REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders
FirstBank Corp. and Subsidiaries

We have audited the accompanying  consolidated statements of financial condition
of  FirstBank  Corp.  and  Subsidiaries  as of March 31, 1998 and 1997,  and the
related consolidated  statements of income,  changes in stockholders' equity and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
FirstBank Corp. and Subsidiaries at March 31, 1998 and 1997 and the consolidated
results  of their  operations  and their  cash flows for the years then ended in
conformity with generally accepted accounting principles.





Spokane, Washington
April 23, 1998



                                       45
<PAGE>


<TABLE>
<CAPTION>


                              CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
=========================================================================================================

MARCH 31,                                                                       1998             1997
=========================================================================================================

<S>                                                                        <C>              <C>          
ASSETS

CASH AND CASH EQUIVALENTS (Note 13):
   Non-interest bearing cash deposits                                      $   5,443,129    $   3,883,176
   Interest bearing deposits                                                   1,139,185               --
   Federal funds sold                                                          1,834,506        1,419,560
---------------------------------------------------------------------------------------------------------

Total cash and cash equivalents                                                8,416,820        5,302,736

Investment securities (Notes 1 and 13):
   Held-to-maturity                                                            2,449,375        5,199,375
   Available-for-sale                                                          2,654,233               --
Mortgage-backed securities (Notes 2 and 13):
   Held-to-maturity                                                            3,420,153        2,280,743
   Available-for-sale                                                          7,969,533        2,599,147
Certificates of deposit                                                          991,000               --
Loans receivable, net (Notes 3, 9 and 13)                                    145,696,660      113,048,075
Accrued interest receivable (Note 4)                                           1,374,239        1,013,848
Stock in FHLB, at cost (Notes 12 and 13)                                       2,110,075          945,475
Premises and equipment, net (Note 5)                                           4,705,829        4,928,655
Income taxes receivable (Note 7)                                                 468,807               --
Cash surrender value of life insurance policies (Note 10)                      1,400,055        1,350,964
Other assets                                                                   1,906,391          982,692
---------------------------------------------------------------------------------------------------------

TOTAL ASSETS                                                               $ 183,563,170    $ 137,651,710
=========================================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
   Bank overdrafts                                                         $          --    $   2,112,629
   Deposits (Notes 6 and 13)                                                 114,495,090      107,595,602
   Advances from borrowers for taxes and insurance                             1,329,080        1,558,438
   Income taxes payable (Note 7)                                                      --          116,921
   Advances from FHLB (Notes 12 and 13)                                       35,655,579       13,922,083
   Deferred income taxes (Note 7)                                                245,000           76,664
   Accrued expenses and other liabilities (Note 10)                            1,830,423        1,258,262
---------------------------------------------------------------------------------------------------------

Total liabilities                                                            153,555,172      126,640,599
---------------------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (Notes 3, 10, 11 and 14)

STOCKHOLDERS' EQUITY (Notes 8 and 14):
   Preferred stock, $.01 par value, 500,000 shares authorized,
     no shares issued or outstanding                                                  --               --
   Common stock, $.01 par value, 5,000,000 shares authorized,
     1,983,750 and 0 shares issued, 1,834,407 and 0 shares outstanding            19,838               --
   Additional paid-in capital                                                 18,989,977               --
   Unearned ESOP shares (Note 11)                                             (1,493,430               --
   Retained earnings, substantially restricted                                12,493,990       11,043,959
   Unrealized loss on securities available-for-sale, net of tax (Note 1)          (2,377)         (32,848)
---------------------------------------------------------------------------------------------------------

Total stockholders' equity                                                    30,007,998       11,011,111
---------------------------------------------------------------------------------------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $ 183,563,170    $ 137,651,710
=========================================================================================================


           SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                                                                        46
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<PAGE>

<TABLE>
<CAPTION>
                          CONSOLIDATED STATEMENTS OF INCOME
====================================================================================

YEAR ENDED MARCH 31,                                          1998           1997
====================================================================================

<S>                                                     <C>            <C>          
INTEREST INCOME:
     Loans receivable                                   $   11,694,425  $  9,248,607
     Mortgage-backed securities                                612,550       146,963
     Investment securities                                     292,395       534,450
     Other interest earning assets                             721,266       262,043
------------------------------------------------------------------------------------

Total interest income                                       13,320,636    10,192,063
------------------------------------------------------------------------------------

INTEREST EXPENSE:
     Deposits (Note 6)                                       4,658,565     4,839,334
     Advances from FHLB                                      1,914,038       498,653
------------------------------------------------------------------------------------

Total interest expense                                       6,572,603     5,337,987
------------------------------------------------------------------------------------

NET INTEREST INCOME                                          6,748,033     4,854,076

PROVISION FOR LOAN LOSSES (Note 3)                             200,463       309,943
------------------------------------------------------------------------------------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES          6,547,570     4,544,133
------------------------------------------------------------------------------------

NON-INTEREST INCOME:
     Gain on sale of loans                                   1,018,409     1,199,357
     Service fees and charges                                1,134,030       960,279
     Commissions and other                                     129,478        85,938
------------------------------------------------------------------------------------

Total non-interest income                                    2,281,917     2,245,574
------------------------------------------------------------------------------------

NON-INTEREST EXPENSES:
     Compensation and related benefits (Notes 10 and 11)     3,549,585     3,110,759
     Occupancy                                                 770,100       696,978
     Supplies and postage                                      308,938       262,211
     Data processing                                           289,677       157,868
     Advertising                                               206,461       159,948
     Deposit insurance premiums                                 69,232       699,787
     Other                                                     984,991       789,786
------------------------------------------------------------------------------------

Total non-interest expense                                   6,178,984     5,877,337
------------------------------------------------------------------------------------

INCOME BEFORE INCOME TAX EXPENSE                             2,650,503       912,370

INCOME TAX EXPENSE (Note 7)                                    944,310       263,517
------------------------------------------------------------------------------------

NET INCOME                                              $    1,706,193  $    648,853
====================================================================================

PRO FORMA AMOUNTS (UNAUDITED):
     Net income per share - basic and diluted           $         0.93
                                                        ==============

     Weighted average common shares outstanding              1,829,911
                                                        ==============             

SEE ACCOMPANYING  SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED  FINANCIAL
STATEMENTS.
                                                                                   47
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<PAGE>


<TABLE>
<CAPTION>

                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
===================================================================================================================================

                                                                                           Unrealized
                                                                                             Loss on
                                                                                             Retained    Securities
                                         Common Stock         Additional     Unearned        Earnings,    Available-       Total
                                  -------------------------     Paid-In         ESOP       Substantially   for-Sale,   Stockholders'
                                       Shares    Amount         Capital        Shares       Restricted    net of tax      Equity
===================================================================================================================================

<S>                                      <C>            <C>            <C>            <C>            <C>       <C>           <C>   
BALANCE, April 1, 1996                   --   $         --   $         --   $         --   $ 10,395,106  $    (38,901) $ 10,356,205

Sale of securities                       --             --             --             --             --        38,901        38,901
available-for-sale

Change in unrealized loss on
securities                               --             --             --             --             --       (32,848)      (32,848)
available-for-sale, net of tax

Net income                               --             --             --             --        648,853            --       648,853
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, March 31, 1997                  --             --             --             --     11,043,959       (32,848)   11,011,111

Proceeds from issuance of
common stock, net of offering     1,983,750         19,838     18,921,825             --             --            --    18,941,663
costs

Sale of common stock to
   ESOP (Note 11)                        --             --             --      (1,587,00)            --            --    (1,587,000)

Dividends paid                           --             --             --             --       (256,162)           --      (256,162)

Change in unrealized loss on
securities                               --             --             --             --             --        30,471        30,471
available-for-sale, net of tax

