UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934
                    For the Fiscal Year Ended March 31, 2006

[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934
                         Commission File Number: 0-22435

                               FIRSTBANK NW CORP.
--------------------------------------------------------------------------------
                (Name of registrant as specified in its charter)

               Washington                                        84-1389562
---------------------------------------------               -------------------
(State or other jurisdiction of incorporation                (I.R.S. Employer
or organization)                                            Identification No.)

                  1300 16th Avenue, Clarkston, Washington 99403
                  ---------------------------------------------
                    (Address of principal executive offices)

Registrant's telephone number, including area code:            (509) 295-5100
                                                               --------------
Securities registered under Section 12(b) of the Act:                None
                                                                     ----
Securities registered under Section 12(g) of the Act:    Common Stock, par value
                                                         -----------------------
                                                              $.01 per share
                                                              --------------
                                                             (Title of class)
                                                             ----------------

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act [ ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act [ ] Yes [X] No

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

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer [ ]   Accelerated filer [ ]  Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

Indicate the number of shares of each of the registrant's classes of common
stock as of the latest practicable date: Common Stock 5,930,712 shares
outstanding on April 30, 2006.

The aggregate market value of voting and nonvoting common equity held by
nonaffiliates of the registrant was $72.9 million based on the last reported
sale price of the registrant's common stock on the Nasdaq National Market on
September 30, 2005.

================================================================================
<PAGE>

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of the registrant's Definitive Proxy Statement for its 2006 Annual
     Meeting of Shareholders is incorporated by reference into Part III of this
     Form 10-K.

                                       2
<PAGE>

                               FIRSTBANK NW CORP.
                                Table of Contents


                                                                            Page
                                                                            ----
PART I
     Item  1.    Business                                                     4
     Item 1A.    Risk Factors                                                34
     Item  2.    Properties                                                  37
     Item  3.    Legal Proceedings                                           38
     Item  4.    Submission of Matters to a Vote of Security Holders         38

PART II
     Item  5.    Market for Registrant's Common Equity, Related
                  Stockholders Matters and Issuer Purchases of Equity
                  Securities                                                 39
     Item  6.    Selected Financial Data                                     41
     Item  7.    Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                        43
     Item  7A.   Quantitative and Qualitative Disclosures about Market Risk  60
     Item  8.    Financial Statements and Supplementary Data                 61
     Item  9.    Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                        61
     Item 9A.    Control and Procedures                                      61
     Item 9B.    Other Information                                           61

PART III
     Item 10.    Directors and Executive Officers of the Registrant          62
     Item 11.    Executive Compensation                                      62
     Item 12.    Security Ownership of Certain Beneficial Owners and
                  Management and Related Stockholder Matters                 62
     Item 13.    Certain Relationships and Related Transactions              63
     Item 14.    Principal Accounting Fees and Services                      63

PART IV
     Item 15.    Exhibits and Financial Statement Schedules                  64

Signatures                                                                   65

                                       3
<PAGE>

PART I

Item 1.  Business
-----------------

General

         FirstBank NW Corp. (formerly known as FirstBank Corp.) ("Company"), a
Washington corporation, was organized in Delaware in March 1997 to become the
holding company for FirstBank Northwest (formerly known as First Federal Bank of
Idaho, a Federal Savings Bank) ("Bank") upon the Bank's conversion from mutual
to stock form ("Conversion"). The Company completed the Conversion and initial
public offering on July 1, 1997 through the sale of 3,967,500 shares of common
stock at $5.00 per share.

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

         The Bank is a community-oriented financial institution, operating in
one business segment that engages primarily in the business of attracting
deposits from the general public and using those funds to originate residential
mortgage, commercial, and agricultural real estate loans within the Bank's
market area. The Bank also is active in originating construction, and consumer
and other non-real estate loans. The Bank has adopted a mortgage banking
strategy pursuant to which it generally sells a majority of the residential
mortgage loans it originates.

Business Combination

         On October 31, 2003, the Company completed the acquisition of Oregon
Trail Financial Corp. ("Oregon Trail") and its wholly-owned subsidiary, Pioneer
Bank, a Federal Savings Bank ("Pioneer Bank"), for approximately $36.5 million
in cash and 2,960,128 shares of the Company's common stock for consideration of
the 3,108,657 shares of Oregon Trail common stock outstanding as of the
completion date of the acquisition. As a result of the issuance of common stock
for the acquisition, the Company's common stock increased $14,800 and additional
paid in capital increased $33.2 million. The Company's additional paid in
capital increased by an additional $4.6 million as a result of the purchase of
the fair value of Oregon Trail's unexercised stock options as of the completion
date of the acquisition. The acquisition doubled the Company's asset size and
its outstanding common stock.

         The Company's strategic objective is to utilize capital to support
organic growth, with growth through acquisition as a longer term strategy.
Oregon Trail was an attractive candidate because its operations and business
strategies complemented those of the Company. Oregon Trail also offered the
Company the opportunity to expand into a new market area that was geographically
contiguous to the Company's existing market areas with no overlapping branches.
Oregon Trail was also considered to be a potential candidate because of its
stable deposit markets, sizable asset base, strong asset quality, and its
community banking philosophy, which was shared by the Company. In fiscal year
2005, integration of the core processing system platform was completed and the
Company now operates under one operating system.

                                       4
<PAGE>

Market Area

         FirstBank's general market area includes northern Idaho, eastern
Washington, and eastern Oregon, as well as Ada and Canyon Counties in
southwestern Idaho. The Bank's administrative offices are located in Clarkston,
Washington. The Bank operates 20 full-service offices located in Lewiston,
Lewiston Orchards, Moscow, Grangeville, Coeur d'Alene, Post Falls, Hayden, and
Boise, Idaho, in Clarkston, Spokane, and Liberty Lake, Washington, and in Baker
City, La Grande, Island City, Ontario, Vale, John Day, Burns, Enterprise, and
Pendleton, Oregon. The Bank also operates five real estate loan production
centers located in Lewiston, Coeur d'Alene, Boise, and Nampa, Idaho and Baker
City, Oregon and five commercial and agricultural production centers located in
Lewiston, Coeur d'Alene, and Boise, Idaho, Spokane, Washington and Baker City,
Oregon. Most of the Bank's depositors reside in the communities surrounding the
Bank's offices. The majority of the Bank's loans are made to borrowers in the
counties where the Bank's offices are located or in the surrounding counties.

         The northern Idaho and eastern Washington market areas served by the
Bank are dependent on agriculture, manufacturing, tourism and the forest
products industry, and the local economies reflect the health or weakness of
those industries. Agricultural activity consists primarily of dry land farming.
The primary crop is wheat and other major crops are barley, peas, lentils, beans
and grass seed. Livestock production is also a major part of the region's
economy.

         The market area in eastern Oregon is largely rural, with most of the
farms and ranches being relatively small and family owned. Major employers in
this market area include Confederated Tribes of the Umatilla Indians, Eastern
Oregon Correctional Institute, Fleetwood Homes, U.S. Forest Service, Bureau of
Land Management, Snake River Correctional Institute, Oregon Department of
Transportation, Ore-Ida Foods, Powder River Correctional Facility, Treasure
Valley Community College, Eastern Oregon University, regional hospitals, local
school districts and local government.

         Lewiston, Idaho serves as the regional center for state government. The
economy of Lewiston, in Nez Perce County, is connected to that of Clarkston,
Washington, which is separated from Lewiston by the Snake River. The Lewis-Clark
Valley has a population of approximately 58,000. Forest products and agriculture
are the dominant industries in the Lewiston-Clarkston area. Medical services,
light manufacturing and tourism have helped maintain the economy in recent
years. Moscow, Idaho, in Latah County, has a population of approximately 22,000
and the county has a population of approximately 35,000. Agriculture and higher
education are the primary industries in Moscow. The University of Idaho is
located in Moscow and is the city's largest employer. Pullman, Washington,
located eight miles to the west of Moscow, is the home of Washington State
University and Schweitzer Engineering Laboratories, two of the area's largest
employers. Grangeville, Idaho, in Idaho County, has an economy based primarily
on agriculture, forest products and the U.S. Forest Service. Tourism has become
increasingly important to the Grangeville economy in recent years.

         Coeur d'Alene, located in Kootenai County, Idaho is the largest city in
Northern Idaho, with a population of approximately 38,000. Kootenai County has
approximately 128,000 residents. Healthcare, manufacturing, construction and
tourism are the major industries of this region. Coeur d'Alene has experienced
significant growth in the past ten years, primarily as a result of in-migration
and growth in the healthcare, retail trade, manufacturing, and tourism
industries. Real estate activity has been high with a large amount of new home
construction attributable to the population growth. The Bank's Liberty Lake,
Washington branch is located in the rapidly growing I-90 corridor between Coeur
d'Alene, Idaho and Spokane, Washington. Spokane is the largest city in eastern
Washington with a population of approximately 197,000. Spokane County has a
population of approximately 441,000.

         The Boise Metropolitan Statistical Area, which includes Ada and Canyon
counties, has a population of approximately 535,000, and is the most densely
populated area in the state of Idaho. Boise is Idaho's state capital, the home
of Boise State University, and headquarters for a large number of national and
international corporations, including Micron Technology, Albertson's Inc, and JR
Simplot Corporation, and is the location of a major Hewlett-Packard copier
manufacturing facility. Boise is also a regional banking center and home to
several major hospital and medical facilities.

                                       5
<PAGE>

Lending Activities

         General. Commercial real estate and commercial non-real estate lending
is the principal lending activity of the Bank. The Bank is also active in the
origination of conventional mortgage loans for the purpose of purchasing or
refinancing one- to four-family residential property as well as construction
loans and agricultural real estate and production loans. To a lesser extent, the
Bank originates home equity, other consumer, and auto dealer loans. The Bank's
net loans receivable totaled $632.5 million at March 31, 2006, representing
74.8% of consolidated total assets.

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

<TABLE>
<CAPTION>
                                                                        At March 31,
                            ------------------------------------------------------------------------------------------------------
                                   2006                 2005                 2004                 2003                 2002
                            ------------------   ------------------   ------------------   ------------------   ------------------
                             Amount   Percent     Amount   Percent     Amount   Percent     Amount   Percent     Amount   Percent
                            --------  --------   --------  --------   --------  --------   --------  --------   --------  --------
                                                                  (Dollars in Thousands)
<S>                         <C>         <C>      <C>         <C>      <C>         <C>      <C>       <C>        <C>         <C>
Real estate loans:
Residential                 $123,461     19.20%  $117,541     20.55%  $113,016     24.20%  $ 50,692     19.77%  $ 62,234     26.19%
Agricultural                  18,792      2.92     19,434      3.40     18,567      3.98     15,921      6.21     16,264      6.84
Commercial                   201,282     31.30    173,757     30.39    122,132     26.15     68,125     26.58     52,496     22.09
Construction                 108,650     16.89     69,148     12.09     44,536      9.54     30,248     11.80      6,044      2.54
                            --------  --------   --------  --------   --------  --------   --------  --------   --------  --------
Total real estate loans      452,185     70.31    379,880     66.43    298,251     63.87    164,986     64.36    137,038     57.66
                            --------  --------   --------  --------   --------  --------   --------  --------   --------  --------

Other loans:
Commercial                    91,628     14.25     92,780     16.23     75,878     16.25     50,603     19.74     55,568     23.38
Home equity                   40,926      6.36     37,806      6.61     24,530      5.25     19,924      7.77     24,832     10.45
Other consumer                39,089      6.08     38,724      6.77     43,425      9.30      7,843      3.06      7,924      3.34
Agricultural operating        19,333      3.00     22,625      3.96     24,876      5.33     13,000      5.07     12,289      5.17
                            --------  --------   --------  --------   --------  --------   --------  --------   --------  --------
Total other loans            190,976     29.69    191,935     33.57    168,709     36.13     91,370     35.64    100,613     42.34
                            --------  --------   --------  --------   --------  --------   --------  --------   --------  --------

Total loans receivable       643,161    100.00%   571,815    100.00%   466,960    100.00%   256,356    100.00%   237,651    100.00%
                                      ========             ========             ========             ========             ========

Less:
Unearned loan fees and         2,480                2,460                1,532                1,137                  692
   discounts
Allowance for loan losses      8,138                7,254                6,314                3,414                2,563
                            --------             --------             --------             --------             --------
Loans receivable, net       $632,543             $562,101             $459,114             $251,805             $234,396
                            ========             ========             ========             ========             ========

Loans held for sale         $  3,785             $  3,999             $  5,254             $  5,214             $  3,740
                            ========             ========             ========             ========             ========

Average loan balance:
Residential real estate     $     87             $     77             $     66             $     74             $     75
Agricultural real estate    $    107             $    130             $    121             $    114             $    137
Commercial real estate      $    426             $    363             $    289             $    349             $    338
Construction real estate    $    174             $    127             $    203             $    153             $    143
Other loans                 $     18             $     18             $     24             $     38             $     40
</TABLE>


         Residential Real Estate Lending (Mortgage Banking). The Bank is active
in the origination of mortgage loans to enable borrowers to purchase or
refinance residential real estate. At March 31, 2006, $123.5 million, or 19.2%,
of the Bank's total gross loan portfolio consisted of loans secured by
residential real estate. The Bank presently originates both adjustable-rate
mortgage ("ARM") loans and fixed-rate mortgage loans with maturities of up to 30
years. Substantially all of the Bank's residential mortgage loans are secured by
property located in the Bank's primary market area. Very few of the properties
securing the Bank's residential mortgage loans are investment properties, second
homes or vacation properties. The Bank's conventional mortgage loans are
generally underwritten and documented in accordance with the guidelines
established by the Federal Home Loan Mortgage Corporation ("Freddie Mac") and
the Federal National Mortgage Association ("Fannie Mae").

                                       6
<PAGE>

         The Bank sells a majority of the residential mortgage loans it
originates primarily to private investors. Currently, most 10 and 15 year first
mortgage loans are added to the Bank's portfolio. The remaining loans are sold
to Fannie Mae or Freddie Mac. Loans are sold to Freddie Mac and Fannie Mae on a
servicing-retained basis, while loans sold to private investors are sold
servicing-released. Generally, loans are sold without recourse, although on
occasion, the Bank has sold loans with recourse. As of March 31, 2006, the Bank
remains contingently liable for approximately $5,000 of loans sold with
recourse. At March 31, 2006, the Bank had indemnification agreements with the
Federal Housing Administration ("FHA") for two residential mortgage loans
insured by FHA. The agreements require the Bank to reimburse FHA for any loss
incurred upon foreclosure of these loans and subsequent liquidation of the
properties held as collateral. The Bank's decision to hold or sell loans is
based on its asset/liability management policies and goals and the market
conditions for mortgages. See "Loan Originations, Sales and Purchases."

         The Bank offers ARM loans at rates and terms competitive with market
conditions. The Bank currently offers ARM products that adjust annually after an
initial fixed period of one, three, five, or seven years based on the applicable
Treasury constant maturity index. ARM loans held in the Bank's portfolio do not
permit negative amortization of principal and carry no prepayment restrictions.
The periodic interest rate cap (the maximum amount by which the interest rate
may be increased or decreased in a given period) on the Bank's ARM loans is
generally 2% per adjustment period and 6% over the life of the loan. The terms
and conditions of the ARM loans offered by the Bank, including the index for
interest rates, may vary from time to time. Borrower demand for ARM loans versus
fixed-rate mortgage loans is a function of the level of interest rates, the
expectations of changes in the level of interest rates and the difference
between the initial interest rates and fees charged for each type of loan. The
relative amount of fixed-rate mortgage loans and ARM loans that can be
originated at any time is largely determined by the demand for each in a
competitive environment.

         A significant portion of the Bank's ARM loans are not readily saleable
in the secondary market because they are not originated in accordance with the
purchase requirements of Freddie Mac, Fannie Mae, or other private investors.
The Bank requires that non-conforming loans demonstrate appropriate compensating
factors that offset their lack of conformity. Although such loans satisfy the
Bank's underwriting requirements, they are "non-conforming" because they do not
satisfy property limits, credit requirements, repayment capacities or various
other requirements imposed by the secondary market. Accordingly, the Bank's
non-conforming loans can be sold only to private investors on a negotiated
basis. At March 31, 2006, the Bank's residential loan portfolio included $16.1
million of non-conforming ARM loans. Generally, the Bank's non-conforming ARM
loans bear a higher rate of interest than similar conforming ARM loans. The Bank
has found that its origination of non-conforming loans has not resulted in
increased amounts of nonperforming loans.

         The retention of ARM loans in the Bank's loan portfolio helps reduce
the Bank's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs as a
result of increased rates to be paid by the customer. It is possible that during
periods of rising interest rates, the risk of default on ARM loans may increase
as a result of repricing and the increased payments required by the borrower.
Furthermore, because the ARM loans originated by the Bank generally provide, as
a marketing incentive, for "teaser rates" (i.e., initial rates of interest below
the rates that would apply were the adjusted index plus the applicable margin
initially used for pricing), these loans are subject to increased risks of
default or delinquency. The Bank attempts to reduce the potential for
delinquencies and defaults on ARM loans by qualifying the borrower based on the
borrower's ability to repay the ARM loan assuming a rate of 200 basis points
above the initial interest rate or the fully indexed rate, whichever is higher.
Another consideration is that although ARM loans allow the Bank to increase the
sensitivity of its asset base to changes in interest rates, the extent of this
interest sensitivity is limited by the periodic and lifetime interest rate
adjustment limits. Because of these considerations, the Bank has no assurance
that yields on ARM loans will be sufficient to offset increases in the Bank's
cost of funds.

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

                                       7
<PAGE>

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

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

         The Bank's lending policies generally limit the maximum loan-to-value
ratio on mortgage loans secured by owner-occupied properties to 95% of the
lesser of the appraised value or the purchase price, with the condition that
private mortgage insurance is generally required on loans with loan-to-value
ratios greater than 80%. Higher loan-to-value ratios are available on certain
government insured programs.

         Residential Construction Lending. The Bank invests a portion of its
loan portfolio in residential construction loans. This activity has been
prompted by favorable economic conditions, primarily in Coeur d'Alene and Boise,
Idaho, lower long-term interest rates and an increased demand for housing units
as a result of the population growth in Idaho. At March 31, 2006, construction
loans totaled $108.7 million, or 16.9% of total loans. At that date, the average
amount of the Bank's construction loans was approximately $174,000. The largest
construction loan in the Bank's portfolio at March 31, 2006 was $2.1 million,
and was performing in accordance with its terms. Residential construction loan
originations, excluding loans purchased and loan participations, totaled $244.3
million for the year ended March 31, 2006, which constituted 43.7% of total loan
originations. During fiscal year 2003, the Bank entered the Boise area and
increased the construction loan activity. Originations of construction loans
from the Boise loan production office totaled $158.1 million and originations of
construction loans from the Coeur d'Alene office totaled $42.6 million during
the fiscal year ended March 31, 2006.

         The Bank originates construction loans to professional home builders
and to individuals building their primary residences. The Bank also makes loans
to builders for the acquisition of building lots. Construction loans made by the
Bank to professional home builders include both those with a sales contract or
permanent financing in place for the finished homes and those for which
purchasers for the finished homes may be identified either during or following
the construction period (speculative loans). At March 31, 2006, speculative
loans totaled $47.9 million, or 44.1% of the total construction loan portfolio.
Construction loans to individuals are generally converted to permanent mortgage
loans upon completion of the construction period. At March 31, 2006, permanent
construction loans to individuals totaled $11.6 million or 10.6% of the total
construction loan portfolio.

         At March 31, 2006 and 2005, the composition of the Company's
construction loan portfolio was as follows:

<TABLE>
<CAPTION>
                                                                At March 31,
                                             --------------------------------------------------
                                                       2006                       2005
                                             -----------------------    -----------------------
                                               Amount      Percent        Amount      Percent
                                             ----------   ----------    ----------   ----------
                                                             (Dollars in Thousands)
<S>                                          <C>              <C>       <C>              <C>
            Speculative construction         $   47,907        44.09%   $   30,850        44.62%
            Presold construction                 37,391        34.42        26,430        38.22
            Permanent construction               11,553        10.63         9,218        13.33
            Land acquisition                     11,799        10.86         2,650         3.83
            Participation construction               --           --            --           --
                                             ----------   ----------    ----------   ----------

            Total                            $  108,650       100.00%   $   69,148       100.00%
                                             ==========   ==========    ==========   ==========
</TABLE>

                                       8
<PAGE>

         Construction lending provides the Bank with the opportunity to achieve
higher interest rates and fees with shorter terms to maturity than does its
single-family permanent mortgage lending. Construction lending, however, is
generally considered to involve a higher degree of risk than single-family
permanent mortgage lending because of the inherent difficulty in estimating both
a property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value upon completion proves to be inaccurate, the Bank may be confronted with a
project whose value is insufficient to assure full repayment. Projects may also
be jeopardized by disagreements between borrowers and builders and by the
failure of builders to pay subcontractors. Speculative loans carry more risk
because the payoff for the loan is dependent on the builder's ability to sell
the property prior to the time that the construction loan is due. The Bank has
sought to address these risks by adhering to strict underwriting policies,
disbursement procedures, and monitoring practices. In addition, changes in the
local economy and real estate market could adversely affect the Bank's
construction loan portfolio. Accordingly, the Bank closely monitors sales and
listings in its real estate markets and will limit the amount of speculative
loans if it perceives unfavorable market conditions.

         Loans to builders for the construction of one- to four-family
residences are generally made for a term of 12 months. The Bank's loan policy
permits a maximum loan-to-value ratio of 80%. The Bank maintains a list of major
builders and establishes an aggregate credit limit for each major builder based
on the builder's financial strength, experience and reputation, and monitors
each builder's borrowings on a monthly basis. Each major builder is required to
provide the Bank with annual financial statements and other credit information.
At March 31, 2006, the Bank had approved 22 major builders, the largest
borrowing capacity of which was approximately $7.0 million. At March 31, 2006,
the Bank's major builders had total loans of $61.4 million outstanding, and all
loans were performing in accordance with their terms. For all builders, the Bank
reviews the financial strength and credit of the builder on a loan by loan
basis.

