided by operating activities:
         Distributions in excess of (equity in
             undistributed) earnings of subsidiaries           2,900         12,810          (2,625)         9,660
         Amortization of premiums on investment
             securities available-for-sale......                 (14)          (223)           (182)          (298)
         ESOP shares committed to be released...                 205            472             652            492
         Increase in other assets and liabilities, net            89            213            (686)           567
                                                            --------        -------          ------        -------
                 Net cash provided by operating
                      activities................               7,155         20,195           4,419         14,928
                                                            --------        -------          ------        -------
Investing Activities:
     Decrease (increase) in interest-bearing deposits         (1,713)            19             561           (189)
     Purchase of investment securities...............         (2,542)       (37,985)        (23,766)       (20,142)
     Principal payments and sales proceeds of
         mortgage-backed securities..................              -              -               -          3,059
     Proceeds from maturities of investment securities         2,000         42,250          21,350         30,784
     Acquisition of Security Bancorp, including direct
         acquisition costs of $794...................              -              -               -        (26,789)
     Other...........................................              -              -               -             12
                                                            --------        -------          ------        -------
                      Net cash provided by (used in)
                           investing activities......         (2,255)         4,284          (1,855)       (13,265)
                                                            --------        -------          ------        -------
Financing Activities:
     Dividends paid to stockholders..................         (1,536)        (2,926)         (2,729)        (1,867)
     Proceeds from exercise of stock options and stock
         issuances...................................            443            404             557            194
     Purchase of treasury stock......................         (3,655)       (21,858)           (379)             -
                                                            --------        -------          ------        -------
         Net cash used in financing activities                (4,748)       (24,380)         (2,551)        (1,673)
                                                            --------        -------          ------        -------
Increase (decrease) in cash and cash equivalents.....            152             99              13            (10)
Cash and cash equivalents at beginning of period.....            116             17               4             14
                                                            --------        -------          ------        -------
Cash and cash equivalents at end of period...........       $    268            116              17              4
                                                            ========        =======          ======        =======
</TABLE>

                                       53
<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

(22)   CONDENSED QUARTERLY RESULTS OF OPERATIONS - UNAUDITED

                                                          Six Months Ended
                                                          December 31, 1999
                                                     -------------------------
                                                       Second          First
                                                       Quarter        Quarter
                                                     ------------  -----------
     Interest income................................  $17,861          17,745
     Interest expense...............................    9,734           9,651
                                                      -------         -------
              Net interest income...................    8,127           8,094

     Provision for loan losses......................     (435)           (445)
     Noninterest income.............................    1,958           2,169
     Noninterest expense............................   (6,488)         (6,522)
                                                      -------         -------
              Income before income tax expense......    3,162           3,296

     Income tax expense.............................   (1,195)         (1,288)
                                                      -------         -------
              Net income............................  $ 1,967           2,008
                                                      =======         =======
     Net income per share:
         Basic......................................  $  0.47            0.46
                                                      =======         =======
         Diluted....................................  $  0.45            0.44
                                                      =======         =======


                                              Year Ended June 30, 1999
                                         --------------------------------------
                                         Fourth      Third    Second     First
                                         Quarter    Quarter   Quarter   Quarter
                                         -------- ---------- -------- ---------
 Interest income........................ $17,468    17,082    17,828     18,420
 Interest expense.......................   9,443     9,371     9,865     10,565
                                         -------   -------   -------    -------
    Net interest income.................   8,025     7,711     7,963      7,855

 Provision for loan losses..............    (445)     (345)     (270)      (240)
 Noninterest income.....................   2,542     2,052     2,377      2,327
 Noninterest expense....................  (7,316)   (6,956)   (6,985)    (6,969)
                                         -------   -------   -------    -------
    Income before income tax expense....   2,806     2,462     3,085      2,973

 Income tax expense.....................  (1,050)     (878)   (1,256)    (1,219)
                                         -------   -------   -------    -------
    Net income.......................... $ 1,756     1,584     1,829      1,754
                                         =======   =======   =======    =======
 Net income per share:
     Basic.............................. $   .40       .37       .35        .33
                                         =======   =======   =======    =======
     Diluted............................ $   .39       .35       .33        .31
                                         =======   =======   =======    =======

                                       54
<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

                                              Year Ended June 30, 1998
                                         --------------------------------------
                                         Fourth      Third    Second     First
                                         Quarter    Quarter   Quarter   Quarter
                                         -------- ---------- -------- ---------

Interest income......................  $18,565     18,866     18,764    18,329
Interest expense.....................   10,460     10,843     10,651    10,332
                                       -------    -------    -------   -------
  Net interest income................    8,105      8,023      8,113     7,997

Provision for loan losses............     (210)      (210)      (256)     (164)
Noninterest income...................    2,300      2,123      1,995     1,963
Noninterest expense..................   (6,910)    (7,581)    (6,415)   (6,853)
                                       -------    -------    -------   -------
   Income before income tax expense..    3,285      2,355      3,437     2,943

