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 Fiscal Year Ended March 31, 1999

                                       OR

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

                         Commission File Number: 0-22435


                                 FIRSTBANK CORP.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                 Delaware                                       84-1389562
---------------------------------------------                ----------------
(State or other jurisdiction of incorporation                (I.R.S. Employer
or organization)                                               I.D. Number)

920 Main Street, Lewiston, Idaho                                  83501
---------------------------------------------                ----------------
(Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code:           (208) 746-9610
                                                              --------------
Securities registered pursuant to Section 12(b) of the Act:        None
                                                              --------------
Securities registered pursuant to Section 12(g) of the Act:  Common Stock, par
                                                            value $.01 per share
                                                            --------------------
                                                              (Title of Class)

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

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

         The Registrant's revenues for the year ended March 31, 1999 were $18.1.

         The aggregate market value of voting stock held by nonaffiliates of the
Registrant was  $24,873,370  based on the last reported sale price of the common
stock of the  Registrant  on the Nasdaq  National  Market on June 17, 1999.  For
purposes  of this  disclosure,  shares of common  stock held by persons who hold
more than 5% of the  outstanding  common stock and by officers and  directors of
the  Registrant  have been  excluded  in that such  persons  may be deemed to be
affiliates of the Registrant.

As of June 17, 1999, there were 1,658,158 shares outstanding of the Registrant's
common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.  Portions  of the  Registrant's  definitive  proxy  statement  for its annual
meeting  of  stockholders  to be held on  July  21,  1999  are  incorporated  by
reference into Part II of the Form 10-KSB.

<PAGE>

                                     PART I
ITEM 1.  BUSINESS

GENERAL

         FirstBank Corp. ("Company"),  a Delaware corporation,  was organized in
March  1997 for the  purpose of  becoming  the  holding  company  for  FirstBank
Northwest  (formerly  known as First  Federal Bank of Idaho,  a Federal  Savings
Bank) ("Bank") upon the Bank's conversion from a federally chartered mutual to a
federally chartered stock savings bank ("Conversion"). The Company completed its
conversion  and  initial  public  offering  on July 1, 1997  through the sale of
1,983,750 shares of common stock at $10.00 per share.

         The Bank, founded in 1920, is a Washington-chartered state savings bank
located  in  Lewiston,  Idaho.  The Bank,  which was  formed as an Idaho  mutual
savings and loan  association,  converted to a federal  mutual  savings and loan
association in 1935 and adopted the federal mutual savings bank charter in 1990.
In July of 1997 the Bank relocated its main office to Clarkston,  Washington and
on January 30, 1998 converted to a  Washington-chartered  savings bank. The Bank
is currently  regulated by the State of Washington,  its primary regulator,  and
the Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits.
The Bank's deposits are insured by the FDIC's Savings Association Insurance Fund
("SAIF") and have been federally  insured since 1933. The Bank has been a member
of the Federal Home Loan Bank ("FHLB") System since 1933.

         The Bank is a community-oriented  financial  institution,  operating in
one  business  segment,  that engages  primarily  in the business of  attracting
deposits from the general public and using those funds to originate  residential
mortgage  loans  within  the  Bank's  market  area.  The Bank  also is active in
originating  construction,  commercial,  agricultural  real  estate  loans,  and
consumer  and other  non-real  estate  loans.  The Bank has  adopted a  mortgage
banking  strategy  pursuant  to  which  it  generally  sells a  majority  of the
fixed-rate residential mortgage loans with maturities in excess of 15 years that
it originates  while retaining the servicing  rights on most of the conventional
loans it sells, although in the year ended March 31, 1999 the Bank retained some
30-year fixed rate loans for its portfolio.

MARKET AREA

         FirstBank's  general  market area includes  northern  Idaho and Eastern
Washington.   Headquartered   in  Lewiston,   Idaho,  the  bank  operates  seven
full-service offices in Lewiston, Lewiston Orchards, Moscow, Grangeville,  Coeur
d'Alene and Post  Falls,  Idaho,  and in  Clarkston,  Washington.  The Bank also
operates  two real estate loan  production  offices,  one in Lewiston and one in
Coeur d'Alene, and a commercial and agricultural  production center in Lewiston.
Most of the Bank's depositors  reside in the communities  surrounding the Bank's
offices. The vast majority of the Bank's loans are made to borrowers residing in
the  counties in which the Bank's  offices  are  located and in the  surrounding
counties.

         In  general,  the  market  areas  served by the Bank are  dependent  on
agriculture,  mining,  tourism and the forest products  industry,  and the local
economies  reflect  the health or  weakness  of those  industries.  Agricultural
activity in the Bank's market area is mainly dry land farming,  the primary crop
being wheat. Other major crops are barley, peas, lentils,  beans and grass seed.
Livestock is also raised in the Bank's market area. Lewiston is the largest city
in northern Idaho and serves as the regional  center for state  government.  The
economy of Lewiston,  in Nez Perce  County,  is connected to that of  Clarkston,
Washington, which is separated from Lewiston by the Snake River. The Lewis-Clark
Valley has a population of approximately 58,000. Forest products and agriculture
are the dominant  industries in the  Lewiston-Clarkston  area. Medical services,
light  manufacturing  and tourism have helped keep the economy  stable in recent
years.  Moscow,  Idaho, in Latah County,  has a population of around 21,000. The
county population is approximately 33,000.  Agriculture and higher education are
the primary  industries in Moscow.  The University of Idaho is located in Moscow
and is the city's largest employer. In addition,  Washington State University is
located  eight  miles west of Moscow in Pullman,  Washington.  The growth of the
universities  has slowed  recently,  which has caused some slow down in the real
estate market. Grangeville,  Idaho, in Idaho County, has an economy based mostly
on  agriculture,  the forest  products  industry  and the U.S.  Forest  Service.
Declines in the forest products industry has resulted in a decline in population
in Idaho County over the last decade.  Tourism has become increasingly important
to the Grangeville economy in recent years. Coeur d'Alene, Idaho, in Kootenai

                                       2

<PAGE>

County, has a population of approximately 31,000 in a county with almost 100,000
residents.  Tourism,  forest  products,  mining  and  agriculture  are the major
industries of this region.  Coeur d'Alene has experienced  significant growth in
the past ten years,  primarily  because of the  expanding  tourism  industry and
migration  from more  populous  parts of the  western  and  northwestern  United
States.  As a result,  real estate activity has been high with a large amount of
new home construction.

SELECTED FINANCIAL DATA

         The  following  tables set forth  certain  information  concerning  the
consolidated  financial position and results of operations of the Company at the
dates and for the years indicated.

<TABLE>
<CAPTION>
                                                               At  March 31,
                                                      ------------------------------
FINANCIAL CONDITION DATA:                               1997       1998       1999
                                                      --------   --------   --------
                                                               (In Thousands)
<S>                                                   <C>        <C>        <C>
Total assets                                          $137,652   $183,563   $206,745
Loans receivable, net                                  113,048    145,697    165,617
Cash and cash equivalents                                5,303      8,417      8,536
Investment securities held-to-maturity                   5,199      2,449        700
Investment securities available-for-sale                    --      2,654      6,536
Mortgage-backed securities held-to-maturity              2,281      3,420      2,739
Mortgage-backed securities available-for-sale            2,599      7,970     10,135
Deposits                                               107,596    114,495    133,278
Advances from FHLB                                      13,922     35,656     42,027
Stockholders' equity                                    11,011     30,008     27,774

</TABLE>
<TABLE>
<CAPTION>
                                                            Year Ended March 31,
                                                      ------------------------------
SELECTED OPERATING DATA:                                1997       1998       1999
                                                      --------   --------   --------
                                                    (In Thousands, except per share data)
<S>                                                   <C>        <C>        <C>
Interest income                                       $ 10,192   $ 13,321   $ 14,961
Interest expense                                         5,338      6,573      7,223
                                                      --------   --------   --------
Net interest income                                      4,854      6,748      7,738
Provision for loan losses                                  310        200        296
                                                      --------   --------   --------
Net interest income after provision for loan losses      4,544      6,548      7,442
Non-interest income                                      2,245      2,282      3,106
Non-interest expenses                                    5,877      6,179      7,593
                                                      --------   --------   --------
Income before income tax expense                           912      2,651      2,955
Income tax expense                                         263        945        923
                                                      --------   --------   --------
Net income                                            $    649   $  1,706   $  2,032
                                                      ========   ========   ========

Per Share Data:                                             Pro forma amounts
                                                               (unaudited):
                                                               ------------
    Basic earnings per share                               N/A   $   0.93   $   1.16
    Diluted earnings per share                             N/A   $   0.93   $   1.13
                                                      ========   ========   ========

Dividends                                                  N/A   $   0.14   $   0.34
                                                      ========   ========   ========
</TABLE>

                                       3

<PAGE>

<TABLE>
<CAPTION>
                                                                        At or For the
                                                                     Year Ended March 31,
                                                                 --------------------------
                                                                  1997      1998      1999
                                                                 ------    ------    ------
KEY FINANCIAL RATIOS:
PERFORMANCE RATIOS:
<S>                                                                <C>       <C>       <C>
Return on average assets (1)                                       0.50%     1.02%     1.03%
Return on average equity (2)                                       5.99      6.98      6.94
Average equity to average assets (3)                               8.34     14.63     14.88
Total equity to total assets at end  of year                       8.00     16.35     13.43
Interest rate spread (4)                                           3.68      3.78      3.88
Net interest margin (5)                                            3.92      4.27      4.36
Average interest-earning assets to average interest-bearing
   Liabilities                                                   105.62    113.26    112.07
Non-interest expense as a percent of average assets                4.52      3.70      3.86
Efficiency ratio (6)                                              82.79     68.43     70.02
Dividend payout ratio                                               N/A     15.01     30.45

EQUITY RATIOS:
Tier I capital to average assets                                   8.02     11.36     10.20
Tier I capital to risk-weighted assets                            12.51     17.10     14.40
Total capital to risk-weighted assets                             13.59     18.05     15.40

ASSET QUALITY RATIOS:
Nonaccrual and 90 days or more past due loans as a percent
   of loans receivable, net                                        1.00      0.31      0.38
Nonperforming assets as a  percent of total assets                 0.99      0.73      0.45
Allowance for loan losses as a percent of total loans
   receivable                                                      0.82      0.73      0.76
Allowance for loan losses as a percent of nonperforming
   loans                                                          86.58    245.61    217.76
Net charge-offs to average outstanding loans                       0.03      0.04      0.04
</TABLE>

(1)   Net  income  divided by average  assets.
(2)   Net income  divided by average equity.
(3)   Average equity divided by average assets.
(4)   Difference between weighted average yield on  interest-earning  assets and
      weighted average rate on  interest-bearing  liabilities.
(5)   Net interest income as a percentage of average interest-earning assets.
(6)   Represents the ratio of  non-interest  expenses  divided by the sum of net
      interest income and non-interest income.

LENDING ACTIVITIES

         GENERAL.  The principal lending activity of the Bank is the origination
of  conventional  mortgage  loans for the purpose of purchasing  or  refinancing
owner-occupied, one to four-family residential property. With the implementation
of the Commercial  Loan  Department in fiscal 1998,  commercial  real estate and
commercial  non-real  estate  lending have become a  significant  portion of the
lending  activities.  The Bank is also active in  originating  construction  and
agricultural  real estate loans. The Bank's net loans receivable  totaled $165.6
million at March 31, 1999, representing 80.1% of consolidated total assets.

                                       4

<PAGE>

         LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition
of the Bank's loan  portfolio by type of loan at the years  indicated.  The Bank
had no concentration of loans exceeding 10.0% of total gross loans other than as
disclosed below.


<TABLE>
<CAPTION>
                                                              At March 31,
                                   ---------------------------------------------------------------
                                            1997                  1998                 1999
                                            ----                  ----                 ----
                                    Amount       Percent   Amount      Percent   Amount    Percent
                                    ------       -------   ------      -------   ------    -------
                                                      (Dollars in Thousands)
<S>                                <C>            <C>     <C>           <C>     <C>         <C>
Real estate loans:
 Residential                       $ 77,408       65.32%  $ 87,985      57.06%  $ 83,670    46.54%
Agricultural                         11,998       10.12     14,602       9.47     16,257     9.05
Commercial                            5,392        4.55     12,433       8.06     23,484    13.06
Construction                         11,861       10.01      7,966       5.17      9,333     5.19
                                   --------      ------   --------     ------   --------   ------
Total real estate loans             106,659       90.00    122,986      79.76    132,744    73.84

Consumer and other loans:
Commercial                            1,692        1.43     16,627      10.78     27,969    15.56
Home equity                           5,003        4.22      6,175       4.00      6,012     3.34
Other consumer                        4,125        3.48      6,109       3.96      8,687     4.83
Agricultural operating                1,030        0.87      2,305       1.50      4,357     2.43
                                   --------      ------   --------     ------   --------   ------
Total consumer and other loans       11,850       10.00     31,216      20.24     47,025    26.16
                                   --------      ------   --------     ------   --------   ------

Total loans receivable              118,509      100.00%   154,202     100.00%   179,769   100.00%
                                   --------      ======   --------     ======   --------   ======

Less:
Loans in process                      4,108                  6,934                12,237
Unearned loan fees and discounts        379                    451                   554
Allowance for loan losses               974                  1,120                 1,361
                                   --------               --------              --------
Loans receivable, net              $113,048               $145,697              $165,617
                                   ========               ========              ========
</TABLE>


         RESIDENTIAL REAL ESTATE LENDING.  The principal lending activity of the
Bank is the  origination  of mortgage  loans to enable  borrowers to purchase or
refinance  existing  residential real estate. At March 31, 1999, $132.7 million,
or 73.8%, of the Bank's total gross loan portfolio consisted of loans secured by
residential  real estate.  The Bank presently  originates  both  adjustable rate
mortgage ("ARM") loans and fixed-rate mortgage loans with maturities of up to 30
years. Substantially all of the Bank's residential mortgage loans are secured by
property  located in the Bank's primary market area.  Very few of the properties
securing  the Bank's  residential  mortgage  loans are second  homes or vacation
properties.  The Bank's conventional  mortgage loans are generally  underwritten
and documented in accordance with the guidelines established by the Federal Home
Loan Mortgage Corporation ("Freddie Mac").

         The Bank generally retains all of the conventional fixed-rate mortgages
with  maturities  of 15 years or less and sells all of the  fixed-rate  mortgage
loans with maturities in excess of 15 years that it originates,  although in the
year ended March 31, 1999 the Bank retained some 30-year,  fixed-rate  loans for
its portfolio.  The Bank  generally  retains all of the ARM loans it originates.
Most of the loans sold by the Bank are sold to Freddie  Mac.  The  remainder  of
loans sold are purchased by the Federal National Mortgage  Association  ("Fannie
Mae") or private  investors.  The Bank sells loans to Freddie Mac and Fannie Mae
on a  servicing-retained  basis,  while loans sold to private investors are sold
servicing-released.  Generally, all loans are sold without recourse, although in
the past the Bank has sold loans with  recourse.  As of March 31, 1999, the Bank
remains  contingently  liable  for  approximately  $910,000  of loans  sold with
recourse.   The  Bank's  decision  to  hold  or  sell  loans  is  based  on  its
asset/liability  management  policies  and goals and the market  conditions  for
mortgages.   See  "--  Lending  Activities  --  Loan  Originations,   Sales  and
Purchases."

                                       5

<PAGE>

         The Bank  offers ARM loans at rates and terms  competitive  with market
conditions. The Bank currently offers ARM products that adjust annually after an
initial  fixed  period of one,  three or five  years  based on the One Year U.S.
Treasury Note Constant  Maturity Rate. ARM loans held in the Bank's portfolio do
not  permit   negative   amortization  of  principal  and  carry  no  prepayment
restrictions.  The periodic  interest rate cap (the maximum  amount by which the
interest rate may be increased or decreased in a given period) on the Bank's ARM
loans is generally 2% per adjustment  period and the lifetime  interest rate cap
is  generally  6% over the  initial  interest  rate of the  loan.  The terms and
conditions  of the ARM  loans  offered  by the  Bank,  including  the  index for
interest rates, may vary from time to time. 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.

         The Bank also originates residential mortgage loans that are insured by
the Federal Housing Administration, or guaranteed by the Veterans Administration
or the USDA Rural  Development.  These loans are sold to private investors or to
the Idaho  Housing  and  Finance  Agency.  A  significant  portion of the Bank's
residential  mortgage  loan  originations  in  recent  years  has  consisted  of
government  insured  and  guaranteed  loans.  Most  of  these  loans  have  been
originated  in the  Coeur  d'Alene  area,  where  there  has been a  significant
increase in entry-level housing. The Bank generally sells the government insured
loans that it originates to private investors on a servicing-released basis.

