SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
                          ---------------------------

                                 FORM 10-KSB

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

     For the year ended December 31, 2000

                                  OR

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

                       Commission File Number:  0-28934

                         EMPIRE FEDERAL BANCORP, INC.
-------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

        Delaware                                          81-0512374
        --------                                          ----------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

123 South Main Street, Livingston, Montana                  59047
------------------------------------------                ---------
(Address of principal executive offices)                  (Zip Code)

Registrant's telephone number, including area code:  (406) 222-1981
                                                     --------------

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

Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, par value $0.01 per share
                    ---------------------------------------
                                (Title of Class)

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

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

     The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based on the closing sales price of the Registrant's Common Stock as
quoted on the Nasdaq National Market System under the symbol "EFBC" on March 9,
2001, was $21,186,564 (1,562,143 shares at $13.5625 per share). It is assumed
for purposes of this calculation that none of the Registrant's officers,
directors and 5% stockholders are affiliates.

 The Registrant's revenues for the year ended December 31, 2000 were $9,777,326.

                    DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the year ended December 31,
   2000 (Parts I and II)
2. Portions of the Proxy Statement for the Annual Meeting of Stockholders
   (Part III)

Transitional Small Business Disclosure Format (check one)   Yes [ ] No [X]
<PAGE>
                                 PART I

Item 1. Business

     Empire Federal Bancorp, Inc. (the "Corporation"), a Delaware corporation,
was incorporated on September 20, 1996 for the purpose of becoming the holding
company for Empire Bank ("Empire" or the "Bank") upon its conversion from a
federal mutual savings and loan association to a federal stock bank
("Conversion") (the Corporation and Empire Federal shall at times be referred to
as the "Corporation"). The Conversion was completed on January 23, 1997. At
December 31, 2000, the Corporation had total assets of $125.0 million, total
deposits of $77.7 million and stockholders' equity of $28.9 million. The
Corporation has not engaged in any significant activity other than holding the
stock of Empire Bank. Accordingly, the information set forth in this report,
including financial statements and related data, relates primarily to Empire
Bank.

     Empire Federal was organized in 1923 as a Montana-chartered mutual building
and loan association under the name "Empire Building and Loan Association." In
1970, the Bank converted to a federal charter and adopted the name "Empire
Federal Savings and Loan Association of Livingston." In connection with the
Conversion, the Bank changed its title to "Empire Federal Savings Bank." In
2000, the Bank adopted its current corporate title. The Bank's deposits are
federally insured by the Federal Deposit Insurance Corporation ("FDIC") under
the Savings Association Insurance Fund ("SAIF"). The Bank is a member of the
Federal Home Loan Bank ("FHLB") System. During 2000, the Bank changed its name
to Empire Bank.

     The Bank is a community oriented financial institution which has
traditionally offered a variety of savings products to its retail customers
while concentrating its lending activities on the origination of loans secured
by one-to- four-family residential dwellings. The Bank considers Gallatin, Park
and Sweet Grass counties in south-central Montana as its primary market area.
During 1999, the Bank received regulatory approval to open a de novo branch in
Billings, Montana, which was opened in April 2000. During 2000, the Bank opened
a loan production office in Missoula, Montana and plans to open a full service
branch in that community during 2001. Lending activities also have included the
origination of multi-family, commercial, business, commercial real estate and
home equity loans. The Bank's primary business has been that of a traditional
financial institution, originating loans in its primary market area for its
portfolio. In addition, the Bank has maintained a significant portion of its
assets in investment and mortgage-backed securities. Similar to its lending
activities, the Bank's investment portfolio has been weighted toward U.S.
Government agency mortgage-backed securities secured by one-to-four-family
residential properties. The portfolio also includes U.S. Government agency
securities. Investment securities, including mortgage-backed securities and FHLB
stock, totaled $36.0 million, or 28.8%, of total assets at December 31, 2000. In
addition to interest and dividend income on loans and investments, the Bank
receives other income from the sale of insurance  products through its
wholly-owned subsidiary, Dime Service Corporation.

     As evidenced by the new branch in Billings and an increase in commercial
and business loans in 2000, the Corporation's strategy is changing from its
historical role as a mortgage lender to a growth-oriented expansion strategy by
pursuing  internal and external growth  opportunities,  when appropriate. This
new strategy may subject the Corporation to a greater degree of risk. Risks
associated with this new business strategy include increased risk of losses on
loans, provision for loan losses which exceed historical levels, difficulties in
integrating or managing new branches or acquired institutions and problems
related to the management of growth. There can be no assurance that the
Corporation will be successful in implementing this new business strategy or in
managing growth. For further information regarding the segments of the
Corporation's business, see Note 19 of the Notes to Consolidated Financial
Statements in the 2000 Annual Report to Stockholders  ("Annual Report")
incorporated herein by reference.


                                   1
<PAGE>

<PAGE>
     Loan Portfolio Analysis. The following table sets forth the composition of
the Bank's loan portfolio as of the dates indicated. The Bank had no
concentration of loans of a given category exceeding 10% of total gross loans
other than as set forth below.

                                                At December 31,
                                -----------------------------------------------
                                       2000                        1999
                                ------------------          ------------------
                                Amount     Percent          Amount     Percent
                                ------     -------          ------     -------
                                           (Dollars in Thousands)
One- to four-family........    $46,128      55.63%         $41,724      67.99%
Loans held for sale........      1,497       1.80               -          -
Multi-family...............      5,158       6.22            5,308       8.65
Commercial real estate.....     12,468      15.04            7,108      11.58
Commercial.................      6,182       7.46            1,789       2.92
Consumer...................      5,026       6.06            2,546       4.15
Share loans................        459        .55              486        .78
Construction...............      6,003       7.24            2,409       3.93
                                ------     -------          ------     -------
Total......................     82,921     100.00%          61,370     100.00%
                                           =======                     =======
Less:
Loans in process...........        404                       1,224
Deferred loan origination
  fees and costs...........        321                         350
Allowance for loan losses..        336                         226
                               -------                     -------
Total loans, net...........    $81,860                     $59,570
                               =======                     =======

     Permanent Residential One- to Four-Family Mortgage Loans. Historically,
the primary lending activity of the Bank has been the origination for portfolio
of permanent residential one- to four-family first mortgage loans. Management
believes that this policy of focusing on single-family residential mortgage
loans has been successful in contributing to interest income while keeping
delinquencies and losses to a minimum. At December 31, 2000, $46.1 million, or
55.63%, of the Bank's total loan portfolio, before net items, consisted of
permanent residential one- to four-family mortgage loans, with an average
balance of $68,000.

     The Bank presently originates for its portfolio fixed-rate mortgage loans
secured by non-owner occupied one-to-four-family properties with terms of up to
20 years and up to 30 years for owner-occupied residential properties. At
December 31, 2000, $45.3 million, or 54.68%, of the total loans before net items
were fixed rate one- to four-family loans and $2.2 million, or 2.65%, were
adjustable rate mortgage ("ARM") loans. The Bank has offered two ARM loan
products for portfolio which adjust annually subject to a limitation on the
annual increase of 1.5% to 2.0% and an overall limitation of 5.0% or to a
specific ceiling rate. These ARM products utilize either the OTS Monthly Median
Cost of Funds Index or the Semi-Annual Cost of Funds Index ("COFI"). Loans based
on the COFI constitute a majority of the Bank's ARM loans. The COFI is a lagging
model index which, together with the periodic and overall interest rate caps,
may cause the yield on such loans to adjust more slowly than the cost of
interest-bearing liabilities especially in a rapidly rising rate environment.

     The Bank's ARM loans do not permit negative amortization of principal and
carry no prepayment restrictions. Borrower demand for ARM loans versus
fixed-rate mortgage loans is a function of the level of interest rates, the
expectations of changes in the level of interest rates and the difference
between the initial interest rates and fees charged for each type of loan. The
relative amount of fixed-rate mortgage loans and ARM loans that can be
originated at any time is largely determined by the demand for each in a
competitive environment.


                                  2

<PAGE>

<PAGE>
     ARM loans help reduce the Bank's exposure to changes in interest rates.
There are, however, unquantifiable credit risks resulting from the potential of
increased costs due to changed rates to be paid by the customer. It is possible
that during periods of rising interest rates the risk of default on ARM loans
may increase as a result of repricing with increased costs to the borrower.
Another consideration is that although ARM loans allow the Bank to increase the
sensitivity of its asset base to changes in the interest rates, the extent of
this interest sensitivity is limited by the periodic and lifetime interest rate
adjustment limits. Because of these considerations, the Bank has no assurance
that yields on ARM loans will be sufficient to offset increases in the Bank's
cost of funds.

     The Bank's lending policies generally limit the maximum loan-to-value ratio
on mortgage loans secured by owner occupied properties to 80% of the lesser of
the appraised value or the purchase price, however, most loans have loan-to-
value ratios of 75% or less. Property valuations are required on all properties.

     The Bank offers fixed-rate, permanent owner-occupied one-to-four-family
mortgage loans with terms of up to 30 years. Substantially all permanent one-to-
four-family loans have original contractual terms to maturity of 20 to 25 years
and are primarily made for loan amounts of less than $250,000. Such loans
generally are amortized monthly with principal and interest due each month and
customarily include "due-on-sale" clauses. The Bank enforces due-on-sale clauses
to the extent permitted under applicable laws. Substantially all of the Bank's
mortgage loan portfolio consists of conventional loans. The Bank has not
originated significant amounts of mortgage loans on second residences.

     The Bank also originates  residential mortgage loans secured by non-owner
occupied rental properties within its primary market area. Generally, such loans
are made at higher interest rates than owner-occupied residential mortgage
loans, with a loan-to-value ratio of 70%, and with a debt coverage ratio of
1.25x.

     The Bank requires title insurance on all real estate secured loans. The
Bank also requires that fire and extended coverage casualty insurance or
homeowners insurance (and, if appropriate, flood insurance) be maintained in an
amount at least equal to the outstanding loan balance.

     Construction Loans. The Bank originates construction loans primarily for
the construction of single-family residences and multi-family properties.
Construction loans generally convert to a secondary market permanent loan upon
the completion of construction. At December 31, 2000, construction loans
amounted to $6.0 million, or 7.24%, of the Bank's total loan portfolio, before
net items as compared to $2.4 million, or 3.93%, at December 31, 1999. The
increase is primarily the result of an increase in the construction of one-to-
four-family residences. During the construction phase, the borrower pays only
interest on the loan. The borrower is qualified at the interest rate for the
secondary market permanent loan. The Bank's construction loan agreements
generally provide that loan proceeds are disbursed in increments as construction
progresses. The Bank periodically reviews the progress of the underlying
construction project. Construction lending is generally limited to the Bank's
primary lending areas and is underwritten pursuant to the same general
guidelines used for originating  permanent one- to four-family  loans.
Construction financing is generally considered to involve a higher degree of
risk of loss than financing on improved, owner-occupied real estate because of
the uncertainties of construction and the possibility of costs exceeding the
initial estimates.

     Multi-Family and Commercial Real Estate Lending.  The Bank also originates
loans secured by multi-family and commercial real estate. At December 31, 2000,
the Bank's loan portfolio included $5.2 million in multi-family loans and $12.5
million in commercial real estate loans as compared to $5.3 million and $7.1
million, respectively, at December 31, 1999.


                                   3

<PAGE>

<PAGE>
     Multi-family and commercial real estate lending affords the Bank an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by such
properties are generally greater in amount, more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one-to-four-family
residential mortgage loans. Because payments on loans secured by commercial real
estate and multi-family properties are often dependent on the successful
operation and management of the properties, repayment of such loans may be
influenced by adverse conditions in the real estate market or the economy.

     Multi-family and commercial real estate loans originated by the Bank are
predominately fixed-rate loans with amortization terms of 15 to 20 years and
balloons at three to five years. The Bank's commercial real estate portfolio
consists of loans on a variety of properties located in the Bank's primary
market area,  including office buildings,  churches,  hotels and motels. Multi-
family loans generally are secured by small to medium-sized apartment buildings.
Appraisals on properties, which secure multi-family and commercial real estate
loans, are performed by an independent appraiser engaged by the Bank before the
loan is made. Underwriting of commercial and multi-family loans includes a
thorough analysis of the cash flows generated by the real estate to support the
debt service and the financial resources, experience, and income level of the
borrowers. The Bank imposes a debt coverage ratio of 1.25x to ensure that the
property securing the loans will generate sufficient cash flow to adequately
cover operating expenses and debt service payments plus provide an acceptable
return to the investor. Operating statements on each multi-family and commercial
real estate loan are required and reviewed by management on an annual basis.

     At December 31, 2000,  the average loan balance of the Bank's multi-family
loans was $191,000. At December 31, 2000, the Bank had four multi-family loans
in excess of $500,000 with two borrowers with an aggregate balance of $1.5
million. The Bank had 13 commercial real estate loans in excess of $500,000 with
nine borrowers with an aggregate balance of $8.5 million. The increase in
commercial real estate loans during 2000 was the result of the planned emphasis
on offering full service banking products to the Bank's markets.

     Consumer Lending. The Bank's consumer loan portfolio consists primarily of
home equity, home improvement, share loans and, to a substantially lesser
extent, mobile home and automobile loans. At December 31, 2000 the Bank's
consumer loans totalled approximately $5.5 million, or 6.6%, of the Bank's gross
loans of which $3.9 million, or 4.6%, consisted of home equity and home
improvement loans.

     Consumer loans are made at fixed interest rates and for varying terms. Home
equity and home improvement loans are made for terms up to 15 years for owner
occupied residences. In the case of home equity loans, the Bank holds a second
mortgage behind its own or another financial institution's first mortgage. When
originating a home equity loan, the Bank accounts for both the first and second
mortgage liens and generally limits the loan-to-value ratio to 80%.

     Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles and other vehicles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Furthermore, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
that can be recovered on such loans.


                                  4
<PAGE>

<PAGE>
     Commercial Business Lending. During 1999, the Bank began to offer
commercial loans to its customers. The Bank's commercial business lending
activities focuses primarily on small to medium size business owned by
individuals well known to the Bank and who reside in the Bank's primary market
area. At December 31, 2000, commercial business loans amounted to $6.2 million,
or 7.46% of total loans as compared to $1.8 million or 2.92% of total loans at
December 31, 1999. The Bank had 10 commercial business loans in excess of
$200,000 with 10 borrowers with an aggregate balance of $3.4 million. The
borrowers include auto dealers, retail establishments, hospitals, motels and
restaurants.

     Commercial business loans may be unsecured loans, but generally are secured
by various types of business collateral other than real estate (i.e., inventory,
equipment, etc.). In many instances, however, such loans are often also secured
by junior liens on real estate. Commercial business loans are either lines of
credit or term loans. Lines of credit are generally renewable and made for a
one-year term. Lines of credit are generally variable rate loans indexed to the
prime rate. Term loans are generally originated with three to five year
maturities, with a maximum of seven years, on a fully amortizing basis. As with
commercial real estate loans, the Bank generally requires annual financial
statements from its commercial business borrowers and, if the borrower is a
corporation, personal guarantees from the principals.

     Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family real estate lending.
Real estate lending is generally considered to be collateral based lending with
loan amounts based on predetermined loan to collateral values and liquidation of
the underlying real estate collateral is viewed as the primary source of
repayment in the event of borrower default. Although commercial business loans
are often collateralized by equipment, inventory, accounts receivable or other
business assets, the liquidation of collateral in the event of a borrower
default is often not a sufficient source of repayment because accounts
receivable may be uncollectible and inventories and equipment may be obsolete or
of limited use, among other things. Accordingly, the repayment of a commercial
business loan depends primarily on the creditworthiness of the borrower (and any
guarantors), while liquidation of collateral is a secondary and often
insufficient source of repayment.












                                    5

<PAGE>


<PAGE>
<TABLE>
     Maturity of Loan Portfolio. The following table sets forth the maturity of
the Bank's loan   portfolio at December  31, 2000.  The table does not include
prepayments of scheduled principal  repayments.  All loans are shown as maturing
based on contractual maturities.

                                                    Commercial
         Consumer
                          1-4 Family  Multi-family  Real Estate  Construction
Commercial  and Share  Total
                          ----------  ------------  -----------  ------------
----------  ---------  ------
                                                       (In Thousands)
<S>                         <C>         <C>          <C>          <C>
<C>         <C>        <C>
Amounts Due:
Within 3 months                $ 357         $  -         $  -        $ 2,052
$ 1,362      $ 220  $3,991
  3 months to 1 year......       613            -         1,159         3,468
  2,812        669   8,721

After 1 year:
  1 to 3 years............     3,081           870        3,826           483
    549      1,162   9,971
  3 to 5 years............     5,504         1,224        4,674            -
    878      1,818  14,098
  5 to 10 years...........     6,976           937        1,979            -
    276        722  10,890
  10 to 20 years..........    20,016         2,127          830            -
    305        746  24,024
  Over 20 years...........    11,078            -            -             -
     -         148  11,226
                              ------        ------      -------       -------
 ------      -----  ------
Total due after one year..    46,655         5,158       11,309           483
  2,008      4,596  70,209
                              ------        ------      -------       -------
 ------      -----  ------
Total amount due..........   $47,625        $5,158      $12,468        $6,003
 $6,182     $5,485 $82,921
                             =======        ======      =======        ======
 ======      =====
Less:
 Allowance for loan loss..
                       336
 Loans in process.........
                       404
 Deferred loan fees.......
                       321

                  --------
Loans receivable, net.....
                   $81,860

                  ========
</TABLE>
<TABLE>
     The  following table sets forth the dollar amount of all loans due after
December 31, 2000, which have fixed interest rates and have floating or
adjustable interest rates.

                                                       Fixed-
Floating- or
                                                       Rates
Adjustable-Rates          Total
                                                       -------
----------------          -----
                                                                           (In
Thousands)
<S>                                                     <C>                  <C>
                 <C>
 One- to four-family ................................  $45,430
$2,195            $47,625
 Multi-family........................................    4,200
  958              5,158
 Commercial Real Estate..............................    9,891
2,577             12,468
 Construction........................................    2,643
3,360              6,003
 Commercial..........................................    2,373
3,809              6,182
 Consumer and share..................................    3,950
1,535              5,485
                                                       -------
--------          ---------
     Total...........................................  $68,487
$14,434            $82,921
                                                       =======
=======            =======
</TABLE>

                                                 6
<PAGE>
     Scheduled contractual principal repayments of loans as presented in the
preceding table do not reflect the actual life of such assets. The average life
of loans ordinarily is substantially less than their contractual terms because
of prepayments. In addition, due-on-sale clauses on loans generally give the
Bank the right to declare loans immediately due and payable in the event, among
other things, that the borrower sells the real property subject to the mortgage
and the loan is not repaid. The average life of mortgage loans tends to
increase, however, when current mortgage loan market rates are higher than rates
on existing mortgage loans and, conversely, decrease when rates on existing
mortgage loans are higher than current mortgage loan market rates.

     Loan Solicitation and Processing. Real estate loan customers are solicited
through advertising media and contacts with local real estate brokers. Upon
receipt of a loan application from a prospective borrower, a credit report and
other data are obtained to verify specific information relating to the loan
applicant's employment, income and credit standing. All of the Bank's lending is
subject to its written  nondiscriminatory  underwriting  standards, loan
origination procedures and lending policies prescribed by the Bank's Board of
Directors. Commercial loan customers are solicited through advertising media,
but loan officers contact with potential borrowers is the primary source of new
commercial loans.

     All loans over $350,000 must be approved by the Bank's Loan Committee,
which consists of any three members of the Board of Directors. Interest rates
are subject to change if the approved loan is not closed within the time of the
commitment. Because the Bank originates loans for its own portfolio, many of the
loans do not comply with all secondary market documentation criteria. This
practice has enabled the Bank to develop an expedited loan application and
approval process which management believes provides it with a competitive
advantage in its primary market area while  continuing to maintain its
underwriting standards.  Management of the Bank also believes its local
decision-making capabilities is an attractive quality to customers within its
market area. The Bank's loan approval process allows loans to be approved and
closed in approximately four weeks or less.

     Loan Commitments. Loan commitments typically contain a termination date
of 30 days from the date of the commitment letter that is issued at the time the
loan is approved. The Bank had outstanding loan commitments of approximately
$4.5 million at December 31, 2000, most of which were for fixed rate/single
maturity payment loans.

   Loan Originations, Sales and Purchases. During the year ended December 31,
2000, the Bank's total gross loan originations were $49.5 million.

   The Bank has occasionally originated or participated in loans secured
by properties outside the State of Montana. These properties are primarily
located in California but also include loans secured by one-to-four-family
properties in Massachusetts, Utah and Colorado. At December 31, 2000, these
loans  amounted to $894,000 and consisted of (i) $292,000 in permanent
residential one-to-four-family mortgage loans, (ii) $323,000 in multi-family
loans, and (iii) a participation interest in a commercial real estate loan for
$305,000. The Bank has purchased loan participation interests primarily during
periods of reduced loan demand in its market area. At December 31, 2000, the
Bank had three participations in its primary market area with a balance of
$126,000.  Any such purchases are made in conformance with the Bank's
underwriting standards. The Bank may decide to purchase additional loans outside
its market area in the future depending upon the demand for mortgage credit in
its market area, however, it has not purchased any participation interests
outside of its primary market area during the past five years. During the year
ended December 31, 2000 the Bank originated four loans amounting to $776,000 on
properties located in Arizona, Virginia and Wyoming.

   Historically, the Bank has been a portfolio lender, maintaining the
residential mortgage loans it originates in its portfolio rather than selling
them in the secondary market. Subject to market conditions, management will
utilize and expand sales of mortgage loans in the secondary market. During the
year ended December 31, 2000, the Bank sold $5.8 million of single-family
mortgage loans in the secondary market. The Billings branch and the Missoula
loan production office were the most active of the Bank's branch offices in
these sales.
                                    7
<PAGE>
     The following table sets forth the Bank's originations and loan sales and
principal repayments during the periods indicated.  Mortgage loan originations
during the periods indicated includes fixed-rate, adjustable rates and, in some
cases, balloon payment loans.