ESOP shares released (Note 11)           --             --         68,152         93,570             --            --       161,722

Net income                               --             --             --             --      1,706,193            --     1,706,193
-----------------------------------------------------------------------------------------------------------------------------------

BALANCE, March 31, 1998           1,983,750   $     19,838   $ 18,989,977   $ (1,493,430)  $ 12,493,990  $     (2,377) $ 30,007,998
===================================================================================================================================


                                    SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                                                                                 48
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<PAGE>

<TABLE>
<CAPTION>

                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
===========================================================================================================

                              INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

YEAR ENDED MARCH 31,                                                               1998             1997
===========================================================================================================

<S>                                                                            <C>             <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                  $  1,706,193    $    648,853
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization                                                  611,944         371,275
     Provision for loan losses                                                      200,463         309,943
     Gain on sale of loans                                                       (1,018,409)     (1,199,357)
     Other losses, net                                                                  871           4,783
     Deferred income taxes                                                          147,940           2,913
     FHLB stock dividends                                                          (138,500)        (69,875)
     Deferred compensation expense                                                   63,837          57,087
     ESOP compensation expense                                                      161,722              --
     Loss on sale of investment securities available-for-sale                            --          89,789
   Changes in assets and liabilities:
     Accrued interest receivable and other assets                                  (281,592)       (614,950)
     Income taxes receivable (payable)                                             (585,728)        127,588
     Accrued expenses and other liabilities                                         508,324         499,410
-----------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                                         1,377,065         227,409
-----------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of mortgage-backed securities held-to-maturity                      (1,500,000)       (109,742)
   Purchases of mortgage-backed securities available-for-sale                    (6,873,082)     (2,659,465)
   Proceeds from maturities of mortgage-backed securities held-to-maturity          408,157         305,542
   Proceeds from maturities of mortgage-backed securities available-for-sale      1,307,091              --
   Purchases of investment securities available-for-sale                         (2,647,485)             --
   Proceeds from maturities of investment securities held-to-maturity             2,750,000       5,350,000
   Proceeds from sale of investment securities available-for-sale                        --       1,302,406
   Purchases of certificates of deposit                                          (3,790,000)             --
   Proceeds from maturity of certificates of deposit                              2,799,000              --
   Decrease in loans receivable from loans sold                                  66,313,240      59,924,357
   Other net change in loans receivable                                         (99,044,386)    (78,510,556)
   Purchases of FHLB stock                                                       (1,026,100)             --
   Purchases of premises and equipment                                             (532,858)       (615,752)
   Net increase in cash surrender value of life insurance policies                  (49,091)        (67,336)
   Proceeds from disposition of assets                                              233,035          90,527
-----------------------------------------------------------------------------------------------------------

Net cash used in investing activities                                           (41,652,479)    (14,990,019)
-----------------------------------------------------------------------------------------------------------



            SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                                                         49

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                CONSOLIDATED STATEMENTS OF CASH FLOWS
===================================================================================================


                          INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

YEAR ENDED MARCH 31,                                                       1998             1997
===================================================================================================

<S>                                                                      <C>             <C>        
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net increase (decrease) in deposits                                   6,899,488       (7,728,467)
   Bank overdrafts                                                      (2,112,629)       2,112,629
   Advances from borrowers for taxes and insurance                        (229,358)         482,264
   Advances from FHLB                                                  256,291,000       81,050,000
   Repayments on advances from FHLB                                   (234,557,504)     (69,431,945)
   Proceeds from issuance of common stock, net of offering costs        18,941,663            
   Funding provided to ESOP for purchase of common stock                (1,587,000)           
   Cash dividends paid on common stock                                    (256,162)           
---------------------------------------------------------------------------------------------------

Net cash provided by financing activities                               43,389,498        6,484,481
---------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     3,114,084       (8,278,129)

CASH AND CASH EQUIVALENTS, beginning of year                             5,302,736       13,580,865
---------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of year                               $   8,416,820    $   5,302,736
===================================================================================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   CASH PAID DURING THE PERIOD FOR:
    Interest                                                         $   6,568,192    $   5,345,106
    Income taxes                                                     $   1,263,702    $     201,083

   NONCASH INVESTING AND FINANCING ACTIVITIES:
    Unrealized loss on securities available-for-sale, net of tax     $      30,471    $      90,766
    Loans receivable charged to the allowance for loan losses        $      55,204    $      36,838
    Transfer from loans receivable to real estate acquired through
      foreclosure                                                    $     900,507    $     244,792



    SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                                                 50
</TABLE>

<PAGE>

                         SUMMARY OF ACCOUNTING POLICIES

================================================================================

CONVERSION TO A STOCK  CORPORATION.  FirstBank  Corp. (the Holding  Company),  a
Delaware  Corporation,  was  organized  on March  12,  1997 for the  purpose  of
acquiring all of the capital stock of FirstBank  Northwest (the Bank) as part of
its  conversion  from a federally  chartered  mutual savings bank to a federally
chartered  stock  savings bank (the  Conversion)  and  completion  of an initial
public  offering  of Holding  Company  stock.  On  January  30,  1998,  the Bank
converted to a  Washington-chartered  savings bank.  Effective July 1, 1997, the
Holding  Company  completed its initial public  offering of 1,983,750  shares of
common  stock for  $10.00  per share and  received  final  regulatory  approvals
regarding its  acquisition  of all the Bank's  capital stock using 50 percent of
the net public offering proceeds. This transaction was accounted for in a manner
similar  to  a  pooling  of  interests,   consequently,  no  goodwill  or  other
intangibles  were recorded as a result of the transaction  and the  accompanying
consolidated  financial statements report the operations and financial condition
of the  consolidated  entities as if they had operated as a single entity during
each of the periods presented.

PRINCIPLES OF CONSOLIDATION.  The consolidated  financial statements Include the
accounts of the Holding  Company,  the Bank and Tri Star  Financial  Corporation
(Tri  Star)  (collectively   referred  to  as  the  Company).   All  significant
intercompany transactions and balances are eliminated in consolidation.

NATURE OF BUSINESS  AND  CONCENTRATION  OF CREDIT  RISK.  The Holding  Company's
principal  business  consists of the  operations  of the Bank and Tri Star.  The
Bank's operations consist of attracting deposits from the general public through
a variety of deposit  products and  investing  these,  together  with funds from
on-going operations,  in the origination of residential mortgage loans and, to a
lesser extent, construction, agricultural, commercial, consumer and other loans.
The Bank primarily  grants  residential  loans to customers in Central and North
Idaho and  Southeast  Washington.  Tri Star's  operations  consist  primarily of
selling life insurance and tax deferred annuities to customers in the same areas
as the Bank operates.

USE OF ESTIMATES.  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported assets and liabilities and disclosures
on contingent assets and liabilities at the date of the financial statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

Material  estimates that are susceptible to significant  change in the near-term
relate  to the  determination  of the  allowance  for  loan  losses.  Management
believes that the allowance for loan losses is adequate.  While  management uses
current  information  to  recognize  losses on loans,  future  additions  to the
allowances  may be  necessary  based  on  changes  in  economic  conditions.  In
addition,  various regulatory agencies, as an integral part of their examination
process,  periodically  review  the  Bank's  allowances  for loan  losses.  Such
agencies may require the Bank to recognize  additions to the allowance  based on
their  judgments  about  information  available  to  them  at  the  time  of the
examination.

STATEMENTS  OF CASH FLOWS.  For purposes of the  statements  of cash flows,  the
Company  considers all cash on hand and in banks,  federal funds sold and highly
liquid  marketable debt instruments  with original  maturities when purchased of
three months or less to be cash and cash equivalents.

