UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                    FORM 10-K

[ ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the fiscal year ended December 31, 1999

                                       OR

[X]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from July 1, 1999 to December 31, 1999.


                         COMMISSION FILE NUMBER 0-22772


                         WESTERFED FINANCIAL CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           DELAWARE                                    81-0487794
-------------------------------------    ---------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

  110 EAST BROADWAY, MISSOULA, MONTANA                   59802-4511
----------------------------------------      ----------------------------------
(Address of principal executive offices)                 (Zip Code)


       Registrant's telephone number, including area code: (406) 721-5254


           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None
                              --------------------

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                    ----------------------------------------
                                (Title of class)

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the closing price of such stock on the
National Market System as of March 13, 2000, was $48.1 million. (The exclusion
from such amount of the market value of the shares owned by any person shall not
be deemed an admission by the registrant that such person is an affiliate of the
registrant.)

     As of March 13, 2000 there were issued and outstanding 4,094,404 shares of
the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Parts II and IV of Form 10-K - Portions of the Annual Report to
               Stockholders for the year ended December 31, 1999.

            Part III of Form 10-K - Portions of the Proxy Statement
                    for 2000 Annual Meeting of Stockholders.

<PAGE>


                                     PART I

ITEM 1.  BUSINESS

GENERAL

     WesterFed Financial Corporation (the "Company"), a Delaware corporation, is
a unitary savings and loan holding company which was organized in 1994 at the
direction of Western Security Bank ("Western Security" or the "Bank") for the
purpose of owning all of the outstanding stock of the Bank to be issued in
connection with the Bank's conversion from mutual to stock form (the
"Conversion"). The Conversion was completed on January 6, 1994. At December 31,
1999, the Company had total assets of $1.001 billion, deposits of $658.4 million
and stockholders' equity of $89.5 million (8.94% of total assets).

     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 main office located in Missoula, 34 branch offices and one loan
servicing office. 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. These loans are
generally originated for its primary market area. 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"). The Acquisition was accounted for as a purchase
transaction and accordingly, the consolidated statement of income includes the
results of operations of Security Bancorp commencing March 1, 1997. Under this
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. 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. 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.
The name of Western Federal Savings Bank was changed to "Western Security Bank"
in February 1998. Unless the context otherwise requires, reference herein to the
Company includes WesterFed, Western Security and its subsidiaries on a
consolidated basis.

     On November 18, 1999, the Company announced it had reached an agreement
with Stockman Bank of Montana to sell six branches with deposits of $57.0
million. The branches are located in Glasgow, Hardin, Malta, Miles City,
Plentywood and Sidney. The geographic location of those branches made it
increasingly difficult to provide the level of service those customers are
entitled to today and in the future. The sale, which is subject to federal
regulatory approval, is expected to be complete in April 2000.

     On February 15, 2000, the Company announced the closing of two branches in
the Missoula, Montana market and its intention to consolidate the facilities
into existing facilities or a new facility that is currently under construction.
The branch at 2230 Brooks Street will be consolidated into the Western Security
branch six blocks away at 2601 Garfield near Southgate Mall. The branch at 1610
South Third West will be closed and customer accounts will be consolidated at
either the 2601 Garfield branch, or the new facility at 3045 North Reserve
Street, which is expected to be completed June 1, 2000. Both the Garfield and
Reserve Street facilities are within three miles from the 1610 South Third West
branch that is closing. The 2230 Brooks Street facility is scheduled to close
May 12, 2000 and the 1610 South Third West branch June 15, 2000.

FORWARD-LOOKING STATEMENTS

     When used in this Form 10-K or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result," "are expected

                                       2
<PAGE>

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 such
forward-looking statements, which speak only as of the date made, and to advise
readers that various factors including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities and competitive and regulatory
factors and any unforseen business risks could affect the Company'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 update any
forward-looking statements to reflect occurrence of anticipated or unanticipated
events or circumstances after the date of such statements.

MARKET AREAS

     The Bank conducts operations through its 34 branch offices located in 18
counties located throughout Montana. Based on data supplied by Sheshunoff
Information Services as of June 30, 1999, the latest date such information is
available, Western Security held approximately a 6.3% market share of deposits
in Montana. Based on this market share, Western Security ranked 4th among the
financial institutions located in Montana.

     MISSOULA. In Missoula the Bank operates its main office and six branch
offices which accounted for $149.6 million of Missoula County's June 30, 1999
deposits, or a 13.6% market share. Missoula County's non-farm basic industries
are trade center activity, wood and paper products, motor carriers, the Federal
government, and the University of Montana. Major employers include Missoula
Community Hospital, St. Patrick's Hospital, Smurfit-Stone Container Corp. (a
paper mill), Louisiana Pacific (particle board manufacturing), the University of
Montana and the U.S. Forest Service.

     BILLINGS. The Bank operates six branches in the cities of Billings and
Laurel, located in Yellowstone County. Total deposits held by those branches
represented $175.3 million of the county's total June 30, 1999 deposits, or a
11.2% market share. Leading non-farm basic industries in Yellowstone County are
trade center activity, transportation, oil and gas, and the Federal government.
In Billings, expansion of trade center activities continues.

     HELENA. Four Western Security offices are located in Helena and East
Helena, which is located in Lewis and Clark County. The four branches there have
total deposits of $46.4 million, which accounts for 7.2% of the county's total
June 30, 1999 deposits. Lewis and Clark County's basic leading non-farm
industries are State government, Federal government, and trade center activity.
Helena continues to be a regional health and financial services center.

     GREAT FALLS. The Bank operates three branches in the city of Great Falls,
located in Cascade County. These branches hold $42.7 million in deposits, which
is 4.7% of the county's total June 30, 1999 deposits. In Great Falls, the
leading non-farm basic industries are Malmstrom Air Force Base, and trade center
activity. Agriculture has a major influence on the economy of Great Falls with
the surrounding counties being the state's leading wheat producers.

     BOZEMAN. The Bank has one office located in the city of Bozeman in Gallatin
County. Deposits in the branch are $25.3 million for a 3.9% market share of the
county's June 30, 1999 total deposits. Leading non-farm basic industries in
Gallatin County are Montana State University, selected manufacturing, and
non-resident travel. The county's economy continues to benefit from growth in
non-resident travel.

     HAMILTON. The Bank has one branch office in Hamilton, located in Ravalli
County, where it holds deposits of $17.0 million of the county's June 30, 1999
deposits for a 4.6% market share. Ravalli County has benefitted recently from an
influx of retirees.

     CONRAD. One Bank office is located in the city of Conrad in Pondera County.
This  branch  has $8.3  million  in  deposits  and a 10.1%  market  share of the
county's  total  June  30,  1999  deposits.   The  local  economy  is  primarily
agricultural in nature.

     LEWISTOWN. The Bank has one office in the city of Lewistown, located in
Fergus County. The branch has $29.8 million in deposits for a 16.0% market share
of the county's total June 30, 1999 deposits. The local economy is primarily
agricultural in nature.

                                       3
<PAGE>

     ANACONDA. The Bank has one branch located in the city of Anaconda, in Deer
Lodge County. The branch has $25.4 million in deposits for a 20.4% market share
of the county's June 30, 1999 total deposits.

     KALISPELL. The Bank has one branch located in the city of Kalispell, in
Flathead County. The branch has $7.0 million in deposits for a 0.7% market share
of the county's June 30, 1999 total deposits.  Kalispell's  economy is supported
by natural resource industries and non-resident travel.

     BUTTE. The Bank has one branch located in the city of Butte, in Silverbow
County. The branch has $43.7 million in deposits for a 9.8% market share of the
county's June 30, 1999 total deposits. Butte is a trade center and continues to
be supported by various mining activities.

     HAVRE. The Bank has one branch located in the city of Havre, in Hill
County. The branch has $17.6 million in deposits for a 7.5% market share of the
county's June 30, 1999 total deposits. The local economy is primarily
agricultural in nature.

The following branches are expected to be sold the second quarter of 2000:

     MALTA. The Bank has one branch located in the city of Malta, in Phillips
County. The branch has $3.7 million in deposits for a 4.1% market share of the
county's June 30, 1999 total deposits. The local economy is primarily
agricultural in nature.

     MILES CITY. In Custer County, the Bank has one branch located in Miles
City, which has $15.0 million in deposits for a 6.7% market share of the
county's June 30, 1999 total deposits. Ranching is an important segment of the
local economy.

     HARDIN. The Bank has one branch located in the city of Hardin, in Big Horn
County. The branch has $7.1 million in deposits for a 9.1% market share of the
county's June 30, 1999 total deposits. The local economy is primarily
agricultural in nature.

     SIDNEY. The Bank has one branch located in the city of Sidney, in Richland
County. The branch has $8.0 million in deposits for a 5.4% market share of the
county's June 30, 1999 total deposits. The local economy is primarily
agricultural in nature.

     PLENTYWOOD. The Bank has one branch located in the city of Plentywood, in
Sheridan County. The branch has $15.4 million in deposits for a 14.1% market
share of the county's June 30, 1999 total deposits. The local economy is
primarily agricultural in nature.

     GLASGOW.  The Bank has one branch located in the city of Glasgow, in Valley
     County. The branch has $8.6 million in deposits for a 6.8% market share of
the county's June 30, 1999 total deposits. The local economy is primarily
agricultural in nature.

LENDING ACTIVITIES

     GENERAL. Historically the principal lending activity of the Bank has been
the origination, for portfolio and for sale, of first mortgage loans secured by
owner-occupied one- to four-family residential properties located in its primary
market areas. More recently, in order to increase the yield and better manage
the interest rate sensitivity of its portfolio, and in order to provide more
comprehensive financial services to communities in its market areas, the Bank
now also originates commercial, commercial real estate, consumer, multi-family,
agricultural, agricultural real estate and construction loans. With the 1997
merger with Security Bank, the Bank acquired a more expansive lending portfolio,
including loans and expertise in commercial non-real estate and agricultural
services. The Bank is also a major originator and servicer of Federal Housing
Administration/Veterans Administration ("FHA/VA") loans, which are subsequently
purchased by the Montana Board of Housing ("MBOH").

     When fixed-rate conventional mortgage loans with terms over 15 years are
routinely sold into the secondary market, Western Security may retain the
servicing rights on some loans. See "Originations, Purchases and Sales of Loans
and Mortgage-Backed Securities." At December 31, 1999, Western Security serviced
loans with principal balances of approximately $219.8 million for others. The
loan servicing fees earned provided a supplement to the Bank's earnings.


                                       4
<PAGE>


     LOAN PORTFOLIO COMPOSITION. The following table sets forth information
regarding the composition of the Bank's loan portfolio in dollar amounts and in
percentages (before deductions for loans in process, deferred fees and discounts
and allowances for losses) as of the dates indicated.

<TABLE>
<CAPTION>
                                                                                                 June 30,
                                                   December 31,     --------------------------------------------------------------
                                                      1999                  1999                  1998                 1997(2)
                                               -------------------  --------------------------------------------------------------
                                                 Amount   Percent     Amount     Percent    Amount   Percent     Amount    Percent
                                               ---------  --------  ---------    -------    -------   ------    --------   -------
                                                                                (Dollars in Thousands)
<S>                                            <C>        <C>       <C>          <C>       <C>       <C>        <C>        <C>
Real Estate Loans:
         One- to four-family(1)...............  $266,351    42.06%   $285,914      44.52%   $318,663   47.56%    $348,577    53.82
         Multi-family.........................    35,563     5.62      41,619       6.48      42,716    6.38       40,237     6.21
         Commercial...........................    87,181    13.77      75,666      11.78      64,150    9.57       50,049     7.73
         Agricultural.........................    11,625     1.84      11,421       1.79      11,066    1.65        7,970     1.23
         Construction.........................    18,775     2.97      12,542       1.95      17,523    2.62       19,858     3.07
                                                --------   ------    --------     ------    --------  ------     --------   ------
                  Total real estate loans.....   419,495    66.26     427,162      66.52     454,118   67.78      466,691    72.06
                                                --------   ------    --------     ------    --------  ------     --------   ------
Other Loans:
         Commercial (non-real estate).........    45,361     7.16      40,237       6.27      34,384    5.13       28,924     4.47
         Agricultural (non-real estate).......    22,825     3.61      23,193       3.61      24,036    3.59       18,866     2.91
         Loans to depositors, secured by
          deposits............................     1,387     0.22       1,745       0.27       3,194    0.48        4,101     0.63
         Indirect consumer loans..............    54,418     8.59      66,406      10.34      64,287    9.60       40,708     6.29
         Other consumer loans-real estate
          secured.............................    36,153     5.71      39,031       6.08      54,619    8.15       58,551     9.04
         Other consumer loans.................    53,510     8.45      44,385       6.91      35,352    5.27       29,772     4.60
                                                --------   ------    --------     ------    --------  ------     --------   ------
                  Total other loans...........   213,654    33.74     214,997      33.48     215,872   32.22      180,922    27.94
                                                --------   ------    --------     ------    --------  ------     --------   ------
                  Total gross loans...........   633,149   100.00%    642,159     100.00%    669,990   100.00%    647,613   100.00
                                                           ======                 ======               ======               ======
Less:
         Unearned fees .......................    (1,145)              (1,144)                (1,453)              (1,813)
         Undisbursed loan funds...............    (5,240)              (3,611)                (5,178)              (9,489)
         Purchased discounts..................      (852)                (954)                (1,159)              (1,383)
         Allowance for losses.................    (5,161)              (5,079)                (4,907)              (4,651)
                                                --------             --------               --------             --------
                  Total loans receivable, net.  $620,751             $631,371               $657,293             $630,277
                                                ========             ========               ========             ========
</TABLE>

<TABLE>
<CAPTION>
                                                                  June 30,
                                                  ----------------------------------------
                                                         1996                  1995
                                                  ----------------------------------------
                                                    Amount   Percent     Amount   Percent
                                                  ---------  -------    --------  --------
                                                             (Dollars in Thousands)
<S>                                               <C>        <C>       <C>         <C>
Real Estate Loans:
         One- to four-family(1)...............     $280,853   74.69     $247,331    76.94%
         Multi-family.........................       19,939    5.30       18,985     5.91
         Commercial...........................       18,318    4.87       12,399     3.86
         Agricultural.........................          ---     ---          ---      ---
         Construction.........................       12,977    3.45       10,742     3.34
                                                   --------  ------     --------   ------
                  Total real estate loans.....      332,087   88.31      289,457    90.05
                                                   --------  ------     --------   ------
Other Loans:
         Commercial (non-real estate).........          ---     ---          ---      ---
         Agricultural (non-real estate).......          ---     ---          ---      ---
         Loans to depositors, secured by
          deposits............................        2,337    0.62        2,138     0.67
         Indirect consumer loans..............        2,827    0.75          ---      ---
         Other consumer loans-real estate
          secured.............................       30,814    8.19       24,757     7.69
         Other consumer loans.................        8,003    2.13        5,112     1.59
                                                   --------  ------     --------   ------
                  Total other loans...........       43,981   11.69       32,007     9.95
                                                   --------  ------     --------   ------
                  Total gross loans...........      376,068  100.00%     321,464   100.00%
                                                             ======                ======
Less:
         Unearned fees .......................       (1,625)              (1,344)
         Undisbursed loan funds...............       (4,245)              (4,988)
         Purchased discounts..................          ---                  ---
         Allowance for losses.................       (2,005)              (2,011)
                                                   --------             --------
                  Total loans receivable, net.     $368,193             $313,121
                                                   ========             ========
-------------------------
<FN>
(1)  Includes $6.8 million, $10.1 million, $8.6 million, $13.7 million, $7.5
     million, and $7.1 million of FHA and VA loans at December 31, 1999 and
     June 30, 1999, 1998, 1997, 1996, and 1995, respectively.
(2)  Includes assets and liabilities from the Security Bancorp acquisition.
</FN>

</TABLE>

                                       5
<PAGE>

     The following table illustrates the interest rate sensitivity of the Bank's
loan portfolio at December 31, 1999. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract matures. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses. Weighted average rates
exclude deferred loan fees, discounts and loans in process.