                                         Year Ended December 31,
                                         2000                 1999
                                        ------               ------
                                              (In Thousands)
Total gross loans receivable at
  beginning of period................  $61,370              $50,233

Loans originated:
 One- to four-family.................   13,267                9,027
 Multi-family........................    2,429                1,809
 Construction........................   12,553                4,762
 Commercial real estate..............    5,233                7,158
 Commercial..........................   11,292                1,443
 Consumer............................    4,737                1,299
                                       -------               ------
Total loans originated...............   49,511               25,498

Loans sold:
 Whole loans.........................    5,814                   -
 Participations sold.................       -                    -
                                       -------              -------
Total loans sold.....................    5,814                   -
                                       -------              -------
Loan principal repayments............  (22,146)             (14,361)
                                       -------              -------
Net loan activity....................   21,551               11,137
                                       -------              -------
Total gross loans receivable
  at end of period...................  $82,921              $61,370
                                       =======              =======

     Loan Origination and Other Fees. The Bank charges loan origination
fees, which are a percentage of the principal amount of the mortgage loan. The
amount of fees charged by the Bank is generally up to 1% for mortgage loans and
2% for construction loans. The Bank generally does not charge fees for home
equity loans. Current accounting standards require that origination fees
received (net of certain loan origination costs) be deferred and amortized into
interest income over the contractual life of the loan. Net deferred fees or
costs associated with loans that are prepaid are recognized as income at the
time of prepayment. The Bank had $321,000 in net deferred loan fees at December
31, 2000.

     Non-Performing Assets and Delinquencies. When a mortgage loan borrower
fails to make a required loan payment when due, the Bank institutes collection
procedures. All loan payments are due on the contractual due date, however, a
loan is not considered delinquent and collection procedures are not instituted
until after the 30th day of the contractual due date. The first notice is mailed
to the borrower 30 days after the contractual due date and, if necessary, a
second written notice follows within 30 days thereafter giving the borrower 15
days to respond and correct the delinquency. Attempts to contact the borrower by
telephone generally begin soon after the first notice is mailed to the borrower.
If a satisfactory response is not obtained, continuous follow-up contacts are
attempted until the loan has been brought current or foreclosure is initiated.
Attempts to interview the borrower, preferably in person, are made to establish
(i) the cause of the delinquency, (ii) whether the cause is temporary, (iii) the
attitude of the borrower toward the debt, and (iv) a mutually satisfactory
arrangement for curing the default.


                                   8

<PAGE>

     After such attempts have been made by the Bank, or earlier if the borrower
is chronically delinquent and all reasonable means of obtaining payment on time
have been exhausted, foreclosure is initiated according to the terms of the
security instrument and applicable law. Interest income on loans is then reduced
by the full amount of accrued and uncollected interest.

     When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Bank institutes the same collection
procedures as for its mortgage loan borrowers.

     The Bank's Board of Directors is informed monthly as to the status of
all loans that are delinquent more than 30 days, the status on all loans
currently in foreclosure, and the status of all foreclosed and repossessed
property owned by the Bank.

     Except for one nonaccrual loan amounting to $14,000 at December 31,
1999, the Bank did not have any nonaccrual loans, accruing loans contractually
past due 90 days or more as to principal or interest payments, or troubled debt
restructurings  within the meaning of Statement of Financial Accounting
Standards, ("SFAS") No. 15 at December 31, 2000 and 1999. Loans amounting to
$1.3 million and $782,000 were past due, but still accruing interest at December
31, 2000 and 1999, respectively.

     Real Estate Owned. The Bank had no real estate acquired through foreclosure
or in satisfaction of loans at December 31, 2000 or 1999.

     Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses may make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset. All or a portion of general loan loss allowances
established to cover possible losses related to assets classified substandard or
doubtful may be included in determining an institution's regulatory capital,
while specific valuation allowances for loan losses generally do not qualify as
regulatory capital. Assets that do not currently expose the insured institution
to sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are designated "special mention" and are
monitored by the Bank.

     At December 31, 2000, the Bank had one substandard loan totaling $7,000
and at December 31, 1999 had two substandard loans totaling $24,000.

     Allowance for Loan Losses. The Bank has established a systematic
methodology for determining provisions for loan losses. The methodology is set
forth in a formal policy and considers the need for an overall general valuation
allowance as well as specific allowances for individual loans.

     In originating  loans, the Bank recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Bank may increase its allowance for
loan losses by charging provisions for loan losses against the Bank's income.

                                  9
<PAGE>

<PAGE>
     The general valuation allowance is maintained to cover losses inherent
in the portfolio of performing loans. Management reviews the adequacy of the
allowance at least quarterly based on management's assessment of current
economic  conditions,  past  loss and  collection  experience,  and risk
characteristics of the loan portfolio. The amount of the allowance is based on
management's evaluation of the collectibility of the loan portfolio, credit
concentrations, trends in historical loss experience, specific impaired loans,
peer group comparisons and economic conditions. Allowances for impaired loans
are generally determined based on collateral values or the present value of
estimated cash flow. Specific valuation allowances may be established to absorb
losses on loans for which full collectibility may not be reasonably assured. The
amount of the allowance is based on the estimated value of the collateral
securing the loan and other analyses pertinent to each situation.

     At December 31, 2000, the Bank had an allowance for loan losses of
$336,000, which management believed to be adequate to absorb losses inherent in
the portfolio at that date. Although management believes that it uses the best
information available to make such determinations in accordance with accounting
principles  generally accepted in the United States of America,  future
adjustments to the allowance for loan losses may be necessary and results of
operations could be significantly and adversely affected if circumstances differ
substantially  from the assumptions  used in making the  determinations.
Furthermore, there can be no assurance that regulators, in reviewing the Bank's
loan portfolio, will not request the Bank to increase significantly its
allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses will continue to be
adequate or that substantial increases will not be necessary should the quality
of any loans deteriorate as a result of the factors discussed above. Any
material increase in the allowance for loan losses may adversely affect the
Bank's financial condition and results of operations.

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

                                                       Year Ended December 31,
                                                        2000           1999
                                                       ------         ------
                                                      (Dollars in Thousands)
Total loans outstanding before net items........      $82,921        $61,370
                                                      =======        =======

Allowance balance at beginning
    of year.....................................      $   226        $   220
                                                      -------        -------

Provision ......................................
       One-to-four family.......................           10             18
       Commercial real estate ..................           60             -
       Commercial ..............................           40             -
                                                      -------        -------
Total...........................................          110             18
                                                      -------        -------
Net charge-offs.................................
       Commercial...............................           -               9
       Consumer.................................           -               3
                                                      -------        -------
Total...........................................           -              12
                                                      -------        -------
Allowance balance at end of year................      $   336        $   226
                                                      =======        =======
Allowance for loan losses as a percent
    of total loans outstanding..................         0.41%          0.38%
                                                      =======        =======



                                       10

<PAGE>

     The following  table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated.  The portion of the allowance to
each loan category does not necessarily represent the total available for losses
within that category since the total allowance applies to the entire loan
portfolio.  The allocation of the allowance to each category is not necessarily
indicative of future  losses and does not restrict the use of the allowance to
absorb losses in any other category.

                                                  At December 31,
                                   --------------------------------------------
                                           2000                   1999
                                   -------------------     --------------------
                                                % of                   % of
                                               Loans                   Loans
                                               in Each                 in Each
                                              Category                Category
                                              to Total                to Total
                                    Amount      Loans       Amount      Loans
                                    ------     -------      ------     -------
                                          (Dollars in Thousands)
One- to four-family ..........        $150      57.43%        $140      67.99%
Commercial real estate........         100      15.04           40      11.58
Commercial....................          40       7.46           -        2.92
Multi-family..................          25       6.22           25       8.65
Construction..................           9       7.24            9       3.93
Consumer and share............          12       6.61           12       4.93
                                    ------     -------      ------     -------
  Total allowance.............        $336     100.00%        $226     100.00%
                                    ======     =======      ======     =======

INVESTMENT ACTIVITIES

     The Bank is permitted under federal law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the
FHLB-Seattle, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Bank may also invest a portion of its assets in commercial paper and corporate
debt securities. The Bank is also required to maintain an investment in FHLB
stock as a condition of membership in the FHLB-Seattle.

     The Bank is required under federal regulations to maintain a minimum amount
of liquid assets. At December 31, 2000, the Bank's regulatory liquidity of
41.56% was significantly in excess of the 4% required by Office of Thrift
Supervision (the "OTS") regulations. The securities in the Bank's investment
portfolio provide it with liquidity for funding loan originations and enables
the Bank to improve the match between the maturities and repricing of its
interest-rate sensitive assets and liabilities. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources" contained in the Corporation's 2000 Annual Report to
Stockholders which is incorporated herein by reference.

     The President of the Bank determines appropriate investments in accordance
with the Board of Directors' approved investment policies and procedures. The
Bank's policies generally limit investments to U.S. Government and agency
securities and mortgage-backed securities issued and guaranteed by Federal Home
Loan Mortgage Corporation ("FHLMC"), Federal National Mortgage Association
("FNMA"), and Government National Mortgage Association ("GNMA"). The Bank's
policies provide that investment purchases be ratified at monthly Board of
Directors meetings. Investments are made based on certain considerations, which
include the interest rate, yield, settlement date and maturity of the
investment, the Bank's liquidity position, and anticipated cash needs and
sources (which in turn include outstanding commitments, upcoming maturities,
estimated deposits and anticipated loan amortization and repayments). The effect
that the proposed investment would have on the Bank's credit and interest rate
risk, and risk-based capital is also given consideration during the evaluation.

                                   11
<PAGE>
     At December 31, 2000, the Bank's investment and mortgage-backed securities
portfolio totaled $34.4 million and consisted principally of U.S. Government and
agency mortgage-backed securities. At December 31, 2000, the Bank had investment
securities available-for-sale with an estimated market value of $2.8 million,
which consists of stock in the FHLMC. The FHLMC common stock at December 31,
2000 had an amortized cost of $47,000 and an estimated market value of $2.8
million. The market value of the FHLMC common stock has increased significantly
since its purchase in the mid-1980's. From time to time, investment levels may
be increased or decreased depending upon the yields on investment alternatives
and upon management's judgment as to the attractiveness of the yields then
available in relation to other opportunities and its expectation of the level of
yield that will be available in the future, as well as management's projections
as to the short-term demand for funds to be used in the Bank's loan origination
and other activities.

     Mortgage-Backed Securities.  The Bank purchases mortgage-backed securities
in order to: (i) generate positive interest rate spreads on large principal
balances with minimal administrative expense; (ii) lower the credit risk of the
Bank as a result of the guarantees provided by FHLMC, FNMA, and GNMA; (iii)
enable the Bank to use mortgage-backed securities as collateral for financing;
and (iv) invest excess funds during periods of reduced loan demand. Included in
the Bank's mortgage-backed securities portfolio are real estate mortgage
investment conduits ("REMICs"), which mature between 2008 and 2028 and have
interest rates based primarily on the rate paid on U.S. Treasury securities and
the COFI. At December 31, 2000, net mortgage-backed securities totaled $31.6
million, or 25.30%, of total assets. At December 31, 2000, $10.6 million of the
mortgage-backed securities had adjustable rates of interest and $21.0 million
had fixed rates. The mortgage-backed securities portfolio had coupon rates
ranging from 4.50% to 12.75% and had a weighted average yield of 6.82% during
the year ended December 31, 2000. At December 31, 2000, the amortized cost of
the Bank's mortgage-backed securities held-to-maturity was $5.0 million.

     Mortgage-backed securities (which also are known as mortgage participation
certificates or pass-through certificates) typically represent a participation
interest in a pool of single-family or multi-family mortgages. The principal and
interest payments on these mortgages are passed from the mortgage originators,
through intermediaries (generally U.S. Government agencies and government
sponsored enterprises) that pool and resell the participation interests in the
form of securities, to investors such as the Bank. Such U.S. Government agencies
and government sponsored enterprises, which guarantee the payment of principal
and interest to investors, primarily include the FHLMC, FNMA and the GNMA.
Mortgage-backed securities typically are issued with stated principal amounts,
and the securities are backed by pools of mortgages that have loans with
interest rates that fall within a specific range and have varying maturities.
Mortgage-backed securities generally yield less than the loans that underlie
such securities because of the cost of payment guarantees and credit
enhancements. In addition, mortgage-backed securities are usually more liquid
than individual mortgage loans and may be used to collateralize certain
liabilities and obligations of the Bank. These types of securities also permit
the Bank to optimize its regulatory capital because they have low risk
weighting.

     REMICs are generally created by redirecting the cash flows from the
pool of mortgages or mortgage-backed securities underlying these securities to
create two or more classes (or tranches) with different maturity or risk
characteristics designed to meet a variety of investor needs and preferences.
Management believes these securities may represent attractive alternatives
relative to other investments due to the wide variety of maturity, repayment and
interest rate options available. Investment practices of the Bank prohibit the
purchase of high risk REMICs. The Bank held REMICs with a net carrying value of
$15.0 million at December 31, 2000. REMICs may be sponsored by private issuers,
such as mortgage bankers or money center banks, or by U.S. Government agencies
and government sponsored entities. At December 31, 2000, the Bank did not own
any privately issued REMICs.

     Thrift Bulletin Number 52 ("TB-52"), the OTS Policy Statement on securities
portfolio policies and unsuitable investment practices, requires that
institutions classify mortgage derivative products acquired, including REMICs
and certain tranches of CMOs, as "high-risk mortgage securities" if such
products exhibit greater price volatility than a benchmark fixed-rate 30-year
mortgage-backed pass-through security. Institutions may only hold high-risk
mortgage securities to reduce interest-rate risk in accordance with safe and
sound practices and must also follow certain prudent





                                   12

<PAGE>


<PAGE>
safeguards in the purchase and retention of such securities. At December 31,
2000, the Bank held $3.3 million securities that are identified under TB-52 as
"high-risk mortgage securities." The Bank also evaluates its mortgage-backed
securities portfolio annually for compliance with applicable regulatory
requirements, including testing for identification of high risk investments
pursuant to Federal Financial Institutions Examination Council standards.

     Derivatives also include "off balance sheet" financial products whose value
is derived from the value of an underlying financial asset, such as a stock,
bond, foreign currency, or a reference rate or index. Such derivatives include
"forwards," "futures," "options" or "swaps." The Bank's investment policy does
not permit investment in such "off balance sheet" derivative instruments.

     Of the Bank's $31.6 million mortgage-backed securities portfolio at
December 31, 2000, $2.9 million had contractual maturities within six years and
$28.7 million had contractual maturities over six years. The actual maturity of
a mortgage-backed security may be less than its stated maturity due to
prepayments of the underlying mortgages. Prepayments that are faster than
anticipated may shorten the life of the security and may result in a loss of any
premiums paid and thereby reduce the net yield on such securities. Although
prepayments of underlying mortgages depend on many factors, including the type
of mortgages, the coupon rate, the age of mortgages, the geographical location
of the underlying real estate collateralizing the mortgages and general levels
of market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, if the coupon rate of the underlying
mortgages exceeds the prevailing market interest rates offered for mortgage
loans, refinancing generally increases and accelerates the prepayment of the
underlying mortgages and the related security. Under such circumstances, the
Bank may be subject to reinvestment risk because, to the extent that the Bank's
mortgage-backed securities amortize or prepay faster than anticipated, the Bank
may not be able to reinvest the proceeds of such repayments and prepayments at a
comparable rate. In contrast to mortgage-backed securities in which cash flow is
received (and hence, prepayment risk is shared) pro rata by all securities
holders, the cash flow from the mortgages or mortgage-backed securities
underlying REMICs are segmented and paid in accordance with a predetermined
priority to investors  holding  various  tranches of such securities or
obligations. A particular tranche of REMICs may therefore carry prepayment risk
that differs from that of both the underlying collateral and other tranches.

     The following table sets forth information regarding the Bank's mortgage-
backed securities (including REMICs) activity for the periods indicated.

                                                        Year Ended December 31,
                                                          2000            1999
                                                         ------          ------
                                                             (In Thousands)
Beginning balance.................................      $42,427         $45,369
                                                        -------         -------

Mortgage-backed securities purchased..............           -           15,601

Amortization of premiums, net of discount
    accretion.....................................          (73)            (70)
Principal repayments and change in
   fair market value..............................      (10,724)        (18,473)
                                                        -------         -------
      Ending balance..............................      $31,630         $42,427
                                                        =======         =======


                                   13



<PAGE>




     The following table sets forth the composition of the Bank's mortgage-
backed securities portfolio at the dates indicated.

                                                     At December 31,
                                     ------------------------------------------
                                             2000                   1999
                                     ------------------    --------------------
                                               Percent                Percent
                                       Amount  of Total      Amount   of Total
                                      -------  -------      -------    -------
                                                (Dollars in Thousands)
Mortgage-backed securities:
 REMIC..............................  $15,037    47.54%     $16,062      37.86%
 GNMA...............................    3,945    12.47        5,635      13.28
 FNMA...............................   11,185    35.36       17,287      40.74
 FHLMC..............................    1,463     4.63        3,443       8.12
                                      -------  -------      -------    -------
   Total............................  $31,630   100.00%     $42,427     100.00%
                                      =======  =======      =======    =======


     The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities portfolio as of December 31, 2000:

                       Contractual Maturities Due in Year(s) Ended December 31,
                     -----------------------------------------------------------
                                              2004    2007     2017
                                               to      to      and
                      2001    2002    2003    2006    2016   Thereafter   Total
                     ------  ------  ------  ------  ------  ----------   -----
                                         (In Thousands)
Mortgage-backed
 securities........  $  503  $   15  $   16  $2,344  $6,560    $22,192  $31,630
                     ======  ======  ======  ======  ======    =======  =======


     The following table sets forth the carrying value of the Bank's investment
securities portfolio, short-term investments and FHLB stock at the dates
indicated.

                                                           At December 31,
                                                      2000                1999
                                                      ----                ----
                                                            (In Thousands)
Securities available-for-sale (1) (2)..........        2,769             5,069
Interest-bearing deposits......................          165               684
FHLB stock.....................................        1,561             1,464
                                                    --------           -------
   Total.......................................       $4,495            $7,217
                                                      ======            ======

(1)  Includes FHLMC common stock and mutual funds.
(2)  Excludes mortgaged-backed securities.






                                    14

<PAGE>


     The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities of the Bank's available-for-sale
investment securities portfolios as of December 31, 2000.

                                One Year or Less     Total Investment Securities
                                Carrying  Average     Carrying Average   Market
                                 Value    Yield        Value   Yield     Value
                               --------  --------    --------  -------  -------
                                            (Dollars in Thousands)
Securities available-for-sale..  $2,769(1)   1.01%     $2,769    1.01%   $2,769
                               ========  ========    ======== ========  =======

(1) Consists of FHLMC common stock.







                                      15

<PAGE>



DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS

     General.  Deposits and loan repayments are the major sources of the Bank's
funds for lending and other investment purposes.  Scheduled loan repayments are
a relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are influenced significantly by general interest rates and money
market conditions. Borrowings through the FHLB-Seattle may be used to compensate
for reductions in the availability of funds from other sources. At December 31,
2000, the Bank had $16.2 million in borrowings from the FHLB.

     Deposit Accounts. Substantially all of the Bank's depositors are residents
of south-central Montana. Deposits are attracted from within the Bank's market
area through the offering of a broad selection of deposit instruments, including
Negotiable Order of Withdrawals ("NOW") accounts, money market accounts,
regular savings accounts,  certificates of deposit and retirement savings plans.
Deposit account terms vary, according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. In determining the terms of its deposit accounts, the Bank considers
current market interest rates, profitability to the Bank, matching deposit and
loan products and its customer preferences and concerns. The Bank reviews its
deposit mix and pricing weekly.

     The following table sets forth certain information concerning the Bank's
time deposits and other interest-bearing deposits at December 31, 2000.

Weighted                                                             Percentage
Average       Original     Checking and          Minimum             of Total
Interest Rate  Term        Savings Deposits      Balance   Balance   Deposits
------------- --------     -----------------     -------   -------   ----------
                                                 (In Thousands)
2.06%         None         NOW accounts             $200   $13,116      16.88%
3.00          None         Regular savings           100    11,199      14.42
4.75          None         Money market accounts   1,000    11,264      14.51

                           Certificates of deposit:
                           -----------------------
5.52          1-3 months   Fixed term, fixed rate    500     1,141       1.47
6.06          4-6 months   Fixed term, fixed rate    500     5,808       7.48
5.74          7-12 months  Fixed term, fixed rate    500    10,005      12.88
5.82          13-24 months Fixed term, fixed rate    500    12,536      16.14
5.67          25-36 months Fixed term, fixed rate    500     4,357       5.61
6.57          37-48 months Fixed term, fixed rate    500     3,543       4.56
6.19         49-120 months Fixed term, fixed rate    500     2,897       3.73
6.54          Various      Jumbo certificates    100,000     1,801       2.32
                                                           -------    -------
                                                            77,667     100.00%
                                                                      =======
              Accrued interest on deposits                     162
                                                           -------
              Total                                        $77,829
                                                           =======



                                   16

<PAGE>


     The following table indicates the amount of the Bank's certificates of
deposit of $100,000 or more by time remaining  until maturity as of December 31,
2000.

           Maturity Period                          Amount
           ---------------                      -------------
                                                (In Thousands)
Three months or less...................           $ 2,489
Over three through six months..........             1,540
Over six through 12 months.............             1,687
Over 12 months.........................             1,633
                                                  -------
     Total.............................            $7,349
                                                  =======

TIME DEPOSITS BY RATES

     The following table sets forth the time deposits in the Bank classified by
rates at December 31, 2000.

                                                   Amount
                                                   ------
                                               (In Thousands)
      3.00 - 5.00%....................            $ 1,271
      5.01 - 7.00%....................             40,602
      7.01 - 8.00%....................                215
                                                 --------
            Total.....................           $ 42,088
                                                 ========

     The following table sets forth the amount and maturities of time deposits
at December 31, 2000.

                                            Amount Due
                      --------------------------------------------------------
                                                              After
                      December 31, December 31, December 31, December 31,
                             2001       2002       2003       2004       Total
                            ------     ------     ------     ------      ------
                                           (In Thousands)
Time deposits............  $30,275     $5,463     $1,943     $4,407     $42,088
                           =======     ======     ======     ======
Accrued interest on
  certificate accounts...                                                   162
                                                                         ------
  Total.....................                                            $42,250
                                                                         ======

DEPOSIT ACTIVITIES

     The following table sets forth the deposit activities of the Bank for the
periods indicated.