PREMISES AND  EQUIPMENT.  Premises and  equipment,  which  consist of buildings,
building  improvements,  furniture,  fixtures and office equipment are stated at
cost  less  accumulated   depreciation.   Depreciation  is  computed  using  the
straight-line  method  over  the  estimated  useful  lives  of the  assets.  The
estimated useful lives used to compute  depreciation  range from thirty to forty
years for  buildings,  thirty years for building  improvements,  and five to ten
years for furniture, fixtures and equipment.

INCOME TAXES.  The Company accounts for income taxes according to the provisions
of Statement of Financial  Accounting  Standards (SFAS) No. 109, "Accounting for
Income Taxes," which requires the use of the liability  method of accounting for
deferred  income taxes.  Under SFAS No. 109,  deferred income taxes are provided
for  temporary  differences  between the  financial  reporting  and tax basis of
assets and  liabilities  using the  enacted  tax rate  expected  to apply to the
taxable  income of the period in which the  deferred  tax  liability or asset is
expected to be settled or realized. Tax credits are accounted for as a reduction
of income taxes in the year in which the credit originates.

                                                                              51
<PAGE>

                         SUMMARY OF ACCOUNTING POLICIES

================================================================================

INVESTMENT AND MORTGAGE-BACKED  SECURITIES.  The Company accounts for securities
according to the provisions of SFAS No. 115, "Accounting for Certain Investments
in Debt and  Equity  Securities."  SFAS No. 115  addresses  the  accounting  and
reporting for investments in equity  securities  that have readily  determinable
fair  values  and  for  all  investments  in  debt  securities.  Investments  in
securities are to be classified as either  held-to-maturity,  available-for-sale
or trading.

HELD-TO-MATURITY - Investments in debt securities classified as held-to-maturity
are stated at cost,  adjusted  for  amortization  of premiums  and  accretion of
discounts using the effective  interest method.  The Company has the ability and
the  intention  to hold these  investment  and  mortgage  backed  securities  to
maturity and, accordingly, they are not adjusted for temporary declines in their
fair value.

AVAILABLE-FOR-SALE  - Investments  in debt and equity  securities  classified as
available-for-sale  are stated at fair  value.  Unrealized  gains and losses are
recognized (net of tax effect) as a separate component of stockholders' equity.

TRADING - Investments  in debt and equity  securities  classified as trading are
stated at fair  value.  Realized  and  unrealized  gains and losses for  trading
securities are included in income.

Realized  gains and losses on the sale of securities  are  determined  using the
specific identification method.


LOANS RECEIVABLE. Loans receivable are stated at unpaid principal balances, less
the allowance for loan losses,  and less the net deferred loan  origination fees
and discounts.  Deferred loan  origination fees and discounts are amortized over
the contractual life using the level-yield method.

The allowance for loan losses is established based on management's evaluation of
probable  losses  in its loan  portfolio.  An  allowance  for  loss on  specific
impaired  loans  for  which  collectibility  may not be  reasonably  assured  is
established based upon, among other factors, the estimated fair market values of
the underlying collateral and estimated holding and selling costs.

The Company accounts for loan impairment according to the provisions of SFAS No.
114,  "Accounting  by  Creditors  for  Impairment  of a Loan," and SFAS No. 118,
"Accounting  by Creditors  for  Impairment  of a Loan - Income  Recognition  and
Disclosures," which amends SFAS No. 114. These statements define the recognition
criteria for loan  impairment and the measurement  methods for certain  impaired
loans  and  loans  for  which  terms  have  been   modified   in   troubled-debt
restructurings  (a  restructured  loan).  Specifically,  a  loan  is  considered
impaired  when it is  probable a creditor  will be unable to collect all amounts
due - both  principal and interest - according to the  contractual  terms of the
loan agreement. When measuring impairment,  the expected future cash flows of an
impaired  loan are required to be discounted  at the loan's  effective  interest
rate.  Alternatively,  impairment  can be measured by reference to an observable
market  price,  if one  exists,  or the  fair  value  of  the  collateral  for a
collateral-dependent loan. Regardless of the historical measurement method used,
SFAS No. 114 requires a creditor to measure  impairment  based on the fair value
of  the  collateral  when  the  creditor  determines  foreclosure  is  probable.
Additionally,  impairment of a restructured  loan is measured by discounting the
total  expected  future cash flows at the loan's  effective  rate of interest as
stated in the original loan agreement.

The  Company  applies  the  recognition  criteria  of SFAS No.  114 to  impaired
multi-family residential,  commercial real estate,  agriculture and restructured
loans.  Smaller  balance,   homogeneous  loans,   including  one-to-four  family
residential loans and consumer loans, are collectively evaluated for impairment.
SFAS No. 118 amends SFAS No. 114 to allow a creditor to use existing methods for
recognizing  interest  income on  impaired  loans.  The  Company  has elected to
continue to use its  existing  nonaccrual  methods for  recognizing  interest on
impaired  loans.  The  adoption of SFAS No. 114 and SFAS No. 118  resulted in no
prospective  adjustment  to the allowance for loan losses and did not affect the
Company's policies regarding charge-offs or recoveries.

Interest  accruals  on loans  which are more than  ninety  days  delinquent  are
suspended.  Suspended  interest  ultimately  collected  is  credited to interest
income in the period of recovery.

                                                                              52
<PAGE>
                         SUMMARY OF ACCOUNTING POLICIES

================================================================================

Any  unamortized  discounts,  premiums  or  fees on  loans  repaid  or sold  are
recognized as income in the year of repayment or sale.

REAL ESTATE  OWNED.  Real estate  acquired in  settlement  of loans is initially
recorded  at fair  value  less  cost to sell at the date of  foreclosure.  Costs
relating to  development  and  improvement  of property are  capitalized  to the
extent that carrying  value does not exceed  estimated  fair market value,  less
estimated  cost to sell,  whereas  costs  relating to holding the  property  are
charged to expense.

Valuations are periodically  performed by the Company, and losses are recognized
by a charge to income if the carrying value of a property  exceeds its estimated
fair value less cost to sell.

STOCK IN FEDERAL HOME LOAN BANK.  Federal law requires a member  institution  of
the Federal  Home Loan Bank (FHLB)  System to hold common  stock of its district
FHLB according to predetermined  formulas. No ready market exists for such stock
and it has no quoted market value.

EMPLOYEE STOCK OWNERSHIP PLAN. The Company  sponsors an Employee Stock Ownership
Plan  ("ESOP").  The ESOP is  accounted  for in  accordance  with  the  American
Institute  of  Certified   Public   Accountants   Statement  of  Position  93-6,
"Employer's  Accounting for Employee Stock Ownership  Plans."  Accordingly,  the
shares held by the ESOP are  reported as unearned  shares  issued to the ESOP in
the statements of financial  condition.  As shares are released from collateral,
compensation  expense is recorded  equal to the then current market price of the
shares, and the shares become outstanding for earnings per share calculations.

Stock and cash  dividends  on  allocated  shares are  recorded as a reduction of
retained  earnings and paid or distributed  directly to participants'  accounts.
Stock and cash  dividends on  unallocated  shares are recorded as a reduction of
debt and accrued interest.


MORTGAGE  SERVICING RIGHTS.  The Company accounts for mortgage  servicing rights
according  to the  provisions  of SFAS No. 125  "Accounting  for  Transfers  and
Servicing of Financial Assets and Extinguishment of Liabilities",  which amended
SFAS No.  122  "Accounting  for  Mortgage  Servicing  Rights"  and SFAS No.  65,
"Accounting for Certain  Mortgage Banking  Activities."  SFAS No. 125 requires a
mortgage  banking  enterprise  to recognize as a separate  asset,  the rights to
service  mortgage loans  regardless of whether the servicing rights are acquired
through either purchase or origination.  Additionally, the new standard requires
impairment analysis of mortgage servicing rights regardless of whether purchased
or originated.