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

         Agricultural Lending. Agricultural lending has been an important part
of the Bank's lending strategy since the mid-1980s. The Chief Executive Officer,
the Chief Operating Officer, and the Vice President of Agricultural Lending have
31 years, 26 years, and 28 years of experience, respectively, in agricultural
lending. The existing staff's experience maintains the Bank as one of the most
experienced agricultural lenders in the area.

         Agricultural Real Estate Lending. The Bank presently originates both
adjustable-rate and fixed-rate loans secured by farmland located in the Bank's
market area, primarily around Lewiston, Idaho and eastern Oregon. The Bank
offers adjustable-rate loans that adjust annually after an initial fixed period
of one, three or five years. Such loans generally provide for up to a 25-year
term. The Bank also offers fixed-rate loans including secondary marketing loans,
which are loans originated and intended for sale in secondary markets and which
have an amortization up to 30 years. At March 31, 2006, agricultural real estate
loans totaled $18.8 million, or 2.9% of the Bank's total loan portfolio.
Agricultural real estate loan originations, excluding loans purchased and loan
participations, totaled $2.7 million for the year ended March 31, 2006, which
constituted 0.5% of total loan originations.

         Agricultural real estate loans generally are underwritten to Federal
Agricultural Mortgage Corporation ("Farmer Mac") standards so as to qualify for
sale in the secondary market, although the Bank currently retains most of these
loans for its portfolio. In originating an agricultural real estate loan, the
Bank considers the debt service coverage of the borrower's cash flow, the amount
of working capital available to the borrower, the financial history of the
borrower and the appraised value of the underlying property as well as the
Bank's experience with and knowledge of the borrower. An environmental
assessment is also performed. The maximum loan-to-value for agricultural real
estate loans is 75%. At March 31, 2006, the Bank's average agricultural real
estate loan was approximately $107,000, and the Bank's largest agricultural real
estate loan was $876,000, which was performing according to its terms.

                                       9
<PAGE>

         Agricultural real estate lending provides the Bank the opportunity to
earn yields higher than those generally available on standard conforming
residential real estate lending. However, agricultural real estate lending
involves a greater degree of risk than residential real estate lending. Payments
on agricultural real estate loans are dependent on the successful operation or
management of the farm property securing the loan. The success of the farm may
be affected by many factors outside the control of the farm borrower, including
adverse weather conditions that limit crop yields (such as hail, drought and
floods), declines in market prices for agricultural products and the impact of
government regulations (including changes in price supports, subsidies and
environmental regulations). In addition, many farms are dependent on a limited
number of key individuals whose injury or death may significantly affect the
successful operation of the farm. Farming in the Bank's market area is generally
dry-land farming, with wheat being the primary crop. Accordingly, adverse
circumstances affecting the area's wheat crop could have an adverse effect on
the Bank's agricultural loan portfolio. Cattle ranching in the Bank's market
area consists of cow/calf or yearling operations and a limited number of feed
lot operations. Irrigated farming occurs primarily in Malheur County (Ontario)
and Umatilla County (Pendleton) areas with primary crops of potatoes and onions.
Annual precipitation, favorable growing weather, and commodity prices can
substantially impact agricultural economics.

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

         Agricultural Operating Lending. At March 31, 2006, agricultural
operating loans totaled $19.3 million, or 3.0% of total loans. Agricultural
operating loan originations, excluding loans purchased and loan participations,
totaled $6.2 million for the year ended March 31, 2006, which constituted 1.1%
of total loan originations. Agricultural operating loans or lines of credit
generally are made for a term of one to three years and may be secured or
unsecured. Such loans may be secured by a first or second mortgage, or liens on
property, vehicles, accounts receivable, crop held or growing crop. Personal
guarantees are frequently required for loans made to corporations and their
business entities. Payments on agricultural operating loans depend on the
successful operation of the farm, which may be adversely affected by weather
conditions that limit crop yields, fluctuations in market prices for
agricultural products, and changes in government regulations and subsidies.
Underwriting requires substantial cash working capital and annual production
income sufficient to meet payment obligations on an annual basis.

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

         Of the agricultural operating loans originated, excluding loans
purchased and loan participations, in fiscal year 2006, operating loans
represent 71.8% of total loan originations, equipment loans 13.6%, working
capital loans 10.1%, and other loans 4.5%.

         Commercial Real Estate Lending. Commercial real estate lending has
become a significant part of the Bank's lending strategy. At March 31, 2006, the
Bank's commercial real estate loan portfolio totaled $201.3 million, or 31.3% of
total loans. At March 31, 2006, the Bank's commercial real estate loan average
size was $426,000 and the largest loan was $6.6 million, which was performing
according to its terms. Commercial real estate loan originations, excluding
loans purchased and loan participations, totaled $99.7 million for the year
ended March 31, 2006, which constituted 17.8% of total loan originations. In
connection with the expansion of the Bank's commercial banking activities, the
Bank intends to continue commercial real estate lending, subject to market
conditions.

         The Bank's commercial real estate loans include loans secured primarily
by owner-occupied buildings, storage facilities, manufactured home parks, small
office buildings, retail shops, multi-family residential properties and other
small commercial properties. The portfolio also contains a limited amount of
specialty realty (i.e., restaurants, motels, etc.). Commercial real estate loans
in the Bank's portfolio primarily consist of loans originated by the Bank.
Appraisals on properties that secure commercial real estate loans are performed
by independent appraisers engaged by the Bank before the loans are made. An
environmental assessment is also performed. Underwriting of commercial real
estate loans includes a thorough analysis of the cash flows generated by the
real estate or the borrower's business to support the debt service and the
financial resources, experience, and income level of the borrowers. Security
debt coverage ratios, total debt coverage ratios, and working capital
assessments are key underwriting criteria.

                                       10
<PAGE>

         Commercial Business Lending. Commercial business lending is important
to the Bank's lending strategy. The Bank's real estate relationships have
resulted in commercial lending opportunities with these customers. This reflects
the Bank's objective to provide its commercial and small business customers with
a complete lending and banking relationship. At March 31, 2006, commercial
business loans totaled $91.6 million, or 14.3% of the total loan portfolio. At
March 31, 2006, the Bank's nonresidential commercial business loan average size
was $129,000 and the largest loan was $5.5 million, which was performing
according to its terms. Commercial business loan originations, excluding loans
purchased and loan participations, totaled $67.8 million for the year ended
March 31, 2006, which constituted 12.1% of total loan originations. The Bank
presently originates both adjustable-rate and fixed-rate loans secured by
equipment, accounts receivable and inventory. Loans secured by accounts
receivable and inventory are generally operating lines of credit renewed
annually while equipment secured loans are term loans of up to five years. The
indices used for adjustable-rate loans are the applicable FHLB index, the
applicable LIBOR index, and prime rate as stated in The Wall Street Journal.

         Commercial business lending provides the Bank with an opportunity to
receive interest at rates higher than those generally available from residential
mortgage loans. However, the collateral for these loans is usually more
difficult to evaluate and monitor; therefore, these loans involve a higher
degree of risk than commercial real estate or one- to four-family residential
mortgage loans. Because loan payments are dependent on cash flow and
profitability of the business, and require successful operation and management
of the business entity, repayment of such loans may be affected by adverse
conditions in the commercial real estate market or the economy. Accordingly,
management strength, performance history within the business sector and other
financial resources are included in underwriting criteria for commercial
business loans. In addition, personal guarantees are typically required to
assure those strengths are backing the credit relationship.

         Of the commercial business loans originated, excluding loans purchased
and loan participations, in fiscal year 2006, operating loans represent 66.9% of
total loan originations, equipment loans 15.8%, working capital loans 1.5%,
letters of credit 10.9%, and other loans 4.9%. The Bank also participates in
small business and industry guarantee programs that are designed to assist
businesses that cannot qualify for conventional financing.

         Consumer and Other Lending. The Bank originates a variety of consumer
and other non-mortgage loans. Such loans generally have shorter terms to
maturity and higher interest rates than mortgage loans. At March 31, 2006, the
Bank's consumer and other non-mortgage loans totaled approximately $80.0
million, or 12.4% of the Bank's total loans. Consumer and other loan
originations, excluding loans purchased and loan participations, totaled $37.1
million for the year ended March 31, 2006, which constituted 6.6% of total loan
originations. The Bank's consumer loans consist primarily of secured and
unsecured consumer loans, automobile loans, boat loans, recreational vehicle
loans, home improvement and equity loans and deposit account loans. The growth
of the consumer loan portfolio in recent years has consisted primarily of an
increase in home equity loans, which the Bank has marketed more aggressively.

         At March 31, 2006, home equity loans totaled $40.9 million, or 6.4% of
the Bank's total loans. The Bank offers both home equity second mortgage loans
and lines of credit. The Bank's home equity loans are secured by first or second
mortgages on residential real estate located in the Bank's primary market area.
Home equity second mortgage loans are generally offered with terms of five or
ten years with fixed interest rates and 20 year term loans with adjustable
interest rates. Home equity lines of credit generally have adjustable interest
rates based on the prime rate. Home equity loans are generally underwritten at
80% loan-to-value including the first mortgage with exceptions granted for
demonstrated exceptional financial strength.

         At March 31, 2006, other consumer loans totaled $39.1 million, of which
$26.1 million is dealer paper. Dealer paper consists of mainly automobile loans
originated indirectly by a network of automobile dealers located in the Bank's
market area. Only dealers that have been approved by the Bank and have signed a
written agreement with the Bank regarding the purchase of these contracts are
eligible for contract purchases. The applications for such loans are taken by
employees of the dealer, the loans are written on the dealer's contract pursuant
to the Bank's underwriting standards using the dealer's loan documents with
terms substantially similar to the Bank's. All indirect loans must be approved
by specific loan officers of the Bank who have experience with this type of
lending. The dealers are paid a premium by the Bank which is amortized over the
life of the loan.

                                       11
<PAGE>

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

         Loans Held for Sale. Loans held for sale totaled $3.8 million at March
31, 2006 and $4.0 million at March 31, 2005. Loans originated and intended for
sale in secondary markets are carried at the lower of cost or estimated market
value in the aggregate. Loan fees (net of certain direct loan origination costs)
on loans held for sale are deferred until the related loans are sold or repaid.
Gains or losses on loan sales are recognized at the time of sale and determined
on a loan by loan basis. The Bank usually sells loans a short time after
originating the loan. The change in loan balances for loans held for sale at a
specific time fluctuates with the volume of real estate residential loan
originations.

         Maturity of Loan Portfolio. The following table sets forth certain
information at March 31, 2006 regarding the dollar amount of principal
repayments for loans becoming due during the years indicated, excluding loans
held for sale. All loans are included in the year in which the final contractual
payment is due. Demand loans, loans having no stated schedule of repayments and
no stated maturity, and overdrafts are reported as due within one year. The
table does not include any estimate of prepayments which significantly shortens
the average life of all loans and may cause the Bank's actual repayment
experience to differ from that shown below.

<TABLE>
<CAPTION>
                                             After One    After 5 Years  After 10 Years
                                Within      Year Through     Through        Through        Beyond
                               One Year       5 Years        10 Years       15 Years       15 Years        Total
                             ------------   ------------   ------------   ------------   ------------   ------------
Real estate loans:                                                 (In Thousands)
<S>                          <C>            <C>            <C>            <C>            <C>            <C>
  Residential                $        204   $      3,848   $     14,883   $     26,148   $     78,378   $    123,461
  Construction                    108,650             --             --             --             --        108,650
  Commercial                       28,831         64,785         19,022         28,471         60,173        201,282
Agricultural                       12,476          6,690          2,837          7,501          8,621         38,125
Commercial non-real estate         44,374         27,824         15,738            297          3,395         91,628
Other loans                         4,675         24,106         46,053          4,295            886         80,015
                             ------------   ------------   ------------   ------------   ------------   ------------
Total loans receivable       $    199,210   $    127,253   $     98,533   $     66,712   $    151,453   $    643,161
                             ============   ============   ============   ============   ============   ============
</TABLE>

         The following table sets forth the dollar amount of all loans due after
March 31, 2007 that have fixed interest rates and have floating or adjustable
interest rates, excluding loans held for sale.

                                                              Floating or
                                                 Fixed        Adjustable
                                                 Rates           Rates
                                              ------------   ------------
Real estate loans:                                   (In Thousands)
  Residential                                 $    106,755   $     16,502
  Commercial                                        15,432        157,019
Agricultural                                         3,810         21,839
Commercial non-real estate                          22,059         25,195
Other loans                                         58,882         16,458
                                              ------------   ------------
Total loans receivable                        $    206,938   $    237,013
                                              ============   ============

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

                                       12
<PAGE>

         Loan Solicitation and Processing. Loan applicants come primarily
through loan officer business development calls, referrals from existing
customers, realtors, homebuilders, accountants, attorneys, and walk-ins. The
Bank also uses radio and newspaper advertising to create awareness of its loan
products. In addition to originating loans through its branch offices, the Bank
operates six loan centers located in Coeur d'Alene, Lewiston, Nampa and Boise,
Idaho, Spokane, Washington, and Baker City, Oregon to increase loan
originations. The Bank does not utilize any loan correspondents, mortgage
brokers or other forms of wholesale loan origination. Upon receipt of a loan
application from a prospective borrower, a credit report and other data are
obtained to verify specific information relating to the loan applicant's
employment, income and credit standing. An appraisal of the real estate offered
as collateral generally is undertaken by a certified, independent fee appraiser.

         Loan Approvals. Residential real estate loans that qualify for sale in
the secondary market may be approved by the Bank's underwriters. All other
portfolio real estate loans must be approved by two members of the Management
Loan Committee. Delegated loan approval authority to residential lending centers
is authorized within prescribed limits for approved major builder loans. All
other construction loans must be approved by two members of the Management Loan
Committee. Consumer loans up to $50,000 and home equity loans up to $150,000 may
be approved by designated underwriters provided that the total loan relationship
is $200,000 or less. All other consumer and home equity loans must be approved
by a member of the Management Loan Committee. All commercial and agricultural
real estate and non-real estate loans are approved within the Bank's delegated
loan approval policy. Any loan or combination of loans to one entity of $1.5
million or greater require approval by the Executive Loan Committee, which
consists of the Chief Executive Officer, Chief Loan Officer, Chief Operations
Officer, Credit Administrator, and the members of the Board of Directors.

         Loan Originations, Sales and Purchases. While the Bank originates both
adjustable- and fixed-rate loans, its ability to generate each type of loan is
dependent upon relative customer demand for loans in its market. For the year
ended March 31, 2006, the Bank originated $559.0 million of loans, excluding
loans purchased and loan participations. Residential real estate loan
originations, excluding loans purchased and loan participations, totaled $101.3
million for the year ended March 31, 2006, which constituted 18.1% of total loan
originations. The loan centers have enhanced the originations of commercial and
agricultural real estate and non-real estate loans for the loan portfolio
growth.

         In the early 1990s, the Bank adopted a mortgage banking strategy
pursuant to which it seeks to generate income from the sale of loans (which may
be sold either servicing-retained or servicing-released) and from servicing fees
from loans sold on a servicing-retained basis on residential real estate term
loans. Generally, the level of loan sale activity and, therefore, its
contribution to the Bank's profitability, depends on maintaining a sufficient
volume of loan originations, fee originations, servicing release premiums, and
par pricing, which is the premium or discount to sell the loan on the market.
Changes in the level of interest rates and the local economy affect the amount
of loans originated by the Bank and, thus, the amount of loan sales as well as
origination and loan fees earned. Gains on sales of loans totaled $1.8 million
and $1.0 million during the years ended March 31, 2006 and 2005, respectively.
The Bank sells loans on a loan-by-loan basis. Generally, a loan is committed to
be sold and a price for the loan is fixed at the time the interest rate on the
loan is fixed, which may be at the time the Bank issues a loan commitment or at
the time the loan closes. This eliminates the majority of the risk to the Bank
that a rise in market interest rates will reduce the value of a mortgage before
it can be sold. When a loan is committed to be sold before it is closed, the
Bank is subject to the risk that the loan fails to close or that the closing of
the loan is delayed beyond the specified delivery date. In that event, the Bank
may be required to compensate the purchaser for failure to deliver the loan.
Generally, loans are sold without recourse, although in the past the Bank has
sold loans with recourse.

                                       13
<PAGE>

         In the past, the Bank has purchased loans and loan participations in
its primary market during periods of reduced loan demand. Through a consortium
of local financial institutions, the Bank occasionally purchases participation
interests in loans. Such loans include those secured by local low-income housing
projects, single family pre-sold and speculative housing, and commercial loans.
Management will consider any type of commercial, agricultural, and construction
participation loan. The Bank is supplementing its origination of agricultural
and commercial real estate loans and agricultural operating and nonresidential
commercial loans by purchasing participations in such loans originated by other
community banks in Idaho, Washington, and Oregon. Participations will be
utilized to facilitate market competitiveness, market diversification, and asset
allocation. Individual participating banks are required to be identified based
on asset quality, pricing, and targeted market objectives. It is intended that
participating banks are committed to a policy in this area that is consistent
with the Bank's policy. Annually, the Bank will complete a financial analysis on
each bank with active participations. All participations are monitored for
credit quality on an on-going basis like all other loans. All such purchases
will be made in conformance with the Bank's underwriting and pricing standards.
All open-end and closed-end credit participations will be based on the
participating bank being last-in and first-out of each loan. Term loans can be
repaid on a pro-rata basis. The Bank anticipates that it will purchase only a
small portion of any individual loan and that the originating institution will
retain a majority of the loan. Participation loans at March 31, 2006, 2005 and
2004 were $10.4 million, $7.3 million, and $7.5 million, respectively.

                                       14
<PAGE>

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

<TABLE>
<CAPTION>
                                                                     Year Ended March 31,
                                                           --------------------------------------
                                                              2006          2005          2004
                                                           ----------    ----------    ----------
<S>                                                        <C>           <C>           <C>
Total loans receivable and loans held for sale at                      (In Thousands)
  beginning of year                                        $  575,814    $  472,214    $  261,570
                                                           ----------    ----------    ----------

Loans originated:
Real estate loans:
   Residential                                                101,259        99,694       137,242
   Construction                                               244,257       171,625       107,188
   Agricultural                                                 2,691         2,913         1,923
   Commercial                                                  99,733        95,277        43,148
Commercial non-real estate                                     67,804        51,961        41,806
Agricultural non-real estate                                    6,177         8,236         5,725
Other loans                                                    37,064        45,844        16,364
                                                           ----------    ----------    ----------
Total loans originated                                        558,985       475,550       353,396
                                                           ----------    ----------    ----------

Credit card advances                                           12,093        10,583         6,199
                                                           ----------    ----------    ----------
Loans originated, not funded                                  (85,812)      (56,892)      (30,615)
                                                           ----------    ----------    ----------

Loans purchased and loan participations:
   Real estate loans:
   Residential                                                  8,549         2,467        69,290
   Construction                                                 8,017            29           100
   Agricultural                                                    --         1,000         4,413
   Commercial                                                  10,000        21,739        36,689
Other loans                                                        --            --        92,566
                                                           ----------    ----------    ----------
Total loans purchased (1)                                      26,566        25,235       203,058
                                                           ----------    ----------    ----------

Loans sold:
Servicing retained                                             (4,044)       (2,080)      (18,265)
Servicing released                                            (95,116)      (80,237)     (136,862)
                                                           ----------    ----------    ----------
Total loans sold                                              (99,160)      (82,317)     (155,127)
                                                           ----------    ----------    ----------

Loan principal repayments                                    (312,182)     (243,220)     (106,629)
                                                           ----------    ----------    ----------

Refinanced loans                                              (29,358)      (25,339)      (59,638)
                                                           ----------    ----------    ----------
Change in total loans receivable                               71,132       103,600       210,644
                                                           ----------    ----------    ----------
Total loans receivable and loans held for sale at end of
  year                                                     $  646,946    $  575,814    $  472,214
                                                           ==========    ==========    ==========
</TABLE>

(1)  During the fiscal year ended March 31, 2004, the Company purchased $200.6
million of loans through the acquisition of Oregon Trail.

         Loan Commitments. The Bank issues commitments to originate loans
conditioned upon the occurrence of certain events. Such commitments are made on
specified terms and conditions and are honored for up to 90 days from the date
of loan approval. The Bank had outstanding loan commitments of approximately
$144.0 million at March 31, 2006. In addition, the Bank had commitments to fund
outstanding credit lines of approximately $96.8 million, commitments to fund
standby letters of credit of approximately $6.9 million and commitments to fund
credit card lines of approximately $10.4 million at March 31, 2006.

                                       15
<PAGE>

         Loan Origination and Other Fees. The Bank, in some instances, receives
loan origination fees. Loan fees are a fixed dollar amount or a percentage of
the principal amount of the loan that is charged to the borrower for funding the
loan. Current accounting standards require fees received (net of certain loan
origination costs) for originating loans to be deferred and amortized into
interest income over the contractual life of the loan. Net deferred fees or
costs associated with loans that are prepaid are recognized as income at the
time of prepayment. The Bank had $2.5 million of unearned loan fees and
discounts at March 31, 2005 and 2006.

         Loan Servicing. In the past, the Bank sold residential real estate
loans to Freddie Mac and Fannie Mae on a servicing-retained basis and received
fees in return for performing the traditional services of collecting individual
payments and managing the loans. The Bank also has sold agricultural real estate
loans to private investors on a servicing-retained basis. At March 31, 2006, the
Bank was servicing $58.3 million of loans for others. Loan servicing includes
processing payments, accounting for loan funds and collecting and paying real
estate taxes, hazard insurance and other loan-related items, such as private
mortgage insurance. When the Bank receives the gross mortgage payment from
individual borrowers, it remits to the investor in the mortgage a predetermined
net amount based on the yield on that mortgage. The difference between the
coupon on the underlying mortgage and the predetermined net amount paid to the
investor is the gross loan servicing fee. In addition, the Bank retains certain
amounts in escrow for the benefit of the investor for which the Bank incurs no
interest expense but is able to invest. At March 31, 2006, the Bank held
$972,000 in escrow for its portfolio of loans serviced.