                                                      Year Ended December 31,
                                                       2000            1999
                                                      ------          ------
                                                         (In Thousands)
Net increase before interest credited........       $  2,989         $ 2,057
Interest credited............................          3,325           2,884
                                                      ------          ------
Net increase in deposits.....................         $6,314         $ 4,941
                                                      ======          ======



                                   17

<PAGE>

BORROWINGS

     While savings deposits are the primary source of funds for the Bank's
lending and investment activities and for its general business purposes, the
Bank also relies upon advances from the FHLB-Seattle to supplement its supply of
lendable funds, to meet deposit withdrawal requirements and to fund the purchase
of investment and mortgage-backed securities. At December 31, 2000, the Bank was
eligible to borrow up to approximately $29 million, and had borrowed $16.2
million.

     The FHLB-Seattle functions as a central reserve bank providing credit
for savings and loan associations and certain other member financial
institutions.  As a member, the Bank is required to own capital stock in the
FHLB-Seattle and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally securities
which are obligations of, or guaranteed by, the U. S. Government) provided
certain creditworthiness standards have been met. Advances are made pursuant to
several different credit programs. Each credit program has its own interest rate
and range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit.

     The following table sets forth information concerning only short-term
borrowings (those maturing within one year or less) the Bank had during the
periods indicated.

                                                 Year Ended December 31,
                                                --------------------------
                                                 2000                1999
                                                ------              ------
                                              (Dollars in Thousands)
Short-term FHLB advances:
  Average balance outstanding.................  $6,346              $2,726
  Maximum amount outstanding at any
    month-end during the period............... $10,200              $4,800
  Weighted average interest rate
    during the period.........................    6.48%               5.01%
Total short-term borrowings at
  end of period............................... $10,200              $4,800


For additional information on all borrowings of the Corporation see Notes 8 and
9 of the Notes to Consolidated Financial Statements in the Annual Report which
is incorporated herein by reference.







                                   18

<PAGE>



SUBSIDIARY ACTIVITIES

     Federal savings associations generally may invest up to 3% of their assets
in service corporations, provided that at least one-half of any amount in excess
of 1% is used primarily for community, inner-city and community development
projects. The Bank's investment in its service corporation, Dime Service
Corporation, did not exceed these limits at December 31, 2000.

     Dime Service Corporation is a wholly-owned subsidiary of the Bank. It was
established in 1985 to purchase and operate an insurance agency business. In
1992 and 1993, Dime Service Corporation purchased the insurance business of two
local insurance agencies. Dime Service Corporation presently engages in full
service property and casualty insurance activities under the name "Dime
Insurance Agency." At December 31, 2000, the Bank's investment in Dime Service
Corporation was $442,000.  Dime Service Corporation had total assets of
approximately $511,000 at December 31, 2000, and net income of approximately
$4,000 for the year ended December 31, 2000. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" contained in
Corporation's Annual Report which is incorporated herein by reference.

                            REGULATION

GENERAL

     The Bank is subject to extensive  regulation,  examination and supervision
by the OTS as its chartering agency, and the FDIC, as the insurer of its
deposits. The activities of federal savings institutions are governed by the
Home Owners' Loan Act of 1933, as amended ("HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA"), and the regulations issued by the OTS
and the FDIC to implement these statutes. These laws and regulations delineate
the nature and extent of the activities in which federal savings associations
may engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements.  In addition, the Bank's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Bank's mortgage documents. The Bank must file reports
with the OTS and the FDIC concerning its activities and financial condition in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to review
the Bank's compliance with various regulatory requirements. The regulatory
structure also gives the regulatory  authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or Congress, could have a
material adverse impact on the Corporation, the Bank and their operations. The
Corporation, as a savings and loan holding company, is also required to file
certain reports with, and otherwise comply with the rules and regulations of the
OTS.

FEDERAL REGULATION OF SAVINGS ASSOCIATIONS

     Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally  possesses the supervisory and regulatory  duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.

     All savings associations are required to pay assessments to the OTS to
fund the agency's operations. The general assessments, paid on a semi-annual
basis, are determined based on the savings association's total assets, including
consolidated subsidiaries. The Bank's OTS assessment for the fiscal year ended
December 31, 2000 was $50,700.

                                  19
<PAGE>

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

     The Bank, as a member of the FHLB-Seattle, is required to acquire and
hold shares of capital stock in the FHLB-Seattle in an amount equal to the
greater of (i) 1.0% of the aggregate outstanding principal amount of residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, or (ii) 1/20 of its advances (i.e., borrowings) from the FHLB-
Seattle. The Bank is in compliance with this requirement with an investment
in FHLB-Seattle stock of $1.6 million at December 31, 2000.

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

     Federal Deposit Insurance Corporation. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC maintains two separate insurance funds: the
Bank Insurance Fund ("BIF") and the SAIF. As insurer of deposits, the FDIC has
examination, supervisory and enforcement authority over all savings
associations. The Bank's accounts are insured by the SAIF up to the maximum
extent permitted by law.

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

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

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

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


                                    20

<PAGE>

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

     Prompt Corrective  Action. The OTS is required to take certain supervisory
actions against undercapitalized savings associations, the severity of which
depends upon the institution's  degree of  undercapitalization.  Generally, an
institution that has a ratio of total capital to risk-weighted assets of less
than 8%, a ratio of Tier 1 (core) capital to total assets of less than 4%, or a
ratio of core capital to total assets of less than 4% (3% or less for
institutions with the highest examination rating) is considered to be
"undercapitalized." An institution that has a total risk-based capital ratio
less than 6%, a Tier I capital ratio of less than 3% or a leverage ratio that is
less than 3% is considered to be "significantly undercapitalized" and an
institution that has a tangible capital to assets ratio equal to or less than 2%
is deemed to be "critically undercapitalized." Subject to a narrow exception,
the OTS is required to appoint a receiver or conservator for a savings
institution that is "critically undercapitalized." OTS regulations also require
that a capital restoration plan be filed with the OTS within 45 days of the date
a savings  institution  receives  notice that it is  "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Compliance
with the plan must be guaranteed by any parent holding company in an amount of
up to the lesser of 5% of the institution's assets or by the amount which would
bring the institution into compliance with all capital standards. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized  institution,  including,  but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The OTS also could take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.

     At December 31, 2000, the Bank was categorized as "well capitalized" under
the prompt corrective action regulations of the OTS.

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

     Qualified Thrift Lender Test. All savings associations, including the Bank,
are required to meet a qualified thrift lender ("QTL") test to avoid certain
restrictions on their operations.  This test requires a savings association to
have at least 65% of its portfolio assets (as defined by regulation) in
qualified thrift investments on a monthly average for nine out of every 12
months on a rolling basis. As an alternative, the savings association may
maintain 60% of its assets in those assets specified in Section 7701(a)(19)
of the Internal Revenue Code of 1986 as amended ("Code"). Under either test,
such assets primarily consist of residential  housing related loans and
investments. At December 31, 2000, Empire Federal met the test and its QTL
percentage was 93.93%.

     Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and coverts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
Bank is immediately ineligible to receive any new FHLB borrowings and is subject
to national bank limits

                                   21

<PAGE>

<PAGE>
for payment of dividends. If such association has not requalified or converted
to a national bank within three years after the failure, it must divest of all
investments and cease all activities not permissible for a national bank. In
addition, it must repay promptly any outstanding FHLB borrowings, which may
result in prepayment penalties. If any association that fails the QTL test is
controlled by a holding company, then within one year after the failure, the
holding company must register as a bank holding company and become subject to
all restrictions on bank holding companies. See "Savings and Loan Holding
Company Regulations."

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

     The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). At December 31, 2000, the Bank
had tangible capital of $26.4 million, or 21.6% of adjusted total assets, which
is approximately $24.5 million above the minimum requirement of 1.5% of adjusted
total assets in effect on that date. At December 31, 2000, the Bank did not have
any intangible assets.

     The capital standards also require core capital equal to at least 3% to 4%
of adjusted total assets, depending on an institutions' supervisory rating. Core
capital generally consists of tangible capital. At December 31, 2000, the Bank
had core capital equal to $26.4 million or 21.6% of adjusted total assets, which
is $22.7 million above the minimum leverage ratio requirement of 3% as in effect
on that date.

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

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

     On December 31, 2000, the Bank had total risk-based capital of
approximately $27.9 million, including $26.4 million in core capital and $1.5
million in qualifying supplementary capital, and risk-weighted assets of $69.0
million, or total capital of 40.4% of risk-weighted assets. This amount was
$22.4 million above the 8% requirement in effect on that date.

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

     The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
                                    22
<PAGE>


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

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

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

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

     Loans to One Borrower. Federal law provides that savings institutions
are generally subject to the national bank limit on loans to one borrower. A
savings institution may not make a loan or extend credit to a single or related
group of borrowers in excess of 15% of its unimpaired capital and surplus. An
additional amount may be lent, equal to 10% of unimpaired capital and surplus,
if secured by specified readily-marketable collateral. At December 31, 2000, the
Bank's limit on loans to one borrower was $4.3 million. At December 31, 2000,
the Bank's largest aggregate amount of loans to one borrower was $2.2 million,
all of which were performing according to their original terms.

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

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

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

                                     23
<PAGE>

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

     Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"), a
federal statute, all federally-insured financial institutions have a continuing
and affirmative obligation consistent with safe and sound operations to help
meet all the credit needs of its delineated community. The CRA does not
establish specific lending requirements or programs nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to meet all the credit needs of its delineated
community. The CRA requires the federal banking agencies, in connection with
regulatory examinations, to assess an institution's record of meeting the credit
needs of its delineated community and to take such record into account in
evaluating certain regulatory applications filed by an institution. The CRA
requires public disclosure of an institution's CRA rating. The Bank received a
"satisfactory" rating as a result of its latest evaluation.

     Regulatory and Criminal Enforcement Provisions. Under the FDIA, the OTS has
primary enforcement responsibility over savings institutions and has the
authority to bring action against all  "institution-affiliated  parties,"
including stockholders, and any attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured institution. Formal enforcement action may range from the
issuance of a capital directive or cease and desist order to removal of officers
or directors, receivership, conservatorship or termination of deposit insurance.
Civil penalties cover a wide range of violations and can amount to $25,000 per
day, or $1.0 million per day in especially egregious cases. Under the FDIA, the
FDIC has the authority to recommend to the Director of the OTS that enforcement
action be taken with respect to a particular savings institution. If action is
not taken by the Director, the FDIC has authority to take such action under
certain circumstances. Federal law also establishes criminal penalties for
certain violations.

SAVINGS AND LOAN HOLDING COMPANY REGULATIONS

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

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



                                    24
<PAGE>


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

     Qualified Thrift Lender Test. If the Bank fails the qualified thrift lender
test, within one year the Corporation must register as, and will become subject
to, the significant activity restrictions applicable to bank holding companies.
See "--Federal Regulation of Savings Associations--Qualified Thrift Lender Test"
for information regarding the Bank's qualified thrift lender test.

     Financial Services Modernization Bill. On November 12, 1999, President
Clinton signed into law the Gramm-Leach-Bliley Act (the "Act") which, effective
March 11, 2000, permitted qualifying bank holding companies to become financial
holding companies and thereby affiliate with securities firms and insurance
companies and engage in other activities that are financial in nature. The Act
defines "financial in nature" to include securities underwriting, dealing and
market making; sponsoring mutual funds and investment companies; insurance
underwriting and agency; merchant banking activities; and activities that the
Board has determined to be closely related to banking. A qualifying national
bank also may engage, subject to limitation on investment, in activities that
are financial in nature, other than insurance underwriting, insurance company
portfolio investment, real estate development, and real estate investment,
through a financial subsidiary of the bank.

     The act also prohibits new unitary thrift holding companies from engaging
in nonfinancial activities or from affiliating with an nonfinancial entity. As a
grandfathered unitary thrift holding company, the Corporation will retain its
authority to engage in nonfinancial activities.

                                TAXATION

Federal Taxation

     General. The Corporation and the Bank report their income on a calendar
year basis using the accrual method of accounting and are subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Corporation.

     Tax Bad Debt Reserves. For taxable years beginning prior to January 1,
1996, savings institutions such as the Bank which met certain definitional tests
primarily relating to their assets and the nature of their business ("qualifying
thrifts") were permitted to establish a reserve for bad debts and to make annual
additions thereto, which additions may, within specified formula limits, have
been deducted in arriving at their taxable income. The Bank's deduction with
respect to "qualifying loans," which are generally loans secured by certain
interests in real property, may have been computed using an amount based on the
Bank's actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted additions


                                   25
<PAGE>


to the nonqualifying reserve. The Bank's deduction with respect to nonqualifying
loans was computed under the experience method, which essentially allows a
deduction based on the Bank's actual loss experience over a period of several
years. Each year the Bank selected the most favorable way to calculate the
deduction attributable to an addition to the tax bad debt reserve.

     Federal legislation repealed the reserve method of accounting for bad debt
reserves for tax years beginning after December 31, 1995. As a result, savings
associations are no longer able to calculate their deduction for bad debts
using the percentage-of-taxable-income method.  Instead, savings associations
are required to compute their deduction based on specific charge-offs during the
taxable year or, if the savings association or its controlled group had assets
of less than $500 million, based on actual loss experience over a period of
years. This legislation also requires savings associations to recapture into
income over a six-year period their post-1987 additions to their bad debt tax
reserves, thereby generating additional tax liability. At December 31, 2000, the
Bank's post-1987 reserves were negligible.  The recapture may be suspended for
up to two years if, during those years, the institution satisfies a residential
loan requirement.  The Bank met the residential loan requirement for the taxable
year ending December 31, 2000.

     Under prior law, if the Bank failed to satisfy the qualifying thrift
definitional tests in any taxable year, it would be unable to make additions to
its bad debt reserve. Instead, the Bank would be required to deduct bad debts as
they occur and would additionally be required to recapture its bad debt reserve
deductions ratably over a multi-year period. At December 31, 2000, the Bank's
total bad debt reserve for tax purposes was approximately $3.3 million. Among
other things, the qualifying thrift definitional tests required the Bank to hold
at least 60% of its assets as "qualifying assets." Qualifying assets generally
include cash, obligations of the United States or any agency or instrumentality
thereof, certain obligations of a state or political subdivision thereof, loans
secured by interests in improved residential real property or by savings
accounts, student loans and property used by the Bank in the conduct of its
banking business. Under current law, a savings association will not be required
to recapture its pre-1988 bad debt reserves if it ceases to meet the qualifying
thrift definitional tests.

     Distributions.  To the extent that the Bank makes "nondividend
distributions" to the Corporation that are considered as made: (i) from the
reserve for losses on qualifying real property loans, to the extent the reserve
for such losses exceeds the amount that would have been allowed under the
experience method; or (ii) from the supplemental reserve for losses on loans
("Excess Distributions"), then an amount based on the amount distributed will be
included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock, and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserve. Thus, any dividends to the Corporation that would reduce amounts
appropriated to the Bank's bad debt reserve and deducted for federal income tax
purposes would create a tax liability for the Bank. The amount of additional
taxable income attributable to an Excess Distribution is an amount that, when
reduced by the tax attributable to the income, is equal to the amount of the
distribution. Thus, if, the Bank makes a "nondividend distribution," then
approximately one and one-half times the amount so used would be includable in
gross income for federal income tax purposes, assuming a 35% corporate income
tax rate (exclusive of state and local taxes). See "REGULATION -- Federal
Regulation of Savings Associations -- Limitations on Capital Distributions" for
limits on the payment of dividends by the Bank. The Bank does not intend to pay
dividends that would result in a recapture of any portion of its tax bad debt
reserve.

     Corporate  Alternative  Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of the
tax bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the Bank's adjusted
current earnings exceeds its AMTI (determined without regard to this preference
and prior to reduction for net operating losses). For taxable years beginning
after December 31, 1986, and before January 1, 1997, an environmental tax of
 .12% of the excess of AMTI (with certain modification) over $2.0 million is
imposed on corporations, including the Bank, whether or not an Alternative
Minimum Tax ("AMT") is paid.


                                   26

<PAGE>

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

     Audits. There have not been any Internal Revenue Service audits of the
Bank's federal income tax returns during the past five years.

State Taxation

     The Corporation is subject to the Montana Corporation License Tax, which is
imposed at the rate of 6.75% of Montana taxable income. There have not been any
audits of the Corporation's state tax returns during the past five years.

Competition

     The Bank operates in an extremely competitive market for the attraction
of savings deposits (its primary source of lendable funds) and in the
origination of loans. Historically, its most direct competition for savings
deposits has come from commercial banks, thrift institutions and credit unions
operating in its market area. Some of these commercial banks are subsidiaries of
large regional holding companies having vastly greater resources than the Bank
at their disposal. At December 31, 2000, there were many commercial banks
(including branch offices), two thrift institutions (in addition to the Bank)
and two credit unions in Park, Gallatin and Sweet Grass Counties. In addition,
the competition in the Bank's new markets,  Billings and Missoula,  is
significantly higher than the historical market areas served by the Bank.
Particularly in times of high market interest rates, the Bank has faced
competition for investors' funds from short-term money market securities and
corporate and U.S.  Government  securities.  The Bank competes for loan
originations with mortgage bankers, thrift institutions, credit unions and
commercial banks. Such competition for deposits and loans may limit the Bank's
future growth and earnings prospects.

Personnel

     As of December 31, 2000, the Bank had 46 full-time employees, 12 of which
are employed by Dime Service Corporation and four part-time employees, none of
whom were represented by a collective bargaining unit. The Bank believes its
relationship with its employees is good.

Item 2. Description of Property

     The Bank has four offices. The main office is located at 123 South Main
Street, Livingston, Montana 59047. The main office was opened in 1923 and the
present square footage is approximately 15,000 feet. The Bank purchased the
building effective July 1, 1998, which was approved by the OTS, for $750,000.
The sellers accepted a 10-year 9% note as payment. The net book value of the
property and equipment, including land previously owned, is $1.1 million.

     The Bank has branch offices located at 101 McLeod Street, Big Timber,
Montana 59011, at 5 West Mendenhall Street, Bozeman, Montana 59715 and at 455
South 24th Street West, Billings, Montana 59108. The Big Timber branch office
consists of approximately 2,000 square feet, was opened in 1980 in connection
with the merger of the Big Timber Building and Loan Association, and relocated
to its current facility in 1984. At December 31, 2000, the net book value of the
property and equipment was $219,000. The Bozeman branch office consists of
approximately 7,000 square feet, was opened in 1958 in connection with the
merger with Pioneer Building and Loan Association and relocated to its current
facility in 1971. At December 31, 2000, the net book value of the property and
equipment was $693,000. During the third quarter of 1999, the Bank acquired the
property in Billings, Montana for a de novo branch facility. At December 31,
2000 the Bank has recorded $1.6 million related to this property. This property
consists of
                                    27
<PAGE>

approximately 3,700 square feet used entirely by the new branch. The Missoula
loan processing office has equipment amounting to $63,000. The total net book
value of the Bank's premises and equipment at December 31, 2000 was $3.7
million.

     The Bank's subsidiary, Dime Service Corporation, leases offices in
Livingston, Big Timber and Bozeman, Montana. The Livingston office is 2,500
square feet, the Big Timber office is 365 square feet and the Bozeman office is
650 square feet. There are no written lease agreements for the Livingston and
Big Timber offices.



                                   28

<PAGE>



ITEM 3. LEGAL PROCEEDINGS
-------------------------
     From time to time, the Bank is involved in routine legal proceedings
occurring in the ordinary course of business. At December 31, 2000, the Bank was
not a party to any legal proceedings that management of the Bank believed would
be materially adverse to the financial condition, results of operations, cash
flows or capital ratios of the Bank.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
     No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2000.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS
-------------------------------------------------------------------------
     The information contained under the section captioned "Stock Market
Information" in the Company's Annual Report is incorporated herein by reference.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
-----------------------------------------------------------------
     The  required  information  is  contained  in section  captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report and is incorporated herein by reference.

ITEM 7. FINANCIAL STATEMENTS
----------------------------
     The Corporation's consolidated financial statements required herein are
contained in the Annual Report and are incorporated herein by reference.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
-----------------------------------------------------------------------
     No changes in or disagreements with the Corporation's independent
accountants on accounting and financial disclosure has occurred during the past
12 months.







                                    29

<PAGE>





                                  PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(b) OF THE EXCHANGE ACT
--------------------------------------------------------------------------------
     The information  contained under the sections  captioned "Voting
Securities and Security Ownership of Certain Beneficial Owners and Management,"
"Proposal I - Electing Directors" and "Compliance with Section 16(a) of the
Exchange Act" in the  Corporation's  definitive proxy statement for the
Corporation's  Annual Meeting of Stockholders (the "Proxy Statement") is
incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION
-------------------------------
     The information contained under the section captioned "Executive
Officer  Compensation" in the Proxy Statement is incorporated herein by
reference.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
         (a)      Security Ownership of Certain Beneficial Owners

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

         (b)      Security Ownership of Management

                  Information required by this item is incorporated herein by
                  reference to the section  captioned "Proposal I - Electing
                  Directors" in the Proxy Statement.

         (c)      Management of the Corporation knows of no arrangements,
                  including any pledge by any person of securities of the
                  Corporation, the operation of which may at a subsequent date
                  result in a change in control of the Registrant.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
     The information required by this item is incorporated herein by reference
to the section captioned "Certain Relationships and Related Transactions" and
"Voting Securities and Principal Holders Thereof" in the Proxy Statement.





                                   30

<PAGE>



ITEM 13.  EXHIBITS, LIST AND REPORTS ON FORM 8-K
------------------------------------------------
        (a)     Exhibits

        3.1     Certificate of Incorporation of Empire Federal Bancorp, Inc. (1)
        3.2     Bylaws of Empire Federal Bancorp, Inc. (1)
        10.2    Employment Agreement with William H. Ruegamer (3)
        10.3    Employee Stock Ownership Plan (1)
        10.4    Management Recognition and Development Plan (2)
        10.5    Stock Option Plan (2)
        10.6    Financial Institution's Thrift Plan (401(k)) (2)
        11      Statement regarding computation of earnings per share (see Notes
                1 and 12 to the Notes to Consolidated Financial Statements in
                the Corporation's Annual Report)
        13      Annual Report to Stockholders for the year ended December 31,
                2000
        21      Subsidiaries of the Registrant
        23      Consent of Independent Auditors

---------------------------
(1)     Incorporated by reference to the Corporation's Registration Statement on
        Form SB-1, File No. 333-12653.
(2)     Incorporated by reference to the Registrant's Annual Meeting Proxy
        Statement.
(3)     Incorporated by reference to the Registrant's Annual Report on Form
        10-KSB for the fiscal year ended December 31, 1998.