<TABLE>
<CAPTION>
                                                              Real Estate
                                                           (Dollars in Thousands)
                           ---------------------------------------------------------------------------------------
                           One-to Four-Family       Multi-Family            Commercial          Agricultural
                           ---------------------------------------------------------------------------------------
                                     Weighted              Weighted               Weighted              Weighted
Due During Years                     Average               Average                Average               Average
Ending December 31,         Amount     Rate      Amount     Rate        Amount     Rate      Amount      Rate
------------------------------------------------------------------------------------------------------------------
<S>                        <C>        <C>       <C>         <C>        <C>        <C>         <C>        <C>
2000                       $ 49,581    7.67%    $ 4,161     8.69       $ 19,402    8.97%      $ 1,147     8.84
2001                         21,242    7.62       2,695     8.98         12,474    8.36         1,809     8.38
2002                         19,411    7.76       2,782     8.89          6,760    8.67           973     8.57
2003 to 2004                 29,997    7.54       9,404     8.51         31,924    8.31         3,126     8.41
2005 to 2009                 63,050    7.41       6,101     8.96         14,239    8.59         3,495     8.59
2010 to 2014                 32,794    7.34       9,119     9.53          1,748    9.08           656     8.47
2015 and Following           50,276    7.30       1,301     8.30            634    9.22           419     9.19
                           ---------------------------------------------------------------------------------------
Total                      $266,351    7.48%    $35,563     8.93       $ 87,181    8.56      $ 11,625     8.55
                           =======================================================================================
</TABLE>

                                                  Real Estate
                                            (Dollars in Thousands)
                           -------------------------------------------------
                                 Construction           Total Real Estate
                           -------------------------------------------------
                                          Weighted                 Weighted
Due During Years                          Average                  Average
Ending December 31,            Amount       Rate         Amount      Rate
----------------------------------------------------------------------------
2000                         $ 16,120       8.59%     $  90,411     8.17%
2001                              836       8.52         39,056     8.00
2002                              560       8.55         30,486     8.11
2003 to 2004                      748       8.49         75,199     8.03
2005 to 2009                      439       8.87         87,324     7.76
2010 to 2014                       72       9.55         44,389     7.88
2015 and Following                ---        --          52,630     7.36
                           -------------------------------------------------
Total                        $ 18,775       8.60%     $ 419,495     7.91
                           =================================================

<TABLE>
<CAPTION>
                                                            Non-Real Estate
                           --------------------------------------------------------------------------------------
                               Commercial          Agricultural            Consumer       Total Non-Real Estate
                           --------------------------------------------------------------------------------------
                                     Weighted              Weighted              Weighted             Weighted
Due During Years                     Average               Average               Average              Average
Ending December 31,         Amount     Rate      Amount     Rate       Amount     Rate      Amount     Rate
-----------------------------------------------------------------------------------------------------------------
<S>                        <C>        <C>       <C>         <C>       <C>         <C>      <C>         <C>
2000(1)                    $27,126     8.86%     $14,380     9.44%     $ 43,426    9.15    $ 84,932     9.11%
2001                         7,279     8.06        1,932     8.86        27,487    9.01      36,698     8.81
2002                         5,079     7.91        1,343     9.04        23,421    9.01      29,843     8.83
2003 to 2004                 5,003     7.92        1,799     8.52        31,356    8.84      38,158     8.70
2005 to 2009                   601     9.34        2,644     8.40        15,402    9.50      18,647     9.34
2010 to 2014                   273    10.30          418     8.43         4,292    9.90       4,983     9.80
2015 and Following             ---      ---          309     8.72            84    9.23         393     8.83
                           --------------------------------------------------------------------------------------
Total                      $45,361     8.54%     $22,825     9.15%     $145,468    9.09%   $213,654     8.98%
                           ======================================================================================
</TABLE>

                          Total Real Estate and
                             Non-Real Estate
                           --------------------
                                     Weighted
Due During Years                     Average
Ending December 31,         Amount     Rate
-----------------------------------------------

2000(1)                     $175,343   8.63%
2001                          75,754   8.40
2002                          60,329   8.46
2003 to 2004                 113,357   8.26
2005 to 2009                 105,971   8.04
2010 to 2014                  49,372   8.07
2015 and Following            53,023   7.37
                            ---------------
Total                       $633,149   8.27%
                            ===============

--------------------
(1) Includes demand loans and loans having no stated maturity.

                                        6
<PAGE>


     The following table sets forth the dollar amount of all loans at December
31, 1999 that have fixed interest rates, and that are contractually due after
December 31, 2000 and have floating or adjustable interest rates that change
after December 31, 2000.

                                                    Floating or
                                                    Adjustable
                                     Fixed Rates      Rates         Total
                                     -----------    -----------   ---------
                                                  (In Thousands)

Real Estate:
   One- to four-family..............   $250,035       $16,316      $266,351
   Multi-family.....................     24,967        10,596        35,563
   Commercial.......................     32,481        54,700        87,181
   Agricultural.....................      2,982         8,643        11,625
   Construction.....................     18,139           636        18,775
Other loans
   Agricultural.....................     41,705         3,656        45,361
   Commercial ......................     21,106         1,719        22,825
   Consumer.........................    143,156         2,312       145,468
                                       --------       -------      --------
   Total............................   $534,571       $98,578      $633,149
                                       ========       =======      ========

     Under federal law, the aggregate amount of loans that the Bank is permitted
to make to any one borrower is generally limited to 15% of unimpaired capital
and surplus (25% if the security for such loan has a "readily ascertainable"
value or 30% for certain residential development loans). At December 31, 1999,
based on the above, the Bank's regulatory loans-to-one-borrower limit was
approximately $11.2 million. On the same date, the Bank's largest amount of
loans to one borrower or group of related borrowers was 86 loans totaling
approximately $8.3 million, secured by leased equipment, and these loans were
performing in accordance with their contractual terms at December 31, 1999.

     Residential real estate loans are originated by employees who are
compensated on a salary or commission basis. In the case of commissioned loan
officers, processing and loan underwriting are handled by other personnel. In
the loan approval process, Western Security assesses both the borrower's ability
to repay the loan and the adequacy of the proposed security. Initially, Western
Security's loan underwriters analyze the loan application and the property
involved. Western Security also utilizes the Federal Home Loan Mortgage
Corporation (FHLMC) automated underwriting software "Loan Prospector." As part
of the loan application process, qualified outside appraisers inspect and
appraise the security property. All appraisals are subsequently reviewed by
staff underwriters. Western Security also obtains information concerning the
income, financial condition, employment and credit history of the applicant.
Western Security's policy is to require title, fire and extended hazard coverage
on its real estate loans.

     Western Security has established underwriting criteria and lending limits
based upon loan type and dollar limits. Loan officers have individual approval
limits based upon their experience and expertise. In addition, the Bank employs
one- to four-family residential underwriters who have no origination duties and
can approve residential loans to secondary market conforming limits. Loan
requests in excess of $2,000,000 are approved by the Bank's Loan Committee. The
Loan committee consists of six senior officers of the Bank. The Bank's Board of
Directors approves loan requests in excess of $5,000,000.

     All of the Bank's lending is subject to its written underwriting standards
and loan origination procedures. Decisions on loan applications are made on the
basis of detailed applications and property valuations (consistent with the
Bank's written appraisal policy) by qualified appraisers. The loan applications
are designed primarily to determine the borrower's ability to repay and the more
significant items on the application are verified through use of credit reports,
financial statements, tax returns and/or verifications of employment.

     The Bank requires evidence of marketable title and lien position as well as
appropriate title insurance (except on certain home equity loans) on all loans
secured by real property and requires fire and extended

                                       7

<PAGE>

coverage casualty insurance in amounts at least equal to the principal amount of
the loan or the value of improvements on the property, depending on the type of
loan. The Bank also requires flood insurance to protect the property securing
its interest when the property is located in a designated flood hazard area.

ONE- TO FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING

     The cornerstone of the Bank's lending program has long been the origination
of long-term permanent loans secured by mortgages on owner-occupied one- to
four-family residences. At December 31, 1999, $266.3 million, or 42.1%, of the
Bank's loan portfolio consisted of permanent loans on one- to four-family
residences. Substantially all of the residential loans originated by Western
Security are secured by properties located in the Bank's primary market area.

     Historically, Western Security originated for retention in its own
portfolio, 30-year fixed-rate loans secured by one- to-four family residential
real estate. However, in order to reduce its exposure to changes in interest
rates, Western Security attempts to originate adjustable rate mortgage loans
("ARMs"), subject to market conditions and consumer preference. As a result of
continued consumer demand for long term fixed-rate loans, particularly during
periods of relatively low interest rates, Western Security has continued to
originate loans for sale in the secondary market in amounts and at rates which
are monitored for compliance with the Bank's asset/liability management policy.

     The Bank's loans are underwritten and documented to permit their sale,
consistent with the Bank's asset/liability management objectives. Since, under
the Bank's current policy, it may sell or securitize all of the newly originated
fixed-rate loans with terms of more than 15 years, the Bank's fixed-rate loans
are originated with terms which conform to secondary market standards (i.e.,
FHLMC standards). Such loans may be held for sale until they are sold or
securitized. Most of the Bank's newly originated fixed-rate residential loans
have contractual terms to maturity of 15 to 30 years. The Bank's decision to
hold or sell these loans is based on its asset/liability management policy and
goals and the market conditions for mortgages at any period in time. The Bank
may retain the servicing of the conventional loans it originates and sells to
various institutional investors. See "Originations, Purchases and Sales of Loans
and Mortgage-Backed Securities" for information regarding fees received by the
Bank in connection with loans serviced for others. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations Quantitative and
Qualitative Disclosures About Market Risk" in the Annual Report incorporated by
reference herein as Exhibit 13.

     The Bank has offered ARMs at rates, terms and points determined in
accordance with market and competitive factors. The programs currently offered
generally meet the standards and requirements of the secondary market for
residential loans. The Bank's current one- to four-family residential ARMs are
fully amortizing loans with contractual maturities of up to 30 years. The
interest rates on the ARMs originated by Western Security are subject to
adjustment at stated intervals based on a margin over a specified index and are
subject to lifetime adjustment limits.

     Western Security presently offers several ARM products. The primary
offering utilizes the weekly average yield on U.S. Treasury securities adjusted
to a constant maturity of one year plus a margin depending on property type.
This loan adjusts annually subject to a limitation on the annual increase to 2%
and overall life of loan limitation of 6%. Western Security also offers various
other ARM products for portfolio or on a correspondent basis which are available
for sale into the secondary market. ARM products held in portfolio do not permit
negative amortization of principal and carry no prepayment restrictions. At
December 31, 1999, the Bank had $49.4 million of one-to four-family ARM loans.

     It is Western Security's present policy generally not to lend more than 97%
of the property's appraised value in the case of first mortgage loans secured by
real property. Western Security presently requires private mortgage insurance in
specified amounts on all conventional residential loans with loan-to-value
ratios at origination exceeding 80%. The terms of the private mortgage insurance
have generally provided that Western Security would receive a payment equal to
17% to 30%, depending on the initial loan-to-value ratios, of the outstanding
principal amount of the loan if there has been a default, plus costs of
foreclosure.

                                       8

<PAGE>

     Substantially all of Western Security's present real estate loans
(excluding mortgage-backed securities) are secured by properties located in
Montana. In view of the prevailing level of real estate values in the Bank's
market areas, the Bank rarely originates loans in excess of $252,700 FHLMC
one-family maximum).

     The Bank's residential mortgage loans customarily include due-on-sale
clauses giving the Bank the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid. The
Bank has enforced due-on-sale clauses in its mortgage contracts for the purpose
of increasing its loan portfolio yield. ARM loans may be assumed provided home
buyers meet the Bank's underwriting standards and the applicable fees are paid.

MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING

     Western Security, due to its acquisition of Security Bank, has a mature
portfolio of multi-family and commercial real estate loans. New originations are
handled through the Bank's business division to allow a full line of commercial
products and services as a part of the customer relationship.

     Western Security's lending guidelines generally require, in the case of
loans secured by multi-family or commercial income-producing property, that the
property securing such loans generate gross cash flow of 125% or more of all
operating expenses, including debt service but excluding depreciation, and have
a loan-to-value ratio of no more than 75%. Higher debt coverage ratios or lower
loan-to-value ratios may apply depending on property type and market.

     The multi-family loans are generally secured by income producing properties
and may be made for the purchase or refinance of multi-family residential
properties. The commercial real estate loans originated by Western Security are
primarily secured by office buildings, small shopping centers, motels,
warehouses, and other income-producing properties. Commercial real estate
lending entails significant additional risks as compared with residential
property lending. Commercial real estate loans typically involve large loan
balances to single borrowers or groups of related borrowers. The payment
experience on such loans is typically dependent on the successful operation of
the real estate project and as such may be subject to adverse conditions in the
economy generally to a greater extent than residential loans. In dealing with
these risk factors, Western Security generally limits itself to a real estate
market and/or borrowers with which it has knowledge and experience. The Bank
also makes loans issued under the SBA's 504(B) program. Under this program, the
borrower's down payment may be as little as 10% and the Bank funds 50% of the
acquisition price with the SBA guaranteed loan financing, 40% of the acquisition
price in a subordinated position. While the borrower's equity contribution is
limited to 10%, the Bank's loan to value ratio does not exceed 50%. At December
31, 1999, $35.6 million, or 5.62% of the Bank's loan portfolio, consisted of
multi-family loans and $87.2 million, or 13.8% of the Bank's loan portfolio,
consisted of commercial real estate loans. In general, under Office of Thrift
Supervision ("OTS") regulations, total investments in commercial real estate
loans may not exceed 400% of the Bank's capital.

AGRICULTURAL REAL ESTATE LENDING

     The majority of the Bank's agricultural real estate loans are secured by
first liens on farm and ranch land located within the State of Montana. The
Bank's current policy is that loans on agricultural land may be made up to 65%
of the appraised value or purchase price, whichever is less. Underwriting
guidelines require that the cash flow generated by the borrower must be 110% to
125% of the annual debt service, depending on the leverage position of the
borrower. Loans secured by agricultural land are adjustable rate loans tied to
the two, three, or five year treasury constant maturity index plus a margin
established by management. The loans are amortized up to twenty years. At
December 31, 1999, $11.6 million, or 1.8% of the Bank's loan portfolio,
consisted of agricultural real estate loans. In general, OTS regulations total
investments in agricultural real estate loans may not exceed 400% of the Bank's
capital.

                                        9

<PAGE>


COMMERCIAL AND AGRICULTURAL NON-REAL ESTATE LENDING

     The Bank is permitted to make secured and unsecured loans for commercial,
corporate, business and agricultural purposes, including issuing letters of
credit and engaging in inventory financing and commercial leasing activities. In
general, the Bank's total investment in such loans is limited such that at any
one time it generally may not exceed 20% of assets, as defined in OTS
regulations. At December 31, 1999, $45.4 million, or 7.2% of the Bank's loan
portfolio, consisted of commercial non-real estate loans and $22.8 million, or
3.6% of the Bank's loan portfolio, consisted of agricultural non-real estate
loans.