The  Company's  mortgage  servicing  rights  represent the  unamortized  cost of
originated  contractual rights to service mortgages for others in exchange for a
servicing  fee.  Mortgage  servicing  rights  are  amortized  over the period of
estimated  net  servicing  income and are  periodically  adjusted for actual and
anticipated prepayments of the underlying mortgage loans. The effect of adopting
SFAS No. 122 was to increase income before income taxes for the year ended March
31, 1997, by approximately $246,000.


EARNINGS PER SHARE.  Effective  April 1, 1997, the Company adopted SFAS No. 128,
"Earnings  per Share".  SFAS No. 128  establishes  standards  for  computing and
presenting earnings per share ("EPS"). SFAS No. 128 replaces the presentation of
primary EPS with earnings per common share ("basic EPS").  Basic EPS is computed
by  dividing  net  income  by the  weighted  average  number  of  common  shares
outstanding  for the  period.  SFAS No. 128 also  requires  presentation  of EPS
assuming dilution  ("diluted EPS").  Diluted EPS reflects the potential dilution
that could occur if  securities  or other  contracts  to issue common stock were
exercised or converted into common stock. The Company had no dilutive  potential
common stock at March 31, 1998 and therefore, basic and diluted EPS are the same
for this period.  ESOP shares which are  unallocated and not yet committed to be
released,  which totaled 149,343 shares at March 31, 1998, are excluded from the
weighted average shares outstanding calculation.

Pro forma  income  per share and  weighted  average  common  shares  outstanding
information  is  presented  for the year  ended  March  31,  1998  assuming  the
Conversion  occurred on April 1, 1997.  Net income per share was not  calculated
for the year ended  March 31,  1997 as no shares  were  outstanding  during this
period.

                                                                              53
<PAGE>

                         SUMMARY OF ACCOUNTING POLICIES

================================================================================

NEW ACCOUNTING PRONOUNCEMENTS.  In June 1997, the Financial Accounting Standards
Board ("FASB")  issued SFAS No. 130,  "Reporting  Comprehensive  Income",  which
establishes  standards for reporting and display of comprehensive income and its
components in a full set of financial  statements.  Comprehensive  income is the
total of reported net income and all other revenues,  expenses, gains and losses
that under generally accepted accounting  principles bypass reported net income.
SFAS No. 130  requires  that  comprehensive  income be  reported  in a financial
statement  that is  displayed  with  the  same  prominence  as  other  financial
statements and requires an entity to (a) classify  items of other  comprehensive
income by their nature in a financial  statement and (b) display the accumulated
balance of other  comprehensive  income  separately  from retained  earnings and
surplus in the equity section of the balance sheet.  This statement is effective
for fiscal years beginning after December 15, 1997.  Companies are also required
to report  comparative totals for comprehensive  income in interim reports.  The
Company does not expect adoption to have a material  effect on its  consolidated
financial statements.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  About Segments of an
Enterprise  and Related  Information",  which  establishes  standards for public
companies to report certain financial  information  about operating  segments in
interim and annual financial statements.  Operating segments are components of a
business  about which separate  financial  information is available and that are
evaluated   regularly  by  the  chief  operating  decision  maker  in  assessing
performance and deciding how to allocate resources.  The statement also requires
public companies to report certain information about their products and services
and the geographic areas in which they operate.  This statement is effective for
fiscal years  beginning  after December 15, 1997. The statement does not need to
be  applied  to  interim  financial  statements  in  the  initial  year  of  its
application,  but such  comparative  information  will be  required  in  interim
statements  in the second year.  The Company does not expect  adoption to have a
material effect on its financial statements.

                                                                              54
<PAGE>

1.  INVESTMENT SECURITIES

The  amortized  cost  and  estimated  market  values  of  investment  securities
held-to-maturity and available-for-sale are summarized as follows:

HELD-TO-MATURITY

<TABLE>
<CAPTION>
                                                    Gross          Gross        Estimated
                                    Amortized    Unrealized     Unrealized        Market
March 31, 1998                        Cost          Gains         Losses          Value
=========================================================================================

<S>                               <C>           <C>            <C>            <C>        
Farm Credit Bank and FHLB bonds   $ 1,749,375   $        --    $    (7,200)   $ 1,742,175
SLMA notes                            450,000           875           (460)       450,415
FHLB and FNMA notes                   250,000            --         (1,425)       248,575
-----------------------------------------------------------------------------------------

                                  $ 2,449,375   $       875    $    (9,085)   $ 2,441,165
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
                                                    Gross          Gross        Estimated
                                    Amortized    Unrealized     Unrealized        Market
March 31, 1997                        Cost          Gains         Losses          Value
=========================================================================================

<S>                               <C>           <C>            <C>            <C>        
Farm Credit Bank and FHLB bonds   $ 4,249,375   $        --    $   (59,800)   $ 4,189,575
SLMA notes                            700,000         1,765             --        701,765
FHLB and FNMA notes                   250,000            --         (4,975)       245,025
-----------------------------------------------------------------------------------------

                                  $ 5,199,375   $     1,765    $   (64,775)   $ 5,136,365
=========================================================================================
</TABLE>

AVAILABLE-FOR-SALE

<TABLE>
<CAPTION>
                                                    Gross          Gross        Estimated
                                    Amortized    Unrealized     Unrealized        Market
March 31, 1998                        Cost          Gains         Losses          Value
=========================================================================================

<S>                               <C>           <C>            <C>            <C>        
State Municipal bonds             $ 2,619,735   $    37,265    $    (2,767)   $ 2,654,233
=========================================================================================
</TABLE>

The amortized cost and estimated market values of investment securities at March
31, 1998, by contractual  maturity,  are shown below.  Expected  maturities will
differ from contractual  maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                       HELD-TO-MATURITY             AVAILABLE-FOR-SALE
                                  -------------------------    --------------------------
                                                 Estimated                      Estimated
                                    Amortized      Market       Amortized        Market
                                      Cost         Value          Cost           Value
=========================================================================================
<S>                               <C>           <C>            <C>            <C>        
Due after one through five years  $ 2,449,375   $ 2,441,165    $        --    $        --
Due after ten years                        --            --      2,619,735      2,654,233
-----------------------------------------------------------------------------------------

                                  $ 2,449,375   $ 2,441,165    $ 2,619,735    $ 2,654,233
=========================================================================================


                                                                                       55
</TABLE>

<PAGE>

2.  MORTGAGE-BACKED SECURITIES

The amortized cost and estimated  market values of  mortgage-backed  and related
securities held-to-maturity and available-for-sale are summarized as follows:

HELD-TO-MATURITY

<TABLE>
<CAPTION>
                                                        Gross           Gross       Estimated
                                        Amortized     Unrealized     Unrealized       Market
March 31, 1998                            Cost          Gains          Losses         Value
=============================================================================================

<S>                                   <C>           <C>            <C>            <C>        
FNMA Certificates                     $ 1,122,115   $     9,511    $   (42,883)   $ 1,088,743
Collateralized Mortgage Obligations       364,586         3,103           (265)       367,424
SBA Certificates                            2,904            --           (159)         2,745
GNMA Certificates                         109,567         1,968             --        111,535
FHLMC Certificates                        327,392            52         (4,835)       322,609
State revenue bonds                     1,493,589            --             --      1,493,589
---------------------------------------------------------------------------------------------

                                      $ 3,420,153   $    14,634    $   (48,142)   $ 3,386,645
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
                                                        Gross           Gross       Estimated
                                        Amortized     Unrealized     Unrealized       Market
March 31, 1997                            Cost          Gains          Losses         Value
=============================================================================================