         Mortgage Servicing Rights. At March 31, 2006, mortgage servicing rights
were $533,000, which includes an accumulated impairment on mortgage servicing
rights of $282,000. At March 31, 2005, mortgage servicing rights were $614,000,
which includes an accumulated impairment on mortgage servicing rights of
$346,000. The value of the loans serviced for others is significantly affected
by interest rates. In general, during periods of falling interest rates,
mortgage loans prepay at faster rates and the value of the mortgage servicing
declines. Conversely, during periods of rising interest rates, the value of the
mortgage servicing rights generally increases as a result of slower rates of
prepayment. Impairment of mortgage servicing rights is assessed based on the
fair value of those rights. Fair values are estimated using prices for similar
assets with similar characteristics, when available, or based upon discounted
cash flows using market-based assumptions. For purposes of measuring impairment,
the rights are stratified by predominant characteristics, such as interest rates
and terms. The amount of impairment recognized is the amount by which the
capitalized mortgage servicing rights for a stratum exceeds their fair value.
The following table is an analysis of the changes in mortgage servicing rights
for the years ended March 31, 2006 and 2005:

                                                    Year Ended March 31,
                                                 ------------------------
                                                    2006          2005
                                                 ----------    ----------
                                                      (In Thousands)
      Beginning Balance                          $      614    $      710
         Additions                                       61            29
         Amortization                                  (206)         (206)
         Impairment recovered                            64            81
                                                 ----------    ----------
      Ending Balance                             $      533    $      614
                                                 ==========    ==========

         Goodwill and Other Intangible Assets. Goodwill at March 31, 2006 was
$16.6 million. No impairment loss on goodwill was recorded for the year ended
March 31, 2006, since there were no impairment indicators during the period.

         Core deposit intangible at March 31, 2006 was $2.2 million, net of
accumulated amortization of $1.7 million. Amortization expense for the net
carrying amount of the core deposit intangible at March 31, 2006 is estimated to
be as follows:

<TABLE>
<CAPTION>
               For the year ended March 31,
               (In Thousands)
<S>                                                                              <C>
                2007                                                             $    715
                2008                                                                  715
                2009                                                                  715
                2010                                                                   67
                                                                                 --------
               Estimated total core deposit intangible amortization expense      $  2,212
                                                                                 ========
</TABLE>

                                       16
<PAGE>

Delinquencies and Classified Assets

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

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

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

<TABLE>
<CAPTION>
                                                                                           At March 31,
                                                                     --------------------------------------------------------
                                                                       2006        2005        2004        2003        2002
                                                                     --------    --------    --------    --------    --------
                                                                                       (Dollars in Thousands)
<S>                                                                  <C>         <C>         <C>         <C>         <C>
         Loans accounted for on a nonaccrual basis:
         Real estate loans:
            Residential                                              $    145    $    294    $    701    $    429    $    177
            Construction                                                   --          --         364          --          --
            Agricultural                                                   67          --          78          10          86
            Commercial                                                     --         251          --         175          --
         Commercial non-real estate                                        --           1       1,661         499          89
         Other loans                                                       96         173          96         138         239
                                                                     --------    --------    --------    --------    --------
         Total                                                            308         719       2,900       1,251         591
                                                                     --------    --------    --------    --------    --------

         Accruing loans which are contractually
          past due more than 90 days                                        4         377          --          --          --
                                                                     --------    --------    --------    --------    --------

         Total nonperforming loans                                        312       1,096       2,900       1,251         591

         Real estate owned                                                 --         603         552         120         424
         Repossessed assets                                                13          18          52          --          --
         Restructured loans                                               872       1,094         152         442         107
                                                                     --------    --------    --------    --------    --------

          Total nonperforming assets                                 $  1,197    $  2,811    $  3,656    $  1,813    $  1,122
                                                                     ========    ========    ========    ========    ========

         Nonperforming loans as a percent of loans receivable, net       0.05%       0.19%       0.63%       0.50%       0.25%
         Nonperforming loans as a percent of total assets                0.04%       0.14%       0.41%       0.38%       0.19%
         Nonperforming assets as a percent of
             total assets                                                0.14%       0.35%       0.50%       0.55%       0.36%
         Total nonperforming assets to total loans                       0.19%       0.49%       0.78%       0.71%       0.47%
</TABLE>

         Interest income that would have been recorded for the year ended March
31, 2006 had nonaccruing loans been current in accordance with their original
terms amounted to approximately $10,000.

                                       17
<PAGE>

         Real Estate Owned. Real estate acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
("REO") until it is sold. When property is acquired, it is recorded at the lower
of its cost, which is the unpaid principal balance of the related loan, plus
foreclosure costs, or 90 day liquidation value. Subsequent to foreclosure, REO
is carried at the lower of the foreclosed amount or fair value, less estimated
selling costs. The Bank had no REO at March 31, 2006.

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

The aggregate amounts of the Bank's classified assets at the dates indicated
were as follows:

<TABLE>
<CAPTION>
                                                           At March 31,
                                               ------------------------------------
                                                  2006         2005         2004
                                               ----------   ----------   ----------
                                                           (In Thousands)
<S>                                            <C>          <C>          <C>
               Doubtful:
                 Consumer                      $       --   $       17   $       --
                 Residential                           --           --           12
                 Commercial non-real estate            --           --          120
                                               ----------   ----------   ----------
               Total doubtful                          --           17          132
                                               ----------   ----------   ----------

               Substandard:
                 Consumer                             179          251          310
                 Residential                          383          595          950
                 Commercial non-real estate         1,761        1,483        1,870
                 Commercial real estate             1,570        1,486          756
                 Real estate owned                     --          603          552
                 Repossessed assets                    13           18           --
                 Overdrawn checking accounts           52           56           --
                                               ----------   ----------   ----------
               Total substandard                    3,958        4,492        4,438
                                               ----------   ----------   ----------

               Total classified assets         $    3,958   $    4,509   $    4,570
                                               ==========   ==========   ==========
</TABLE>

         Allowance for Loan Losses. The Bank has established a systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal policy and takes into consideration the need for an
overall general valuation allowance as well as specific allowances that are tied
to individual loans.

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

                                       18
<PAGE>

         The general allowance is maintained to cover losses inherent in the
portfolio of performing loans. Management's periodic evaluation of the adequacy
of the allowance is based on management's evaluation of probable losses in the
loan portfolio. The evaluation of the adequacy of specific and general valuation
allowances is an ongoing process. This process includes information derived from
many factors including historical loss trends, trends in classified assets,
trends in delinquency and nonaccrual loans, trends in portfolio volume,
diversification as to type of loan, size of individual credit exposure, current
and anticipated economic conditions, loan policies, collection policies and
effectiveness thereof, quality of credit personnel, effectiveness of policies,
procedures and practices, and recent loss experience of peer banking
institutions. Specific valuation allowances are established to absorb losses on
loans for which full collectibility may not be reasonably assured, based upon,
among other factors, the estimated fair market value of the underlying
collateral and estimated holding and selling costs. Generally, a provision for
losses is charged against income on a quarterly basis to maintain the
allowances.

         At March 31, 2006, the Bank had an allowance for loan losses of $8.1
million. The allowance for loan losses is maintained at an amount management
considers adequate to absorb losses inherent in the portfolio. Although
management believes that it uses the best information available to make such
determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.

         While the Bank believes it has established its existing allowance for
loan losses in accordance with GAAP, there can be no assurance that regulators,
in reviewing the Bank's loan portfolio, will not request the Bank to increase
significantly its allowance for loan losses. In addition, because future events
affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses would adversely affect the Bank's financial
condition and results of operations.

         The following table sets forth an analysis of the Bank's allowance for
loan losses for the years indicated. Where specific loan loss reserves have been
established, any differences between the loss allowances and the amount of loss
realized has been charged or credited to current income.

<TABLE>
<CAPTION>
                                                                                     Year Ended March 31,
                                                              ------------------------------------------------------------------
                                                                 2006          2005          2004          2003          2002
                                                              ----------    ----------    ----------    ----------    ----------
                                                                                     (Dollars in Thousands)
<S>                                                           <C>           <C>           <C>           <C>           <C>
               Allowance at beginning of year                 $    7,254    $    6,314    $    3,414    $    2,563    $    1,758
               Addition through acquisition                           --            --         2,863            --            --
               Provision for loan losses(1)                        1,799         1,528           395         1,033         1,064

               Recoveries                                            118           110           120            22             7

               Charge-offs:
               Real estate loans:
                  Residential                                         12             7            11            --            41
                  Commercial                                          --           138            19            --            --
                  Construction                                        --            --            --            --            12
               Commercial non-real estate                            583           211           225            18            16
               Other loans                                           438           342           223           186           197
                                                              ----------    ----------    ----------    ----------    ----------
               Total charge-offs                                   1,033           698           478           204           266
                                                              ----------    ----------    ----------    ----------    ----------
               Net charge-offs                                       915           588           358           182           259
                                                              ----------    ----------    ----------    ----------    ----------
               Balance at end of year                         $    8,138    $    7,254    $    6,314    $    3,414    $    2,563
                                                              ==========    ==========    ==========    ==========    ==========

               Allowance for loan losses as a percent of
               total loans receivable                               1.27%         1.27%         1.35%       1. 33%          1.08%
               Net charge-offs to average outstanding loans         0.15%         0.12%         0.10%        0.07%          0.12%
</TABLE>

(1)  See "Item 7. Management's Discussion and Analysis of Financial Condition
     and Results of Operation -- Comparison of Operating Results for the Years
     Ended March 31, 2005 and 2006 -- Provision for Loan Losses" for a
     discussion of the factors contributing to changes in the Bank's provision
     for loan losses between fiscal 2005 and 2006.

                                       19
<PAGE>

         The following table sets forth the breakdown of the allowance for loan
losses by loan category at the periods indicated. The allocation of the
allowance to each category is not necessarily indicative of future losses and
does not restrict the use of the allowance to absorb losses in any other
category.

<TABLE>
<CAPTION>

                                                                     At March 31,
                    ---------------------------------------------------------------------------------------------------------------
                           2006                   2005                   2004                   2003                   2002
                    -------------------    -------------------    -------------------    -------------------    -------------------
                                                                (Dollars in Thousands)
                                 % of                   % of                   % of                   % of                   % of
                                 Loans                  Loans                  Loans                 Loans                  Loans
                                  in                     in                     in                     in                     in
                               Category               Category               Category               Category               Category
                               to Total               to Total               to Total               to Total               to Total
                     Amount     Loans       Amount     Loans       Amount     Loans       Amount     Loans       Amount     Loans
                    --------   --------    --------   --------    --------   --------    --------   --------    --------   --------
<S>                 <C>          <C>       <C>          <C>       <C>          <C>       <C>          <C>       <C>          <C>
Residential         $    422      19.20%   $    238      20.55%   $    282      24.20%   $    243      19.77%   $    268      26.19%
Construction           1,674      16.89       1,272      12.09         927       9.54         660      11.80         133       2.54
Agricultural             565       5.92         735       7.36         738       9.31         425      11.28         365      12.01
Commercial             3,950      45.55       4,628      46.62       3,630      42.40       1,973      46.32       1,571      45.47
Other                  1,527      12.44         381      13.38         737      14.55         113      10.83         226      13.79
                    --------   --------    --------   --------    --------   --------    --------   --------    --------   --------
Total allowance
for loan losses     $  8,138     100.00%   $  7,254     100.00%   $  6,314     100.00%   $  3,414     100.00%   $  2,563     100.00%
                    ========   ========    ========   ========    ========   ========    ========   ========    ========   ========
</TABLE>

Investment Activities

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

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

         The Chief Executive Officer and the Chief Financial Officer determine
appropriate investments in accordance with the Board of Directors' approved
investment policies and procedures. The Bank's investment policies generally
limit investments to FHLB obligations, certificates of deposit, U.S. Government
and agency securities, municipal bonds rated AAA, mortgage-backed securities and
certain types of mutual funds. The Bank does not purchase high-risk mortgage
derivative products. Investments are made based on certain considerations, which
include the interest rate, yield, settlement date and maturity of the
investment, the Bank's liquidity position, and anticipated cash needs and
sources (which in turn include outstanding commitments, upcoming maturities,
estimated deposits and anticipated loan amortization and repayments). The effect
that the proposed investment would have on the Bank's credit and interest rate
risk, and risk-based capital is also considered during the evaluation.

                                       20
<PAGE>

         Investment securities are purchased primarily for managing liquidity.
Generally, the Bank purchases mortgage-backed securities during times of reduced
loan demand. The Bank's investments are primarily long term, insured bank
qualified State of Idaho or Oregon municipal bonds. Most of the mortgage-backed
securities are longer-term Freddie Mac, Fannie Mae, and Ginnie Mae backed
securities.

         In connection with the acquisition of Oregon Trail, $9.5 million of
investment securities were added to the held-to-maturity classification and
$771,000 of mortgage-backed securities were added to the held-to-maturity
classification during the fiscal year ended March 31, 2004. Held-to-maturity
securities were classified as such because these securities were intended to be
held-to-maturity and used to satisfy collateral requirements. For the years
ended March 31, 2006, 2005, and 2004, proceeds from maturities and sales of
securities were $9.4 million, $17.8 million, and $34.6 million and purchases of
securities were $854,000, $14.5 million, and $50.8 million, respectively.

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

<TABLE>
<CAPTION>
                                                                     At March 31,
                             -----------------------------------------------------------------------------------------
                                        2006                           2005                           2004
                             ---------------------------    ---------------------------    ---------------------------
                               Carrying      Percent of       Carrying      Percent of       Carrying      Percent of
                                Value        Portfolio         Value        Portfolio         Value         Portfolio
                             ------------   ------------    ------------   ------------    ------------   ------------
                                                               (Dollars in Thousands)
<S>                          <C>                   <C>      <C>                   <C>      <C>                   <C>
Available-for-sale:
Investment securities        $     16,890          16.77%   $     17,427          15.81%   $     19,116          16.50%
Mortgage-backed securities         29,843          29.64          39,441          35.78          54,128          46.74
                             ------------   ------------    ------------   ------------    ------------   ------------
Total available-for-sale           46,733          46.41          56,868          51.59          73,244          63.24
                             ------------   ------------    ------------   ------------    ------------   ------------

Held-to-maturity:
Investment securities        $     31,651          31.43%   $     30,907          28.03%   $     19,671          16.99%
Mortgage-backed securities         22,312          22.16          22,463          20.38          22,899          19.77
                             ------------   ------------    ------------   ------------    ------------   ------------
Total held-to-maturity             53,963          53.59          53,370          48.41          42,570          36.76
                             ------------   ------------    ------------   ------------    ------------   ------------
Total                        $    100,696         100.00%   $    110,238         100.00%   $    115,814         100.00%
                             ============   ============    ============   ============    ============   ============

         The table below sets forth certain information regarding the carrying
value, average tax effected weighted yields and maturities of the Bank's
investment and mortgage-backed securities at March 31, 2006.

<CAPTION>
                                                       Over                  Over
                             Less than                One to                Five to               Over Ten
                              One Year              Five Years             Ten Years                Years
                        -------------------    -------------------    -------------------    -------------------

                         Amount     Yield       Amount     Yield       Amount     Yield       Amount     Yield
                        --------   --------    --------   --------    --------   --------    --------   --------
                                                         (Dollars in Thousands)
<S>                     <C>            <C>     <C>            <C>     <C>            <C>     <C>            <C>
Investment securities   $    555       4.48%   $ 14,357       3.78%   $  8,236       7.85%   $ 25,393       7.48%

Mortgage-backed
  securities                   4         --          --         --       5,715       4.41      46,436       5.03
                        --------   --------    --------   --------    --------   --------    --------   --------
Total                   $    559       4.45%   $ 14,357       3.78%   $ 13,951       6.44%   $ 71,829       5.90%
                        ========   ========    ========   ========    ========   ========    ========   ========
</TABLE>

                                       21
<PAGE>

         Other Investment Activities. The Bank purchases bank owned life
insurance policies ("BOLI") to offset future employee benefit costs, and at
March 31, 2006, bank owned life insurance policies and cash surrender value of
life insurance policies was $24.4 million. The purchase of BOLI policies, and
its increase in cash surrender value, is classified as "bank owned and cash
surrender value of life insurance policies" in the Company's Consolidated
Statements of Financial Condition. The income related to the BOLI of $1.1
million, which is generated by the increase in the cash surrender value of the
policy, is classified in "other interest earning assets" in the Company's
Consolidated Statements of Income.

Deposit Activities and Other Sources of Funds

         General. Deposits and loan repayments are the major sources of the
Bank's funds for lending and other investment purposes. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general interest
rates and money market conditions. Borrowings through the FHLB-Seattle are used
to compensate for reductions in the availability of funds from other sources.
The Company also maintains additional credit facilities of $23.5 million with US
Bank.

         Deposit Accounts. Deposits are the primary source of funds for the
Bank's lending and investment activities and for its general business purposes.
The majority of all of the Bank's depositors are residents of Idaho, Washington
and Oregon. Deposits are attracted from within the Bank's market area through
the offering of a broad selection of deposit instruments, including checking
accounts, money market deposit accounts, regular savings accounts, certificates
of deposit and retirement savings plans. The Bank also offers "TT&L" (treasury,
taxes and loans) accounts for local businesses. Deposit account terms vary
according to the minimum balance required the time periods the funds must remain
on deposit and the interest rate, among other factors. In determining the terms
of its deposit accounts, the Bank considers current market interest rates,
profitability to the Bank, matching deposit and loan products and its customer
preferences and concerns. The Bank reviews its deposit mix and pricing weekly.
Currently, the Bank accepts brokered deposits with maturities between 90 days
and ten years. At March 31, 2006, the Bank had $44.7 million in brokered
deposits, which was 5.3% of total assets. At March 31, 2006, certificates of
deposit that are scheduled to mature in less than one year totaled $177.8
million. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."

         The FHLB-Seattle has lowered its dividend payout and has changed its
method of calculating the dividend payout based on earnings from the prior
quarter, subject to certain limitations. As of May 18, 2005, the FHLB-Seattle
suspended the payment of dividends on all classes of stock. For additional
information see `News' under `Our Company' on the fhlbsea.com website. The last
dividend declared was for the quarter ended March 31, 2005 of 1.63% on class
B(1) stock and 1.50% on class B(2) stock. The Company did not recognize a return
on FHLB stock, included in equity securities, on its Consolidated Statements of
Financial Condition and Consolidated Statements of Income for the year ended
March 31, 2006.

                                       22
<PAGE>

         The following table sets forth information concerning the Bank's
deposits at March 31, 2006.

<TABLE>
<CAPTION>
     Weighted
     Average                                                                                                     Percentage
     Interest                                                               Minimum                               of Total
       Rate         Checking and Savings Deposits                           Amount           Balance              Deposits
       ----         -----------------------------                           ------           -------              --------
                                        (Dollars in Thousands, except Minimum Amount)

<S>             <C>                                                        <C>              <C>                     <C>
       0.04%    Checking Accounts                                          $     --         $ 161,938               28.41%
       1.63     Money Market Deposit                                            100            27,882                4.89
       1.94     Money Market Deposit                                          1,000            23,827                4.18
       3.46     Money Market Deposit                                          2,500            20,396                3.58
       4.21     Money Market Deposit                                         25,000            44,752                7.85
       0.25     Statement Savings                                               100            36,614                6.42
                                                                                            ---------              ------


                  Total Checking and Savings Deposits                                         315,409               55.33
                                                                                            ---------              ------

                Certificates of Deposit
                -----------------------
       2.85     7 days to 179 days                                            2,500            23,901                4.19
       3.26     6 months to less than 1 year                                  2,500            17,394                3.05
       3.31     1 year to less than 2 years                                   2,500            13,834                2.43
       2.93     2 years to less than 3 years                                  2,500             5,769                1.01
       3.07     2 years to 5 years - Add on                                     500             5,535                0.97
       3.27     3 years to less than 4 years                                  2,500            15,776                2.77
       4.06     4 years to less than 5 years                                  2,500             6,207                1.09
       4.31     5 years to less than 10 years                                 2,500            19,019                3.34
       3.56     IRA Variable                                                    500             1,469                0.26
       4.27     Brokered                                                      1,000            44,707                7.84
       3.35     2 year Step Rate                                              5,000               527                0.09
       4.16     3 year Step Rate                                              5,000             3,794                0.67
       6.59     4 year Step Rate                                              5,000             2,557                0.45
       1.63     182 days                                                      1,000               223                0.04
       3.58     8 months                                                      1,000            21,625                3.79
       4.03     11 months                                                    10,000            32,277                5.66
       1.98     1 year                                                        1,000             3,161                0.55
       4.02     27 months                                                     5,000             8,888                1.56
       2.33     2 1/2 years                                                   1,000             2,469                0.43
       3.42     3 to 5 years                                                  1,000             7,252                1.27
       4.22     5 years                                                       1,000            15,048                2.64
       4.20     6 years                                                       1,000             1,190                0.21
       3.33     18 month add on                                                 500             1,522                0.27
       1.48     20 month                                                      1,000                27                0.01
       4.49     Mini jumbo certificates                                      96,000               315                0.06
       3.42     Various term, fixed rate                                      1,000               145                0.02
                                                                                            ---------              ------

                                              Total Certificates of Deposit                   254,631               44.67
                                                                                            ---------              ------

                  Total Deposits                                                            $ 570,040              100.00%
                                                                                            =========              ======
</TABLE>

                                       23
<PAGE>

         The following table indicates the amount of the Bank's jumbo
certificates of deposit by time remaining until maturity as of March 31, 2006.
Jumbo certificates of deposit are certificates in amounts of more than $100,000.

                Maturity Period                                      Amount
                ---------------                                    ---------
                                                                (In Thousands)

                Three months or less                               $  20,138
                Over three through six months                         11,847
                Over six through 12 months                            37,809
                Over 12 months                                        30,304
                                                                   ---------

                Total jumbo certificates of deposit                $ 100,098
                                                                   =========

         Deposit Flow. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Bank at the dates indicated.

