SECURITIES
AND EXCHANGE COMMISSION
                                                                               Washington, D.C. 20549

FORM 10-KSB/A

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

|For the fiscal year ended December 31, 2001          OR
|-------------------------------------------------------

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

|Commission File Number:  0-26003                                                                            
|------------------------------------------------------------------------------------------------------------
|                                                                                                            
|ALASKA PACIFIC BANCSHARES, INC.                                                                             
|(Exact name of registrant as specified in its charter)                                                      
|Alaska                                                                                                      
|(State or other jurisdiction of incorporation 
or organization)                                             
|                                                                                                            
|2049 Jordan Avenue, Juneau, Alaska                                                                          
|(Address of principal executive offices)                                                                    
|                                                                                                            
|Registrant's telephone number, including area code:                                                         
|                                                                                                            
|Securities registered pursuant to Section 12(b) of the Act:                                                 
|                                                                                                            
|Securities registered pursuant to Section 12(g) of the Act:  
      
Common Stock, par value $0.01 per share
|(Title of Class)                                                                                            

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

|Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendments to this Form 10-KSB.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The registrant's revenues for
the fiscal year ended December 31, 2001 were $11.8 million.
|-----------------------------------------------------------------------------------------

|As of March 27, 2002, there were issued and outstanding 623,132 shares of the registrant's Common Stock, which are traded on the over-the-counter market through the OTC "Electronic Bulletin Board" under the symbol "AKPB."  Based on the average of the bid and asked prices for the Common Stock on March 27, 2002, the aggregate value of the Common Stock outstanding held by nonaffiliates
of the registrant was $7.9 million (623,132 shares at $12.73 per share).  For purposes of this calculation, officers and directors of the registrant and the registrant's Employee Stock Ownership Plan are considered nonaffiliates.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



DOCUMENTS INCORPORATED BY REFERENCE



1.        Portions of Annual Report to Stockholders for the Fiscal Year Ended December 31, 2001 (Parts I and II)



2.        Portions of Proxy Statement for the 2002 Annual Meeting of Stockholders (Part III)



Transitional Small Business Disclosure Format (check one) 
   Yes       No X

---

The Registrant hereby amends Part II, Item 7 of its Annual
Report for the fiscal year ended December 31, 2001 for the purpose of correcting
a typographical error in the Edgarization process.  Specifically, in the
Independent Auditors' Report on the consolidated financial statements for the
year ended December 31, 2001, the city and state where the audit report was
filed were inadvertently omitted. No other revisions have been made.

---



PART II





Item 7.    Financial Statements



Independent Auditors Report on Consolidated Financial Statements for the year ended December 31, 2001*
            Independent Auditors Report on Consolidated Financial Statements for the year ended December 31, 2000 **
            (a)  Consolidated Statements of Financial Condition as of December 31, 2001 and 2000*
            (b)  Consolidated Statements of Income for the Years Ended December 31, 2001 and 2000*
            (c)  Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 2001 and 2000*
            (d)  Consolidated Statements of Cash Flows For the Years Ended December 31, 2001 and 2000*
            (e)  Notes to Consolidated Financial Statements*



*     Contained in the Annual Report filed as an exhibit hereto and incorporated herein by reference.  All schedules have
                   been omitted as the required information is either inapplicable or contained in the Consolidated Financial
                   Statements or related Notes contained in the Annual Report.

**   Filed as Exhibit 99 hereto.



---





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.



|                        |  | ALASKA PACIFIC BANCSHARES, INC.                                                                                              
|----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------
|Date: November 29, 2002 |  | By: /s/Craig E. Dahl       Craig E. Dahl
       President and Chief Executive Officer
       (Duly Authorized Representative)





---

Exhibit 13
                                                  ANNUAL REPORT TO STOCKHOLDERS



|Message to Shareholders                                                              
|-------------------------------------------------------------------------------------
|Business of the Company                                                              
|Common Stock Information                                                             
|Selected Consolidated Financial Information                                          
|Management's Discussion and Analysis of Financial Condition and Results of Operations
|Independent Auditors' Report                                                         
|Consolidated Financial Statements                                                    
|Notes to Consolidated Financial Statements                                           
|Corporate Information                                                                





---

Message to Shareholders

This is Alaska Pacific Bancshares' third annual report and I am again pleased to be able to report another year of positive results in line with the company's strategic plan.

From any perspective, 2001 was a year filled with extreme events that made dramatic and permanent changes to the social and economic landscape of the nation.  The cascading collapse of the technology stocks, the rapid and record decline in interest rates, and the attack on our nation's freedom, were events that together created conditions with no precedent or defined rules to follow.

However, while preparing for the economic ripple to impact our market, we again experienced the unique nature of the Alaskan economy, which often seems insulated to the economic trends of the rest of the nation.  The same geographic factors that keep our regional economy from experiencing the benefits of economic growth in other areas of the country had the benefit of insulating our economy from most, if not all, of the negative events of the past year.

The business of Alaska Pacific Bank, the company's only operating subsidiary, continued at a steady pace throughout 2001, with growth in both assets and operating income keeping pace with the business plan.   Total assets increased from $135.4 million at the end of 2000 to just over $154.5 million at the end of 2001.  Total deposits increased by over $18 million to $126.3 million at year-end, while net loans grew by $5.4 million ending the year at $110.2 million.

Total loans originated in 2001 were $62 million, compared to $46 million in 2000 and $43.7 million in 1999.  The growth trend reflects both the increased refinancing activity for mortgage loans as well as the bank's increasing role as a serious contender for commercial business.

Management took a major step to control operating expenses by closing two small offices that simply were not meeting financial expectations.  The bank's offices in Wrangell and Auke Bay, Alaska were closed in October 2001.  The closure of both offices required a one-time write-down of  $135,000, which impacted 2001 earnings.   At the same time, the two newest offices in Hoonah and Yakutat, Alaska, opened in December 2000, grew to combined deposits of just over $14 million during the year, contributing significantly to the bank's deposit growth.

The bank continued to expand its commercial product lines with significant growth in its credit card merchant services and on-line Internet banking services for business.  "Web-Link" has proven to be a very competitive and robust cash management product allowing a business to manage its bank accounts, provide direct deposit payroll to its employees,
make federal tax payments electronically and pay vendors online.

The one setback in the bank's product offering that occurred during 2001 was the loss of "Competix" which was being used to underwrite and approve consumer loans throughout the bank's network of offices.  The product
had just been introduced for use over the Internet, when Competix announced it was going out of business as a result of September 11th.  Management has been exploring alternatives for this product offering, and recently signed a contract with CBC Companies.  It is anticipated that online consumer lending will be introduced during the second quarter of 2002.

Basic earnings per share improved from $.20 in 2000 to $.82 in 2001, reflecting progress in line with the company's initial three-year strategic plan.  Management and the board of directors are all committed to meeting the challenges of operating a service organization in Southeast Alaska that meets the needs of business and individual customers while giving our shareholders a fair return on their investment.  Our combined experience in banking and specifically banking in Alaska puts Alaska Pacific Bank in a position to provide an exceptional level of service to our market, and compete effectively with the huge super-regionals, such as Wells Fargo Bank.

Management appreciates your confidence in our company and respects the importance of this investment to you.  We understand our commitment is to you, the shareholder, and will not lose sight of our responsibility to those who have committed their resources to making the company a success.

Respectfully,

/s/ Craig E. Dahl

---



Business of the Company

Alaska Pacific Bancshares, Inc. (the "Company") was organized on March 19, 1999 for the purpose of becoming the holding company for Alaska Pacific Bank (formerly Alaska Federal Savings Bank) (the "Bank"), upon its conversion from a federal mutual savings bank to a federal stock savings bank.  The conversion was completed on July 1, 1999 with the issuance of 655,415 shares of common stock at $10.00 per share.  The Company is not engaged in any significant business activity other than holding the stock of the Bank.  Accordingly, the information in this report, including financial statements and related data, applies primarily to the Bank.

The Bank is a federal stock savings bank originally organized in 1935.  The Bank is regulated by the Office of Thrift Supervision ("OTS"), and its deposits are insured up to applicable limits by the Savings Association Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC").  The Bank has been a member of the Federal Home Loan Bank System since 1937.

The Bank operates as a community-oriented financial institution and is devoted to serving the needs of its customers, primarily in Southeast Alaska.  The Bank's business consists primarily of attracting deposits from the general public and using those funds to originate residential real estate loans, commercial real estate loans, commercial business loans, and a variety of consumer loans.

Common Stock Information

The Company's common stock is traded on the over-the-counter market through the OTC "Electronic Bulletin Board" under the symbol "AKPB."  As of December 31, 2001, there were approximately 500 stockholders of record and 623,132 shares outstanding (including 34,621 unearned Employee Stock Ownership Plan ("ESOP") shares).  Generally, if the Bank satisfies its regulatory capital requirements, it may make dividend payments up to the limits prescribed in the OTS regulations.  However, institutions that have converted to the stock form of ownership may not declare or pay a dividend on, or repurchase any of, its common stock if the effect thereof would cause the regulatory capital of the institution to be reduced below the amount required for the liquidation account which was established in connection with the Bank's mutual-to-stock conversion.