         A significant  portion of the Bank's ARM loans are not readily saleable
in the secondary  market because they are not originated in accordance  with the
purchase  requirements  of Freddie Mac or Fannie  Mae.  The Bank  requires  that
non-conforming  loans demonstrate  appropriate  compensating factors that offset
their lack of  conformity.  Although such loans satisfy the Bank's  underwriting
requirements,  they are  "non-conforming"  because they do not satisfy  property
limits, credit requirements,  repayment capacities or various other requirements
imposed by Freddie Mac and Fannie Mae.  Accordingly,  the Bank's  non-conforming
loans can be sold only to private  investors on a negotiated basis. At March 31,
1999,  the  Bank's   residential  loan  portfolio   included  $15.6  million  of
non-conforming ARM loans. Generally,  the Bank's non-conforming ARM loans bear a
higher  rate of  interest  than  similar  conforming  ARM  loans.  The  Bank has
historically found that its origination of non-conforming loans has not resulted
in high amounts of nonperforming loans.

         The  retention of ARM loans in the Bank's loan  portfolio  helps 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  increased  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  and the increased  payments  required by the borrower.
Furthermore,  because the ARM loans originated by the Bank generally provide, as
a marketing incentive, for "teaser rates" (i.e., initial rates of interest below
the rates that would apply were the adjusted  index plus the  applicable  margin
initially  used for  pricing),  these  loans are subject to  increased  risks of
default  or  delinquency.   The  Bank  attempts  to  reduce  the  potential  for
delinquencies  and defaults on ARM loans by qualifying the borrower based on the
borrower's  ability to repay the ARM loan  assuming  a rate of 200 basis  points
above the initial interest rate or the fully indexed rate,  whichever is higher.
Another  consideration is that although ARM loans allow the Bank to increase the
sensitivity of its asset base to changes in 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.

         While one- to  four-family  residential  real estate loans are normally
originated with 15 to 30 year terms, such loans typically remain outstanding for
substantially  shorter  periods.  This is because  borrowers  often prepay their
loans in full upon sale of the property  pledged as security or upon refinancing
the original loan. In addition,  substantially  all mortgage loans in the Bank's
loan portfolio contain  due-on-sale  clauses providing that the Bank may declare
the unpaid  amount due and payable  upon the sale of the  property  securing the
loan.  Typically,  the Bank  enforces  these  due-on-sale  clauses to the extent
permitted by law and as business judgment dictates.  Thus, average loan maturity
is a function of, among other  factors,  the level of purchase and sale activity
in the real estate  market,  prevailing  interest  rates and the interest  rates
payable on outstanding loans.

                                       6

<PAGE>

         The Bank generally  obtains title insurance  insuring the status of its
lien on all loans where real estate is the primary source of security.  The Bank
also  requires that fire and casualty  insurance  (and,  if  appropriate,  flood
insurance)  be maintained  in an amount at least equal to the  outstanding  loan
balance.

         The Bank's lending policies  generally limit the maximum  loan-to-value
ratio on  mortgage  loans  secured by  owner-occupied  properties  to 90% of the
lesser of the appraised  value or the purchase  price,  with the condition  that
private  mortgage  insurance is generally  required on loans with  loan-to-value
ratios  greater than 80%.  Higher  loan-to value ratios are available on certain
government insured programs.

         CONSTRUCTION  LENDING. The Bank invests a portion of its loan portfolio
in residential  construction loans. This activity has been prompted by favorable
economic  conditions  in northern  Idaho,  especially  in the area around  Coeur
d'Alene,  lower  long-term  interest  rates and an increased  demand for housing
units as a result of the population growth in northern Idaho. At March 31, 1999,
construction  loans totaled $9.3 million,  or 5.2% of total loans. At such date,
the average amount of the Bank's construction loans was approximately  $101,000,
which  reflects  that much of the  construction  in the Coeur d'Alene area is of
entry-level  housing.  The largest  construction loan in the Bank's portfolio at
March 31, 1999 was $400,000.  During the year ended March 31, 1999, construction
loans constituted 9.3% of total loan originations.

         The Bank originates  construction  loans to professional  home builders
and to  individuals  building  their primary  residence.  In addition,  the Bank
occasionally  makes  loans to builders  for the  acquisition  of building  lots.
Construction  loans made by the Bank to professional  home builders include both
those with a sales  contract or permanent  loan in place for the finished  homes
and those for which  purchasers for the finished homes may be identified  either
during or following the construction  period  (speculative  loans). At March 31,
1999, speculative loans totaled $3.6 million, or 38.6% of the total construction
loan portfolio. Construction loans to individuals generally convert to permanent
mortgage loans upon completion of the  construction  period.  At March 31, 1999,
custom  construction loans to individuals  totaled $4.0 million, or 42.9% of the
total construction loan portfolio.

         Construction lending affords the Bank the opportunity to achieve higher
interest   rates  and  fees  with  shorter  terms  to  maturity  than  does  its
single-family  permanent mortgage lending.  Construction  lending,  however,  is
generally  considered  to  involve a higher  degree  of risk than  single-family
permanent mortgage lending because of the inherent difficulty in estimating both
a property's  value at completion  of the project and the estimated  cost of the
project.  The  nature  of these  loans is such  that  they  are  generally  more
difficult to evaluate and monitor.  If the estimate of construction  cost proves
to be  inaccurate,  the Bank may be required to advance  funds beyond the amount
originally  committed to permit  completion  of the project.  If the estimate of
value upon completion proves to be inaccurate, the Bank may be confronted with a
project whose value is insufficient to assure full repayment.  Projects may also
be  jeopardized  by  disagreements  between  borrowers  and  builders and by the
failure of builders to pay subcontractors.  Loans to builders to construct homes
for which no purchaser  has been  identified  carry more risk because the payoff
for the loan is dependent on the builder's ability to sell the property prior to
the time that the construction loan is due. The Bank has sought to address these
risks by adhering to strict underwriting policies,  disbursement procedures, and
monitoring  practices.  In  addition,  because  much of the Bank's  construction
lending is in the Coeur  d'Alene  area,  changes in the local  economy  and real
estate market could  adversely  affect the Bank's  construction  loan portfolio.
Accordingly,  the Bank closely  monitors sales and listings in the Coeur d'Alene
real  estate  market  and will  limit  the  amount  of  speculative  loans if it
perceives there are unfavorable market conditions.

         Loans  to  builders  for  the   construction  of  one-  to  four-family
residences  are generally  made for a term of 12 months.  The Bank's loan policy
includes a maximum  loan-to-value  ratio of 75%.  The Bank  maintains  a list of
major builders and establishes an aggregate  credit limit for each major builder
based  on the  builder's  financial  strength,  experience  and  reputation  and
monitors their borrowings on a monthly basis.  Each major builder is required to
provide the Bank with annual financial  statements and other credit information.
At March 31,  1999,  the Bank had  approved  seven major  builders,  the largest
borrowing capacity of which was approximately  $1.3 million.  At March 31, 1999,
the Bank's major builders had total loans of $3.0 million  outstanding.  For all
other  builders,  the Bank  reviews  the  financial  strength  and credit of the
builder on a loan by loan basis.

                                       7

<PAGE>

         The construction loan documents require that construction loan proceeds
be disbursed in increments as construction  progresses.  Disbursements are based
on periodic  on-site  inspections  by both Bank  personnel and  independent  fee
inspectors.  At  inception,  the Bank also  requires  the  builder  (other  than
approved  major  builders)  to  deposit  funds to the  loans-in-process  account
covering the  difference  between the actual cost of  construction  and the loan
amount. Alternatively,  the Bank may require that the borrower pay for the first
portion of construction  costs before the loan proceeds are used. Major builders
are permitted to utilize the loan proceeds from the  initiation of  construction
and to carry the  short-fall  between  construction  costs and the loan  amount,
based on their financial strength, until the property is sold.

         AGRICULTURAL  LENDING.  Agricultural  real  estate  lending has been an
important  part of the Bank's lending  strategy  since the mid-1980s.  The Chief
Executive  Officer has 25 years of  experience  and the Senior  Vice  President,
Agricultural  and Consumer  Lending has 19 years of experience  in  agricultural
real estate lending.  The existing staff's experience  maintains the Bank as the
most  experienced   agricultural   lender  in  the  area.  At  March  31,  1999,
agricultural  real estate loans  totaled  $16.3  million,  or 9.0% of the Bank's
total loan portfolio.

         The Bank presently originates both adjustable-rate and fixed-rate loans
secured  by  farmland  located  in the  Bank's  market  area,  primarily  around
Lewiston.  The Bank offers  adjustable-rate  loans that adjust annually after an
initial fixed period of one, three or five years.  Such loans generally  provide
for up to a 25-year term. The Bank also offers  fixed-rate loans with a ten-year
term and a ten-year  amortization  schedule.  The Bank also  makes  agricultural
operating loans. See "-- Consumer and Other Lending."

         Agricultural  real estate loans  generally are  underwritten to Federal
Agricultural  Mortgage Corporation ("Farmer Mac") standards so as to qualify for
sale in the secondary market,  although the Bank currently retains most of these
loans for its portfolio.  In originating an  agricultural  real estate loan, the
Bank considers the debt service coverage of the borrower's cash flow, the amount
of working  capital  available to the  borrower,  the  financial  history of the
farmer and the appraised value of the underlying  property as well as the Bank's
experience with and knowledge of the borrower.  An  environmental  assessment is
also performed.  The maximum loan-to-value for agricultural real estate loans is
75%.  At March 31,  1999,  the  largest  agricultural  real estate loan was $1.0
million and the average  Bank  agricultural  real estate loan was  approximately
$145,000.
---------

         The Bank is  approved  to  originate  agricultural  real  estate  loans
qualifying  for  purchase  by the Farmer Mac II  program,  which  requires  Farm
Service Agency  guarantees up to a maximum of 90% of the principal and interest.
Once  the  guaranteed  loan has  been  funded,  the  Bank  generally  sells  the
guaranteed  portion of the loan to Farmer Mac II, while  retaining the servicing
rights on the entire loan.

         Agricultural  real estate lending  affords the Bank the  opportunity to
earn  yields  higher  than those  generally  available  on  standard  conforming
residential  real estate  lending.  However,  agricultural  real estate  lending
involves a greater degree of risk than residential  real estate loans.  Payments
on agricultural  real estate loans are dependent on the successful  operation or
management of the farm property  securing the loan.  The success of the farm may
be affected by many factors outside the control of the farm borrower,  including
adverse  weather  conditions  that limit crop yields (such as hail,  drought and
floods),  declines in market prices for agricultural  products and the impact of
government  regulations  (including  changes in price  supports,  subsidies  and
environmental  regulations).  In addition, many farms are dependent on a limited
number of key  individuals  whose injury or death may  significantly  affect the
successful operation of the farm. Farming in the Bank's market area is generally
dry-land  farming,  with wheat  being the  primary  crop.  Accordingly,  adverse
circumstances  affecting  the area's wheat crop could have an adverse  effect on
the Bank's agricultural loan portfolio.

         The risk of crop  damage by  weather  conditions  can be reduced by the
farmer with multi-peril crop insurance which can guarantee set yields to provide
certainty  of  repayment.   Unless  the  circumstances  of  the  borrower  merit
otherwise,  the Bank  generally  does  not  require  its  borrowers  to  procure
multi-peril  crop or hail  insurance.  Farmers may  mitigate the effect of price
declines through the use of futures contracts, options or forward contracts. The
Bank does not monitor or require the use by borrowers of these instruments.

                                       8

<PAGE>

         COMMERCIAL  LENDING.  Commercial  real  estate  lending  is  becoming a
significant part of the Bank's lending  strategy.  At March 31, 1999, the Bank's
commercial real estate loan portfolio  totaled $23.5 million,  or 13.1% of total
loans. The Bank has been more active in originating commercial real estate loans
in recent  periods.  During  the year  ended  March 31,  1999,  originations  of
commercial  real estate loans totaled  $14.7  million.  In  connection  with the
expansion  of the  Bank's  community  banking  activities,  the Bank  intends to
further increase its emphasis on commercial real estate lending.

         The Bank's commercial real estate loans include loans secured primarily
by owner-occupied buildings, storage facilities,  manufactured home parks, small
office buildings,  retail shops,  multi-family  residential properties and other
small  commercial  properties.  Commercial  real  estate  loans  in  the  Bank's
portfolio  only includes  loans  originated by the Bank. At March 31, 1999,  the
average  size of the Bank's  commercial  real estate  loans was $222,000 and the
largest was $2.5 million.  Appraisals on properties that secure  commercial real
estate  loans are  performed  by an  independent  appraiser  engaged by the Bank
before  the  loan is  made.  An  environmental  assessment  is  also  performed.
Underwriting of commercial real estate loans includes a thorough analysis of the
cash flows  generated by the real estate or the  borrower's  business to support
the debt service and the financial  resources,  experience,  and income level of
the borrowers.  Operating  statements on most commercial  loans are prepared and
submitted to the Bank on an annual basis.

         Commercial  lending has become an important  part of the Bank's lending
strategy  this past year.  The Senior Vice  President has 19 years of commercial
lending  experience and was able, with the help of other experienced  lenders to
increase  commercial non-real estate loans to 15.6% of the total loan portfolio.
The Bank presently  originates both adjustable-rate and fixed-rate loans secured
by  equipment,  accounts  receivable  and  inventory.  Loans secured by accounts
receivable  and inventory are  generally  operating  lines of credit of one year
while  equipment  secured  loans  may be for a  term  as  long  as  five  years.
Nonresidential  commercial  lending has  increased  from $16.6  million to $28.0
million from fiscal year ended 1998 and 1999, respectively.

         Commercial  lending affords the Bank an opportunity to receive interest
at rates higher than those generally available from residential  mortgage loans.
However,  loans secured by such properties  usually are 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  properties  are often  dependent on the  successful
operation  and  management  of the  properties,  repayment  of such loans may be
affected by adverse conditions in the real estate market or the economy.

         CONSUMER AND OTHER LENDING.  The Bank  originates a variety of consumer
and other  non-mortgage  loans.  Such  loans  generally  have  shorter  terms to
maturity and higher  interest rates than mortgage  loans. At March 31, 1999, the
Bank's  consumer  and  other  non-mortgage  loans  totaled  approximately  $19.1
million,  or 10.6% of the Bank's total loans.  The Bank's consumer loans consist
primarily of secured and unsecured consumer loans, automobile loans, boat loans,
recreation  vehicle loans, home improvement and equity loans and deposit account
loans.  The Bank also originates a small amount of agricultural  operating loans
and equipment  loans.  The growth of the consumer loan portfolio in recent years
has consisted  primarily of an increase in home equity loans, which the Bank has
more aggressively marketed.

         At March 31, 1999,  home equity loans  totaled $6.0  million.  The Bank
offers both home equity second mortgage loans and lines of credit. Substantially
all of the Bank's home equity loans are primarily secured by second mortgages on
residential  real estate located in the Bank's primary market area.  Home equity
second mortgage loans are generally  offered with terms of five or ten years and
only with fixed  interest  rates.  Home equity  lines of credit  generally  have
adjustable interest rates based on the prime rate.

         At March 31, 1999,  agricultural  operating loans totaled $4.4 million.
Agricultural operating loans or lines of credit generally are made for a term of
one to three years and may be secured or unsecured. Such loans may be secured by
a first or second mortgage, or liens on property, vehicles, accounts receivable,
crop held or growing crop. Personal guarantees are frequently required for loans
made to corporations and other business entities.

                                       9

<PAGE>

         Consumer and non-mortgage 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 farm equipment.  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.  Similarly, payments on agricultural operating loans depend
on the  successful  operation of the farm,  which may be  adversely  affected by
weather  conditions  that limit crop yields,  fluctuations  in market prices for
agricultural  products,  and changes in government  regulations  and  subsidies.
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.  At March 31,  1999,  the Bank had no consumer and
non-mortgage loans accounted for on a nonaccrual basis.

         MATURITY OF LOAN  PORTFOLIO.  The  following  table sets forth  certain
information  at  March  31,  1999  regarding  the  dollar  amount  of  principal
repayments  for loans  becoming  due during the years  indicated.  All loans are
included  in the year in which  the final  contractual  payment  is due.  Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdrafts  are reported as due within one year.  The table does not include any
estimate of  prepayments  which  significantly  shorten the average  life of all
loans and may cause the Bank's actual  repayment  experience to differ from that
shown below.