        (b)  Report on Form 8-K

             No Forms 8-K were filed during the quarter ended December 31, 2000.




                                     31

<PAGE>



                                   SIGNATURES

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

                                         EMPIRE FEDERAL BANCORP, INC.

Date:  March 27, 2001                    By: s/s Kenneth P. Cochran
---------------------                        ----------------------
                                         Interim Chief Executive Officer and
                                         Senior Vice President
                                         (Duly Authorized Representative)

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

By: s/s William H. Ruegamer                          March 27, 2001
    -----------------------                          --------------
    William H. Ruegamer
    President and Chief Executive Officer
    (Principal Executive Officer)

By: s/s Beverly D. Harris                            March 27, 2001
    ---------------------                            --------------
    Beverly D. Harris
    Vice Chairman and Director

By: s/s Edwin H. Doig                                March 27, 2001
    -----------------                                --------------
    Edwin H. Doig
    Chairman of the Board

By: s/s John R. Boe                                  March 27, 2001
    ---------------                                  --------------
    John R. Boe
    Director

By: s/s Walter J. Peterson Jr.                       March 27, 2001
    --------------------------                       --------------
    Walter J. Peterson Jr.
    Director

By: s/s Sanroe J. Kaisler Jr.                        March 27, 2001
    -------------------------                        --------------
    Sanroe J. Kaisler Jr.
    Director

By: s/s Walter R. Sales                              March 27, 2001
    -------------------                              --------------
    Walter R. Sales
    Director

By: s/s Burton Wastcoat                              March 27, 2001
    -------------------                              --------------
    Burton Wastcoat
    Director

By: s/s Kenneth P. Cochran                           March 27, 2001
    ----------------------                           --------------
    Kenneth P. Cochran
    Director and Senior Vice President


                                   32

<PAGE>









                                   Exhibit 21

                         Subsidiaries of the Registrant



Parent
------
Empire Federal Bancorp, Inc.

                                 Percentage              Jurisdiction or
Subsidiaries(a)                  of Ownership            State of Incorporation
---------------                  ------------            ----------------------
Empire Bank                      100%                      United States

The Dime Service Corporation(b)  100%                      Montana

-----------------------
(a)      The operation of the Corporation's wholly-owned subsidiaries are
         included in the Corporation's Financial Statements contained in Item 7
         of this Report.

(b)      The Dime Service Corporation is the wholly-owned subsidiary of Empire
         Bank.






                                     33

<PAGE>



                                   Exhibit 13

                   Annual Report to Stockholders for the Year
                           Ended December 31, 2000














<PAGE>






                            2000 ANNUAL REPORT

                         EMPIRE FEDERAL BANCORP, INC.











<PAGE>

                               TABLE OF CONTENTS

                                                                        Page
                                                                        ----
           Letter to Stockholders..................................       1
           Selected Consolidated Financial Information.............       2
           Management's Discussion and Analysis of
              Financial Condition and Results of Operations........       5
           Independent Auditors' Report............................      16
           Consolidated Financial Statements.......................      17
           Notes to Consolidated Financial Statements..............      21
           Common Stock Information................................      43
           Directors and Officers..................................      44
           Corporate Information...................................      45
                                           ----------

                            BUSINESS OF THE COMPANY

     Empire Federal Bancorp, Inc. (the "Corporation") is a savings and loan
holding company headquartered in Livingston, Montana. Its principal subsidiary
is Empire Bank (the "Bank") (the Corporation and the Bank shall at times be
referred to as the "Corporation") which operates four branches in south-central
Montana. The Corporation was incorporated on September 20, 1996, for the purpose
of becoming the holding company for the Bank, upon its conversion from a federal
mutual savings and loan association to a federal stock savings bank. As part of
the conversion process the association's name was changed from "Empire Federal
Savings and Loan Association" to "Empire Federal Bank". In 2000, the Bank
adopted its current corporate title. The sale of stock by the Corporation was
completed and the conversion process finished on January 23, 1998. The financial
and other information contained in this Annual Report are presented as if the
conversion had been completed on December 31, 1996. On December 31, 2000, the
Corporation had total assets of $125.1 million, total deposits of $77.7 million,
and stockholders' equity of $28.9 million. The Corporation's principal activity
is holding the stock of the Bank. Accordingly, the information set forth in this
report, including the consolidated financial statements and related notes,
relates primarily to the Bank.

     The Bank was organized under the statutes of the State of Montana as Empire
Federal Building and Loan Association (the "Association"), and was authorized to
begin business on May 25, 1923. The Association was granted membership in the
Federal Home Loan Bank System on March 3, 1933, and obtained insurance of
accounts from the Federal Savings and Loan Insurance Corporation on August 12,
1937. At a meeting held August 11, 1952, members of the Association voted a name
change to Empire Savings and Loan Association to keep in step with modern
terminology for the business. On January 5, 1959, the Association merged with
the Pioneer Building and Loan Association of Bozeman and continued the services
of Pioneer to the Bozeman community. On June 25, 1970, the state-chartered
Association converted to a federal charter and changed its name to Empire
Federal Savings and Loan Association. On September 30, 1980, Empire Federal
Savings merged with Big Timber Building and Loan Association and opened its
doors to business in Big Timber. During 1999 the Bank received approval to open
a de novo branch in Billings, Montana, which was opened in April 2000. During
2000, the Bank opened a loan production office in Missoula, Montana.

     In 1985, the Bank formed a service corporation, Dime Service Corporation
("Dime") and purchased the book of insurance of United Agencies in Livingston,
and began operation as Dime Insurance Agency, an independent insurance agency,
with offices in Livingston, Bozeman and Big Timber, Montana.

     The Bank is a community oriented financial institution which obtains funds
primarily through savings and checking deposits from the general public, from
repayment of loans, and from borrowings and retained earnings. These funds are
used primarily to originate commercial, business, commercial real estate,
residential and consumer loans. The Bank also makes home equity loans for a wide
variety of purposes, finances other types of real estate, and invests in
obligations of the U. S. Government and its agencies.

<PAGE>

<PAGE>
To Our Shareholders:

The year 2000 brought change, challenge and growth for your company. Change in
the continuing transition to become a full service community bank, challenge in
meeting the competitive forces of the financial service industry and growth in
our people, products and services to our customers and the number of locations
we serve.

One challenge we did not anticipate was the absence of our chief executive
officer for the past several months.  As previously reported to you in press
releases, William H. Ruegamer was involved in a serious automobile accident in
September 2000.  Mr. Ruegamer returned to his duties on March 26, 2001, and
greatly appreciates the efforts of the staff and management who stepped up to
the additional responsibilities created by this situation.

During the first week of April, 2000, we opened our new full service branch in
Billings, Montana.  Billings is the largest city in Montana and is a major
regional commercial, retail and medical center.  The new branch continues to
emphasize the Bank's historical role in mortgage lending, but also offers
commercial, small business and retail lending.

The new branch has been well received in the Billings market with strong loan
growth and mortgage originations along with steady deposit growth.  In addition,
the Bank opened a loan production office in Missoula, Montana in August 2000
operated by two long-time Missoula mortgage bankers.  The Bank expects to apply
for permission from the Office of Thrift Supervision in 2001 to establish a full
service branch in Missoula.  Missoula is one of Montana's high growth areas and
the results of our loan production office exceeded our expectations.

Financial highlights for the year ended December 31, 2000 include:

*  An increase in net loans and loans held for sale of $22,290,000 or 37.4%
   since December 31, 1999.
*  Net income of $1,217,000 or $.79 per share as compared to $1,265,000 or $.70
   per share for the comparable period in 1999.
*  Book value per share at December 31, 2000 was $18.51 compared to $16.37 at
   December 31, 1999.
*  Cash dividends paid amounted to $708,000 or $.44 per share.
*  Deposits increased $6,314,000 or 8.8% since December 31, 1999.

During 2000, we continued to repurchase our common stock in the open market.
During the year ended December 31, 2000 we purchased 439,127 shares for
$5,633,000 for an average price of $12.83 per share.  At year-end, the Company
had repurchased 1,029,957 shares for a total of $14,072,000 or an average price
of $13.66.

Asset quality remains strong, and at December 31, 2000, the Bank did not have
any loans on non-accrual status.  Sixteen loans amounting to $1,309,000 were
delinquent over 30 days of which one loan amounting to $8,000 was delinquent
over 90 days.  The Bank has no real estate acquired through foreclosure.

Our consolidated capital amounted to $28.9 million or 23% of total assets which
is significantly in excess of regulatory requirements and our competitors.  We
continue to evaluate additional repurchases of our common stock as compared to
alternative financial investments and opportunities.

We are very pleased with our progress during 2000 and anticipate that Billings
and Missoula will add to our loan and deposit growth.  We continue to evaluate
opportunities for expansion that will be compatible to our organization and
beneficial to our shareholders.

We look forward to the challenges and opportunities in the coming years.  We
value our employees, customers, shareholders and the communities we serve.

Sincerely,


William H. Ruegamer
Chief Executive Officer

<PAGE>
                  SELECTED CONSOLIDATED FINANCIAL INFORMATION

     The following tables set forth certain information concerning the
consolidated financial position and results of operation of the Corporation at
the dates and for the periods indicated. This information is qualified in its
entirety by reference to the detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Annual Report. The
Corporation changed its fiscal year end from June 30 to December 31 in
connection with the conversion.

                                               At December 31,
                                 ----------------------------------------------
                                  2000      1999      1998      1997      1996
                                 ------    ------    ------    ------    ------
                                               (In Thousands)
SELECTED FINANCIAL
 CONDITION DATA:

Total assets.................. $125,067  $114,527  $109,201  $109,801  $115,874
Cash and interest-bearing
  deposits....................    2,648     2,372     5,154     2,904    30,990
Investment and mortgage-backed
 securities available-for-sale.  29,374    41,090    39,866    36,496    13,768
Investment and mortgage-backed
 securities held-to-maturity..    5,024     6,406    10,498    20,556    26,188
Loans receivable, net.........   80,363    59,570    49,499    45,714    41,704
Deposits......................   77,667    71,353    66,413    66,859    67,698
Advances from FHLB............   16,200     8,800     4,000        -         -
Total equity, substantially
 restricted...................   28,915    32,755    36,301    40,598    39,610

                                            Year            Six Months    Year
                                            Ended                Ended    Ended
                                            December 31,   December 31, June 30,
                                  ------------------------------  ------  ------
                                   2000    1999    1998    1997    1996    1996
                                  ------  ------  ------  ------  ------  ------
                                                 (In Thousands)
SELECTED OPERATING DATA:
Interest income..............     $8,702  $7,592  $7,665  $7,709  $3,230  $6,304

Interest expense.............      4,070   3,208   3,036   3,118   1,626   3,310
                                  ------  ------  ------  ------  ------  ------
Net interest income..........      4,632   4,384   4,629   4,591   1,604   2,994
Provision for loan losses....        110      18      20      20              55
                                  ------  ------  ------  ------  ------  ------
Net interest income after
 provision for loan losses...      4,522   4,366   4,609   4,571   1,604   2,939
                                  ------  ------  ------  ------  ------  ------
Non-interest income:
Insurance commission income..        557     576     624     652     336     688
Customer service charges.....        249     228     216     188      86     145
Gain of sale of investments,
  net........................        184      -       -       -       -       -
Other income.................         85      24      32      19      17      45
                                  ------  ------  ------  ------  ------  ------
  Total non-interest income..      1,075     829     872     859     439     878

                          (table continued on following page)



                                    2

<PAGE>

                                            Year            Six Months    Year
                                            Ended                Ended    Ended
                                            December 31,   December 31, June 30,
                                  ------------------------------  ------  ------
                                   2000    1999    1998    1997    1996    1996
                                  ------  ------  ------  ------  ------  ------
                                                 (In Thousands)
Non-interest expense:
Compensation and benefits....      2,033   1,839   2,156   1,621     807   1,615
Occupancy and equipment......        565     409     378     363     171     340
Deposit insurance premiums...         51      65      72      78      56     185
SAIF special assessment.......        -       -       -       -      451      -
Other general and
administrative................       957     809     729     750     355     646
Provision for losses on real
 estate owned.................        -       -       -       -       -       -
                                  ------  ------  ------  ------  ------  ------
Total non-interest expense....     3,606   3,122   3,335   2,812   1,840   2,786
Income before income taxes....     1,991   2,073   2,146   2,618     203   1,031
Income tax expense............       774     808     901   1,032      61     399
                                  ------  ------  ------  ------  ------  ------
Net income....................    $1,217  $1,265  $1,245  $1,586   $ 142   $ 632
                                  ======  ======  ======  ======   =====  ======

                                      At or For the      At or For the At or For
                                            Year            Six Months  the Year
                                            Ended                Ended     Ended
                                            December 31,   December 31, June 30,
                                  ------------------------------  ------  ------
                                   2000    1999    1998    1997    1996    1996
                                  ------  ------  ------  ------  ------  ------
SELECTED FINANCIAL RATIOS(1):
Performance Ratios:
Return on average assets (net
 income divided by average
 assets)(2).....................    1.04%   1.15%   1.15%   1.43%   0.32%  0.72%
Return on average equity (net
 income divided by average
 equity)(2).....................    4.02    3.85    3.26    3.95    1.74   3.99
Dividend payout ratio (dividends
 declared per share divided by net
 income per share)..............   55.70   57.14   57.14   33.58      -      -
Average interest-earning assets
 to average interest-bearing
 liabilities....................  131.89  142.55  154.90  155.55  121.86 119.33
Net interest income after
 provision for loan losses to
 total non-interest expense(2)..  125.41  139.85  138.19  162.55   87.21 105.49
Interest rate spread............    2.98    2.85    2.82    2.66    2.90   2.80
Net yield on average interest-
 earning assets.................    4.13    4.14    4.40    4.28    3.72   3.57
Efficiency ratio (non-interest
 expense divided by the sum of net
interest income and non-interest
 income)(1).....................   63.18   59.89   60.63   51.59   90.05  71.95

             (table continued on, and footnotes on, following page)


                                    3
<PAGE>


                                     At or For the       At or For the At or For
                                            Year            Six Months  the Year
                                            Ended                Ended     Ended
                                            December 31,   December 31, June 30,
                                  ----------------------  --------------  ------
                                   2000    1999    1998    1997    1996    1996
                                  ------  ------  ------  ------  ------  ------
Equity Ratios:
Average equity to average assets
 (average equity divided by
  average total assets).........   25.84   29.95   35.27   36.32   18.19   18.11
Equity to assets at year end....   23.13   28.60   33.24   36.97   34.18   18.29

Asset Quality Ratios:
Non-performing assets to total
 assets.........................      -       (3)     -       -       -       -
Non-performing loans to total
 assets.........................      -       (3)     -       -       -       -
Non-performing loans to net loans     -       (3)     -       -       -       -
Allowance for loan losses, real
 estate owned and other
 repossessed assets to non-
 performing assets..............      *       (3)     *       *       *       *
Allowance for loan losses to total
 loans outstanding..............    0.41    0.38    0.44    0.41    0.46    0.46


                                            At                At           At
                                         December 31,      December 31,  June 30
                                  ----------------------  --------------  ------
                                   2000    1999    1998    1997    1996    1996
                                  ------  ------  ------  ------  ------  ------
OTHER DATA:
Number of:
Real estate loans outstanding...     940     732     702     714     731     744
Deposit accounts................   9,620  10,029  10,078  10,368  10,598  10,632
Full-service offices............       4       3       3       3       3       3



*    Not meaningful.
(1)  Annualized, where appropriate, for the six months ended December 31, 1996.
(2)  Includes special SAIF assessment of $451,000 for the six months ended
      December 31, 1996.
(3)  One loan for $14,000 on non-accrual at December 31, 1999.  Percentages not
      meaningful.



                                     4
<PAGE>

<PAGE>
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     The Corporation may from time to time make written or oral "forward-looking
statements", including statements contained in the Corporation's fillings with
the Securities and Exchange Commission (including this Annual Report on Form
10-KSB and the exhibits thereto), in its reports to stockholders and in other
communications by the Corporation, which are made in good faith by the
Corporation pursuant to the "safe harbor" provision of the Private Securities
Litigation Reform Act of 1995.

     These forward-looking statements involve risks and uncertainties, such as
statements of the Corporation's plans, objectives, expectations, estimates and
intentions, that are subject to change based of various important factors (some
of which are beyond the Corporation's control). The following factors, among
others, could cause the Corporation's financial performance to differ materially
from the plans, objectives, expectations, estimates and intentions expressed in
such forward-looking statements: the strength of the United States economy in
general and the strength of the local economy in which the Corporation conducts
operations; the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the board of governors of the
federal reserve system, inflation, interest rates, market and monetary
fluctuations; the timely development of and acceptance of new products and
services of the Corporation and the perceived overall value of these products
and services by users, including the features, pricing and quality compared to
competitors' products and services; the willingness of users to substitute
competitors' products and services for the Corporation's products and services;
the success of the Corporation in gaining regulatory approval of its products
and services, when required; the impact of changes in financial services; laws
and regulations (including laws concerning taxes, banking, securities and
insurance); technological changes; acquisitions; changes in consumer spending
and savings habits; and the success of the Corporation at managing the risks
resulting from these factors.

     The Corporation cautions that the listed factors are not exclusive. The
Corporation does not undertake to update any forward-looking statement, whether
written or oral, that may be made from time to time by or on behalf of the
Corporation.

GENERAL

     Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Corporation. The information contained in this
section should be read in conjunction with the Consolidated Financial Statements
and accompanying Notes thereto contained herein.

OPERATING STRATEGY

     The business of the Bank consists principally of attracting deposits from
the general public and using such deposits to originate commercial, commercial
real estate, residential, and consumer loans primarily in its market areas in
Montana. The Bank also invests in interest-bearing deposits, investment grade
federal agency securities and mortgage-backed securities. The Bank plans to
continue to fund its assets primarily with deposits, although Federal Home Loan
Bank (" FHLB") advances have been used as a supplemental source of funds.

     The Bank's profitability depends primarily on its net interest income,
which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits and FHLB advances. Net interest income is also affected by the relative
amounts of interest-earning assets and interest-bearing liabilities. When
interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The Bank's
profitability is also affected by the level of other income and expenses. Other
income consists of service charges on checking and NOW accounts and other fees,
and insurance commissions. Other expenses include compensation and employee
benefits, occupancy expenses, deposit insurance premiums, equipment and data
servicing expenses, professional fees and other operating costs. The Bank's
results of operations are also significantly affected by 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.




                                   5

<PAGE>

     The Bank's strategy is to operate as a conservative, well-capitalized,
profitable institution dedicated to offering a full line of community banking
services and to providing quality service to all customers. The Bank believes
that it has successfully implemented its strategy by (i) maintaining strong
capital levels, (ii) maintaining effective control over operating expenses to
attempt to achieve profitability under differing interest rate scenarios, (iii)
emphasizing local loan originations, and (iv) emphasizing high-quality customer
service with a competitive fee structure.

FINANCIAL CONDITION

     Consolidated assets increased by approximately $10.5 million, or 9.2%, from
$114.5 million at December 31, 1999, to $125.1 million at December 31, 2000.

     Except for the $929,000 increase in the market value of investments and
mortgage-backed securities available-for-sale, the consolidated balance sheet
was not materially affected by market conditions between December 31, 1999, and
December 31, 2000. Net maturities and payments of $1.4 million reduced
investment and mortgage-backed securities held-to-maturity from $6.4 million at
December 31, 1999, to $5.0 million at December 31, 2000. Net loans and loans
held for sale increased $22.3 million or 37.4%.

     Deposits increased by $6.3 million from $71.4 million at December 31, 1999,
to $77.7 million, or 8.8%, at December 31, 2000.

     Premises and equipment increased by $859,000, or 30.0%, from $2.9 million
at December 31, 1999, to $3.7 million at December 31, 2000, primarily as the
result of the new branch facility in Billings, Montana.

     Stockholders' equity decreased from $32.8 million at December 31, 1999, to
$28.9 million at December 31, 2000. The change is the result of net income of
$1.2 million, the release of Employee Stock Ownership Plan ("ESOP") shares in
the amount of $164,000 and an increase of $929,000 related to the increase in
market value of securities available-for-sale. In addition, 11,923 shares of the
Management Recognition and Development Plan ("MRDP") vested and unearned MRDP
compensation was reduced by $198,000. Stockholders' equity was also decreased by
the payments of $708,000 in dividends. During the year ended December 31, 2000,
the Corporation repurchased 439,127 shares of its common stock in the open
market for an average price of $12.83 per share for a total of $5.6 million.
There were 1,029,957 shares held in the treasury at December 31, 2000, and
590,830 shares at December 31, 1999.

ASSET QUALITY

     At December 31, 2000, the Bank had no nonaccrual loans. At December 31,
2000, the Bank had 16 loans that were delinquent over 30 days amounting to $1.0
million, which included one loan for $8,000 that was delinquent over 90 days.
The Bank had no real estate acquired through foreclosure at December 31, 2000.

RESULTS OF OPERATIONS

     The operating results of the Bank depend primarily on its net interest
income. The Bank's net interest income is determined by its interest rate
spread, which is the difference between the yields earned on its
interest-earning assets and the rates paid on its interest-bearing liabilities
and the degree of mismatch in the maturity and repricing characteristics of its
interest-earning assets and interest-bearing liabilities. The Bank's net
earnings are also affected by the establishment of provisions for loan losses
and the level of its other non-interest income, including insurance commission
income and deposit service charges, as well as its other expenses and income tax
provisions.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND
1999

     NET INCOME. Net income decreased by $48,000 to $1.2 million for the year
ended December 31, 2000 as compared to the same period in 1999. While the net
income is approximately the same for the two comparative periods, several
components of net income changed and are discussed in the following narrative.

     NET INTEREST INCOME. Net interest income increased $248,000, or 5.7%, from
$4.4 million for the year ended December 31, 1999 to $4.6 million for the same
period in 2000. The interest rate spread increased from 2.85% for the year ended
December 31, 1999 to 2.98% for the comparable period in 2000.