The following table sets forth market price information of the Company's stock for 2000 and 2001.

|                         | Market Price |       
|------------------------ | ------------ | ------
|Years Ended December 31, | High         | Low   
|2000:                    |              |       
|First Quarter            | $10.25       | $ 8.75
|Second Quarter           | 9.88         | 8.75  
|Third Quarter            | 12.50        | 9.75  
|Fourth Quarter           | 11.88        | 11.38 
|2001:                    |              |       
|First Quarter            | 12.19        | 11.13 
|Second Quarter           | 11.60        | 11.12 
|Third Quarter            | 11.39        | 10.90 
|Fourth Quarter           | 11.09        | 10.45 



---



Selected Consolidated Financial Information

This information should be read in conjunction with the Consolidated Financial Statements and related Notes thereto included elsewhere in this report.  All years earlier than 2000 began prior to the Company's initial public offering on July 1, 1999; therefore, per-share information is not presented.

|Financial Condition Data:                                       |            |          |          |          |         
|--------------------------------------------------------------- | ---------- | -------- | -------- | -------- | --------
|(in thousands) December 31,                                     | 2001       | 2000     | 1999     | 1998     | 1997    
|Total assets                                                    | $154,572   | $135,465 | $121,542 | $110,806 | $114,476
|Loans, net                                                      | 110,253    | 104,836  | 85,796   | 70,836   | 78,720  
|Loans held for sale                                             | 995        | 735      | 1,359    | 899      | 440     
|Investment securities available for sale                        | 12,351     | 16,257   | 19,849   | 18,176   | 13,334  
|Investment securities held to maturity                          | -          | -        | -        | -        | 6,196   
|Cash, due from banks, and interest-earning
   deposits in banks | 23,886     | 6,847    | 7,785    | 14,584   | 10,130  
|Deposits                                                        | 126,309    | 107,989  | 102,547  | 101,945  | 96,959  
|Federal Home Loan Bank advances                                 | 13,000     | 13,400   | 5,000    | -        | 9,000   
|Shareholders' equity                                            | 12,991     | 12,383   | 12,477   | 7,250    | 7,140   
|                                                                |            |          |          |          |         
|Operating Data:                                                 |            |          |          |          |         
|(in thousands) Year ended December 31,                          | 2001       | 2000     | 1999     | 1998     | 1997    
|Interest income                                                 | $10,582    | $9,843   | $8,477   | $8,218   | $8,479  
|Interest expense                                                | 4,441      | 4,398    | 3,669    | 3,807    | 4,031   
|Net interest income                                             | 6,141      | 5,445    | 4,808    | 4,411    | 4,448   
|Provision for loan losses                                       | 210        | 395      | 15       | 60       | 25      
|Net interest income after provision for loan losses             | 5,931      | 5,050    | 4,793    | 4,351    | 4,423   
|Noninterest income                                              | 1,212      | 813      | 713      | 888      | 796     
|Noninterest expense                                             | 6,683      | 5,744    | 5,235    | 4,903    | 4,620   
|Income before income tax                                        | 460        | 119      | 271      | 336      | 599     
|Income tax benefit                                              | -          | -        | -        | -        | (100)   
|Net income                                                      | $      460 | $   119  | $   271  | $   336  | $   699 
|                                                                |            |          |          |          |         
|Net income per share:                                           |            |          |          |          |         
|Basic                                                           | $   0.82   | $ 0.20   | -        | -        | -       
|Diluted                                                         | 0.80       | 0.20     | -        | -        | -       



---



|Other Data:                   |        |        |        |        |       
|----------------------------- | ------ | ------ | ------ | ------ | ------
|December 31,                  | 2001   | 2000   | 1999   | 1998   | 1997  
|Number of:                    |        |        |        |        |       
|Real estate loans outstanding | 924    | 896    | 824    | 720    | 931   
|Deposit accounts              | 16,382 | 13,434 | 12,436 | 12,508 | 12,735
|Full service offices          | 7      | 9      | 7      | 6      | 6     

|Key Financial Ratios:                                                         |        |        |        |        |       
|----------------------------------------------------------------------------- | ------ | ------ | ------ | ------ | ------
|At and for Year ended December 31,                                            | 2001   | 2000   | 1999   | 1998   | 1997  
|Performance ratios:                                                           |        |        |        |        |       
|Return on average assets                                                      | 0.32%  | 0.09%  | 0.23%  | 0.31%  | 0.63% 
|Return on average equity                                                      | 3.63   | 0.96   | 2.68   | 4.67   | 10.36 
|Interest rate spread(1)                                                       | 4.04   | 4.18   | 4.11   | 3.99   | 4.02  
|Net interest margin:                                                          |        |        |        |        |       
|On average earning assets                                                     | 4.51   | 4.63   | 4.44   | 4.29   | 4.26  
|On average total assets                                                       | 4.23   | 4.32   | 4.09   | 4.01   | 3.99  
|Average interest-earning assets to average
      interest-bearing liabilities | 114.49 | 112.08 | 109.83 | 108.11 | 106.29
|Noninterest expense as a percent of
      average total assets                | 4.60   | 4.55   | 4.45   | 4.45   | 4.15  
|Efficiency ratio(2)                                                           | 95.73  | 93.50  | 95.70  | 98.71  | 90.78 
|                                                                              |        |        |        |        |       
|Asset Quality Ratios:                                                         |        |        |        |        |       
|Nonaccrual loans as a percent of net loans                                    | 1.23   | 0.79   | 0.08   | -      | 0.18  
|Nonperforming assets as a percent of total
       assets                      | 0.99   | 0.69   | 0.18   | 0.28   | 0.13  
|Allowance for losses as a percent of total
       loans                       | 0.84   | 0.75   | 0.66   | 0.94   | 0.94  
|Allowance for losses as a percent of
       nonperforming loans               | 69.09  | 94.60  | 814.29 | -      | 514.38
|Net chargeoffs to average loans                                               | 0.05   | 0.18   | 0.14   | 0.19   | -     
|                                                                              |        |        |        |        |       
|Equity Ratios:                                                                |        |        |        |        |       
|Total equity to assets                                                        | 8.40   | 9.14   | 10.27  | 6.54   | 6.24  
|Average equity to average assets                                              | 8.73   | 9.81   | 8.59   | 6.54   | 6.06  

(

---

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

The following discussion is intended to assist in understanding the consolidated financial condition and results of operations of the Company.  The Company is not engaged in any significant business activity other than holding the stock of the Bank.  Accordingly, the information in this discussion applies primarily to the Bank.  The information contained in this section should be read in conjunction with the consolidated financial statements and the accompanying notes elsewhere in this annual report.  In the following discussion, except as otherwise noted, references to "2001" or "2000" indicate the year ended December 31, 2001 or 2000.

The Bank's results of operations depend primarily on its net interest income, which is the difference between the income earned on its interest-earning assets, consisting of loans and investments, and the cost of its interest-bearing liabilities, consisting of deposits and Federal Home Loan Bank ("FHLB") borrowings. Among other things, fee income, provisions for loan losses, operating expenses and income tax provisions also affect the Bank's net income.  General economic and competitive conditions, particularly changes in market interest rates, government legislation and policies concerning monetary and fiscal affairs, housing and financial institutions and the attendant actions of the regulatory authorities also significantly affect the Bank's results of operations.

Forward-Looking Statements

This annual report contains forward-looking statements which are based on assumptions and describe future plans, strategies and expectations of the Company.  These forward-looking statements are generally identified by use of the word "believe," "expect," "intend," "anticipate," "estimate," "project," or similar words.  The Company's ability to predict results or the actual effect of future plans or strategies is uncertain.  Factors which could have a material adverse effect on our operations include, but are not limited to, changes in interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in our market areas, and accounting principles and guidelines.  You should consider these risks and uncertainties in evaluating forward-looking statements and you should not rely too much on these statements.

Operating Strategy

The Company's strategy is to operate a community-oriented financial institution devoted to serving the needs of its customers.  The Company's business consists primarily of attracting retail deposits from the general public and using those funds to originate residential real estate loans, commercial real estate loans, commercial business loans, and a variety of consumer loans.

Comparison of Financial Condition at December 31, 2001 and 2000

Total assets increased $19.1 million, or 14.1%, to $154.6 million at December 31, 2001 from $135.5 million at December 31, 2000.  The increase is primarily due to an increase in deposits, which funded increases in loans and interest earning deposits in banks.

---

Loans increased $5.6 million, or 5.3%, to $111.2 million at December 31, 2001 from $105.6 million at December 31, 2000.  The growth was the result of continued strong loan originations, offset by more rapid loan prepayments, especially in mortgage loans.  Particular gains were made in construction loans, which increased $3.7 million, or 217%, and in commercial business loans, which increased $3.5 million, or 34%.  A comparison of the composition of the portfolio at both dates is as follows:



|(dollars in thousands) December 31, | 2001     | 2000   
|----------------------------------- | -------- | -------
|                                    | Amount   | Percent
|Real estate:                        |          |        
|Permanent:                          |          |        
|One- to four-family                 | $49,242  | 44.29% 
|Multifamily                         | 1,972    | 1.77   
|Commercial nonresidential           | 17,470   | 15.71  
|Land                                | 5,366    | 4.83   
|Construction:                       |          |        
|One- to four-family                 | 4,006    | 3.60   
|Commercial nonresidential           | 1,378    | 1.24   
|Commercial business                 | 14,000   | 12.59  
|Consumer:                           |          |        
|Home equity                         | 9,918    | 8.92   
|Boat                                | 5,538    | 4.98   
|Automobile                          | 1,289    | 1.16   
|Other                               | 1,013    | 0.91   
|Total loans                         | 111,192  | 100.00%
|Less:                               |          |        
|Allowance for loan losses           | 939      |        
|Loans, net                          | $110,253 |        



Cash and cash equivalents increased $17.0 million to $23.9 million at December 31, 2001, compared to $6.8 million at December 31, 2000.  The increase was primarily the result of increased deposits.  Subsequent to year end, $8.0 million of this liquidity was used to reduce one-year FHLB advances maturing in the first two months of 2002.  The remainder is intended to be used primarily to fund growth in loans and other earning assets in 2002.

Available-for-sale securities decreased $3.9 million to $12.4 million at December 31, 2001, compared to $16.3 million at December 31, 2000.  The decrease resulted from principal repayments.

Premises and equipment decreased $338,000, or 9.8%, to $3.1 million at December 31, 2001 from $3.4 million at December 31, 2000, primarily as a result of depreciation which exceeded new additions.

Total deposits increased a significant $18.3 million, or 17.0%, to $126.3 million at December 31, 2001 from $108.0 million at December 31, 2000.  Approximately $10.5 million of the increase was attributable to the new Hoonah and Yakutat offices that opened in December 2000, offset by a $734,000 decrease in deposits at the Auke Bay and Wrangell offices that closed in October 2001.  The remainder is likely attributable to increased liquidity in the economy as well as strong marketing efforts aimed at increasing deposits from business customers.  Noninterest-bearing demand deposits, which traditionally have been a very small part of deposits for thrift institutions, increased during 2001 by $4.7 million, or 57.8%, comprising 10.2% of total deposits at December 31, 2001.

Total shareholders' equity increased $608,000 to $13.0 million at December 31, 2001 compared to $12.4 million at December 31, 2000.  The increase is primarily the result of net income of $460,000 and a $148,000 improvement in unrealized gains and losses on securities available for sale.

---

Comparison of Operating Results for the Years Ended December 31, 2001 and 2000

General.  During 2001, the Bank continued a strategy of increasing deposits and earning assets as part of a long-term plan for growth to a more optimal size in relation to the existing infrastructure of employees, office locations and equipment.