Income tax expense...................   (1,292)      (995)    (1,339)   (1,134)
                                       -------    -------    -------   -------
   Net income........................  $ 1,993      1,360      2,098     1,809
                                       =======    =======    =======   =======
Net income per share:
    Basic............................  $   .37        .26        .40       .34
                                       =======    =======    =======   =======
    Diluted..........................  $   .35        .24        .37       .32
                                       =======    =======    =======   =======

(23)   EARNINGS PER SHARE

       The  following  table sets  forth the  compilation  of basic and  diluted
earnings per share:
<TABLE>
<CAPTION>

                                         Six Months
                                           Ended             Year Ended June 30,
                                         December 31, ----------------------------------
                                            1999         1999        1998        1997
                                         ------------ ------------ ----------- ---------
<S>                                        <C>          <C>        <C>         <C>
Number of shares on which basic
earnings per share is calculated:
   Average outstanding shares
   during the fiscal year...............   4,291,092    4,830,068  5,317,577   4,458,079

   Add: Incremental shares under stock
        option plans....................     170,269     240,270    296,316      220,259
        Incremental shares
        related to RRPs.................          -        1,225     13,425       25,901
                                          ----------   ---------  ---------    ---------
Number of shares on which diluted
 earnings per share is calculated.......   4,461,361   5,071,563  5,627,318    4,704,239
                                          ==========   =========  =========    =========
Net income applicable to
common stockholders (000's).............  $    3,975       6,923      7,260        4,507
                                          ==========   =========  =========    =========
Basic earnings per share................  $     0.93        1.43       1.37         1.01
                                          ==========   =========  =========    =========
Diluted earnings per share..............  $     0.89        1.37       1.29          .96
                                          ==========   =========  =========    =========
</TABLE>

                                       55
<PAGE>


WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements - Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


Stock options to purchase 180,669, 72,169 and 57,085 shares at December 31, 1999
and June  30,  1999  and  1997,  respectively,  were  outstanding,  but were not
included in the  computation of diluted  earnings per share because the options'
exercise  price was greater than the average  market price of the common  shares
and, therefore, the effect would be antidilutive. No stock options were excluded
from the  computation  of diluted  earnings per share in the year ended June 30,
1998.

(24)   SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

                                  Six Months
                                     Ended        Year Ended June 30,
                                 December 31, -----------------------------
                                     1999        1999      1998     1997
                                 ------------ --------- -------- ----------
Payments during the period for:
     Interest ....................  $6,761     12,856   13,900     8,942
     Income taxes, net............   2,604      3,933    4,080     3,014
                                   =======     ======   ======     =====

(25)   ACQUISITION

On February 28, 1997,  WesterFed  completed the acquisition of Security Bancorp,
accounted  for as a purchase  transaction  and,  accordingly,  the  consolidated
statement  of income for the year ended June 30,  1997  includes  the results of
operations  of  Security  Bancorp  commencing  March 1, 1997.  WesterFed  issued
1,150,175  shares of common stock,  options to acquire  94,696 common shares and
committed to pay $25,995 in cash for all of the  outstanding  shares of Security
Bancorp common stock,  for total  consideration of $48,724.  In addition,  as of
such  date,  Security  Bank,  a  federally  chartered  stock  savings  bank  and
wholly-owned subsidiary of Security Bancorp, merged with and into the Bank.

(26)   BRANCH SALE

On November 18, 1999,  the Company  announced  that it reached an agreement with
Stockman Financial Corp. to sell the assets and have the liabilities assumed for
six branch locations.  The branches are located in Glasgow, Hardin, Malta, Miles
City,  Plentywood  and Sidney.  This  transaction  is expected to close in April
2000.  The  divestiture   will  result  in  a  decrease  in  total  deposits  of
approximately $57 million.

                                       56

<PAGE>

General Corporate and Stockholders' Information

CORPORATE HEADQUARTERS
110 E. Broadway
Missoula, MT  59802
(406) 721-5254

INDEPENDENT ACCOUNTANTS
KPMG LLP
Billings, MT

GENERAL COUNSEL
Worden, Thane and Haines, P.C.
Missoula, MT

SPECIAL COUNSEL
Silver, Freedman and Taff, LLP
Washington, D.C.

TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Stockholder   inquiries  regarding  transfer   requirements,   dividends,   lost
certificates and changes of address should be directed to the transfer agent:
Davidson Trust Co.
9 Third Street North, Suite 200
P.O. Box 2309
Great Falls, MT  59403-2309
1-800-634-5526

ANNUAL MEETING
The annual  meeting of  stockholders  will be held on Tuesday,  April 25,  2000,
beginning at 9 a.m. at the Southgate Office, 2601 Garfield, Missoula, MT.

FORM 10-K
This report is available to  stockholders  of record without charge upon written
request to:
Suzanne Loewen
Corporate Secretary
WesterFed Financial Corporation
110 E. Broadway
Missoula, MT  59802

STOCK INFORMATION
WesterFed stock is traded in the over-the-counter market with quotations through
the Nasdaq National Market System under the symbol "WSTR."

At December 31, 1999, there were 1,072 stockholders of record.