<TABLE>
<CAPTION>
                                                                            At March 31,
                                   -----------------------------------------------------------------------------------------------
                                                 2006                                 2005                            2004
                                   ----------------------------------   ----------------------------------   ---------------------
                                                Percent                              Percent                              Percent
                                                  of        Increase                   of        Increase                   of
                                     Amount      Total     (Decrease)     Amount      Total     (Decrease)     Amount      Total
                                   ----------  ---------   ----------   ----------  ---------   ----------   ----------  ---------
                                                                          (Dollars in Thousands)
<S>                                <C>            <C>      <C>          <C>            <C>      <C>          <C>            <C>
Checking accounts                  $  161,938      28.41%  $   20,564   $  141,374      27.26%  $    5,902   $  135,472      28.19%
Savings accounts                       36,614       6.42       (4,575)      41,189       7.94        1,367       39,822       8.29
Money market deposit
  accounts                            116,857      20.50       (2,024)     118,881      22.92       14,269      104,612      21.77
Brokered certificates of deposit       44,707       7.84        1,974       42,733       8.24       18,944       23,789       4.95
Fixed-rate certificates
  which mature:
     Within 1 year                    144,665      25.38       40,164      104,501      20.15        1,456      103,045      21.44
     After 1 year, but within
      2 years                          40,025       7.02       13,866       26,159       5.04       (3,818)      29,977       6.24
     After 2 years, but within
      5 years                          23,322       4.09      (19,115)      42,437       8.18         (144)      42,581       8.86
     Certificates maturing
       thereafter                       1,912       0.34          510        1,402       0.27          152        1,250       0.26
                                   ----------  ---------   ----------   ----------  ---------   ----------   ----------  ---------
Total                              $  570,040     100.00%  $   51,364   $  518,676     100.00%  $   38,128   $  480,548     100.00%
                                   ==========  =========   ==========   ==========  =========   ==========   ==========  =========
</TABLE>

         Time Deposits by Rates. The following table sets forth the time
deposits in the Bank categorized by rates at the dates indicated.

                                         At March 31,
                             ------------------------------------
                                2006         2005         2004
                             ----------   ----------   ----------
                                        (In Thousands)

      0.0 - 2.99%            $   50,469   $  117,771   $  109,775
      3.0 - 3.99%                88,712       47,069       30,501
      4.0 - 4.99%                97,874       33,841       35,777
      5.0 - 5.99%                14,274       16,144       18,728
      6.0 - 6.99%                 2,964        2,407        4,944
      7.0 - 7.99%                   338           --          917
                             ----------   ----------   ----------
      Total                  $  254,631   $  217,232   $  200,642
                             ==========   ==========   ==========

                                       24
<PAGE>

The following table sets forth the amount and maturities of time deposits at
March 31, 2006.

<TABLE>
<CAPTION>
                                                                     Amount Due
                       ------------------------------------------------------------------------------------------------------
                                                                                                                  Percent
                                         After          After          After                                      of Total
                        Less Than        1 to 2         2 to 3         3 to 4          After                      Certificate
                         One Year        Years          Years          Years          4 Years        Total        Accounts
                       ------------   ------------   ------------   ------------   ------------   ------------   ------------
                                                                (Dollars in Thousands)
<S>                    <C>            <C>            <C>            <C>            <C>            <C>                  <C>
0.0 - 2.99%            $     45,289   $      4,272   $        494   $        223   $        191   $     50,469          19.82%
3.0 - 3.99%                  47,843         26,672          6,561          4,428          3,208         88,712          34.84
4.0 -4.99%                   69,028         13,919            593          9,576          4,758         97,874          38.44
5.0 - 5.99%                  12,503          1,707             10             35             19         14,274           5.61
6.0 - 6.99%                   2,761            112             --             --             91          2,964           1.16
7.0% and over                   338             --             --             --             --            338           0.13
                       ------------   ------------   ------------   ------------   ------------   ------------   ------------
Total                  $    177,762   $     46,682   $      7,658   $     14,262   $      8,267   $    254,631         100.00%
                       ============   ============   ============   ============   ============   ============   ============

         Deposit Activity. The following table sets forth the deposit activities
of the Bank for the years ended March 31, 2006, 2005 and 2004.

<CAPTION>
                                                    Year Ended March 31,
                                        ------------------------------------------
                                            2006           2005           2004
                                        ------------   ------------   ------------
                                                      (In Thousands)
<S>                                     <C>            <C>            <C>
Beginning balance                       $    518,676   $    480,548   $    203,189
                                        ------------   ------------   ------------

Net increase
  before interest credited                    39,947         30,892         15,794
Purchased in Oregon Trail acquisition             --             --        256,312
Interest credited                             11,417          7,236          5,253
                                        ------------   ------------   ------------
Net increase in deposits                      51,364         38,128        277,359
                                        ------------   ------------   ------------

Ending balance                          $    570,040   $    518,676   $    480,548
                                        ============   ============   ============
</TABLE>

         Borrowings. The Bank utilizes advances from the FHLB-Seattle to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Seattle functions as a central reserve bank, providing
credit for savings associations and certain other member financial institutions.
As a member of the FHLB-Seattle, the Bank is required to own capital stock in
the FHLB-Seattle and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally securities
that are obligations of, or guaranteed by, the U.S. Government) provided certain
creditworthiness standards have been met. Advances are made pursuant to several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit. The Bank is currently
authorized to borrow from the FHLB up to an amount equal to 30% of total assets,
provided that the Bank holds sufficient collateral.

                                       25
<PAGE>

         The following tables set forth certain information regarding borrowings
by the Bank at or for the years ended March 31, 2006, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                          At or For the
                                                                       Year Ended March 31,
                                                             --------------------------------------
                                                                2006          2005          2004
                                                             ----------    ----------    ----------
                                                                      (Dollars in Thousands)
<S>                                                          <C>           <C>           <C>
Maximum amount of FHLB advances and other borrowings
  outstanding at any month end during the year               $  205,404    $  192,338    $  144,164
Average FHLB advances and other borrowings outstanding
  during the year                                               181,529       158,235       101,106
Balance of FHLB advances  and other borrowings outstanding
  at end of year                                                176,817       185,337       132,056
Weighted average rate paid on FHLB advances and other
  borrowings at end of year                                        5.08%         4.28%         4.78%
Weighted average rate paid on FHLB advances and other
  borrowings during the year                                       4.22%         3.77%         4.58%

<CAPTION>

                                                                                  At March 31, 2006
                                                    ------------------------------------------------------------------------------
                                                                                                Five Years to
                                                    Less than One       One Year to Less        Less than Ten         Greater than
                                                        Year            than Five Years            Years                Ten Years
                                                    -------------       ----------------        -------------         ------------
                                                                                 (Dollars in Thousands)
<S>                                                 <C>                   <C>                   <C>                   <C>
Maturities of FHLB advances and other
     borrowings                                       $ 111,094             $  49,776             $   9,320            $   6,627
Range of interest rates                             3.05% - 7.25%         3.33% - 7.12%         3.42% - 6.25%         6.66% - 7.10%
Weighted average interest rate                           4.88%                 5.33%                 4.69%                 7.03%
Percentage of total advances and other
     borrowings                                         62.83%                28.15%                 5.27%                 3.75%
</TABLE>

         There were $40.8 million and $45.8 million of advances from the
FHLB-Seattle that were putable at March 31, 2006 and March 31, 2005,
respectively.

         The Company also maintains additional credit facilities of $23.5
million with US Bank. Advances of $3.1 million were outstanding under these
facilities at March 31, 2006. On June 10, 2005, the Bank entered into a
Subordinate Debenture Purchase Agreement with US Bank, under which the Bank
issued an aggregated principal amount of $3.0 million in floating rate unsecured
subordinated debt. All amounts due under the subordinated debenture must be
repaid in full on June 10, 2015. If the subordinated debenture ceases to qualify
as Tier 2 capital for capital reporting purposes, or at any time after June 10,
2010, the Bank may, after receiving approval from the Federal Deposit Insurance
Corporation, prepay all or a portion of the outstanding amount of the
subordinated debenture. In addition, if the subordinated debenture no longer
qualifies as the Tier 2 capital, the Bank and the lender may restructure the
debt as a senior unsecured obligation of the Bank or the Bank may repay the
debt.

Competition

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

                                       26
<PAGE>

Subsidiary Activities

         The Bank has two subsidiaries, Tri-Star Financial Corporation, and
Pioneer Development Corporation ("PDC"). Tri-Star sold life insurance and tax
deferred annuities on an agency basis. PDC purchased land sale contracts until
March 1998, and currently services those contracts. Both subsidiaries reflect
residual value of assets and income and they are not currently pursuing or
engaging in any business activity.

Personnel

         As of March 31, 2006, the Bank had 222 full-time and 55 part-time
employees. The number of full-time equivalent employees at March 31, 2006 and
March 31, 2005 remained the same at 270. The Bank used temporary services to
hire employees for approximately 2,332 hours during the year ended March 31,
2006. The Bank's employees are not represented by a collective bargaining unit
and the Bank believes its relationship with its employees to be good.

         The following table sets forth certain information with respect to the
executive officers of the Company and the Bank:

<TABLE>
<CAPTION>
                                           Executive Officers of the Company and Bank
                                           ------------------------------------------
                            Age at
                           March 31,                                   Position
Name                         2006             Company                  --------             Bank
----                         ----             -------                                       ----
<S>                           <C>        <C>                                 <C>
Clyde E. Conklin              54         President, Chief Executive          Chief Executive Officer and Director
                                         Officer and Director
Larry K. Moxley               55         Executive Vice President,           Chief Financial Officer,
                                         Chief Financial Officer,            Secretary/Treasurer and Director
                                         Corporate Secretary, and
                                         Director
Terence A. Otte               49         --                                  Executive Vice President, Chief Operating Officer
Donn L. Durgan                52         --                                  Executive Vice President, Chief Lending Officer
Richard R. Acuff              45         --                                  Executive Vice President, Chief Information Officer
</TABLE>

Biographical Information

         Clyde E. Conklin, who joined the Bank in 1987, has served as the Chief
Executive Officer of the Bank since February 1996 and as President and Chief
Executive Officer of the Company since its formation in 1997. From September
1994 to February 1996, Mr. Conklin served as Senior Vice President - Lending. In
1993, Mr. Conklin became Vice President - Lending. Prior to that time, Mr.
Conklin served as the Agricultural Lending Manager.

         Larry K. Moxley, who joined the Bank in 1973, currently serves as Chief
Financial Officer of the Bank, a position he has held since February 1996. Mr.
Moxley has served as Executive Vice President, Chief Financial Officer and
Secretary/Treasurer of the Company since its formation in 1997. Mr. Moxley
served as Senior Vice President - Finance from 1993 to February 1996 and as Vice
President - Finance from 1984 to 1993.

         Terence A. Otte joined the Bank in June 1989 as an Agricultural Loan
Officer, and currently serves as Executive Vice President, Chief Operating
Officer. From 1991 to 1994, he served as manager of the Bank's Moscow, Idaho
branch. In 1994, he became Vice President, Lending and Agricultural Lending
Manager and in 1996 became Senior Vice President, Agricultural and Consumer
Lending and Compliance Officer.

         Donn L. Durgan, who joined the Bank in February 1996, currently serves
as Executive Vice President, Chief Lending Officer. Prior to that time, Mr.
Durgan was employed by First Security Bank, now known as Wells Fargo Bank, for
11 years in various positions in commercial and residential real estate lending.

         Richard R. Acuff, who joined the Bank in February 1983, currently
serves as Executive Vice President, Chief Information Officer. From 1983 to
1992, he served as Staff Accountant, Assistant Controller, and Asset and
Liability Manager. From 1992 to 2003, he served as Manager, Assistant Vice
President, Vice President, and Senior Vice President of Management Information
Systems.

                                       27
<PAGE>

Available Information

         The Company's website is www.fbnw.com. The website contains a link to
the Company's filings with the Securities and Exchange Commission, including
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and any amendments. Copies of these filings are available as soon as
reasonably practicable.

                                   REGULATION

         The following is a brief description of certain laws and regulations
which are applicable to the Company and the Bank. The description of these laws
and regulations, as well as descriptions of laws and regulations contained
elsewhere herein, does not purport to be complete and is qualified in its
entirety by reference to the applicable laws and regulations.

         Legislation is introduced from time to time in the United States
Congress and in the Washington State Legislature that may affect the operations
of the Company and the Bank. In addition, the regulations governing the Company
and the Bank, may be amended from time to time by the FDIC or the Washington
Department of Financial Institutions, Division of Banks ("Division"). Any such
legislation or regulatory changes in the future could adversely affect the
Company and the Bank. No predictions can be made whether any such changes may
occur.

FirstBank Northwest

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

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

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

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

                                       28
<PAGE>

         The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital, to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.

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

         Since January 1, 1997, the premium schedule for Bank Insurance Fund
("BIF") and SAIF insured institutions has ranged from 0 to 27 basis points.
However, SAIF and BIF insured institutions are required to pay a Financing
Corporation assessment in order to fund the interest on bonds issued to resolve
thrift failures in the 1980s equal to approximately 1.3 points for each $100 in
domestic deposits annually. These assessments, which may be revised based upon
the level of BIF and SAIF deposits, will continue until the bonds mature in the
year 2017.

         The Federal Deposit Insurance Reform Act of 2005 ("The Reform Act"),
which was enacted in 2006, revised the laws governing the federal deposit
insurance system. The Reform Act provides for the consolidation of the BIF and
the SAIF into a combined "Deposit Insurance Fund" and gives the FDIC the
authority to determine insurance premiums based on a number of factors,
primarily the risk of loss that insured institutions pose to the Deposit
Insurance Fund. The legislation eliminates the current minimum l.25% reserve
ratio for the insurance funds, the mandatory assessment when the ratio falls
1.25% and the prohibition on assessing the highest quality banks when the ratio
is above 1.25%. The Reform Act provides the FDIC with flexibility to adjust the
new insurance fund's reserve ratio between l.15% and l.5%, depending on
projected losses, economic changes and assessment rates at the end of a calendar
year.

         The Reform Act increased deposit insurance coverage limits from
$100,000 to $250,000 for certain types of Individual Retirement Accounts, 401(k)
plans and other retirement savings accounts. While it preserved the $100,000
coverage for individual accounts and municipal deposits, the FDIC was furnished
with the discretion to adjust all coverage levels to keep pace with inflation
beginning in 2010. Also, institutions that become undercapitalized will be
prohibited from accepting certain employee benefit plan deposits.

         At this time, management cannot predict the effect, if any, that the
Reform Act will have on insurance premiums paid by the Bank.

         Capital Requirements. FDIC regulations recognize two types, or tiers,
of capital: core ("Tier 1") capital and supplementary ("Tier 2") capital. Tier 1
capital generally includes common stockholders' equity and noncumulative
perpetual preferred stock, less most intangible assets. Tier 2 capital, which is
limited to 100 percent of Tier 1 capital, includes such items as qualifying
general loan loss reserves, cumulative perpetual preferred stock, mandatory
convertible debt, term subordinated debt and limited life preferred stock;
however, the amount of term subordinated debt and intermediate term preferred
stock (original maturity of at least five years but less than 20 years) that may
be included in Tier 2 capital is limited to 50% of Tier 1 capital.

         The FDIC currently measures an institution's capital using a leverage
limit together with certain risk-based ratios. The FDIC's minimum leverage
capital requirement specifies a minimum ratio of Tier 1 capital to average total
assets. Most banks are required to maintain a minimum leverage ratio of at least
4% of total assets. The Bank had a leverage ratio of 7.3% as of March 31, 2006.
The Bank has not been notified by the FDIC of any higher capital requirements
specifically applicable to it.

                                       29
<PAGE>

         FDIC regulations also establish a measure of capital adequacy based on
ratios of qualifying capital to risk-weighted assets. Assets are placed in one
of four categories and given a percentage weight based on the relative risk of
that category. In addition, certain off-balance-sheet items are converted to
balance-sheet credit equivalent amounts, and each amount is then assigned to one
of the four categories. Under the guidelines, the ratio of total capital (Tier 1
capital plus Tier 2 capital) to risk-weighted assets must be at least 8%, and
the ratio of Tier 1 capital to risk-weighted assets must be at least 4% of total
assets. In evaluating the adequacy of a bank's capital, the FDIC may also
consider other factors that may affect the bank's financial condition. Such
factors may include interest rate risk exposure, liquidity, funding and market
risks, the quality and level of earnings, concentration of credit risk, risks
arising from nontraditional activities, loan and investment quality, the
effectiveness of loan and investment policies, and management's ability to
monitor and control financial operating risks. The Bank had a total risk-based
ratio of 11.6% and a Tier 1 risk-based capital ratio of 9.8% at March 31, 2006.

         The Division requires that net worth equal at least 5% of total assets.
Intangible assets must be deducted from net worth and assets when computing
compliance with this requirement. At March 31, 2006, the Bank had a Tier 1
capital to average assets ratio of 7.3%, a Tier 1 capital to risk-weighted
assets ratio of 9.8%, and a total capital to risk-weighted assets ratio of
11.6%.

         The Bank's management believes that, under the current regulations, the
Bank will continue to meet its minimum capital requirements in the foreseeable
future. In this regard, on June 10, 2005, the Bank entered into a Subordinated
Debenture Purchase Agreement with US Bank of $3.0 million to be repaid in full
on June 10, 2015 to increase the risk-weighted capital. However, events beyond
the control of the Bank, such as a downturn in the economy in areas where the
Bank has most of its loans, could adversely affect future earnings and,
consequently, the ability of the Bank to meet its capital requirements. For
additional information concerning the Bank's capital, see Note 12 of the Notes
to the Consolidated Financial Statements.

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

         At March 31, 2006, the Bank was categorized as "well capitalized" under
the prompt corrective action regulations of the FDIC.

         Activities and Investments of Insured State-Chartered Banks. Federal
law generally limits the activities and equity investments of FDIC insured,
state-chartered banks to those that are permissible for national banks. An
insured state bank is not prohibited from, among other things, (i) acquiring or
retaining a majority interest in a subsidiary, (ii) investing as a limited
partner in a partnership the sole purpose of which is direct or indirect
investment in the acquisition, rehabilitation or new construction of a qualified
housing project, provided that such limited partnership investments may not
exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting
stock of a company that solely provides or reinsures directors', trustees' and
officers' liability insurance coverage or bankers' blanket bond group insurance
coverage for insured depository institutions, and (iv) acquiring or retaining
the voting shares of a depository institution if certain requirements are met.

                                       30
<PAGE>

         Washington law governs financial institution parity. Primarily, the law
affords Washington chartered commercial banks the same powers as Washington
chartered savings banks. In order for a bank to exercise these powers, it must
provide 30 days notice to the Director of Financial Institutions and the
Director must authorize the requested activity. In addition, the law provides
that Washington chartered commercial banks may exercise any of the powers that
the Federal Reserve has determined to be closely related to the business of
banking and the powers of national banks, subject to the approval of the
Director in certain situations. The law also provides that Washington chartered
savings banks may exercise any of the powers of Washington chartered commercial
banks, national banks and federally chartered savings banks, subject to the
approval of the Director in certain situations. Finally, the law provides
additional flexibility for Washington chartered commercial and savings banks
with respect to interest rates on loans and other extensions of credit.
Specifically, they may charge the maximum interest rate allowable for loans and
other extension of credit by federally chartered financial institutions to
Washington residents.

         Environmental Issues Associated With Real Estate Lending. The
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
a federal statute, generally imposes strict liability on all prior and present
"owners and operators" of sites containing hazardous waste. However, Congress
created a safe harbor provision to protect secured creditors by providing that
the term "owner and operator" excludes a person whose ownership is limited to
protecting its security interest in the site. Since the enactment of the CERCLA,
this "secured creditor exemption" has been the subject of judicial
interpretations which have left open the possibility that lenders could be
liable for cleanup costs on contaminated property that they hold as collateral
for a loan.

         To the extent that legal uncertainty exists in this area, all
creditors, including the Bank, that have made loans secured by properties with
potential hazardous waste contamination (such as petroleum contamination) could
be subject to liability for cleanup costs, which costs often substantially
exceed the value of the collateral property.

         Federal Home Loan Bank System. The Bank is a member of the
FHLB-Seattle, which is one of 12 regional FHLBs that administer the home
financing credit function of savings institutions. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans or advances to members in accordance with policies
and procedures, established by the Board of Directors of the FHLB, which are
subject to the oversight of the Federal Housing Finance Board. All advances from
the FHLB are required to be fully secured by sufficient collateral as determined
by the FHLB. In addition, all long-term advances are required to provide funds
for residential home financing. As of March 31, 2006, the Bank had advances,
including $2.2 million merger premium, totaling $170.7 million from the
FHLB-Seattle, which mature in 2006 through 2030 at interest rates ranging from
3.05% to 7.25%. See "Business -- Deposit Activities and Other Sources of Funds
-- Borrowings."

         As a member, the Bank is required to purchase and maintain stock in the
FHLB-Seattle. At March 31, 2006, the Bank had $12.8 million in FHLB stock, which
was in compliance with this requirement. In past years, the Bank has received
substantial dividends on its FHLB stock until the payment of such dividends was
suspended by the FHLB-Seattle on May 18, 2005. For the year ended March 31,
2006, the Bank received no dividends from the FHLB-Seattle compared to dividends
for the previous year, which averaged 2.25%.

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

         Federal Reserve System. The Federal Reserve Board requires under
Regulation D that all depository institutions, including savings banks, maintain
reserves on transaction accounts or non-personal time deposits. These reserves
may be in the form of cash or non-interest-bearing deposits with the regional
Federal Reserve Bank. Negotiable order of withdrawal accounts and other types of
accounts that permit payments or transfers to third parties fall within the
definition of transaction accounts and are subject to Regulation D reserve
requirements, as are any non-personal time deposits at a savings bank. As of
March 31, 2006, the Bank's deposit with the Federal Reserve Bank and vault cash
exceeded its reserve requirements.

                                       31
<PAGE>

         Affiliate Transactions. The Company and the Bank are separate and
distinct legal entities. Various legal limitations restrict the Bank from
lending or otherwise supplying funds to the Company, generally limiting a single
transaction with the Company to 10% of the Bank's capital and surplus and
limiting all such transactions to 20% of the Bank's capital and surplus. These
transactions, including extensions of credit, sales of securities or assets and
provision of services, also must be on terms and conditions consistent with safe
and sound banking practices that are substantially the same as those prevailing
at the time for transactions with unaffiliated companies.