CONSTRUCTION LENDING

     Historically, construction lending for one- to four-family residences has
always been an important part of Western Security's commitment to the
communities it serves. Loans to individuals are either 12-month fixed-rate loans
or long-term variable rate construction/permanent loans which provide for a
six-month construction period before converting to a fully amortizing 29
1/2-year or less adjustable-rate loan. Occasionally, Western Security originates
construction loans to builders for the speculative construction of one- to
four-family homes. Such loans are generally 12-month, fixed-rate loans and are
generally limited to one to five properties per builder. The Bank occasionally
makes acquisition and development loans to credit- worthy borrowers for
residential projects within the Bank's market area. At December 31, 1999,
approximately $18.8 million, or 3.0% of the Bank's loan portfolio, consisted of
construction loans.

     Most of the Bank's construction loans have been originated with fixed-rates
of interest. One- to four-family construction loans are generally made in
amounts of up to a maximum loan-to-value ratio of 90%. Prior to making a
commitment to fund a construction loan, the Bank requires an appraisal of the
property. Western Security obtains personal guarantees for substantially all of
its construction loans. The Bank generally requires that both borrowers and
guarantors provide personal financial statements. Virtually all of Western
Security's construction loans have been located in its primary market areas.

     The Bank's construction loan agreements generally provide that loan
proceeds are disbursed in increments as construction progresses. The Bank
periodically reviews the progress of the underlying construction project.

     Construction lending generally affords the Bank an opportunity to receive
interest at rates higher than those obtainable from residential lending and to
receive origination and other loan fees. In addition, such loans are generally
made for relatively short terms. Nevertheless, construction lending to persons
other than owner occupants is generally considered to involve a higher level of
credit risk than one- to four-family residential lending due to the
concentration of principal in a limited number of loans and borrowers and the
effects of general economic conditions on construction projects, real estate
developers and managers. In addition, the nature of these loans is such that
they are more difficult to evaluate and monitor. The Bank's risk of loss on a
construction loan is dependent largely upon the accuracy of the initial estimate
of the property's value upon completion of the project and the estimated cost
(including interest) of the project. If the estimate of value proves to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with a project with a value which is insufficient to assure full repayment.
Because defaults in repayment may not occur during the construction period, it
may be difficult to identify problem loans at an early stage.

CONSUMER LENDING AND UNUSED LINES OF CREDIT

     Management believes that offering consumer loan products helps expand the
Bank's customer base and creates stronger ties to its existing customer base. In
addition, because consumer loans generally have shorter terms to maturity and/or
adjustable rates and carry higher rates of interest than do residential mortgage
loans, they can be valuable asset/liability management tools. See "Management's
Discussion and Analysis of Financial Condition Quantitative and Qualitative
Disclosures About Market Risk" in the Annual Report incorporated by reference
herein as Exhibit 13.

                                       10

<PAGE>

     The Bank currently originates substantially all of its consumer loans in
its primary market areas. At December 31, 1999, the Bank's consumer loans
totaled $145.5 million, or 23.0%, of the Bank's loan portfolio.

     Western Security offers a variety of real estate secured consumer loans for
various purposes with terms up to fifteen years. The majority of lending is for
home improvement, personal vehicles, equity loans and other personal purposes.

     In May and June, 1999, Western Security sold its credit card portfolio and
began phasing out its dealer finance lending program. This decision was reached
after management determined that these two programs were not returning desired
levels of profitability and were hindering return on assets and equity. At
December 31, 1999, the Bank had $54.4 million of indirect dealer finance loans.

     The Bank also offers an open-end equity line of credit secured by real
estate with an interest rate indexed to the prime rate of interest. At December
31, 1999 the Bank had $7.7 million outstanding under this program with an
additional $5.5 million in unused lines of credit available to borrowers under
this program.

     Consumer loan terms vary according to the type of collateral, term of the
loan, and credit-worthiness of the borrower. Unsecured loans are offered to
borrowers for a variety of purposes and personal needs. These are generally
fully amortizing with loan terms of 48 months or less. Underwriting for all
unsecured lending is substantially the same.

     The Bank's secured lending for vehicles, household goods, mobile homes, and
real estate secured utilizes established loan-to-value ratios and restricted
terms to match the age and condition of the security. The underwriting standards
employed by the Bank for consumer loans include a determination of the
applicant's payment history on other debts and an assessment of the borrower's
ability to meet payments on the proposed loan along with his existing
obligations. In addition to the credit-worthiness of the applicant, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount.

     Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciable assets such as automobiles. In such cases, any repossessed
collateral for defaulted consumer loans may not provide adequate sources of
repayment for the outstanding loan balances as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various Federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. Although the level of delinquencies in the Bank's consumer loan
portfolio has generally been low (at December 31, 1999, $528,000, or
approximately 0.36% of the consumer loan portfolio was 90 days or more
delinquent), there can be no assurance that delinquencies will not increase in
the future.

ORIGINATIONS, PURCHASES AND SALES OF LOANS AND MORTGAGE-BACKED SECURITIES

     In addition to originating and purchasing loans for its own loan portfolio,
Western Security from time to time participates in secondary mortgage market
activities by selling whole loans and participations in loans to FHLMC and
various institutional purchasers. Western Security generally receives in return
FHLMC participation certificates or cash for non-recourse sales to FHLMC. During
the six months ended December 31, 1999, Western Security did not sell or
securitize any loans to FHLMC.

     Western Security currently has loan correspondent agreements with mortgage
banking firms under which Western Security agrees to originate and sell
primarily conventional, FHA and VA loans to such firms.

Under these programs, Western Security processes loan applications and
originates loans in accordance with the buyers' underwriting policies. The
loans, together with all servicing rights, are then sold to such firms and
Western Security retains any loan origination fees and negotiates the retention
of discount points. Under these programs, the borrower locks in an interest
rate, and Western Security concurrently

                                       11
<PAGE>


obtains a purchase commitment from the correspondent that does not require
delivery unless the loan is closed. Western Security's risk is generally limited
to its failure to comply with the agreement with the correspondent institution
or loan underwriting and documentation requirements of such institution, which
could result in rejection of the loan by the purchaser after closing. However,
under some of the correspondent agreements, Western Security can be required to
repurchase any loan which becomes 60 days or more delinquent within four months
of the sale. During the six months ended December 31, 1999, Western Security
sold $30.6 million of loans pursuant to correspondent agreements. While no
prediction can be made as to loan repurchases which may be required pursuant to
correspondent agreements in the future, as of December 31, 1999, Western
Security has rarely had to repurchase a delinquent loan from a loan
correspondent.

     Western Security also participates in loan programs financed by the Montana
Board of Housing ("MBOH"). Under these programs, Western Security originates
loans according to standards, underwriting, and qualifications prescribed by the
MBOH which are then purchased by the MBOH with funds generated by tax-exempt
revenue bonds. Loans are generally priced at a discount to market interest rates
for the benefit of low- to moderate-income borrowers. Western Security retains
servicing rights on all loans sold to the MBOH. During the six months ended
December 31, 1999, Western Security sold $11.0 million of loans with servicing
retained to MBOH.

     When loans or participations are sold (other than in respect of the
agreements with correspondent institutions described above), Western Security
may retain responsibility for collecting and remitting loan payments, inspecting
the properties, making certain insurance and tax payments on behalf of borrowers
and otherwise servicing the loans, and receives a fee for performing this
service. Sales of whole loans, participation interests and mortgage-backed
securities generate income (or loss) at the time of sale, produce future
servicing income and provide funds for additional lending and other purposes.
Western Security was servicing mortgage loans for others in the amount of $219.8
million at December 31, 1999.

     The marketability of loans, loan participations and mortgage-backed
securities depends on the purchasers' investment limitations, general market and
competitive conditions, mortgage loan demand, and other factors. Western
Security's sales of loans or participations are generally "without recourse"
(i.e., without remedy against the seller by the purchaser if the borrower
defaulted on payment under the loan) against Western Security in the event of
default, except in the case of the loan agreements with correspondent
institutions discussed above. Western Security does have contingent liability on
sold loans under warranty of conforming origination to FHLMC.

     Gains or losses on the sale of mortgage loans and loan participations are
recognized and a premium or discount is recorded at the time of sale in an
amount reflecting the difference between the contractual interest rate of the
loans sold and the current market rate of interest.

                                       12

<PAGE>


     The following table sets forth the loan and mortgage-backed security
activity for the periods indicated.

<TABLE>
<CAPTION>

                                                               Six Months
                                                                 Ended                  Year Ended June 30,
                                                               December 31,  -------------------------------------
                                                                  1999         1999          1998          1997(1)
                                                               ------------  ---------    -----------   ----------
                                                                                       (In Thousands)
<S>                                                             <C>          <C>           <C>          <C>

Beginning of Period:
   Loans, net...............................................    $ 631,371     $ 657,293    $  630,277    $  368,193
   Mortgage-backed securities, net..........................      151,749       126,433       149,169       104,947
                                                                ---------     ---------     ---------     ---------
      Total loans and mortgage-backed securities
        receivable, net, at beginning of period.............      783,120       783,726       779,446       473,140
                                                                ---------     ---------     ---------     ---------
Loan Originations:
   Real Estate:
      One- to four-family...................................       46,155       158,586       149,959        97,732
      Multi-family..........................................        3,635         6,775         5,107         4,101
      Commercial and agricultural...........................       18,454        32,863        28,649         6,069
      Construction..........................................       14,131        21,787        28,127        13,650
                                                                ---------     ---------     ---------     ---------
         Total real estate loan originations................       82,375       220,011       211,842       121,552
                                                                ---------     ---------     ---------     ---------
         Other Loans:
            Commercial......................................       25,143        36,959        44,245        11,684
            Agricultural....................................       12,192        19,643        19,420         9,024
         Consumer...........................................       31,840        81,234        91,202        84,569
                                                                ---------     ---------     ---------     ---------
         Total other loan originations......................       69,175       137,836       154,867       105,277
                                                                ---------     ---------     ---------     ---------
   Total loan originations..................................      151,550       357,847       366,709       226,829
                                                                ---------     ---------     ---------     ---------

Purchases:
   Real estate loans........................................          ---           ---         1,055         1,488
   Loans purchased in acquisition ..........................          ---           ---           ---       218,281
   Mortgage-backed securities...............................       23,020        58,499         6,990         6,928
   Mortgage-backed securities purchased in acquisition .....          ---           ---           ---        91,467
                                                                ---------     ---------     ---------     ---------
                  Total real estate loans and
                   mortgage-backed securities
                   purchased and converted..................       23,020        58,499         8,045       318,164
                                                                ---------     ---------     ---------     ---------
                  Total real estate loans and
                   mortgage-backed securities
                   originated, purchased and converted......      174,570       416,346       374,754       544,993
                                                                ---------     ---------     ---------     ---------

Principal Repayments and Sales:
Principal Repayments:
   Loans....................................................      120,581       278,981       244,519       127,723
   Mortgage-backed securities...............................       13,760        31,764        26,616        23,010
Sales:
   Real estate loans available-for-sale.....................       41,609       105,129        96,520        54,582
   Mortgage-backed securities...............................        1,202           ---         3,193        31,932
                                                                ---------     ---------     ---------     ---------
         Total principal repayments, sales and conversions..      177,152       415,874       370,848       237,247
                                                                ---------     ---------     ---------     ---------
Net loan and mortgage-backed securities activity............       (2,582)          472         3,906       307,746
Changes in allowance for losses, undisbursed loan funds,
 and unearned fees and discounts:
   Real estate loans........................................           20           341           291        (2,209)
   Mortgage-backed securities...............................           51           (63)           58           689
Change in unrealized loss on mortgage-backed securities
        available for sale..................................         (910)       (1,356)           25            80
                                                                ---------     ---------     ---------     ---------
End of Period:
   Loans, net...............................................      620,751       631,371       657,293       630,277
   Mortgage-backed securities...............................      158,948       151,749       126,433       149,169
                                                                ---------     ---------     ---------     ---------
         Total loans and mortgage-backed securities
          receivable, net, at end of period.................    $ 779,699     $ 783,120     $ 783,726     $ 779,446
                                                                =========     =========     =========     =========
<FN>
(1) Includes balances from the Security Bancorp acquisition.
</FN>

</TABLE>

                                       13

<PAGE>


NON-ACCRUING LOANS AND DELINQUENCIES

     DELINQUENCY PROCEDURES. When a borrower fails to make a required payment on
a loan, the Bank attempts to cause the delinquency to be cured by contacting the
borrower. In the case of real estate loans, a late notice is sent 15 days after
the due date. If the delinquency is not cured by the thirtieth day, a second
notice is mailed and, if appropriate, the borrower is contacted by telephone.
Additional written and verbal contacts are made with the borrower between 60 and
90 days after the due date.

     In the event a real estate loan payment is past due for 90 days or more,
the Bank performs an in-depth review of the loan's status, the condition of the
property and circumstances of the borrower. Based upon the results of the
review, the Bank may negotiate and accept a repayment program with the borrower,
accept a voluntary deed in lieu of foreclosure or, when deemed necessary,
initiate foreclosure proceedings. If foreclosed on, real property is sold at a
public sale and the Bank may bid on the property to protect its interest. A
decision as to whether and when to initiate foreclosure proceedings is made by
the Credit Supervisor with the consent of the Credit Manager and is based on
such factors as the amount of the outstanding loan in relation to the original
indebtedness, the extent of delinquency and the borrower's ability and
willingness to cooperate in curing the delinquencies.

     Consumer loans are classified and charged off per OTS Retail Loan
Classification guidelines. The Bank's procedures for repossession and sale of
consumer collateral are subject to various requirements under Montana consumer
protection laws.

     Delinquencies on commercial properties are vigorously pursued when past due
for over 30-days and a forbearance agreement or resolution may be negotiated to
prevent further legal action.

     The following table sets forth the Bank's loan delinquencies by type, by
amount and by percentage of type at December 31, 1999.

<TABLE>
<CAPTION>
                                                  Loans Delinquent For:
                  ----------------------------------------------------------------------------
                         30-59 Days                 60-89 Days              90 Days and Over        Total Delinquent Loans
                  ------------------------- -------------------------  -----------------------  -------------------------
                                   Percent                   Percent                  Percent                    Percent
                                   of Loan                   of Loan                  of Loan                    of Loan
                  Number  Amount   Category Number  Amount   Category  Number  Amount Category  Number  Amount   Category
                  ------  ------   -------- ------  ------   --------  ------  ------ --------  ------  ------   --------
                                                (Dollars in Thousands)
<S>               <C>     <C>       <C>      <C>    <C>       <C>       <C>   <C>      <C>       <C>   <C>        <C>
One- to
four-family......   93    $4,204     1.58%     26   $  999     0.38%      16   $  590    0.22%    135  $ 5,793     2.18%
Multi-family.....    1         1       --      --       --       --       --       --      --       1        1       --
Commercial ......    8     1,242     0.94       5      165     0.12        7      399    0.30      20    1,806     1.36
Agricultural.....   13     2,346     6.81      --       --       --       11    1,112    3.23      24    3,458    10.04
Construction.....    2       144     0.77      --       --       --        3      324    1.73       5      468     2.50
Consumer.........  203     1,871     1.29      64      427     0.29       51      528    0.36     318    2,826     1.94
                   ---    ------              ---   ------               ---   ------             ---  -------
    Total........  320    $9,808               95   $1,591                88   $2,953             503  $14,352
                   ===    ======              ===   ======               ===   ======             ===  =======
</TABLE>

     The following table sets forth the Bank's loan delinquencies by type, by
amount and by percentage of type at June 30, 1999.