Net Income.  Net income increased by $341,000, or 286.5%, to $460,000 for 2001, compared to $119,000 for 2000.  The increase in net income is the result of higher revenues and a lower provision for loan losses, offset by higher noninterest expense, including the cost of closing two unprofitable branches.  For purposes of comparison, income might be separated into major components as follows:

|                                                    |         |         | Increase  
|--------------------------------------------------- | ------- | ------- | ----------
|(in thousands) Year ended December 31,              | 2001    | 2000    | (Decrease)
|Net interest income                                 | $6,141  | $5,445  | $  696    
|Gain on sale of mortgage loans                      | 372     | 115     | 257       
|Other noninterest income                            | 840     | 698     | 142       
|Net revenues                                        | 7,353   | 6,258   | 1,095     
|Noninterest expense, excluding branch closure costs | (6,548) | (5,744) | (804)     
|Subtotal                                            | 805     | 514     | 291       
|Provision for loan losses                           | (210)   | (395)   | 185       
|Net income, excluding branch closure costs          | 595     | 119     | 476       
|Branch closure costs                                | (135)   | -       | (135)     
|Net income                                          | $  460  | $   119 | $  341    

Net Interest Income. Net interest income increased $696,000, or 12.8%, to $6.1 million in 2001 from $5.4 million in 2000.  The improvement resulted primarily from an increase in average earning assets.  Average earning assets increased $18.4 million, or 15.7%, to $136.0 million in 2001 from $117.6 million in 2000.  See the table in "Average Balances, Interest and Average Yields/Cost" elsewhere in this discussion.

Total interest income increased $739,000, or 7.5%, to $10.6 million in 2001 from $9.8 million in 2000, primarily due to the increase in average earning assets.  Offsetting the increase in total average earning assets was a decline in the average yield on earning assets to 7.78% in 2001 from 8.37% in 2000, primarily due to lower market interest rates.

Total interest expense increased $43,000, or 1.0%, to $4.44 million in 2001 from $4.40 million in 2000.  The small net change is reflective of higher average deposits and borrowings, offset by lower average rates.

The net interest margin on average earning assets declined to 4.51% in 2001 from 4.63% in 2000, reflecting a number of factors.  While interest-bearing liabilities cost less as market interest rates decline, the relative amount of downward change tends to be limited in the lower-rate demand and savings deposits as market rates approach historical lows as they did late in 2001.  In addition, the rapid rise in deposits during 2001 resulted in relatively higher balances in low-earning cash equivalents on the asset side of the balance sheet.  A positive factor was the increase in noninterest-bearing demand deposits, although the relative benefit of this trend is not as important as when market interest rates are higher.

Noninterest Income.Total noninterest income increased $399,000, or 49.1%, to $1.2 million in 2001, compared with $813,000 in 2000.

---

A portion of the increase is attributable to a $257,000 increase in gains on sale of mortgage loans.  Such gains are a part of the Bank's core business, but tend to be much more variable than other components of noninterest income due to (1) changes in market interest rates which greatly affect the level of mortgage refinancing activity and (2) management's ongoing decisions on what portion of the mortgage loan production is sold or kept in the loan portfolio.  Generally the "keep or sell" decisions are made for purposes of overall asset and liability management, including managing interest-rate risk.

Excluding gains on sale of mortgage loans, noninterest income increased $142,000, or 20.3%, to $840,000 in 2001 compared with $698,000 in 2000.  The largest contributors to this increase were service charges on deposit accounts and other service charges and fees which together increased $129,000, or 25.0%.  The increase in service charge income is attributable to continued growth deposits, particularly checking accounts, and other new business.

Noninterest Expense.Noninterest expense was $6.7 million for 2001, compared to $5.7 million for 2000, an increase of $939,000, or 16.3%.  Included in this increase are two items which affect the comparability of the amounts.  First, 2001 included costs of $135,000 for closing two unprofitable offices - the Wrangell Office in Wrangell, Alaska and the Auke Bay Office in Juneau, Alaska.  These offices were closed in October 2001 to reduce operating costs and improve efficiency.

In addition, noninterest expense in 2001 included $363,000 for two new offices in Hoonah and Yakutat, Alaska, opened in December 2000.  These branches were opened as the sole financial institutions in these communities, under an arrangement with KeyBank whereby it agreed, for a fee, to close its office in each community and facilitate the movement of customers' accounts to the Bank.  Most of the former KeyBank customers moved their accounts to the Bank during 2001 in a gradual transition, but the branches did not contribute revenues for the entire year commensurate with the level of costs.  The $99,000 fee paid to KeyBank is accounted for as an intangible asset and amortized to expense over an estimated useful life of seven years.

Noninterest expense, excluding the branch closure costs and operating costs of the new offices, increased $441,000, or 7.7%, from 2000 to 2001.  The most significant contributor to this increase was compensation and benefits expense which, excluding the new offices, increased $318,000, or 11.0%.  This increase includes performance-based employee bonuses of $111,000 as well as normal pay increases and higher costs of benefits.

Income Taxes.The Company did not recognize any tax on current income in 2001 or 2000 because of the existence of $3.5 million in net operating loss carryforwards, which expire in various years beginning in 2004 through 2021.  At December 31, 2001, the Company had $1.4 million in net deferred tax assets, which were offset by a valuation allowance of $1.1 million.  Net deferred tax assets of $300,000 have been recognized in income in past years and are included in other assets at December 31, 2001. Based on projected earnings, management believes that the net deferred tax asset is recoverable.

Provision and Allowance for Loan Losses

Provisions for loan losses are charges to earnings to bring the total allowance for loan losses to a level considered by management as adequate to provide for known and inherent risks in the loan portfolio, including management's continuing analysis of factors underlying the quality of the loan portfolio.

The provision for loan losses decreased to $210,000 for 2001 compared to $395,000 for 2000 and $15,000 for 1999.  The provisions for both years were considered appropriate in order for the allowance for loan losses to reflect management's best estimate of losses inherent in the loan portfolio.  The allowance for loan losses was $939,000 (0.84% of total loans) at December 31, 2001, compared with $788,000 (0.75% of total loans) and $570,000 (0.66% of total loans) at December 31, 2000 and 1999, respectively.  The provisions and the resulting allowance are reflective of numerous factors, including the following:

---

- Loan losses
- Growth and composition of the portfolio
- Management analysis of potential problem loans
- Nonperforming and classified loans.
Nonaccrual loans increased to $1.36 million (1.2% of total loans) at December 31, 2001, from $833,000 (0.79% of total loans) at December 31, 2000 and $70,000 (0.08% of total loans) at December 31, 1999.  Loans classified as "substandard" or "doubtful" decreased to $995,000 (0.94% of total loans) at December 31, 2001, from $1.2 million (1.1% of total loans) at December 31, 2000, but increased from $40,000 (0.05% of total loans) at December 31, 1999.
- Economic conditions.
Management considered known economic conditions in each of the geographic areas that the Bank makes loans.  For the last several years, Southeast Alaska's economy has been relatively "flat" but stable, and management knows of no current economic conditions which warrant expectations of significant growth or decline in the Bank's markets.  However, factors in both the national and local economies have tended to increase the level of uncertainty, and this has been considered in assessing the allowance.

While management believes that it uses the best information available to determine the allowance for loan losses, unforeseen market conditions and other events might result in adjustment to the allowance for loan losses if circumstances differ substantially from the assumptions used in making the final determination.  One or more of these events could have a significant effect on net income, and the effect could be both material and adverse.

For further information on the Bank's accounting for the allowance for loan losses as well as how loan impairment is determined, see Note 1 of Notes to Consolidated Financial Statements.

---

Average Balances, Interest and Average Yields/Cost

The earnings of the Company depend largely on the spread between the yield on interest-earning assets, which consist primarily of loans and investments, and the cost of interest-bearing liabilities, which consist primarily of deposit accounts and borrowings, as well as the relative size of the Company's interest-earning assets and interest-bearing liabilities.

The following table sets forth, for the periods indicated, information regarding average balances of assets and liabilities as well as the total dollar amounts of interest income from average interest-earning assets and interest expense on average interest-bearing liabilities, resultant yields, interest rate spread, net interest margin, and ratio of average interest-earning assets to average interest-bearing liabilities.  Average balances are generally daily averages for the period.

|(dollars in thousands)Year ended December 31,                                      |                 | 2001     |                     |  |                 | 2000     |                     
|---------------------------------------------------------------------------------- | --------------- | -------- | ------------------- |  | --------------- | -------- | --------------------
|                                                                                   | Average Balance | Interest | Average Yield/ Cost |  | Average Balance | Interest | Average Yield/
 Cost
|Interest-earning assets:                                                           |                 |          |                     |  |                 |          |                     
|Loans(1)                                                                           | $112,030        | $9,295   | 8.30%               |  | $97,092         | $8,496   | 8.75%               
|Investment securities(1)                                                           | 16,346          | 1,068    | 6.53                |  | 18,755          | 1,246    | 6.64                
|Interest-earning deposits in banks                                                 | 7,629           | 219      | 2.88                |  | 1,721           | 101      | 5.87                
|Total interest-earning assets                                                      | 136,005         | 10,582   | 7.78                |  | 117,568         | 9,843    | 8.37                
|Allowance for loan losses                                                          | (796)           |          |                     |  | (549)           |          |                     
|Cash and due from banks                                                            | 4,778           |          |                     |  | 3,754           |          |                     
|Other assets                                                                       | 5,159           |          |                     |  | 5,371           |          |                     
|Total assets                                                                       | $145,146        |          |                     |  | $126,144        |          |                     
|                                                                                   |                 |          |                     |  |                 |          |                     
|Interest-bearing liabilities:                                                      |                 |          |                     |  |                 |          |                     
|Deposits:                                                                          |                 |          |                     |  |                 |          |                     
|Interest-bearing demand                                                            | $ 26,922        | $  461   | 1.71%               |  | $ 25,224        | $   543  | 2.15%               
|Money market                                                                       | 18,004          | 571      | 3.17                |  | 15,259          | 607      | 3.98                
|Savings                                                                            | 18,817          | 494      | 2.63                |  | 17,734          | 534      | 3.01                
|Certificates of deposit                                                            | 41,893          | 2,154    | 5.14                |  | 35,229          | 1,974    | 5.60                
|Total interest-bearing deposits                                                    | 105,636         | 3,680    | 3.48                |  | 93,446          | 3,658    | 3.91                
|Borrowings                                                                         | 13,155          | 761      | 5.78                |  | 11,446          | 740      | 6.47                
|Total interest-bearing liabilities                                                 | 118,791         | 4,441    | 3.74                |  | 104,892         | 4,398    | 4.19                
|Noninterest-bearing demand deposits                                                | 11,167          |          |                     |  | 6,492           |          |                     
|Other liabilities                                                                  | 2,516           |          |                     |  | 2,385           |          |                     
|Shareholders' equity                                                               | 12,672          |          |                     |  | 12,375          |          |                     
|Total liabilities and shareholders' equity                                         | $145,146        |          |                     |  | $126,144        |          |                     
|                                                                                   |                 |          |                     |  |                 |          |                     
|Net interest income                                                                |                 | $6,141   |                     |  |                 | $5,445   |                     
|                                                                                   |                 |          |                     |  |                 |          |                     
|Interest rate spread                                                               |                 |          | 4.04%               |  |                 |          | 4.18%               
|                                                                                   |                 |          |                     |  |                 |          |                     
|Net interest margin:                                                               |                 |          |                     |  |                 |          |                     
|On average interest-earning assets                                                 |                 |          | 4.51%               |  |                 |          | 4.63%               
|On average total assets                                                            |                 |          | 4.23%               |  |                 |          | 4.32%               
|                                                                                   |                 |          |                     |  |                 |          |                     
|Ratio of average interest-earning assets
  to average interest-bearing liabilities | 114.49%         |          |                     |  | 112.08%         |          |                     