<S>                                   <C>           <C>            <C>            <C>        
FNMA Certificates                     $ 1,300,481   $     9,483    $   (72,764)   $ 1,237,200
Collateralized Mortgage Obligations       432,303            74         (1,033)       431,344
SBA Certificates                           16,443            --           (814)        15,629
GNMA Certificates                         139,515         1,883             (6)       141,392
FHLMC Certificates                        392,001           509        (12,435)       380,075
---------------------------------------------------------------------------------------------

                                      $ 2,280,743   $    11,949    $   (87,052)   $ 2,205,640
=============================================================================================
</TABLE>
AVAILABLE-FOR-SALE

<TABLE>
<CAPTION>
                                                        Gross           Gross       Estimated
                                        Amortized     Unrealized     Unrealized       Market
March 31, 1998                            Cost          Gains          Losses         Value
=============================================================================================

<S>                                   <C>           <C>            <C>            <C>        
Collateralized Mortgage Obligations   $ 1,951,150   $    28,006    $        --    $ 1,979,156
FHLMC Certificates                      2,688,586         1,453        (40,210)     2,649,829
FNMA Certificates                       3,366,424        10,275        (36,151)     3,340,548
---------------------------------------------------------------------------------------------

                                      $ 8,006,160   $    39,734    $   (76,361)   $ 7,969,533
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
                                                        Gross           Gross       Estimated
                                        Amortized     Unrealized     Unrealized       Market
March 31, 1997                            Cost          Gains          Losses         Value
=============================================================================================

<S>                                   <C>           <C>            <C>            <C>        
Collateralized Mortgage Obligations   $ 1,604,249   $        --    $   (47,072)   $ 1,557,177
FHLMC Certificates                      1,048,995            --         (7,025)     1,041,970
---------------------------------------------------------------------------------------------

                                      $ 2,653,244   $        --    $   (54,097)   $ 2,599,147
=============================================================================================

                                                                                           56
</TABLE>
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

The amortized cost and estimated  market value of mortgage backed  securities at
March 31, 1998, by contractual  maturity,  are shown below.  Expected maturities
will differ from contractual  maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.

                                  HELD-TO-MATURITY         AVAILABLE-FOR-SALE
                               -----------------------  -----------------------
                                             Estimated                Estimated
                                Amortized     Market     Amortized      Market
                                  Cost        Value        Cost         Value
===============================================================================

Due in one year or less            2,904   $    2,745   $       --   $       --
Due after ten years            3,417,249    3,383,900    8,006,160    7,969,533
-------------------------------------------------------------------------------

                               3,420,153   $3,386,645   $8,006,160   $7,969,533
===============================================================================

Collateralized   mortgage   obligations   at  March  31,   1998  and  1997  were
collateralized  by  mortgage-backed  securities  issued by the Federal  National
Mortgage  Association,  the  Federal  Home  Loan  Mortgage  Corporation  or  the
Government National Mortgage Association.

3.  LOANS RECEIVABLE

Loans receivable at March 31 consists of the following:

                                                     1998               1997
===============================================================================

REAL ESTATE LOANS:
   Residential                                  $ 87,984,804       $ 77,408,533
   Agricultural                                   14,601,861         11,997,828
   Commercial                                     12,433,453          5,392,173
   Construction                                    7,965,557         11,861,206

OTHER LOANS:
   Commercial (non-real estate)                   16,626,915          1,692,030
   Home equity                                     6,175,466          5,003,037
   Other consumer                                  6,109,394          4,124,825
   Agricultural operating                          2,304,571          1,029,503
-------------------------------------------------------------------------------

TOTAL LOANS RECEIVABLE                           154,202,021        118,509,135

LESS:
   Loans in process                                6,934,502          4,107,763
   Unearned loan fees and discounts                  451,152            378,849
   Allowance for loan losses                       1,119,707            974,448
-------------------------------------------------------------------------------

   LOANS RECEIVABLE, NET                        $145,696,660       $113,048,075
===============================================================================

Total loans receivable  consist of approximately  $91,617,000 and $85,028,000 in
one-to four-family residential real estate loans at March 31, 1998 and 1997.

                                                                              57
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

The following  summarizes  the changes in the allowance for loan losses at March
31:
                                                      1998               1997
===============================================================================

ALLOWANCE FOR LOAN LOSSES, beginning of year      $   974,448       $   701,343
Provision for loan losses                             200,463           309,943
Charge-offs                                           (55,204)          (36,838)
-------------------------------------------------------------------------------

ALLOWANCE FOR LOAN LOSSES, end of year            $ 1,119,707       $   974,448
===============================================================================

Outstanding commitments of the Bank to originate loans as of March 31, 1998 were
as follows:

                                    Fixed            Variable
                                     Rate               Rate            Total
===============================================================================

First mortgage loans              $20,184,810       $   381,952     $20,566,762
Other loans                            37,500         1,776,500       1,814,000
-------------------------------------------------------------------------------

OUTSTANDING LOAN COMMITMENTS      $20,222,310       $ 2,158,452     $22,380,762
===============================================================================


Interest rates on fixed rate loan commitments  range from 5.68% to 8.50% and are
committed  through  June 13,  1998.  Fees  received  in  connection  with  these
outstanding  loan commitments are deferred and will be recognized in income over
the life of the related loan after  funding of the loan.  In addition,  the Bank
had commitments to fund outstanding credit lines of approximately  $8,414,000 at
March 31, 1998.  Commitments  to extend credit may involve  elements of interest
rate risk in excess of the amount  recognized  in the balance  sheets.  Interest
rate risk on  commitments  to extend credit  results from the  possibility  that
interest  rates may have moved  unfavorably  from the position of the Bank since
the time the commitment was made.

The Bank remains contingently liable for approximately  $1,267,000 of loans sold
with  recourse  as of March 31,  1998.  Loans  serviced  for  others  (including
contract  collections)  are  not  included  in the  consolidated  statements  of
financial  condition.  The unpaid principal  balances of these loans at March 31
are as follows:

                                                       1998             1997
===============================================================================

Loan portfolios serviced for:
    FNMA                                           $ 52,287,098    $ 63,534,868
    FHLMC                                            79,516,491      65,336,568
    Others                                            3,785,131       3,280,310
-------------------------------------------------------------------------------
 
                                                   $135,588,720    $132,151,746
===============================================================================

The  principal  amount of loans  subject to  delinquent  principal  or interest,
defined as payment  being in arrears over three  months,  totaled  approximately
$456,000 and $1,125,000 at March 31, 1998 and 1997.

                                                                              58
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================


4.  ACCRUED INTEREST RECEIVABLE

Accrued interest receivable at March 31 consists of the following:

                                                       1998              1997
===============================================================================

Investment securities                              $   41,870        $   34,723
Mortgage-backed securities                            120,509            59,083
Loans receivable                                    1,211,860           920,042
-------------------------------------------------------------------------------

ACCRUED INTEREST RECEIVABLE                        $1,374,239        $1,013,848
===============================================================================

5.  PREMISES AND EQUIPMENT

Premises and equipment at March 31 consists of the following:

                                                       1998             1997
===============================================================================

Land, buildings and building improvements          $ 4,663,205      $ 4,999,564
Branch premises under development                      129,177           45,803
Furniture, fixtures and equipment                    2,725,719        2,276,235
-------------------------------------------------------------------------------

                                                     7,518,101        7,321,602
Accumulated depreciation                            (2,812,272)      (2,392,947)
-------------------------------------------------------------------------------

PREMISES AND EQUIPMENT, NET                        $ 4,705,829      $ 4,928,655
===============================================================================

6.  DEPOSITS

Deposits and the related  weighted average interest rates at March 31 consist of
the following:

                                                       1998            1997
===============================================================================