<TABLE>
<CAPTION>

                                                  Loans Delinquent For:
                  -----------------------------------------------------------------------------
                         30-59 Days                  60-89 Days              90 Days and Over        Total Delinquent Loans
                  -------------------------  -------------------------  -----------------------  -------------------------
                                   Percent                    Percent                  Percent                    Percent
                                   of Loan                    of Loan                  of Loan                    of Loan
                  Number  Amount   Category  Number  Amount   Category  Number  Amount Category  Number  Amount   Category
                  ------  ------   --------  ------  ------   --------  ------  ------ --------  ------  ------   --------
                                                 (Dollars in Thousands)
<S>               <C>     <C>       <C>       <C>    <C>       <C>       <C>   <C>      <C>       <C>   <C>        <C>
One- to
four-family......   94    $4,410     1.54%      25   $1,111     0.39%      22   $  948    0.33%    141  $ 6,469     2.26%
Multi-family.....    1        82     0.20       --       --       --       --       --      --       1       82     0.20
Commercial ......   21       777     0.67        3       30     0.03        6      106    0.09      30      913     0.79
Agricultural.....    6       866     2.50        4      715     2.07       10    1,097    3.17      20    2,678     7.74
Construction.....    1       180     1.44        1       79     0.63        3      456    3.64       5      715     5.71
Consumer.........  217     2,440     1.61       72      439     0.29       89    1,217    0.80     378    4,096     2.70
                   ---    ------               ---   ------               ---   ------             ---  -------
    Total........  340    $8,755               105   $2,374               130   $3,824             575  $14,953
                   ===    ======               ===   ======               ===   ======             ===  =======

</TABLE>

     CLASSIFICATION  OF ASSETS.  Federal  regulations  require that each savings
institution  classify  its own  assets  on a  regular  basis.  In  addition,  in
connection  with  examinations of savings  institutions,  OTS and FDIC examiners
have authority to identify  problem assets and, if appropriate,  require them to
be classified.  There
                                       14

<PAGE>

are three classifications for problem assets: Substandard, Doubtful and Loss.
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the savings association will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
Substandard assets, with the additional characteristics that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Assets classified
as Substandard or Doubtful require the institution to establish prudent general
allowances for loan losses. If an asset or portion thereof is classified as
Loss, the institution must either establish specific allowances for loan losses
in the amount of 100% of the portion of the asset classified Loss, or charge off
such amount. Western Security reviews its internal classification of its assets
on a regular basis. On the basis of management's review of its assets, at
December 31, 1999 on a net basis, the Bank had classified $7.8 million as
Substandard and $155,000 as Doubtful.

     The following table sets forth as of December 31, 1999 the Bank's
classified assets by type. No multi-family real estate loans, commercial real
estate or construction loans were classified at December 31, 1999.

                                                   (In Thousands)
                                    Substandard   Doubtful     Loss      Total
                                    -----------   --------     ----     -------

One- tofour-family.................   $  589        $  --       $--     $   589
Multi-family.......................      101           --        --         101
Commercial Real Estate.............      169            6        --         175
Agriculture Real Estate............    1,401           --        --       1,401
Construction.......................      324           --        --         324
Commercial ........................      126          149        --         275
Agriculture .......................    4,618           --        --       4,618
Consumer...........................      508           --        --         508
                                      ------        -----       ---     -------
Total..............................   $7,836        $ 155       $--     $ 7,991
                                      ======        =====       ===     =======

     NON-PERFORMING ASSETS. Loans are reviewed periodically and any loan whose
collectibility is doubtful is placed on non-accrual status. All loans other than
one- to four-family are placed on non-accrual status when either principal or
interest is 90 days or more past due, unless, in the judgment of management,
collectibility is considered highly probable and collection efforts are in
progress, in which case interest would continue to accrue. Residential, or one-
to four-family, real estate loans are placed on non-accrual status when either
principal or interest is 120 days or more past due. 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.

     Real estate acquired by Western Security as a result of foreclosure or by
deed in lieu of foreclosure is classified as other real estate owned until it is
sold. When property is acquired, it is recorded at the lower of the related loan
balance, less any specific allowance for loss, or net realizable value at the
date of foreclosure. Any write-down resulting therefrom is charged to the
allowance for loan losses. Upon disposition, all costs incurred in maintaining
the property are expensed. Costs relating to the development and improvement of
the property, however, are capitalized to the extent of net realizable value.

     The Bank considers loans as in-substance foreclosed if the borrower has
little or no equity in the property based upon its current fair value, if
repayment can be expected only to come from operation or sale of the collateral
and if the borrower has effectively abandoned control of the collateral or has
continued to retain control of the collateral but because of the current
financial status of the borrowers, it is doubtful the borrower will be able to
repay in the foreseeable future.

     The following table sets forth the amounts and categories of non-performing
assets in the Bank's loan portfolio. For all periods presented, the Bank did not
have any troubled debt restructurings (which involve forgiving a portion of
interest or principal on any loans or making loans at a rate materially less
than market

                                       15

<PAGE>

rates). Foreclosed assets include assets acquired in settlement of loans, and
are recorded at the lower of the related loan balance, less any specific
allowance for loss, or fair value at the date of foreclosure.

<TABLE>
<CAPTION>
                                                                              June 30,
                                           December 31, ----------------------------------------------------
                                               1999      1999       1998        1997(1)    1996       1995
                                             -------    ------    --------     --------   -------    -------
                                                                  (Dollars in Thousands)
<S>                                           <C>       <C>      <C>           <C>         <C>       <C>
Non-accruing loans:
Real Estate:
         One- to four-family...............    $ 549     $ 521    $ 1,967        $ 842      $ 21      $   --
         Multi-family......................       --        --         89           --        --          --
         Commercial........................      348        --         35           --        --         166
         Construction......................      324       112        362           --        --          --
Agriculture non-real estate................    1,113     1,098         --           --        --          --
     Commercial non-real estate............       51       106         32          102        --          --
     Consumer..............................      508     1,212      1,504          573       383         153
                                             -------   -------    -------      -------    ------      ------
         Total.............................    2,893     3,049      3,989        1,517       404         319
                                             -------   -------    -------      -------    ------      ------
Accruing loans delinquent 90 days or more:
Real Estate
         One- to four-family...............       40       426        442          231       288         253
         Multi-family......................       --        --         --           --        --          --
         Commercial........................       --        --         --           --        --          --
         Construction......................       --       344         --           --        --          --
Agriculture non-real estate................       --        --         --           --        --          --
Commercial non-real estate.................       --        --         10           --        --          --
Consumer                                          20         5        174          605        23           1
                                             -------   -------    -------      -------    ------      ------
         Total.............................       60       775        626          836       311         254
                                             -------   -------    -------      -------    ------      ------
Foreclosed assets:
Real Estate:
         One- to four-family...............       94       238        279           --        --          --
         Multi-family......................       --        --         --           --        --          --
         Commercial........................       --        --         --           --        --          --
         Land..............................       26        26         28           --        --          --

Consumer ..................................       48       106        114           82        --          --
                                             -------   -------    -------      -------    ------      ------
         Total.............................      168       370        421           82        --          --
                                             -------   -------    -------      -------    ------      ------
Total non-performing assets................  $ 3,121   $ 4,194    $ 5,036      $ 2,435    $  715      $  573
                                             =======   =======    =======      =======    ======      ======
Total as a percentage of total assets......     0.31%     0.42%      0.49%        0.25%     0.13%       0.10%
Total allowance for loan losses to non-
   performing loans (exclusive of
foreclosed)................................   174.77%   132.85%    106.33%      197.66%   280.42%     350.35%
Total allowance for loan losses to total
   non-performing assets...................   165.36%   121.13%     97.44%      191.01%   280.42%     350.35%

<FN>
(1) Includes assets from the Security Bancorp acquisition.
</FN>

</TABLE>

     For the six months ended December 31, 1999, gross interest income which
would have been recorded had the non-accruing loans been current in accordance
with their original terms amounted to approximately $193,000.

     At December 31, 1999, Western Security's non-accruing loans were comprised
of fifteen one- to four-family loans totaling $549,000, four non-residential
property loans totaling $348,000, three construction loans totaling $324,000,
eleven agriculture non-real estate loans totaling $1.1 million, three commercial
non-real estate loans totaling $51,000 and forty-seven consumer loans totaling
$508,000. Accruing loans delinquent 90 days or more at December 31, 1999,
includes one, one- to four-family loans totaling $40,000, and three consumer
loans totaling $20,000 which were 100% secured by savings accounts. These loans
continue to accrue interest due to management's belief that the borrowers will
repay these loans.

     At December 31, 1999, there were $94,000 in three foreclosed real estate
loans and $26,000 in one foreclosed residential land loan.

     OTHER LOANS OF CONCERN. In addition to the classified assets and
non-performing loans and foreclosed assets set forth in the preceding tables, as
of December 31, 1999, there were no other loans

                                       16
<PAGE>

identified by the Bank with respect to which known information about the
possible credit problems of the borrowers or the cash flows of the security
properties have caused management to have some doubts 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.

     LOAN LOSS RESERVE ANALYSIS. The allowance for loan losses is established
through a provision for losses on loans based on management's evaluation of the
risk inherent in its loan portfolio and changes in the nature and volume of its
loan activity. Such evaluation, which includes a review of all loans of which
full collectibility may not be reasonably assured, considers the estimated net
realizable value of the underlying collateral, economic conditions, historical
loan loss experience and other factors that warrant recognition in providing for
an adequate allowance for loan losses. In determining the general reserves under
these policies historical charge-offs and recoveries, changes in the mix and
levels of the various types of loans, net realizable values, the current loan
portfolio and current economic conditions are considered. The Bank also requires
additional reserves for all delinquent loans, problem loans and other loans of
concern.

     While management believes that it uses the best information available to
determine the allowance for loan losses, unforeseen market conditions could
result in adjustments to the allowance for loan losses, and net earnings could
be significantly affected, if circumstances differ substantially from the
assumptions used in making the final determination.

     The following table sets forth an analysis of the Bank's allowance for loan
losses.

<TABLE>
<CAPTION>
                                                      Six Months
                                                         Ended                   Year Ended June 30,
                                                     December 31,  -----------------------------------------------
                                                         1999       1999      1998     1997(1)    1996       1995
                                                     ------------  ------- --------  --------- --------- ---------
                                                                                (Dollars in Thousands)
<S>                                                  <C>         <C>      <C>       <C>        <C>       <C>

Balance at beginning of period                        $  5,079    $  4,907 $  4,651  $  2,005   $  2,011  $ 2,030
                                                      ========    ======== ========  ========   ========  =======
Charge-Offs:
Real Estate:
         One- to four-family                               (27)       (177)     ---       (53)       ---       (2)
         Commercial                                        ---         ---      ---       (43)       ---      ---
Other:
         Commercial                                       (161)        (49)     (26)      (47)       ---      ---
         Consumer                                         (798)     (1,002)    (611)     (110)       (11)     (26)
                                                      --------    -------- --------  --------   --------  -------
Total charge-offs                                         (986)     (1,228)    (637)     (253)       (11)     (28)
                                                      --------    -------- --------  --------   --------  -------
Recoveries:
Other:
         Commercial                                          2           6        3       ---        ---      ---
         Consumer                                          186          94       50        18          5        9
                                                      --------    -------- --------  --------   --------  -------
Total recoveries                                           188         100       53        18          5        9
                                                      --------    -------- --------  --------   --------  -------
Net charge-offs                                           (798)     (1,128)    (584)     (235)        (6)     (19)
Provisions charged to operations                           880       1,300      840       400        ---      ---
Reserves acquired                                          ---         ---      ---     2,481        ---      ---
                                                      --------    -------- --------  --------   --------  -------
Balance at end of period                              $  5,161    $  5,079 $  4,907  $  4,651   $  2,005  $ 2,011
                                                      ========    ======== ========  ========   ========  =======

Ratio of net charge-offs during the period to average
  loans outstanding during the period                     0.13%       0.18%    0.09%     0.05%      0.00%    0.18%

Ratio of net charge-offs during the period to average
  non-performing assets during the period                22.06%      25.21%   11.92%    13.12%      1.39%    2.91%

Ratio of allowance for loan losses to loans               0.82%       0.80%    0.74%     0.73%      0.54%    0.64%
receivable, net

-------------
<FN>
(1) Includes reserves acquired in the Security Bancorp acquisition.
</FN>

</TABLE>

                                       17
<PAGE>

     The following table sets forth the distribution of the Bank's allowance for
loan losses at the dates indicated is summarized as follows:

<TABLE>
<CAPTION>

                                At December 31,                                      At June 30,
                            ---------------------    ---------------------------------------------------------------------------
                                     1999                     1999                     1998                   1997(1)
                            ---------------------    ---------------------     --------------------    ---------------------
                                          Percent                  Percent                 Percent                  Percent
                                         of Loans                 of Loans                 of Loans                 of Loans
                                          in Each                  in Each                 in Each                  in Each
                                         Category                 Category                 Category                 Category
                                         to Total                 to Total                 to Total                 to Total
                              Amount       Loans       Amount       Loans       Amount      Loans       Amount       Loans
                            ---------   ----------   ---------    --------     -------     --------    --------     --------
                                                                             (Dollars in Thousands)

<S>                        <C>             <C>      <C>            <C>        <C>           <C>       <C>            <C>
Real Estate:
  One- to four- family      $     760       17.15%   $     838      18.56%     $   927       47.56%    $  2,244       53.82%
  Multi-family                    265        5.98          305       6.75          300        6.38          259        6.21
  Commercial                      790       17.82          710      15.72          550        9.57          479        7.73
  Agricultural                    290        6.54          210       4.65          150        1.65          471        1.23
  Construction                    248        5.60          156       3.45          250        2.62          128        3.07
Other loans:
  Commercial                      388        8.75          468      10.36          450        5.13          ---        4.47
  Agricultural                    540       12.18          460      10.19          400        3.59          ---        2.91
  Consumer                      1,151       25.98        1,369      30.32        1,480       23.50          918       20.56
Unallocated                       729         ---          563        ---          400         ---          152         ---
                            ---------      ------    ---------     ------      -------      ------     --------      ------
      Total                 $   5,161      100.00%   $   5,079     100.00%     $ 4,907      100.00%    $  4,651      100.00%
                            =========      ======    =========     ======      =======      ======     ========      ======

<FN>
(1) Includes reserves acquired in the Security Bancorp acquisition.
</FN>

</TABLE>
                                            At June 30,
                           -----------------------------------------------
                                   1996                     1995
                           ---------------------     --------------------
                                        Percent                  Percent
                                        of Loans                 of Loans
                                        in Each                  in Each
                                        Category                 Category
                                        to Total                 to Total
                            Amount       Loans       Amount       Loans
                           ---------    ---------   ---------    --------
                                       (Dollars in Thousands)

Real Estate:
  One- to four- family     $     539       74.69%   $     175      76.94%
  Multi-family                   136        5.30           12       5.91
  Commercial                     152        4.87           75       3.86
  Agricultural                   ---         ---          ---        ---
  Construction                   164        3.45            5       3.34
Other loans:
  Commercial                     ---         ---          ---        ---
  Agricultural                   ---         ---          ---        ---
  Consumer                       126       11.69          132       9.95
Unallocated                      888         ---        1,612        ---
                           ---------      ------    ---------     ------
      Total                $   2,005      100.00%   $   2,011     100.00%
                           =========      ======    =========     ======

                                       18
<PAGE>


INVESTMENT ACTIVITIES

     SECURITIES. As part of its asset/liability management strategy, the Company
invests in U.S. and local government and agency securities, high quality short-
and medium-term securities, primarily investment grade corporate obligations and
mutual funds and interest-bearing deposits. At December 31, 1999, the Company
did not own any securities of a single issuer which exceeded 10% of the
Company's stockholders' equity, other than U.S. government or federal agency
obligations. At December 31, 1999, the Bank owned $85.2 million of bank
qualified local government agency securities.

     The Bank is required by federal regulations to maintain a minimum amount of
liquid assets that may be invested in specified securities and is also permitted
to make certain other securities investments. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -Liquidity and Capital
Resources" in the Annual Report incorporated by reference herein as Exhibit 13.
Cash flow projections are regularly reviewed and updated to assure that adequate
liquidity is provided. As of December 31, 1999, the Bank's liquidity ratio
(liquid assets as a percentage of net withdrawable savings and current
borrowings) was 15.99% as compared to the OTS requirement of 4.0%.