(1)

---

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on net interest income of the Company.  Information is provided with respect to effects on interest income attributable to changes in volume, which are changes in volume multiplied by prior rate; effects on interest income attributable to changes in rate, which are changes in rate multiplied by prior volume; and changes in rate/volume, which is a change in rate multiplied by change in volume.

|(in thousands)Year ended December 31, 2001 compared with 2000 | Rate   | Volume | Rate/ Volume | Total
|------------------------------------------------------------- | ------ | ------ | ------------ | -----
|Interest-earning assets:                                      |        |        |              |      
|Loans                                                         | $(440) | $1,307 | $  (68)      | $ 799
|Investment securities                                         | (21)   | (160)  | 3            | (178)
|Interest-earning deposits in banks                            | (52)   | 345    | (175)        | 118  
|Total net change in interest income                           | (513)  | 1,492  | (240)        | 739  
|                                                              |        |        |              |      
|Interest-bearing liabilities:                                 |        |        |              |      
|Interest-bearing demand accounts                              | (112)  | 37     | (7)          | (82) 
|Money market accounts                                         | (123)  | 109    | (22)         | (36) 
|Savings accounts                                              | (69)   | 33     | (4)          | (40) 
|Certificates of deposit                                       | (162)  | 373    | (31)         | 180  
|Borrowings                                                    | (77)   | 110    | (12)         | 21   
|Total net change in interest expense                          | (543)  | 662    | (76)         | 43   
|                                                              |        |        |              |      
|Net change in net interest income                             | $  30  | $  830 | $(164)       | $ 696



---

Yields Earned and Rates Paid

The following table sets forth, at the date and for the periods indicated, the weighted average yields earned on the Company's assets and the weighted average interest rates paid on the Company's liabilities, together with the net yield on interest-earning assets.

|                                   | At
   December 31, |  | For the Year Ended December 31,
|---------------------------------- | ------------------ |  | -------------------------------
|                                   | 2001               |  | 2001                           
|                                   |                    |  |                                
|Weighted average yield on:         |                    |  |                                
|Loans                              | 7.92%              |  | 8.30%                          
|Investment securities              | 6.14               |  | 6.53                           
|Interest-earning deposits in banks | 1.53               |  | 2.88                           
|Total interest-earning assets      | 6.94               |  | 7.78                           
|                                   |                    |  |                                
|Weighted average rate paid on:     |                    |  |                                
|Interest-bearing demand accounts   | 0.78               |  | 1.71                           
|Money market accounts              | 1.84               |  | 3.17                           
|Savings accounts                   | 1.49               |  | 2.63                           
|Certificates of deposit            | 3.97               |  | 5.14                           
|Total interest-bearing deposits    | 2.29               |  | 3.48                           
|Borrowings                         | 5.67               |  | 5.14                           
|Total interest-bearing liabilities | 2.64               |  | 3.74                           
|                                   |                    |  |                                
|Interest rate spread               | 4.30               |  | 4.04                           
|                                   |                    |  |                                
|Net interest margin on:            |                    |  |                                
|Average interest-earning assets    | 4.61               |  | 4.51                           
|Average total assets               | 4.26               |  | 4.23                           
|                                   |                    |  |                                

Asset and Liability Management and Market Risk

Qualitative Analysis - Risks When Interest Rates Change.

Quantitative Analysis - How the Bank Measures Its Risk of Interest Rate Changes.
The Bank does not maintain a trading account for any class of financial instrument nor does it engage in hedging activities or purchase high-risk derivative instruments.  Furthermore, the Bank has no significant foreign currency exchange rate risk or commodity price risk.

---

The Bank has sought to reduce the exposure of its earnings to changes in market interest rates by attempting to manage the mismatch between asset and liability maturities and interest rates. The principal element in achieving this objective is to increase the interest-rate sensitivity of the Bank's interest-earning assets by originating for its portfolio loans with interest rates that periodically adjust to market conditions. The Bank relies on retail deposits as its primary source of funds. Management believes retail deposits, compared to brokered deposits, reduce the effects of interest rate fluctuations because they generally represent a more stable source of funds.

In order to encourage institutions to reduce interest rate risk, the OTS adopted a rule incorporating an interest rate risk component into the risk-based capital rules.  Using data compiled by the OTS, the Bank receives a report that measures interest rate risk by modeling the change in net portfolio value over a variety of interest rate scenarios.  The OTS developed this procedure for measuring interest rate risk to replace the "gap" analysis, which is the difference between interest-earning assets and interest-bearing liabilities that mature or reprice within a specific time period.  Net portfolio value is the present value of expected cash flows from assets, liabilities and off-balance-sheet contracts.  The calculation is intended to illustrate the change in net portfolio value that will occur upon an immediate change in interest rates of at least 200 basis points with no effect given to any steps that management might take to counter the effect of that interest rate movement.  Under OTS regulations, an institution with a greater than "normal" level of interest rate risk takes a deduction from total capital for purposes of calculating its risk-based capital. The OTS, however, has delayed the implementation of this regulation. An institution with a "normal" level of interest rate risk is defined as one whose "measured interest rate risk" is less than 2.0%.  Institutions with assets of less than $300 million and a risk-based capital ratio of more than 12.0% are exempt. The Bank is exempt because of its asset size and risk-based capital ratio.  Based on the Bank's regulatory capital levels at December 31, 2001, the Bank believes that, if the proposed regulation had been implemented at that date, the Bank's level of interest rate risk would not have caused it to be treated as an institution with greater than "normal" interest rate risk.

The following table illustrates the change in net portfolio value at December 31, 2001, based on OTS assumptions, that would occur in the event of an immediate change in interest rates, with no effect given to any steps which management might take to counter the effect of that interest rate movement.

|(dollars in thousands)             |  | Net Portfolio Value |                  | Net Portfolio as % of
Portfolio Value of Assets
|---------------------------------- |  | ------------------- | ---------------- | -----------------------------------------------
|Basis Point ("bp") Change in Rates |  | Dollar Amount       | Dollar
Change(1) | Percent Change                                 
|300 bp                             |  | $16,977             | $(4,258)         | (20)%                                          
|200                                |  | 18,495              | (2,740)          | (13)                                           
|100                                |  | 20,030              | (1,205)          | (6)                                            
|0                                  |  | 21,235              | -                | -                                              
|(100)                              |  | 21,269              | 34               | -                                              

(1)

(2)

(3)

The above table illustrates, for example, that at December 31, 2001 an instantaneous 200 basis point increase in market interest rates would reduce the Bank's net portfolio value by approximately $2.7 million, or 13%, and an instantaneous 100 basis point decrease in market interest rates would increase the Bank's net portfolio value by an insignificant $34,000.

---

The following summarizes key exposure measures for the dates indicated.  They measure the change in net portfolio value ratio for a 200 basis point adverse change in interest rates.

|                                     | December 31,
2001 | September 30,
2001 | December 31,
2000
|------------------------------------ | ----------------- | ------------------ | -----------------
|Pre-shock net portfolio value ratio  | 13.09%            | 13.16%             | 12.06%           
|Post-shock net portfolio value ratio | 11.66%            | 11.55%             | 10.12%           
|Decline in net portfolio value ratio | 143 bp            | 161 bp             | 194 bp           

The calculated risk exposure measures indicate that the Bank's interest-rate risk at December 31, 2001 has decreased somewhat from the previous year end, in that a "shock" increase in market rates would have a relatively smaller negative effect on net portfolio value.  Among other factors, this is due to a gradual shift in earning assets to assets which tend to reprice with greater frequency.

The OTS uses certain assumptions in assessing the interest rate risk of thrift institutions.  These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others.  As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table.  For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates.  Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.  Additionally, certain assets, such as adjustable rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset.  Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table.

Liquidity and Capital Resources

The Bank's primary sources of funds are deposits, proceeds from principal and interest payments on loans and mortgage-backed securities, and FHLB advances.  While maturities and scheduled amortization of loans and mortgage-backed securities are a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

The primary investing activity of the Bank has traditionally been the origination of one- to four-family mortgage loans and consumer loans, but in recent years the Bank has increased significantly its originations of other types of real estate loans and commercial business loans.  Between December 31, 2001 and 2000, one- to four-family mortgages decreased $2.3 million (4.5%) while commercial business loans increased $3.5 million (33.9%), and construction loans increased $3.7 million (217%). Other investing activities during 2001 and 2000 included the purchase of $724,000 of treasury stock in 2000.  FHLB borrowings, principal repayments on loans and mortgage-backed securities, and deposits were the primary means for funding these activities.

---

The Bank must maintain an adequate level of liquidity to ensure the availability of sufficient funds to support loan growth and deposit withdrawals, to satisfy financial commitments and to take advantage of investment opportunities.  The Bank's sources of funds include deposits, principal and interest payments from loans and investments, and FHLB advances.  During 2001 and 2000, the Company used its sources of funds primarily to fund new loans and to pay maturing certificates and other deposit withdrawals.  At December 31, 2001, the Bank had loan commitments (excluding loans in process), including unused portions of commercial business lines of credit, of $3.8 million.

At December 31, 2001, the Bank had $6,000 of net unrealized gains on investment securities classified as available for sale, which represented 0.05% of the amortized cost ($12.3 million) of the securities.  This represented an improvement of $148,000 compared with $142,000 of unrealized losses at December 31, 2000, primarily due to declining market interest rates in 2001.  Movements in market interest rates will continue to affect the unrealized gains and losses in these securities.  However, assuming that the securities are held to their individual dates of maturity, even in periods of increasing market interest rates, as the securities approach their dates of maturity, any unrealized gains or losses will begin to decrease and eventually be eliminated.