DEPOSIT ACCOUNTS:
    NOW accounts (1.23% and 1.38%)                 $ 19,388,968    $ 15,942,961
    Passbook accounts (3.03% and 3.03%)              13,418,157      14,163,562
    Money market accounts (3.05% and 3.03%)           9,077,548       6,968,209
-------------------------------------------------------------------------------

                                                     41,884,673      37,074,732
-------------------------------------------------------------------------------

CERTIFICATES OF DEPOSIT:
    3.00% to 3.99%                                    1,000,908         996,689
    4.00% to 4.99%                                    7,995,140       7,131,625
    5.00% to 5.99%                                   55,991,677      42,816,278
    6.00% to 6.99%                                    6,638,110      17,082,245
    7.00% to 7.99%                                      483,427       1,989,661
    8.00% to 8.99%                                       49,118          51,315
    9.00% and over                                      452,037         453,057
-------------------------------------------------------------------------------

                                                     72,610,417      70,520,870
-------------------------------------------------------------------------------

                                                   $114,495,090    $107,595,602
===============================================================================

                                                                              59
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================


The  scheduled  maturities of  certificates  of deposit at March 31, 1998 are as
follows:

YEAR ENDING MARCH 31,                                                  Amount
===============================================================================

      1999                                                          $52,836,258
      2000                                                           13,111,435
      2001                                                            4,736,520
      2002                                                            1,292,190
      2003                                                              596,690
      Thereafter                                                         37,324
-------------------------------------------------------------------------------

      Total                                                         $72,610,417
===============================================================================

Interest expense on deposits consists of the following:

YEAR ENDED MARCH 31,                            1998                    1997
===============================================================================

NOW and money market                         $  483,742              $  405,274
Passbook savings                                405,829                 413,341
Certificates of deposit                       3,768,994               4,020,719
-------------------------------------------------------------------------------

INTEREST EXPENSE                             $4,658,565              $4,839,334
===============================================================================

Certificates  of deposit of $100,000 or more totaled  approximately  $14,138,000
and $10,097,140 at March 31, 1998 and 1997,  respectively.  Deposit  balances in
excess of $100,000,  approximately  $11,363,000 and $8,697,000 at March 31, 1998
and  1997,  respectively,  are not  insured  by the  Federal  Deposit  Insurance
Corporation (FDIC).

The deposits of the Bank are insured by the Savings  Association  Insurance Fund
(SAIF),  one of two funds  administered  by the FDIC. The Bank  previously  paid
annual  premiums of  approximately  $.23 per $100 of deposits.  On September 30,
1996, the Deposit  Insurance Funds Act of 1996 was signed,  which authorized the
FDIC to  impose  a  special  assessment  on  certain  deposits  held  by  thrift
institutions.  This  special  assessment,  which  was based on $.657 per $100 of
outstanding  deposits at March 31, 1995, was intended to recapitalize  the SAIF.
Accordingly,  the Bank  recorded  a one time  pre-tax  charge  of  approximately
$584,000 at September 30, 1996,  which was paid prior to December 31, 1996.  The
Bank's  annual SAIF  premium  rates were  reduced to $.0648 per $100 of deposits
beginning January 1, 1997.

7.  INCOME TAXES

The components of income tax expense are summarized as follows:

YEAR ENDED MARCH 31,                             1998                    1997
===============================================================================

Current:
    Federal                                  $  660,184              $  232,543
    State                                       136,186                  28,061
-------------------------------------------------------------------------------

                                                796,370                 260,604
-------------------------------------------------------------------------------

Deferred:
    Federal                                     128,054                   2,521
    State                                        19,886                     392
-------------------------------------------------------------------------------

                                                147,940                   2,913
-------------------------------------------------------------------------------

INCOME TAX EXPENSE                           $  944,310              $  263,517
===============================================================================

                                                                              60
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


Deferred tax liabilities and assets at March 31 consist of the following:

                                                   1998                  1997
===============================================================================

DEFERRED TAX LIABILITIES:
    FHLB stock dividends                       $ (341,000)           $ (286,528)
    Loan loss reserves                           (243,000)             (243,191)
    Depreciation                                 (146,000)             (121,876)
    Other                                        (174,000)              (37,682)
-------------------------------------------------------------------------------

Total deferred tax liabilities                   (904,000)             (689,277)
-------------------------------------------------------------------------------

DEFERRED TAX ASSETS:
    Unearned loan fees                             68,000               148,812
    Allowance for loan losses                     476,000               397,233
    Deferred compensation                          70,000                45,319
    Other                                          45,000                21,249
-------------------------------------------------------------------------------

Total deferred tax assets                         659,000               612,613
-------------------------------------------------------------------------------

NET DEFERRED INCOME TAX LIABILITY              $ (245,000)           $  (76,664)
===============================================================================

A  reconciliation  of the  statutory  federal  income tax rate to the  effective
income tax rate follows:

<TABLE>
<CAPTION>
                                                              1998                     1997
                                                   ----------------------      ------------------
                                                      AMOUNT       PERCENT       Amount     Percent
=================================================================================================
<S>                                                <C>               <C>       <C>           <C>  
Income tax expense at statutory rates              $   901,172       34.0%     $ 310,206     34.0%
Increase (decrease) resulting from:
    State income taxes,  net of federal benefit        116,742        4.4         18,779      2.1
    Prior year over/ under accrual                     (37,051)      (1.4)       (47,319)    (5.2)
    Permanent and other differences                    (36,553)      (1.4)       (18,149)    (2.0)
-------------------------------------------------------------------------------------------------

                                                   $   944,310       35.6%     $ 263,517     28.9%
=================================================================================================
</TABLE>


8.  EQUITY

The  Company is not  subject to capital  adequacy  requirements  by its  primary
regulator,  the Office of Thrift  Supervision.  The Bank, however, is subject to
various   regulatory  capital   requirements   administered  by  the  Washington
Department   of  Financial   Institutions   (the   Department)   and  the  FDIC,
(collectively referred to as the "regulators").  Failure to meet minimum capital
requirements   can  initiate   certain   mandatory   and   possibly   additional
discretionary actions by the regulators that, if undertaken, could have a direct
material  effect on the Bank's  financial  statements.  Under  capital  adequacy
guidelines and the regulatory  framework for prompt corrective  action, the Bank
must meet specific capital guidelines that involve quantitative  measures of the
Bank's assets,  liabilities  and certain  off-balance-sheet  items as calculated
under  regulatory   accounting   practices.   The  Bank's  capital  amounts  and
classifications  are also subject to  qualitative  judgments  by the  regulators
about components, risk weightings and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  1  capital  (as  defined  in the  regulations)  to
risk-weighted  assets (as defined) and of Tier 1 capital (as defined) to average
assets (as defined).  Management  believes,  as of March 31, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.

                                                                              61
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


As of March 31, 1998, the most recent  notification from the OTS categorized the
Bank as well capitalized  under the regulatory  framework for prompt  corrective
action.  To be categorized as well  capitalized,  the Bank must maintain minimum
total  risk-based,  Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the  table  below.  There are no  conditions  or  events  since the most  recent
notification that management believes have changed the Bank's category.