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

         Community Reinvestment Act. Under the Community Reinvestment Act, every
FDIC-insured institution has a continuing and affirmative obligation consistent
with safe and sound banking practices to help meet the credit needs of its
entire community, including low and moderate income neighborhoods. The Community
Reinvestment Act does not establish specific lending requirements or programs
for financial institutions nor does it limit an institution's discretion to
develop the types of products and services that it believes are best suited to
its particular community, consistent with the Community Reinvestment Act. The
Community Reinvestment Act requires the FDIC, in connection with the examination
of the Bank, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by the Bank. An
unsatisfactory rating may be used as the basis for the denial of an application
by the FDIC. Due to the heightened attention being given to the Community
Reinvestment Act in the past few years, the Bank may be required to devote
additional funds for investment and lending in its local community. The Bank was
examined for Community Reinvestment Act compliance and received a rating of
satisfactory in its latest examination.

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

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

         Privacy Standards. The Gramm-Leach-Bliley Financial Services
Modernization Act of 1999 ("GLBA"), which was enacted in 1999, modernized the
financial services industry by establishing a comprehensive framework to permit
affiliations among commercial banks, insurance companies, securities firms and
other financial service providers. The Bank is subject to OTS regulations
implementing the privacy protection provisions of the GLBA. These regulations
require the Bank to disclose its privacy policy, including identifying with whom
it shares "non-public personal information," to customers at the time of
establishing the customer relationship and annually thereafter.

         Anti-Money Laundering and Customer Identification. Congress enacted the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act") on October
26, 2001 in response to the terrorist events of September 11, 2001. The USA
Patriot Act gives the federal government new powers to address terrorist threats
through enhanced domestic security measures, expanded surveillance powers,
increased information sharing, and broadened anti-money laundering requirements.
In March 2006, Congress re-enacted certain expiring provisions of the USA
Patriot Act.

                                       32
<PAGE>

FirstBank NW Corp.

         General. The Company is a unitary savings and loan holding company
subject to regulatory oversight of the Office of Thrift Supervision ("OTS").
Accordingly, the Company is required to register and file reports with the OTS
and is subject to regulation and examination by the OTS. In addition, the OTS
has enforcement authority over the Company and its non-savings institution
subsidiaries, which also permit the OTS to restrict or prohibit activities that
are determined to present a serious risk to the subsidiary savings institution.

         Mergers and Acquisitions. The Home Owners Loan Act ("HOLA") and OTS
regulations issued thereunder generally prohibit a savings and loan holding
company, without prior OTS approval, from acquiring more than 5% of the voting
stock of any other savings institution or savings and loan holding company or
controlling the assets thereof. They also prohibit, among other things, any
director or officer of a savings and loan holding company, or any individual who
owns or controls more than 25% of the voting shares of such holding company,
from acquiring control of any savings association which is not a subsidiary of
such savings and loan holding company, unless the acquisition is approved by the
OTS. In evaluating an application for the Company to acquire control of a
savings institution, the OTS would consider the financial and managerial
resources and future prospects of the Company and the target institution, the
effect of the acquisition on the risk to the insurance funds, the convenience
and the needs of the community and competitive factors.

         Activities Restrictions. As a unitary savings and loan holding company,
the Company generally is not subject to activity restrictions. The Company and
its non-savings institution subsidiaries are subject to statutory and regulatory
restrictions on their business activities specified by federal regulations,
which include performing services and holding properties used by a savings
institution subsidiary, activities authorized for savings and loan holding
companies as of March 5, 1987, and non-banking activities permissible for bank
holding companies pursuant to the Bank Holding Company Act of 1956 or authorized
for financial holding companies pursuant to the GLBA.

         Qualified Thrift Lender Test. The HOLA provides that any savings and
loan holding company that fails the qualified thrift lender ("QTL") test must,
within one year after the date on which the Bank ceases to be a QTL, register as
and be deemed a bank holding company subject to all applicable laws and
regulations. Currently, the QTL test requires that either an institution qualify
as a domestic building and loan association under the Internal Revenue Code or
that 65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of the
65% requirement are: loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an overall
limit of 20% of the savings institution's portfolio assets; 50% of residential
mortgage loans originated and sold within 90 days of origination; 100% of
consumer loans; and stock issued by Freddie Mac or Fannie Mae. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At March
31, 2006, the Bank was in compliance with the QTL test.

         Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002
("Sarbanes-Oxley Act") was signed into law on July 30, 2002 in response to
public concerns regarding corporate accountability in connection with the recent
accounting scandals. The stated goals of the Sarbanes-Oxley Act are to increase
corporate responsibility, to provide for enhanced penalties for accounting and
auditing improprieties at publicly traded companies and to protect investors by
improving the accuracy and reliability of corporate disclosures pursuant to the
securities laws. The Sarbanes-Oxley Act generally applies to all companies, both
U.S. and non-U.S., that file or are required to file periodic reports with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934.

         The Sarbanes-Oxley Act includes very specific additional disclosure
requirements and new corporate governance rules, requires the SEC and securities
exchanges to adopt extensive additional disclosure, corporate governance and
other related rules. The Sarbanes-Oxley Act represents significant federal
involvement in matters traditionally left to state regulatory systems, such as
the regulation of the accounting profession, and to state corporate law, such as
the relationship between a board of directors and management and between a board
of directors and its committees.

                                       33
<PAGE>

Item 1A.  Risk Factors
----------------------

         An investment in FirstBank NW Corp.'s stock is subject to risks
inherent to our business. Before making an investment decision, you should
carefully consider the risks and uncertainties described below together with all
of the other information included or incorporated by reference in this report.
The risks and uncertainties described below are not the only ones that affect
us. Additional risks and uncertainties that management is not aware of or
focused on or that management currently deems immaterial may also impair our
business operations. This report is qualified in its entirety by these risk
factors.

         If any of the circumstances described in the following risk factors
actually occur to a significant degree, our financial condition and results of
operations could be materially and adversely affected. If this were to happen,
the value of our common stock could decline significantly, and you could lose
all or part of your investment.

The Maturity and Repricing Characteristics of Our Assets and Liabilities are
Mismatched and Subject Us to Interest Rate Risk Which Could Adversely Affect Our
Net Earnings and Economic Value.

         Our financial condition and operations are influenced significantly by
general economic conditions, including the absolute level of interest rates as
well as changes in interest rates and the slope of the yield curve. Our
profitability is dependent to a large extent on our net interest income, which
is the difference between the interest received from our interest-earning assets
and the interest expense incurred on our interest-bearing liabilities.
Significant changes in market interest rates or errors or misjudgments in our
interest rate risk management procedures could have a material adverse effect on
our net earnings and economic value.

         Our activities, like most financial institutions, inherently involve
the assumption of interest rate risk. Interest rate risk is the risk that
changes in market interest rates will have an adverse impact on our earnings and
underlying economic value. Interest rate risk is determined by the maturity and
re-pricing characteristics of our assets, liabilities and off-balance sheet
contracts and commitments. Interest rate risk is measured by the variability of
financial performance and economic value resulting from changes in interest
rates. Interest rate risk is the primary market risk affecting the Company's
financial performance.

         The greatest source of interest rate risk to us results from the
mismatch of maturities or re-pricing intervals for our rate sensitive assets,
liabilities and off-balance sheet contracts. This mismatch or gap is generally
characterized by a substantially shorter maturity structure for interest-bearing
liabilities than interest-earning assets. Additional interest rate risk results
from mismatched re-pricing indices and formulae (basic risk and yield curve
risk), and product caps and floors and early repayment or withdrawal provisions
(option risk), which may be contractual or market driven, that are generally
more favorable to customers than us.

         Our primary monitoring tool for assessing interest rate risk is
asset/liability simulation modeling, which is designed to capture the dynamics
of balance sheet, interest rate and spread movements and to quantify variations
in net interest income resulting from those movements under different rate
environments. The sensitivity of our net interest income to changes in the
modeled interest rate environments provides a measurement of interest rate risk.
We also utilize market value analysis, which addresses changes in estimated net
market value of our equity arising from changes in the level of interest rates.
The net market value of equity is estimated by separately valuing our assets and
liabilities under varying interest rate environment. The extent to which assets
gain or lose value in relation to the gains or losses of liability values under
the various interest rate assumptions determines the sensitivity of net equity
value to changes in interest rates and provides an additional measure of
interest rate risk.

         Our interest rate risk is affected largely due to the mismatch of the
maturities or re-pricing of our loans and investments compared to deposits and
borrowings. The maturity structure for our interest-bearing liabilities is much
shorter than the interest-earning assets. The on-going monitoring and management
of the risk is an important component of our asset/liability management process,
which is governed by policies established by our Board of Directors that are
reviewed and approved annually. The Board of Directors delegates responsibility
for carrying out the asset/liability management policies to the Asset/Liability
Committee ("ALCO"). In this capacity, ALCO develops guidelines and strategies
impacting our asset/liability management related activities based upon estimated
market risk sensitivity, policy limits and overall market interest rate
levels/trends. Our results of operations may be adversely affected if
management's assumptions are incorrect or interest rate management strategies
prove to be inadequate.

                                       34
<PAGE>

Our Loan Portfolio Includes Loans with a Higher Risk of Loss.

         We originate construction and land loans, commercial and multifamily
mortgage loans, commercial loans, consumer loans, agricultural mortgage loans
and agricultural loans as well as residential mortgage loans primarily within
our market area. Generally, the types of loans other than the residential
mortgage loans have a higher risk of loss than the residential mortgage loans.
We had approximately $519.7 million outstanding in these types of higher risk
loans at March 31, 2006. Commercial and multifamily mortgage, commercial, and
consumer loans may expose a lender to a greater credit risk than loans secured
by residential real estate because the collateral securing these loans may not
be sold as easily as residential real estate. These loans also have a greater
credit risk than residential real estate for the following reasons and the
reasons discussed under Item 1, "Business-Lending Activities":

         o        Construction and Land Loans. This type of lending contains the
                  inherent difficulty in estimating both a property's value at
                  completion of the project and the estimated cost (including
                  interest) of the project. If the estimate of construction cost
                  proves to be inaccurate, we may be required to advance funds
                  beyond the amount originally committed to permit completion of
                  the project. If the estimate of value upon completion proves
                  to be inaccurate, we may be confronted at, or prior to, the
                  maturity of the loan with a project the value of which is
                  insufficient to assure full repayment. In addition,
                  speculative construction loans to a builder are often
                  associated with homes that are not pre-sold, and thus pose a
                  greater potential risk to us than construction loans to
                  individuals on their personal residences. Loans on land under
                  development or held for future construction also poses
                  additional risk because of the lack of income being produced
                  by the property and the potential illiquid nature of the
                  security.

         o        Commercial and Multifamily Mortgage Loans. These loans
                  typically involve higher principal amounts than other types of
                  loans, and repayment is dependent upon income being generated
                  from the property securing the loan in amounts sufficient to
                  cover operating expenses and debt service.

         o        Commercial Loans. Repayment is dependent upon the successful
                  operation of the borrower's business.

         o        Consumer Loans. Consumer loans (such as personal lines of
                  credit) are collateralized, if at all, with assets that may
                  not provide an adequate source of payment of the loan due to
                  depreciation, damage, or loss.

         o        Agricultural Loans. Repayment is dependent upon the successful
                  operation of the business, which is greatly dependent on many
                  things outside the control of either us or the borrowers.
                  These factors include weather, commodity prices, and interest
                  rates among others.

For additional information, see Item 1, "Business-Lending" and Item 7,
"Management's Discussion of Financial Condition and Results of Operations-Asset
Quality."

If Our Allowance for Loan Losses Is Not Sufficient to Cover Actual Losses, Our
Earnings Could Decrease.

         We make various assumptions and judgments about the collectibility of
our loan portfolio, including the creditworthiness of our borrowers and the
value of the real estate and other assets serving as collateral for the
repayment of many of our loans. In determining the amount of the allowance for
loan losses, we review our loans and the loss and delinquency experience, and
evaluate economic conditions. If our assumptions are incorrect, the allowance
for loan losses may not be sufficient to cover losses inherent in our loan
portfolio, resulting in the need for additions to our allowance. Material
additions to the allowance could materially decrease our net income. Our
allowance for loan losses of $8.1 million, or 1.27% of total loans and 2,608.33%
of non-performing loans at March 31, 2006.

         In addition, bank regulators periodically review our allowance for loan
losses and may require us to increase our provision for loan losses or recognize
further loan charge-offs. Any increase in our allowance for loan losses or loan
charge-offs as required by these regulatory authorities may have a material
adverse effect on our financial condition and results of operations.

                                       35
<PAGE>

If External Funds Were Not Available, this Could Adversely Impact Our Growth and
Prospects.

         We rely on deposits and advances from the FHLB-Seattle and other
borrowings to fund our operations. Although we have historically been able to
replace maturing deposits and advances if desired, no assurance can be given
that we would be able to replace such funds in the future if our financial
condition or the financial condition of the FHLB or market conditions were to
change.

         Although we consider such sources of funds adequate for our liquidity
needs, we may seek additional debt in the future to achieve our long-term
business objectives. There can be no assurance additional borrowings, if sought,
would be available to us, or if available, would be on favorable terms. If
additional financing sources are unavailable or are not available on reasonable
terms, our growth and future prospects could be adversely affected.

Our Profitability Depends Significantly on Economic Conditions in the States of
Washington, Oregon and Idaho.

         Our success depends primarily on the general economic conditions of the
States of Washington, Oregon and Idaho and the specific local markets in which
we operate. Unlike larger national or regional banks that are more
geographically diversified, we provide banking and financial services to
customers located primarily in 14 counties of Washington, Oregon and Idaho. The
local economic conditions in our market areas have a significant impact on the
demand for our products and services as well as the ability of our customers to
repay loans, the value of the collateral securing loans and the stability of our
deposit funding sources. Adverse economic conditions unique to these Northwest
markets could have a material adverse effect on our financial condition and
results of operations. Further, a significant decline in general economic
conditions, caused by inflation, recession, acts or terrorism, outbreak of
hostilities or other international or domestic occurrences, unemployment,
changes in securities markets or other factors could impact these state and
local markets and, in turn, also have a material adverse affect of our financial
condition and results of operations.

Strong Competition Within Our Market Area May Limit Our Growth and
Profitability.

Competition in the banking and financial services industry is intense. We
compete in our market areas with commercial banks, savings institutions,
mortgage brokerage firms, credit unions, finance companies, mutual funds,
insurance companies, and brokerage and investment banking firms operating
locally and elsewhere. Some of these competitors have substantially greater
resources and lending limits than we do, have greater name recognition and
market presence that benefit them in attracting business, and offer certain
services that we cannot provide. In addition, larger competitors may be able to
price loans and deposits more aggressively than we do. Our profitability depends
upon our continued ability to successfully compete in our market areas. The
greater resources and deposit and loan products offered by some of our
competitors may limit our ability to increase our interest-earning assets. For
additional information see Item 1, "Business-Competition."

The Loss of Key Members of Our Senior Management Team Could Adversely Affect Our
Business.

         We believe that our success depends largely on the efforts and
abilities of our senior management. Their experience and industry contacts
significantly benefit us. The competition for qualified personnel in the
financial services industry is intense, and the loss of any of our key personnel
or an inability to continue to attract, retain and motivate key personnel could
adversely affect our business.

We Are Subject to Extensive Government Regulation and Supervision.

         We are subject to extensive federal and state regulation and
supervision, primarily through the FirstBank Northwest and certain non-bank
subsidiaries. Banking regulations are primarily intended to protect depositors'
funds, federal deposit insurance funds and the banking system as a whole, not
shareholders. These regulations affect our lending practices, capital structure,
investment practices, dividend policy and growth, among other things. Congress
and federal regulatory agencies continually review banking laws, regulations and
policies for possible changes. Changes to statutes, regulations or regulatory
policies, including changes in interpretation or implementation of statutes,
regulations or policies, could affect us in substantial and unpredictable ways.
Such changes could subject us to additional costs, limit the types of financial
services and products we may offer and/or increase the ability of non-banks to
offer competing financial services and products, among other things. Failure to
comply with laws, regulations or policies could result in sanctions by
regulatory agencies, civil money penalties and/or reputation damage, which could
have a material adverse affect on our business, financial condition and results
of operations. While we have policies and procedures designed to prevent any
such violations, there can be no assurance that such violations will not occur.
See Item 1, "Business-Regulation".

                                       36
<PAGE>

Our Information Systems May Experience an Interruption or Breach in Security.

         We rely heavily on communications and information systems to conduct
our business. Any failure, interruption or breach in security of these systems
could result in failures or disruptions in our customer relationship management,
general ledger, deposit, loan and other systems. While we have policies and
procedures designed to prevent or limit the effect of the failure, interruption
or security breach of our information systems, there can be no assurance that
any such failures, interruptions, or security breaches will not occur, or if
they do occur, that they will be adequately addressed. The occurrence of any
failure, interruptions or security breaches of our information systems could
damage our reputation, result in loss of customer business, subject us to
additional regulatory scrutiny, or expose us to civil litigation and possible
financial liability, any of which could have a materially adverse effect on our
financial condition and results of operations.

We Rely on Dividends From Subsidiaries For Most of Our Revenue.

         FirstBank NW Corp. is a separate and distinct and legal entity from its
subsidiaries. We receive substantially all of our revenue from dividends from
our subsidiaries. These dividends are the principal source of funds to pay
dividends on our common stock and interest and principal on our debt. Various
federal and/or state laws and regulations limit the amount of dividends that
FirstBank Northwest and certain non-bank subsidiaries may pay to FirstBank NW
Corp. Also, our right to participate in a distribution of assets upon a
subsidiary's liquidation or reorganization is subject to the prior claims of the
subsidiary's creditors. In the event FirstBank Northwest is unable to pay
dividends to FirstBank NW Corp., we may not be able to service debt, pay
obligations or pay dividends on FirstBank NW Corp.'s common stock. The inability
to receive dividends from FirstBank Northwest could have a material adverse
effect on our business, financial condition and results of operations. See Item
1, "Business-Regulation."

If We Fail to Maintain an Effective System of Internal Control over Financial
Reporting, We May Not Be Able to Accurately Report Our Financial Results or
Prevent Fraud, and, as a Result, Investors and Depositors Could Lose Confidence
in Our Financial Reporting, Which Could Adversely Affect Our Business, the
Trading Price of Our Stock and Our Ability to Attract Additional Deposits.

         If we fail to identify and correct any significant deficiencies in the
design or operating effectiveness of our internal control over financial
reporting or fail to prevent fraud, current and potential shareholders and
depositors could lose confidence in our Company's internal controls and
financial reporting, which could adversely affect our business, financial
condition and results of operations, the trading price of our stock and our
ability to attract additional deposits.

Changes in Accounting Standards May Affect Our Performance.

         Our accounting policies and methods are fundamental to how we record
and report our financial condition and results of operations. From time to time
the FASB changes the financial accounting and reporting standards that govern
the preparation of our financial statements. These changes can be difficult to
predict and can materially impact how we report and record our financial
condition and results of operations. In some cases, we could be required to
apply a new or revised standard retroactively, resulting in restating prior
period financial statements.

Item 2.  Properties
-------------------

         The Bank operates 20 full-service facilities in Lewiston, Lewiston
Orchards, Moscow, Grangeville, Coeur d'Alene, Post Falls, Boise, and Hayden,
Idaho, Clarkston, Spokane, and Liberty Lake, Washington, and Baker City, La
Grande, Ontario, John Day, Burns, Enterprise, Island City, Vale, and Pendleton,
Oregon and six loan production offices in Lewiston, Coeur d'Alene, Boise, and
Nampa, Idaho, Spokane, Washington, and Baker City, Oregon.

         The Company owns the Lewiston, Lewiston Orchards, Moscow, Grangeville,
Coeur d'Alene, Hayden, Idaho, Clarkston, Washington and all Oregon facilities,
and leases the in-store location of the Post Falls branch on a one year optional
term with the initial five year term commencing on March 1, 1999. In November
1999, the Bank opened the newly constructed Liberty Lake branch, which is
located on leased land. The land lease is a ten-year lease. The Boise and
Spokane branches are located on the same property as the loan production
offices.

                                       37
<PAGE>

         The loan production offices in Lewiston, and Coeur d'Alene, Idaho and
Baker City, Oregon are located in the same facility as the Bank's full-service
office. The loan production office in Boise is an office space leased for five
years, ten and one-half months commencing on April 15, 2002. The loan production
office in Nampa is an office space leased for one year plus five one-year
options commencing on November 1, 2004. The loan production office in Spokane is
an office space leased for 62 months commencing on August 1, 2002.

         The corporate office is located in the same building as the Clarkston,
Washington full-service facility.

         A portion of the Coeur d'Alene facility is leased to an unaffiliated
brokerage firm for a period of ten years expiring in 2006, with the intension to
extend an option to the terms for an additional five years until November 1,
2011.

         At March 31, 2006, the net book value of the properties (including land
and buildings) and the Bank's fixtures, furniture and equipment was $17.6
million. The Company believes that its existing facilities are adequate for the
current level of operations.

Item 3.  Legal Proceedings
--------------------------

         From time to time, the Company or its subsidiaries are engaged in legal
proceedings in the ordinary course of business, none of which are currently
considered to have a material impact on the Company's financial position,
results of operations, or cash flows.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 31, 2006.

                                       38
<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and
-------------------------------------------------------------------------------
Issuer Purchases of Equity Securities
-------------------------------------

         The common stock of the Company is traded on the Nasdaq National Market
under the symbol "FBNW." The table below reflects the high, low, and closing
market prices of its common stock based on the daily price, cash dividends paid
per share, and tangible book value for the last two fiscal years. All share
references reflect the two-for-one stock split paid as of the close of business
on February 9, 2006. The common stock began trading on the Nasdaq National
Market on July 2, 1997. At March 31, 2006, there were approximately 484 holders
of record of common stock of the Company.