At December 31, 2001, certificates of deposit amounted to $42.0 million, or 33.2% of the Bank's total deposits, including $34.3 million scheduled to mature by December 31, 2002.  Historically, the Bank has been able to retain a significant amount of its deposits as they mature.  Management believes it has adequate resources to fund all loan commitments by deposits and, as needed, FHLB advances and sale of mortgage loans and that it can adjust the offering rates of certificates of deposits to retain deposits in changing interest rate environments.

The Bank is required to maintain specific amounts of capital pursuant to OTS requirements.  As of December 31, 2001, Alaska Pacific was in compliance with all regulatory capital requirements which were effective as of this date with tangible, core and risk-based capital ratios of 8.27%, 8.27% and 14.24%, respectively.  For further information, see Note 3 of Notes to Consolidated Financial Statements.

Change in Independent Auditors

On June 21, 2001, the Company dismissed Deloitte & Touche LLP as its certifying accountant because Deloitte & Touche LLP closed its office in Alaska. The decision to dismiss Deloitte & Touche LLP was made by the Board of Directors upon the recommendation of the Company's Audit Committee.

On June 21, 2001, the Board of Directors, at the recommendation of its Audit Committee, engaged KPMG LLP, as the Company's certifying accountants.  The Company has not consulted with KPMG, LLP during its two most recent fiscal years nor during any subsequent interim period prior to its engagement regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements.

The report of Deloitte & Touche LLP on the Company's financial statements for either of the last two fiscal years did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles.

During the Company's two most recent fiscal years and subsequent interim periods preceding the change in auditors, the Company was not in disagreement with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused Deloitte & Touche LLP to make reference to the subject matter of the disagreement in connection with its audit report.

---

Recent Accounting Pronouncements

Significant recent Statements of Financial Accounting Standards ("SFAS") and the impact of their adoption are described below.

SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of SFAS 125), was effective for transfers and extinguishments of liabilities occurring after March 31, 2001.

SFAS 141, Business Combinations, issued in July 2001, requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001.  The statement also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately.

SFAS 142, Goodwill and Other Intangible Assets, was also issued in July 2001.  It requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of the statement.  It also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

SFAS 143, Accounting for Asset Retirement Obligations, issued in August 2001, addresses the accounting for the legal obligation associated with the retirement of a tangible long lived asset.

SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, issued in October 2001, addresses financial accounting and reporting for the impairment or disposal of long-lived assets.  The statement is effective beginning in 2002.

Management believes that these new accounting standards will not have a significant impact on the Company's financial position, results of operations, or liquidity.

---







INDEPENDENT AUDITORS' REPORT



Board of Directors and Shareholders
Alaska Pacific Bancshares, Inc.
Juneau, Alaska

We have audited the accompanying consolidated balance sheet of Alaska Pacific Bancshares, Inc. and Subsidiary (the "Company") as of December 31, 2001, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.  The consolidated financial statements of the Company as of December 31, 2000, were audited by other auditors whose report dated February 23, 2001, expressed an unqualified opinion on those statements.

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

In our opinion, the 2001 financial statements referred to above present fairly, in all material respects, the financial position of Alaska Pacific Bancshares, Inc. and Subsidiary as of December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.





/s/KPMG LLP



Anchorage, Alaska
February 15, 2002



---





Alaska Pacific Bancshares, Inc. and Subsidiary



|(in thousands) December 31,                                                                                 | 2001      | 2000      
|----------------------------------------------------------------------------------------------------------- | --------- | ----------
|Assets                                                                                                      |           |           
|Cash and due from banks                                                                                     | $   5,473 | $    5,369
|Interest-earning deposits in banks                                                                          | 18,413    | 1,478     
|Total cash and cash equivalents                                                                             | 23,886    | 6,847     
|Investment securities available for sale, at fair value (amortized cost:

  2001 - $12,345; 2000 - $16,399) | 12,351    | 16,257    
|Federal Home Loan Bank stock                                                                                | 1,553     | 1,451     
|Loans held for sale                                                                                         | 995       | 735       
|Loans                                                                                                       | 111,192   | 105,624   
|Less allowance for loan losses                                                                              | 939       | 788       
|Loans, net                                                                                                  | 110,253   | 104,836   
|Accrued interest receivable                                                                                 | 668       | 782       
|Premises and equipment                                                                                      | 3,109     | 3,447     
|Repossessed assets                                                                                          | 166       | 106       
|Other assets                                                                                                | 1,591     | 1,004     
|Total Assets                                                                                                | $154,572  | $135,465  



|Liabilities and Shareholders' Equity                  |              |           
|----------------------------------------------------- | ------------ | ----------
|Deposits:                                             |              |           
|Noninterest-bearing demand                            | $   12,932   | $    8,195
|Interest-bearing demand                               | 29,114       | 27,036    
|Money market                                          | 21,020       | 16,892    
|Savings                                               | 21,263       | 18,340    
|Certificates of deposit                               | 41,980       | 37,526    
|Total deposits                                        | 126,309      | 107,989   
|Federal Home Loan Bank advances                       | 13,000       | 13,400    
|Advance payments by borrowers for taxes and insurance | 905          | 846       
|Accounts payable and accrued expenses                 | 426          | 181       
|Accrued interest payable                              | 609          | 565       
|Other liabilities                                     | 332          | 101       
|Total liabilities                                     | 141,581      | 123,082   
|Commitments and contingencies (Notes 12 and 14)       |              |           
|Shareholders' Equity:                                 |              |           
|                                                      | December 31, |           
|Common stock ($0.01 par value):                       | 2001         | 2000      
|Authorized shares                                     | 20,000,000   | 20,000,000
|Issued                                                | 655,415      | 655,415   
|Outstanding                                           | 623,132      | 623,132   
|Additional paid-in capital                            |              |           
|Treasury stock                                        | (32,283)     | (32,283)  
|Unearned ESOP shares                                  | (34,621)     | (40,749)  
|Unvested shares in stock award plan                   | (18,788)     | (24,032)  
|Retained earnings                                     | 8,116        | 7,776     
|Accumulated other comprehensive income (loss)         | 6            | (142)     
|Total shareholders' equity                            | 12,991       | 12,383    
|Total Liabilities and Shareholders' Equity            | $154,572     | $135,465  
|                                                      |              |           
|See notes to consolidated financial statements.       |              |           



---

Alaska Pacific Bancshares, Inc. and Subsidiary

|(in thousands, except per share) Year ended December 31, | 2001    | 2000   
|-------------------------------------------------------- | ------- | -------
|Interest Income                                          |         |        
|Loans                                                    | $9,295  | $8,496 
|Investment securities                                    | 1,068   | 1,246  
|Interest-earning deposits in banks                       | 219     | 101    
|Total interest income                                    | 10,582  | 9,843  
|Interest Expense                                         |         |        
|Deposits                                                 | 3,680   | 3,658  
|Federal Home Loan Bank advances                          | 761     | 740    
|Total interest expense                                   | 4,441   | 4,398  
|Net Interest Income                                      | 6,141   | 5,445  
|Provision for loan losses                                | 210     | 395    
|Net interest income after provision for loan losses      | 5,931   | 5,050  
|Noninterest Income                                       |         |        
|Mortgage servicing income                                | 195     | 182    
|Service charges on deposit accounts                      | 471     | 372    
|Other service charges and fees                           | 174     | 144    
|Gain on sale of mortgage loans                           | 372     | 115    
|Total noninterest income                                 | 1,212   | 813    
|Noninterest Expense                                      |         |        
|Compensation and benefits                                | 3,387   | 2,903  
|Occupancy and equipment                                  | 1,450   | 1,296  
|Data processing                                          | 349     | 390    
|Professional and consulting fees                         | 276     | 242    
|Marketing and public relations                           | 204     | 225    
|Branch closure costs                                     | 135     | -      
|Other                                                    | 882     | 688    
|Total noninterest expense                                | 6,683   | 5,744  
|Income before income tax                                 | 460     | 119    
|Income tax                                               | -       | -      
|Net Income                                               | $   460 | $   119
|                                                         |         |        
|Net income per share:                                    |         |        
|Basic                                                    | $ 0.82  | $ 0.20 
|Diluted                                                  | 0.80    | 0.20   
|                                                         |         |        
|See notes to consolidated financial statements.          |         |        



---

Alaska Pacific Bancshares, Inc. and Subsidiary

|(in thousands)                                                         | Common Stock | Additional Paid-In Capital | Treasury Stock | Unearned ESOP Shares | Unvested Shares in Stock Award Plan | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total
Share-
holders'
Equity
|---------------------------------------------------------------------- | ------------ | -------------------------- | -------------- | -------------------- | ----------------------------------- | ----------------- | --------------------------------------------- | ----------------------------
|Balance, January 1, 2000                                               | $          7 | $      5,850               | $        -     | $     (472)          | $        -                          | $7,786            | $  (694)                                      | $ 12,477                    
|                                                                       |              |                            |                |                      |                                     |                   |                                               |                             
|Net income                                                             |              |                            |                |                      |                                     | 119               |                                               | 119                         
|Other comprehensive income:                                            |              |                            |                |                      |                                     |                   |                                               |                             
|Net change in unrealized losses on
      securities available for sale |              |                            |                |                      |                                     |                   | 552                                           | 552                         
|Other comprehensive income                                             |              |                            |                |                      |                                     |                   | 552                                           | 552                         
|Comprehensive income                                                   |              |                            |                |                      |                                     |                   |                                               | 671                         
|Purchase of treasury stock                                             |              |                            | (724)          |                      |                                     |                   |                                               | (724)                       
|ESOP shares earned                                                     |              | 2                          |                | 65                   |                                     |                   |                                               | 67                          
|Issuance of restricted stock awards                                    |              | (69)                       | 324            |                      | (255)                               |                   |                                               | -                           
|Accrued vesting of restricted stock                                    |              |                            |                |                      | 21                                  |                   |                                               | 21                          
|Cash dividends ($0.05 per share)                                       |              |                            |                |                      |                                     | (129)             |                                               | (129)                       
|Balance, December 31, 2000                                             | 7            | 5,783                      | (400)          | (407)                | (234)                               | 7,776             | (142)                                         | 12,383                      
|                                                                       |              |                            |                |                      |                                     |                   |                                               |                             
|Net income                                                             |              |                            |                |                      |                                     | 460               |                                               | 460                         
|Other comprehensive income:                                            |              |                            |                |                      |                                     |                   |                                               |                             
|Net change in unrealized losses on
    securities available for sale   |              |                            |                |                      |                                     |                   | 148                                           | 148                         
|Other comprehensive income                                             |              |                            |                |                      |                                     |                   | 148                                           | 148                         
|Comprehensive income                                                   |              |                            |                |                      |                                     |                   |                                               | 608                         
|ESOP shares earned                                                     |              | 8                          |                | 61                   |                                     |                   |                                               | 69                          
|Accrued vesting of restricted stock                                    |              |                            |                |                      | 51                                  |                   |                                               | 51                          
|Cash dividends ($.20 per share)                                        |              |                            |                |                      |                                     | (120)             |                                               | (120)                       
|Balance, December 31, 2001                                             | $      7     | $5,791                     | $(400)         | $(346)               | $(183)                              | $8,116            | $        6                                    | $12,991                     
|                                                                       |              |                            |                |                      |                                     |                   |                                               |                             
|See notes to consolidated financial statements.                        |              |                            |                |                      |                                     |                  