<TABLE>
<CAPTION>
                                                       One        After 5 Years    After 10 Years
                                   Within          Year Through      Through          Through        Beyond
                                  One Year           5 Years         10 Years         15 Years      15 Years      Total
                                  --------         ------------   -------------    --------------   --------    --------
                                                                       (In Thousands)
<S>                                <C>               <C>             <C>              <C>         <C>         <C>
Real estate loans:
  Residential                      $20,872           $12,093         $ 9,584          $ 8,423       $32,698     $ 83,670
  Construction                       9,073               260               0                0             0        9,333
  Commercial                         2,026             6,559          11,045            2,172         1,682       23,484
  Agricultural                         323               151           1,095            4,647        10,041       16,257
Commercial non-real estate          11,308             8,226           1,035                0         7,400       27,969
Consumer and other loans            12,012             4,128           2,070              223           623       19,056
                                   -------           -------         -------          -------       -------     --------
Total loans receivable             $55,614           $31,417         $24,829          $15,465       $52,444     $179,769
                                   =======           =======         =======          =======       =======     ========
</TABLE>

                                                           10

<PAGE>

         The following table sets forth the dollar amount of all loans due after
March 31, 1999,  that have fixed  interest rates and have floating or adjustable
interest rates.

                              Fixed      Floating or
                              Rates    Adjustable Rates
                             -------   ----------------
                                  (In Thousands)
Real estate loans:
  Residential                $56,822            $26,848
  Construction                 9,333                  0
  Commercial                   8,792             14,692
  Agricultural                 1,419             14,838
Commercial non-real estate    16,924             11,045
Consumer and other loans       6,256             12,800
                             -------            -------
                             $99,546            $80,223
                             =======            =======
Total loans receivable

         Scheduled  contractual principal repayments of loans do not reflect the
actual life of such  assets.  The average life of a loan is  substantially  less
than its  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 substantially higher than rates on existing mortgage loans and,
conversely,  decrease when rates on existing  mortgage  loans are  substantially
higher than current mortgage loan market rates.

         LOAN  SOLICITATION  AND  PROCESSING.  Loan  applicants  come  primarily
through  existing  customers,   referrals  by  realtors  and  homebuilders,  and
walk-ins. The Bank also uses radio and newspaper advertising to create awareness
of its loan  products.  In  addition  to  originating  loans  through its branch
offices,  the Bank operates two mortgage loan centers,  one in Coeur d'Alene and
one in Lewiston,  to supplement  residential real estate loan originations.  The
Bank does not utilize any loan  correspondents,  mortgage brokers or other forms
of  wholesale  loan  origination.  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. An appraisal of the real estate offered as collateral generally
is undertaken by a certified, independent fee appraiser.

         Residential  real estate loans up to $245,000  that qualify for sale in
the  secondary  market may be  approved  by the Bank's  underwriters.  All other
portfolio  real estate  loans up to $750,000  must be approved by two members of
the management loan committee.  Delegated loan approval authority to residential
lending  centers is  authorized  within  prescribed  limits for  approved  major
builder loans.  All other  construction  loans  resulting in total  extension of
credit to one  borrower  up to  $750,000  must be approved by two members of the
management loan committee.  Any loan that would result in the total extension of
credit to one  borrower  to be in excess of  $750,000  or to a major  builder in
excess of its maximum  credit  limit must be approved by the Board of  Directors
Loan  Committee.  Consumer  loans  up to  $25,000  and home  equity  loans up to
$100,000 may be approved by designated underwriters. All other consumer and home
equity loans must be approved by two members of the management loan committee.

         LOAN ORIGINATIONS,  SALES AND PURCHASES. While the Bank originates both
adjustable-rate  and fixed-rate loans, its ability to generate each type of loan
is dependent upon relative customer demand for loans in its market. For the year
ended March 31, 1999, the Bank originated  $165.6 million of loans.  Residential
real estate loan  originations  totaled  $105.9 million for the year ended March
31, 1999. Of the $165.6 million of loans originated  during the year ended March
31, 1999, 21.6% were adjustable-rate loans and 78.4% were fixed-rate loans.

         In the early  1990's,  the Bank  adopted a  mortgage  banking  strategy
pursuant to which it seeks to generate  income from the sale of loans (which may
be sold either servicing-retained or servicing-released) and from servicing fees
from loans sold on a servicing-retained basis. Generally, the level of loan sale
activity and, therefore, its contribution to the Bank's profitability depends on

                                       11

<PAGE>

maintaining a sufficient  volume of loan  originations.  Changes in the level of
interest  rates and the local economy  affect the amount of loans  originated by
the Bank and,  thus,  the amount of loan sales as well as  origination  and loan
fees  earned.  Gains on sales of loans  totaled  $1.0  million and $1.7  million
during the years  ended March 31,  1998 and 1999,  respectively.  The Bank sells
loans on a  loan-by-loan  basis.  Generally a loan is committed to be sold and a
price for the loan is fixed at the time the interest  rate on the loan is fixed,
which may be at the time the Bank  issues a loan  commitment  or at the time the
loan closes. This eliminates the risk to the Bank that a rise in market interest
rates will reduce the value of a mortgage before it can be sold. Where a loan is
committed  to be sold before it is closed,  the Bank is subject to the risk that
the loan fails to close or that the  closing  of the loan is delayed  beyond the
specified  delivery date. In such event,  the Bank may be required to compensate
the  purchaser  for failure to deliver the loan.  Generally,  all loans are sold
without recourse, although in the past the Bank has sold loans with recourse. As
of March 31,  1999,  the Bank  remained  contingently  liable for  approximately
$910,000 of loans sold with recourse.

         In the past, the Bank has purchased  loans and loan  participations  in
its primary  market during  periods of reduced loan demand.  However,  in recent
years,  because of strong loan demand, the Bank has purchased few loans. Through
a consortium of local financial  institutions,  the Bank occasionally  purchases
participation  interests in loans.  Such loans  include  those  secured by local
low-income  housing  projects,  single  family  pre-sold and spec  housing,  and
commercial loans. The Bank intends to supplement its origination of agricultural
and  commercial  real estate loans and  agricultural  operating  and  commercial
business loans by purchasing  participations  in such loans  originated by other
community banks in Idaho and eastern Washington. All such purchases will be made
in conformance with the Bank's underwriting standards. The Bank anticipates that
it will  purchase  only a small  portion  of any  individual  loan  and that the
originating institution will retain a majority of the loan.

                                       12

<PAGE>

         The following table shows total loans originated,  purchased,  sold and
repaid during the years indicated.

<TABLE>
<CAPTION>
                                                       Year Ended March 31,
                                               -----------------------------------
                                                 1997          1998         1999
                                               ---------    ---------    ---------
                                                         (In Thousands)
<S>                                            <C>          <C>          <C>
Total loans receivable at  beginning of year   $ 100,655    $ 118,509    $ 154,202
                                               ---------    ---------    ---------

Loans originated:
Real estate loans:
   Residential                                    80,721       96,124      105,939
   Construction                                   26,359       12,377       15,411
   Agricultural                                    1,326        4,395        4,249
   Commercial                                      4,887        9,555       14,726
Commercial non-real estate                         1,692       16,526       18,539
Consumer and other loans                           4,537        6,297        6,763
                                               ---------    ---------    ---------
Total loans originated                           119,522      145,274      165,627
                                               ---------    ---------    ---------

Loans purchased:
   Real estate loans:
   Residential                                        43          160        1,270
   Construction                                       --           --           --
   Agricultural                                       --           --          775
   Commercial                                         --           --           --
Commercial non-real estate                            --          144           --
Consumer and other loans                              --           --           --
                                               ---------    ---------    ---------
Total loans purchased                                 43          304        2,045
                                               ---------    ---------    ---------

Loans sold:

Servicing retained                               (25,140)     (25,435)     (38,204)
Servicing released                               (33,585)     (39,860)     (55,722)
                                               ---------    ---------    ---------
Total loans sold                                 (58,725)     (65,295)     (93,926)

Loan principal repayments                        (33,905)     (25,747)     (28,303)

Other(1)                                          (9,081)     (18,843)     (24,338)
                                               ---------    ---------    ---------
Change in total loans receivable                  17,854       35,693       25,567
                                               ---------    ---------    ---------
Total loans receivable at end of year          $ 118,509    $ 154,202    $ 179,769
                                               =========    =========    =========
</TABLE>

(1)      Consists of refinanced loans.

         LOAN  COMMITMENTS.  The Bank  issues  commitments  to  originate  loans
conditioned upon the occurrence of certain events.  Such commitments are made on
specified  terms and  conditions and are honored for up to 90 days from the date
of loan approval.  The Bank had outstanding  loan  commitments of  approximately
$22.0 million at March 31, 1999.

         LOAN ORIGINATION AND OTHER FEES. The Bank, in some instances,  receives
loan  origination  fees.  Loan fees are a fixed dollar amount or a percentage of
the  principal  amount of the mortgage  loan that is charged to the borrower for
funding the loan.  The amount of fees charged by the Bank generally is 1% of the
loan amount.  Current accounting standards require fees received (net of certain
loan origination costs) for originating loans to be deferred and amortized into

                                       13

<PAGE>

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 $554,000 of unearned loan fees and discounts at
March 31, 1999.

         LOAN SERVICING. The Bank sells residential real estate loans to Freddie
Mac and Fannie Mae on a servicing-retained basis and receives fees in return for
performing  the  traditional  services of  collecting  individual  payments  and
managing  the loans.  In the past,  the Bank has sold  agricultural  real estate
loans to private investors on a servicing-retained basis. At March 31, 1999, the
Bank was servicing $150.5 million of loans for others.  Loan servicing  includes
processing  payments,  accounting  for loan funds and collecting and paying real
estate taxes,  hazard insurance and other  loan-related  items,  such as private
mortgage  insurance.  When the Bank  receives  the gross  mortgage  payment from
individual borrowers,  it remits to the investor in the mortgage a predetermined
net amount  based on the yield on that  mortgage.  The  difference  between  the
coupon on the underlying  mortgage and the  predetermined net amount paid to the
investor is the gross loan servicing fee. In addition,  the Bank retains certain
amounts in escrow for the benefit of the  investor  for which the Bank incurs no
interest  expense but is able to invest.  At March 31, 1999,  the Bank held $1.8
million in escrow for its portfolio of loans serviced for others.

DELINQUENCIES AND CLASSIFIED ASSETS

         DELINQUENT  LOANS.  When a  mortgage  loan  borrower  fails  to  make a
required payment when due, the Bank institutes collection procedures. During the
first three months of the term of a loan, the borrower is contacted by telephone
approximately  ten days after the payment is due in order to permit the borrower
to make the payment  before the  imposition  of a late fee.  The first notice is
mailed to the borrower when the payment is 16 days past due. Attempts to contact
the borrower by telephone  generally  begin when a payment  becomes 25 days past
due. If the loan has not been  brought  current by the 60th day of  delinquency,
the Bank attempts to interview the borrower in person and to physically  inspect
the property securing the loan.

         In most cases,  delinquencies  are cured promptly;  however,  if by the
91st day of delinquency, or sooner if the borrower is chronically delinquent and
all  reasonable  means  of  obtaining  payment  on  time  have  been  exhausted,
foreclosure,  according to the terms of the security  instrument  and applicable
law, is initiated.  Interest income on loans  delinquent over 90 days is reduced
by the full amount of accrued and uncollected interest.

                                       14

<PAGE>

         The following table sets forth  information  with respect to the Bank's
nonperforming  assets and  restructured  loans  within the meaning of  generally
accepted accounting principles ("GAAP") at the years indicated. It is the policy
of the Bank to cease accruing interest on loans more than 90 days past due.

<TABLE>
<CAPTION>
                                                                          At March 31,
                                                                          ------------

                                                                    1997      1998      1999
                                                                   ------    ------    ------
                                                                     (Dollars in Thousands)
<S>                                                                <C>       <C>       <C>
Loans accounted for on a nonaccrual basis:
Real estate loans:
  Residential                                                      $  526    $  418    $  386
  Construction                                                        595        36        44
  Agricultural                                                         --        --        --
  Commercial                                                           --        --        --
Commercial non-real estate                                             --        --       182
Consumer and other loans                                                4        --        --
                                                                   ------    ------    ------
Total                                                               1,125       454       612
                                                                   ------    ------    ------

Accruing loans which are contractually
  Past due 90 days or more:
Real estate loans:
  Residential                                                          --         2        --
  Construction                                                         --        --        13
  Agricultural                                                         --        --        --
  Commercial                                                           --        --        --
Commercial non-real estate                                             --        --        --
Consumer and other loans                                               --        --        --
                                                                   ------    ------    ------
Total                                                                  --         2        13
                                                                   ------    ------    ------

Total of nonaccrual and 90 days past
  Due loans                                                         1,125       456       625
Real estate owned                                                     234       883       299
                                                                   ------    ------    ------
Total nonperforming assets                                         $1,359    $1,339    $  924
                                                                   ======    ======    ======

  Restructured loans                                               $1,742        --    $  201

Nonaccrual and 90 days or more past due
  loans as a percent of loans receivable, net                       1.00%     0.31%     0.37%
Nonaccrual and 90 days or more past
  due loans as a percent of total assets                            0.82%     0.25%     0.30%
Nonperforming assets as a percent of
  total assets                                                      0.99%     0.73%     0.54%
Total nonperforming assets to total loans                           1.15%     0.87%     0.51%
</TABLE>

         Interest  income that would have been recorded for the year ended March
31, 1999 had  nonaccruing  loans been current in accordance  with their original
terms  amounted to  approximately  $21,000.  The amount of interest  included in
interest  income on such loans for the year ended  March 31,  1999  amounted  to
approximately $40,000.

                                       15

<PAGE>

         REAL  ESTATE  OWNED.  Real  estate  acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
("REO") until it is sold.  When property is acquired it is recorded at the lower
of its cost,  which is the unpaid  principal  balance of the  related  loan plus
foreclosure  costs,  or fair market  value.  Subsequent to  foreclosure,  REO is
carried at the lower of the  foreclosed  amount or fair  value,  less  estimated
selling costs. At March 31, 1999, the Bank had $299,000 of REO.

         ASSET  CLASSIFICATION.  The State of  Washington  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,  State of Washington  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 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  classified  as loss.  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  classified  as  special  mention  and
monitored by the Company.

         At March 31,  1999,  classified  assets  of the  Company  totaled  $1.7
million.  Assets  classified as loss totaled  $26,000 and consisted of overdrawn
negotiable order of withdrawal  ("NOW") accounts totaling $7,000 and installment
loans  of  $19,000.  Assets  classified  as  substandard  totaled  $697,000  and
consisted of REO totaling $299,000. Assets designated as special mention totaled
$967,000 and consisted of seven residential real estate loans totaling $587,000,
five installment  loans totaling  $198,000,  and one commercial real estate loan
totaling $182,000.  The aggregate amounts of the Bank's classified assets at the
dates indicated were as follows:

                                At March 31,
                          ------------------------
                           1997     1998     1999
                          ------   ------   ------
                               (In Thousands)
Loss                      $   20   $   19   $   26
Doubtful                      --       --       --
Substandard                2,006    1,598      697
Special mention              618      569      967
                          ------   ------   ------
Total classified assets   $2,644   $2,186   $1,690
                          ======   ======   ======

         ALLOWANCE  FOR  LOAN  LOSSES.  The Bank has  established  a  systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal  policy  and takes into  consideration  the need for an
overall general valuation allowance as well as specific allowances that are tied
to 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 increases its allowance for loan
losses by charging provisions for loan losses against income.

                                       16

<PAGE>

         The general  allowance is  maintained  to cover losses  inherent in the
portfolio of performing loans.  Management's periodic evaluation of the adequacy
of the allowance is based on  management's  evaluation of probable losses in the
loan portfolio.  Specific valuation  allowances are established to absorb losses
on loans for which full  collectibility  may not be  reasonably  assured,  based
upon,  among other  factors,  the estimated  fair market value of the underlying
collateral and estimated holding and selling costs.  Generally,  a provision for
losses  is  charged  against  income  on  a  quarterly  basis  to  maintain  the
allowances.

         At March 31, 1999,  the Bank had an  allowance  for loan losses of $1.4
million.  The allowance  for loan losses is  maintained at an amount  management
considers  adequate  to  absorb  losses  inherent  in  the  portfolio.  Although
management  believes  that it uses the best  information  available to make such
determinations,  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.

         While the Bank believes it has established  its existing  allowance for
loan losses in accordance with GAAP,  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 is 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 years indicated. Where specific loan loss reserves have been
established,  any differences between the loss allowances and the amount of loss
realized has been charged or credited to current income.