     The Bank will, in order to reduce interest rate risk, purchase financial
instruments that lock in a spread between interest-earning assets and
interest-bearing liabilities. While these types of financial instruments limit
risk, they also reduce the Bank's ability to maximize profits during periods of
favorable interest trends. See Note 16 of the Notes to Consolidated Financial
Statements in the Annual Report incorporated by reference herein as Exhibit 13.
At December 31, 1999 the Bank had no structured notes.

     The following tables set forth the composition of the securities portfolio
at the dates indicated.

<TABLE>
<CAPTION>


                                                  At December 31,                         At June 30,
                                                 -----------------  ---------------------------------------------------------
                                                      1999                 1999                1998               1997(1)
                                                 -----------------  -----------------   -----------------   -----------------
                                                  Book       % of     Book       % of    Book        % of    Book       % of
                                                 Value       Total   Value      Total    Value      Total   Value       Total
                                                 -------     -----   -------    -----    -----      -----   -----      ------
                                                                            (Dollars in Thousands)
<S>                                            <C>          <C>     <C>         <C>    <C>         <C>     <C>        <C>
Investments held-to-maturity:
 Federal agency obligations                     $    ---       ---% $    ---     0.00%  $  2,994     2.39%  $18,804    23.76%
 U.S. Government obligations                         ---       ---       ---     0.00        100     0.08       297     0.38
 Corporate obligations                             6,991      6.06     6,985     6.20     11,473     9.15     5,980     7.55
 Other investments                                 2,214      1.92     2,250     2.00      2,280     1.82     2,385     3.01
                                                --------    ------   -------   ------   --------   ------   -------   ------
  Total investment securities held-to-maturity     9,205      7.98     9,235     8.20     16,847    13.44    27,466    34.70
                                                --------    ------   -------   ------   --------   ------   -------   ------
Investments available-for-sale:
Federal agency obligations                        85,167     73.79    79,985    70.99     89,781    71.62    45,969    58.08
Corporate obligations                             18,060     15.64    23,374    20.74     18,720    14.93     5,675     7.17
 Other                                             2,985      2.59        82     0.07         10     0.01        39     0.05
                                                --------    ------   -------   ------   --------   ------   -------   ------
  Total investments available for sale           106,212     92.02   103,441    91.80    108,511    86.56    51,683    65.30
                                                --------    ------   -------   ------   --------   ------   -------   ------
Total investment securities                     $115,417    100.00% $112,676   100.00%  $125,358   100.00%  $79,149   100.00%
                                                ========    ======  ========   ======   ========   ======   =======   ======

Average remaining life or term to repricing of
 securities                                             39 mos.           37 mos.             33 mos.             41 mos.

<FN>
(1) Includes assets from the Security Bancorp acquisition.
</FN>

</TABLE>

     For information regarding the estimated market value of investment
securities at December 31, 1999, see Notes 1 and 4 of the Notes to Consolidated
Financial Statements in the Annual Report incorporated by reference herein as
Exhibit 13.

                                       19
<PAGE>


     The following table sets forth the composition and maturities of the
investment securities portfolio as of December 31, 1999.

<TABLE>
<CAPTION>

                                                                                  At December 31, 1999
                                                 --------------------------------------------------------------------------------
                                                  Less Than      1 to 5      5 to 10     Over 10
                                                   1 Year        Years        Years       Years           Total Securities
                                                 -----------  -----------  ----------    -------    -----------------------------
                                                    Cost          Cost        Cost         Cost        Cost          Market Value
                                                 -----------  -----------  ----------    -------    ------------    -------------
                                                                            (Dollars in Thousands)
<S>                                                <C>       <C>           <C>          <C>         <C>              <C>
Investments held-to-maturity:
 U.S. government securities                         $  ---    $    ---      $  ---       $  ---      $    ---         $    ---
 Federal agency obligations                            ---         ---         ---          ---           ---              ---
 Corporate obligations                               2,997       3,994         ---          ---         6,991            6,981
 Other investments                                     ---         238         330        1,646         2,214            2,214
                                                    ------    --------      ------       ------      --------         --------
  Total investment securities held-to-maturity       2,997       4,232         330        1,646         9,205            9,195
                                                    ------    --------      ------       ------      --------         --------

Investments available-for-sale:
 Federal agency obligations                            ---      82,968       2,500        1,863        87,331           85,167
 Corporate obligations                               5,564      12,802         ---           66        18,432           18,060
 Other investments                                      93         ---         149        2,651         2,893            2,985
                                                    ------    --------      ------       ------      --------         --------
  Total investments available for sale               5,657      95,770       2,649        4,580       108,656          106,212
                                                    ------    --------      ------       ------      --------         --------

Total securities                                    $8,654    $100,002      $2,979       $6,226      $117,861         $115,407
                                                    ======    ========      ======       ======      ========         ========

Average weighted yield                                6.09%       5.70%       7.21%        6.41%         5.80%

</TABLE>

                                       20
<PAGE>


     MORTGAGE-BACKED SECURITIES. The Bank purchases mortgage-backed securities
to supplement residential loan production. The type of securities purchased is
based upon the Bank's asset/liability management strategy and balance sheet
objectives. For instance, most of the mortgage-backed investments purchased by
the Bank over the last several years have had adjustable interest rates or short
or intermediate effective terms to maturity. In addition, the Bank has purchased
investment grade, fixed-rate and variable-rate Collateralized Mortgage
Obligations ("CMOs") having estimated average lives from one to twenty years.
CMOs are securities derived by reallocating cash flows from mortgage-backed
securities or from pools of mortgage loans held by a trust. The CMOs acquired by
the Bank are not interest-only or principal- only or residual interests except
for one interest-only CMO totaling $24,000. At December 31, 1999, the book value
of the CMOs was $62.8 million. The book value of all the Bank's mortgage-backed
securities at December 31, 1999 was $158.9 million. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations Quantitative and
Qualitative Disclosures About Market Risk" in the Annual Report incorporated by
reference herein as Exhibit 13. At December 31, 1999, the Bank did not own
mortgage-backed securities of a single issuer which exceeded 10% of the
Company's stockholders' equity, other than U.S. government agency obligations.

     The Bank's mortgage-backed securities are classified as either held-
to-maturity or available-for-sale. Those mortgage-backed securities classified
as held-to-maturity are carried at amortized cost in the Bank's financial
statements. While those mortgage-backed securities classified as
available-for-sale are carried at fair value.

     Substantially all of the Bank's mortgage-backed securities are backed by
federal agencies or have received the highest rating by a nationally recognized
rating agency as of December 31, 1999. The Bank also holds $6.5 million of
mortgage-backed securities issued by private institutions.

     For information regarding the estimated market values of mortgage backed
securities at December 31, 1999, see Notes 1 and 5 of Consolidated Financial
Statements in the Annual Report incorporated by reference herein as Exhibit 13.

     The following table sets forth the book value of the mortgage-backed
securities portfolio, net, in dollar amounts as of the dates indicated.

<TABLE>
<CAPTION>

                                                        At December 31,                 At June 30,
                                                        --------------------------------------------------------
                                                             1999           1999          1998          1997(1)
                                                         -----------     ------------  ----------     ----------
                                                                              (In Thousands)
<S>                                                       <C>            <C>          <C>            <C>
Issuers:
-------

 Federal Home Loan Mortgage Corporation                    $ 36,633       $   42,632   $   51,776     $  66,070
 Federal National Mortgage Association                       19,387           17,021        7,721        12,344
 Government National Mortgage Association                    33,521           19,004       15,218        18,850
 Collateralized Mortgage Obligations - federal agency        62,836           65,102       48,578        45,815
 Other                                                        6,571            7,990        3,140         6,090
                                                           --------       ----------   ----------     ---------
     Total                                                 $158,948       $  151,749   $  126,433     $ 149,169
                                                           ========       ==========   ==========     =========

<FN>
(1) Includes assets from the Security Bancorp acquisition.
</FN>

</TABLE>
                                       21

<PAGE>


     The following table sets forth the contractual maturities, without giving
effect to repricing, of the mortgage-backed securities portfolio, net, at
December 31, 1999.

<TABLE>
<CAPTION>
                                                                                                  Market    December 31,
                                                1 - 3    3 - 5    5 - 10   10 - 15    Over 15     Value         1999
                                                Years     Years    Years   Years       Years    Adjustment     Total
                                                -----    ------   ------   -------    -------   ----------  ------------
                                                                          (In Thousands)
<S>                                             <C>      <C>     <C>        <C>       <C>        <C>        <C>
Held-to-Maturity:

 Federal Home Loan Mortgage Corporation           $---   $1,118   $21,001    $  ---   $   982     $   ---    $  23,101
 Government National Mortgage Association          ---      ---       ---       ---     9,765         ---        9,765
 Collateralized Mortgage Obligations -
 Federal Agency                                     39      144     5,977       485    36,312         ---       42,957
 Other                                             ---       24        24       ---     1,801         ---        1,849
                                                ------   ------   -------   -------   -------     -------    ---------
     Subtotal
                                                    39    1,286    27,002       485    48,860         ---       77,672
                                                ------   ------   -------   -------   -------     -------    ---------

Available for sale:

 Federal Home Loan Mortgage Corporation            ---    1,460     4,657     1,797     5,845        (227)      13,532
 Federal National Mortgage Corporation             611      ---     1,550    13,528     4,316        (618)      19,387
 Government National Mortgage Association          ---      ---    13,384    10,577       288        (493)      23,756
 Collateralized Mortgage Obligations -
      Federal Agency                               ---    2,098     1,968     1,528    15,212        (927)      19,879
 Other                                             ---      ---       ---       ---     4,744         (22)       4,722
                                                ------   ------   -------   -------   -------     -------    ---------
      Subtotal                                     611    3,558    21,559    27,430    30,405      (2,287)      81,276
                                                ------   ------   -------   -------   -------     -------    ---------
          Total                                 $  650   $4,844   $48,561   $27,915   $79,265     $(2,287)   $ 158,948
                                                ======   ======   =======    ======   =======     =======   ==========
</TABLE>


     The following schedule sets forth the contractual maturity and repricing of
the Bank's mortgage-backed securities portfolio, net, at December 31, 1999.
Those which have adjustable or renegotiable interest rates are shown as maturing
in the period during which the contract is subject to repricing.

<TABLE>
<CAPTION>

                                          After 1   After 2  After 3   After 5   After 10            Market    December 31,
                                 1 Year   Through   Through  Through   Through   Through   Over 15   Value         1999
                                 or Less  2 Years   3 Years  5 Years   10 Years  15 Years   Years   Adjustment    Total
                                 -------  -------   -------  -------   --------  --------  -------  ---------- ------------
                                                                  (In Thousands)
<S>                              <C>      <C>       <C>      <C>      <C>       <C>       <C>       <C>          <C>
Mortgage-Backed Securities
  Held-to-Maturity                $  47   $  ---     $  ---  $22,119   $12,549   $   ---   $  ---   $   ---      $ 34,715

Mortgage-Backed Securities
  Available-for-Sale                ---    1,292      2,342    8,153    25,216    18,281    7,473     (1,360)       61,397

Collateralized Mortgage
 Obligations
 Held-to-Maturity                   ---      ---         39    8,404    34,514       ---      ---        ---        42,957

Collateralized Mortgage
 Obligations
 Available-for-Sale                 ---      ---        ---    2,098    12,735     1,528    4,445       (927)       19,879
                                  -----  -------    -------  -------   -------   -------  -------    -------      --------
     Total                        $  47  $ 1,292    $ 2,381  $40,774   $85,014   $19,809  $11,918    $(2,287)     $158,948
                                  =====  =======    =======  =======   =======   =======  =======    =======      ========
</TABLE>

     CASH SURRENDER VALUE OF LIFE INSURANCE POLICIES. Western Security currently
maintains Key Person  Insurance  coverage on certain of its executive  officers.
The purpose of this  insurance  purchase was twofold:  (1) Key Person  Insurance
coverage for the Bank on those job positions and (2) funding of death and salary
continuation plan benefits for certain of those employees.  At December 31, 1999
the Bank had $8.2 million in cash surrender value of life insurance policies.

                                       22

<PAGE>


SOURCES OF FUNDS

     GENERAL. Deposit accounts have traditionally been the principal source of
the Bank's funds for use in lending and for other general business purposes. In
addition to deposits, the Bank derives funds from loan repayments and cash flows
generated from operations. Scheduled loan payments are a relatively stable
source of funds, while deposit inflows and outflows and the related cost of such
funds have varied. Other potential sources of funds available to the Bank
include borrowings from the Federal Home Loan Bank ("FHLB") of Seattle and other
borrowings.

     DEPOSITS. The Bank attracts both short-term and long-term deposits by
offering a wide assortment of accounts and rates. The Bank offers regular
savings accounts, NOW accounts, non-interest bearing demand accounts, money
market accounts and certificates of deposits with varying maturities. Western
Security has not actively sought deposits outside of its primary market area.
Western Security does not have any brokered deposits at this time but may
consider the use of such funds in the future to fund loan growth. The Bank also
accepts deposits of $100,000 or more from municipalities and individuals within
its market area.

     The flow of deposits is influenced by general economic conditions, changes
in money market and prevailing interest rates and competition. The variety of
accounts offered by the Bank has allowed it to be competitive in obtaining funds
and to respond to changes in consumer demand. However, the Bank has become more
susceptible to short term fluctuations in deposit flows, as customers have
become more interest rate conscious. In setting rates, Western Security
regularly evaluates (i) its internal cost of funds, (ii) the rates offered by
competing institutions, (iii) its investment and lending opportunities, (iv) its
liquidity position and (v) its asset/liability position. In order to decrease
the volatility of its deposits, Western Security imposes penalties on early
withdrawal on its certificates of deposit.

     Based on its experience, the Bank believes that the majority of its regular
savings, NOW, non-interest bearing demand accounts, and money market accounts
are relatively stable sources of deposits. The Bank believes that a portion of
regular savings and money market accounts represent certain depositors'
preference for short-term investments in a rising interest rate environment
while certificates of deposit are preferred by those depositors in a declining
interest rate environment. The Bank's ability to attract and maintain
certificates of deposit, and the rates paid thereon, has been and will continue
to be significantly affected by market rates.

                                       23

<PAGE>


     The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Bank for the periods indicated.

<TABLE>
<CAPTION>

                                                Six Months Ended
                                                  December 31,                  Year Ended June 30,
                                                -----------------  ------------------------------------------------------
                                                      1999              1999                1998            1997(1)
                                                -----------------  ------------------ ----------------  -----------------
                                                         Percent             Percent           Percent           Percent
                                                 Amount  of Total   Amount   of Total  Amount  of Total  Amount  of Total
                                                -------- --------  --------  -------- -------- -------- -------- --------
                                                                             (Dollars in Thousands)
<S>                                             <C>       <C>     <C>        <C>     <C>        <C>      <C>      <C>
Transactions and Savings Deposits:

Passbook and savings accounts (2.70 - 2.75%)     $ 87,206   13.25% $ 89,975   13.94%  $ 94,557    14.86% $102,923   16.31%
Money market accounts (2.96 - 4.98%)               78,482   11.92    75,398   11.68     55,464     8.71    49,062    7.78
NOW accounts (1.50%)                               82,506   12.53    77,899   12.07     74,673    11.73    76,582   12.14
Non-Interest bearing demand                        38,724    5.88    35,708    5.53     30,524     4.80    26,050    4.13
                                                 --------  ------  --------  ------   --------   ------  --------  ------
Total non-certificates                            286,918   43.58   278,980   43.22    255,218    40.10   254,617   40.36
                                                 --------  ------  --------  ------   --------   ------  --------  ------


Certificates:

0.00 -  3.99%                                       3,765    0.57     3,385    0.52      1,894     0.30     1,276    0.20
4.00 -  5.99%                                     295,475   44.88   302,629   46.88    269,590    42.36   288,440   45.72
6.00 -  7.99%                                      72,246   10.97    60,545    9.38    109,731    17.24    86,341   13.69
8.00 -  and over                                      ---     ---        10     ---          8      ---       195    0.03
                                                 --------  ------  --------  ------   --------   ------  --------  ------
Total certificates                                371,486   56.42   366,569   56.78    381,223    59.90   376,252   59.64
                                                 --------  ------  --------  ------   --------   ------  --------  ------
Total deposits                                   $658,404  100.00% $645,549  100.00%  $636,441   100.00% $630,869  100.00%
                                                 ========  ======  ========  ======   ========   ======  ========  ======

<FN>
(1) Includes deposits from the Security Bancorp acquisition.
</FN>

</TABLE>

     The following table sets forth the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of December 31,
1999.