---

Alaska Pacific Bancshares, Inc. and Subsidiary

|(in thousands) Year ended December 31,                                                | 2001      | 2000     
|------------------------------------------------------------------------------------- | --------- | ---------
|Operating Activities                                                                  |           |          
|Net income                                                                            | $     460 | $     119
|Adjustments to reconcile net income to net cash provided by
  operating activities:   |           |          
|Provision for loan losses                                                             | 210       | 395      
|Depreciation and amortization                                                         | 446       | 439      
|Gain on sale of mortgage loans                                                        | (372)     | (115)    
|Federal Home Loan Bank stock dividends                                                | (102)     | (90)     
|Amortization of fees, discounts, and premiums, net                                    | (33)      | (45)     
|ESOP expense                                                                          | 69        | 67       
|Stock award expense                                                                   | 51        | 21       
|Cash provided by changes in operating assets and liabilities:                         |           |          
|Accrued interest receivable                                                           | 114       | (151)    
|Other assets                                                                          | (587)     | (77)     
|Advance payments by borrowers for taxes and insurance                                 | 59        | 25       
|Accrued interest payable                                                              | 44        | 198      
|Accounts payable and accrued expenses                                                 | 245       | (26)     
|Other liabilities                                                                     | 231       | (22)     
|Net cash provided by operating activities                                             | 835       | 738      
|Investing Activities                                                                  |           |          
|Maturities and principal repayments of investment securities available for
      sale | 4,060     | 4,125    
|Loan originations, net of principal repayments                                        | (32,163)  | (29,762) 
|Proceeds from sale of mortgage loans                                                  | 26,505    | 11,024   
|Purchase of premises and equipment                                                    | (108)     | (197)    
|Proceeds from sale of repossessed assets                                              | 110       | 145      
|Net cash used in investing activities                                                 | (1,596)   | (14,665) 
|Financing Activities                                                                  |           |          
|Purchase of treasury stock                                                            | -         | (724)    
|Cash dividends paid                                                                   | (120)     | (129)    
|Net increase (decrease) in Federal Home Loan Bank advances                            | (400)     | 8,400    
|Net increase in demand and savings deposits                                           | 13,866    | 2,570    
|Net increase in certificates of deposit                                               | 4,454     | 2,872    
|Net cash provided by financing activities                                             | 17,800    | 12,989   
|Increase (decrease) in cash and cash equivalents                                      | 17,039    | (938)    
|Cash and cash equivalents at beginning of year                                        | 6,847     | 7,785    
|Cash and cash equivalents at end of year                                              | $23,886   | $ 6,847  
|Supplemental information:                                                             |           |          
|Cash paid for interest                                                                | $ 4,397   | $ 4,200  
|Loans repossessed and transferred to repossessed assets                               | 170       | 106      
|Net change in unrealized loss on securities available for sale                        | 148       | 552      
|See notes to consolidated financial statements.                                       |           |          





---



Alaska Pacific Bancshares, Inc. and Subsidiary

General:

The Holding Company was formed in 1999 when the Bank converted from a federally chartered mutual savings bank to a federally chartered stock savings bank, issuing 655,415 shares in a subscription and community offering.  Concurrent with the conversion, the Bank changed its name from Alaska Federal Savings Bank to Alaska Pacific Bank.

The Bank provides a range of financial services to individuals and small businesses in Southeast Alaska.  The Bank's financial services include accepting deposits from the general public and making residential and commercial real estate loans, consumer loans, and commercial loans.  The Bank also originates, sells, and services residential mortgage loans under several federal and state mortgage-lending programs.

Investment Securities:

Purchase discounts and premiums on investment securities are amortized using the level yield method.

Loans:

Interest is accrued as earned unless management doubts the collectibility of the loan or the unpaid interest.  Interest accrual is generally discontinued and loans are transferred to nonaccrual status when they become 90 days past due.  All previously accrued but uncollected interest is deducted from interest income upon transfer to nonaccrual status.  Income from nonaccrual loans is recorded only when interest payments are received.

Loan origination fees and direct loan origination costs are deferred and recognized as an adjustment to interest income over the contractual life of the loan using the level yield method.  When loans are sold, the related net unamortized loan fees and costs are included in the determination of the gain on sale of loans.

Loans Held for Sale:

Allowance for Loan Losses:

General component  The general allowance component is calculated by loan category as a range of estimated loss by applying various loss factors to pass-graded outstanding loans.   The loss factors are based primarily on industry loss statistics, adjusted for the Bank's historical loss experience and other significant factors that, in management's judgment, affect the collectibility of the portfolio as of the evaluation date.

Specific component  The specific allowance component is established in cases where management has identified conditions or circumstances related to a problem-graded loan that management believes indicate a probable loss.  A range of estimated loss is established for each such loan.

Loan impairment is measured in accordance with Statement of Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors for Impairment of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures.Under these standards, loans are deemed to be impaired when management determines that it is probable that all amounts due under the contractual terms of the loan agreements will not be collectible in accordance with the original loan agreement. All problem-graded loans are evaluated for impairment.  Impairment is measured by comparing the fair value of the collateral or present value of future cash flows to the recorded investment in the loan.

Mortgage Servicing Rights:

Premises and Equipment:

Long-lived assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  In performing the review for recoverability, estimated future cash flows expected to result from the use of the asset and its eventual disposition are compared with the carrying value, and a direct writedown is recorded for the amount of impairment, if any.

Repossessed Assets:

Federal Home Loan Bank Stock:

Income Tax:

Stock Option Plan:

Statement of Cash Flows:

Segment Reporting:

Recent Accounting Pronouncements:

SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (a replacement of SFAS 125), was effective for transfers and extinguishments of liabilities occurring after March 31, 2001.

SFAS 141, Business Combinations, issued in July 2001, requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001.  The statement also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately.

SFAS 142, Goodwill and Other Intangible Assets, was also issued in July 2001.  It requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of the statement.  It also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

SFAS 143, Accounting for Asset Retirement Obligations, issued in August 2001, addresses the accounting for the legal obligation associated with the retirement of a tangible long lived asset.

SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, issued in October 2001, addresses financial accounting and reporting for the impairment or disposal of long-lived assets.  The statement is effective beginning in 2002.

Management believes that these new accounting standards will not have a significant impact on the Company's financial position, results of operations, or liquidity.

Fair Value of Financial Instruments:

For demand and savings deposits, fair value is considered to be carrying value.  The fair values of fixed-rate certificates of deposit and FHLB advances are estimated using present value methods and current offering rates for such deposits and advances.

Use of Estimates:

Note 2 - Branch Closures

In October 2001, the Bank closed two of its banking offices - the Wrangell Office in Wrangell, Alaska and the Auke Bay Office in Juneau, Alaska.  The decision to close was based on the branches' small size and resulting operating inefficiencies, as well as their limited potential, in management's opinion, for growth.  Both communities remain well served by competing banks and, in the case of the Auke Bay Office, by the Bank's two remaining offices in Juneau.

The cost of closing the two branches, $135,000, is included in the accompanying consolidated income statement for the year ended December 31, 2001, as "branch closure costs."

Note 3 - Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action ("PCA"), the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.  The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures have been established by regulation to ensure capital adequacy and require the Bank to maintain minimum capital amounts and ratios (set forth in the following table).  The Bank's primary regulatory agency, the Office of Thrift Supervision, requires that the Bank maintain minimum amounts and ratios of tangible capital (as defined in the regulations) of 1.5%, core capital (as defined) of 3%, and total risk-based capital (as defined) of 8%.  The Bank is also subject to PCA capital requirement regulations set forth by the Federal Deposit Insurance Corporation ("FDIC").  The FDIC requires the Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined) to risk-weighted assets (as defined).  Management believes that, as of December 31, 2001 and 2000, the Bank meets all capital adequacy requirements to which it is subject.  The Bank was categorized as "well capitalized" in the most recent notification by the Office of Thrift Supervision.  There have been no events or conditions since that notification that management believes would change the Bank's capital category.

|                                                         |         | Minimum Capital Required      
|-------------------------------------------------------- | ------- | ------------------------------
|(dollars in thousands)                                   | Actual  | For Capital Adequacy 
Purposes
|                                                         | Amount  | Ratio                         
|December 31, 2001:                                       |         |                               
|Tangible capital (to total
    assets)                   | $12,628 | 8.27%                         
|Core capital (to total
  assets)                         | 12,625  | 8.27                          
|Total risk-based capital
    (to risk weighted assets)   | 13,567  | 14.24                         
|Tier I risk-based capital 
    (to risk weighted assets) | 12,628  | 13.25                         
|                                                         |         |                               
|December 31, 2000:                                       |         |                               
|Tangible capital (to total 
  assets)                    | $12,351 | 9.19%                         
|Core capital (to total 
  assets)                        | 12,351  | 9.19                          
|Total risk-based capital 
  (to risk weighted assets)    | 13,044  | 15.12                         
|Tier I risk-based capital 
  (to risk weighted assets)   | 12,351  | 14.22                         



---

Note 4 - Investment Securities Available for Sale

Amortized cost and fair values of investment securities available for sale, including mortgage-backed securities, are summarized as follows:

|(in thousands)                      | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair
Value
|----------------------------------- | -------------- | ---------------------- | ----------------------- | ----------
|December 31, 2001                   |                |                        |                         |           
|Mortgage-backed securities:         |                |                        |                         |           
|FNMA                                | $  1,822       | $    2                 | $   (49)                | $  1,775  
|FHLMC                               | 2,322          |                        | (119)                   | 2,203     
|GNMA                                | 7,832          | 197                    | (16)                    | 8,013     
|U.S. agencies and corporations:     |                |                        |                         |           
|SBA pools                           | 369            | 3                      | (12)                    | 360       
|Total                               | $12,345        | $202                   | $(196)                  | $12,351   
|                                    |                |                        |                         |           
|December 31, 2000                   |                |                        |                         |           
|Mortgage-backed securities:         |                |                        |                         |           
|FNMA                                | $   2,450      | $       2              | $   (83)                | $  2,369  
|FHLMC                               | 3,182          |                        | (169)                   | 3,013     
|GNMA                                | 10,199         | 159                    | (33)                    | 10,325    
|Collateralized mortgage obligations | 164            |                        | (1)                     | 163       
|U.S. agencies and corporations:     |                |                        |                         |           
|SBA pools                           | 404            | 1                      | (18)                    | 387       
|Total                               | $16,399        | $162                   | $(304)                  | $16,257   

No securities were designated as held to maturity at December 31, 2001 or 2000.