<TABLE>
<CAPTION>
                                                                                                       Tangible
                                    High             Low            Close           Dividends         Book Value*
                                    ----             ---            -----           ---------         -----------
<S>                               <C>             <C>             <C>                <C>                <C>
     2006                         $ 18.620        $ 12.500        $ 18.390           $ 0.355            $10.175
     ----
     First Quarter                  14.050          12.500                             0.085              9.305
     Second Quarter                 14.450          13.585                             0.085              9.616
     Third Quarter                  16.000          13.620                             0.085              9.896
     Fourth Quarter                 18.620          15.705                             0.100             10.175

     2005                         $ 14.875        $ 12.250        $ 14.000           $ 0.340            $ 9.000
     ----
     First Quarter                  14.875          12.250                             0.085              8.460
     Second Quarter                 14.625          13.295                             0.085              8.665
     Third Quarter                  14.720          13.665                             0.085              8.855
     Fourth Quarter                 14.500          13.290                             0.085              9.000
</TABLE>

*Tangible book value is computed using actual shares outstanding, excluding
unallocated Employee Stock Ownership Plan ("ESOP") shares.

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

         On April 12, 2006, the Board of Directors declared a cash dividend of
$0.10 per common share to shareholders of record as of May 4, 2006. The dividend
was paid on May 18, 2006.

                                       39
<PAGE>

Stock Repurchases

         The following table sets forth the Company's repurchases of its
outstanding Common Stock during the fourth quarter of the year ended March 31,
2006.

<TABLE>
<CAPTION>
                                                                                 (c) Total Number       (d) Maximum
                                                                                      of Shares          Number of
                                                                                     Purchased           Shares that
                                                                                      as part            May Yet Be
                                          (a) Total Number      (b) Average         of Publicly          Purchased
                                             of Shares         Price Paid per        Announced           Under the
                                             Purchased             Share               Plans               Plans
                                            ------------        ------------        ------------        ------------
<S>                                               <C>                  <C>                <C>               <C>

January 1, 2006 - January 31, 2006                --                   --                 --                190,732  (2)
February 1, 2006 - February 28, 2006              --                   --                 --                190,732
March 1, 2006 - March 31, 2006                    --                   --                 --                190,732
                                            --------            ---------           --------            -----------
TOTAL                                             --                   --                 --                190,732
                                                                                                        ===========
</TABLE>

     (1) These shares reflect the increased shares issued at the close of
     business on February 9, 2006 as a result of a two-for-one stock split in
     the form of a 100% per share stock dividend on the Company's outstanding
     common stock.

     (2) On August 27, 2004, the Company's Board of Directors authorized a 5%
     stock repurchase plan, or 295,732 shares of the Company's outstanding
     common stock. As of March 31, 2006, 105,000 shares had been repurchased
     under this program.

Equity Compensation Plan Information

         The equity compensation plan information presented under subparagraph
(d) in Part III, Item 12 of this report is incorporated herein by reference.

                                       40
<PAGE>

Item 6.  Selected Financial Data
--------------------------------

         The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Company at the
dates and for the fiscal years indicated. All share references reflect the
two-for-one stock split paid as of the close of business on February 9, 2006.

<TABLE>
<CAPTION>
                                                                                 At March 31,
                                                      ------------------------------------------------------------------
FINANCIAL CONDITION DATA:                                2006          2005          2004          2003          2002
                                                      ----------    ----------    ----------    ----------    ----------
                                                                                (In Thousands)
<S>                                                   <C>           <C>           <C>           <C>           <C>
Total assets                                          $  846,003    $  801,122    $  700,232    $  332,398    $  307,840
Loans receivable, net                                    632,543       562,101       459,114       251,805       234,396
Loans held for sale                                        3,785         3,999         5,254         5,214         3,740
Cash and cash equivalents                                 26,903        41,801        38,397        24,741        24,012
Investment securities available-for-sale                  16,890        17,427        19,116        16,813        12,524
Investment securities held-to-maturity                    31,651        30,907        19,671            --            --
Mortgage-backed securities held-to-maturity               22,312        22,463        22,899         1,969         2,140
Mortgage-backed securities available-for-sale             29,843        39,441        54,128         7,649         9,293
Deposits                                                 570,040       518,676       480,548       203,189       188,857
Securities sold under agreements to repurchase             9,636        16,023        10,487        11,151         7,265
FHLB advances and other borrowings                       176,817       185,337       132,056        81,816        79,722
Stockholders' equity                                      79,130        72,311        69,332        30,064        27,813


<CAPTION>
                                                                               Year Ended March 31,
                                                      ------------------------------------------------------------------
SELECTED OPERATING DATA:                                 2006          2005          2004          2003          2002
                                                      ----------    ----------    ----------    ----------    ----------
                                                                       (In Thousands, except per share data)
<S>                                                   <C>           <C>           <C>           <C>           <C>
Interest income                                       $   52,188    $   40,631    $   27,415    $   20,575    $   20,248
Interest expense                                          19,314        13,319         9,934         8,710         9,992
                                                      ----------    ----------    ----------    ----------    ----------
Net interest income                                       32,874        27,312        17,481        11,865        10,256
Provision for loan losses                                 (1,799)       (1,528)         (395)       (1,033)       (1,064)
                                                      ----------    ----------    ----------    ----------    ----------
Net interest income after provision for loan losses       31,075        25,784        17,086        10,832         9,192
Non-interest income                                        6,933         6,010         5,516         4,693         4,015
Non-interest expenses                                     25,584        23,149        16,762        11,699         9,766
                                                      ----------    ----------    ----------    ----------    ----------
Income before income tax expense                          12,424         8,645         5,840         3,826         3,441
Income tax expense                                         3,908         2,367         1,482         1,054         1,065
                                                      ----------    ----------    ----------    ----------    ----------
Net income                                            $    8,516    $    6,278    $    4,358    $    2,772    $    2,376
                                                      ==========    ==========    ==========    ==========    ==========

Per share data:
    Basic earnings per share                          $     1.45    $     1.08    $     1.13    $     1.08    $     0.88
    Diluted earnings per share                        $     1.41    $     1.05    $     1.06    $     1.04    $     0.85

Dividends per share                                   $     0.36    $     0.34    $     0.31    $     0.27    $     0.22
</TABLE>

                                       41
<PAGE>

<TABLE>
<CAPTION>
                                                                                    At or For the Year Ended March 31,
                                                                   ----------------------------------------------------------------
                                                                     2006         2005           2004          2003          2002
                                                                   ---------    ----------    ----------    ----------    ---------
<S>                                                                  <C>           <C>           <C>           <C>           <C>
KEY FINANCIAL RATIOS:
Performance Ratios:
Return on average assets (1)                                           1.03%         0.84%         0.90%         0.87%         0.82%
Return on average equity (2)                                          11.16          8.85          9.26          9.49          8.47
Average equity to average assets (3)                                   9.19          9.54          9.71          9.16          9.73
Total equity to total assets at end of year                            9.35          9.03          9.90          9.04          9.03
Interest rate spread (4)                                               4.56          4.38          4.23          4.14          3.86
Net interest margin (5)                                                4.59          4.38          4.28          4.27          4.05
Average interest-earning assets to average interest-bearing
   liabilities                                                       114.83        112.36        113.44        114.96        114.05
Non-interest expense as a percent of average assets                    3.08          3.11          3.46          3.67          3.39
Efficiency ratio (6)                                                  61.63         65.91         68.88         67.36         65.44
Dividend payout ratio                                                 25.52         31.27         29.73         25.37         25.60

Bank Equity Ratios:
Tier I capital to average assets                                       7.28          6.67          6.51          8.40          8.79
Tier I capital to risk-weighted assets                                 9.81          9.04          9.24         11.84         12.28
Total capital to risk-weighted assets                                 11.55         10.29         10.50         13.09         13.47

Asset Quality Ratios:
Nonperforming loans as a percent of loans receivable, net              0.05          0.19          0.63          0.50          0.25
Nonperforming assets as a  percent of total assets                     0.14          0.35          0.50          0.55          0.36
Allowance for loan losses as a percent of total loans receivable       1.27          1.27          1.35          1.33          1.08
Allowance for loan losses as a percent of nonperforming loans      2,608.33        661.86        217.72        272.90        433.67
Net charge-offs to average outstanding loans                           0.15          0.12          0.10          0.07          0.12
Allowance for loan losses as a multiple of net charge-offs             8.89         12.34         17.64         18.76          9.90
</TABLE>

Averages are based on average daily balances.

(1)     Net income divided by average assets.
(2)     Net income divided by average equity.
(3)     Average equity divided by average assets.
(4)     Difference between weighted average yield on interest-earning assets and
        weighted average rate on total deposits and borrowed funds.
(5)     Net interest income and tax effects as a percentage of average
        interest-earning assets.
(6)     Non-interest expenses divided by the sum of tax equivalent net interest
        income and non-interest income.

                                       42
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operation
------------

General

         Management's discussion and analysis of financial condition and results
of operation is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the consolidated financial statements and
accompanying notes thereto.

         Management's discussion and analysis of financial condition and results
of operations and other portions of this Annual Report on Form 10-K contain
certain forward-looking statements concerning the future operations of the
Company. Management desires to take advantage of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and is including this
statement for the express purpose of availing the Company of the protections of
such safe harbor with respect to all forward-looking statements contained in its
Annual Report. The Company has used forward-looking statements to describe
future plans and strategies, including expectations of the Company's future
financial results. Management's ability to predict results or the effect of
future plans or strategies is inherently uncertain. Factors which could affect
the results include interest rate trends, the general economic climate in the
Company's market area and the country as a whole, the real estate market in
Washington, Idaho and Oregon, the demand for mortgage loans, the ability of the
Company to control costs and expenses, competition and pricing, loan delinquency
rates, and changes in federal and state regulation. These factors should be
considered in evaluating the forward-looking statements, and undue reliance
should not be placed on such statements. The Company does not undertake to
update any forward-looking statements.

         The profitability of the Company's operations depends primarily on its
net interest income, its non-interest income (principally from loan origination
fees and transaction account service charges) and its non-interest expense. Net
interest income is the difference between the income the Company receives on its
loan and investment portfolio and its cost of funds, which consists of interest
paid on deposits and borrowings. Net interest income is a function of the
Company's interest rate spread, which is the difference between the yield earned
on interest-earning assets and the rate paid on total deposits and borrowed
funds, as well as a function of the average balance of interest-earning assets
as compared to the average balance of total deposits on borrowed funds.
Non-interest income is comprised of income from mortgage banking activities,
transaction service charge fees, gain on the occasional sale of assets and
miscellaneous fees and income. Mortgage banking generates income from the sale
of mortgage loans and from servicing fees on loans serviced for others. The
contribution of mortgage banking activities to the Company's results of
operations is highly dependent on the demand for loans by borrowers and
investors, and therefore the amount of gain on sale of loans may vary
significantly from period to period as a result of changes in market interest
rates and the local and national economy. The Company's profitability is also
affected by the level of non-interest expense. Non-interest expenses include
compensation and benefits, occupancy and maintenance expenses, deposit insurance
premiums, data servicing expenses, advertising expenses, supplies and postage,
and other operating costs. Additional expenses that were incurred in fiscal year
2006 include consulting fees for compliance with the certification provisions
regarding internal controls required by Section 404 of the Sarbanes-Oxley Act,
including Federal Deposit Insurance Corporation Improvement Act ("FDICIA")
certifications on management's assessments on internal controls. Additional
expenses that are expected to be incurred in fiscal year 2007 include
constructing and opening a full service branch in Meridian, Idaho and consulting
fees for additional Sarbanes-Oxley Act and FDICIA compliance. The Company's
results of operations may be adversely affected during periods of reduced loan
demand to the extent that non-interest expenses associated with mortgage banking
activities are not reduced commensurate with the decrease in loan originations.

         On January 4, 2006, the Company's Board of Directors declared a
two-for-one stock split in the form of a 100% per share stock dividend on the
Company's outstanding common stock. The stock dividend was paid as of the close
of business on February 9, 2006. Each shareholder of record as of the close of
business on January 26, 2006 received one additional share for every share
outstanding on the record date. As a result of the split, 3,022,716 additional
shares were issued increasing common stock by $30,227 and retained earnings were
reduced by $30,227. All references in the accompanying financial statements to
the number of common shares and per-share amounts have been restated to reflect
the two-for-one stock split.

                                       43
<PAGE>

Business Strategy. The Company's strategy is to operate as a community-based
financial institution serving commercial, agricultural, small business, and
individual financial needs. The Company focuses on providing exceptional
customer service in the delivery of quality and competitive deposit and loan
products, and strives to deliver local decisions to each community served. Our
principal business is to attract deposits from individuals, businesses and
public entities, which are invested primarily in commercial, agricultural, small
business and consumer loans, both real estate and non-real estate. The Company
intends to pursue this strategy and endeavors to continue to diversify the loan
portfolio consistent with our commercial banking philosophy.

Mission Statement. The mission of the Company is to exceed the expectations of
its shareholders, customers, employees and community. As an independent
community bank, the Bank will deliver excellent service to its consumer and
business customers through knowledgeable and dedicated employees. The Company
will provide convenient access to banking and financial related
products/services that meet the changing needs of our targeted customers. It is
the intent of the Company to achieve this mission profitably, and thereby
ensuring the Company's long-term commitment to all of its stakeholders.

Operating Strategy. Management's goal is to grow FirstBank on a profitable basis
consistent with its mission statement, while expanding the Company's community
banking franchise in existing markets and expanded markets. The Company plans to
achieve this by:

o    maintaining a strong credit culture through disciplined credit
     administration;

o    continuing loan growth through focused new loan origination in the
     Company's loan centers;

o    enhanced branch deposit growth focused on core deposit growth from
     commercial, small business, agriculture and individual customers within the
     Company's communities. Existing branch market share and enhanced new branch
     performance is essential to deposit growth initiatives;

o    seeking to improve net interest margin through a combination of reduced
     funding costs and improved pricing levels for loans relative to risk, with
     emphasis on construction and commercial lending;

o    analyzing profitability of product and business lines and allocating
     resources accordingly. Focus will remain on the Company's community banking
     mission as these initiatives are addressed;

o    expanding our reach to targeted customer base through enhanced delivery
     channels;

o    enhancing management culture which is driven by a focus on profitability
     through decentralized decisions based on clear authorities,
     responsibilities and accountabilities;

o    establishing a Bank-wide training program that develops employee's
     knowledge of products, services, procedures, and sales culture as well as
     professional development;

o    utilizing technology to gain efficiencies in processing customer
     information and servicing support in order to deliver consistent service
     and comply with policy, processes and regulations;

o    continued diversification of the loan portfolio;

o    maintaining Bank capital within policy limits and consistent with the risk
     profile of the loan portfolio and other relative risk factors as the Bank
     continues to grow;

o    maintaining interest rate risk profile within policy and consistent with
     asset/liability management objectives. No inordinate interest rate risk
     will be positioned into specific rate environments nor will net income
     module be initiated outside of interest rate risk policies.

                                       44
<PAGE>

Critical Accounting Policies

         Critical accounting policies are defined as those that reflect
significant judgments and uncertainties, and could potentially result in
materially different results under different assumptions and conditions. Not all
of these critical accounting policies require management to make difficult,
subjective or complex judgments or estimates. However, management believes that
the following policies and those disclosed could be considered critical within
the SEC's definition. Management believes that the most critical accounting
policies upon which the Company's financial condition depends, and which involve
the most complex or subjective decisions or assessments are as follows:

         Allowance for Loan Losses. Arriving at an appropriate level of reserve
for loan losses involves a high degree of judgment. The provision for loan
losses is based upon management's ongoing review and evaluation and the Board of
Directors' regular review of the loan portfolio and consideration of economic
conditions which may affect the ability of borrowers to repay their loans on a
monthly basis. A loan loss grading system assists management in determining the
overall risk in the loan portfolio. Individual loans are reviewed periodically
for classification into six categories: satisfactory, acceptable, special
mention, substandard, doubtful and loss; and are assigned a standard loan loss
percentage. The change in loan types per category is multiplied by the assigned
loan loss percentage to arrive at the basic monthly adjustment to the provision
for loan loss. The second element of the provision for loan losses is based on
management's review and evaluation of the allowance for loan losses based on an
analysis of historical trends, individual loans for which full collectibility
may not be reasonably assured, estimated fair value of the underlying
collateral, industry comparisons, unemployment rate in the Bank's market, and
inherent risks in the Bank's portfolio. The reserve may be affected by changing
economic conditions and various external factors, which may impact the portfolio
in ways currently unforeseen. The reserve is increased by provisions for loan
losses and by recoveries of loans previously charged-off and reduced by loans
charged-off.

         Mortgage Servicing Rights ("MSRs"). Determination of the fair value of
MSRs requires the estimation of multiple interdependent variables, the most
important of which is mortgage prepayment speeds. Prepayment speeds are
estimates of the pace and magnitude of future mortgage payoff or refinance
behavior of customers whose loans are serviced by the Bank. At least quarterly,
the Company engages a qualified third party to provide an estimate of the fair
value of MSRs using a discounted cash flow model with assumptions and estimates
based upon observable market-based data and methodology common to the mortgage
servicing market. Management believes the model applies reasonable assumptions
under the circumstances, however, because of possible volatility in the market
price of MSRs, and the vagaries of any relatively illiquid market, there can be
no assurance that risk management and existing accounting practices will prevent
impairment charges in future periods.

         The cost of mortgage servicing rights is amortized in proportion to,
and over the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions. For purposes of measuring impairment, the rights are
stratified by predominant characteristics, such as interest rates and terms. The
amount of impairment recognized is the amount by which the capitalized mortgage
servicing rights for a stratum exceeds their fair value.

         Securities. Estimates are used in the presentation of the securities
portfolio and these estimates impact the Company's financial condition and
results of operations. Many of the securities included in the securities
portfolio are purchased at a premium or discount. The premiums or discounts are
amortized or accreted over the life of the security. For mortgage-related
securities, including collateralized mortgage obligations ("CMOs"), the
amortization or accretion is based on estimated lives of the securities. The
lives of the securities can fluctuate based on the amount of prepayments
received on the underlying collateral of the securities. The Company uses
estimates for the lives of these mortgage-related securities based on
information provided by third parties. The Company adjusts the rate of
amortization or accretion regularly to reflect changes in the estimated lives of
these securities.

         Goodwill and Other Intangible Assets. Analysis of the fair value of
recorded goodwill for impairment involves a substantial amount of judgment, as
well as establishing and monitoring estimated lives of other amortizable
intangible assets. The Company has goodwill and other intangible assets as a
result of business combinations. The Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets effective January 1, 2002. In accordance with this
Standard, goodwill and other intangibles with indefinite lives are no longer
being amortized but instead will be tested for impairment on an annual basis or
more frequently if impairment indicators arise. Management has completed
impairment testing for the Company's intangibles with indefinite lives and
determined that there was no impairment.

                                       45
<PAGE>

Comparison of Financial Condition at March 31, 2006 and March 31, 2005

         Assets. Total assets increased $44.9 million, or 5.6%, from $801.1
million at March 31, 2005 to $846.0 million at March 31, 2006. This increase is
primarily the result of $70.4 million in loan growth. The following table
identifies and explains the categories with notable variances for the years
ended March 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                                                          Dollar          Percentage
                                      Balance at       Balance at        Increase          Increase
                                    March 31, 2006   March 31, 2005     (Decrease)        (Decrease)
                                    --------------   --------------   --------------    --------------
                                                        (Dollars in Thousands)
<S>                                 <C>              <C>              <C>                       <C>
Noninterest-bearing cash deposits   $       26,637   $       39,769   $      (13,132)           (33.02)%
Interest-bearing cash deposits                 266            2,032           (1,766)           (86.91)
Mortgage-backed securities,
     available-for-sale                     29,843           39,441           (9,598)           (24.34)
Loans receivable, net                      632,543          562,101           70,442             12.53
Other assets                                 3,313            4,130             (817)           (19.78)
</TABLE>

         The decrease in noninterest bearing deposits was primarily the result
of implementing Check 21 with the Federal Reserve Bank. Check 21 uses images
instead of actual checks, which reduced the Bank's float. These funds, along
with funds from interest-bearing cash deposits were used to help fund loan
growth.

         The decrease in available-for-sale mortgage-backed securities was the
result of payments from maturities of $8.9 million, $393,000 decrease in market
value, and $276,000 in amortization.

         The increase in net loans receivable was the result of loans originated
in the Company's marketing area, especially commercial real estate and
construction loans in the Boise, Coeur d'Alene, and Spokane markets. Management
has focused on increasing loans receivable as part of the Company's operating
strategy.

         The decrease in other assets, including income taxes receivable, was
primarily the result of an $881,000 decrease in the balance of settlement
accounts.

         Liabilities. Total liabilities increased $38.1 million, or 5.2%, from
$728.8 million at March 31, 2005 to $766.9 million at March 31, 2006. The growth
in liabilities resulted from deposit growth, which was part of management's
focus in fiscal year 2006, partially offset by a decrease in securities sold
under agreement to repurchase and borrowings. The following table identifies and
explains the categories with notable variances for the fiscal years ended March
31, 2006 and 2005:

<TABLE>
<CAPTION>
                                              Balance at       Balance at         Dollar          Percentage
                                            March 31, 2006   March 31, 2005      Increase          Increase
                                            --------------   --------------   --------------    --------------
                                                                  (Dollars in Thousands)
<S>                                         <C>              <C>              <C>                        <C>
    Noninterest-bearing deposits            $       95,304   $       76,072   $       19,232             25.28%
    Interest-bearing deposits                      474,736          442,604           32,132              7.26
                                            --------------   --------------   --------------    --------------
       Total deposits                              570,040          518,676           51,364              9.90

    Securities sold under agreements
       to repurchase                                 9,636           16,023           (6,387)           (39.86)
    FHLB advances and other borrowings             176,817          185,337           (8,520)            (4.60)
   Accrued expenses and other liabilities            9,385            7,319            2,066             28.23
</TABLE>

                                       46
<PAGE>

         The increase in total deposits was the result of increasing the number
of customer accounts. The Company experienced good growth in checking accounts
(core accounts) and certificates of deposits, partially offset by decreases in
savings accounts and money market accounts. Management has focused on increasing
core deposits as part of the Company's operating strategy.

         The decrease in securities sold under agreements to repurchase was the
result of one municipal account moving its funds.

         The decrease in FHLB advances and other borrowings resulted from using
funds available from decreased float with the Federal Reserve Bank, deposit
growth, and securities paydowns to repay maturing advances.