<TABLE>
<CAPTION>

                                              0.00-          4.00-           6.00-                        Percent
                                              3.99%          5.99%           7.99%           Total        of Total
                                             -------        -------         -------         ------        --------
                                                                  (Dollars In Thousands)
<S>                                           <C>         <C>            <C>             <C>
Certificate accounts maturing in
quarter ending:

March 31, 2000                                 $3,295      $ 81,408       $ 11,437        $ 96,140         25.88%
June 30, 2000                                      61        68,032          2,793          70,886         19.08
September 30, 2000                                181        42,787          5,246          48,214         12.98
December 31, 2000                                 146        40,577         36,750          77,473         20.85
March 31, 2001                                    ---        12,534          6,559          19,093          5.14
June 30, 2001                                      10        15,087            297          15,394          4.14
September 30, 2001                                 30        10,669            575          11,274          3.03
December 31, 2001                                   1        10,358          1,414          11,773          3.17
March 31, 2002                                      4         4,295            315           4,614          1.24
June 30, 2002                                       8         1,337          1,186           2,531          0.68
September 30, 2002                                 10         1,239          2,453           3,702          1.00
December 31, 2002                                  11         1,524          1,484           3,019          0.81
Thereafter                                          8         5,628          1,737           7,373          2.00
                                               ------      --------       --------        --------        ------
   Total                                       $3,765      $295,475       $ 72,246        $371,486        100.00%
                                               ======      ========       ========        ========        ======

Percent of total                                1.01%        79.54%         19.45%
                                               =====       =======        =======

</TABLE>

                                       24

<PAGE>

     The following table sets forth the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of December 31,
1999.

<TABLE>
<CAPTION>
                                                                     Maturity
                                               ---------------------------------------------------
                                                 3 Months    Over 3 to 6  Over 6 to 12   Over 12
                                                  or Less       Months       Months       Months         Total
                                                 --------    -----------  ------------   --------   ------------
                                                                          (In Thousands)
<S>                                            <C>          <C>          <C>          <C>          <C>
Certificates of deposit less than $100,000      $   78,172   $   62,099   $  106,291   $   70,949   $    317,511
Certificates of deposit of $100,000 or more         12,290        5,856       16,230        7,581         41,957
Public funds(1)                                      5,678        2,931        3,166          243         12,018
                                                ----------   ----------   ----------   ----------   ------------
Total certificates of deposit                   $   96,140   $   70,886   $  125,687   $   78,773   $    371,486
                                                ==========   ==========   ==========   ==========   ============
-----------------------
<FN>
(1) Deposits from governmental and other public entities, includes both over and
under $100,000.
</FN>

</TABLE>

     For additional information regarding the composition of the Bank's
deposits, see Note 9 of the Notes to the Consolidated Financial Statements in
the Annual Report incorporated by reference herein as Exhibit 13.

     BORROWINGS. Western Security's other available sources of funds include
advances from the FHLB of Seattle and other borrowings. As a member of the FHLB
of Seattle, the Bank is required to own capital stock in the FHLB of Seattle and
is authorized to apply for advances from the FHLB of Seattle. Each FHLB credit
program has its own interest rate, which may be fixed or variable, and range of
maturities. The FHLB of Seattle may prescribe the acceptable uses for these
advances, as well as limitations on the size of the advances and repayment
provisions.

     The Bank borrows funds from the FHLB of Seattle under its various fixed
rate, variable rate, and amortizing advance lending programs, with terms
requiring monthly interest payments. Principal payments are due monthly under
the amortizing advance program and upon maturity for all other advance programs.
The Bank is generally required to pay a commitment fee upon application and is
normally subject to a prepayment fee if the advance is prepaid by the Bank. See
Note 11 of the Notes to Consolidated Financial Statements in the Annual Report
incorporated by reference herein as Exhibit 13.

     The following table sets forth the maximum month-end balance and average
balance of FHLB advances, CMO and other borrowings for the periods indicated.

<TABLE>
<CAPTION>
                                                              Six Months
                                                                 Ended
                                                             December 31,            Year Ended June 30,
                                                             ------------    ----------------------------------
                                                                 1999          1999         1998        1997(1)
                                                             ------------    ---------     --------    --------
                                                                                     (In Thousands)
<S>                                                          <C>             <C>          <C>          <C>
Maximum Balance:
---------------
  FHLB Advances                                              $    249,500    $ 257,277     $248,133     $190,338
  Collateralized Mortgage Obligations                                 193          511          775        1,117
  Other Borrowings and Repurchase Agreements                        9,761        7,416       26,099        8,101

Average Balance:
----------------

  FHLB Advances                                                   236,910      222,336      231,613      142,715
  Collateralized Mortgage Obligations                                 155          304          625          967
  Other Borrowings and Repurchase Agreements                        8,184        6,749       12,726        2,731

<FN>
(1) Includes liabilities from the Security Bancorp acquisition.
</FN>

</TABLE>

                                       25

<PAGE>

     The following  table sets forth certain  information  as to the Bank's FHLB
advances, CMO's and other borrowings at the dates indicated.

<TABLE>
<CAPTION>
                                                            December 31,                   June 30,
                                                           -------------   --------------------------------------
                                                                1999           1999         1998        1997(1)
                                                           -------------   ------------  ----------   -----------
                                                                           (Dollars in Thousands)
<S>                                                       <C>              <C>          <C>           <C>

FHLB Advances                                              $     226,769    $  244,048   $  248,133    $ 190,338
Collateralized Mortgage Obligations                                  123           242          511          797
Other Borrowings and Repurchase Agreements                         7,917         6,895        6,542        8,101
                                                           -------------    ----------   ----------    ---------
  Total Borrowings                                         $     234,809    $  251,185   $  255,186    $ 199,236
                                                           =============    ==========   ==========    =========
Weighted Average Interest Rate of FHLB Advances                     5.83%         5.53%        5.83%        6.14%
                                                           =============    ==========   ==========    =========
Weighted Average Interest Rate of
    Collateralized Mortgage Obligations                            11.46%        11.48%       11.48%       11.37%
                                                           =============    ==========   ==========    =========
Weighted Average Interest Rate of Other Borrowings
    and Repurchase Agreements                                       5.11%         4.34%        5.05%        5.30%
                                                           =============    ==========   ==========    =========

<FN>
(1) Includes liabilities from the Security Bancorp acquisition.
</FN>

</TABLE>

                                       26

<PAGE>

INTEREST RATE CAPS AND INTEREST RATE SWAPS

     As explained under Quantitative and Qualitative Disclosures About Market
Risk Discussion and Analysis of Financial Condition and Results of Operations
and Note 16 of the Notes to Consolidated Financial Statements in the Annual
Report incorporated by reference herein as Exhibit 13, the Bank was party to one
interest rate exchange agreement. This agreement covered a total of $5.0 million
in notional principal amounts wherein the interest rate cap entitles the Bank to
receive various interest payments in exchange for payment of a transaction fee,
provided the three-month LIBOR exceeds an agreed upon interest rate. Transaction
fees paid in connection with interest rate cap agreements are 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. Because the Bank receives
various interest payments if the three-month LIBOR exceeds the agreed upon
interest rate, the Bank is generally at risk to the extent of the unamortized
premium paid if the three-month LIBOR does not exceed the agreed upon interest
rate. At December 31, 1999 the amount of the unamortized premiums paid related
to the interest rate cap transactions was $12,460.

SUBSIDIARY ACTIVITIES

     GENERAL. The Company has no direct subsidiaries other than the Bank.
Western Security has three  wholly-owned service subsidiaries:   Service
Corp. of Montana, Inc. ("Service Corp."), Western Security Investment
Services, Inc. ("Western Security Investment") and a special-purpose
finance subsidiary, Monte Mac I, Inc. ("Monte Mac").  The company also
has a 97% partnership interest in COAD Limited Partnership ("COAD").  At
December 31, 1999, Western Security's investment in the three wholly
owned service corporations totaled $2.5 million, or approximately 0.25%
of unconsolidated assets, at such date.

     Federal associations generally may invest up to 2% of their assets in
service corporations, plus an additional 1% of assets for community purposes. In
addition, federal associations may invest up to 50% of their total capital in
conforming loans to their service corporations in which they own more than 10%
of the capital stock. Federal associations are also permitted to invest an
unlimited amount in operating subsidiaries engaged solely in activities which a
federal association may engage in directly.

     The following is a description of the operation of these entities:

     SERVICE CORP. OF MONTANA, INC. This service corporation owns and
operates a 30-unit apartment complex in Lewistown, Montana and two single
family residences in Hamilton, Montana.  Western Security's investment
in Service Corp. totaled $427,000 at December 31, 1999.

     WESTERN SECURITY INVESTMENT SERVICES, INC. Western Security Investment
conducts a securities brokerage business in Western Security's offices and a
real estate rental business. At December 31, 1999, Western Security's investment
in Western Security Investment totaled $585,000.

     COAD LIMITED PARTNERSHIP. In August 1995, Western Security entered into a
Limited Partnership allowing the Bank to take advantage of low income housing
tax credits. The Partnership was involved with the construction of two six-unit
apartment buildings for low to moderate income people. Western Security's
investment in COAD totaled $259,000 at December 31, 1999.

     MONTE MAC I, INC. Monte Mac was formed in 1985 for the purpose of
participating in a collateralized mortgage obligation conduit program. Monte Mac
had participated in three series of CMO issuances. The CMOs are collateralized
by FHLMC participation certificates transferred by Western Security to Monte
Mac. The transferred FHLMC certificates had a book value of $849,000 at December
31, 1999. Western Security's investment in Monte Mac as of December 31, 1999,
included approximately $726,000 in FHLMC certificates in excess of
collateralized mortgage obligations. The payments received on the FHLMC
certificates are used to pay down the CMOs. If the CMOs are paid as originally
projected, the remaining investment in Monte Mac is expected to be minimal.

                                       27

<PAGE>

REGULATION

     GENERAL. The Bank is a federally chartered Bank, the deposits of which are
federally insured and backed by the full faith and credit of the United States
Government. Accordingly, the Bank is subject to broad federal regulation and
oversight extending to all of its operations. The Bank is a member of the FHLB
of Seattle and is subject to certain limited regulation by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). As the
savings and loan holding company of the Bank, the Company is subject to federal
regulation and oversight. The purpose of the regulation of the Company and other
holding companies is to protect subsidiary savings associations. The Bank is a
member of the Savings Association Insurance Fund ("SAIF"), which together with
the Bank Insurance Fund (the "BIF") are the two deposit insurance funds
administered by the FDIC, and the deposits of the Bank are insured by the
Federal Deposit Insurance Corporation (the "FDIC"). As a result, the FDIC has
certain regulatory and examination authority over the Bank.

     Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

     FEDERAL REGULATION OF SAVINGS ASSOCIATIONS. The OTS has extensive authority
over the operations of savings associations. As part of this authority, the Bank
is required to file periodic reports with the OTS and is subject to periodic
examinations by the OTS and the FDIC. The last regular OTS and FDIC examinations
of the Bank were April, 1999 and March 1990, respectively. Under agency
scheduling guidelines, it is likely that another examination will be initiated
in the near future. When these examinations are conducted by the OTS and the
FDIC, the examiners may require the Bank to provide for higher general or
specific loan loss reserves.

     All savings associations are subject to a semi-annual assessment, based
upon the savings association's total assets, to fund the operations of the OTS.
The Bank's OTS assessment for the fiscal year ended December 31, 1999, was
approximately $91,000. Savings associations (unlike the Bank) that are
classified as "troubled" (i.e., having a supervisory rating of "4" or "5" or
subject to a conservatorship) are required to pay higher premiums.

     The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including the Bank and the Company.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.

     In addition, the investment, lending and branching authority of the Bank is
prescribed by federal laws, and it is prohibited from engaging in any activities
not permitted by such laws. For instance, no savings association may invest in
non-investment grade corporate debt securities. In addition, the permissible
level of investment by federal associations in loans secured by non-residential
real property may not exceed 400% of total capital, except with approval of the
OTS. Federal savings associations are also generally authorized to branch
nationwide. The Bank is in compliance with the noted restrictions.

     The Bank's permissible lending limit for loans to one borrower is equal to
the greater of $500,000 or 15% of unimpaired capital and surplus (except for
loans fully secured by certain readily marketable collateral, in which case this
limit is increased to 25% of unimpaired capital and surplus). At December 31,
1999, the Bank's lending limit under this restriction was approximately $11.2
million. The Bank is in compliance with the loans-to-one-borrower limitation.

     The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, internal controls and audit systems, asset
quality, earnings standards, internal controls and audit systems, interest rate
risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these standards must submit a compliance plan.

                                       28

<PAGE>

     Insurance of Accounts and Regulation by the FDIC. The deposits of the Bank
are presently insured by the SAIF. Deposits are insured up to applicable limits
by the FDIC and such insurance is backed by the full faith and credit of the
United States Government. As insurer, the FDIC imposes deposit insurance
premiums and is authorized to conduct examinations of and to require reporting
by FDIC-insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order to pose
a serious risk to the SAIF or the BIF. The FDIC also has the authority to
initiate enforcement actions against savings associations, after giving the OTS
an opportunity to take such action, and may terminate the deposit insurance if
it determines that the institution has engaged in unsafe or unsound practices,
or is in an unsafe or unsound condition.

     The FDIC's deposit insurance premiums are assessed through a risk- based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, based upon their level of
capital and supervisory evaluation. See Note 3 of the Notes to Consolidated
Financial Statements in the Annual Report incorporated by reference herein as
Exhibit 13. Risk classification of all insured institutions will be made by the
FDIC for each semi-annual assessment period.

     The FDIC is authorized to increase assessment rates, on a semiannual basis,
if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.

     REGULATORY CAPITAL REQUIREMENTS. Federally insured savings associations,
such as the Bank, are required to maintain a minimum level of regulatory
capital. The OTS has established capital standards, including a tangible capital
requirement, a leverage ratio (or core capital) requirement and a risk-based
capital requirement applicable to such savings associations. These capital
requirements must be generally as stringent as the comparable capital
requirements for national banks. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.

     The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity, adjusted to eliminate unrealized gains and
losses on certain available-for-sale securities and retained income, and certain
non-cumulative perpetual preferred stock and related income. All intangible
assets must be deducted from tangible capital for calculating compliance with
the requirement. At December 31, 1999, the Bank had unamortized purchased
mortgage servicing rights of $527,000 and goodwill and core deposit intangible
relating to the purchase of Security Bancorp of $18.2 million all of which was
required to be deducted from tangible capital.