The following table summarizes the amortized cost and fair values of debt securities by maturity group:

|(in thousands) December 31, 2001 | Amortized Cost | Fair Value   
|-------------------------------- | -------------- | -------------
|Amount with final maturity:      |                |              
|After five but within ten years  | $         142  | $         145
|After ten years                  | 12,203         | 12,206       
|Total                            | $12,345        | $12,351      

Maturities of mortgage-backed securities are classified based on their final contractual maturities.  Actual maturities may vary due to prepayment of the underlying loans.

At December 31, 2001, investment securities with amortized cost of $5,495,000 and market value of $5,340,000 were pledged to secure public funds deposited with the Bank.

There were no sales of securities during 2001 or 2000.  The Bank does not have a trading securities portfolio.

---

Note 5 - Loans

Loans are summarized as follows:

|(in thousands) December 31, | 2001             | 2000             
|--------------------------- | ---------------- | -----------------
|Real estate:                |                  |                  
|Permanent:                  |                  |                  
|One- to four-family         | $  49,242        | $  51,542        
|Multifamily                 | 1,973            | 2,018            
|Commercial nonresidential   | 17,470           | 16,713           
|Land                        | 5,366            | 5,651            
|Construction:               |                  |                  
|One- to four-family         | 4,006            | 1,697            
|Commercial nonresidential   | 1,378            | -                
|Commercial business         | 14,000           | 10,459           
|Consumer:                   |                  |                  
|Home equity                 | 9,918            | 10,011           
|Boat                        | 5,538            | 5,802            
|Automobile                  | 1,288            | 1,296            
|Other                       | 1,013            | 435              
|Loans                       | $111,192         | $105,624         
|                            |                  |                  
|Loans held for sale         | $            995 | $             735

Loans are net of deferred loan fees and other discounts amounting to $382,000 and $333,000 at December 31, 2001 and 2000, respectively.

Interest income from tax-exempt loans was $84,000 and $90,000 in 2001 and 2000, respectively.

Real estate loans are secured primarily by properties located in Southeast Alaska.  Commercial real estate loans are generally secured by warehouse, retail, and other improved commercial properties.  Other commercial loans are generally secured by equipment, inventory, accounts receivable, or other business assets.

The Bank had impaired loans amounting to $195,000 and $366,000 at December 31, 2001 and 2000, respectively.

Mortgage Loan Servicing:

The amortized cost of mortgage servicing rights, which approximates fair value, is $418,000 and $280,000 at December 31, 2001 and 2000, respectively.  The amount of servicing assets recognized during 2001 was $182,000 and amortization was $44,000 for the year.  The amount of servicing assets recognized during 2000 was $80,000 and amortization was $34,000 for the year.  It has been determined that a valuation allowance for impairment is not required at December 31, 2001 or 2000.

---

Included in loans serviced for others at December 31, 2001 are 20 loans with current balances totaling $1,107,000 for which the Bank is subservicer under agreements with AHFC.  Of these, 11 loans totaling $803,000 are owned by the Government National Mortgage Association ("GNMA") and 9 loans totaling $304,000 are owned by the Federal National Mortgage Association ("FNMA").

Related Party Loans:

Note 6 - Allowance for Loan Losses

Following is an analysis of the changes in the allowance for loan losses:

(in thousands) Year ended December 31,
2001
2000Balance at beginning of year
$ 788
$ 570Provision for loan losses
210
395Loans charged off
(63)
(181)Recoveries
4
4Balance at end of year
$ 939
$ 788




Note 7 - Premises and Equipment

Following is a summary of premises and equipment:

(in thousands) December 31,
2001
2000Land
$     676
$     676Buildings
3,866
3,852Leasehold improvements
1,490
1,517Furniture, fixtures and equipment
2,499
2,4508,531
8,495Less accumulated depreciation
(5,422)
(5,048)$3,109
$3,447


Depreciation and amortization expense for the years ended December 31, 2001 and 2000 amounted to $446,000 and $439,000, respectively. Note 8 - Deposits

Deposits in excess of $100,000 are not federally insured.  Certificates of deposit exceeding $100,000 at December 31, 2001 and 2000, were $12,016,000 and $5,961,000, respectively, and the uninsured
excess over $100,000 amounted to $6,816,000 and $1,961,000, respectively.

---

The scheduled maturities of certificates of deposit as of December 31, 2001, are as follows:

(in thousands) Year ending December 31,2002
$34,3192003
3,5482004
1,1842005
9352006 and thereafter
1,994$41,980


Interest expense on deposits consists of the following:

(in thousands) Year ended December 31,
2001
2000Interest-bearing demand
$     461
$     543Money market
571
607Savings
494
534Certificates of deposit
2,154
1,974$3,680
$3,658


The weighted averages interest rates paid on deposits are as follows:

Year ended December 31,
2001
2000Interest-bearing demand
1.71%
2.15%Money market
3.17
3.98Savings
2.63
3.01Certificates of deposit
5.14
5.60




Note  9 - Federal Home Loan Bank Advances

FHLB advances consist of the following:

(dollars in thousands) December 31,


2001
2000Overnight funds, 6.825%


$               -
$  5,100Short-term advance, maturing in 2001, 6.44%


-
3,300Short-term advances maturing in 2002, 5.38%


8,000
-Putable advance, maturing in 2009, putable (at 
  discretion of FHLB) beginning in 2002, 6.13%


5,000
5,000$13,000
$13,400


The average balance of FHLB advances outstanding during 2001 and 2000 was $13,155,000 and $11,446,000, respectively.  The maximum amount of advances outstanding at any month end during 2001 and 2000 was $16,000,000 and $17,100,000, respectively. Under a blanket pledge agreement, all funds on deposit at FHLB, as well as all unencumbered qualifying loans and investment securities, are available to collateralize FHLB advances.

---

Note 10 - Retirement Plans

The Bank has a salary deferral 401(k) plan.  Employees who are at least 18 years of age and have completed three months of service are eligible to participate in the plan.  Employees may contribute on a pretax basis up to 17% of their annual salary up to a maximum limit under the law.  The Bank matches 75% of the first $2,667 of employee contribution.  For the years ended December 31, 2001 and 2000, the Bank contributed $64,000 and $61,000, respectively, to the plan, including administrative expenses.

The Company has an Employee Stock Ownership Plan ("ESOP") established in connection with the conversion to stock ownership.  Eight percent of the shares issued in the conversion, or 52,433 shares, were purchased by the ESOP in exchange for a note payable to the Holding Company.  The shares are allocated to employees over a ten-year period in proportion to the principal and interest paid on the note at the end of each year.  At December 31, 2001 and 2000, 17,812 and 11,684 shares, respectively, were allocated to employees.  The Company's expense for the plan, including administrative expenses, amounted to $72,000 and $68,000 for the years ended December 31, 2001 and 2000, respectively. Unallocated shares had a market value of $369,000 and $484,000 at December 31, 2001 and 2000, respectively.

Note 11 - Stock-Based Compensation

Stock Option Plan:

|(in thousands) Year ended December 31,                           | 2001              | 2000          
|---------------------------------------------------------------- | ----------------- | --------------
|                                                                 | Number of Options | Exercise Price
|Stock options outstanding at beginning of year                   | 65,542            | $9.75         
|Granted                                                          | -                 |               
|Exercised                                                        | -                 |               
|Forfeited                                                        | (1,000)           | 9.75          
|Stock options outstanding at end of year                         | 64,542            | $9.75         
|                                                                 |                   |               
|Options exercisable at end of year                               | 12,908            | $9.75         
|                                                                 |                   |               
|Estimated grant-date fair value of options granted
  during year | -                 |               

Pro forma information regarding net income and earnings per share is required by SFAS No. 123, Accounting for Stock-Based Compensation, and has been determined as if the Company had accounted for its stock options under the fair value method of SFAS No. 123.  The fair value for the options granted in 2000 was estimated at the date of grant using a Black-Scholes option pricing model, assuming a risk-free interest rate of 6.17%, a dividend yield of 2%, a stock price volatility factor of 0.19, and a weighted-average expected life of the option of 7 years.

---

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable.  In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.  Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options granted in 2000, $180,000, is amortized to expense over the options' vesting period.  On a pro forma basis, net income would have been $424,000 ($0.74 per diluted share) in 2001 and $104,000 ($0.18 per diluted share) in 2000.

Management Recognition Plan:

Note 12 - Operating Leases

The Bank leases certain of its premises and equipment under noncancelable operating leases with terms in excess of one year.  Future minimum lease payments under these leases at December 31, 2001, are summarized as follows:

(in thousands) Year ending December 31,2002
$     4382003
3652004
2922005
2892006
2892007 and thereafter
603$2,276


Rent expense was $431,000 and $403,000 for the years ended December 31, 2001 and 2000, respectively.  Rental income on owned premises amounted to $98,000 and $102,000 for the years ended December 31, 2001 and 2000, respectively.

Note 13 - Income Tax

The provision for income tax consisted of the following:

(in thousands) Year ended December 31,
2001
2000Taxes paid or currently payable
$       -
$       -Change in deferred taxes
147
(144)Adjustment of valuation allowance
(147)
144Income tax benefit
$       -
$       -




---

A reconciliation of taxes computed at federal statutory corporate tax rates (34% in 2001 and 2000) to tax expense, as shown in the accompanying statements of income and changes in shareholders' equity, is as follows:

|(in thousands) Year ended December 31,                            | 2001       | 2000     
|----------------------------------------------------------------- | ---------- | ---------
|Income tax expense at statutory rate                              | $   156    | $   48   
|Income tax effect of:                                             |            |          
|Interest on municipal obligations                                 | (29)       | (31)     
|Other                                                             | 20         | (161)    
|Increase (reduction) of valuation allowance for 
  deferred taxes | (147)      | 144      
|Income tax                                                        | $        - | $       -

The Bank's effective tax rate was 0% for both 2001 and 2000.