                                     6
<PAGE>

<PAGE>
     INTEREST INCOME. Total interest income increased by $1.1 million, or
14.6%, from $7.6 million for the year ended December 31, 1999 to $8.7 million
for the same period in 2000. The increase was primarily attributable to an
increase in average interest earning assets of $6.1 million, or 5.7%, from
$106.0 million for the year ended December 31, 1999 as compared to the
comparable period in 2000. Average outstanding loans increased $17.3 million
offset by decreases in the average outstanding balances of investments and
mortgage-backed securities of $11.2 million. The yield on interest earning
assets for the year ended December 31, 2000, was 7.6% as compared to 7.2% for
the comparable period in 1999.

     INTEREST EXPENSE. Total interest expense was $4.1 million for the year
ended December 31, 2000, as compared to $3.2 million for the same period in
1999. Interest on deposits increased by $441,000, or 15.3%, and interest on
notes payable and other debt increased by $421,000, or 130.1%.

     Average deposits for the year ended December 31, 2000 amounted to $73.2
million as compared to $68.7 million for the same period in 1999. In addition to
the increase in average deposits, the cost of deposits increased from 4.2% for
the year ended December 31, 1999 to 4.6% for the same period in 2000 reflecting
a general increase in interest rates in the Bank's markets.

     Other interest expense of $745,000 for the year ended December 31, 2000
includes $694,000 related to borrowings from the FHLB and $51,000 associated
with the purchase of the main office building. Other interest expense for the
comparable period in 1999 included $267,000 related to FHLB borrowings and
$56,000 associated with the purchase of the main office building.

     PROVISION FOR LOAN LOSSES. The provision for loan losses was $110,000 for
year ended December 31, 2000 as compared to $18,000 for the same period in 1999,
an increase of $92,000. This increase is commensurate with the significant
growth in loans during 2000. At the end of both periods, the level of the
allowance was deemed to be adequate by management. Loan loss allowance as a
percentage of loans were .41% at December 31, 2000, and .38% at December 31,
1999. Management's periodic evaluation of the adequacy of the allowance is based
on factors such as the Bank's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, estimated value of any underlying collateral, current and
anticipated prospective economic conditions, peer group comparisons, and
independent appraisals. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to provide additions to the
allowance based upon judgments different from management. Assessment of the
adequacy of the allowance for credit losses involves subjective judgments
regarding future events, and thus, there can be no assurance that additional
provisions for credit losses will not be required in future periods. Although
management uses the best information available, future adjustments to the
allowance may be necessary due to economic, operating, regulatory and other
conditions that may be beyond the Bank's control. Any increase or decrease in
the provision for loan losses has a corresponding negative or positive effect on
net income.

     NON-INTEREST INCOME. Non-interest income increased $246,000, or 29.6%, to
$1.1 million for the year ended December 31, 2000, as compared to $829,000 for
the same period in 1999 primarily as the result of the net gain on the sale of
investments of $184,000 and gains on the sale of mortgage loans of $58,000,
offset by a decrease in commissions from insurance companies of $19,000.

     The net gain on sale of investments was the result of the sale of $6.4
million of mortgage-backed securities and bonds for a loss of $160,000 offset by
the sale of 7,500 shares of FHLMC stock for a gain of $344,000. Generally the
proceeds of these sales were used to fund the repurchase of treasury shares and
to fund loan originations during the year ended December 31, 2000.

     Gains on the sale of mortgage loans are the result of the Bank's increased
activity in sales of loans in the secondary market.

     Insurance commissions received from Dime are the largest component of
non-interest income. Insurance commissions of $557,000 and $576,000 were
received for the years ended December 31, 2000 and 1999, respectively. The
decrease in commission income in 2000 resulted primarily from decreases in
premiums and commissions from key companies represented by Dime. Increased
competition and possible future decreases in commissions will continue to impact
Dime's financial results.

     NON-INTEREST EXPENSE. Total non-interest expense increased $484,000 or
15.5%, to $3.6 million for the year ended December 31, 2000, compared to $3.1
million for the same period in 1999. Included in this increase is a




                                    7

<PAGE>

$193,000 increase in compensation expense which is primarily related to the
additional salaries and benefits for the employees at the new branch in Billings
and the Missoula loan production office. Occupancy expense also increased
$156,000 from $409,000 for the year ended December 31, 1999 to $565,000 for the
same period in 2000 primarily as the result of additional costs associated with
the new branch facility.

     Additional net increases in other non-interest expense amounting to
$134,000 were primarily the result of increased advertising, legal, consulting
and auditing costs as well as additional costs associated with the opening of
the branch office in Billings and the loan production office in Missoula.

     INCOME TAXES. Income taxes decreased $34,000 from the year ended
December 31, 2000, as compared to the same period in 1999 as a result of the
decrease in income before taxes. The effective combined federal and state tax
rate was 38.9% and 39.0% for the year ended December 31, 2000 and 1999,
respectively.

COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998

     NET INCOME. Net income increased by $21,000 to $1.3 million for the
year ended December 31, 1999, as compared to $1.2 million for the same period in
1998. There are several factors related to the nominal increase in net income.
Net income for the year ended December 31, 1998 included a $395,000 charge to
compensation expense related to the accelerated vesting of shares under the MRDP
which was not a recurring event in 1999. Net income for the year ended December
31, 1999 included a decrease in net interest income, increases in non-interest
income and certain non-interest expenses which, on a net basis, offset the non
recurring charge incurred in 1998. The following narrative discusses in more
detail the noted changes for the year ended December 31, 1999.

     NET INTEREST INCOME. Net interest income decreased by $245,000, or
5.3%, to $4.4 million for the year ended December 31, 1999 from $4.6 million for
the same period in 1998. The decrease in net interest income primarily reflected
an increase in average interest bearing liabilities of $6.5 million from $66.5
million for the year ended December 31, 1998 to $74.4 million for the same
period in 1999. Average interest earning assets increased $895,000 from $105.1
million for the year ended December 31, 1998 to $106.0 million for the
comparable period in 1999. Interest rate spreads increased from 2.82% for the
year ended December 31, 1998 to 2.85% for the same period in 1999.

     INTEREST INCOME. Total interest income decreased by $74,000, or 1.0%,
for the year ended December 31, 1999, as compared to the same period in 1998.
The decline was primarily attributable to a decrease in the average yield on
interest earning assets from 7.29% for the year ended December 31, 1998 to 7.16%
for the same period in 1999 while overall average earning assets increased by
approximately $900,000. This reduction in average yield reflects a general
decrease in interest rates on loans and investments for the comparable periods.

     INTEREST EXPENSE. Total interest expense was $3.2 million for the year
ended December 31, 1999, as compared to $3.0 million the same period in 1998.

     Average interest bearing deposits for the year ended December 31, 1999,
amounted to $68.7 million as compared to $66.5 million for the same period in
1998. Interest on deposits decreased $56,000 from the year ended December 31,
1998 as compared to the same period in 1999. The decline in deposit interest is
primarily the result of a reduction in the average cost of deposits from 4.42%
to 4.20% for the year ended December 31, 1998 as compared to the same period for
1999.

     Other interest expense of $324,000 for the year ended December 31, 1999
includes $267,000 related to borrowings from the FHLB and $56,000 associated
with the purchase of the main office building. Other interest expense for the
comparable period in 1998 included $34,000 related to FHLB borrowings and
$61,000 associated with the purchase of the main office building. Average FHLB
borrowings increased from $701,000 for the year ended December 31, 1998 as
compared to $5.1 million for the same period in 1999.

     PROVISION FOR LOAN LOSSES. The provision for loan losses was approximately
$18,000 for the year ended December 31, 1999. At the end of 1999, the level of
the allowance was deemed to be adequate by management. Loan loss allowance as a
percentage of loans was .38% at December 31, 1999, and .44% at December 31,
1998. Management's periodic evaluation of the adequacy of the allowance is based
on factors such as the Bank's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, estimated value of any underlying collateral, current and
anticipated prospective economic conditions, peer group comparisons, and
independent appraisals. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to provide additions to the
allowance based upon judgments different from management.  Assessment of the
adequacy of the



                                    8
<PAGE>

allowance for credit losses involves subjective judgments regarding future
events, and thus, there can be no assurance that additional provisions for
credit losses will not be required in future periods. Although management uses
the best information available, future adjustments to the allowance may be
necessary due to economic, operating, regulatory and other conditions that may
be beyond the Bank's control. Any increase or decrease in the provision for loan
losses has a corresponding negative or positive effect on net income.

     NON-INTEREST INCOME. Non-interest income decreased $43,000 for the year
ended December 31, 1999, as compared to the same period in 1998 primarily as the
result of a decrease in commissions and profit sharing from insurance companies
of $49,000.

     Insurance commissions received from Dime are the largest component of
non-interest income. Insurance commissions of $576,000 and $624,000 were
received for the years ended December 31, 1999, and 1998, respectively. The
decrease in commission income resulted primarily from decreases in premiums and
commissions from key companies represented by Dime. Increased competition and
possible future decreases in commissions will continue to impact Dime's
financial results.

     NON-INTEREST EXPENSE. Total non-interest expense decreased $213,000 or
6.4% from the year ended December 31, 1998, compared to the year ended December
31, 1999. Included in this decrease is a decrease in compensation expense of
$316,000 related to the previously mentioned $395,000 accelerated vesting of the
MRDP shares for the year ended December 31, 1998. Offsettting this decrease,
compensation expense for the year ended December 31, 1999 includes approximately
$40,000 in salaries and bonuses related to the recruitment of the senior
management team for the new branch office in Billings.

     Other changes in non-interest expense include an increase in occupancy
expense of $30,000 caused primarily by additional depreciation expense related
to new teller equipment purchased in late 1998. Other non-interest expense
increased $64,000, or 10.2%, from $622,000 for the year ended December 31, 1998
to $686,000 for the comparable period in 1999. Included in this increase were
increases in legal and internal auditing costs and costs associated with the new
branch in Billings.

     INCOME TAXES. Income taxes decreased $93,000 from the year ended
December 31, 1998, as compared to the same period in 1999 as the result of the
decrease in income before income taxes. In addition, income tax expense for the
year ended December 31, 1998 was impacted by the non-deductibility of a portion
of the accelerated MRDP charge for that year. The effective combined federal and
state tax rate was 39.0% and 42.0% for the years ended December 31, 1999 and
1998, respectively.




                                    9

<PAGE>

<PAGE>
<TABLE>
     The following table sets forth certain information for the periods
indicated 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 and average
yields and costs. Such yields and costs for the periods indicated are derived by
dividing income or expense by the average monthly balance of assets or
liabilities, respectively, for the periods presented.

Year Ended
                                At December 31,
December 31,
                                          2000                 2000
             1999
                                         ------    ----------------------------
 ---------------------------
 <S>                                     <C>        <C>        <C>        <C>
  <C>        <C>      <C>
                                         Yield/    Average               Yield/
 Average              Yield/
                                          Cost     Balance    Interest    Cost
 Balance    Interest   Cost
                                          -----    -------    --------    -----
 -------    --------   -----

(Dollars in Thousands)
INTEREST-EARNING ASSETS:
Loans receivable.......................   8.59%   $ 70,981       6,010    8.47
$ 53,713      $4,369   8.13%
Mortgage-backed securities.............   6.84      35,711       2,436    6.82
  43,388       2,826   6.51
Investment securities..................   1.01(4)    3,403         124    3.66
   5,119         191   3.74
Other interest-earning assets(1).......   6.50       1,982         132    6.65
   3,789         205   5.40
                                          -----    -------    --------    -----
 -------    --------   -----
Total interest-earning assets..........   8.00     112,077       8,702    7.64
 106,009       7,591   7.16
Non-interest-earning assets............              5,002
   3,627
                                                   -------
 -------
Total assets...........................           $117,079
$109,636
                                                  ========
========
INTEREST-BEARING LIABILITIES:
NOW accounts...........................   2.37      10,295         245    2.38
  10,820         249   2.30
Money market accounts..................   4.75       9,181         429    4.67
   5,008         182   3.63
Regular savings........................   3.00      12,208         366    3.00
  14,319         429   3.00
Certificates of deposit................   5.93      41,470       2,284    5.51
  38,505       2,024   5.65
                                          -----    -------    --------    -----
 -------    --------   -----
Total deposits.........................   4.72      73,154       3,324    4.55
  68,652       2,884   4.20
Other liabilities......................   6.44      11,821         745    6.30
   5,714         323   5.67
                                          -----    -------    --------    -----
 -------    --------   -----
Total interest-bearing liabilities.....   5.03      84,975       4,069    4.79
  74,366       3,207   4.31
Non-interest-bearing liabilities.......              1,849
   2,434
                                                    ------
 -------
Total liabilities......................             86,824
  76,800
Stockholder's equity...................             30,255
  32,836
                                                    ------
 -------
Total liabilities and stockholder's
 equity................................           $117,079
$109,636
                                                  ========
========
Net interest income....................             $4,632
  $4,384
                                                    ======
  ======
Interest rate spread(2)................   2.97%                           2.98%
                       2.85%
                                          ====                            =====
                       =====
Net yield on interest-earning assets(3)                                   4.13%
                       4.14%
                                                                          =====
                       =====
Ratio of average interest-earning assets
 to average interest-bearing liabilities                                131.89%
                     142.55%
                                                                        =======
                     =======
</TABLE>
 (1)     Includes interest-bearing deposits in other financial institutions and
         dividends on FHLB stock.
 (2)     Interest-rate spread represents the difference between the average
         yield on interest-earning assets and the average cost of interest-
         bearing liabilities.
 (3)     Net yield on interest-earning assets represents net interest income as
         a percentage of average
          interest-earning assets.
 (4)     Includes $2.7 million of FHLMC stock with dividend rate of 1.01% per
annum.


                                          10
<PAGE>

RATE/VOLUME ANALYSIS
<TABLE>
     The following table sets forth the effects of changing rates and volumes on
net interest income of the Bank, information is provided with respect to (i)
effects on net interest income attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) effects on net interest income
attributable to changes in rate (changes in rate multiplied by prior volume);
(iii) changes in rate/volume (change in rate multiplied by change in volume);
and (iv) the net change (the sum of the prior columns).

                                                 Year Ended December 31,
Year Ended December 31,
                                                 2000 Compared to Year
1999 Compared to Year
                                                 Ended December 31, 1999
Ended December 31, 1998
                                                   Increase (Decrease)
  Increase (Decrease)
                                                           Due to
          Due to
                                               ------------------------------
-----------------------------
 <S>                                            <C>      <C>   <C>       <C>
<C>      <C>   <C>      <C>
                                                               Rate/
              Rate/
                                               Volume   Rate   Volume    Net
Volume   Rate   Volume   Net
                                               ------   ----   ------   -----
------   ----   ------  -----
                                                                             (In
Thousands)
Interest-earning assets:
Loans receivable.......................       $ 1,404  $ 179      $58  $1,641
$  420  $(117)    $(11) $ 292
Mortgage-backed securities.............          (500)   133      (24)   (391)
(140)  ( 56)       3   (193)
Investment securities..................           (64)    (4)       1     (67)
( 74)  ( 75)      17   (132)
Other interest-earning assets..........           (98)    47      (22)    (73)
 (28)   (15)       2    (41)
                                               ------   ----   ------   -----
------   ----   ------  -----
Total interest-earning assets..........           742    355       13   1,110
 178   (263)      11    (74)
                                               ------   ----   ------   -----
------   ----   ------  -----
Interest expense:
Deposits...............................           189    236       16     441
  97   (148)     ( 5)   (56)
Other liabilities......................           346     36       39     421
 297    (17)     (53)   227
                                               ------   ----   ------   -----
------   ----   ------  -----
Total interest-bearing liabilities.....           535    272       55     862
 394   (165)     (58)   171
                                               ------   ----   ------   -----
------   ----   ------  -----
Net change in net interest income......         $ 207   $ 83   $  (42) $  248
$(216) $ (98)  $   69  $(245)
                                               ======   ====   ======   =====
======   =====  ======  =====


</TABLE>

                                         11
<PAGE>



ASSET AND LIABILITY MANAGEMENT AND INTEREST RATE RISK

     GENERAL. The ability to maximize net interest income depends largely upon
achieving a positive interest rate spread that can be sustained during
fluctuations in prevailing interest rates. Interest rate sensitivity is a
measure of the difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature within a given
period of time. The difference, or the interest rate repricing "gap," provides
an indication of the extent to which an institution's interest rate spread will
be affected by changes in interest rates. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities, and is considered negative when the amount of
interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would result in a decrease in net
interest income. Conversely, during a period of falling interest rates, a
negative gap within shorter maturities would result in an increase in net
interest income.

     In the past, the Bank has perceived its market niche to be that of a
traditional thrift lender that originates fixed rate residential loans for its
portfolio and purchases fixed rate U.S. Government and agency investment
securities and mortgage-backed securities to supplement its lending activities.
The Bank uses its capital position to absorb the adverse consequences of the
increased interest rate risk associated with this strategy. As an integral part
of this strategy, the Bank has historically concentrated its lending activity on
the origination of long-term, fixed-rate, residential one- to four-family
mortgage loans and commercial real estate and multi-family loans. As of December
31, 2000, 82.5% of the Bank's total loans were fixed rate loans and 69% of its
investments and mortgage-backed securities had fixed interest rates. During
2000, the Bank expanded its lending activities to include commercial loans with
floating rates. At December 31, 2000 commercial loans amounted to $6.2 million,
most of which have floating interest rates.

     The mismatch between maturities and interest rate sensitivities of balance
sheet items results in interest rate risk. The Bank has a high level of interest
rate risk as a result of its policies to make fixed-rate, residential one- to
four-family real estate loans and to purchase fixed rate investment and
mortgage-backed securities, which are longer term in nature than the short-term
characteristics of its liabilities for customer deposit accounts. Because of its
capital position, the Bank has accepted the above average interest rate risk
associated with fixed-rate loans and fixed-rate investment and mortgage-backed
securities in an effort to maximize yield. See "-- Liquidity and Capital
Resources."

INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE

     The following table is provided to the Bank by the OTS and illustrates
the change in net portfolio value at December 31, 2000 based on OTS assumptions.
Net portfolio value is the difference between the Bank's depository portfolio
value and its loans receivable portfolio value. No effect has been given to any
steps that management of the Bank may take to counter the effect of the interest
rate movements presented in the table.
                                                          Net Portfolio as %
Basis                                                     of Portfolio Value
Point ("bp")               Net Portfolio Value                  of Assets
Change           ------------------------------------     ------------------
in Rates         $Amount       $Change        %Change     NPV Ratio   Change
--------         -------       -------        -------     ---------   ------
                                (Dollars in Thousands)
 300 bp        $  24,654       $(6,998)           (22)%       20.72%   (413) bp
 200 bp           27,240        (4,412)           (14)        22.32    (253)bp
 100 bp           29,631        (2,021)           ( 6)        23.73    (112)bp
  0               31,652             -              -         24.85       -
(100) bp          32,251           599              2         25.10      25 bp
(200) bp          33,509         1,857              6         25.71      86 bp
(300) bp          34,725         3,072             10         26.28     142 bp

                                    12

<PAGE>

     Under the OTS interest rate risk capital rule (implementation of which has
been postponed), those institutions with greater than "normal" levels of
interest rate risk will be subject to an interest rate risk component in
calculating their risk-based capital ratio. An institution with a "normal" level
of interest rate risk is defined as one whose "Measured Interest Rate Risk" is
less than 2.0%.

     The following table is provided by the OTS and is based on the calculations
in the previous table.

                                                 December 31,      December 31,
                                                     2000             1999
                                                 -------------     -----------
RISK MEASURES:  200 BP RATE SHOCK
Pre-Shock NPV Ratio:  NPV as % of PV of Assets...       24.85%         27.67%
Exposure Measure:  Post-Shock NPV Ratio..........       22.32%         24.14 %
Sensitivity Measure:  Change in NPV Ratio........        253bp          353bp

     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 substantially all of the Bank's ARM loans,
have features that restrict changes in interest rates on a short-term basis
(1.5% to 2.0% per adjustment period) and over the life of the asset (generally
5% over the life). Furthermore, in the event of a change in interest rates,
expected rates of prepayments on loans and early withdrawals from certificates
could likely deviate significantly from those assumed in calculating the table.
Therefore, the data presented in the table should not be relied upon as
indicative of actual results.

LIQUIDITY AND CAPITAL RESOURCES

   The Bank's primary sources of funds are proceeds from principal and interest
payments on loans, maturing securities and certificates of deposit. The proceeds
from the sale of available-for-sale securities and FHLB advances are additional
sources of liquidity. While maturities and scheduled amortization of loans 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 been the origination of one-
to four-family mortgage loans, commercial real estate and commercial loans.
During the year ended December 31, 2000, the Bank originated mortgage loans in
the amount of $49.5 million.  The Bank also invests in investment grade federal
agency securities.

     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.  During the year ended December 31, 2000 and 1999, the Bank used
its sources of funds primarily to fund loan commitments, distribution to the
Corporation to repurchase shares of common stock, and to pay deposit
withdrawals.

     The Bank uses cash flows generated from operating, investing and financing
activities to meet its liquidity  requirements. See Consolidated Statements of
Cash Flows included as part of the Consolidated Financial Statements.

     Like most thrift institutions, deposits, particularly certificates of
deposit, have been the primary source of external funds for the Bank.  By
offering interest rates that are competitive with or at a slight premium to the
average rate paid by local competitors, the Bank has had limited success in
lengthening the maturity of its certificate of deposit portfolio.  At December
31, 2000, certificates of deposit amounted to $42.1 million, or 54.2% of total
deposits, including $11.8 million which were scheduled to mature in more than
one year after December 31, 2000.  At December 31, 2000, $30.3 million of
certificates of deposit were scheduled to mature within one year. Historically,
the Bank has been able to retain a significant amount of maturing deposits.
Management of the Bank believes it has adequate

                                   13
<PAGE>


resources to fund all loan commitments by deposits and, if necessary, FHLB
advances are available.  Additionally, the Bank can adjust the offering rates of
savings certificates to retain deposits in changing interest rate environments.

     The OTS requires a savings institution to maintain an average daily balance
of liquid assets (cash and eligible investments) equal to at least 4.0% of the
average daily balance of its net withdrawable deposits and short-term
borrowings. The OTS recently eliminated short term ratios. The Bank's liquidity
ratio at December 31, 2000 was 41.6%. The Bank consistently maintains liquidity
levels in excess of regulatory requirements, and believes this is an appropriate
strategy for proper asset and liability management.