     The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries in determining tangible capital. In
determining compliance with the capital requirements, all subsidiaries engaged
solely in activities permissible for national banks or engaged in certain other
activities solely as agent for its customers are "includable" subsidiaries that
are consolidated for capital purposes in proportion to the Bank's level of
ownership, including the assets of includable subsidiaries in which the
association has a minority interest that is not consolidated for purposes of
generally accepted accounting principles ("GAAP"). For excludable subsidiaries
the debt and equity investments in such subsidiaries are deducted from assets
and capital. At December 31, 1999, the Bank was required to deduct $584,000 of
its investment in Service Corp. of Montana, Inc., $585,000 of its investment in
Western Security Investment under these rules and $259,000 of its investment in
COAD.

     At December 31, 1999, the Bank had tangible capital of $69.1 million, or
7.1% of adjusted total assets, which is approximately $54.5 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.

     The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below,
                                       29

<PAGE>

however, a savings association must maintain a core capital ratio of at least 4%
to be considered adequately capitalized unless its supervisory condition is such
to allow it to maintain a 3% ratio. At December 31, 1999, the Bank had no such
intangible assets.

     At December 31, 1999, the Bank had core capital equal to $69.1 million, or
7.1% of adjusted total assets, which is $30.0 million above the minimum leverage
ratio requirement of 4% as in effect on that date.

     The OTS risk-based capital requirement requires savings associations to
have total capital of at least 8% of risk-weighted assets. Total capital
consists of core capital, as defined above, and supplementary capital.
Supplementary capital consists of certain permanent and maturing capital
instruments that do not qualify as core capital and general valuation loan and
lease loss allowances up to a maximum of 1.25% of risk-weighted assets.
Supplementary capital may be used to satisfy the risk-based requirement only to
the extent of core capital. The OTS is also authorized to require a savings
association to maintain an additional amount of total capital to account for
concentration of credit risk and the risk of non-traditional activities. At
December 31, 1999, the Bank had $33,000 of supplementary capital and had $5.2
million of general loss reserves, which was less than 1.25% of risk-weighted
assets, and were included in the $74.3 million of risk- based capital at
December 31, 1999.

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

     On December 31, 1999, the Bank had total risk-based capital of $74.3
million (including $69.1 million in core capital and $5.2 million in qualifying
supplementary capital) and risk-weighted assets of $614.7 million (including
$58,000 in converted off-balance sheet assets); or total risk-based capital of
12.1% of risk-weighted assets. This amount was $25.2 million above the current
8% requirement in effect on that date.

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

     As a condition to the approval of the capital restoration plan, any company
controlling an undercapitalized association must agree that it will enter into a
limited capital maintenance guarantee with respect to the institution's
achievement of its capital requirements.

     Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to other general enforcement actions by the OTS and the FDIC including
the appointment of a conservator or a receiver.

                                       30

<PAGE>

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

     The imposition by the OTS or the FDIC of any of these measures on the Bank
may have a substantial adverse effect on the Bank's operations and
profitability.

     LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. OTS regulations
impose various restrictions on savings associations with respect to their
ability to make distributions of capital which include dividends, stock
redemptions or repurchases, cash-out mergers and other transactions charged to
the capital account.

     Generally, savings associations, such as the Bank, that before and after
the proposed distribution meet their capital requirements, may make capital
distributions during any calendar year equal to the greater of 100% of net
income for the year-to-date plus retained net income for the two preceding
years. However, an association deemed to be in need of more than normal
supervision by the OTS may have its dividend authority restricted by the OTS.
Western Security may pay dividends in accordance with this general authority.

     The OTS regulations permit a savings association to make a capital
distribution without notice to the OTS unless it is a subsidiary of a holding
company, or would not remain well-capitalized following the distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS may object to
a capital distribution if it would constitute an unsafe or unsound practice.

     LIQUIDITY. All savings associations, including the Bank, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what the Bank
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 4%.
The Bank's regulatory ratio was 15.99% at December 31, 1999.

     QUALIFIED THRIFT LENDER TEST. All savings associations, including the Bank,
are required to meet a qualified thrift lender ("QTL") test to avoid certain
restrictions on their operations. This test requires a savings association to
have at least 65% of its portfolio assets (as defined by regulation) in
qualified thrift investments on a monthly average for nine out of every 12
months on a rolling basis. As an alternative, the savings association may
maintain 60% of its assets in those assets specified in Section 7701(a)(19) of
the Internal Revenue Code. Under either test, such assets primarily consist of
residential housing related loans and investments. At December 31, 1999, the
Bank met the test and has always met the test since its effectiveness.

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

                                       31

<PAGE>

     COMMUNITY REINVESTMENT ACt. Under the Community Reinvestment Act ("CRA"),
every FDIC insured institution has a continuing and affirmative obligation
consistent with safe and sound banking practices to help meet the credit needs
of its entire community, including low and moderate income neighborhoods. The
CRA does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the OTS, in connection with
the examination of the Bank, to assess the institution's record of meeting the
credit needs of its community and to take such record into account in its
evaluation of certain applications, such as a merger or the establishment of a
branch, by the Bank. An unsatisfactory rating may be used as the basis for the
denial of an application by the OTS. The Bank was examined for CRA compliance in
September, 1998 and received a rating of satisfactory.

     TRANSACTIONS WITH AFFILIATES. Generally, transactions between a savings
association or its subsidiaries and its affiliates are required to be on terms
as favorable to the association as transactions with non-affiliates. In
addition, certain of these transactions, such as loans to an affiliate, are
restricted to a percentage of the association's capital. Affiliates of the Bank
include the Company and any company which is under common control with the
Company. In addition, a savings association may not lend to any affiliate
engaged in activities not permissible for a bank holding company or acquire the
securities of most affiliates. The Bank's subsidiaries are not deemed
affiliates; however, the OTS has the discretion to treat subsidiaries of savings
associations as affiliates on a case-by-case basis.

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

     HOLDING COMPANY REGULATION. The Company is a unitary savings and loan
holding company subject to regulatory oversight by the OTS. As such, the Company
is required to register and file reports with the OTS and is subject to
regulation and examination by the OTS. In addition, the OTS has enforcement
authority over the Company and its non-savings association subsidiaries which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association.

     As a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than Western Security or any other SAIF-insured savings
association) would become subject to such restrictions unless such other
associations each qualify as a QTL and were acquired in a supervisory
acquisition.

     If Western Security fails the QTL test, the Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Company must register as, and will become
subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See " Qualified Thrift Lender Test."

     The Company must obtain approval from the OTS before acquiring control of
any other SAIF-insured association. Such acquisitions are generally prohibited
if they result in a multiple savings and loan holding company controlling
savings associations in more than one state. However, such interstate
acquisitions are permitted based on specific state authorization or in a
supervisory acquisition of a failing savings association.

     FEDERAL SECURITIES LAW. The Company is registered with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements of the SEC
under the Exchange Act.

                                       32

<PAGE>


     Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.

     FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires all depository
institutions to maintain non-interest-bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At December 31, 1999, the Bank was in compliance with these
reserve requirements. The balances maintained to meet the reserve requirements
imposed by the Federal Reserve Board may be used to satisfy liquidity
requirements that may be imposed by the OTS. See "Liquidity."

     Savings associations are authorized to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board regulations require associations to
exhaust other reasonable alternative sources of funds, including FHLB
borrowings, before borrowing from the Federal Reserve Bank.

     FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of Seattle,
which is one of 12 regional FHLBs, that administers the home financing credit
function of savings associations. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It makes
loans to members (i.e., advances) in accordance with policies and procedures
established by the board of directors of the FHLB, which are subject to the
oversight of the Federal Housing Finance Board. All advances from the FHLB are
required to be fully secured by sufficient collateral as determined by the FHLB.
In addition, all long-term advances are required to provide funds for
residential home financing.

     As a member, the Bank is required to purchase and maintain stock in the
FHLB of Seattle. At December 31, 1999, the Bank had $15.2 million in FHLB stock,
which was in compliance with this requirement. In past years, the Bank has
received substantial dividends on its FHLB stock. Over the past five calendar
years such dividends have averaged 7.42% and were 7.25% and 7.69% for calendar
years 1999 and 1998 respectively.

     Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.

     For the six months ended December 31, 1999, dividends paid by the FHLB of
Seattle to the Bank totaled $538,900 which constitutes a $12,800 increase over
the amount of dividends received over the same period in 1998. There can be no
assurance that such dividends will continue in the future.

     FEDERAL AND STATE TAXATION. The Company, the Bank, and its non-bank
subsidiaries file a consolidated federal and Montana income tax return using the
accrual method of accounting. For fiscal years beginning before January 1, 1997,
Montana state statute prevented filing of a consolidated Montana income tax
return including the Bank; thus, separate returns were filed by the Company
(including the non-bank subsidiaries) and the Bank. Generally, the Company, the
Bank and its non-bank subsidiaries are subject to federal income taxes in the
same manner as other corporations.

     The following discussion of tax matters is intended solely as a summary and
does not purport to be a comprehensive description of all the tax rules
applicable to the Company, the Bank, or its non-bank subsidiaries.

     For taxable years beginning prior to January 1, 1996, savings institutions,
such as the Bank, which met certain definitional tests primarily relating to
their assets and the nature of their business ("qualifying thrifts"), were
permitted to establish a reserve for bad debts and to make annual additions
thereto. These

                                       33

<PAGE>

additions may, within specified formula limits, have been deducted in arriving
at their taxable income. The Bank's deduction with respect to "qualifying
loans," which are generally loans secured by certain interests in real property
including various types of mortgage-backed securities, may have been computed
using an amount based on the Bank's actual loss experience or a percentage equal
to 8% of the Bank's taxable income, computed with certain modifications and
reduced by the amount of any permitted additions to the non-qualifying reserve.
The Bank's deduction with respect to non-qualifying loans was computed under the
experience method which essentially allows a deduction based on the Bank's
actual loss experience over a period of several years. Each year the Bank
selected the most favorable method to calculate the deduction attributable to an
addition to the tax bad debt reserve.

     Federal legislation repealed the reserve method of accounting for bad debt
reserves for tax years beginning after December 31, 1995. As a result, savings
institutions can no longer calculate their deduction for bad debts using the
percentage-of-taxable-income method. Instead, such institutions are required to
compute their deductions based on specific charge-offs during the taxable year
when they otherwise qualify to use the experience method. This legislation also
requires savings institutions to recapture into income over a six-year period
their post- 1987 additions to their tax bad debt reserves, thereby generating
additional current tax liability. The Bank's post-1987 reserves that will be
recaptured into income ratably over a six-year period is $3.2 million. At
December 31, 1999 the Bank's bad debt reserve for tax purposes was approximately
$2.0 million. See Note 13 of the Notes to Consolidated Financial Statements in
the Annual Report incorporated by reference as Exhibit 13.

     CORPORATE ALTERNATIVE MINIMUM TAX - Federal tax law imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss carry-overs. AMTI is increased by an amount
equal to 75% of the amount by which the Bank's adjusted current earnings exceed
its AMTI (determined without regard to this preference and prior to reduction
for net operating losses).

     DIVIDENDS-RECEIVED DEDUCTION AND OTHER MATTERS - The Company may eliminate
from its taxable income dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company or the Bank owns more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
deducted.

     The Company and its consolidated subsidiaries have been audited by the IRS
with respect to consolidated federal income tax returns through June 30, 1989.
In the opinion of management, any examination of still open returns (including
returns of subsidiaries and predecessors, or entities merged with and into the
Company or the Bank) would not result in a deficiency which could have a
material adverse effect on the financial condition of the Company, the Bank and
its consolidated subsidiaries.

     MONTANA TAXATION - Under Montana taxation law, savings institutions, such
as the Bank, are subject to corporation license tax, which incorporates or is
substantially similar to applicable provisions of the Federal Internal Revenue
Code. The corporation license tax is imposed on federal taxable income, subject
to certain adjustments at a rate of 6.75% for 1999.

     DELAWARE TAXATION - As a Delaware holding company, the Company is exempted
from Delaware corporate income tax but is required to file an annual report with
and pay an annual fee to the State of Delaware. The Company is also subject to
an annual franchise tax imposed by the State of Delaware.

IMPACT OF NEW ACCOUNTING STANDARDS

     See Note 1, Summary of Significant Accounting Policies and Note 17, Recent
Accounting Pronouncements Not Yet Adopted in Notes to Consolidated Financial
Statements in the Annual Report incorporated by reference herein as Exhibit 13.

                                       34

<PAGE>

COMPETITION

     The Bank generally faces strong competition both in originating loans and
in attracting deposits. Competition in originating loans comes primarily from
other savings institutions, commercial banks, mortgage bankers, credit unions,
insurance companies and government agencies who also make loans located in the
Bank's primary market areas. The Bank competes for loans principally on the
basis of the interest rates and loan fees it charges, the types of loans it
originates and the quality of services it provides to borrowers.

     The Bank faces substantial competition in attracting deposits from other
savings institutions, commercial banks, securities firms, money market and
mutual funds, credit unions and other investment vehicles. The ability of the
Bank to attract and retain deposits depends on its ability to provide an
investment opportunity that satisfies the requirements of investors as to rate
of return, liquidity, risk, convenient locations and other factors. The Bank
competes for these deposits by offering a variety of deposit accounts at
competitive rates, convenient business hours, a customer oriented staff,
advertising and a branch network in twenty Montana cities.

     Western Security's competition for residential real estate loans is
principally from mortgage bankers, other savings institutions, commercial banks
and other institutional lenders. Competition for commercial real estate loans is
primarily from commercial banks and other savings institutions in Missoula,
Helena, Billings, Great Falls, and Bozeman. Competition for consumer loans is
from commercial banks, credit unions, other savings institutions and consumer
finance companies. Western Security competes for loans principally through the
interest rates and loan fees charged. Western Security's competition for loans
varies from time to time depending upon numerous factors, including the general
availability of lending funds and credit, economic conditions, current interest
rate levels, volatility in the mortgage markets and other factors which are not
readily predictable.



                                       35

<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

     The following table sets forth certain information at December 31, 1999
regarding the executive officers of the Company and the Bank who are not also
directors.

<TABLE>
<CAPTION>

         Name             Age                           Position(s) Held
------------------        ---     ---------------------------------------------------------------
<S>                       <C>     <C>

James A. Salisbury         49     Executive Vice President, Treasurer and Chief Financial Officer
                                       of the Company and the Bank
Charles E. Eiseman         49     Senior Vice President/Western Region
Barry L. Johnston          45     Senior Vice President/Credit Administrator
Marcia Johnson             40     Senior Vice President/Central Operations
John Cromwell              60     Senior Vice President/Human Resource Director
Suzanne Loewen             41     Vice President/Audit/Compliance


</TABLE>

     The business experience of each executive officer who is not also a
director is set forth below.

     JAMES A. SALISBURY. Mr. Salisbury became Treasurer and Chief Financial
officer of the Company in September 1993. Mr. Salisbury joined Western Security
as Treasurer and Chief Financial Officer in 1983. Prior to such time, he was
employed as the Chief Financial Officer for Home Federal from 1980 to 1983. From
1978 to 1980, he was in private practice as a certified public accountant. Mr.
Salisbury is responsible for the formulation and implementation of the policies
and objectives of the Bank's finance, accounting and audit function. He also
serves as Treasurer and Chief Financial Officer of Western Security Investment
Services Inc., Monte Mac I and Service Corporation of Montana. Mr. Salisbury is
a graduate of the University of Montana and is a certified public accountant.

     CHARLES E. EISEMAN. Mr. Eiseman has been employed by Western Security since
December 1975 and became Senior Vice President/Retail Lending Manager in October
1996. Prior to such time, he was employed by Helena Federal Savings and Loan
from 1973 to 1975. Since July 1999, Mr. Eiseman's duties have included
management responsibilities for all Western Montana branches. Mr. Eiseman is a
graduate of the University of Montana.