<TABLE>
<CAPTION>
                                                     Year Ended March 31,
                                                  --------------------------
                                                   1997      1998      1999
                                                  ------    ------    ------
                                                     (Dollars in Thousands)
<S>                                               <C>       <C>       <C>
Allowance at beginning of year                    $  701    $  974    $1,120

Provision for loan losses(1)                         310       200       296

Recoveries                                            --        --         1

Charge-offs:
Real estate loans:
  Residential                                         --        --        21
  Construction                                        36        51        --
  Agricultural                                        --        --        --
  Commercial                                          --        --        --
Commercial non-real estate                            --        --        --
Consumer and other loans                               1         3        35
                                                  ------    ------    ------
Total charge-offs                                     37        54        56
                                                  ------    ------    ------
Net charge-offs                                       37        54        55
                                                  ------    ------    ------
Balance at end of year                            $  974    $1,120    $1,361
                                                  ======    ======    ======

Allowance for loan losses as a percent of total
  loans receivable                                  0.82%     0.73%     0.76%
Net charge-offs to average outstanding loans        0.03%     0.04%     0.04%
</TABLE>

                                       17

<PAGE>

(1)      See "Item 6. Management's  Discussion and Analysis or Plan of Operation
         -- Comparison  of Operating  Results for the Years Ended March 31, 1998
         and 1999 -- Provisions for Loan Losses" for a discussion of the factors
         responsible for changes in the Bank's provision for loan losses between
         the years.

         The following  table sets forth the breakdown of the allowance for loan
losses by loan category for the years  indicated.  Management  believes that the
allowance  can be  allocated  by  category  only on an  approximate  basis.  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.

<TABLE>
<CAPTION>
                                                        At March 31,
                                  --------------------------------------------------------
                                       1997               1998               1999
                                  --------------------------------------------------------
                                                  (Dollars in Thousands)
                                         % of Loans         % of Loans           % of Loans
                                         in Category        in Category          in Category
                                          to Total           to Total              to Total
                                  Amount   Loans     Amount   Loans     Amount      Loans
                                  ------   ------    ------   ------    ------      -----
<S>                               <C>       <C>      <C>       <C>      <C>       <C>
Real estate loans:
   Residential                    $  317    65.32%   $  367    57.06%   $  288      46.54%
   Construction                      261    10.01       181     5.17       217       5.19
   Agricultural                      216    10.12       202     9.47       252       9.05
   Commercial                         97     4.55       310    18.84       527      28.62
Consumer and other loans              83    10.00        60     9.46        77      10.60
                                  ------   ------    ------   ------    ------   --------
Total allowance for loan losses   $  974   100.00%   $1,120   100.00%   $1,361     100.00%
                                  ======   ======    ======   ======    ======   ========
</TABLE>

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.  Savings  institutions  like the Bank  are  also  required  to
maintain an investment in FHLB stock.

         Statement  of  Financial   Accounting   Standards   ("SFAS")  No.  115,
"Accounting  for Certain  Investments in Debt and Equity  Securities,"  requires
that investments be categorized as  "held-to-maturity,"  "trading securities" or
"available-for-sale,"   based  on   management's   intent  as  to  the  ultimate
disposition  of each  security.  SFAS  No.  115  allows  debt  securities  to be
classified  as  "held-to-maturity"  and  reported  in  financial  statements  at
amortized cost only if the reporting  entity has the positive intent and ability
to hold those securities to maturity.  Securities that might be sold in response
to changes in market interest rates, changes in the security's  prepayment risk,
increases in loan demand,  or other  similar  factors  cannot be  classified  as
"held-to-maturity."  Debt and  equity  securities  held for  current  resale are
classified as "trading  securities." Such securities are reported at fair value,
and  unrealized  gains  and  losses  on such  securities  would be  included  in
earnings. Debt and equity securities not classified as either "held-to-maturity"
or "trading securities" are classified as "available-for-sale."  Such securities
are reported at fair value,  and unrealized  gains and losses on such securities
are excluded from earnings and reported as a net amount in a separate  component
of equity.

         The Chief Executive  Officer and the Chief Financial  Officer determine
appropriate  investments  in accordance  with the Board of  Directors'  approved
investment  policies and procedures.  The Bank's investment  policies  generally
limit investments to FHLB obligations,  certificates of deposit, U.S. Government
and agency securities, municipal bonds rated AAA, mortgage-backed securities and
certain types of mutual funds. The Bank's investment policy does not permit

                                            18

<PAGE>

engaging  directly  in  hedging  activities  or  purchasing  high risk  mortgage
derivative products. 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.

         Investment  securities are purchased  primarily for managing liquidity.
Generally,  the Bank purchases  mortgage- backed securities only during times of
reduced loan demand

         The following table sets forth the composition of the Bank's investment
and mortgage-backed securities portfolios for the years indicated.

<TABLE>
<CAPTION>
                                                     At March 31,
                             ---------------------------------------------------------------
                                                (Dollars in Thousands)
                                    1997                 1998                  1999
                                    ----                 ----                  ----

                             Carrying  Percent of  Carrying  Percent of  Carrying  Percent of
                              Value    Portfolio    Value    Portfolio    Value    Portfolio
                             -------   ---------   -------   ---------   -------   ---------
<S>                            <C>       <C>         <C>       <C>        <C>        <C>
AVAILABLE-FOR-SALE:
Investment securities        $    --        --%    $ 2,654     16.09%    $ 6,536     32.50%
Mortgage-backed securities     2,599     25.79       7,970     48.32      10,135     50.40
                             -------    ------     -------    ------     -------    ------
Total available-for-sale       2,599     25.79      10,624     64.41      16,671     82.90

HELD-TO-MATURITY:
Investment securities          5,199     51.58       2,449     14.85         700      3.48
Mortgage-backed securities     2,281     22.63       3,420     20.74       2,739     13.62
                             -------    ------     -------    ------     -------    ------
Total held-to-maturity         7,480     74.21       5,869     35.59       3,439     17.10
                             -------    ------     -------    ------     -------    ------

Total                        $10,079    100.00%    $16,493    100.00%    $20,110    100.00%
                             =======    ======     =======    ======     =======    ======
</TABLE>

The table below sets forth certain  information  regarding  the carrying  value,
weighted   average   yields  and   maturities  of  the  Bank's   investment  and
mortgage-backed securities at March 31, 1999.

<TABLE>
<CAPTION>
                                              Over            Over
                            Less Than        One to          Five to            Over Ten
                            One Year       Five Years       Ten Years            Years
                        ---------------   -------------   --------------    ---------------
                                               (Dollars in Thousands)

                         Amount   Yield   Amount  Yield    Amount  Yield     Amount   Yield
                         ------   -----   ------  -----    ------  -----     ------   -----
<S>                     <C>       <C>      <C>    <C>      <C>       <C>     <C>       <C>
Investment Securities   $   700   5.12%      --      --   $   853   7.75%   $ 5,683   7.49%
Mortgage-backed
  Securities                 --     --       --      --       481   4.55     12,393   6.37
                        -------   ----     ----    ----   -------   ----    -------   ----
Total                   $   700   5.12%      --      --   $ 1,334   6.60%   $18,076   6.72%
                        =======   ====     ====    ====   =======   ====    =======   ====
</TABLE>

                                             19

<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 are used
to compensate  for reductions in the  availability  of funds from other sources.
Presently, the Bank has no other borrowing arrangements.

         DEPOSIT ACCOUNTS.  Savings deposits are the primary source of funds for
the Bank's  lending  and  investment  activities  and for its  general  business
purposes. Substantially all of the Bank's depositors are residents of the States
of Idaho and  Washington.  Deposits are attracted  from within the Bank's market
area through the offering of a broad selection of deposit instruments, including
NOW  accounts,   money  market  deposit  accounts,   regular  savings  accounts,
certificates  of deposit  and  retirement  savings  plans.  The Bank also offers
"TT&L"  (treasury,  taxes and  loans)  accounts  for local  businesses.  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.  Currently,  the Bank does not accept brokered deposits, nor has
it aggressively  sought jumbo certificates of deposit,  although the Bank has in
the past accepted brokered  certificates of deposit. At March 31, 1999, the Bank
had no brokered  deposits.  In March 31, 1999,  certificates of deposit that are
scheduled to mature in less than one year totaled  $51.4  million.  See "Item 6.
Management's  Discussion  and Analysis or Plan of  Operation  --  Liquidity  and
Capital Resources."

                                       20

<PAGE>

         The  following  table  sets  forth  information  concerning  the Bank's
deposits at March 31, 1999.

<TABLE>
<CAPTION>
           Weighted
            Average                                                                      Percentage
           Interest          Checking and                      Minimum                   of Total
             Rate           Savings Deposits                   Amount      Balance        Deposits
             ----           ----------------                   ------      -------        --------

                                      (In Thousands, except minimum amount)
             <S>          <C>                                    <C>       <C>              <C>
             0.77%        NOW                                    $ --      $29,277          21.97%
             3.22         Money Market Deposit                     --       10,240           7.68
             2.55         Passbook                                 --       14,958          11.22
                                                                           -------         ------
                                      Total Checking & Passbook             54,475          40.87

                          Certificates of Deposit
                          -----------------------
             3.88         7 days to 179 days                    2,500       11,991           9.00
             5.09         11 months special/non-                  500        5,758           4.32
                          renewable
             4.61         6 months to less than 1 year          1,000        8,908           6.69
             3.03         14 months special/non-                  500          323           0.24
                          renewable
             5.12         1 year to less than 2 years             500        7,772           5.83
             5.63         27 months special/non-                  500       22,163          16.63
                          renewable
             5.57         2 years to less than 3 years            500        7,133           5.35
             5.48         New 2 years to 5 years-                 100        4,215           3.16
                          Add on
             5.34         3 years to less than 4 years            500        1,647           1.24
             5.81         4 years to less than 5 years            500        2,585           1.94
             6.19         5 years to less than 10 years           500        5,482           4.11
             5.0          IRA Variable                             --          826           0.62
                                                                          --------         ------
                                      Total Certificates of Deposit         78,803          59.13%
                                                                          --------         ------

                                                    Total Deposits        $133,278         100.00%
                                                                          ========         ======
</TABLE>

         The  following   table   indicates  the  amount  of  the  Bank's  jumbo
certificates  of deposit by time remaining  until maturity as of March 31, 1999.
Jumbo certificates of deposit are certificates in amounts of more than $100,000.


          Maturity Period                                    Amount
          ---------------                                    ------
                                                        (In Thousands)
          Three months or less                              $ 6,919
          Over three through six months                       2,056
          Over six through 12 months                          2,130
          Over 12 months                                      3,141
                                                            -------

          Total jumbo certificates of deposit               $14,246
                                                            =======

                                       21

<PAGE>

         DEPOSIT FLOW. The following table sets forth the balances (inclusive of
interest  credited)  and  changes in dollar  amounts of  deposits in the various
types of accounts offered by the Bank between the years indicated.

<TABLE>
<CAPTION>
                                                                     At March 31,
                                 -----------------------------------------------------------------------------------
                                        1997                        1998                        1999
                                 -----------------------------------------------------------------------------------
                                           Percent              Percent                         Percent
                                             of                   of       Increase                of       Increase
                                  Amount    Total      Amount    Total    (Decrease)    Amount    Total    (Decrease)
                                 --------   ------    --------   ------    --------    --------   ------    --------
                                                                    (Dollars in Thousands)

<S>                              <C>         <C>      <C>         <C>      <C>         <C>         <C>         <C>
NOW accounts                     $ 15,943    14.82%   $ 19,389    16.93%   $  3,446    $ 29,277    21.97%      9,888
Passbook accounts                  14,164    13.16      13,418    11.72        (746)     14,958    11.22       1,540
Money market deposit
  Accounts                          6,968     6.48       9,078     7.93       2,110      10,240     7.68       1,162
Fixed-rate certificates
  which mature:
     Within 1 year                 53,120    49.37      52,836    46.15        (284)     51,365    38.54      (1,471)
     After 1 year, but within
      2 years                      11,139    10.35      13,111    11.45       1,972      21,838    16.39       8,727
     After 2 years, but within
      5 years                       6,241     5.80       6,626     5.79         385       5,386     4.04      (1,240)
     Certificates maturing
       thereafter                      21     0.02          37     0.03          16         214     0.16         177
                                 --------   ------    --------   ------    --------    --------   ------    --------
Total                            $107,596   100.00%   $114,495   100.00%   $  6,899    $133,278   100.00%   $ 18,783
                                 ========   ======    ========   ======    ========    ========   ======    ========
</TABLE>

         TIME  DEPOSITS  BY  RATES.  The  following  table  sets  forth the time
deposits in the Bank categorized by rates for the years indicated.

                                                 At March 31,
                                                 ------------

                                       1997            1998          1999
                                     -------         -------       -------
                                                 (In Thousands)
2.0 - 2.99%                          $    --         $    --       $   689
3.0 - 3.99%                              997           1,001        10,758
4.0 - 4.99%                            7,132           7,995        17,314
5.0 - 5.99%                           42,816          55,992        45,354
6.0 - 6.99%                           17,082           6,638         3,794
7.0 - 7.99%                            1,990             483           402
8.0 - 8.99%                               51              49            47
9% and over                              453             452           445
                                     -------         -------       -------
Total                                $70,521         $72,610       $78,803
                                     =======         =======       =======

                                       22

<PAGE>

The  following  table sets forth the amount and  maturities  of time deposits at
March 31, 1999.

<TABLE>
<CAPTION>
                                            Amount Due
                                            ----------

                                                                            Percent
                         After     After     After                          of Total
              Less Than  1 to 2    2 to 3    3 to 4    After              Certificate
              One Year   Years     Years     Years    4 Years    Total      Accounts
              -------   -------   -------   -------   -------   -------   -----------
                                      (Dollars in Thousands)
<S>  <C>       <C>        <C>         <C>       <C>       <C>    <C>            <C>
2.0 - 2.99%   $   689   $    --   $    --   $    --   $    --   $   689          0.87%
3.0 - 3.99%     9,426     1,276        56        --        --    10,758         13.65
4.0 -4.99%     10,813     5,355       866       174       106    17,314         21.97
5.0 - 5.99%    26,940    14,751       687       613     2,363    45,354         57.55
6.0 - 6.99%     3,478       316        --        --        --     3,794          4.82
7.0 - 7.99%         6       111       218        --        67       402          0.51
8.0 - 8.99%         4         8        35        --        --        47          0.06
9% and over         9        21       415        --        --       445          0.57
              -------   -------   -------   -------   -------   -------   -----------
Total         $51,365   $21,838   $ 2,277   $   787   $ 2,536   $78,803        100.00%
              =======   =======   =======   =======   =======   =======   ===========
</TABLE>

         DEPOSIT ACTIVITY. The following table sets forth the deposit activities
of the Bank for the years indicated.

                              Year Ended March 31,
                             ----------------------
                                1997         1998       1999
                             ---------    ---------   ---------
                                       (In Thousands)
Beginning balance            $ 115,324    $ 107,596   $ 114,495
                             ---------    ---------   ---------

Net increase (decrease)
  before interest credited     (11,902)       3,396      13,864
Interest credited                4,174        3,503       4,919
                             ---------    ---------   ---------
Net increase (decrease)
  in savings deposits           (7,728)       6,899      18,783
                             ---------    ---------   ---------

Ending balance               $ 107,596    $ 114,495   $ 133,278
                             =========    =========   =========

         BORROWINGS.  The  Bank  utilizes  advances  from  the  FHLB-Seattle  to
supplement  its  supply  of  lendable  funds  and  to  meet  deposit  withdrawal
requirements.  The  FHLB-Seattle  functions as a central  reserve bank providing
credit for savings associations and certain other member financial institutions.
As a member of the  FHLB-Seattle,  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
that 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 Bank is  currently
authorized to borrow from the FHLB up to an amount equal to 40% of total assets.