     The Bank is required to maintain specific amounts of capital pursuant to
OTS requirements. As of December 31, 2000, the Bank was in compliance with all
regulatory capital requirements which were effective as of such date with
tangible, core and risk-based capital ratios of 21.6%, 21.6% and 40.4%,
respectively. For a detailed discussion of regulatory capital requirements and
a numerical presentation of the Bank's capital levels relative to regulatory
requirements, see Note 14 of Notes to the Consolidated Financial Statements.

     The Corporation, as the holding company for the Bank, does not have any
source of cash flow other than interest and principal payments on loans to the
Bank and dividends declared by the Bank. At December 31, 2000 the Corporation's
loans to the Bank amounted to $400,000. Distributions paid by the Bank to the
Corporation during 2000 amounted to $4.0 million.

EFFECT OF INFLATION AND CHANGING PRICES

     The Consolidated Financial Statements and related financial data presented
herein have been prepared in accordance with accounting principles generally
accepted in the United States of America, which generally require the
measurement of financial position and operating results in terms of historical
dollars, without considering the change in the relative purchasing power of
money over time due to inflation. The primary impact of inflation is reflected
in the increased cost of the Bank's operations.  Unlike most industrial
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.



                                   14

<PAGE>

<PAGE>
KPMG
 1000 First Interstate Center
 401 N. 31st Street
 P.O. Box 7108
 Billings, MT 59103


                        INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Empire Federal Bancorp, Inc.:


We have audited the accompanying consolidated balance sheets of Empire Federal
Bancorp, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and comprehensive income
(loss), and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Empire Federal
Bancorp, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.


                              /s/KPMG LLP

Billings, Montana
February 16, 2001



                                   15

<PAGE>

             EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                    Consolidated Balance Sheets


                                                              December 31,
Assets                                                     2000          1999
                                                          ------        ------
Cash and due from banks                               $2,482,564     1,688,206
Interest-bearing deposits                                165,136       683,913

   Cash and cash equivalents                           2,647,700     2,372,119
Investment and mortgage-backed securities
 available-for-sale                                   29,374,395    41,090,151
Mortgage-backed securities held-to-maturity
 (estimated fair value of $5,067,695 and $6,367,598
  at December 31, 2000 and 1999, respectively         l5,024,454     6,406,467
Loans receivable, net                                 80,362,737    59,569,783
Loans held for sale                                    1,497,244           -
Stock in Federal Home Loan Bank of Seattle, at cost    1,560,700     1,463,500
Accrued interest receivable                              528,281       451,386
Income tax receivable                                     44,418        36,069
Premises and equipment, net                            3,719,566     2,860,330
Prepaid expenses and other assets                        307,770       276,963
                                                     -----------   -----------
  Total assets                                      $125,067,265   114,526,768
                                                     ===========   ===========

Liabilities and Stockholders' Equity

Liabilities:
 Deposits                                            $77,666,644    71,353,098
 Advances from Federal Home Loan Bank                 16,200,000     8,800,000
 Note payable                                            530,749       591,847
 Advances from borrowers for taxes and insurance         286,086       229,437
 Accrued expenses and other liabilities                  349,060       276,793
 Deferred income taxes                                 1,119,505       520,376
                                                     -----------   -----------
   Total liabilities                                  96,152,044    81,771,551
                                                     -----------   -----------
Stockholders' equity:
 Preferred stock, par value $.01 per share, 250,000
  shares authorized, none issued and outstanding              -             -
 Common stock, par value $.01 per share, 4,000,000
  shares authorized, 2,592,100 issued                     25,921        25,921
 Additional paid-in capital                           25,278,214    25,260,408
 Unearned ESOP and MRDP compensation                  (1,928,091)   (2,264,623)
 MRDP shares acquired                                   (302,011)     (302,011)
 Retained earnings, substantially restricted          18,351,208    17,842,091
 Treasury shares acquired, at cost, 1,029,957 and
  590,830 shares at December 31, 2000 and 1999,
  respectively                                       (14,072,383)   (8,439,462)
 Accumulated other comprehensive income                1,562,363       632,893
                                                     -----------   -----------
Total stockholders' equity                            28,915,221    32,755,217
                                                     -----------   -----------
Commitments and contingencies
Total liabilities and stockholders' equity          $125,067,265   114,526,768
                                                     ===========   ===========

See accompanying notes to consolidated financial statements.

                                    16
<PAGE>

               EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                    Consolidated Statements of Income

                                                   Years Ended December 31,
                                                     2000          1999
Interest income:                                    ------        ------
 Loans receivable                               $6,010,312     4,369,032
 Mortgage-backed securities                      2,435,555     2,826,478
 Investment securities                             124,394       191,483
 Other                                             131,828       204,608
                                                 ---------     ---------
  Total interest income                          8,702,089     7,591,601
                                                 ---------     ---------
Interest expense:
 Passbook accounts                                 366,370       428,816
 NOW accounts                                      674,265       431,259
 Certificates of deposit                         2,283,958     2,023,789
 Advances from Federal Home Loan Bank              694,233       267,411
 Note payable                                       50,902        56,404
                                                 ---------     ---------
  Total interest expense                         4,069,728     3,207,679
                                                 ---------     ---------
  Net interest income                            4,632,361     4,383,922
Provision for loan losses                          110,000        17,615
                                                 ---------     ---------
Net interest income after provision for loan
  losses                                         4,522,361     4,366,307

Non-interest income:
 Insurance commission income                       556,795       575,610
 Customer service charges                          249,562       228,837
 Gain on sale of securities                        184,613           -
 Gain on sale of loans                              58,348           -
 Other                                              25,919        24,805
                                                 ---------     ---------
  Total non-interest income                      1,075,237       829,252

Non-interest expense:
 Compensation and benefits                       2,032,837     1,839,472
 Occupancy and equipment                           565,003       408,723
 Deposit insurance premiums                         50,700        65,188
 Data processing services                          114,757       122,957
 Other                                             842,707       686,016
                                                 ---------     ---------
  Total non-interest expense                     3,606,004     3,122,356
                                                 ---------     ---------
  Income before income taxes                     1,991,594     2,073,203

Income taxes                                       774,528       808,074
                                                 ---------     ---------
  Net income                                    $1,217,066     1,265,129
                                                 =========     =========
Basic earnings per share                        $      .79           .70
                                                 =========     =========
Diluted earnings per share                      $      .79           .70
                                                 =========     =========

See accompanying notes to consolidated financial statements.


                                    17
<PAGE>

<PAGE>
<TABLE>
                     EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
            Consolidated Statements of Stockholders' Equity and Comprehensive
Income (Loss)
                        Years Ended December 31, 2000 and 1999

   Accumulated
                                         Unearned
   other
                             Additional  ESOP          MRDP
Treasury  compre-     Total
                      Common  paid-in    and MRDP      shares   Retained
shares    hensive     stockholders'
                       stock  capital    compensation  acquired earnings
acquired  income      equity
Balance at             -----  ---------- ------------  -------- ---------
--------- ----------- ------------
<S>                    <C>     <C>        <C>          <C>       <C>        <C>
    <C>         <C>
 December 31, 1998   $25,921  25,277,770  (2,501,054) (432,215) 17,327,635
(5,310,819) 1,913,886  36,301,124
Repurchase of 221,132
 shares of common stock   -           -           -         -           -
(3,128,643)        -   (3,128,643)
ESOP shares committed to
  be released             -       26,545     138,240        -           -
 -          -      164,785
Award of 7,776 MRDP
 shares                   -      (38,744)    (91,460)  130,204          -
 -          -           -
MRDP shares vested        -       (5,163)    189,651        -           -
 -          -      184,488
Comprehensive income:
 Net income               -           -           -         -    1,265,129
 -          -    1,265,129
 Decrease in unrealized
  gain on securities      -           -           -         -           -
 -  (1,280,993) (1,280,993)

                 ---------
Comprehensive loss, net
                   (15,864)
Cash dividends declared
 ($.40 per share)         -           -           -         -     (750,673)
 -          -     (750,673)
                       -----  ---------- ------------  -------- ----------
---------- ---------- ------------
Balances at December
  31, 1999            25,921  25,260,408  (2,264,623) (302,011) 17,842,091
(8,439,462)   632,893  32,755,217
Repurchase of 439,127
  shares of common stock  -           -           -         -           -
(5,632,921)            (5,632,921)
ESOP shares committed to
 be released              -       25,550     138,240        -           -
 -          -      163,790
MRDP shares vested        -       (7,744)    198,292        -           -
 -          -      190,548
Comprehensive income:
 Net income               -           -           -         -    1,217,066
 -          -    1,217,066
 Increase in unrealized
  gain on securities      -           -           -         -           -
 -     929,470     929,470

                 ---------
Comprehensive income, net
                 2,146,536
Cash dividends declared
 ($.44 per share)         -           -           -         -     (707,949)
 -          -     (707,949)
                       -----  ---------- ------------  -------- ----------
---------- ---------- ------------
Balances at December
 31, 2000            $25,921  25,278,214  (1,928,091) (302,011)
18,351,208(14,072,383) 1,562,363  28,915,221
</TABLE>

                                                       Year Ended December 31,
                                                       2000        1999
                                                      ------      ------
Disclosure of other comprehensive income (loss) elements:
 Unrealized and realized holding gains (losses) arising
  during the period, net of income tax (expense) benefit
  of $(666,252) and $818,995 in 2000 and 1999,
  respectively                                         $1,042,084  (1,280,993)
 Reclassification adjustment for (gains) losses included
  in net income, net of income tax expense of $71,999
  and $0 in 2000 and 1999, respectively                  (112,614)      -

 Net unrealized gain (loss) on available-for-sale        ---------  ---------
    securities                                          $ 929,470 (1,280,993)
                                                        =========  =========


See accompanying notes to consolidated financial statements.

<PAGE>

             EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                 Consolidated Statements of Cash Flows

                                                        Years Ended December 31,
                                                            2000        1999
Cash flows from operating activities:                      ------      ------
 Net income                                            $1,217,066   1,265,129
 Adjustments to reconcile net income to net cash
  provided by operating activities:
   Provision for loan losses                              110,000      17,615
   Depreciation                                           338,947     233,496
   Loss on retirement of premises and equipment, net       22,772       2,435
   Gain on sale of securities                            (184,613)         -
   Gain on sale of loans                                  (58,348)         -
   Amortization of premiums and discounts on loans
    and mortgage-backed securities, net                    50,614      22,142
   Federal Home Loan Bank stock dividends                 (97,200)   (102,900)
   ESOP shares committed to be released                   149,979     155,067
   MRDP compensation expense                              190,548     184,488
   Deferred income taxes                                    4,877      23,116
   Proceeds from sales of loans                         5,872,348          -
   Origination of loans held for sale                  (5,814,000)         -
   Increase in accrued interest receivable                (76,895)    (98,241)
   Increase(decrease)in prepaid expenses and other assets (30,807)      6,002
   Increase(decrease)in accrued expenses and other
    liabilities                                            72,267     (14,467)
   Increase(decrease)in income taxes receivable            (8,349)     10,830
                                                        ---------   ---------
     Net cash provided by operating activities          1,759,206   1,704,712
                                                        ---------   ---------
Cash flows from investing activities:
 Net increase in loans receivable                     (22,398,534)(10,087,684)
 Purchases of securities available-for-sale                    -  (16,600,940)
 Proceeds from sales of securities available-for-sale   6,610,837          -
 Principal payments on mortgage-backed securities:
  Held-to-maturity                                      1,369,347   4,077,391
  Available-for-sale                                    6,773,642  13,268,045
 Purchases of premises and equipment                   (1,220,955)   (955,454)
                                                        ---------   ---------
     Net cash used in investing activities             (8,865,663)(10,298,642)
                                                        ---------   ---------
Cash flows from financing activities:
 Net increase in deposits                               6,313,546   4,940,501
 Proceeds from advances from Federal Home Loan Bank    17,800,000   6,800,000
 Repayment of advances from Federal Home Loan Bank    (10,400,000) (2,000,000)
 Payments on note payable                                 (61,098)    (55,596)
 Net change in advances from borrowers for taxes
  and insurance                                            56,649      (3,055)
 Payments of dividends                                   (694,138)   (740,955)
 Purchase of treasury stock                            (5,632,921) (3,128,643)
                                                        ---------   ---------
     Net cash provided by financing activities          7,382,038   5,812,252
                                                        ---------   ---------
Net increase (decrease) in cash and cash equivalents      275,581  (2,781,678)

Cash and cash equivalents, beginning of year            2,372,119   5,153,797
                                                        ---------   ---------
Cash and cash equivalents, end of year                 $2,647,700   2,372,119
                                                        ---------   ---------
Cash paid during the year for:
 Interest                                              $4,011,000   3,198,000
 Income taxes                                             778,000     774,000
                                                        ---------   ---------
Non-cash operating and financing activity:
 Payment of dividends on allocated ESOP shares         $   13,811       9,718
                                                        =========   =========
See accompanying notes to consolidated financial statements.
                                19
<PAGE>

                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       (a)    GENERAL

              The accompanying consolidated financial statements include the
              accounts of Empire Federal Bancorp, Inc. (the Holding Company) and
              its wholly-owned subsidiary, Empire Bank (Empire). The
              consolidated financial statements also include Dime Service
              Corporation (Dime), a wholly-owned subsidiary of Empire. The
              Holding Company, Empire and Dime are herein referred to
              collectively as "the Company." All significant intercompany
              balances and transactions have been eliminated in consolidation.

              Empire provides services to customers in south central Montana
              through a main office and three branches in four separate
              communities. Empire also operates a loan processing center in
              Missoula, Montana. Empire offers a variety of deposit products to
              its customers while concentrating its lending activities on real
              estate loans. These real estate lending activities focus primarily
              on the origination of loans secured by one- to four-family
              residential real estate but also include the origination of
              multi-family, commercial real estate, home equity and commercial
              loans. Empire is subject to competition from other financial
              service providers and is also subject to the regulations of
              certain federal and state agencies and undergoes periodic
              examinations by those regulatory authorities.

              Dime was formed in December 1985 to conduct business as an
              insurance agency.

       (b)    BASIS OF PRESENTATION

              The consolidated financial statements have been prepared in
              conformity with accounting principles generally accepted in the
              United States of America. In preparing the consolidated financial
              statements, management is required to make estimates and
              assumptions that affect the reported amounts of assets and
              liabilities as of the date of the balance sheet and income and
              expenses for the period. Actual results could differ significantly
              from those estimates.

              Material estimates that are particularly susceptible to
              significant change in the near-term relate to the determination of
              the allowance for loan losses. Management believes that the
              allowance for loan losses is adequate, however, future additions
              to the allowance may be necessary based on changes in factors
              affecting the borrowers' ability to repay. In addition, various
              regulatory agencies, as an integral part of their examination
              process, periodically review the allowance for loan losses. Such
              agencies may require Empire to recognize additions to the
              allowance based on their judgments about information available to
              them at the time of their examination.

       (c)    CASH EQUIVALENTS

              For purposes of the statements of cash flows, the Company
              considers all cash, daily interest demand deposits, amounts due
              from banks and interest-bearing deposits with banks with original
              maturities of three months or less to be cash equivalents.


                                       20                          (Continued)
<PAGE>

                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

       (d)    INVESTMENT AND MORTGAGE-BACKED SECURITIES

              Investment and mortgage-backed securities available-for-sale
              include securities that management intends to use as part of its
              overall asset/liability management strategy and that may be sold
              in response to changes in interest rates and resultant prepayment
              risk and other related factors. Securities available-for-sale are
              carried at fair value and unrealized gains and losses (net of
              related tax effects) are excluded from earnings and reported as a
              separate component of stockholders' equity. Investment securities
              and mortgage-backed securities, other than those designated as
              available-for-sale or trading, are comprised of debt securities
              for which the Company has the positive intent and ability to hold
              to maturity and are carried at cost. Management determines the
              appropriate classification of investment and mortgage-backed
              securities as either available-for-sale or held-to-maturity at the
              purchase date.

              Declines in the fair value of securities below carrying value that
              are other than temporary are charged to expense as realized losses
              and the related carrying value reduced to fair value.

              The carrying value of debt securities is adjusted for amortization
              of premiums and accretion of discounts using the interest method
              over the estimated lives of the securities. The cost of
              investments sold is determined by specific identification.

       (e)    LOANS RECEIVABLE

              Loans receivable are stated at unpaid principal balances, less
              unearned discounts and net deferred loan origination fees.
              Interest on loans is credited to income as earned. Interest
              receivable is accrued only if deemed collectible. Discounts on
              purchased loans are amortized using the interest method over the
              remaining period to contractual maturity, adjusted for anticipated
              prepayments.

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

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

              Accrued interest on loans that are contractually past due ninety
              days or more is generally charged off against income. Interest is
              subsequently recognized only to the extent cash payments are
              received until, in management's judgment, the borrower's ability
              to make periodic interest and principal payments is reasonably
              assured, in which case the loan is returned to accrual status.



                                     21                            (Continued)
<PAGE>


<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

              The Company also provides an allowance for losses on specific
              loans which are deemed to be impaired. Groups of small-balance
              homogeneous loans (generally residential real estate and consumer
              loans) are evaluated for impairment collectively. A loan is
              considered impaired when, based upon current information and
              events, it is probable that the Company will be unable to collect,
              on a timely basis, all principal and interest according to the
              contractual terms of the loan's original agreement. When a
              specific loan is determined to be impaired, the allowance for loan
              losses is increased through a charge to expense for the amount of
              the impairment. The amount of the impairment is measured using
              cash flows discounted at the loan's effective interest rate,
              except when it is determined that the sole source of repayment for
              the loan is the operation or liquidation of the underlying
              collateral. In such cases, the current value of the collateral,
              reduced by anticipated selling costs, will be used in place of
              discounted cash flows. The Company uses the cash basis of income
              recognition on impaired loans.

              The Company's existing policies for evaluating the adequacy of the
              allowance for loan losses and policies for discontinuing the
              accrual of interest on loans are used to establish the basis for
              determining whether a loan is impaired. At December 31, 2000 and
              1999, impaired loans were not material.

       (f)    LOANS HELD FOR SALE

              Loans originated and intended for sale on the secondary market are
              carried at the lower of cost or estimated fair value. Net
              unrealized losses, if any, are recognized through a valuation
              allowance by charges to income.

       (g)    LOAN ORIGINATION FEES AND RELATED COSTS

              Loan origination fees and certain direct loan origination costs
              are deferred and the net fee or cost is recognized as interest
              income using the interest method over the contractual life of the
              loans, adjusted for prepayments.

       (h)    STOCK IN FEDERAL HOME LOAN BANK

              Member institutions of the Federal Home Loan Bank (FHLB) System
              are required to hold common stock of its district FHLB according
              to predetermined formulas.

       (i)    PREMISES AND EQUIPMENT

              Premises and equipment are stated at cost less accumulated
              depreciation. Depreciation is provided using straight-line and
              accelerated methods over the estimated useful lives of 40 years
              for the buildings, 7 to 15 years for improvements and 3 to 15
              years for furniture, fixtures and equipment.

       (j)    INCOME TAXES

              Deferred tax assets and liabilities are recognized for the
              estimated future consequences attributable to differences between
              the financial statement carrying amounts of assets and liabilities
              and their respective tax bases. The effect on deferred tax assets
              and liabilities of a change in tax rates is recognized in income
              in the period that includes the enactment date.

                                   22                             (Continued)

<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

       (k)    EARNINGS PER SHARE

              Basic earnings per share (EPS) is calculated by dividing net
              income available to common stockholders by the weighted average
              number of common shares outstanding during the period less
              unvested Management Recognition and Development Plan (MRDP) shares
              and unallocated Employee Stock Ownership Plan (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 determined by the
              treasury stock method.

       (l)    LONG-LIVED ASSETS

              Long-lived assets and certain identifiable intangibles are
              reviewed for impairment whenever events or circumstances indicate
              that the carrying amount of an asset may not be recoverable. An
              impairment loss is recognized if the sum of the expected future
              cash flows is less than the carrying amount of the asset. No
              long-lived assets were identified as impaired as of December 31,
              2000 and 1999.

       (m)    STOCK-BASED COMPENSATION TO EMPLOYEES

              Compensation cost for stock-based compensation to employees is
              measured at the grant date using the intrinsic value method. Under
              the intrinsic value method, compensation cost is the excess of the
              market price of the stock at the grant date over the amount an
              employee must pay to ultimately acquire the stock and is
              recognized over any related service period.

       (n)    COMPREHENSIVE INCOME

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




                                  23                            (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999


       (o)    DERIVATIVE INSTRUMENTS

              In June 2000, the Financial Accounting Standards Board (FASB)
              issued Statement of Financial Accounting Standard (SFAS) No. 138,
              "Accounting for Derivative Instruments and Hedging Activities," an
              amendment to SFAS No. 133. SFAS No. 133 and SFAS No. 138 establish
              accounting and reporting standards requiring that every derivative
              instrument (including certain derivative instruments embedded in
              other contracts) be recorded in the balance sheet as either an
              asset or liability measured at its fair value. These standards
              require that changes in the derivative's fair value be recognized
              currently in earnings unless specific hedge accounting criteria
              are met. As of December 31, 2000, the Company was not engaged in
              hedging activities nor did it hold derivative instruments that
              will require adjustments to carrying values under SFAS No. 133 and
              No. 138. The Company was required to adopt the standards on
              January 1, 2001 and the impact of the adoption was not material.
              Upon adoption of SFAS No. 133, the Company will transfer
              held-to-maturity securities with amortized costs of $5,024,454 and
              market value of $5,067,695 into the available-for-sale securities
              category. The $43,241 unrealized gain will be recorded as a
              component of comprehensive income as a transaction adjustment on
              January 2, 2001.

       (p)    RECLASSIFICATIONS

              Certain reclassifications have been made to the 1999 amounts to
              conform to the 2000 presentation.