         Stockholders' Equity. Total equity increased $6.8 million, or 9.4%,
from $72.3 million at March 31, 2005 to $79.1 million at March 31, 2006. This
increase was primarily the result of $8.5 million in net income partially offset
by an increase of $304,000 in unrealized losses on available-for-sale
securities, net of tax benefit, and the Company paying $2.2 million in dividends
to its shareholders during fiscal 2006.

         Additional paid-in-capital increased $695,000, or 1.5%, to $45.9
million at March 31, 2006 from $45.2 million at March 31, 2005 as a result of
$432,000 in stock issued from the exercise of stock options and $162,000 in ESOP
shares released. Unearned ESOP shares decreased $84,000 to $635,000 at March 31,
2006 from $719,000 at March 31, 2005. Retained earnings increased $6.3 million
to $33.9 million at March 31, 2006 from $27.6 million at March 31, 2005 as a
result of $8.5 million net income and $2.2 million in dividends paid.
Accumulated other comprehensive income decreased $304,000 to negative $155,000
at March 31, 2006 from $149,000 at March 31, 2005 as a result of changes in
market value on available-for-sale securities.

Comparison of Operating Results for the Years Ended March 31, 2005 and 2006

         General. Net income increased $2.2 million, or 35.6%, from $6.3 million
($1.08 per share - basic, $1.05 per share - diluted) for the year ended March
31, 2005 to $8.5 million ($1.45 per share - basic, $1.41 per share - diluted)
for the year ended March 31, 2006. The increase in net income is a result of an
increase in net interest income of $5.6 million, an increase in non-interest
income of $923,000, partially offset by an increase in provision for loan losses
of $271,000, an increase in non-interest expense of $2.4 million, and an
increase in income tax expense of $1.5 million.

         Net Interest Income. Net interest income increased $5.6 million, or
20.4%, from $27.3 million for the year ended March 31, 2005 to $32.9 million for
the year ended March 31, 2006. Increases in the tax affected yield on
interest-earning assets and the average balance on interest-earning assets were
partially offset by increases in the cost of total deposits and borrowed funds
and the average balance on total deposits and borrowed funds. The following
table compares the average interest-earning asset balances, average total
deposits and other borrowed funds, associated tax effected yields, and interest
rate spread, for the years ended March 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                                        Year Ended March 31,
                                        --------------------------------------------------
                                                 2006                       2005
                                        -----------------------    -----------------------
                                         Average      Yield/        Average       Yield/
                                         Balance       Cost         Balance        Cost
                                        ----------   ----------    ----------   ----------
                                                      (Dollars in Thousands)
<S>                                     <C>                <C>     <C>                <C>
Total interest-earning assets           $  753,505         7.15%   $  664,277         6.38%
Total deposits and borrowed funds       $  745,495         2.59    $  665,003         2.00
                                                     ----------                 ----------
Interest rate spread                                       4.56%                      4.38%
                                                     ==========                 ==========
</TABLE>

         Average interest-earning assets increased as a result of the increase
in average balance of loans receivable. Average total deposits and other
borrowed funds increased as a result of deposit growth and an increase in
average FHLB advances and other borrowings.

                                       47
<PAGE>

         Total Interest Income. Total interest income increased $11.6 million,
or 28.4%, from $40.6 million for the year ended March 31, 2005 to $52.2 million
for the year ended March 31, 2006. The increase in total interest income is a
result of an increase in interest income on interest-earning assets. The
following table compares detailed average earning asset balances, and associated
yields for the years ended March 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                                    Year Ended March 31,
                                    --------------------------------------------------
                                              2006                      2005
                                    -----------------------    -----------------------
                                     Average                    Average
                                     Balance       Yield        Balance       Yield
                                    ----------   ----------    ----------   ----------
                                                   (Dollars in Thousands)
<S>                                 <C>                <C>     <C>                <C>
Loans receivable, net               $  603,833         7.66%   $  506,053         6.72%
Loans held for sale                      6,184         5.03         4,708         5.67
Mortgage-backed securities              56,789         4.46        68,761         4.50
Investment securities                   48,287         6.08        46,438         6.36
Other earning assets                    38,412         4.86        38,317         5.56
                                    ----------   ----------    ----------   ----------
Total interest-earning assets       $  753,505         7.15%   $  664,277         6.38%
                                    ==========   ==========    ==========   ==========
</TABLE>

         Interest income from loans receivable increased as a result of loan
growth as well as an increase in the yield on loans receivable from rising
interest rates. The commercial real estate loans and construction loans were the
primary areas of growth. The tax effected yield on commercial loans increased
from 6.43% for the year ended March 31, 2005 to 7.70% for the year ended March
31, 2006. The yield on construction loans increased from 8.20% for the year
ended March 31, 2005 to 9.65% for the year ended March 31, 2006.

         Interest income from mortgage-backed securities decreased as a result
of the decrease in the average balance on securities from payments of
maturities.

         Interest income from investment securities increased as a result of an
increase in the average balance, partially offset by a decrease in the average
yield.

         The decrease in interest income on other interest-earning assets is the
result of no dividends being paid on FHLB-Seattle stock, included in equity
securities, for the year ended March 31, 2006 compared to dividends of $284,000
on FHLB-Seattle stock for the year ended March 31, 2005. Since May 18, 2005, the
FHLB of Seattle suspended the payment of dividends on all classes of stock. For
additional information see `News' under `Our Company' on the fhlbsea.com
website. The Company did not recognize a return on FHLB-Seattle stock, included
in equity securities, on its Consolidated Statements of Financial Condition and
Consolidated Statements of Income for the year ended March 31, 2006.

         Total Interest Expense. Total interest expense increased $6.0 million,
or 45.0%, from $13.3 million for the year ended March 31, 2005 to $19.3 million
for the year ended March 31, 2006. The following table compares detailed average
balances and associated costs for the years ended March 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                                                     Year Ended March 31,
                                                     --------------------------------------------------
                                                               2006                       2005
                                                     -----------------------    -----------------------
                                                      Average                    Average
                                                      Balance       Costs        Balance       Costs
                                                     ----------   ----------    ----------   ----------
                                                                   (Dollars in Thousands)
<S>                                                  <C>                <C>     <C>                <C>
Savings, checking and
     money market accounts                           $  221,834         1.64%   $  219,155         0.70%
Certificates of deposit                                 244,112         3.19       200,980         2.84
Secutities sold under agreements to repurchase            8,694         2.80        12,808         0.93
FHLB advances and other borrowings                      181,529         4.22       158,235         3.77
                                                     ----------   ----------    ----------   ----------
Total interest-bearing liabilities                   $  656,169         2.94%   $  591,178         2.25%
                                                     ==========   ==========    ==========   ==========
</TABLE>

                                       48
<PAGE>

         The increase in the average balance of total savings, checking, and
money market accounts is a result of management's focus to increase core deposit
accounts as part of the Company's operating strategy. Certificates of deposit
increased as a result of eight month, 11 month and 27 month certificate of
deposit specials offered by the Bank to fund loan growth.

         The increase in interest expense for FHLB advances and other borrowings
is a result of the increase in the average balance as a result of utilizing
these sources of funds to fund loan growth that is not covered by deposits, as
well as an increase in the cost of these funds.

         Provision for Loan Losses. As a result of the Bank's evaluation of
allowance for loan losses, as discussed herein in "Critical Accounting
Policies", the Company's provision for loan losses increased $271,000 or 17.7%
to $1.8 million for the year ended March 31, 2006 from $1.5 million for the year
ended March 31, 2005. The increase in provision for loan losses is a result of
loan growth, mostly in commercial and construction lending, which have greater
credit risk than residential real estate loans and as a result have a higher
rate for the provision for loan losses.

         Non-interest Income. Total non-interest income increased $923,000, or
15.4%, from $6.0 million for the year ending March 31, 2005 to $6.9 million for
the year ending March 31, 2006. The following table summarizes the components of
non-interest income for the years ended March 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                       Year Ended March 31,      Dollar      Percentage
                                     -----------------------    Increase      Increase
                                        2006         2005      (Decrease)    (Decrease)
                                     ----------   ----------   ----------    ----------
                                                   (Dollars in Thousands)
<S>                                  <C>          <C>          <C>              <C>
Gain on sale of loans                $    1,771   $    1,044   $      727         69.64%
Recovery of impairment of
     mortgage servicing rights               64           81          (17)       (20.99)
Service fees and charges                  4,817        4,504          313          6.95
Commissions and other                       281          381         (100)       (26.25)
                                     ----------   ----------   ----------    ----------
Total non-interest income            $    6,933   $    6,010   $      923         15.36%
                                     ==========   ==========   ==========    ==========
</TABLE>

         The gain on sale of loans increase is attributable to the increase in
loan originations and sales of loans. Proceeds from the sale of loans increased
$16.8 million, or 20.5%, from $82.3 million for the year ended March 31, 2005 to
$99.2 million for the year ended March 31, 2006.

         Service fees and charges are mostly checking insufficient funds fees,
ATM service fees, Visa fees, merchant bank card fees, checking service charges,
and late charges on loans. The Company recognized an increase in fee income from
ATM cards, visa cards and merchant bank cards, partially offset by a slight
decline in fees from overdrawn accounts.

                                       49
<PAGE>

         Non-interest Expense. Total non-interest expense increased $2.4
million, or 10.5%, from $23.1 million for the year ended March 31, 2005 to $25.6
million for the year ended March 31, 2006. The following table summarizes the
components of non-interest expense for the years ended March 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                             Year Ended March 31,      Dollar     Percentage
                                           -----------------------    Increase     Increase
                                              2006         2005      (Decrease)   (Decrease)
                                           ----------   ----------   ----------   ----------
                                                         (Dollars in Thousands)
<S>                                        <C>          <C>          <C>                <C>
   Compensation and related benefits       $   15,161   $   14,044   $    1,117         7.95%
   Professional fees                            1,135          667          468        70.16
   Loan expense                                   623          148          475       320.95
   Other                                        8,665        8,290          375         4.52
                                           ----------   ----------   ----------   ----------
         Total non-interest expense        $   25,584   $   23,149   $    2,435        10.52%
                                           ==========   ==========   ==========   ==========
</TABLE>

         Compensation and related benefits increased $1.1 million, or 8.0%, from
fiscal 2005 to fiscal 2006. The increase in compensation and related benefits
was a result of regular annual compensation increases for employees during the
year and an increase in health insurance costs. The Company also incurred an
additional expense during the year ended March 31, 2006 as a result of a
severance payment made in connection with the Company's acquisition of Oregon
Trail in 2003. The severance payment was made to an individual in accordance
with the terms of the merger agreement between the Company and Oregon Trail.

         Professional fees increased $468,000 as a result of additional services
required to comply with additional regulations, such as compliance with the
certification provisions regarding internal controls required by Section 404 of
the Sarbanes-Oxley Act, FDICIA compliance, and certifications on management's
assessments on internal controls.

         Loan expense increased $475,000 primarily as a result of increases in
loan volume, including increased construction inspection fees, appraisal fees
and credit report expenses.

         All other non-interest expense increased $375,000, or 4.5%, to $8.7
million for the year ended March 31, 2006 from $8.3 million for the year ended
March 31, 2005. This increase in other non-interest expense is primarily the
result of increases in advertising and debit and credit card expense.

         Income Taxes. Income tax expense increased $1.5 million, or 65.1%, from
$2.4 million for the year ended March 31, 2005 to $3.9 million for the year
ended March 31, 2006. The effective tax rates for the years ended March 31, 2006
and 2005 were 31.46% and 27.38%, respectively. The increase in the effective tax
rate is attributable to an increase in income without a corresponding increase
in tax-exempt income.

Comparison of Operating Results for the Years Ended March 31, 2004 and 2005

         General. Net income increased $1.9 million, or 44.1%, from $4.4 million
($1.13 per share - basic, $1.06 per share - diluted) for the year ended March
31, 2004 to $6.3 million ($1.08 per share - basic, $1.05 per share - diluted)
for the year ended March 31, 2005. The Company acquired Oregon Trail on October
31, 2003. For the year ended March 31, 2004, the results of operations include
five months, starting November 2003, of Oregon Trail operations and the year
ended March 31, 2005 include a full year of combined operations. The increase in
net income is a result of an increase in net interest income of $9.8 million, an
increase in non-interest income of $494,000, partially offset by an increase in
the provision for loan losses of $1.1 million, an increase in non-interest
expense of $6.4 million, and an increase in income tax expense of $885,000.

         Net Interest Income. Net interest income increased $9.8 million, or
56.2%, from $17.5 million for the year ended March 31, 2004 to $27.3 million for
the year ended March 31, 2005. The yield on interest-earning assets decreased to
6.38% from 6.54% for the fiscal years ended March 31, 2005 and 2004. The cost of
funding, on interest-earning liabilities, decreased to 2.25% from 2.56% for the
fiscal years ended March 31, 2005 and 2004. The Company's interest rate spread
between the yield on interest-earning assets and the rate paid on total deposits
and borrowed funds increased from 4.23% for fiscal 2004 to 4.38% for fiscal
2005.

                                       50
<PAGE>

         Total Interest Income. Total interest income increased $13.2 million,
or 48.2%, from $27.4 million for the year ended March 31, 2004 to $40.6 million
for the year ended March 31, 2005. The increase in total interest income is a
result of an increase in interest income on interest-earning assets. The
following table compares detailed average earning asset balance, and associated
yields for the years ended March 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                      Year Ended March 31,
                                      --------------------------------------------------
                                               2005                       2004
                                      -----------------------    -----------------------
                                       Average                    Average
                                       Balance       Yield        Balance       Yield
                                      ----------   ----------    ----------   ----------
                                                     (Dollars in Thousands)
<S>                                   <C>                <C>     <C>                <C>
Loans receivable, net                 $  506,053         6.72%   $  335,589         6.83%
Loans held for sale                        4,708         5.67         7,584         5.26
Mortgage-backed securities                68,761         4.50        35,869         5.16
Investment securities                     46,438         6.36        24,840         7.69
Other earning assets                      38,317         5.56        36,000         4.69
                                      ----------   ----------    ----------   ----------
Total interest-earning assets         $  664,277         6.38%   $  439,882         6.54%
                                      ==========   ==========    ==========   ==========
</TABLE>

         Interest income from loans receivable increased as a result of the
acquisition of Oregon Trail on October 31, 2003. For the year ended March 31,
2004, the results of operations exclude seven months ending October 2003 of
Oregon Trail operations and the year ended March 31, 2005 include a full period
of combined operations. The areas with the largest growth during fiscal 2004
attributable to the Oregon Trail acquisition are the commercial real estate
loans and construction loans.

         Interest income from mortgage-backed securities increased as a result
of additional income from the $58.7 million of mortgage-backed securities from
Oregon Trail that became assets of the Company on October 31, 2003 and from
additional income on the $3.0 million purchases of mortgage-backed securities in
the first quarter of fiscal year 2005. Also, in December 2003, the Company
engaged in a $25.0 million leveraged transaction, purchasing mortgage-backed
securities funded by cash and short term FHLB advances. This generated net
interest income, helping offset the costs of depository branches in Hayden and
Boise, Idaho.

         Interest income from investment securities increases as a result of
additional income from the $14.0 million of investment securities from Oregon
Trail and from additional income on the $11.5 million purchases of short term
investment securities primarily purchased in the first quarter of fiscal year
2005 in a leveraged transaction.

         The increase in other earning assets is the result of the increase in
insurance interest income and dividends from the FHLB-Seattle. Additional income
from insurance is a result of the $14.3 million of insurance policies acquired
from Oregon Trail. Interest income from FHLB dividends was $284,000 and $398,000
for the years ended March 31, 2005 and 2004, respectively.

                                       51
<PAGE>

         Total Interest Expense. Total interest expense increased by $3.4
million, or 34.1%, from $9.9 million for the year ended March 31, 2004 to $13.3
million for the year ended March 31, 2005. The following table compares detailed
average balances and associated costs for the years ended March 31, 2005 and
2004:

<TABLE>
<CAPTION>
                                                                   Year Ended March 31,
                                                    --------------------------------------------------
                                                              2005                       2004
                                                    -----------------------    -----------------------
                                                     Average                    Average
                                                     Balance       Costs        Balance       Costs
                                                    ----------   ----------    ----------   ----------
                                                                   (Dollars in Thousands)
<S>                                                 <C>                <C>     <C>                <C>
Savings, checking and
     money market accounts                          $  219,155         0.70%   $  126,560         0.67%
Certificates of deposit                                200,980         2.84       149,626         2.95
Securities sold under agreement to repurchase           12,808         0.93        10,465         0.46
FHLB advances and other borrowings                     158,235         3.77       101,106         4.58
                                                    ----------   ----------    ----------   ----------
Total interest-bearing liabilities                  $  591,178         2.25%   $  387,757         2.56%
                                                    ==========   ==========    ==========   ==========
</TABLE>

         The increase in average balance of total savings, checking, money
market, and certificates of deposit accounts was attributable to the acquisition
of Oregon Trail on October 31, 2003 and management's focus to increase core
deposit accounts as part of the Company's operating strategy.

         The increase in the average balance of FHLB advances and other
borrowings is a result of utilizing these sources of funds to fund loan growth
that is not covered by deposits.

         Provision for Loan Losses. As a result of the Bank's evaluation of
allowance for loan losses, as discussed herein in "Critical Accounting
Policies", the Company's provision for loan losses increased to $1.5 million for
the year ended March 31, 2005 from $395,000 for the year ended March 31, 2004.
The increase in provision for loan losses is a result of the acquisition of
Oregon Trail. The Company acquired Oregon Trail on October 31, 2003 causing the
results of operations to increase for the year ended March 31, 2005 from the
year ended March 31, 2004. For the year ended March 31, 2004, the results of
operations exclude seven months ending October 2003 of Oregon Trail operations
and the year ended March 31, 2005 include a full period of combined operations.
The increase in provision for loan losses was also a result of loan growth,
mostly in commercial and construction lending.

         Non-interest Income. Total non-interest income increased $494,000, or
9.0%, from $5.5 million for year ended March 31, 2004 to $6.0 million for the
year ended March 31, 2005. The following table summarizes the components of
non-interest income for the years ended March 31, 205 and 2004:

<TABLE>
<CAPTION>
                                        Year Ended March 31,      Dollar      Percentage
                                      -----------------------    Increase      Increase
                                         2005         2004      (Decrease)    (Decrease)
                                      ----------   ----------   ----------    ----------
                                                   (Dollars in Thousands)
<S>                                   <C>          <C>          <C>               <C>
Gain on sale of loans                 $    1,044   $    2,188   $   (1,144)       (52.29)%
Recovery of impairment of
     mortgage servicing rights                81           --           81            --
Service fees and charges                   4,504        3,120        1,384         44.36
Commissions and other                        381          208          173         83.17
                                      ----------   ----------   ----------    ----------
Total non-interest income             $    6,010   $    5,516   $      494          8.96%
                                      ==========   ==========   ==========    ==========
</TABLE>

         Gain on sale of loans decreased $1.1 million, or 52.3%, to $1.0 million
for the year ended March 31, 2005 from $2.2 million for the year ended March 31,
2004. This decrease is attributable to the decrease in refinance loan
originations and sales of loans. Proceeds from the sale of loans decreased $72.8
million, or 46.9%, from $155.1 million for the year ended March 31, 2004 to
$82.3 million for the year ended March 31, 2005.

                                       52
<PAGE>

         Service fees and charges are mostly checking insufficient funds fees,
ATM service fees, Visa fees, merchant bank card fees, checking service charges,
and late charges on loans. The Company recognized a decline in the insufficient
funds fees as a result of fewer customers overdrawing their accounts.

         Non-interest Expense. Total non-interest expense increased $6.4
million, or 38.1%, from $16.8 million for the year ended March 31, 2004 to $23.1
million for the year ended March 31, 2005. The following table summarizes the
components of non-interest expense for the years ended March 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                              Year Ended March 31,      Dollar     Percentage
                                            -----------------------    Increase     Increase
                                               2005         2004      (Decrease)   (Decrease)
                                            ----------   ----------   ----------   ----------
                                                          (Dollars in Thousands)
<S>                                         <C>          <C>          <C>             <C>
   Compensation and related benefits        $   14,044   $   10,095   $    3,949        39.12%
   Occupancy expense                             2,844        2,077          767        36.93
   Other                                         6,261        4,590        1,671        36.41
                                            ----------   ----------   ----------   ----------
         Total non-interest expense         $   23,149   $   16,762   $    6,387        38.10%
                                            ==========   ==========   ==========   ==========
</TABLE>

         Compensation related benefits increased $3.9 million, or 39.1%, from
fiscal 2004 to fiscal 2005. The increase in compensation and related benefits
was a result of an increase in the number of full-time equivalent employees
attributable to growth and additional employees in Oregon resulting from the
acquisition of Oregon Trail. Staff was added for the new retail branches in
Hayden and Boise, Idaho, and the new residential loan center in Nampa, Idaho.

         Occupancy expense increased $767,000 primarily attributable to the
acquisition of Oregon Trail on October 31, 2003. For the year ended March 31,
2004, the results of operations exclude seven months ending October 2003 of
Oregon Trial operations and the year ended March 31, 2005 include a full period
of combined operations. Additional occupancy expenses incurred in fiscal 2005
include establishing a new loan production office in Nampa, Idaho and new
branches in Boise and Hayden, Idaho.

         All other non-interest expense increased $1.7 million, or 36.4%, to
$6.3 million for the year ended March 31, 2005 from $4.6 million for the year
ended March 31, 2004. This increase in other non-interest expense is
attributable to the purchase of Oregon Trail on October 31, 2003. Professional
fees increased as a result of expenses related to the conversion and training to
convert the entire core processing system into one system to increase
efficiencies, additional regulatory examinations, and some consulting fees for
Sarbanes-Oxley Act and FDICIA compliance and certifications.

         Income Taxes. Income tax expense increased $885,000, or 59.7%, from
$1.5 million for the year ended March 31, 2004 to $2.4 million for the year
ended March 31, 2005. The effective tax rates for the years ended March 31, 2005
and 2004 were 27.38% and 25.38%, respectively. The increase in the effective tax
rate is attributable to permanent tax differences on bank owned life insurance
income and tax exempt interest income on securities in relation to taxable
income.

                                       53
<PAGE>

Average Balances, Interest and Average Yields/Cost

         The following table sets forth certain information for the years
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average tax
effected yields and costs. Such yields and costs for the years indicated are
derived by dividing tax effected income or expense by the average daily balance
of assets or liabilities, respectively, for the years ended March 31, 2006, 2005
and 2004.