                                       23

<PAGE>

         The following tables set forth certain information regarding borrowings
by the Bank for the years indicated:

<TABLE>
<CAPTION>
                                                                              At or For the
                                                                           Year Ended March 31,
                                                           -----------------------------------------------

                                                            1997               1998                 1999
                                                            ----               ----                 ----
                                                                           (Dollars in Thousands)
<S>                                                        <C>                 <C>                 <C>
Maximum amount of FHLB advances outstanding
  At any month end during the year                         $15,060             $39,323             $47,227
Approximate average FHLB advances
  Outstanding during the year                                8,488              32,566              41,107
Balance of FHLB advances outstanding
  at end of year                                            13,922              35,656              42,027
Weighted average rate paid on
  FHLB advances at end of year                                5.87%               5.84%               5.51%
Approximate weighted average rate paid on
  FHLB advances during the year                               5.90%               6.26%               5.72%
</TABLE>


<TABLE>
<CAPTION>
                                                                 One Year to        Five Years to
                                             Less than One      Less than Five      Less than Ten      Greater than
                                                  Year               Years             Years            Ten Years
                                                  ----               -----             -----            ---------
<S>                                              <C>                <C>               <C>                <C>
Maturities of advances from FHLB                 $16,200            $13,656           $10,750            $1,421
Percentage of total advances                       38.55%             32.49%            25.58%             3.38%
</TABLE>

COMPETITION

      The Bank  operates in a competitive  market for the  attraction of savings
deposits (its primary source of lendable funds) and in the origination of loans.
Its most direct  competition  for savings  deposits has  historically  come from
commercial banks,  credit unions and other thrifts operating in its market area.
The Bank's  competitors  include large regional and superregional  banks.  These
institutions are  significantly  larger than the Bank and therefore have greater
financial and marketing resources than the Bank's. Particularly in times of high
interest  rates,  the Bank has  faced  additional  significant  competition  for
investors' funds from short-term money market securities and other corporate and
government  securities.  The Bank's  competition for loans comes from commercial
banks and other thrifts operating in its market as well as from mortgage bankers
and brokers,  consumer  finance  companies,  and,  with respect to  agricultural
loans,  government sponsored lending programs. Such competition for deposits and
the  origination of loans may limit the Bank's growth and  profitability  in the
future.


SUBSIDIARY ACTIVITIES

         The  Bank  has  one  subsidiary,  Tri-Star  Financial  who  sells  life
insurance and tax deferred  annuities on an agency basis. At March 31, 1999, the
Bank's equity investment in its subsidiary was $47,000.

                                       24

<PAGE>

PERSONNEL

      As of  March  31,  1999,  the  Bank  had 97  full-time  and  13  part-time
employees. The employees are not represented by a collective bargaining unit and
the Bank believes its relationship with its employees to be good.

                                   REGULATION

FIRSTBANK NORTHWEST

         GENERAL.   As   a   state-chartered,   federally   insured   depository
institution, the Bank is subject to extensive regulation. Lending activities and
other   investments   must  comply  with  various   statutory   and   regulatory
requirements,  including  prescribed  minimum  capital  standards.  The  Bank is
regularly  examined  by the  FDIC and the  Washington  Department  of  Financial
Institutions,   Division  of  Banks  ("Division")  and  files  periodic  reports
concerning the Bank's  activities and financial  condition with its  regulators.
The Bank's  relationship  with  depositors  and borrowers also is regulated to a
great  extent  by both  federal  law and the laws of the  State  of  Washington,
especially in such matters as the ownership of savings accounts and the form and
content of mortgage documents.

         Federal and state banking laws and regulations  govern all areas of the
operation of the Bank, including reserves,  loans, mortgages,  capital, issuance
of securities,  payment of dividends and establishment of branches.  Federal and
state bank  regulatory  agencies  also have the general  authority  to limit the
dividends  paid by insured  banks and bank holding  companies  if such  payments
should be deemed to constitute an unsafe and unsound  practice.  The  respective
primary federal  regulators of the Company and the Bank have authority to impose
penalties,  initiate  civil and  administrative  actions  and take  other  steps
intended to prevent banks from engaging in unsafe or unsound practices.

         STATE REGULATION AND SUPERVISION.  As a  state-chartered  savings bank,
the Bank is subject to applicable  provisions  of  Washington  State law and the
regulations  of the  Division  adopted  thereunder.  Washington  State  law  and
regulations govern the Bank's ability to take deposits and pay interest thereon,
to make  loans on or  invest  in  residential  and other  real  estate,  to make
consumer  loans, to invest in securities,  to offer various banking  services to
its customers,  and to establish branch offices.  Under state law, savings banks
in Washington  also generally have all of the powers that federal mutual savings
banks have under federal laws and  regulations.  The Bank is subject to periodic
examination and reporting requirements by and of the Division.

         DEPOSIT INSURANCE. The FDIC insures deposits at the Bank to the maximum
extent permitted by law. The Bank currently pays deposit  insurance  premiums to
the FDIC based on a risk-based assessment system established by the FDIC for all
SAIF-member  institutions.   Under  applicable  regulations,   institutions  are
assigned to one of three  capital  groups which are based solely on the level of
an institution's  capital --"well  capitalized,"  "adequately  capitalized," and
"undercapitalized"  -- which are defined in the same  manner as the  regulations
establishing the prompt  corrective  action system, as discussed below. The FDIC
is authorized to raise assessment rates in certain circumstances.

         Pursuant to the Deposit  Insurance  Fund ("DIF") Act, which was enacted
on September 30, 1996, the FDIC imposed a special  assessment on each depository
institution with  SAIF-assessable  deposits which resulted in the SAIF achieving
its designated  reserve  ratio.  In connection  therewith,  the FDIC reduced the
assessment  schedule for SAIF members,  effective January 1, 1997, to a range of
0% to 0.27%,  with  most  institutions,  including  the Bank,  paying  0%.  This
assessment  schedule is the same as that for the Bank  Insurance  Fund  ("BIF"),
which reached its designated  reserve ratio in 1995. In addition,  since January
1, 1997,  SAIF members are charged an  assessment  of 0.065% of  SAIF-assessable
deposits  for the purpose of paying  interest on the  obligations  issued by the
Financing  Corporation  ("FICO")  in the 1980s to help fund the thrift  industry
cleanup.  BIF-assessable  deposits  will be  charged an  assessment  to help pay
interest on the FICO bonds at a rate of approximately .013% until the earlier of
December 31, 1999 or the date upon which the last savings  association ceases to
exist,  after  which  time  the  assessment  will be the  same  for all  insured

                                       25

<PAGE>

deposits.  The DIF Act  provides for the merger of the BIF and the SAIF into the
Deposit  Insurance  Fund,  but only if no insured  depository  institution  is a
savings  association on that date. The DIF Act contemplates the development of a
common  charter for all  federally  chartered  depository  institutions  and the
abolition  of  separate   charters  for  national  banks  and  federal   savings
associations.

         The FDIC may terminate the deposit insurance of any insured  depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance  temporarily during the hearing process for the permanent  termination
of  insurance,  if the  institution  has no tangible  capital.  If  insurance of
accounts  is  terminated,  the  accounts  at  the  institution  at the  time  of
termination,  less  subsequent  withdrawals  shall  continue to be insured for a
period of six months to two years,  as  determined  by the FDIC.  Management  is
aware of no existing  circumstances  which could  result in  termination  of the
deposit insurance of the Bank.

         PROMPT CORRECTIVE ACTION. The federal banking agencies have promulgated
substantially  similar  regulations  to implement a system of prompt  corrective
action.  Under the regulations,  an institution shall be deemed to be: (i) "well
capitalized" if it has a total risk-based  capital ratio of 10.0% or more, has a
Tier I risk-based  capital ratio of 6.0% or more, has a Tier I leverage  capital
ratio of 5.0% or more and is not subject to specified  requirements  to meet and
maintain a specific  capital  level for any capital  measure;  (ii)  "adequately
capitalized" if it has a total  risk-based  capital ratio of 8.0% or more, has a
Tier I risk-based  capital ratio of 4.0% or more, has a Tier I leverage  capital
ratio of 4.0% or more (3.0% under certain  circumstances)  and does not meet the
definition of "well  capitalized;"  (iii)  "undercapitalized"  if it has a total
risk-based capital ratio that is less than 8.0%, has a Tier I risk-based capital
ratio that is less than 4.0% or has a Tier I leverage capital ratio that is less
than   4.0%   (3.0%   under   certain   circumstances);    (iv)   "significantly
undercapitalized"  if it has a total risk-based  capital ratio that is less than
6.0%, has a Tier I risk-based capital ratio that is less than 3.0% or has a Tier
I  leverage   capital  ratio  that  is  less  than  3.0%;  and  (v)  "critically
undercapitalized"  if it has a ratio of tangible  equity to total assets that is
equal to or less than 2.0%.

         A federal  banking agency may,  after notice and an  opportunity  for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may  require  an  adequately  capitalized  institution  or  an  undercapitalized
institution to comply with  supervisory  actions as if it were in the next lower
category if the institution is in an unsafe or unsound  condition or engaging in
an  unsafe  or  unsound  practice.  (The  FDIC may not,  however,  reclassify  a
significantly undercapitalized institution as critically undercapitalized.)

         An institution  generally must file a written capital  restoration plan
which meets specified  requirements,  as well as a performance  guaranty by each
company that controls the  institution,  with the  appropriate  federal  banking
agency  within 45 days of the date that the  institution  receives  notice or is
deemed   to   have   notice   that   it   is   undercapitalized,   significantly
undercapitalized  or  critically  undercapitalized.  Immediately  upon  becoming
undercapitalized,  an institution  shall become subject to various mandatory and
discretionary restrictions on its operations.

         At March 31, 1999, the Bank was categorized as "well capitalized" under
the prompt corrective action regulations of the FDIC.

         STANDARDS  FOR SAFETY AND  SOUNDNESS.  The federal  banking  regulatory
agencies have prescribed,  by regulation,  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 FDIC 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.

                                       26

<PAGE>

         CAPITAL  REQUIREMENTS.  The FDIC's minimum capital standards applicable
to  FDIC-regulated  banks  and  savings  banks  require  the  most  highly-rated
institutions  to meet a "Tier 1" leverage  capital ratio of at least 3% of total
assets.  Tier 1 (or "core  capital")  consists of common  stockholders'  equity,
noncumulative  perpetual  preferred stock and minority interests in consolidated
subsidiaries minus all intangible assets other than limited amounts of purchased
mortgage  servicing rights and certain other accounting  adjustments.  All other
banks must have a Tier 1 leverage  ratio of at least  100-200 basis points above
the 3% minimum. The FDIC capital regulations  establish a minimum leverage ratio
of not  less  than 4% for  banks  that  are not the  most  highly  rated  or are
anticipating or experiencing significant growth.

          The FDIC's capital regulations require higher capital levels for banks
which   exhibit  more  than  a  moderate   degree  of  risk  or  exhibit   other
characteristics  which necessitate that higher than minimum levels of capital be
maintained. Any insured bank with a Tier 1 capital to total assets ratio of less
than 2% is deemed to be operating in an unsafe and unsound  condition unless the
insured bank enters into a written  agreement,  to which the FDIC is a party, to
correct its capital  deficiency.  Insured  banks  operating  with Tier 1 capital
levels  below 2% (and  which  have not  entered  into a written  agreement)  are
subject to an insurance removal action.  Insured banks operating with lower than
the prescribed  minimum  capital levels  generally will not receive  approval of
applications  submitted  to  the  FDIC.  Also,  inadequately  capitalized  state
nonmember banks will be subject to such administrative  action as the FDIC deems
necessary.

         FDIC  regulations  also require  that banks meet a  risk-based  capital
standard.  The risk-based  capital  standard  requires the  maintenance of total
capital (which is defined as Tier 1 capital and Tier 2 or supplementary capital)
to risk weighted assets of 8% and Tier 1 capital to risk-weighted  assets of 4%.
In determining the amount of risk-weighted  assets, all assets, plus certain off
balance sheet items, are multiplied by a risk-weight of 0% to 100%, based on the
risks  the FDIC  believes  are  inherent  in the  type of  asset  or  item.  The
components of Tier 1 capital are equivalent to those  discussed  above under the
3% leverage  requirement.  The  components of  supplementary  capital  currently
include  cumulative   perpetual  preferred  stock,   adjustable-rate   perpetual
preferred stock,  mandatory  convertible  securities,  term  subordinated  debt,
intermediate-term  preferred  stock and  allowance  for possible  loan and lease
losses. Allowance for possible loan and lease losses includable in supplementary
capital is limited to a maximum of 1.25% of risk-weighted  assets.  Overall, the
amount of capital  counted  toward  supplementary  capital cannot exceed 100% of
Tier 1 capital. The FDIC includes in its evaluation of a bank's capital adequacy
an  assessment  of the exposure to declines in the economic  value of the bank's
capital due to changes in interest rates.  However, no measurement framework for
assessing the level of a bank's interest rate risk exposure has been codified.

         An  undercapitalized,  significantly  undercapitalized,  or  critically
undercapitalized  institution  is  required  to  submit  an  acceptable  capital
restoration  plan to its  appropriate  federal  banking  agency.  The plan  must
specify  (i)  the  steps  the  institution   will  take  to  become   adequately
capitalized,  (ii) the capital  levels to be attained  each year,  (iii) how the
institution will comply with any regulatory sanctions then in effect against the
institution and (iv) the types and levels of activities in which the institution
will engage.

         The Division requires that net worth equal at least 5% of total assets.
Intangible  assets  must be deducted  from net worth and assets  when  computing
compliance  with  this  requirement.  At March 31,  1999,  the Bank had a Tier 1
capital  to average  assets  ratio of 10.2%,  a Tier 1 capital to  risk-weighted
assets  ratio of 14.4%,  and a Total  capital to  risk-weighted  assets ratio of
15.4%.

         The FDIC has  adopted the Federal  Financial  Institutions  Examination
Council's recommendation regarding the adoption of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."  Specifically,  the agencies
determined  that net  unrealized  holding gains or losses on  available-for-sale
debt and equity  securities  should not be included  when  calculating  core and
risk-based capital ratios.

         FDIC capital  requirements  are  designated  as the minimum  acceptable
standards for banks whose overall  financial  condition is fundamentally  sound,
which are well-managed and have no material or significant financial weaknesses.
The FDIC capital  regulations  state that,  where the FDIC  determines  that the
financial history or condition,  including  off-balance  sheet risk,  managerial
resources and/or the future earnings prospects of a bank are not adequate and/or

                                       27

<PAGE>

a bank has a significant  volume of assets classified  substandard,  doubtful or
loss or otherwise  criticized,  the FDIC may determine that the minimum adequate
amount  of  capital  for  that  bank  is  greater  than  the  minimum  standards
established in the regulation.

         The Bank's management believes that, under the current regulations, the
Bank will continue to meet its minimum  capital  requirements in the foreseeable
future.  However,  events beyond the control of the Bank,  such as a downturn in
the  economy  in areas  where the Bank has most of its  loans,  could  adversely
affect future  earnings and,  consequently,  the ability of the Bank to meet its
capital requirements.

         ACTIVITIES AND INVESTMENTS OF INSURED  STATE-CHARTERED  BANKS.  Federal
law generally  limits the  activities and equity  investments  of  FDIC-insured,
state-chartered  banks to those that are permissible  for national banks.  Under
regulations dealing with equity investments, an insured state bank generally may
not directly or indirectly acquire or retain any equity investment of a type, or
in an amount, that is not permissible for a national bank. An insured state bank
is not  prohibited  from,  among other  things,  (i)  acquiring  or  retaining a
majority  interest in a  subsidiary,  (ii)  investing as a limited  partner in a
partnership  the sole purpose of which is direct or indirect  investment  in the
acquisition,  rehabilitation or new construction of a qualified housing project,
provided  that such  limited  partnership  investments  may not exceed 2% of the
Bank's total assets,  (iii) acquiring up to 10% of the voting stock of a company
that solely provides or reinsures directors',  trustees' and officers' liability
insurance coverage or bankers' blanket bond group insurance coverage for insured
depository institutions,  and (iv) acquiring or retaining the voting shares of a
depository institution if certain requirements are met.

         Subject to certain regulatory exceptions, FDIC regulations provide that
an insured  state-chartered  bank may not,  directly,  or  indirectly  through a
subsidiary,  engage as "principal" in any activity that is not permissible for a
national bank unless the FDIC has determined that such activities  would pose no
risk to the insurance fund of which it is a member and the bank is in compliance
with applicable  regulatory capital  requirements.  Any insured  state-chartered
bank directly or indirectly  engaged in any activity that is not permitted for a
national  bank or for which the FDIC has  granted and  exception  must cease the
impermissible activity.