The Bank's  actual  capital  amounts and ratios are presented in the table below
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                                       To Be Well
                                                                                    Capitalized Under
                                                                    For Capital     Prompt Corrective
                                                  Actual         Adequacy Purposes  Action Provisions
                                            -----------------   ------------------  -----------------
                                             Amount     Ratio   Amount      Ratio    Amount    Ratio
====================================================================================================

<S>                                         <C>          <C>    <C>          <C>    <C>         <C> 
AS OF MARCH 31, 1998
   Tier 1 Capital (to average assets)       $ 20,331     11.4%  $ 7,160      4.0%   $  8,950    5.0%

   Tier 1 Capital (to risk-weighted assets)   20,331     17.1%  $ 4,755      4.0%   $  7,132    6.0%

   Tier Capital (to risk-weighted assets)     21,451     18.1%  $ 9,509      8.0%   $ 11,886   10.0%


AS OF MARCH 31, 1997
   Tier 1 Capital (to average assets)         11,044      8.0%  $ 5,506      4.0%   $  6,883    5.0%

   Tier 1 Capital (to risk-weighted assets)   11,044     12.5%  $ 3,532      4.0%   $  5,298    6.0%

Total Capital (to risk-weighted assets)     $ 12,002     13.6%  $ 7,064      8.0%   $  8,829   10.0%
====================================================================================================
</TABLE>

The Bank may not declare or pay a cash dividend if such  declaration and payment
would  violate  regulatory  requirements.  Unlike the Bank,  the  Company is not
subject to these  regulatory  restrictions  on the payment of  dividends  to its
stockholders.  However,  the source of its future corporate dividends may depend
upon dividends from the Bank.

9.  RELATED PARTY TRANSACTIONS

Prior to the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA),  the Bank's policy allowed all full-time  permanent employees with one
complete year of service, key officers and directors to receive a first mortgage
loan on their primary residence at rates which may be below market. At such time
that they cease to be employed by the Bank and are not eligible  for  retirement
(age 55 or older), the loan terms will change to the market interest rate on the
date the loan closed.

Subsequent to FIRREA,  preferential terms on key officer and director loans were
discontinued.  The  following  schedule  summarizes  the  activity  in  loans to
directors, key officers and employees at March 31:

                                                 1998                   1997
===============================================================================

BALANCE, beginning of year                   $ 1,315,335            $ 1,376,661
    Additions                                    865,350                122,000
    Repayments and sales proceeds               (891,696)              (183,326)
-------------------------------------------------------------------------------

BALANCE, end of year                         $ 1,288,989            $ 1,315,335
===============================================================================

                                                                              62
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


10.  EMPLOYEE BENEFIT PLANS

The Bank  established,  during 1995, a profit  sharing plan  pursuant to Section
401(k) of the Internal  Revenue  Code,  whereby  participants  may  contribute a
percentage of  compensation,  but not in excess of the maximum allowed under the
Code. The plan provides for a matching  contribution  by the Bank which amounted
to $19,111 and $43,868 for the years ended March 31, 1998 and 1997. In addition,
the Bank may make  additional  contributions  at the  discretion of the Board of
Directors.  These  additional  contributions  amounted to $0 and $96,395 for the
years ended March 31, 1998 and 1997.

The  Company has  entered  into a salary  continuation  agreement  with  certain
employees.  This program was funded by purchasing  single premium life insurance
contracts.  The program provides for aggregate continued annual compensation for
all participants totaling $179,500 for life with a guarantee period ranging from
15-20  years.  Participants  vest  ratably  each  plan  year  until  retirement,
termination, death or disability. The Company is recording the salary obligation
over the estimated remaining service lives of the participants. Expenses related
to this  program were $63,837 and $57,037 for the years ended March 31, 1998 and
1997, respectively.  At March 31, 1998, an obligation of $179,211 and cash value
of life insurance of $1,400,055 were recorded.  At March 31, 1997, an obligation
of  $115,374  and cash value of life  insurance  of  $1,350,964  were  recorded.
Increases  in cash  surrender  value  and  related  net  earnings  from the life
insurance contracts offset the expenses of this program.

The Company entered into three year employment  agreements with certain officers
which may be extended by the Board for an  additional  year at each  anniversary
date.  The agreements  provide for severance  payments and other benefits in the
event of termination  without cause and  termination of employment in connection
with any  change in control  of the  Company  of up to 2.99 times the  officer's
average  annual  compensation  during the preceding  five years.  The employment
agreements provide for termination by the Company for cause at any time.

11.  EMPLOYEE STOCK OWNERSHIP PLAN

The  Bank  established  for  eligible  employees  an ESOP and  related  trust in
connection  with the stock  conversion  consummated  on July 1,  1997.  Eligible
employees of the Bank as of June 30, 1997 and eligible  employees of the Company
and the Bank employed after such date who have been credited with at least 1,000
hours during a 12-month period and are age 21 will become participants. The ESOP
borrowed $1,587,000 from the Holding Company in order to purchase 158,700 shares
of common stock of the Holding Company. The loan will be repaid principally from
the Bank's  contributions  to the ESOP over a period of fifteen  years,  and the
collateral  for  the  loan  will  be the  unreleased,  restricted  common  stock
purchased by the ESOP. Contributions to the ESOP will be discretionary; however,
the Bank intends to make annual contributions to the ESOP in an aggregate amount
at least equal to the  principal  and  interest  requirements  of the debt.  The
interest rate for the loan is 8.5%.

The cost of shares acquired by the ESOP is considered unearned compensation and,
as such,  is recorded  as a reduction  of the  Company's  stockholders'  equity.
Shares purchased by the ESOP are held in a suspense account for allocation among
participants  as the  loan is  repaid.  Contributions  to the  ESOP  and  shares
released from the suspense  account are allocated among the  participants on the
basis of compensation in the year of allocation.  Participants  generally become
100% vested in their ESOP  account  after five years of  credited  service or if
their service was terminated due to death, retirement, permanent disability or a
change in control.  Prior to the completion of four years of credited service, a
participant who terminates employment for reasons other than death,  retirement,
disability,  or change in control of the Company  will not receive any  benefit.
Forfeitures will be reallocated among remaining participating  employees, in the
same proportion as contributions.  Benefits are payable upon death,  retirement,
disability or separation  from service.  The  contributions  to the ESOP are not
fixed, so benefits payable under the ESOP cannot be estimated.

Compensation  expense is recorded  equal to the fair value of shares held by the
ESOP which are deemed committed to be released.  ESOP  compensation  expense for
March 31, 1998 (first plan year) was $162,000. As of March 31, 1998, the Company
has  allocated or  committed to be released to the ESOP 9,357 earned  shares and
has 149,343  unearned,  restricted  shares remaining to be released.  The market
value of unearned,  restricted  shares held by the ESOP trust was  approximately
$2,987,000 at March 31, 1998.

                                                                              63
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================


12.  ADVANCES FROM FHLB

Advances  from FHLB had weighted  average  interest  rates at March 31, 1998 and
1997 of 5.84% and 5.87%,  respectively.  Maturity  dates of advances at March 31
were as follows:

                                                  1998                  1997
===============================================================================

ADVANCES FROM FHLB DUE:
    Less than 1 year                        $  22,578,472         $   9,828,472
    1 to 2 years                                4,000,000               328,472
    2 to 3 years                                  838,085             1,000,000
    3 to 4 years                                1,768,055               497,083
    4 to 5 years                                5,000,000             2,268,056
    More than 5 years                           1,470,967                    --
-------------------------------------------------------------------------------

                                            $  35,655,579         $  13,922,083
===============================================================================

Included  in the table  above is a  $5,000,000  advance  from FHLB  maturing  in
December  2002 which is  callable  every 90 days from the date of advance at the
option of the FHLB.

Pursuant to collateral  requirements of the FHLB,  advances are secured by stock
in the FHLB and qualifying first mortgage loans.

13.   FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial  Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized on the balance  sheet,  for which it is  practicable to estimate that
value. SFAS No. 107 excludes certain financial  instruments and all nonfinancial
instruments from its disclosure  requirements.  Accordingly,  the aggregate fair
value  estimates  presented  do not  reflect  the  underlying  fair value of the
Company.  Although  management is not aware of any factors that would materially
affect the estimated  fair value amounts  presented,  such amounts have not been
comprehensively  revalued for purposes of these financial  statements since that
date and, therefore,  estimates of fair value subsequent to that date may differ
significantly from the amounts presented as follows.