     BARRY L. JOHNSTON. Mr. Johnston joined Western Security Bank as Senior Vice
President and Credit Administrator in October, 1999. He has over 25 years of
lending and Credit Administration experience. Previous to joining the Bank, he
held Senior Lending Officer and Credit Administration positions with banks
located in Las Vegas, Nevada, Salt Lake City, Utah, and Boise, Idaho. He also
was employed as a National Bank Examiner for ten years. He is responsible for
the functional direction of all lending activities of the bank, including
administration of credit policy, credit support functions, and monitoring of
asset quality. Mr. Johnston is a graduate of the University of Montana.

     MARCIA JOHNSON. Ms. Johnson has been with Western Security since 1981.
Prior to her appointment as Senior Vice President/Central Operations Manager in
July 1999, she served as Vice President/Western Region Loan Administrator. She
is currently responsible for all internal bank operations and information
services functions and serves as Secretary of Service Corporation of Montana.
Ms. Johnson is a graduate of the University of Montana.

     JOHN CROMWELL. Mr. Cromwell joined Western Security as Vice President and
Director of Human Resources in December of 1997. Mr. Cromwell has over 25 years
experience in bank human resources. He was elected Senior Vice President in July
1999. He is responsible for compensation, benefits, personnel, training and the
formulation of Personnel Policies and Procedures. Mr. Cromwell is a graduate of
Rocky Mountain College, Billings and is a certified Senior Professional in Human
Resources by the Society for Human Resource Management.

     SUZANNE LOEWEN. Ms. Loewen joined Western Security Bank in February 1991,
was appointed Vice President/Audit/Compliance in October 1996 and elected
Corporate Secretary of the Holding Company in July 1999. Ms. Loewen has over
nineteen years of banking experience and, prior to her employment with the Bank,
worked as a Project Manager for the Department of Housing and Urban Development.
Her present duties include the supervision of the Bank's audit, compliance and
quality control functions. Ms. Loewen attended the University of Montana.


                                       36

<PAGE>

EMPLOYEES

     At December 31, 1999, the Company had a total of 308 full-time employees
and 63 part-time employees. None of the Bank employees are represented by any
collective bargaining group.

                                       37

<PAGE>

ITEM 2. PROPERTIES

     The following table sets forth information concerning the main office and
each branch office and loan production office of the Bank at December 31, 1999.
At December 31, 1999, the Bank's premises and equipment had an aggregate net
book value of approximately $22.2 million.

                                      Year
                                    Acquired      Owned or    Lease Expiration
          Location                  or Leased      Leased           Date
-----------------------------       ---------     --------    ----------------

Main Office
-----------
         110 East Broadway            1957          Owned            N/A
         Missoula, Montana
Full Service Branches
---------------------
         100 East Broadway            1957          Owned          N/A(1)
         Missoula, Montana
         2230 Brooks                  1966          Owned            N/A
         Missoula, Montana
         1610 S. Third West           1977         Leased       July 1, 2000
         Missoula, Montana
         2601 Garfield                1979          Owned            N/A
         Missoula, Montana
         321 Fuller                   1983          Owned            N/A
         Helena, Montana
         101 Lane Avenue              1983          Owned            N/A
         East Helena, Montana
         601 N. Montana               1983         Leased     December 31, 2000
         Helena, Montana
         3171 N. Montana              1996          Owned            N/A
         Helena, Montana
         501 N. First Street          1980          Owned            N/A
         Hamilton, Montana
         2425 10th Avenue South       1988          Owned            N/A
         Great Falls, Montana
         25 Fifth Street North        1988          Owned            N/A
         Great Falls, Montana
         900 Third Street, NW         1988          Owned            N/A
         Great Falls, Montana
         702 South Main               1988          Owned            N/A
         Conrad, Montana
         2929 Third Avenue North      1991          Owned            N/A
         Billings, Montana
         1101 Main Street             1991          Owned            N/A
         Miles City, Montana
         524 North Cheyenne Avenue    1991          Owned            N/A
         Hardin, Montana
         219 North 26th Street        1967          Owned            N/A
         Billings, Montana
         2675 King Avenue West        1995          Owned            N/A
         Billings, Montana
         2401 Grand Avenue            1975          Owned            N/A
         Billings, Montana
         1546 Main Street             1975          Owned            N/A
         Billings, Montana

                                       38

<PAGE>

                                      Year
                                    Acquired      Owned or    Lease Expiration
          Location                  or Leased      Leased           Date
-----------------------------       ---------     --------    ----------------

         2845 Old Hardin Road         1997          Owned            N/A
         Billings, Montana
         19 Montana Avenue            1987          Owned            N/A
         Laurel, Montana
         405 Main Street              1979          Owned            N/A
         Kalispell, Montana
         320 West Broadway            1980(2)      Leased     January 1, 2008
         Missoula, Montana
         2350 South Reserve           1995         Leased     March 13, 2001
         Missoula, Montana
         221 Second Street NW         1989          Owned           N/A
         Sidney, Montana
         324 Third Avenue             1989          Owned           N/A
         Havre, Montana
         216 Second Avenue East       1994          Owned           N/A
         Malta, Montana
         125 Fourth Street South      1989         Leased       Monthly(3)
         Glasgow, Montana
         102 North Main               1989          Owned           N/A
         Plentywood, Montana
         1880 Harrison Avenue         1994          Owned           N/A
         Butte, Montana
         401 West Main                1994          Owned           N/A
         Lewistown, Montana
         307 East Park Street         1994         Leased      March 1, 2008
         Anaconda, Montana
         2901 West Main               1995         Leased(4)  April 15, 2031
         Bozeman, Montana

 Loan Administration
 -------------------
            1100 South Avenue         1993          Owned           N/A
            Missoula, Montana
            1105 West Sussex          1998          Owned           N/A
            Missoula, Montana

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

(1)  Includes lease for drive-up window which expires in May 2001.
(2)  Property sold 12/97 - leased for 10 years.
(3)  Lease is on a month-to-month basis.
(4)  Land is leased - Western Security owns the building.

     Western Security is in the process of constructing a new full- service
branch at 3045 North Reserve Street in Missoula, Montana. The branch is expected
to be completed June 1, 2000.

ITEM 3. LEGAL PROCEEDINGS

     From time to time, the Company and Western Security are involved as
plaintiff or defendant in various legal proceedings arising in the normal course
of its business. While the ultimate outcome of these various legal proceedings
cannot be predicted with certainty, it is the opinion of management that the
resolution of these legal actions should not have a material effect on the
Company's consolidated financial position, liquidity or results of operations.

                                       39

<PAGE>


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

     No matter was submitted to a vote of stock holders, through the
     solicitation of proxies or otherwise, during the quarter ended December 31,
1999.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
        STOCKHOLDER MATTERS

     The section "General Corporate and Stockholders' Information" contained in
the Company's Annual Report (beginning at page 57 thereto) filed at Exhibit 13
hereto is incorporated in its entirety by reference under this Item 5.

ITEM 6. SELECTED FINANCIAL DATA

     The section "Selected Consolidated Financial and Other Data" contained in
the Company's Annual Report (beginning at page 4 thereto) filed at Exhibit 13
hereto is incorporated in its entirety by reference under this Item 6.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS

     The section "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in the Company's Annual Report (beginning
at page 5 thereto) filed at Exhibit 13 hereto is incorporated in its entirety by
reference under this Item 7.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The section "Consolidated Financial Statements" contained in the Company's
Annual Report (beginning at page 22 thereto) filed at Exhibit 13 hereto is
incorporated in its entirety by reference under this Item 8.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
        AND FINANCIAL DISCLOSURE

     There has been no Current Report on Form 8-K filed within 24 months prior
to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.

                                       40

<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information concerning Directors of the Registrant is incorporated herein
by reference from the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders scheduled to be held on April 25, 2000, except for
information contained under the heading "Compensation Committee Report on
Executive Compensation" and "Stockholder Return Performance Presentation", a
copy of which will be filed not later than 120 days after the close of the
fiscal year. See "Business - Executive Officers of the Company" in Part I of the
Form 10-K for information regarding executive officers.

ITEM 11.  EXECUTIVE COMPENSATION

     Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders scheduled to be held on April 25, 2000, except for information
contained under the heading "Compensation Committee Report on Executive
Compensation" and "Stockholder Return Performance Presentation", a copy of which
will be filed not later than 120 days after the close of the fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on
April 25, 2000, except for information contained under the heading "Compensation
Committee Report on Executive Compensation" and "Stockholder Return Performance
Presentation", a copy of which will be filed not later than 120 days after the
close of the fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy Statement
for the Annual Meeting of Stockholders scheduled to be held on April 25, 2000
except for information contained under the heading "Compensation Committee
Report on Executive Compensation" and "Stockholder Return Performance
Presentation", a copy of which will be filed not later than 120 days after the
close of the fiscal year.

                                       41

<PAGE>


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
         FORM 8-K

(a)(1) Financial Statements:

     The following information appearing in the Registrant's Annual Report to
Stockholders for the year ended December 31, 1999 is incorporated by reference
in this Form 10-K Annual Report as Exhibit 13.

                                                                        Pages in
                                                                         Annual
Annual Report Section                                                    Report
---------------------                                                   --------

Independent Auditors' Report ..........................................    22

Consolidated Balance Sheets -- December 31, 1999 and
 June 30, 1999.........................................................    23

Consolidated Statements of Income -- For the six months ended
 December 31, 1999 and for each of the Years in the Three-Year
 Period Ended June 30,1999.............................................    24

Consolidated Statements of Stockholders' Equity and
 Comprehensive Income -- For the six months ended December 31, 1999
 and for each of the Years in the Three-Year Period Ended
 June 30, 1999.........................................................    25

Consolidated Statements of 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 ...........................................    27

Notes to Consolidated Financial Statements.............................    28



(a)(2)  Financial Statement Schedules:
        -----------------------------

     All financial statement schedules have been omitted as the information is
not required under the related instructions or is inapplicable.

                                       42

<PAGE>

(a)(3)  Exhibits:
        --------
<TABLE>
<CAPTION>
                                                                                            Reference to Prior
                                                                                               Filing of Exhibit
  Regulation S-K                                                                                Number Attached
  Exhibit Number                                 Document                                            Hereto
--------------------   --------------------------------------------------------------------   -------------------
<S>                    <C>                                                                      <C>
          2            Plan of acquisition, reorganization, arrangement, liquidation or               None
                       succession
          3            (i)  Articles of Incorporation                                                   *
                       (ii) By-laws
          4            Instruments defining the rights of security holders, including                   *
                       indentures
          9            Voting trust agreement                                                         None
       10.1            Stock Option and Incentive Plan                                                 **
       10.2            Employee Stock Ownership Plan                                                    *
       10.3            Recognition and Retention Plan                                                  **
       10.4            Salary Continuation Plan                                                         *
       10.5            Directors Deferred Compensation Plan                                             *
       10.6            Benefit Equalization Plan                                                        *
       10.7            Employment Agreements for Messrs. Grimes, Bardwell and Salisbury                **
       10.8            Employment Agreements for Messrs. Brevik, Eiseman and Lovell and Ms.            **
                       Dumontier
       10.9            Annual Management Incentive Plan                                                **
      10.10            Wage Continuation Agreements for Messrs. Grimes, Bardwell and                   **
                       Salisbury
      10.11            Equity Incentive Plan                                                           ***
      10.12            Employment Agreement for David W. Jorgenson, Elaine F. Hine, Stanley            ***
                       R. Hill and Scott W. Sanders
      10.13            Change in Control Agreement for Charles E. Eiseman, Jr.                        10.13
      10.14            Change in Control Agreement for Ralph K. Holliday                              10.14
      10.15            Change in Control Agreement for Marcia L. Johnson                              10.15
      10.16            Change in Control Agreement for Barry L. Johnston                              10.16
      10.17            Change in Control Agreement for Suzanne M. Loewen                              10.17
      10.18            Change in Control Agreement for Sharon E. Woldstad                             10.18
         11            Statement re:  computation of per share earnings                               None
         12            Statement re:  computation of ratios                                       Not required
         13            Annual Report to Security Holders                                               13
         16            Letter re: change in certifying accountant                                     None
         18            Letter re:  change in accounting principles                                    None
         19            Report furnished to security holders                                           None
         21            Subsidiaries of Registrant                                                      21
         22            Published report regarding matters submitted to vote of security               None
                       holders
         23            Consents of experts and counsel                                                 23
         24            Power of Attorney                                                          Not required
         27            Financial Data Schedule                                                         27
         99            Additional exhibits                                                            None


-------------------------
<FN>
*    Filed on September 21, 1993, as exhibits to the Registrant's Form S-1
     registration statement (Registration No. 33-69168) pursuant to the
     Securities Act of 1933. All of such previously filed documents are hereby
     incorporated herein by reference in accordance with Item 601 of Regulation
     S-K.
**   Filed on September 27, 1995, as the exhibits listed above to the
     Registrant's Annual Report on Form 10-K for the year ended June 30, 1995
     pursuant to the Securities Exchange Act of 1934 (File No. 0-22772). All of
     such previously filed documents are hereby incorporated herein by reference
     in accordance with Item 601 of Regulation S-K.
***  Filed on November 19, 1996, as the exhibits listed above to the
     Registrant's Form S-4 registration statement (Registration No. 533-16428)
     pursuant to the Securities Act of 1933 of such previously filed documents
     are hereby incorporated herein by reference in accordance with "Item 601 of
     Regulation S-K."
</FN>

</TABLE>

                                       43

<PAGE>


(b)  Reports on Form 8-K:
     --------------------

     The following reports on Form 8-K have been filed during the three-month
period ended December 31, 1999.

October 7, 1999     Press release to report quarterly dividend declaration of
                    $0.155 per share

October 22, 1999    Press release to report quarterly earnings release

November 4, 1999    Resolution regarding change in fiscal year end. Press
                    release to report change in fiscal year to December 31


December 8, 1999    Press release to report Ralph K. Holliday as new President/
                    Chief Executive Officer


December 23, 1999   Press release to report quarterly dividend declaration of
                    $0.160 per share


                                       44

<PAGE>

                                   SIGNATURES

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

                                  WESTERFED FINANCIAL CORPORATION




Date:  March 30, 2000             By: /s/ Ralph K. Holliday
       --------------                 ---------------------------------
                                      Ralph K. Holliday
                                     (Duly Authorized Representative)

    Pursuant to the  requirements  of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S>                                                <C>

By: /s/ Lyle R. Grimes                            By: /s/ Dr. Marvin Reynolds
    ---------------------------------------              ---------------------------------------
    Lyle R. Grimes,  Chairman of  the Board              Dr. Marvin Reynolds, Director

Date:  March 30, 2000                             Date:  March 30, 2000

By:    /s/ Dr. Otto G. Klein, Jr.                 By: /s/ John E. Roemer
    ---------------------------------------              ---------------------------------------
       Dr. Otto G. Klein, Jr., Director                  John E. Roemer, Vice Chairman

Date:  March 30, 2000                             Date:  March 30, 2000

By: /s/ Laurie C. DeMarois                        By: /s/ James A. Salisbury
    ---------------------------------------              ---------------------------------------
    Laurie C. DeMarois, Director                         James A. Salisbury, Treasurer and Chief
                                                            Financial Officer (Principal Financial
                                                            and Accounting Officer)

Date:  March 30, 2000                             Date:  March 30, 2000

By: /s/ Robert F. Burke                           By: /s/ William Leslie
    ---------------------------------------              ---------------------------------------
    Robert F. Burke, Director                            William Leslie, Director

Date:  March 30, 2000                             Date:  March 30, 2000

By: /s/ David W. Jorgenson                        By: /s/ Ralph K. Holliday
    ---------------------------------------              ---------------------------------------
    David W. Jorgenson, Director and                     Ralph K. Holliday, Director
       Vice President

Date:  March 30, 2000                             Date:  March 30, 2000
</TABLE>

                                       45