         FEDERAL RESERVE SYSTEM.  In 1980,  Congress enacted  legislation  which
imposed Federal Reserve  requirements  (under  "Regulation D") on all depository
institutions  that maintain  transaction  accounts or nonpersonal time deposits.
These reserves may be in the form of cash or non-interest-bearing  deposits with
the regional Federal Reserve Bank. NOW accounts and other types of accounts that
permit  payments or transfers to third  parties  fall within the  definition  of
transaction  accounts and are subject to Regulation D reserve  requirements,  as
are any  nonpersonal  time deposits at a bank.  Under  Regulation D, a bank must
establish  reserves  equal  to 3% of the  first  $47.8  million  of  transaction
accounts and for amounts greater than $47.8 million,  the reserve requirement is
10% of that portion of total  transaction  accounts in excess of $47.8  million.
The first $4.4 million of otherwise  reservable balances are exempt from reserve
requirements. The reserve requirement on nonpersonal time deposits with original
maturities  of less than 1-1/2 years is 0%. As of March 31,  1999,  the Bank met
its reserve requirements.

         AFFILIATE  TRANSACTIONS.  Various legal  limitations  restrict the Bank
from  lending or  otherwise  supplying  funds to the Company  (an  "affiliate"),
generally  limiting  such  transactions  with the affiliate to 10% of the Bank's
capital and  surplus and  limiting  all such  transactions  to 20% of the Bank's
capital and surplus. Such transactions, including extensions of credit, sales of
securities  or  assets  and  provision  of  services,  also must be on terms and
conditions  consistent with safe and sound banking  practices,  including credit
standards,  that are substantially the same or at least as favorable to the Bank
as those prevailing at the time for transactions with unaffiliated companies.

         Federally  insured  banks are  subject,  with  certain  exceptions,  to
certain  restrictions on extensions of credit to their parent holding  companies
or  other  affiliates,  on  investments  in the  stock or  other  securities  of
affiliates and on the taking of such stock or securities as collateral  from any
borrower. In addition, such banks are prohibited from engaging in certain tie-in
arrangements  in connection with any extension of credit or the providing of any
property or service.

         COMMUNITY  REINVESTMENT  ACT. The Bank is subject to the  provisions of
the Community  Reinvestment Act of 1977 ("CRA"),  which requires the appropriate
federal bank regulatory agency, in connection with its regular  examination of a

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<PAGE>

bank,  to assess the Bank's  record in meeting the credit needs of the community
serviced by the Bank,  including  low and  moderate  income  neighborhoods.  The
regulatory  agency's  assessment of the Bank's  record is made  available to the
public.  Further,  such  assessment  is required of any bank which has  applied,
among other things,  to establish a new branch office that will accept deposits,
relocate an existing office or merge or consolidate  with, or acquire the assets
or assume the liabilities of, a federally regulated financial  institution.  The
Bank received an "Outstanding" rating during its most recent CRA examination.

         DIVIDENDS.  Dividends from the Bank will constitute the major source of
funds for  dividends  which may be paid by the Company.  The amount of dividends
payable by the Bank to the  Company  will depend  upon the Bank's  earnings  and
capital  position,  and is limited by federal  and state laws,  regulations  and
policies.  According to  Washington  law, the Bank may not declare or pay a cash
dividend  on its  capital  stock if it would  cause its net worth to be  reduced
below (i) the amount  required  for  liquidation  accounts or (ii) the net worth
requirements,  if any, imposed by the Director of the Division. Dividends on the
Bank's  capital  stock may not be paid in an aggregate  amount  greater than the
aggregate retained earnings of the Bank, without the approval of the Director of
the Division.

         The amount of  dividends  actually  paid  during any one period will be
strongly  affected  by the  Bank's  management  policy of  maintaining  a strong
capital  position.  Federal  law  further  provides  that no insured  depository
institution  may make any  capital  distribution  (which  would  include  a cash
dividend)  if,  after  making  the   distribution,   the  institution  would  be
"undercapitalized,"  as  defined in the prompt  corrective  action  regulations.
Moreover,  the federal bank regulatory  agencies also have the general authority
to limit the dividends  paid by insured banks if such payments  should be deemed
to constitute an unsafe and unsound practice.

SAVINGS AND LOAN HOLDING COMPANY REGULATIONS

         HOLDING COMPANY ACQUISITIONS. The Home Owners Loan Act ("HOLA") 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.

         HOLDING  COMPANY  ACTIVITIES.  As a unitary  savings  and loan  holding
company, the Company generally is not subject to activity restrictions under the
HOLA.  If the  Company  acquires  control of another  savings  association  as a
separate subsidiary other than in a supervisory  acquisition,  it would become a
multiple savings and loan holding company. There generally are more restrictions
on the activities of a multiple  savings and loan holding  company than on those
of a unitary  savings and loan holding  company.  The HOLA 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  savings  and loan  holding
company.

         QUALIFIED  THRIFT  LENDER TEST.  The HOLA provides that any savings and
loan  holding  company  that  controls  a  savings  association  that  fails the
qualified  thrift  lender  ("QTL") test must,  within one year after the date on
which the Bank  ceases  to be a QTL,  register  as and be deemed a bank  holding
company subject to all applicable laws and regulations.  Currently, the QTL test
requires  that either an  institution  qualify as a domestic  building  and loan
association  under the  Internal  Revenue  Code or that 65% of an  institution's
"portfolio assets" (as defined) consist of certain housing and  consumer-related

                                       29

<PAGE>

assets on a monthly  average  basis in nine out of every 12 months.  Assets that
qualify  without  limit for inclusion as part of the 65%  requirement  are loans
made to purchase,  refinance,  construct, improve or repair domestic residential
housing and manufactured housing; home equity loans;  mortgage-backed securities
(where the mortgages are secured by domestic residential housing or manufactured
housing);  FHLB stock; direct or indirect obligations of the FDIC; and loans for
educational  purposes,  loans to small  businesses and loans made through credit
cards.  In addition,  the following  assets,  among  others,  may be included in
meeting the test subject to an overall limit of 20% of the savings institution's
portfolio assets:  50% of residential  mortgage loans originated and sold within
90 days of origination;  100% of consumer loans; and stock issued by Freddie Mac
or Fannie Mae.  Portfolio  assets  consist of total  assets minus the sum of (i)
goodwill  and  other  intangible  assets,  (ii)  property  used  by the  savings
institution  to conduct its  business,  and (iii) liquid assets up to 20% of the
institution's  total assets.  At March 31, 1999, the Bank was in compliance with
the QTL test.

ITEM 2.  DESCRIPTION OF PROPERTIES

         The Bank operates seven full-service  facilities in Lewiston,  Lewiston
Orchards,  Moscow,  Grangeville,  Coeur  d'Alene,  and Post  Falls,  Idaho,  and
Clarkston, Washington. The Company owns the Lewiston, Lewiston Orchards, Moscow,
Grangeville,  and Coeur d'Alene facilities,  leases the Washington building on a
month-to-month  tenancy for three years which began July 1, 1997, and leases the
in store  location of the Post Falls  branch on a  month-to-month  tenancy  with
Tidymans which began March 1, 1999.  The Bank also operates one loan  production
office in Coeur  d'Alene,  Idaho,  which is located in the same  facility as its
full-service office, and one loan production office in Lewiston, Idaho, which is
a leased building  adjacent to the Lewiston  facilities.  A portion of the Coeur
d'Alene facility is leased to an unaffiliated brokerage firm for a period of ten
years  expiring in 2006. At March 31, 1999, the net book value of the properties
(including land and buildings) and the Bank's fixtures,  furniture and equipment
was $5.3 million. The Company believes that its existing facilities are adequate
for the current level of operations.


ITEM 3.  LEGAL PROCEEDINGS

         Periodically, there have been various claims and lawsuits involving the
Bank,  mainly as a  defendant,  such as claims to  enforce  liens,  condemnation
proceedings  on properties in which the Bank holds  security  interests,  claims
involving  the making and  servicing  of real  property  loans and other  issues
incident to the Bank's business. The Company and the Bank are not a party to any
pending legal  proceedings that it believes would have a material adverse effect
on the financial condition or operations of the Company.

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 fiscal year ended March 31, 1999.

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                                                       PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The common stock of the Company is traded on the Nasdaq National Market
under the symbol  FBNW.  The table below  reflects  the high and low closing and
sales prices of the common stock and cash  dividends paid per share for the last
three fiscal years. The common stock began trading on July 2, 1997. At March 31,
1999 there were 331 record holders of common stock of the Company.


<TABLE>
<CAPTION>
                        1999                      High                  Low               Dividends
                        ----                      ----                  ---               ---------
<S>                                             <C>                   <C>                  <C>
             First Quarter                      $23.500               $19.500              $0.08
             Second Quarter                      24.000                13.750               0.08
             Third Quarter                       17.375                12.688               0.09
             Fourth Quarter                      18.000                14.000               0.09


                        1998                      High                  Low               Dividends
                        ----                      ----                  ---               ---------
             First Quarter                        N/A                   N/A                  N/A
             Second Quarter                      19.125                15.250               0.00
             Third Quarter                       18.875                15.625               0.07
             Fourth Quarter                      21.125                18.188               0.07


                        1997                      High                  Low               Dividends
                        ----                      ----                  ---               ---------
             First Quarter                        N/A                   N/A                  N/A
             Second Quarter                       N/A                   N/A                  N/A
             Third Quarter                        N/A                   N/A                  N/A
             Fourth Quarter                       N/A                   N/A                  N/A
</TABLE>

         The  payment  of  dividends  on the  common  stock  is  subject  to the
requirements of applicable law and the  determination  by the Board of Directors
of the Company  that the net  income,  capital and  financial  condition  of the
Company,  industry trends and general economic conditions justify the payment of
dividends.  The rate of such  dividends and the continued  payment  thereof will
depend upon various  factors at the intended  time of  declaration  and payment,
including  the  Bank's  profitability  and  liquidity,   alternative  investment
opportunities,  and regulatory  restrictions on dividend payments and on capital
levels  applicable to the Bank.  Accordingly,  there can be no present assurance
that any  dividends  will be paid.  Periodically,  the  Board of  Directors,  if
market,  economic and regulatory  conditions  permit,  may combine or substitute
periodic special dividends with or for regular dividends. In addition, since the
Company has no  significant  source of income other than dividends from the Bank
and earnings from  investment of the net proceeds of the Conversion  retained by
the Company,  the payment of  dividends by the Company  depends in part upon the
amount of the net proceeds from the  Conversion  retained by the Company and the
Company's earnings thereon and the receipt of dividends from the Bank, which are
subject to various tax and regulatory  restrictions on the payment of dividends.
Dividend  payments by the  Company is subject to  regulatory  restriction  under
Federal Reserve policy as well as to limitation under  applicable  provisions of
Delaware  corporate law. Under Delaware law, dividends may be paid either out of
surplus  or, if there is no  surplus,  out of net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.

                                       31

<PAGE>
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

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 Company. The information  contained in this section
should be read in conjunction  with the  consolidated  financial  statements and
accompanying notes thereto.

         This  report  contains   statements  that  constitute   forward-looking
statements and are subject to certain risks and  uncertainties  that could cause
actual facts to differ  materially from those presented in this report.  Readers
are cautioned not to place undue  reliance on these  forward-looking  statements
which speak only as of the date of this report.

         The profitability of the Company's  operations depends primarily on its
net interest income, its non-interest  income (principally from mortgage banking
activities) and its non-interest  expense. Net interest income is the difference
between the income the Company receives on its loan and investment portfolio and
its cost of funds,  which consists of interest paid on deposits and  borrowings.
Net interest income is a function of the Company's  interest rate spread,  which
is the difference  between the yield earned on  interest-earning  assets and the
rate paid on interest-bearing  liabilities, as well as a function of the average
balance  of  interest-earning  assets as  compared  to the  average  balance  of
interest-bearing  liabilities.  Non-interest  income is comprised of income from
mortgage  banking  activities,  gain  on  the  occasional  sale  of  assets  and
miscellaneous  fees and income.  Mortgage banking generates income from the sale
of mortgage  loans and from  servicing  fees on loans  serviced for others.  The
contribution  of  mortgage  banking  activities  to  the  Company's  results  of
operations  is  highly  dependent  on the  demand  for  loans by  borrowers  and
investors,  and  therefore  the  amount  of  gain  on sale  of  loans  may  vary
significantly  from  period to period as a result of changes in market  interest
rates and the local and national  economy.  The Company's  profitability is also
affected by the level of non-interest  expense.  Non-interest  expenses  include
compensation and benefits, occupancy and maintenance expenses, deposit insurance
premiums, data servicing expenses,  advertising expenses,  supplies and postage,
and other operating costs.  Additional  expenses that will be incurred in fiscal
2000 are related to the new in-store branch in Post Falls, Idaho, the new branch
which is to open this  Fall in  Liberty  Lake,  Washington,  and the  Management
Recognition  and  Development  Plane  (MRDP).  The  conversion  from the present
service bureau to an in-house  system will result in an assessment of a penalty,
de-conversion  and related costs of over $120,000,  to be incurred in June 1999.
The Company's results of operations may be adversely  affected during periods of
reduced loan demand to the extent that  non-interest  expenses  associated  with
mortgage banking  activities are not reduced  commensurate  with the decrease in
loan originations.

OPERATING STRATEGY

         The   Company's   primary  goal  has  been  to  improve  the  Company's
profitability  while  maintaining a sound capital  position.  To accomplish this
goal,  the Company  has  employed  an  operating  strategy  that  includes:  (1)
originating  for its  portfolio,  residential  mortgage  loans,  primarily  with
adjustable rates or with fixed rates with terms of 15 years or less,  secured by
properties  located in its primary  market area;  (2)  enhancing  net income and
controlling  interest rate risk by originating  fixed-rate  residential mortgage
loans for sale in the secondary market, as market conditions  permit, as a means
of generating current income through the recognition of cash gains on loan sales
and loan servicing  fees;  (3) increasing its average yield on  interest-earning
assets by originating  for portfolio  higher-yielding  construction,  commercial
real estate and agricultural real estate loans; and (4) controlling asset growth
to a level  sustainable  by the  Company's  capital  position.  The  Company has
adopted a  community  banking  strategy  pursuant  to which it will  expand  the
products  and  services  it offers  within its  primary  market area in order to
improve  market  share and increase  the average  yield of its  interest-earning
assets. Specifically, the Company intends to continue to expand its agricultural
real estate and  commercial  real estate  lending  activities.  The Company also
intends  to  pursue  the  expansion  its  non-mortgage   lending  activities  by
increasing  its  emphasis  on  originating   agricultural  operating  loans  and
commercial  business  loans.  These loans afford the Company the  opportunity to
achieve higher  interest  rates with shorter terms to maturity than  residential
mortgage loans but involve  greater  credit risk. As part of this strategy,  the
Company hired an experienced commercial loan officer to head the commercial loan
department in fiscal 1997. In fiscal 1998, the commercial department added three
experienced  officers  and the  agricultural  department  expanded  its  lending

                                       32
<PAGE>

capabilities  with the addition of two locally  established  loan  officers.  In
fiscal 1999, the commercial  department  added another  experienced loan officer
that resides in the Moscow,  Idaho area. During fiscal year 2000, the commercial
department  will  strengthen  its presence in the Coeur d'Alene area by adding a
loan officer.  There can be no assurances that the Company will be successful in
its efforts to increase  its  originations  of these types of loans.  Management
anticipates that the Company will incur significant other expenses in connection
with the implementation  and maintenance of its online banking programs,  and as
various  programs and services,  such as its commercial real estate and business
lending  operations,  are  introduced or expanded.  These  expenses could reduce
earnings  for a period of time  while  income  from new  programs  and  services
increases to a level sufficient to cover the additional expenses.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND MARCH 31, 1999

         Total assets increased $23.2 million,  or 12.6%, from $183.6 million at
March 31,  1998 to $206.8  million  at March 31,  1999.  The growth in assets is
primarily  attributable  to an increase in loans  receivable  and investment and
mortgage-backed securities,  resulting primarily from the increased deposits and
FHLB advances.  Net loans receivable  increased  from$145.7 million at March 31,
1998 to  $165.6  million  at  March  31,  1999.  The mix of  loans  has  changed
reflecting  the  Company's  community  banking  strategy.  In real estate loans,
residential  mortgage  loans  decreased  from  57.0% to  46.5%  of total  loans,
construction  loans stayed consistent at 5.2% agricultural  loans decreased from
9.5% to 9.1% and commercial  real estate loans  increased from 8.0% to 13.1%. In
non-real  estate  loans,   home  equity  lines  decreased  from  4.0%  to  3.3%,
agricultural  operating lines increased from 1.5% to 2.4%,  commercial  business
loans increased from 10.8% to 15.6% and other consumer loans increased from 4.0%
to 4.8%.  Included in the March 31, 1999 residential real estate loan balance is
$7.0 million of fixed  interest  equity loans secured by second liens;  if these
had been classified as consumer loans,  the real estate  residential  loan ratio
would have been 42.6% and home equity would have been 7.2% of total loans. These
ratios  reflect  the Bank's  move to a more  commercial  banking  mix of assets.
During the year ended March 31, 1999,  the Company  retained  for its  portfolio
fixed-rate mortgage loans with terms of 15 years or less totaling $11.1 million.
Cash and cash  equivalents  increased  from $8.4  million  to $8.5  million  and
investment   securities   increased   from  $5.1   million   to  $7.2   million.
Mortgage-backed securities increased from $11.4 million to $12.9 million, due to
a  portion  of  FHLB  advances   being  invested  in   collateralized   mortgage
obligations.