<TABLE>
<CAPTION>
                                             MARCH 31, 1998                MARCH 31, 1997
                                      ----------------------------- ----------------------------
                                          CARRYING       ESTIMATED      CARRYING      ESTIMATED
                                           AMOUNT       FAIR VALUE       AMOUNT      FAIR VALUE
================================================================================================

<S>                                   <C>             <C>           <C>            <C>          
Financial assets:
  Cash and cash equivalents           $    8,416,820  $   8,416,820 $   5,302,736  $   5,302,736
  Investment securities:
   Held-to-maturity                        2,449,375      2,441,165     5,199,375      5,136,365
   Available-for-sale                      2,654,233      2,654,233            --             --
  Mortgage-backed securities:
   Held-to-maturity                        3,420,153      3,386,645     2,280,743      2,205,640
   Available-for-sale                      7,969,533      7,969,533     2,599,147      2,599,147
  Loans receivable                       145,696,660    146,018,504   113,048,075    112,106,875
  Stock in FHLB                            2,110,075      2,110,075       945,475        945,475
  Cash surrender value of life
    insurance policies                     1,400,055      1,400,055     1,350,964      1,350,964

Financial liabilities:
  Deposits                               114,495,090    114,488,907   107,595,602    108,014,842
  Advances from FHLB                      35,655,579     35,687,164    13,922,083     13,786,403


                                                                                              64
</TABLE>
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

The following  methods and  assumptions  were used to estimate the fair value of
financial instruments:

CASH AND CASH  EQUIVALENTS - The carrying  amount of these items is a reasonable
estimate of their fair value.

INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY - The fair
value of  investment  securities  is based on  quoted  market  prices  or dealer
estimates.  Estimated  fair  value  for  mortgage-backed  securities  issued  by
quasi-governmental  agencies is based on quoted market prices. The fair value of
all other mortgage-backed securities is based on dealer estimates.

LOANS RECEIVABLE - For certain  homogeneous  categories of loans,  such as fixed
and variable residential mortgages,  fair value is estimated using quoted market
prices for securities backed by similar loans,  adjusted for differences in loan
characteristics.  The fair value of other loan types is estimated by discounting
the future cash flows and estimated prepayments using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same  remaining  term.  Some loan types were valued at carrying value because of
their floating rate or expected maturity characteristics.

CASH SURRENDER  VALUE OF LIFE INSURANCE  POLICIES - The carrying amount of these
policies approximate their fair value.

STOCK IN FHLB - The fair value is based upon the  redemption  value of the stock
which equates to its carrying value.

DEPOSITS - The fair value of demand deposits, savings accounts, and money market
accounts is the amount  payable on demand at the reporting  date. The fair value
of  fixed-maturity  certificates  of deposit is  estimated  by  discounting  the
estimated future cash flows using the rates currently  offered for deposits with
similar remaining maturities.

ADVANCES  FROM FHLB - The fair value of FHLB  advances and other  borrowings  is
estimated by discounting  the estimated  future cash flows using rates currently
available to the Bank for debt with similar remaining maturities.

OFF-BALANCE  SHEET  INSTRUMENTS  -  The  fair  value  of a  loan  commitment  is
determined based on the fees currently charged to enter into similar agreements,
taking  into  account  the  remaining  length of the  commitment  period and the
present  creditworthiness of the counterparties.  Neither the fees earned during
the year on these instruments nor their value at year-end are significant to the
Company's consolidated financial position.


14.  LIQUIDATION ACCOUNT

At the time of the Conversion,  the Bank established a liquidation account in an
amount  equal to its equity as  reflected  in the latest  statement of financial
condition used in the final conversion prospectus.  The liquidation account will
be  maintained  for the benefit of  eligible  account  holders and  supplemental
eligible  account  holders who continue to maintain  their  accounts at the Bank
after the Conversion.  The liquidation  account will be reduced  annually to the
extent that eligible account holders and  supplemental  eligible account holders
have reduced their qualifying  deposits as of each anniversary date.  Subsequent
increases will not restore an eligible account holder's or supplemental eligible
account holder's interest in the liquidation account. In the event of a complete
liquidation  of the Bank,  each  eligible  account  holder  will be  entitled to
receive a distribution from the liquidation  account in an amount  proportionate
to the current adjusted qualifying balances for accounts then held.

                                                                              65
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

15.  PARENT COMPANY FINANCIAL INFORMATION

The summarized  financial  information for FirstBank  Corp. is presented  below.
Since  FirstBank  Corp.  was not  organized  until  March  12,  1997  and had no
activities prior to April 1, 1997, comparative information is not presented.

                                 FIRSTBANK CORP.
                        Statement of Financial Condition
MARCH 31,                                                               1998
===============================================================================

ASSETS

Cash and cash equivalents                                           $   258,099
Loan to FirstBank Northwest                                           6,100,000
Loan receivable from ESOP                                             1,477,411
Investment in subsidiaries                                           20,333,119
Certificates of deposit                                               1,741,000
Other assets                                                             99,589
-------------------------------------------------------------------------------

Total assets                                                        $30,009,218
===============================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities                                                         $     1,220
Stockholders' equity                                                 30,007,998
-------------------------------------------------------------------------------

Total liabilities and stockholders' equity                          $30,009,218
===============================================================================

                                 FIRSTBANK CORP
                               Statement of Income
YEAR ENDED MARCH 31,                                                    1998
===============================================================================

INTEREST INCOME:
  Certificates and time deposits                                    $    87,503
  Loans receivable                                                       89,358
  ESOP loan                                                              67,345
  Cash and cash equivalents                                             210,253

OTHER INCOME:
  Equity in undistributed income of subsidiaries                      1,544,136
-------------------------------------------------------------------------------

                                                                      1,998,595
OTHER EXPENSE:
  Compensation, payroll taxes and fringe benefits                        17,724
  Other expense                                                         167,392
-------------------------------------------------------------------------------

INCOME BEFORE INCOME TAX EXPENSE                                      1,813,479

INCOME TAX EXPENSE                                                      107,286
-------------------------------------------------------------------------------

NET INCOME                                                          $ 1,706,193
===============================================================================

                                                                              66
<PAGE>

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================

                                 FIRSTBANK CORP.
                             Statement of Cash Flows
YEAR ENDED MARCH 31,                                                   1998
===============================================================================

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                      $  1,706,193
   Adjustments to reconcile net income to net cash provided by
     operating activities:
      Equity in undistributed earnings of subsidiaries               (1,544,136)
      (Increase) decrease in other assets                               (31,437)
      Increase (decrease) in liabilities                                  1,220
-------------------------------------------------------------------------------

Net cash provided by operating activities                               131,840
-------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Investment in wholly owned subsidiary                             (9,470,831)
   Purchases of certificates of deposit                              (4,540,000)
   Maturities of certificates of deposit                              2,799,000
   Dividends received from subsidiaries                                 230,000
   Loan to FirstBank Northwest                                       (6,100,000)
   Loan provided to ESOP                                             (1,587,000)
   Principal repayments on ESOP loan                                    109,589
-------------------------------------------------------------------------------

Net cash used by investing activities                               (18,559,242)
-------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of common stock, net of underwriting costs 18,941,663
   Dividends paid                                                      (256,162)
-------------------------------------------------------------------------------

Net cash provided by financing activities                            18,685,501
-------------------------------------------------------------------------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                               258,099

CASH AND CASH EQUIVALENTS, beginning of year                                 --
-------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of year                             $    258,099
===============================================================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   CASH PAID DURING THE YEAR FOR:
     Interest                                                      $     65,673
     Income taxes                                                  $         --

   NONCASH INVESTING AND FINANCING ACTIVITIES:
     ESOP shares committed to be released                          $     68,152
===============================================================================


                                                                             67