(2)    INVESTMENT AND MORTGAGE-BACKED SECURITIES AVAILABLE-FOR-SALE

       The amortized cost, unrealized gains and losses, and estimated fair
       values of investment and mortgage-backed securities available-for-sale at
       December 31 are as follows:

                                                2000
                               -----------------------------------------
                                           GROSS       GROSS     ESTIMATED
                             AMORTIZED  UNREALIZED   UNREALIZED    FAIR
                                COST       GAINS       LOSSES      VALUE
                               ------      ------      ------      ------
FHLMC common stock           $ 46,660   2,722,114          -    2,768,774

Mortgage-backed securities:
 GNMA certificates          3,146,091          -      (55,573)  3,090,518
 FHLMC certificates           531,193          -       (4,020)    527,173
 FNMA certificates          9,060,012      41,110    (103,392)  8,997,730
 REMIC certificates        14,029,187      67,653    (106,640) 13,990,200
                           ----------   ---------    --------  ----------
                           26,766,483     108,763    (269,625) 26,605,621
                           ----------   ---------    --------  ----------
                          $26,813,143   2,830,877    (269,625) 29,374,395
                           ==========   =========    ========  ==========



                                   24                           (Continued)

<PAGE>


<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

                                                1999
                               -----------------------------------------
                                           GROSS       GROSS     ESTIMATED
                             AMORTIZED  UNREALIZED   UNREALIZED    FAIR
                                COST       GAINS       LOSSES      VALUE
                             --------   ---------    --------    --------
United States Government
 and agency obligations    $2,489,495          -      (35,005)  2,454,490
FHLMC common stock             55,291   2,203,709          -    2,259,000
Mutual funds                  360,528          -       (4,843)    355,685
                            ---------   ---------      ------   ---------
                            2,905,314   2,203,709     (39,848)  5,069,175

Mortgage-backed securities:
 GNMA certificates          4,759,829          -     (157,937)  4,601,892
 FHLMC certificates         2,130,286          -      (19,684)  2,110,602
 FNMA certificates         14,714,995      10,807    (433,063) 14,292,739
 REMIC certificates        15,542,198      18,454    (544,909) 15,015,743
                           ----------   ---------   ---------  ----------
                           37,147,308      29,261  (1,155,593) 36,020,976
                           ----------   ---------   ---------  ----------
                          $40,052,622   2,232,970  (1,195,441) 41,090,151
                           ==========   =========   =========  ==========

       The REMICs consist of fifteen certificates which are backed by the FNMA
       or the FHLMC.

       Gross gains of $347,727 and gross losses of $163,114 were realized on the
       sale of securities in the year ended December 31, 2000. There were no
       sales of securities available-for-sale during the year ended December 31,
       1999.

       The Company has not entered into any interest rate swaps, options or
       future contracts. All of the U.S. Government and agency obligations at
       December 31, 2000 have call features.

       Pursuant to a collateral agreement with the FHLB, all unpledged,
       qualifying securities including those held-to-maturity, are pledged to
       secure advances from the FHLB.

(3)    MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY

       The amortized cost, unrealized gains and losses, and estimated fair
       values of mortgage-backed securities held-to-maturity at December 31 are
       summarized as follows:
                                                2000
                             --------------------------------------------
                                           GROSS       GROSS     ESTIMATED
                             AMORTIZED  UNREALIZED   UNREALIZED    FAIR
                                COST       GAINS       LOSSES      VALUE
                             --------   ---------    --------    --------
Mortgage-backed securities:
 GNMA certificates          $ 854,528      20,657      (2,570)    872,615
 FHLMC certificates           935,740      22,635      (9,212)    949,163
 FNMA certificates          2,187,458      31,820     (10,966)  2,208,312
 REMIC certificates         1,046,728         457      (9,580)  1,037,605
                             --------   ---------    --------    --------
                           $5,024,454      75,569     (32,328)  5,067,695
                           ==========      ======      ======   =========


                                      25                        (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

                                                1999
                             --------------------------------------------
                                           GROSS       GROSS     ESTIMATED
                             AMORTIZED  UNREALIZED   UNREALIZED    FAIR
                                COST       GAINS       LOSSES      VALUE
                             --------   ---------    --------    --------
Mortgage-backed securities:
 GNMA certificates         $1,033,484      19,932      (4,676)  1,048,740
 FHLMC certificates         1,332,603      13,195     (18,179)  1,327,619
 FNMA certificates          2,993,652      10,785     (20,371)  2,984,066
 REMIC certificates         1,046,728         435     (39,990)  1,007,173
                             --------   ---------    --------    --------
                           $6,406,467      44,347     (83,216)  6,367,598
                            =========   =========    ========   =========

     The REMICs consist of two certificates which are backed by the FNMA and
     the FHLMC.

(4)    LOANS RECEIVABLE, NET

       Loans receivable, net at December 31 are summarized as follows:

                                              2000                  1999
                                     -------------------   --------------------
First mortgage loans:
  One to four family                 $        46,128,318            41,723,724
  Multi-family                                 5,157,651             5,307,547
  Commercial real estate                      12,468,045             7,108,194
  Construction loans                           6,002,824             2,409,000
  Commercial non-mortgage                      6,182,468             1,789,117
  Loans to depositors, secured by savings        459,031               486,192
  Other consumer loans                         5,025,539             2,545,692
                                     -------------------   --------------------
                                              81,423,876            61,369,466
Less:
  Unearned discounts                                  -                 (1,664)
  Undisbursed portion of loans                  (403,719)           (1,223,918)
  Allowance for loan losses                     (336,165)             (226,215)
  Net deferred loan origination fees            (321,255)             (347,886)
                                     -------------------   --------------------
                                     $        80,362,737            59,569,783
                                     ===================   ====================

       Loans receivable include approximately $14,529,000 and $5,500,000 in
       adjustable rate loans at December 31, 2000 and 1999, respectively.

       A summary of activity in the allowance for loan losses for the years
       ended December 31 is as follows:

                                             2000                  1999
                                     -------------------   --------------------
Balance at beginning of year            $        226,215               220,000
Provision charged to expense                     110,000                17,615
Losses charged against the allowance                 (50)              (11,400)
                                     -------------------   --------------------
Balance at end of year                  $        336,165               226,215
                                     ===================   ====================



                                   26                             (Continued)
<PAGE>


<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

(5)    ACCRUED INTEREST RECEIVABLE

       Accrued interest receivable at December 31 is summarized as follows:

                                             2000                  1999
                                     -------------------   --------------------
Loans receivable                        $        461,285               301,738
Mortgage-backed securities                        66,996                88,526
Investment securities and interest-
 bearing deposits                                     -                 61,122
                                     -------------------   --------------------
                                        $        528,281               451,386
                                     ===================   ====================

(6)    PREMISES AND EQUIPMENT

       Premises and equipment at December 31 is summarized as follows:

                                             2000                  1999
                                     -------------------   --------------------
Buildings and improvements              $      2,658,041             1,690,455
Land                                             929,165               529,165
Furniture, fixtures and equipment              1,747,950             1,244,873
Construction in progress                              -                779,899
                                     -------------------   --------------------
                                               5,335,156             4,244,392
Accumulated depreciation                      (1,615,590)           (1,384,062)
                                     -------------------   --------------------
                                        $      3,719,566             2,860,330
                                     ===================   ====================

       Included in construction in progress at December 31, 1999 is $700,000
       related to the purchase of a building and land for a new branch in
       Billings, Montana, $26,050 of remodeling costs for the new branch and
       $53,849 of costs to remodel the Livingston office branch. During 2000,
       these remodeling projects were completed and placed in service.

(7)    DEPOSITS

       Deposits at December 31 are summarized as follows:

                 Weighted
                 Average Rate at             2000                   1999
                 December 31, 2000      Amount   Percent       Amount   Percent
                 -----------------      ------   -------       ------   -------
Passbook accounts        3.00%     $11,199,566    14.4%   $13,915,458    19.5%
NOW accounts             3.50%      24,379,235    31.4     18,202,040    25.5
                                    ----------   -------   ----------   -------
                                    35,578,801    45.8     32,117,498    45.0
                                    ----------   -------   ----------   -------

Certificates of deposit:
                   3.01 to 4.00%            -       -             633      -
                   4.01 to 5.00%     1,270,783     1.6     19,061,378    26.7
                   5.01 to 6.00%    21,107,580    27.2     17,785,868    24.9
                   6.01 to 7.00%    19,494,518    25.1      1,543,421     2.2
                   7.01 to 8.00%       214,962      .3        844,300     1.2
Total certificates                  ----------   -------   ----------   -------
  of deposit           5.93%        42,087,843    54.2     39,235,600    55.0
                                    ----------   -------   ----------   -------
                       4.76%       $77,666,644   100.0%   $71,353,098   100.0%
                                    ==========   =======   ==========   =======

                                   27                      (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

       Certificates of deposit at December 31, 2000 are scheduled to mature as
       follows:

         Year ending December 31:
              2001                               $        30,275,830
              2002                                         5,462,577
              2003                                         1,942,548
              2004                                         3,133,538
              2005                                           623,064
              Thereafter                                     650,286
                                                 -------------------
                                                 $        42,087,843
                                                 ===================

       Certificates of deposit of $100,000 or greater were approximately
       $7,349,000 and $5,037,000 at December 31, 2000 and 1999, respectively.
       Amounts in excess of $100,000 are not insured by a federal agency.

       Accrued interest payable on deposits (included in accrued expenses and
       other liabilities) was approximately $162,000 and $103,000 at December
       31, 2000 and 1999, respectively.

       Securities and interest-bearing deposits with amortized cost of
       $1,002,000 and $600,000 at December 31, 2000 and 1999, respectively, were
       pledged to secure public deposits. The approximate market value of
       securities pledged at December 31, 2000 and 1999 was $997,000 and
       $593,000 respectively. All pledged securities are held in a custody
       account by a third party.

(8)    ADVANCES FROM FEDERAL HOME LOAN BANK

       Advances from the Federal Home Loan Bank at December 31 are summarized as
       follows:

                                             2000                  1999
                                     -------------------   --------------------
5.01% to 6.68% fixed rate advances,
 interest payable monthly                $    11,800,000             4,000,000
Variable rate advances (6.70% to
 6.86% at December 31, 2000),
 interest payable monthly                      4,000,000             4,000,000
Cash management advance (6.83% at
 December 31, 2000), interest
 payable monthly                                 400,000               800,000
                                     -------------------   --------------------
                                         $    16,200,000             8,800,000
                                     ===================   ====================

       Contractual principal repayments on advances from the Federal Home Loan
       Bank subsequent to December 31, 2000 are as follows:

       Year ending December 31:
            2001                         $    10,200,000
            2002                                      -
            2003                                 500,000
            2004                                      -
            2005                               4,900,000
            Thereafter                           600,000
                                      ------------------
                                         $    16,200,000
                                      ==================


                                     28                        (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

       The weighted average interest rate on these advances was 6.38% and 5.77%
       at December 31, 2000 and 1999, respectively. At December 31, 2000, the
       Company was eligible to borrow up to approximately $29,000,000.

       At December 31, 2000, Empire had a FHLB Cash Management Advance (CMA)
       note with a maximum allowable advance of $5,724,500 maturing in March
       2001.

       Advances from the FHLB are secured by pledges of FHLB stock of $1,560,700
       and $1,463,500 at December 31, 2000 and 1999, respectively, and a blanket
       assignment of the Company's unpledged, qualifying mortgage loans,
       mortgage-backed securities and investment securities.

(9)    NOTE PAYABLE

       During 1997, the Company entered into an agreement with an officer of the
       Company and related individuals to purchase the Livingston, Montana main
       office building. The purchase was financed with a long-term note. The
       note is being paid in quarterly payments of $28,000 including interest at
       9%. The note is secured by the building.

(10)   INCOME TAXES

       Income tax expense for the years ended December 31 is summarized as
       follows:

                     FEDERAL                 STATE                  TOTAL
              -------------------    -------------------   --------------------
2000:
    Current   $           635,747                133,905               769,652
    Deferred                4,020                    856                 4,876
              -------------------    -------------------   --------------------
              $           639,767                134,761               774,528
              ===================    ===================   ====================
1999:
    Current   $           648,121                136,837               784,958
    Deferred               19,058                  4,058                23,116
              -------------------    -------------------   --------------------
              $           667,179                140,895               808,074
              ===================    ===================   ====================

       Income tax expense for the years ended December 31 differs from
       "expected" income tax expense (computed by applying the Federal corporate
       income tax rate of 34% to income before income taxes) as follows:

                                                              2000       1999
                                                            --------   --------
Computed "expected" tax expense                             $677,142    704,889
Increase (decrease) resulting from:
 State taxes, net of Federal income tax benefit               88,942     92,990
 Mark-to-market adjustment on ESOP shares committed
   to be released                                              8,687      9,025
 Other                                                          (243)     1,170
                                                            --------   --------
                                                            $774,528    808,074
                                                            ========   ========

                                      29                     (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

       Temporary differences between the financial statement carrying amounts
       and the tax bases of assets and liabilities that give rise to significant
       portions of deferred tax assets and liabilities at December 31 are as
       follows:

                                             2000                  1999
                                     -------------------   --------------------
Deferred tax assets:
  Allowance for loan losses          $        129,272                86,991
  Deferred loan origination fees              123,539               134,419
  Deferred compensation accrual                29,117                29,117
  Vested MRDP shares                           73,275                72,930
                                     -------------------   --------------------
   Gross deferred tax assets                  355,203               323,457
                                     -------------------   --------------------
Deferred tax liabilities:
  FHLB stock dividends                       (448,731)             (411,353)
  Premises and equipment, principally
    due to differences in depreciation        (24,092)              (23,036)
  Unrealized gain on securities
    available-for-sale                       (998,889)             (404,636)
  Other, net                                   (2,996)               (4,808)
                                     -------------------   --------------------
   Gross deferred tax liabilities          (1,474,708)             (843,833)
                                     -------------------   --------------------
   Net deferred tax liability        $     (1,119,505)             (520,376)
                                     ===================   ====================

       In assessing the realizability of deferred tax assets, management
       considers whether it is more likely than not that some portion or all of
       the deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent upon the existence of, or generation of,
       taxable income in the periods in which those temporary differences are
       deductible. Management considers the scheduled reversal of deferred tax
       liabilities, taxes paid in carryback years, projected future taxable
       income, and tax planning strategies in making this assessment. Based upon
       the level of historical taxable income and estimates of future taxable
       income over the periods in which the deferred tax assets are deductible,
       at December 31, 2000 and 1999, management believes it is more likely than
       not the Company will realize the benefits of these deductible
       differences.

       Retained earnings at December 31, 2000 includes approximately $3,320,000
       for which no provision for Federal income tax has been made. This amount
       represents the base year tax bad debt reserve at December 31, 1986. This
       amount is treated as a permanent difference and deferred taxes are not
       recognized unless it appears this amount will be reduced and thereby
       result in taxable income in the foreseeable future. The Company is not
       currently contemplating any changes in its business or operations which
       would result in a recapture of this Federal bad debt reserve into taxable
       income.


                                        30                     (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

(11)   STOCK REPURCHASES

       The Company authorized plans to repurchase some of its outstanding shares
       in the open market. During the years ended December 31, 2000 and 1999,
       the Company repurchased 439,127 and 221,132 shares, respectively, under
       the plans.

(12)   EMPLOYEE BENEFIT PLANS

       Retirement Plan. The Company has a noncontributory multi-employer trustee
       defined benefit pension plan. Actuarially determined pension costs are
       funded as required by the trustee. Information related to the Company's
       portion of the actuarial present value of benefits is not available.
       Consulting actuaries to the plan have indicated the plan reached the
       ERISA full funding limitation during 2000 and 1999. Contributions to the
       plan were $2,660 and $0 for the years ended December 31, 2000 and 1999,
       respectively.

       Savings Plan. During January 1999, the Company adopted a 401(k) savings
       plan. The Company allows eligible employees to contribute up to 15% of
       their monthly wages. The Company matches an amount equal to 50% of the
       employee's contribution, up to 6% of total wages. Participants are at all
       times fully vested in their contributions and vest after five years in
       the Company's contributions. The Company's contributions were
       approximately $19,000 and $18,000 during the years ended December 31,
       2000 and 1999, respectively.

       Employee Stock Ownership Plan (ESOP). In January 1997, an ESOP was
       established covering substantially all employees. The ESOP borrowed
       $2,073,680 from the Holding Company and used the funds to purchase
       207,368 shares of the common stock of the Company. The loan is intended
       to be repaid by the ESOP over a period of 15 years principally from the
       Company's contributions to the ESOP and dividends on ESOP shares. The
       cost of the shares acquired by the ESOP is considered unearned
       compensation and, as such, is recorded as a reduction of the Company's
       stockholders' equity. Shares purchased by the ESOP are held in a suspense
       account for allocation among participants as the loan is repaid.
       Contributions to the ESOP and shares released from the suspense account
       are allocated among participants on the basis of their compensation in
       the year of allocation. Benefits will vest upon the completion of five
       years of service. Forfeitures are reallocated to remaining plan
       participants and may reduce the Company's contributions. Benefits may be
       payable upon retirement, death, disability, or separation from service.
       The dividends on the unallocated ESOP shares are not recorded as
       dividends in the consolidated statements of stockholders' equity.

       Compensation expense is recorded equal to the fair value of shares held
       by the ESOP which are deemed committed to be released. Shares are
       committed to be released on a straight-line basis over 15 years, which is
       the basis for the annual allocation of ESOP shares to participants. For
       the years ended December 31, 2000 and 1999, ESOP principal and interest
       payments of approximately $286,000 and $293,000, respectively, were
       funded by Empire and Dime contributions of approximately $198,000 and
       $212,000, respectively, to the ESOP. The remainder of the ESOP payments
       were funded by dividends on ESOP shares. During each of the years ended
       December 31, 2000 and 1999, 13,824 and 13,824 shares, respectively, were
       committed to be released to participant accounts and 1,518 and 5,963
       allocated shares were distributed from the ESOP during the year ended
       December 31, 2000 and 1999, respectively. The fair value of the remaining
       144,616 shares to be released in future years was approximately
       $1,717,000 at



                                   31                           (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

       December 31, 2000. Compensation expense relating to the ESOP shares was
       $149,979 and $155,067 for the years ended December 31, 2000 and 1999,
       respectively.

       Employment Contracts. During 1997, the Company entered into a three-year
       employment contract with a senior officer. This contract was terminated
       on January 1, 2000 in conjunction with the senior officer's retirement.
       In January 1999, the Company entered into a three-year employment
       agreement with the Company's new president and chief executive officer.
       In October 1999, the Company entered into three-year employment
       agreements with two new officers, effective January 1, 2000. In December
       2000, the October 1999 agreements were extended for an additional year.
       These agreements provide severance up to three times average annual
       compensation following a change in control of the Company.

       Stock Option Plan. Effective July 1997, the Company's stockholders
       approved the Stock Option Plan. The terms of the Stock Option Plan
       provide for the granting of options to acquire up to 259,210 shares of
       common stock to employees, officers and directors of the Company. The
       options will vest over a five year period following the date of the grant
       of the options. At December 31, 2000 and 1999, total shares available for
       grant under the Stock Option Plan were 24,582 and 21,082, respectively.

       Changes in shares issuable under options granted for the years ended
       December 31, 2000 and 1999 are summarized as follows:

                                   Options Outstanding    Options Exercisable
                                   --------------------   --------------------
                                               Weighted               Weighted
                                               Average                Average
                                               Exercise               Exercise
                                   Shares      Price      Shares      Price
                                   -------    -------     -------    -------
Balance at December 31, 1998       216,484    $16.625      51,842    $16.625
Granted                             27,644     11.625          -          -
Canceled                            (6,000)    16.625          -          -
Became exercisable                    -            -       31,728     16.625
                                   -------                 ------
Balance at December 31, 1999       238,128     16.045      83,570     16.625
Granted                                 -          -           -          -
Canceled                            (3,500)    16.625          -          -
Became exercisable                      -          -       36,557     15.869
                                   -------                 ------
Balance at December 31, 2000       234,628     16.036     120,127     16.395
                                   =======                =======

       The stock options outstanding at December 31, 2000 consist of the
       following:

   NUMBER OF SHARES   WEIGHTED AVERAGE   WEIGHTED AVERAGE       OPTIONS
                      EXERCISE PRICE     REMAINING LIFE       EXERCISABLE
   ----------------   ----------------   ----------------     -----------
      206,984            $16.625           7.00 years           114,598
       27,644             11.625           8.67 years             5,529
   ----------------   ----------------                        -----------
      234,628             16.036                                120,127
   ================                                           ===========


                                      32                  (Continued)

<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

       Based on the terms of options granted and using the intrinsic value
       method, no compensation cost has been recognized for any stock option
       grants in the accompanying financial statements. Had the Company
       determined compensation cost based on the estimated fair value at the
       grant date for its stock options, the Company's net income and net income
       per share for the years ended December 31, 2000 and 1999 would have been
       as follows:
                                         2000                      1999
                               ----------------------    ----------------------
Net income:  As reported                 $ 1,217,066                 1,265,129
             Pro forma                       970,370                 1,027,481
                               ======================    ======================

Basic earnings per share: As reported    $       .79                       .70
                          Pro forma              .63                       .57
                               ======================    ======================

Diluted earnings per share: As reported  $       .79                       .70
                            Pro forma            .63                       .57
                               ======================    ======================

       The pro forma per share weighted-average fair value of stock options
       granted during 1999 was $3.36, determined as of the date of grant using
       the Black-Scholes option-pricing model with the following assumptions: -
       expected dividend yield of 3.34% in 1999, risk-free interest rate of
       4.40% to 5.42% in 1999, volatility ratio of 29% in 1999, and expected
       life of 10 years. No options were granted in 2000.

       Management Recognition and Development Plan (MRDP). During July 1997, the
       Company's stockholders approved the MRDP. The terms of the MRDP provide
       for the award of up to 103,684 of common shares to employees, officers
       and directors of the Company. The shares granted will vest over a five
       year period following the date of grant. During the year ending December
       31, 1999, the Company granted 7,776 shares, under this plan. No grants
       were made in the year ending December 31, 2000. Compensation expense,
       determined by the market value of the shares at the date of grant, of
       $190,548 and $184,488 was recognized during the years ended December 31,
       2000 and 1999, respectively, for shares that vested.