         Total  liabilities  increased  from $153.6 million at March 31, 1998 to
$179.0 million at March 31, 1999.  Deposits  increased $18.8 million from $114.5
million  at March 31,  1998 to $133.3  million at March 31,  1999.  Of the $18.8
million gain,  $12.6 was in core deposit  accounts.  Presently 52.0% of checking
accounts are non-interest bearing. FHLB advances increased from $35.7 million at
March 31, 1998 to $42.0 million at March 31, 1999. Included in these advances is
$15.8  million  in  callable  advances,  as the  Company  increased  its  use of
borrowings to fund asset growth.


COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1998 AND 1999

         GENERAL.  Net income increased  $330,000,  from $1.7 million ($0.93 per
share - basic and  diluted)  for the year ended March 31,  1998 to $2.0  million
($1.16 per share - basic;  $1.13 per share - diluted)  for the year ended  March
31,  1999.  The  Company  experienced  an increase  in net  interest  income and
non-interest  income in fiscal 1999  compared  to fiscal  1998.  However,  these
increases  were partially  offset by an increase in  non-interest  expense.  The
non-interest  expenses  included  opening a new branch office,  expanding staff,
offering new services and expensing items not able to be capitalized  related to
purchasing and installing new telephone lines.

         NET INTEREST INCOME. Net interest income increased $990,000,  or 14.7%,
from $6.7 million for the year ended March 31, 1998 to $7.7 million for the year
ended March 31, 1999. The most significant portion of this increase was a result
of decreasing  cost of funds greater than the small decline in loan yields.  The
Company's interest rate spread between the yield on interest-earning  assets and
the rate paid on  interest-bearing  liabilities  increased from 3.78% for fiscal
1998 to 3.88% for fiscal 1999.

         Total interest income increased $1.7 million from $13.3 million for the
year ended  March 31, 1998 to $15.0  million for the year ended March 31,  1999.
Interest income on loans receivable increased $1.6 million, or 13.9%, from $11.7

                                       33

<PAGE>

million for fiscal 1998 to $13.3  million for fiscal 1999.  The increase was the
result of a larger average  balance of loans in fiscal 1999.  Interest income on
mortgage-backed  and related  securities  increased  $11,000 from fiscal 1998 to
fiscal 1999 primarily as a result of a larger average balance of mortgage-backed
securities  in  fiscal  1999  offset  by a  decreasing  yield  caused  by higher
pre-payments.  Interest  income on additional  investment  securities  increased
$9,000,  from fiscal 1998 to fiscal  1999 as a result of  purchasing  additional
Bank Qualified  Idaho  Municipal  Bonds,  which  increased the average  balance.
Interest income on other interest-earning  assets decreased slightly from fiscal
1998 to fiscal 1999 as a result of lower yields in 1999.

         Interest expense increased by $650,000,  from $6.6 million for the year
ended March 31, 1998 to $7.2 million for the year ended March 31, 1999. Interest
expense on  deposits  increased  $210,000,  or 4.5%,  from fiscal 1998 to fiscal
1999. The average balance of deposits increased from fiscal 1998 to fiscal 1999,
and the  average  rate paid on  deposits  decreased.  Interest  expense  on FHLB
advances  increased $440,000 from $1.9 million in fiscal 1998 to $2.4 million in
fiscal 1999 as a result of a larger average balance of outstanding borrowings in
fiscal 1999.

         PROVISION  FOR LOAN LOSSES.  The provision for loan losses was $296,000
for the year ended March 31, 1999  compared to $200,000 for the year ended March
31, 1998.  Management  continues to increase the  provision for loan losses as a
result of the growth experienced in the loan portfolio,  specifically the growth
of commercial and consumer loans,  which generally are riskier than  residential
mortgage  loans.  The  Company's  allowance  for loan losses was $1.4 million or
0.76% of total loans receivable, at March 31, 1999, compared to $1.1 million, or
0.73% of total loans  receivable,  at March 31, 1998. Net loan  charge-offs were
$55, 000 during both fiscal 1999 and fiscal 1998.

         NON-INTEREST INCOME.  Total non-interest income increased $820,000,  or
36.1%,  from  fiscal  1998 to  fiscal  1999.  Income  on gain on  sales of loans
increased $640,000,  or 63.2%, from fiscal 1999 to fiscal 1998 because of higher
volume of sold loans that were  originated  during  the year.  Service  fees and
charges increased $165,000,  which was caused by an increase in checking account
fee income.  This  increase  was due to a growing  number of NOW accounts and an
increase in corresponding fees charged. Commissions increased $16,000, resulting
from higher life and accidental health insurance sales on installment loans.

         NON-INTEREST   EXPENSE.   Total  non-interest  expense  increased  $1.4
million,  or 22.9%,  from $6.2 million for the year ended March 31, 1998 to $7.6
million for the year ended March 31,  1999.  Compensation  and related  benefits
increased  $740,000,  or  20.8%,  from  fiscal  1998 to fiscal  1999.  Occupancy
expenses  increased  $100,000,  or 13.6% and data processing  expenses increased
$190,000,  or 66.8%,  between the periods,  while  professional  fees  decreased
$43,000.  These  increases were  primarily the result of the increased  level of
operations in 1999 undertaken by the Company.  All other  non-interest  expenses
increased approximately $420,000, or 31.8%.

         INCOME  TAXES.  Income taxes were $923,000 for the year ended March 31,
1999 compared  with $944,000 for the year ended March 31, 1998.  The decrease in
the  effective  income tax rate was due to an increase in fiscal 1999 tax exempt
interest income.

                                       34

<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST

         The  following  table  sets  forth  certain  information  for the years
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  tax
effected  yields and costs.  Such yields and costs for the years  indicated  are
derived by  dividing  tax  effected  income or expense  by the  average  monthly
balance of assets or liabilities, respectively, for the years presented. Average
balances are derived from month-end  balances.  Management does not believe that
the use of month-end  balances instead of daily balances has caused any material
difference in the information presented.

<TABLE>
<CAPTION>
                                                                    Years Ended March 31,
                               ---------------------------------------------------------------------------------------
                                           1997                             1998                     1999
                                           ----                             ----                     ----
                                          Interest   Average           Interest   Average             Interest Average
                                Average     and      Yield/   Average    and      Yield/   Average      and    Yield/
                                Balance   Dividends  Cost     Balance  Dividends  Cost     Balance   Dividends Cost
                               --------   ---------  -----   --------  ---------  ----    --------   --------- ----
                                                               (Dollars in Thousands)
<S>                            <C>        <C>        <C>     <C>        <C>        <C>    <C>        <C>       <C>
Interest-earning assets(1):
Loans receivable               $106,295   $ 9,249    8.70%   $133,294   $11,695    8.82%  $155,860   $13,315   8.64%
Mortgage-backed securities        2,588       147    5.68       9,589       613    6.39     11,111       623   5.61
Investment securities             8,955       534    5.96       5,164       292    6.33      6,816       302   6.22
Other earning assets              5,834       262    4.49      10,005       721    7.21      9,972       721   7.23
                               --------   -------            --------   -------           --------   -------
Total interest-earning assets   123,672    10,192    8.24     158,052    13,321    8.49    183,759    14,961   8.29

Non-interest-earning assets       6,259                         9,011                       13,067
                               --------                      --------                     --------
Total assets                   $129,931                      $167,063                     $196,826
                               ========                      ========                     ========

Interest-earning liabilities:
Passbook, NOW and money
   market accounts             $ 36,457       818    2.24    $ 38,245       890    2.33   $ 46,749       877   1.88
Certificates of deposit          72,550     4,021    5.54      70,743     3,769    5.33     76,107     3,993   5.25
                               --------   -------            --------   -------           --------   -------
Total deposits                  109,007     4,839    4.44     108,988     4,659    4.27    122,856     4,870   3.96

Advances from FHLB                8,080       499    6.18      30,560     1,914    6.26     41,107     2,353   5.72
                               --------   -------            --------   -------           --------   -------
Total interest-bearing
   Liabilities                  117,087     5,338    4.56     139,548     6,573    4.71    163,963     7,223   4.41
                                          -------                       -------                      -------
Non-interest-bearing
   Liabilities                    2,003                         3,067                        3,574
                               --------                      --------                     --------
Total liabilities               119,090                       142,615                      167,537
                               --------                      --------                     --------
Total stockholders' equity       10,841                        24,448                       29,289
                               --------                      --------                     --------

Total liabilities and
   total stockholders' equity  $129,931                      $167,063                     $196,826
                               ========                      ========                     ========

Net interest income                       $ 4,854                       $ 6,748                      $ 7,738
                                          =======                       =======                      =======

Interest rate spread                                 3.68%                         3.78%                       3.88%
                                                     ====                          ====                        ====

Net interest margin                         3.92%                          4.27%                        4.36%
                                          ======                        =======                      =======

Ratio of average interest-
   earning assets to average
   interest- bearing liabilities          105.62%                        113.26%                      112.07%
                                          ======                        =======                      =======
</TABLE>

(1)      Does not include interest on loans 90 days or more past due.

                                                          35
<PAGE>

RATE/VOLUME ANALYSIS

         The  following  table sets  forth the  effects  of  changing  rates and
volumes on the interest income and interest expense of the Company.  Information
is  provided  with  respect  to:  (i)  effects  attributable  to changes in rate
(changes in rate  multiplied  by prior  volume);  (ii) effects  attributable  to
changes in volume  (changes in volume  multiplied by prior rate);  (iii) effects
attributable to changes in rate/volume (changes in rate multiplied by changes in
volume); and (iv) the net change (the sum of the prior columns).

<TABLE>
<CAPTION>
                                         Year Ended March 31, 1998                  Year Ended March 31, 1999
                                         Compared to Year Ended                      Compared to Year Ended
                                             March 31, 1997                              March 31, 1998
                                             --------------                              --------------
                                           Increase (Decrease)                         Increase (Decrease)
                                                 Due to                                      Due to
                                                 ------                                      ------
                                                          Rate/                                     Rate/
                                    Rate      Volume     Volume      Net       Rate      Volume     Volume       Net
                                   -------    -------    -------   -------    -------    -------    -------    -------
                                                                      (In Thousands)
<S>                                <C>        <C>        <C>       <C>        <C>        <C>        <C>         <C>
Interest-earning assets:
Loans receivable(1)                $    75    $ 2,352    $    19   $ 2,446    $  (308)   $ 1,980    $   (52)    $,1620
Mortgage-backed securities              18        398         50       466        (75)        97        (12)        10
Investment securities                  (28)      (226)        12      (242)       (63)        93        (20)        10
Other earning assets                   159        187        113       459          2         (2)        --         --
                                   -------    -------    -------   -------    -------    -------    -------    -------

Total net change in income
 on interest-earning assets            224      2,711        194     3,129       (444)     2,168        (84)     1,640
                                   -------    -------    -------   -------    -------    -------    -------    -------

Interest-bearing liabilities:
 Passbook, NOW and money
   market accounts                      30         40          2        72       (173)       198        (38)       (13)
Certificates of deposit               (156)      (100)         4      (252)       (57)       285         (4)       224
FHLB advances                            7      1,388         20     1,415       (165)       661        (57)       439
                                   -------    -------    -------   -------    -------    -------    -------    -------

Total net change in expense
 on interest-bearing liabilities      (119)     1,328         26     1,235       (395)     1,144        (99)       650
                                   -------    -------    -------   -------    -------    -------    -------    -------

Net increase (decrease) in net
  interest income                  $   343    $ 1,383    $   168   $ 1,894    $   (49)   $ 1,024    $    15    $   990
                                   =======    =======    =======   =======    =======    =======    =======    =======
</TABLE>

(1)      Does not include interest on loans 90 days or more past due.

ASSET AND LIABILITY MANAGEMENT

         The Company's  principal  financial  objective is to achieve  long-term
profitability  while reducing its exposure to fluctuating  interest  rates.  The
Company  has  sought to reduce  exposure  of its  earnings  to changes in market
interest rates by attempting to manage the mismatch  between asset and liability
maturities and interest rates. The principal element in achieving this objective
is to increase the interest-rate  sensitivity of the Company's  interest-earning
assets by retaining for its portfolio shorter term loans and loans with interest
rates  subject  to  periodic  adjustment  to market  conditions  and by  selling
substantially all of its longer term, fixed-rate residential mortgage loans. The
Company has  historically  relied on retail  deposits  as its primary  source of
funds.  Management  believes  retail  deposits,  compared to brokered  deposits,
reduce  the  effects  of  interest  rate  fluctuations  because  they  generally
represent  a more  stable  source of funds.  As part of its  interest  rate risk
management  strategy,  the  Company  promotes  non-interest-bearing  transaction

                                       36

<PAGE>

accounts and  certificates of deposit with longer  maturities (up to five years)
to reduce the interest sensitivity of its interest-bearing liabilities.

MARKET RISK

         Market risk is the risk of loss in a financial  instrument arising from
adverse changes in market rates/prices such as interest rates,  foreign currency
exchange  rates,  commodity  prices,  and equity prices.  The Company's  primary
market  risk  exposure  is  interest  rate risk.  The  on-going  monitoring  and
management   of  the  risk  is  an   important   component   of  the   Company's
asset/liability management process, which is governed by policies established by
its Board of Directors  that are reviewed  and approved  annually.  The Board of
Directors   delegates   responsibility  for  carrying  out  the  asset/liability
management policies to the Asset/Liability  Committee ("ALCO"). In this capacity
ALCO develops guidelines and strategies impacting the Company's  asset/liability
management  related  activities  based upon estimated  market risk  sensitivity,
policy limits and overall market interest rate levels/trends.

INTEREST RATE RISK

         Interest rate risk represents the sensitivity of earnings to changes in
market  interest rates. As interest rates change the interest income and expense
streams associated with the Company's financial  instruments also change thereby
impacting net interest  income ("NII"),  the primary  component of the Company's
earnings.  ALCO utilizes the results of a detailed and dynamic  simulation model
to quantify the  estimated  exposure of NII to sustained  interest rate changes.
While ALCO routinely  monitors simulated NII sensitivity over a rolling two-year
horizon,  it also utilizes  additional  tools to monitor  potential  longer-term
interest rate risk.

         The simulation model captures the impact of changing  interest rates on
the  interest  income  received  and  interest  expense  paid on all  assets and
liabilities  reflected on the Company's balance sheet as well as for off balance
sheet derivative  financial  instruments,  if any. This sensitivity  analysis is
compared to ALCO policy limits which specify a maximum  tolerance  level for NII
exposure over a one year horizon, assuming no balance sheet growth, given both a
200 basis point (bp) upward and downward shift in interest rates. A parallel and
pro rata  shift in  rates  over a 12 month  period  is  assumed.  The  following
reflects the Company's NII sensitivity analysis as of March 31, 1999 as compared
to the 10.00% Board approved policy limit.

                        -200 BP                  Flat                  +200 BP
                        -------                  ----                  -------
                                        (Dollars in Thousands)
Year 1 NII              $7,814                  $8,024                 $8,055
NII $ Change            $ (210)                   --                   $   31
NII % Change             -2.62%                   --                     0.39%

         The  preceding  sensitivity  analysis  does  not  represent  a  Company
forecast and should not be relied upon as being  indicative  of expected  future
operating  results.   These  hypothetical  estimates  are  based  upon  numerous
assumptions  including:  the nature and timing of interest rate levels including
yield curve shape,  prepayments  on loans and  securities,  deposit decay rates,
pricing decisions on loans and deposits,  reinvestment/replacement  of asset and
liability cash flows,  and others.  While  assumptions  are developed based upon
current  economic  and local  market  conditions,  the  Company  cannot make any
assurances  as to the  predictive  nature  of these  assumptions  including  how
customer preferences or competitor influences might change.

         Also, as market  conditions  vary from those assumed in the sensitivity
analysis, actual results will also differ due to:  prepayment/refinancing levels
likely deviating from those assumed,  the varying impact of interest rate change
caps or floors on adjustable rate assets,  the potential effect of changing debt
service  levels  on  customers  with  adjustable  rate  loans,  depositor  early
withdrawals  and  product  preference  changes,   and  other   internal/external
variables.  Furthermore,  the sensitivity analysis does not reflect actions that
ALCO might take in responding to or anticipating changes in interest rates.