At December 31, 1999, there were approximately 2,200 beneficial stockholders.

To request information on dividend reinvestment, please contact:
Suzanne Loewen
WesterFed Financial Corporation
110 E. Broadway
Missoula, MT  59802
Phone: 406-721-5254

                                       57

<PAGE>
General Corporate and Stockholders' Information

                           Stock Prices           Dividends
Quarter Ended            High        Low           Declared
-------------------------------------------------------------
March 31, 1997           $ 21.75     17.75         .105
June 30, 1997            $ 20.75     17.25         .151*

September 30, 1997       $ 26.75     20.00         .115
December 31, 1997        $ 27.00     22.25         .12

March 31, 1998           $ 26.75     24.50         .125
June 30, 1998            $ 26.63     24.00         .18**

September 30, 1998       $ 24.875    17.00         .135
December 31, 1998        $ 20.125    17.188        .14

March 31, 1999           $ 18.625    16.188        .145
June 30, 1999            $ 17.25     15.938        .20***

September 30, 1999       $ 17.813    16.25         .155
December 31, 1999        $ 17.125    14.75         .16

*Declared June 30, 1997,  payable August 20 to  stockholders of record August 6.
Includes a special dividend of $0.041 per share.

**Declared June 23, 1998, payable August 24 to stockholders of record August 10.
Includes a special dividend of $0.05 per share.

***Declared  June 24, 1999,  payable July 21 to  stockholders  of record July 7.
Includes a special dividend of $0.05 per share.

MARKET MAKERS
--------------------------------------------------------------------------------

D. A. Davidson & Co., Incorporated
Friedman Billings Ramsey & Company
Sandler O'Neill & Partners
Pacific Crest Securities

WESTERFED OFFICERS
--------------------------------------------------------------------------------

Lyle R. Grimes
Chairman

Ralph K. Holliday
President and Chief Executive Officer

James A. Salisbury, CPA
Treasurer and Chief Financial Officer

David W. Jorgenson
Vice President

Suzanne Loewen
Corporate Secretary

Marcia L. Johnson
Assistant Corporate Secretary

WESTERFED DIRECTORS
--------------------------------------------------------------------------------

Lyle R. Grimes
Chairman

John E. Roemer
Vice Chairman

Ralph K. Holliday

Dr. Marvin P. Reynolds

Dr. Otto G. Klein, Jr.

Robert F. Burke

Laurie C. DeMarois

David W. Jorgenson

William M. Leslie

                                       58
<PAGE>


Directors and Officers


BOARD OF DIRECTORS
--------------------------------------------------------------------------------

Lyle R. Grimes
Chairman of the Board,
Elected 1983.

John E. Roemer
Vice Chairman
Retired
Roemer Tire Center, Missoula.
Elected 1978.

Ralph K. Holliday
President & Chief Executive Officer,
Elected 1999.

Laurie C. DeMarois
Owner, Garden City Floral, Missoula.
Elected 1996.

Robert F. Burke
Financial Planner
American Express, Missoula.
Elected 1994.

David W. Jorgenson
Executive Vice President
Eastern Region Manager
Western Security Bank, Billings.
Elected 1997.

Dr. Otto G. Klein, Jr.
Ophthalmologist
Rocky Mountain Eye &
Ear Center, Missoula.
Elected 1988.

William M. Leslie
Chairman and President
Quality Concrete Company, Billings.
Elected 1997.

Dr. Marvin P. Reynolds
Dentist, Missoula.
Elected 1969.

Donovan Worden, Jr.
Director Emeritus
Retired


SENIOR MANAGEMENT
--------------------------------------------------------------------------------

Ralph K. Holliday
President and Chief Executive Officer

David W. Jorgenson
Executive Vice President
Eastern Region Manager

James A. Salisbury, CPA
Treasurer
Executive Vice President/
Chief Financial Officer

Charles E. Eiseman
Sr. Vice President
Western Region Manager

Marcia L. Johnson
Sr. Vice President
Central Operations Manager

Stan R. Hill
Sr. Vice President
Commercial Lending

Scott Sanders
Sr. Vice President
Commercial Real Estate Lending

John Cromwell
Sr. Vice President
Human Resources

Sharon E. Woldstad
Corporate Secretary
Sr. Vice President
Data Center Coordinator

Suzanne Loewen
Vice President
Audit/Compliance/Quality Control

Barry L. Johnston
Sr. Vice President
Credit Administrator


DEPARTMENT HEADS
--------------------------------------------------------------------------------

Desiree Bagnell, CPA
Controller

Ronald F. Halls
Vice President
Central Processing &Secondary Market

Laura Lustgraaf
Vice President
Deposit Support Services Manager

Nancy Rhoads
Vice President
Loan Servicing Manager

Gary Hewitt
Assistant Vice President
Property Manager and Security Officer

Glenn Nelson
Assistant Vice President
Information Services Department

Debi Turner
Branch Coordinator

Brenda Ratcliff
Sales Coordinator

Sue Hay
Assistant Vice President
Loan Systems Coordinator

                                       59