(13)   EARNINGS PER SHARE

       The following table sets forth the compilation of basic and diluted
       earnings per share for the years ended December 31:

                                             2000                   1999
                                      --------------------   -------------------
Average outstanding shares during the
 year on which basic earnings per
 share is calculated                           1,535,637              1,796,748

Add: Incremental shares under stock
       option plans                                  815                   -
     Incremental shares related to MRDP              170                   -
                                      --------------------   -------------------
Average outstanding shares on which
  diluted earnings per share is calculated     1,536,622              1,796,748
                                      ====================   ===================
Net income applicable to common
  stockholders                         $       1,217,066              1,265,129
                                      ====================   ===================
Basic earnings per share               $             .79                    .70
                                      ====================   ===================
Diluted earnings per share             $             .79                    .70
                                      ====================   ===================
                                      33                        (Continued)
<PAGE>
<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

       Stock options to purchase 266,753 and 267,870 shares for the years ended
       December 31, 2000 and 1999, respectively, were outstanding, but were not
       included in the computation of diluted earnings per share because the
       options' exercise prices were greater than the average market price of
       the common shares, and therefore, the effect would be antidilutive.

(14)   REGULATORY CAPITAL

       Empire is required to meet three capital requirements: a tangible capital
       requirement equal to not less than 1.5% of tangible assets (as defined in
       the regulations); a core capital requirement, comprised of tangible
       capital adjusted for supervisory goodwill and other defined factors,
       equal to not less than 3.0% of tangible assets; and a risk-based capital
       requirement equal to at least 8.0% of all risk-weighted assets. For
       risk-weighting, selected assets are given a risk assignment of 0% to
       100%. Empire's total risk-weighted assets at December 31, 2000 and 1999
       were $68,986,000 and $53,718,000, respectively.

       Empire's compliance with capital requirements at December 31, 2000 and
       1999 follows (dollars in thousands):

                                             Minimum To Be
                                      Adequately Capitalized  Minimum To Be Well
                                              Under Prompt     Capitalized Under
                                          Corrective Actions   Prompt Corrective
                               Actual          Provision       Actions Provision
                          ---------------    ---------------    ---------------
                          Amount    Ratio    Amount    Ratio    Amount    Ratio
                          ------    -----    ------    -----    ------    -----
As of December 31, 2000:
  Total capital          $27,891    40.43%  $ 5,519     8.00%  $ 6,899    10.00%
  Tier 1 capital          26,353    38.20        -        -      4,139     6.00
  Tier 1 leverage         26,353    21.61     3,658     3.00     6,098     5.00
  Tangible capital        26,353    21.61     1,829     1.50        -        -
                          ======    =====    ======    =====    ======    =====
As of December 31, 1999:
  Total capital          $30,153    56.13%  $ 4,297     8.00%  $ 5,372    10.00%
  Tier 1 capital          28,962    53.91        -        -      3,223     6.00
  Tier 1 leverage         28,962    25.65     3,388     3.00     5,646     5.00
  Tangible capital        28,962    25.65     1,694     1.50        -        -
                          ======    =====    ======    =====    ======    =====

       Failure to comply with applicable regulatory capital requirements can
       result in capital directives from the director of the Office of Thrift
       Supervision (OTS), restrictions on growth and other limitations on a
       savings bank's operations.


                                        34                  (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

       Consolidated stockholders' equity differs from Empire's tangible, core,
       and risk-based capital at December 31 as a result of the following
       (dollars rounded to nearest thousands):

                                            2000                  1999
                                     -------------------   --------------------
 Consolidated stockholders' equity   $        28,915,000            32,755,000
 Holding Company net assets                     (558,000)           (2,722,000)
                                     -------------------   --------------------
     Empire capital                           28,357,000            30,033,000

 Non-includable assets of Dime                  (442,000)             (438,000)
 Unrealized gains on certain available-
   for-sale securities                        (1,562,000)             (633,000)
                                     -------------------   --------------------
     Tangible and core capital                26,353,000            28,962,000

 Unrealized gains on certain available-
   for-sale securities                         1,225,000               989,000
 Allowance for loan losses                       336,000               226,000
 Assets required to be deducted                  (23,000)              (24,000)
                                     -------------------   --------------------
     Risk-based capital              $        27,891,000            30,153,000
                                     ===================   ====================

       In accordance with OTS regulations, at the time of conversion, Empire
       restricted a portion of retained earnings by establishing a liquidation
       account. The liquidation account will be maintained for the benefit of
       eligible holders who continue to maintain their accounts in Empire after
       the conversion. The liquidation account will be reduced annually to the
       extent that eligible account holders have reduced their qualifying
       deposits. Subsequent increases will not restore an eligible account
       holder's interest in the liquidation account. In the event of a complete
       liquidation of Empire, and only in such an event, each account holder
       will be entitled to receive a distribution from the liquidation account
       in an amount proportionate to the adjusted qualifying account balances
       then held.

       In addition, savings banks that before and after proposed dividend
       distributions meet or exceed their fully phased-in capital requirements,
       may make capital distributions with prior notice to the OTS during any
       calendar year up to 100% of year-to-date net income plus 50% of the
       amount in excess of their fully phased-in capital requirements as of the
       beginning of the calendar year. However, the OTS may impose greater
       restrictions if an institution is deemed to be in need of more than
       normal supervision. Empire currently exceeds its fully phased-in capital
       requirements and has been assessed as "well-capitalized" under the
       regulatory guidelines.

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

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



                                   35                          (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

       The Company's exposure to credit loss in the event of nonperformance by
       the other party to the financial instrument for commitments to extend
       credit is represented by the contractual amount of those instruments. The
       Company uses the same credit policies in making commitments and
       conditional obligations as it does for on-balance-sheet instruments.

       Financial instruments whose contract amounts represent credit risk are
       commitments to extend credit at fixed rates at December 31, 2000 and 1999
       of approximately $3,992,000 and $2,957,000, respectively, and at variable
       rates at December 31, 2000 and 1999 of approximately $550,000 and
       $2,835,000, respectively. These commitments generally contain a
       termination date of 30 days from date the commitment is approved.

(16)   FINANCIAL INSTRUMENTS WITH CONCENTRATION OF CREDIT RISK

       At December 31, 2000, approximately $1,670,000 of the Company's loans
       receivable are secured by real property located outside of the Company's
       trade area consisting of three counties in south central Montana. Of this
       amount, approximately $731,000 are secured by properties located in
       southern California.

(17)   FAIR VALUE OF FINANCIAL INSTRUMENTS

       The Company is required to disclose the fair value for financial
       instruments, whether recognized or not recognized on the balance sheet. A
       financial instrument is defined as cash, evidence of an ownership
       interest in an entity, or a contract that both imposes a contractual
       obligation on one entity to deliver cash or another financial instrument
       to a second entity.

       Quoted market prices are used for fair value when available, but do not
       exist for some of the Company's financial instruments, primarily loans,
       time deposits, notes payable, FHLB advances and other borrowed funds. The
       fair value of these instruments has been derived from the OTS Net
       Portfolio Value Model (OTS Model). The OTS Model primarily employs the
       static discounted cash flow method which estimates the fair value of
       loans, time deposits, FHLB advances and notes payable by discounting the
       cash flows the instruments are expected to generate by the yields
       currently available to investors on instruments of comparable risk and
       duration. Therefore, to calculate present value, the OTS Model makes
       assumptions about the size and timing of expected cash flows and
       appropriate discount rates. Different assumptions could materially change
       these instruments' estimated values.

       The following assumptions and methods were used by the Company in
       estimating the fair value of its financial instruments:

            Financial Assets. Due to the liquid nature of the instruments, the
            carrying value of cash and cash equivalents and interest-bearing
            deposits approximates fair value. For all investment and
            mortgage-backed securities, the fair value is based upon quoted
            market prices. The fair value of loans receivable and loans held for
            sale was obtained from the OTS Model. The fair value of accrued
            interest receivable approximates book value as the Company expects
            contractual receipt in the short-term. The fair value of FHLB stock
            approximates redemption value.

            Financial Liabilities. The fair value of NOW and demand accounts and
            non-term savings deposits, approximates book values as these
            deposits are payable on demand. The fair value of time deposits,
            notes payable, FHLB advances and CMA advances was obtained from the
            OTS Model. The fair value of accrued interest payable approximates
            book value as the Company expects payment in the short-term.

                                    36                         (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

           Off-Balance Sheet. Commitments made to extend credit represent
           commitments for loan originations, the majority of which are
           contracted for immediate sale and therefore no fair value adjustment
           is necessary. These commitments are for loans with terms of less than
           one year and have interest rates which approximate prevailing market
           rates.

           Limitations. Fair value estimates are made at a specific point in
           time, based on relevant market information and information about the
           financial instrument. These estimates do not reflect any premium or
           discount that could result from offering for sale at one time the
           Company's entire holdings of a particular instrument. Because no
           market exists for a significant portion of the Company's financial
           instruments, fair value estimates are based on judgments regarding
           comparable market interest rates, future expected loss experience,
           current economic conditions, risk characteristics of various
           financial instruments, and other factors. These estimates are
           subjective in nature and involve uncertainties and matters of
           significant judgment and therefore cannot be determined with
           precision. Changes in assumptions could significantly affect the
           estimates.

           Fair value estimates are based on existing on-and off-balance sheet
           financial instruments without attempting to estimate the value of
           anticipated future business and the value of assets and liabilities
           that are not considered financial instruments. Significant assets and
           liabilities that are not considered financial instruments include
           deferred tax assets and premises and equipment. In addition, the tax
           effect of the difference between the fair value and carrying value of
           financial instruments can have a significant effect on fair value
           estimates and have not been considered in the estimates presented
           herein.

           The approximate book value and fair value of the Company's financial
           instruments as of December 31, are as follows:

                                           2000                   1999
                                 ----------------------  ----------------------
                                  CARRYING      FAIR     CARRYING      FAIR
                                    VALUE       VALUE      VALUE       VALUE
                                 ----------  ----------  ----------  ----------
Financial Assets:
 Cash and due from banks         $2,483,000   2,483,000   1,688,000   1,688,000
 Interest-bearing deposits          165,000     165,000     684,000     684,000
 Investment and mortgage-backed
  securities available-for-sale  29,374,000  29,374,000  41,090,000  41,090,000
 Mortgage-backed securities
  held-to-maturity                5,024,000   5,068,000   6,406,000   6,368,000
 Loans receivable, net           80,363,000  81,379,000  59,570,000  58,754,000
 Loans held for sale              1,497,000   1,497,000          -           -
 Stock in FHLB of Seattle         1,561,000   1,561,000   1,464,000   1,464,000
 Accrued interest receivable        528,000     528,000     451,000     451,000

Financial Liabilities:
 Deposits                        77,667,000  77,737,000  71,353,000  71,051,000
 FHLB advances, CMA note and
  note payable                   16,731,000  16,760,000   9,392,000   9,247,000
 Accrued interest payable           162,000     162,000     103,000     103,000


                                      37                      (Continued)
<PAGE>

<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

(18)   HOLDING COMPANY INFORMATION (CONDENSED)

       The summarized financial information for Empire Federal Bancorp, Inc. is
       presented below.

Condensed Balance Sheets:                          DECEMBER 31,
                                    ------------------------------------------
                                            2000                  1999
                                    -------------------   --------------------
            Assets
     Cash                           $           164,059               107,098
     Loan to Empire                             400,000             2,600,000
     Investment in Empire                    28,357,318            30,033,111
     Income taxes receivable                        -                  15,008
                                    -------------------   --------------------
            Total assets            $        28,921,377            32,755,217
                                    ===================   ====================
Liabilities and Stockholders' Equity
    Liabilities:
     Income taxes payable           $             6,156                   -

    Stockholders' equity:
     Common stock                                25,921                25,921
     Additional paid-in capital              25,278,214            25,260,408
     Unearned ESOP and MRDP compensation     (1,928,091)           (2,264,623)
     MRDP shares acquired                      (302,011)             (302,011)
     Retained earnings                       18,351,208            17,842,091
     Treasury stock                         (14,072,383)           (8,439,462)
     Accumulated other comprehensive income   1,562,363               632,893
                                    -------------------   --------------------
 Total stockholders' equity                  28,915,221            32,755,217
                                    -------------------   --------------------
Total liabilities and stockholders' equity   28,921,377            32,755,217
                                    ===================   ====================

Condensed Statements of Income:                YEARS ENDED DECEMBER 31,
                                     ------------------------------------------
                                              2000                  1999
                                     -------------------   --------------------

  Interest income - loan to Empire   $            98,246               178,502
  Interest income - loan to ESOP                 148,084               154,969
  Compensation expense - ESOP shares            (149,979)             (155,067)
  Compensation expense - MRDP shares            (190,548)             (184,488)
  Operating expenses                            (181,568)             (138,093)
                                     -------------------   --------------------
Loss before equity in undistributed
  earnings of subsidiary and income
  taxes                                         (275,765)             (144,177)

Equity in undistributed earnings of subsidiary:
  Cash dividends from subsidiary               4,000,000                -
  Earnings (dividends) in excess of
    equity in subsidiary earnings             (2,605,263)            1,364,056
                                     -------------------   --------------------
Equity in undistributed earnings of
  subsidiary                                   1,394,737             1,364,056
                                     -------------------   --------------------
  Income before income taxes                   1,118,972             1,219,879

  Income tax benefit                             (98,094)              (45,250)
                                     -------------------   --------------------
  Net income                         $         1,217,066             1,265,129
                                     ===================   ====================

                                     38                       (Continued)
<PAGE>
<PAGE>
                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                           December 31, 2000 and 1999

Condensed Statements of Cash Flows:            YEARS ENDED DECEMBER 31,
                                     ------------------------------------------
                                             2000                  1999
                                     -------------------   --------------------
Cash flows from operating activities:

  Net income                         $         1,217,066             1,265,129
  Adjustments to reconcile net income
    to net cash provided by operating
    activities:
      Dividends in excess of earnings
      (undistributed earnings) of
       subsidiary                              2,605,263            (1,364,056)
      Decrease in income taxes                    21,164                61,492
      ESOP compensation                          149,979               155,067
      MRDP compensation expense                  190,548               184,488
                                     -------------------   --------------------
Net cash provided by operating activities      4,184,020               302,120
                                     -------------------   --------------------
Cash flows from investing activities-
  principal payments from loan to Empire       2,200,000             3,450,000
                                     -------------------   --------------------

Cash flows from financing activities:
  Cash dividends paid                           (694,138)             (740,955)
  Purchase of treasury stock                  (5,632,921)           (3,128,643)
                                     -------------------   --------------------
Net cash used in financing activities         (6,327,059)           (3,869,598)
                                     -------------------   --------------------
Net increase (decrease) in cash                   56,961              (117,478)
Cash at beginning of year                        107,098               224,576
                                     -------------------   --------------------
Cash at end of year                  $           164,059               107,098
                                     ===================   ====================


(19)   OPERATING SEGMENT INFORMATION

       SFAS No. 131, "Financial Reporting for Segments of a Business
       Enterprise," requires that a public business enterprise report financial
       and descriptive information about its reportable operating segments.
       Operating segments are defined as components of an enterprise about which
       separate financial information is available that is evaluated regularly
       by the chief operating decision maker in deciding how to allocate
       resources and in assessing performance.

       The Company evaluates segment performance internally based on its two
       primary lines of business, commercial banking and insurance, and thus the
       operating segments are so defined. The operating segment defined as
       "other" includes the Holding Company and eliminations of transactions
       between segments.

       The accounting policies of the individual operating segments are the same
       as those of the Company described in note 1. Transactions between
       operating segments are primarily conducted at fair value, resulting in
       profits that are eliminated for reporting consolidated results of
       operations.

                                       39                       (Continued)
<PAGE>


                  EMPIRE FEDERAL BANCORP, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 2000 and 1999

       The following is a summary of selected operating segment information for
       the years ended December 31, 2000 and 1999:

                                      EMPIRE     DIME     OTHER   CONSOLIDATED
                                      ------    ------    ------  ------------
2000:

  Net interest income            $ 4,422,228    14,422   195,711    4,632,361
  Non-interest income                804,146   569,650  (298,559)   1,075,237
                                   ---------   -------   -------    ---------
  Total income                     5,226,374   584,072  (102,848)   5,707,598

  Provision for loan losses          110,000        -         -       110,000
  Other noninterest expense        2,849,711   578,910   177,383    3,606,004
                                   ---------   -------   -------    ---------
  Income before income taxes       2,266,663     5,162  (280,231)   1,991,594
  Income taxes                       871,925       697   (98,094)     774,528
                                   ---------   -------   -------    ---------
  Net income                     $ 1,394,738     4,465  (182,137)   1,217,066
                                   =========   =======  ========    =========


  Total assets                  $125,166,471   510,649  (609,855) 125,067,265
  Loans, net                      81,859,981        -         -    81,859,981
  Deposits                        77,998,233        -   (331,589)  77,666,644
  Stockholders' equity            28,357,318   442,324   115,579   28,915,221
                                   =========   =======  ========    =========

1999:

  Net interest income           $  4,195,089    10,331   178,502    4,383,922
  Non-interest income                268,594   581,602   (20,944)     829,252
                                   ---------   -------   -------    ---------
  Total income                     4,463,683   591,933   157,558    5,213,174

  Provision for loan losses           17,615        -         -        17,615
  Other noninterest expense        2,234,112   565,497   322,747    3,122,356
                                   ---------   -------   -------    ---------
  Income before income taxes       2,211,956    26,436  (165,189)   2,073,203
  Income taxes                       847,900     5,424   (45,250)     808,074
                                   ---------   -------   -------    ---------
  Net income                   $   1,364,056    21,012  (119,939)   1,265,129
                                   =========   =======  ========    =========


  Total assets                 $ 114,580,042   527,458  (580,732) 114,526,768
  Loans, net                      59,569,783        -         -    59,569,783
  Deposits                        71,618,076        -   (264,978)  71,353,098
  Stockholders' equity            30,033,111   437,860 2,284,246   32,755,217
                                   =========   =======  ========    =========



                                     40
<PAGE>

<PAGE>



                       COMMON STOCK INFORMATION

     The common stock of the Corporation is traded in the over-the counter
market as reported on the Nasdaq National Market under the symbol "EFBC." As of
March 13, 2001, there were approximately 344 stockholders of record.  The
Corporation estimates that, as of February 13, 2001, there were approximately
669 beneficial owners holding stock in nominee or "street" name.

     The Corporation presently pays quarterly cash dividends on the common
stock, subject to the discretion of the Board of Directors. Dividend payments by
the Corporation depend primarily on the ability of the Bank to pay dividends to
the Corporation. Under OTS regulations, the dollar amount of dividends a federal
savings association may pay depends upon the association's capital surplus
position and recent net income. Generally, if an association 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 accordance with OTS regulations and
the Bank's Plan of Conversion. In addition, earnings of the Bank appropriated to
bad debt reserves and deducted for federal income tax purposes are not available
for payment of cash dividends without payment of taxes at the then current tax
rate by the Bank on the amount removed from the reserves for such distributions.
The Bank does not contemplate any distribution that would limit the Bank's bad
debt deduction or create federal tax liabilities.

     The stock prices shown below reflect the high and low prices by quarter
from January 1, 1999 through the quarter ended December 31, 2000.


                                             Market Price            Cash
                                             ----------------    Dividends Paid
                                             High        Low        Per Share
                                             -----      -----     -------------
January 1, 1999 - March 31, 1999........... $14.88     $11.63         $0.10
April 1, 1999 - June 30, 1999..............  12.38      11.06           .10
July 1, 1999 - September 30, 1999..........  11.88      11.16           .10
October 1, 1999 - December 31, 1999........  11.75      10.75           .10
January 1, 2000 - March 31, 2000...........  11.88      11.00           .11
April 1, 2000 - June 30, 2000..............  12.00      10.38           .11
July 1, 2000 - September 30, 2000..........  14.19      11.81           .11
October 1, 2000 - December 31, 2000........  13.00      11.63           .11




                                     41

<PAGE>



                            DIRECTORS  AND OFFICERS

                                       OF

                    EMPIRE FEDERAL BANCORP, INC. AND EMPIRE BANK


DIRECTORS:

William H. Ruegamer                         Edwin H. Doig
 President and Chief Executive Officer       Chairman of the Board of
 of the Corporation and the Bank             the Corporation and a
                                             retired Registered Pharmacist
                                             former owner and manager of
                                             Livingston Drug

Beverly D. Harris
 President of Dime Service Corporation,     Sanroe J. Kaisler Jr.
 the Bank's wholly-owned subsidiary          Retired insurance broker and former
                                             partner and majority stockholder of
                                             Waite & Company, an insurance
Walter J. Peterson Jr.                       company
 Vice President of Dime Service
 Corporation
                                            Walter R. Sales
Kenneth P. Cochran                           Retired rancher and former Montana
 Senior Vice President and President of      Legislator
 the Billings Branch office.

John R. Boe                                 Burton "Tony" Wastcoat
 Retired teacher and vice principal of       Owner/ Broker
 local junior high school in Big Timber,     Coldwell Banker - RCI Realty
 and member of Board of Directors of
 Pioneer Medical Center


OFFICERS:

William H. Ruegamer                         Linda M. Alkire
 President and Chief Executive Officer       Chief Financial Officer and
 of the Corporation and the Bank             Treasurer of the Corporation and
                                             the Bank
Edwin H. Doig                               Ann Worthington
 Vice President                              Secretary of the Corporation
                                             and the Bank





                                     42

<PAGE>





                            CORPORATE INFORMATION

CORPORATE HEADQUARTERS                              TRANSFER AGENT

123 South Main Street                               Registrar and Transfer Co.
Livingston, Montana                                 Cranford, New Jersey

INDEPENDENT AUDITORS                                COMMON STOCK

KPMG LLP                                            Traded Over-the-Counter/
Billings, Montana                                   National Market System
                                                    Nasdaq Symbol: EFBC

GENERAL COUNSEL                                     10-KSB INFORMATION
Huppert and Swindlehurst, P.C.
Livingston, Montana                                 A copy of the Form 10-KSB
                                                    will be furnished without
                                                    charge to stockholders of
                                                    record upon written request
                                                    to the Secretary, Empire
                                                    Federal Bancorp, Inc.,
                                                    123 South Main Street,
SPECIAL SECURITIES COUNSEL                          Livingston, Montana, 59047.

Breyer & Associates
Washington, DC

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

ANNUAL MEETING

     The Annual Meeting of Stockholders will be held on Tuesday, May 22, 2001 at
12:30 p.m., Mountain Daylight Time, at the Corporation's main office located at
123 South Main Street, Livingston, Montana.




                                      43

<PAGE>