                                       37

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         The Company's primary recurring sources of funds are customer deposits,
proceeds from principal and interest  payments on loans,  proceeds from sales of
loans,  maturing  securities and FHLB advances.  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 Company must maintain an adequate  level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to  satisfy   financial   commitments   and  to  take  advantage  of  investment
opportunities.  The Company generally  maintains  sufficient cash and short-term
investments to meet short-term liquidity needs. At March 31, 1999, cash and cash
equivalents  totaled $8.5  million,  or 4.1% of total  assets In  addition,  the
Company  maintains a credit facility with the  FHLB-Seattle,  which provides for
immediately  available  advances.  Advances under this credit  facility  totaled
$42.0 million at March 31, 1999.

         The primary  investing  activity of the Company is the  origination  of
mortgage  loans.  During the years ended  March 31,  1998 and 1999,  the Company
originated   loans  in  the  amounts  of  $145.3  million  and  $165.6  million,
respectively. At March 31, 1999, the Company had loan commitments totaling $22.0
million,  undisbursed  lines of  credit  totaling  $15.1  million,  credit  card
available  balances  of 1.7 million and  undisbursed  loans in process  totaling
$12.2  million.  The  Company  anticipates  that it will have  sufficient  funds
available  to meet its current loan  origination  commitments.  Certificates  of
deposit  that are  scheduled to mature in less than one year from March 31, 1999
totaled  $51.4  million.  Historically,  the  Company  has been able to retain a
significant  amount of its deposits as they mature.  In addition,  management of
the  Company  believes  that  it  can  adjust  the  offering  rates  of  savings
certificates to retain deposits in changing interest rate environments.

         The Bank is required to maintain  specific  amounts of capital pursuant
to the FDIC and the State of Washington requirements.  As of March 31, 1999, the
Bank was in  compliance  with all  regulatory  capital  requirements  which were
effective as of such date with Tier 1 Capital to average assets,  Tier 1 Capital
to  risk-weighted  assets and total  capital to  risk-weighted  assets of 10.2%,
14.4%, and 15.4%, respectively.  For a detailed discussion of regulatory capital
requirements,  see  "REGULATION  -- State  Regulation and  Supervision"  and "--
Capital Requirements."


YEAR 2000 ISSUES

         The  Year  2000  issue  exists   because  many  computer   systems  and
applications  use two-digit date fields to designate a year. As the century date
change  occurs,  date-sensitive  systems may recognize the Year 2000 as 1900, or
not at all.  This  inability to  recognize  or properly  treat the Year 2000 may
cause systems to process financial and operational information incorrectly.  The
Company has  developed a plan and created a committee  of the Board of Directors
to analyze  how the Year 2000 will  impact  its  operations  and to monitor  the
status of its  vendors.  The  following  guidelines  are identify the five steps
provided by The Federal Financial Institutions Examination Council ("FFIEC"):

         Awareness  Phase - Define the Year 2000  problem  and  establish a Year
2000 program  team and overall  strategy.  The Company as of September  30, 1997
completed this step.

         Assessment  Phase - Assess the size and  complexity  of the problem and
detail the magnitude of effort necessary to address Year 2000 issues,  including
hardware,  software,  networks,  automated teller  machines,  etc. This step was
approximately  99%  complete  by March 31, 1999 and  assessment  will be ongoing
until the Year 2000.

                                       38

<PAGE>

         Renovation Phase - This phase includes  hardware and software  upgrades
and system  replacements.  This step was 100%  complete for in-house  systems at
December 31, 1998.  This phase also  encompasses  ongoing  discussions  with and
monitoring of outside servicers and third- party software providers.

         Validation/Testing  Phase - This process  includes  testing of hardware
and software components. Testing is completed by performing extensive tests with
the  computer  dates  changed to January 1, 2, and 3, 2000.  Such  testing  will
continue  through June 30, 1999, with the most critical  functions tested first.
This allows time to correct any discovered  deficiencies before the end of 1999.
In-house systems and third party service bureaus are 100% tested as of March 31,
1999.  The Company is either  testing or reviewing  test documents of additional
third party vendors that are deemed critical to the operations of the Company.
Overall,  the  validation  phase is  approximately  85% complete as of March 31,
1999.

         Implementation Phase - Systems successfully tested will be certified as
Year 2000 compliant.  For any system failing  validation  testing,  the business
impact  must be  assessed  and a  contingency  plan  implemented.  This phase is
scheduled for completion by June 30, 1999.

         Critical data processing applications, in addition to those provided by
the service bureau,  have been identified.  These include  applications  such as
electronic  processing  through the  Federal  Reserve  Bank and ATM  processing.
Testing with Federal Reserve has been successfully  completed.  All ATM machines
have been upgraded and are now ready for Year 2000.  Contingency  plans are also
being developed by the committee.  The  contingency  plans address actions to be
taken to continue  operations  in the event of system  failure due to areas that
cannot be tested in advance, such as power service,  which are vital to business
continuation. Contingency planning is scheduled for completion by June 30, 1999.

         All of the  material  data  processing  of the  Company  that  could be
affected  by this  problem is  provided by a third  party  service  bureau.  The
Company's  service bureau  informed the Company that it intended to complete its
year 2000 adjustment by June 1998 and to make its systems  available for testing
in  December  1998.  Testing  by the  Bank was  completed  in  October  1998 and
management was satisfied with the results.  The Company will continue to monitor
its status as well as its service  providers'  status in their efforts to become
Year 2000 compliant. The Company does not believe that the costs associated with
its  actions  and those of its vendors  will be  material  to the  Company.  The
Company's  service bureau will make available  certain  software that will allow
the Company to test its critical  applications.  The Company estimates the costs
incurred for the implementation and testing of such software to be $20,000. Such
costs are  expected to be incurred  during  fiscal  2000.  During  fiscal  1999,
$65,000  was spent on Year 2000  preparation.  The costs for  accomplishing  the
Company's plans to complete the Year 2000  modifications  and testing  processes
are based on management's best estimates,  which were derived utilizing numerous
assumption of future  events,  including the continued  availability  of various
resources,  third-party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved,  and actual results could
differ from those plans. In the event the Company's  service bureau is unable to
fulfill its contractual  obligations to the Company, it could have a significant
adverse  impact on the  financial  condition  and results of  operations  of the
Company.

         All new  commercial and  agricultural  loans over $100,000 are assessed
for Year 2000  risk.  Loans are then rated  low,  medium or high risk.  A higher
reserve level will be maintained  for medium and high-risk  loans.  All existing
commercial and agriculture  loans over $100,000 have been rated: 1 loan rated at
the highest risk and 12 at medium risk.

         The Bank has assessed its  liquidity  needs and believes  there will be
adequate funds available from FHLB or the Portland Federal Reserve.

         In June of 1999,  the Bank will be converting  from a service bureau to
an in-house computer system. This system will be a client/server system that was
developed from 1992 to 1996 with Year 2000 compliance as a priority. Part of the
conversion process is to test the interfaces to outside vendors.  The Bank has a
complete  separate  system set up solely for the  purpose of Year 2000  testing.
Test scripts will be run prior to the June conversion, and a review of the proxy
testing manuals provided by the Software Company will be completed.

                                       39

<PAGE>

IMPACT OF NEW ACCOUNTING STANDARDS

         In June 1998, the Financial  Accounting Standards Board issued SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging  Activities," which is
required to be adopted in all fiscal  quarters of fiscal years  beginning  after
June 15, 1999.  The statement  requires  companies to recognize  all  derivative
contracts as either  assets or  liabilities  in the balance sheet and to measure
them at  fair  value.  If  certain  conditions  are  met,  a  derivative  may be
specifically  designated  as a hedge,  the  objective  of which is to match  the
timing  of  gain  or  loss  recognition  on  the  hedging  derivative  with  the
recognition  of (i) the  changes  in the  fair  value  of the  hedged  asset  or
liability that are  attributable  to the hedged risk or (ii) the earnings effect
of the hedged  forecasted  transaction.  For a derivative  not  designated  as a
hedging  instrument,  the gain or loss is  recognized as income in the period of
change.  The Company is currently  evaluating the financial  statement impact of
adopting SFAS No. 133.

         In June 1998,  the  Accounting  Standards  Executive  Committee  of the
American  Institute of Certified Public Accountants issued Statement of Position
98-5 ("SOP  98-5"),  "Reporting on the Costs of Start-Up  Activities."  SOP 98-5
requires all start-up and  organizational  costs to be expensed as incurred.  It
also  requires all  remaining  historically  capitalized  amounts of these costs
existing at the date of adoption to be expensed and  reported as the  cumulative
effect of a change in accounting principle. SOP 98-5 is effective for all fiscal
years beginning after December 31, 1998. The Company  believes that the adoption
of SOP 98-5 will not have a significant effect on its financial statements.

         In October 1998, the Financial  Accounting  Standards Board issued SFAS
No.  134,   "Accounting  for  Mortgage-Backed   Securities  Retained  After  the
Securitization   of  Mortgage  Loans  Held  for  Sale  by  a  Mortgage   Banking
Enterprise." This statement  effectively  changes the way mortgage banking firms
account  for  certain   securities   and  other   interests  they  retain  after
securitizing  mortgage loans that were held for sale. The Company  believes that
the  adoption  of SFAS No.  134 will not have a  significant  effect  on the its
financial statements.

         In February 1999, the Financial  Accounting Standards Board issued SFAS
No.  135,  "Rescission  of  Financial  Accounting  Standards  Board  No.  75 and
Technical  Corrections."  SFAS No. 135 rescinds  SFAS No. 75 and amends SFAS No.
35. SFAS No. 135 also amends other  existing  authoritative  literature  to make
various technical corrections, clarify meanings, or describe applicability under
changed  conditions.  SFAS No. 135 is effective for financial  statements issued
for fiscal years ending after February 15, 1999.  The Company  believes that the
adoption  of SFAS No. 135 will not have a  significant  effect on its  financial
statements.

EFFECT OF INFLATION AND CHANGING PRICES

         The  consolidated  financial  statements  and  related  financial  data
presented  herein have been prepared in accordance with GAAP,  which 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 Company'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.

                                       40

<PAGE>

ITEM 7.   FINANCIAL STATEMENTS

         The  information  required by this item is  incorporated  by  reference
under the caption "Consolidated Financial Statements" in the 1999 Annual Report.

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

         None.

                                    PART III

ITEM 9.  DIRECTORS,   EXECUTIVE   OFFICERS,   PROMOTERS  AND  CONTROL   PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The  information  concerning the Company's  directors  required by this
Item is  incorporated  by  reference  from the  information  set forth under the
caption  "Proposal 1 - Election of Directors" in the Company's  definitive Proxy
Statement  concerning the Annual Meeting of  Stockholders to be held on July 21,
1999 (the "1999 Proxy Statement").

         The  information  concerning  compliance  with  Section  16(a)  of  the
Securities  Exchange  Act  of  1934,  as  amended,  required  by  this  Item  is
incorporated  by  reference  to the  information  set forth  under  the  caption
"Compliance with Section 16(a) of the Exchange Act" in the 1999 Proxy Statement.

                   EXECUTIVE OFFICERS OF THE COMPANY AND BANK

                     Age at
                     March 31,            Position
Name                 1999      Company    --------            Bank
----                 ----      -------                        ----

Clyde E. Conklin      47   President and Chief Executive  Chief Executive
                           Officer                        Officer

Larry K. Moxley       48   Executive Vice President,      Chief Financial
                           Chief Financial Officer and    Officer and
                           Corporate Secretary            Secretary/Treasurer

Terence A. Otte       42   --                             Senior Vice President,
                                                          Agricultural and
                                                          Consumer Lending

Donn L. Durgan        44   --                             Senior Vice President,
                                                          Residential Lending

Douglas R. Ax         43   --                             Senior Vice President,
                                                          Commercial Lending

BIOGRAPHICAL INFORMATION

         CLYDE E. CONKLIN,  who joined the Bank in 1987, has served as the Chief
Executive  Officer of the Bank  since  February  1996.  From  September  1994 to
February 1996,  Mr. Conklin served as Senior Vice President - Lending.  In 1993,
Mr.  Conklin  became Vice  President - Lending.  Prior to that time, Mr. Conklin
served as Agricultural Lending Manager.

                                       41

<PAGE>

         LARRY K. MOXLEY, who joined the Bank in 1973, currently serves as Chief
Financial  Officer of the Bank,  which position he has held since February 1996.
Mr. Moxley served as Senior Vice  President - Finance from 1993 to February 1996
and as Vice President Finance from 1984 to 1993.

         TERENCE A. OTTE  joined the Bank in June 1989 as an  Agricultural  Loan
Officer.  From 1991 to 1994,  he served as manager of the Bank's  Moscow,  Idaho
branch.  In 1994 he  became  Vice  President-Lending  and  Agricultural  Lending
Manager and in 1996 became Vice President, Agricultural and Consumer Lending and
Compliance Officer.

         DONN L. DURGAN, who joined the Bank in February 1996,  currently serves
as Vice  President,  Residential  Lending.  Prior to that time,  Mr.  Durgan was
employed by First Security Bank for 11 years in various  positions in commercial
and residential real estate lending.

         DOUGLAS R. AX, who joined the Bank in January 1997, currently serves as
Vice President,  Commercial Lending.  Prior to that time, Mr. Ax was employed by
West One Bank (which became U.S. Bank) for over nine years in various  positions
in commercial  lending,  most recently as a Vice President and  Commercial  Loan
Officer.

ITEM 10. EXECUTIVE COMPENSATION

         The  information  provided by this Item is incorporated by reference to
the  information  under the captions  "Directors'  Compensation"  and "Executive
Compensation" in the 1999 Proxy Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  information  required by this Item is incorporated by reference to
the  information  under the caption  "Security  Ownership of Certain  Beneficial
Owners and Management" in the 1999 Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required by this Item is incorporated by reference to
the information  under the caption  "Transactions  with  Management" in the 1999
Proxy Statement.

                                       42

<PAGE>

                                     PART IV

ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  3.1      Articles of Incorporation of the Registrant*
                  3.2      Bylaws of the Registrant*
                  10.1     Employment  Agreement  between  FirstBank  Northwest,
                           FirstBank Corp. and Clyde E. Conklin
                  10.2     Employment  Agreement  between  FirstBank  Northwest,
                           FirstBank Corp. and Larry K. Moxley*
                  10.3     Salary  Continuation  Agreement between First Federal
                           Bank of Idaho F.S.B. and Clyde E. Conklin*
                  10.4     Salary  Continuation  Agreement between First Federal
                           Bank of Idaho, F.S.B. and Larry K. Moxley*
                  21       Subsidiaries of the Registrant
                  27       Financial Data Schedule

-------------------
*        Incorporated by reference to the Registrant's Registration Statement on
         Form SB-2 (File No. 333-23395).

         (b)      Reports on Form 8-K

                  No  Reports on Form 8-K were filed  during the  quarter  ended
                  March 31, 1999.

                                       43

<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.

                                   FIRSTBANK CORP.


Date:  June 18,1999                By: /s/ CLYDE E.CONKLIN
                                           -------------------------------------
                                           Clyde E. Conklin
                                           President and Chief Executive Officer

         Pursuant to 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.

SIGNATURES                               TITLE                        DATE
----------                               -----                        ----


/s/ CLYDE E. CONKLIN                President, Chief               June 18, 1999
---------------------------         Executive Officer and
    Clyde E. Conklin                Director (Principal
                                    Executive Officer)

/s/ LARRY K. MOXLEY                 Chief Financial Officer        June 18, 1999
---------------------------         and Director (Principal
    Larry K. Moxley                 Financial Officer)


/s/ CYNTHIA M. MOORE                Controller                     June 18, 1999
---------------------------         (Principal Accounting
    Cynthia M. Moore                Officer)


/s/ WILLIAM J. LARSON               Director                       June 18, 1999
---------------------------
    William J. Larson


/s/ STEVE R. COX                    Director                       June 18, 1999
---------------------------
    Steve R. Cox


/s/ ROBERT S. COLEMAN, SR.          Director                       June 18, 1999
---------------------------
    Robert S. Coleman, Sr.


/s/ JAMES N. MARKER                 Director                       June 18, 1999
---------------------------
    James N. Marker


/s/ W. DEAN JURGENS                 Director                       June 18, 1999
---------------------------
    W. Dean Jurgens

                                       44