Deferred federal income tax is provided for the temporary differences between the tax basis and financial statement carrying amounts of assets and liabilities.  Components of the Bank's net deferred tax assets consisted of the following:

|(in thousands) December 31,                    | 2001      | 2000      
|---------------------------------------------- | --------- | ----------
|Deferred tax assets:                           |           |           
|Net operating loss carryforward                | $ 1,394   | $ 1,543   
|Bad debt reserves                              | 383       | 419       
|Property, plant and equipment                  | 51        | 26        
|Accrued vacation and bonus                     | 87        | 45        
|Charitable contribution carryforward           | 12        | 22        
|Other                                          | -         | 25        
|Gross deferred tax assets                      | 1,927     | 2,080     
|Deferred tax liabilities:                      |           |           
|Deferred loan fees, net                        | (106)     | (116)     
|FHLB stock dividends                           | (469)     | (462)     
|Other                                          | (4)       | (7)       
|Gross deferred tax liabilities                 | (579)     | (585)     
|Deferred tax asset, before valuation allowance | 1,348     | 1,495     
|Valuation allowance                            | (1,048)   | (1,195)   
|Net deferred tax assets                        | $     300 | $      300

Based on earnings projections, management believes that the net deferred tax assets are recoverable.

In August 1996, the Small Business Job Protection Act of 1996 ("the Act") was signed into law.  Under the Act, the percentage of taxable income method of accounting for tax basis bad debts is no longer available effective for the years ending after December 31, 1995.  As a result, the Bank is required to use the experience method of accounting for tax basis bad debts for 1998 and later years.  In addition, the Act requires the recapture of post-1987 (the base year) additions to the tax bad debt reserves made pursuant to the percentage of taxable income method.  The Bank is not subject to this recapture in 2001 or 2000, as its tax bad debt reserves do not exceed its base year reserve.  As a result of the bad debt deductions, shareholders' equity as of December 31, 2001, includes accumulated earnings of approximately $1,759,000 for which federal income tax has not been provided.  If, in the future, this portion of retained earnings is used for any purpose other than to absorb losses on loans or on property acquired through foreclosure, federal income tax may be imposed at then-applicable rates.

---

For federal income tax purposes, the Company had net operating loss carryforwards at December 31, 2001, which expire as follows:

(in thousands) Year ending December 31,2004
$    9952005
7662006
2272007
8362008
2032010
812011
292017
282018
512019
1902020
272021
34$3,467


These loss carryovers could potentially be limited under Internal Revenue Code Section 382 should there be a more-than-50% change in ownership of the Company.  This code section limits the amount of annual usage of net operating losses incurred prior to such ownership change.

Note 14 - Commitments and Contingencies

Commitments:

Undisbursed loan proceeds, primarily for real estate construction loans, total $2,405,000 and $1,717,000 at December 31, 2001 and 2000, respectively.  These amounts are excluded from the balance of loans at year end.

At December 31, 2001, the Bank is committed to making future minimum payments of approximately $425,000 under contractual agreements for data processing and related services.

Concentrations:

Note 15 - Earnings per Share

Basic earnings per share ("EPS") is computed by dividing net income by the weighted-average number of common shares outstanding during the period less treasury stock, unvested stock awards under the Management Recognition Plan ("unvested stock awards"), and unallocated and not yet committed to be released Employee Stock Ownership Plan shares ("unearned ESOP shares").  Diluted EPS is calculated by dividing net income by the weighted-average number of common shares used to compute basic EPS plus the incremental amount of potential common stock from unvested stock awards and stock options, determined by the treasury stock method.

---



|Year ended December 31,                 | 2001       | 2000          
|--------------------------------------- | ---------- | --------------
|                                        | Net
Income | Average Shares
|Net income/average shares
  issued      | $460,000   | 655,415       
|Treasury stock                          |            | (32,283)      
|Unvested stock awards                   |            | (21,411)      
|Unearned ESOP shares                    |            | (40,749)      
|Basic EPS                               | 460,000    | 560,972       
|Incremental shares under
  stock plans: |            |               
|Stock awards                            |            | 8,546         
|Stock options                           |            | 2,792         
|Diluted EPS                             | $460,000   | 572,310       



Note 16 - Fair Value of Financial Instruments

The following information is presented in accordance with the requirements of SFAS No. 107, Disclosures about Fair Value of Financial Instruments.  The estimated fair value amounts have been determined by the Bank using available market information and appropriate valuation methodologies.  However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Bank could realize in a current market exchange.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

(in thousands) December 31,
2001
2000CarryingAmount
Estimated
FairValue
CarryingAmount
Estimated
FairValueFinancial AssetsCash and cash equivalents
$    23,886
$    23,886
$     6,847
$      6,847Investment securities available for sale
12,351
12,351
16,257
16,257Federal Home Loan Bank stock
1,553
1,553
1,451
1,451Loans, including held for sale
112,187
108,847
106,359
106,219Accrued interest receivable
668
668
782
782Financial LiabilitiesDemand and savings deposits
84,329
84,329
70,463
70,463Certificates of deposit
41,980
42,541
37,526
37,588Federal Home Loan Bank Advances
13,000
13,462
13,400
13,439


The estimated fair value of loan commitments is zero at December 31, 2001 and 2000. Although management is not aware of any subsequent events that would significantly affect the estimated fair value amounts as of December 31, 2001, such amounts have not been comprehensively revalued since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

---

Note 17 - Parent Company Financial Information

Summarized financial information for Alaska Pacific Bancshares, Inc. (parent company only) is presented below:

Parent Company Condensed Balance Sheet

(in thousands) December 31,
2001
2000AssetsCash
$        268
$         173Investment in subsidiary
12,722
12,209Other assets
1
1Total Assets
$12,991
$12,383Liabilities and Shareholders' EquityShareholders' equity
$12,991
$12,383Total Liabilities and Shareholders' Equity
$12,991
$12,383


Parent Company Condensed Income Statement

(in thousands) Year ended December 31,
2001
2000Equity in earnings of subsidiary
$557
$228Total income
557
228Operating expenses
97
109Income before income tax
460
119Income tax
-
-Net income
$460
$119


Parent Company Condensed Statement of Cash Flows

(in thousands) Year ended December 31,
2001
2000Cash flows from operating activities:Net income
$ 460
$ 119Adjustments to reconcile net income to net cash used
     in operating activities:Equity in earnings of subsidiary
(557)
(228)Increase in other assets
-
(1)Net cash provided by operating activities
(97)
(110)Cash flows from investing activities:Distributions received from subsidiary
312
379Net cash used in investing activities
312
379Cash flows from financing activities:Purchase of treasury stock
-
(724)Cash dividends paid
(120)
(129)Net cash used in financing activities
(120)
(853)Net increase (decrease) in cash
95
(584)Cash at beginning of year
173
757Cash at end of year
$ 268
$ 173




---





Executive Officers

Roger K. White
Senior Vice President, Chief Financial Officer and Secretary of 
Alaska Pacific Bancshares, Inc. and Senior Vice President and 
Chief Financial Officer of Alaska Pacific Bank

Craig E. Dahl
President and Chief Executive Officer of 
Alaska Pacific Bancshares, Inc. and Alaska Pacific Bank
Patrick H. Wonser
Senior Vice President and Loan Administrator of 
Alaska Pacific Bank

Lisa C. Bell
Executive Vice President and Chief Operating Officer of 
Alaska Pacific Bancshares, Inc. and Alaska Pacific Bank











---









Directors of Alaska Pacific Bancshares, Inc.
and Alaska Pacific Bank

|Scott C. Milner *President
    Shuham, Milner, Schaferand Howard PC                          | Hugh N. GrantReal estate and retailing                                                                                       | D. Eric McDowellPresident
    McDowell Group, Inc.                  | William J. SchmitzPartner
    Schmitz & Buck
|-------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | --------------------------------------------
|Avrum M. Gross
                    Chairman of the BoardPartner
               Gross & Burke | Craig E. DahlPresident and Chief Executive Officer
 Alaska Pacific Bancshares, Inc. and 
                Alaska Pacific Bank | Roger GrummettRetired Partner
        Shattuck & Grummett,     Inc.
|Marta Ryman
    *Director and former Chairman
                    Shee Atika, Inc.           | Deborah R. MarshallDirector of Alaska InvestNet                                                                             



*
Directors of Alaska Pacific Bank only

---



Form 10-KSB

A copy of the Form 10-KSB, including consolidated

financial statements, as filed with the Securities
 and Exchange Commission, will be furnished
 without charge to stockholders as of the record
 date for voting at the annual meeting of 
stockholders upon written request to Roger K. 
White, Secretary, Alaska Pacific Bancshares, Inc., 
2094 Jordan Avenue, Juneau, Alaska 99801.

---



Corporate Information

Corporate Headquarters

2094 Jordan Avenue
Juneau, AK  99801
907-789-4844
www.alaskapacificbank.com

Independent Auditors

KPMG LLP
701 West 8th Avenue
Suite 600
Anchorage, AK  99501

Stock Registrar and TransferAgent

Computershare Trust Company, Inc.
P.O. Box 1596
Golden, CO  80201

Common Stock

Traded on the OTC Electronic Bulletin Board

under the symbol: AKPB

Special Counsel

Breyer & Associates PC
8180 Greensboro Drive
Suite 785
McLean, VA  22102

General Counsel

Baxter Bruce & Sullivan PC
P.O. Box 32819
Juneau, AK  99803

Annual Meeting of Stockholders

May 23, 2002
11:00 a.m.
Ray Renshaw Room 
Aspen Hotel
1800 Shell Simmons Drive
Juneau, AK  99801



---

Exhibit 99

Independent Auditors' Report











To the Board of Directors and Shareholders of
Alaska Pacific Bancshares, Inc.
Juneau, Alaska

We have audited the accompanying consolidated balance sheet of Alaska Pacific Bancshares, Inc. and subsidiary (the Company) as of December 31, 2000, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Alaska Pacific Bancshares, Inc. and subsidiary as of December 31, 2000, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.



/s/ Deloitte & Touche LLP

Anchorage, Alaska
February 23, 2001