<TABLE>
<CAPTION>
                                                                     Year Ended March 31,
                        -----------------------------------------------------------------------------------------------------------
                                      2006                                 2005                                 2004
                        ---------------------------------   ----------------------------------   ----------------------------------
                                   Interest     Average                 Interest     Average                 Interest      Average
                        Average      and        Yield/       Average      and        Yield/       Average      and         Yield/
                        Balance    Dividends    Cost(1)      Balance    Dividends    Cost(2)      Balance    Dividends     Cost(3)
                       ----------  ----------  ----------   ----------  ----------  ----------   ----------  ----------  ----------
                                                                      (Dollars in Thousands)
<S>                    <C>         <C>               <C>    <C>         <C>               <C>    <C>         <C>               <C>
Interest-earning
  assets (4):
Loans receivable:
Mortgage loans
  receivable           $  126,795  $    8,028        6.33%  $  117,016  $    7,356        6.29%  $   74,416  $    5,065        6.81%
Commercial loans
  receivable              276,950      21,194        7.70      223,158      14,193        6.43      150,557       9,274        6.25
Construction loans
  receivable               85,291       8,233        9.65       53,857       4,416        8.20       36,356       2,832        7.79
Consumer loans
  receivable               80,654       5,420        6.72       74,413       4,964        6.67       43,063       3,263        7.58
Agricultural loans
  receivable               44,759       3,240        7.24       46,240       2,906        6.28       37,547       2,334        6.22
Unearned loan fees
  and discounts
  and allowance
  for loan losses         (10,616)         --          --       (8,631)         --          --       (6,350)         --          --
                       ----------  ----------  ----------   ----------  ----------  ----------   ----------  ----------  ----------
Loans receivable,
  net                     603,833      46,115        7.66      506,053      33,835        6.72      335,589      22,768        6.83
Loans held for
  sale                      6,184         311        5.03        4,708         267        5.67        7,584         399        5.26
Mortgage-backed
  securities               56,789       2,532        4.46       68,761       3,092        4.50       35,869       1,850        5.16
Investment
  securities               48,287       2,069        6.08       46,438       1,991        6.36       24,840       1,161        7.69
Other earning
  assets                   38,412       1,161        4.86       38,317       1,446        5.56       36,000       1,237        4.69
                       ----------  ----------  ----------   ----------  ----------  ----------   ----------  ----------  ----------
Total interest-
  earning assets          753,505      52,188        7.15      664,277      40,631        6.38      439,882      27,415        6.54
                                   ----------  ----------                ----------  ----------              ----------  ----------
Non-interest-
  earning assets           76,700                               78,981                               44,684
                       ----------                           ----------                           ----------
Total assets           $  830,205                           $  743,258                           $  484,566
                       ==========                           ==========                           ==========

Interest-earning
  liabilities:
Savings, checking
   and money
   market accounts     $  221,834       3,630        1.64   $  219,155       1,538        0.70   $  126,560         844        0.67
Certificates of
  deposit                 244,112       7,787        3.19      200,980       5,698        2.84      149,626       4,410        2.95
                       ----------  ----------  ----------   ----------  ----------  ----------   ----------  ----------  ----------
Total deposits            465,946      11,417        2.45      420,135       7,236        1.70      276,186       5,254        1.90
FHLB advances and
  other borrowings        181,529       7,654        4.22      158,235       5,964        3.77      101,106       4,632        4.58
Securities sold
   under agreement
   to repurchase            8,694         243        2.80       12,808         119        0.93       10,465          48        0.46
                       ----------  ----------  ----------   ----------  ----------  ----------   ----------  ----------  ----------
Total interest-
  bearing
    liabilities           656,169      19,314        2.94      591,178      13,319        2.25      387,757       9,934        2.56
                                   ----------                           ----------                           ----------
Total non-interest-
  bearing
    deposits               89,326                      --       73,825                      --       43,107                      --
                       ----------              ----------   ----------              ----------   ----------              ----------
Total deposits and
    borrowed funds        745,495                    2.59      665,003                    2.00      430,864                    2.31
                                               ----------                           ----------                           ----------
Non-interest-bearing
  liabilities               8,417                                7,327                                6,638
                       ----------                           ----------                           ----------
Total liabilities         753,912                              672,330                              437,502
Total stockholders'
  equity                   76,293                               70,928                               47,064
                       ----------                           ----------                           ----------

Total liabilities and
   total stockholders'
   equity              $  830,205                           $  743,258                           $  484,566
                       ==========                           ==========                           ==========

Net interest income                $   32,874                           $   27,312                           $   17,481
                                   ==========                           ==========                           ==========
Interest rate spread                                 4.56%                                4.38%                                4.23%
                                               ==========                           ==========                           ==========
Net interest margin                      4.59%                                4.38%                                4.28%
                                   ==========                           ==========                           ==========
Ratio of average
   interest-earning
   assets to average
   interest-bearing
   liabilities                        114.83%                              112.36%                              113.44%
                                   ==========                           ==========                           ==========
See next page for referenced notes
</TABLE>

                                       54
<PAGE>

     (1)  Interest on tax-exempt securities and loans are presented on a tax
          equivalent basis, using 39.18% tax rate. The tax benefit on interest
          income for the year ended March 31, 2006 is $1.7 million. Excluding
          this tax effect, average yields on commercial loans would have been
          7.65%, net loans receivable would have been 7.64%, investment
          securities would have been 4.28% and other earning assets would have
          been 3.02%. Excluding this tax effect, yield on total interest-earning
          assets would have been 6.93%, interest rate spread would have been
          4.34%, and net interest margin would have been 4.36%.
     (2)  Interest on tax-exempt securities and loans are presented on a tax
          equivalent basis, using 39.18% tax rate. The tax benefit on interest
          income for the year ended March 31, 2005 is $1.8 million. Excluding
          this tax effect, average yields on commercial loans would have been
          6.36%, net loans receivable would have been 6.69%, investment
          securities would have been 4.29%, and other earning assets would have
          been 3.77%. Excluding this tax effect, total interest-earning assets
          would have been 6.11%, interest rate spread would have been 4.11%, and
          net interest margin would have been 4.11%.
     (3)  Interest on tax-exempt securities and loans are presented on a tax
          equivalent basis, using 39.18% tax rate. The tax benefit on interest
          income for the year ended March 31, 2004 is $1.3 million. Excluding
          this tax effect, average yields on commercial loans would have been
          6.16%, net loans receivable would have been 6.78%, investment
          securities would have been 4.67%, and other earning assets would have
          been 3.44%. Excluding this tax effect, total interest-earning assets
          would have been 6.24%, interest rate spread would have been 3.93%, and
          net interest margin would have been 3.97%.
     (4)  Does not include interest on loans more than 90 days past due or non
          accruing loans.

Rate/Volume Analysis

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

<TABLE>
<CAPTION>
                                              Year Ended March 31, 2006                       Year Ended March 31, 2005
                                                Compared to Year Ended                          Compared to Year Ended
                                                    March 31, 2005                                 March 31, 2004
                                              Increase (Decrease) Due to                      Increase (Decrease) Due to
                                    ----------------------------------------------  ----------------------------------------------
                                                              Rate/                                           Rate/
                                       Rate       Volume      Volume       Net         Rate       Volume      Volume       Net
                                    ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
                                                                          (In Thousands)
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Interest-earning assets:
Loans receivable (1)                $    4,812  $    6,537  $      929  $   12,278  $     (330) $   11,565  $     (168) $   11,067
Loans held for sale                        (30)         84          (9)         45          31        (151)        (12)       (132)
Mortgage-backed securities                 (26)       (538)          5        (559)       (237)      1,696        (217)      1,242
Investment securities                       (1)         79          --          78         (96)      1,009         (83)        830
Other earning assets                      (288)          4          (1)       (285)        122          80           7         209
                                    ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
Total net change in income
 on interest-earning assets              4,467       6,166         924      11,557        (510)     14,199        (473)     13,216
                                    ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------

Interest-bearing liabilities:
Savings, checking and money
   market accounts                       2,048          19          25       2,092          38         608          49         695
Certificates of deposit                    713       1,223         153       2,089        (168)      1,514         (57)      1,289
FHLB advances and
  other borrowings                         708         878         104       1,690        (822)      2,617        (464)      1,331
Securities sold under
   agreement to repurchase                 239         (38)        (77)        124          49          10          11          70
                                    ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
Total net change in expense
  on interest-bearing liabilities        3,708       2,082         205       5,995        (903)      4,749        (461)      3,385
                                    ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------

Net increase (decrease) in net
  interest income                   $      759  $    4,084  $      719  $    5,562  $      393  $    9,450  $      (12) $    9,831
                                    ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========
</TABLE>

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

                                       55
<PAGE>

Asset and Liability Management

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

Market Risk

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

Off-Balance Sheet Arrangements and Contractual Obligations

Contractual obligations at March 31, 2006 consisted of the following:

<TABLE>
<CAPTION>
                                                                             One Year to       Three Years
                                                              Less than    Less than Three     to Less than     Five Years
                                                  Total       One Year          Years           Five Years      and Greater
                                                ---------     ---------       ---------         ----------      -----------
                                                                            (In Thousands)
<S>                                             <C>           <C>             <C>               <C>              <C>
Maturities of FHLB advances and
  other borrowings                              $ 176,817     $ 111,094       $  13,599         $  36,177        $  15,947
Operating leases future minimum
  rental payments                               $     385     $     218       $     167         $      --        $      --

<CAPTION>
Other commitments at March 31, 2006 consisted of the following:

                                                                             One Year to       Three Years
                                                              Less than    Less than Three     to Less than     Five Years
                                                  Total       One Year          Years           Five Years      and Greater
                                                ---------     ---------       ---------         ----------      -----------
                                                                            (In Thousands)
<S>                                             <C>           <C>             <C>               <C>              <C>
Loan commitments                                $ 144,034     $  79,961       $  54,057         $     965        $   9,051
Credit card line commitments                    $  10,428     $  10,428       $      --         $      --        $      --
Lines of credit                                 $  96,830     $  67,269       $   8,299         $   4,571        $  16,691
Standby letters of credit                       $   6,882     $   6,687       $     195         $      --        $      --
</TABLE>

         The Company has signed several contracts with vendors for its data
processing operations. The terms of the contracts expire in one year or less.
The annual fees are paid at the beginning of the terms or paid monthly based
upon usage, transactions, or number of customers. The data processing, automated
teller machine, merchant bank card, and Visa credit card expense, which include
these contracts, was $2.2 million for the year ended March 31, 2006.

                                       56
<PAGE>

         Standby letters of credit and financial guarantees written are
conditional commitments issued by the Company to guarantee the performance of a
customer to a third party. These guarantees are primarily issued to support
public and private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. At March 31, 2006, these commitments
totaled $6.9 million. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company holds cash, marketable securities, or real estate as collateral
supporting those commitments for which collateral is deemed necessary. The
Company has not been required to perform on any financial guarantees during the
past three years. The Company did not incur any losses on its commitments in
fiscal 2006, 2005 or 2004. The liability recorded associated with standby
letters of credit at March 31, 2006 and 2005 was $21,000 and $25,000,
respectively.

Liquidity and Capital Resources

         The primary function of asset/liability management is to ensure
adequate liquidity and maintain an appropriate balance between interest
sensitive earning assets and liabilities. Management actively analyzes and
manages the Company's liquidity position. The objective of liquidity management
is to ensure the availability of sufficient cash flows to support loan growth
and deposit withdrawals, to satisfy financial commitments, and to take advantage
of investment opportunities. Liquidity is defined as being able to raise funds
in 30 days without a loss of principal.

         The Company's primary recurring sources of funds are customer deposits,
proceeds from principal and interest payments on loans, proceeds from sales of
loans, maturing securities, FHLB advances, and borrowings from the Portland
Branch Office of the Federal Reserve Bank of San Francisco. While maturities and
scheduled amortization of loans are a predictable source of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest rates,
economic conditions, and competition. See the Consolidated Statements of Cash
Flows for financial information concerning the Company's liquidity position.

         The primary investing activity of the Company is the origination of
loans. During the year ended March 31, 2006, the Company originated loans,
excluding loans purchased and loan participations, based upon new production in
the amount of $559.0 million. The Company maintains a laddered maturity of
securities that provides prepayments and payments at maturity and a portfolio of
available-for-sale securities that could be converted to cash quickly. Proceeds
from maturity of securities provided $9.4 million and $17.8 million for the
years ended March 31, 2006 and 2005, respectively. Proceeds from the sale of
loans provided $99.2 million for the year ended March 31, 2006 and $82.3 million
for the year ended March 31, 2005.

         For the year ended March 31, 2006, proceeds from maturities and sale of
securities were $9.4 million and purchases of securities were $854,000, with the
difference used to fund loan growth. In December 2003, the Company engaged in a
$25.0 million leveraged transaction, purchasing mortgage-backed securities
funded by cash and short term FHLB advances. This generated net interest income,
helping defray the costs of depository branches in Hayden, Idaho and Boise,
Idaho. Mortgage-backed and investment securities of $26.1 million were purchased
to minimize extension risk by shortening the maturity dates of securities given
the current interest rate environment.

                                       57
<PAGE>

         The primary financing activities of the Company are customer deposits,
brokered deposits, and FHLB advances. As indicated on the Company's Consolidated
Statements of Cash Flows, deposits provided $51.8 million for the year ended
March 31, 2006, which consisted of a $49.8 million increase in branch deposits
and $2.0 million increase in brokered deposits. In addition, the Company
maintains a credit facility with the FHLB-Seattle, which provides for
immediately available advances. FHLB advances totaled $170.7 million, including
a $2.2 million merger premium, at March 31, 2006. The Bank is currently
authorized to borrow from the FHLB up to an amount equal to 30% of total assets,
provided that the Bank holds sufficient collateral. The Bank also maintains an
additional credit facility with US Bank with available funds totaling $20.0
million. There were no outstanding balances under this facility at March 31,
2006 and 2005. The Bank maintains an additional credit facility with the Federal
Reserve Bank of San Francisco with available funds totaling 75% of pledged
loans, or $538,000 at March 31, 2006. There were no outstanding balances under
this facility at March 31, 2006 and 2005. The Company maintains an additional
credit facility with US Bank with available funds totaling $3.5 million. There
were outstanding balances of $3.1 million at March 31, 2006, and $2.2 million at
March 31, 2005 under this facility. Cash provided by advances from FHLB and
other borrowing facilities was $786.1 million for the year ended March 31, 2006.
Cash used for payments on these advances was $794.0 million for the year ended
March 31, 2006. As of March 31, 2006 and 2005, there were $40.8 million and
$45.8 million of FHLB advances that were putable, respectively. The Bank also
has used other sources of funding when the need arises including brokered
certificates of deposit (up to 15% of assets under current Board policy) and the
national certificates of deposit markets. As of March 31, 2006 and 2005, there
were brokered certificates of deposits of $44.7 million and $42.7 million,
respectively.

         At March 31, 2006, the Company held cash and cash equivalents of $26.9
million, or 3.2% of total assets. In addition, at that date $46.7 million of the
Company's investment securities were classified as available-for-sale.

         The Company has commitments that have a future impact on the Company's
liquidity position. Because some commitments are expected to expire without
being drawn upon, the total commitment amounts do not represent future cash
requirements. At March 31, 2006, the Company had loan commitments totaling
$144.0 million, and undisbursed lines of credit and standby letters of credit
totaling $103.7 million. The Company anticipates that it will have sufficient
funds available to meet its current loan origination commitments. Certificates
of deposit that are scheduled to mature in less than one year from March 31,
2006 totaled $177.8 million. Historically, the Company has been able to retain a
significant amount of its deposits as they mature. In addition, management
believes that it can adjust the offering rates of savings certificates to retain
deposits in changing interest rate environments.

         The Bank is required to maintain specific amounts of capital pursuant
to FDIC and State of Washington requirements. As of March 31, 2006, the Bank was
in compliance with all regulatory capital requirements effective as of that date
with Tier 1 Capital to average assets, Tier 1 Capital to risk-weighted assets
and total capital to risk-weighted assets of 7.3%, 9.8% and 11.6%, respectively.
For a detailed discussion of regulatory capital requirements, see "Regulation -
State Regulation and Supervision" and "--Capital Requirements."

                                       58
<PAGE>

Impact of New Accounting Standards

         In March 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No 156, Accounting for Services of Financial Assets. This statement revises
and clarifies the criteria for derecognition of transferred financial assets and
places restrictions on the ability of a qualifying special purpose entity to
roll over beneficial interests such as short-term commercial paper. This
statement also will permit, but not require, an entity to account for one or
more classes of servicing rights (i.e., mortgage servicing rights, or MSRs) at
fair value, with changes in fair value recorded in income. The statement is
effective as of the beginning of the first fiscal year that begins after
September 15, 2006. Management is currently evaluating the effect of the
statement on the Company's results of operations and financial condition.

         In February 2006, the FASB issued SFAS No. 155, Accounting for Certain
Hybrid Financial Instruments. This statement permits, but does not require, fair
value accounting for any hybrid financial instrument that contains an embedded
derivative that would otherwise require bifurcation in accordance SFAS 133. The
statement also subjects beneficial interests issued by securitization vehicles
to the requirements of SFAS 133. The statement is effective as of January 1,
2007 with earlier adoption permitted. Management is currently evaluating the
effect of the statement on the Company's results of operations and financial
condition.

         In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment.
This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation
and supersedes Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees. SFAS No. 123(R) requires that the compensation
cost relating to share-based payment transactions (for example, stock options
granted to employees of the Company) be recognized in financial statements. That
cost will be measured based on the fair value of the equity or liability
instruments used. SFAS 123(R) covers a wide range of share-based compensation
arrangements including share options, restricted share plans, performance-based
awards, share appreciation rights, and employee share purchase plans. Public
entities (other than those filing as small business issuers) will be required to
apply SFAS No. 123(R) as of the first annual reporting period that begins after
June 15, 2005. The Company adopted the provisions of SFAS No. 123(R) effective
April 1, 2006.

Effect of Inflation and Changing Prices

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

                                       59
<PAGE>

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
--------------------------------------------------------------------

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

         The simulation model captures the impact of changing interest rates on
the interest income received and interest expense paid on all assets and
liabilities reflected on the Company's balance sheet as well as for
off-balance-sheet derivative financial instruments, if any. This sensitivity
analysis is compared to ALCO policy limits which specify a maximum tolerance
level for NII exposure over a one year horizon, assuming no balance sheet
growth, given both a 200 basis point (bp) upward and 100 or 200 bp downward
shifts in interest rates. A parallel and pro rata shift in rates over a 12-month
period is assumed. Based on the asset sensitivity of the balance sheet at March
31, 2006, the Bank is expecting to be well positioned to benefit from rising
rates and minimize negative impact of declining rates. If rates were to sustain
a 200 bp increase, net interest income would be expected to rise by 1.04%, all
else being equal. If rates were to sustain a 200 bp decrease, net interest
income would be expected to decline by 3.83%, all else being equal. The
following reflects the Company's NII sensitivity analysis as of March 31, 2006
and 2005 as compared to the 10.00% Board approved policy limit.

<TABLE>
<CAPTION>
    March 31, 2006:                     -200 BP                           Flat                          +200 BP
                                        -------                           ----                          -------
                                                                 (Dollars in Thousands)
<S>                                     <C>                             <C>                            <C>
    Year 1 NII                          $ 34,002                        $ 35,354                       $ 35,723
    NII $ Change                          -1,353                              --                            368
    NII % Change                           -3.83%                             --                            1.04%

    March 31, 2005:                     -100 BP                           Flat                          +200 BP
                                        -------                           ----                          -------
                                                                 (Dollars in Thousands)
    Year 1 NII                          $ 29,070                        $ 29,698                       $ 30,206
    NII $ Change                            (628)                             --                            508
    NII % Change                           -2.11%                             --                            1.71%
</TABLE>

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

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

                                       60
<PAGE>

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

         For the Company's Consolidated Financial Statements and notes thereto
required by this item, see the index on page F-1.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
Financial Disclosure
--------------------

         None.

Item 9A. Controls and Procedures
--------------------------------

     (a)  Evaluation of Disclosure Controls and Procedures: An evaluation of the
          Company's disclosure controls and procedures (as defined in Rules
          13a-15(e) of the Securities Exchange Act of 1934 (the "Act")) was
          carried out under the supervision and with the participation of the
          Company's Chief Executive Officer, Chief Financial Officer and several
          other members of the Company's senior management as of the end of the
          period covered by this report. The Company's Chief Executive Officer
          and Chief Financial Officer concluded that the Company's disclosure
          controls and procedures were effective as of May 31, 2006 in ensuring
          that the information required to be disclosed by the Company in the
          reports it files or submits under the Act is (i) accumulated and
          communicated to the Company's management (including the Chief
          Executive Officer and Chief Financial Officer) in a timely manner, and
          (ii) recorded, processed, summarized and reported within the time
          periods specified in the SEC's rules and forms.

     (b)  Changes in Internal Controls: There have not been any changes in the
          Company's internal control over financial reporting (as such term is
          defined in Rules 13a-15(f) of the Act) during the most recent fiscal
          quarter that have materially affected, or are reasonably likely to
          materially affect, the Company's internal control over financial
          reporting.

The Company intends to continually review and evaluate the design and
effectiveness of its disclosure controls and procedures and to improve its
controls and procedures over time and to correct any deficiencies that it may
discover in the future. The goal is to ensure that senior management has timely
access to all material financial and non-financial information concerning the
Company's business. While the Company believes the present design of its
disclosure controls and procedures is effective to achieve its goal, future
events affecting its business may cause the Company to modify its disclosure
controls and procedures.

Item 9B. Other Information.
---------------------------

         None.

                                       61
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------

         The information required by this Item is incorporated by reference from
the sections captioned "Proposal 1 - Election of Directors" and "Meetings and
Committees of the Board of Directors" in the Company's definitive Proxy
Statement concerning the Annual Meeting of Shareholders (the "2006 Proxy
Statement").

         For information regarding the executive officers of the Company and the
Bank, see the information contained herein under the section captioned "Item 1
Business - Personnel - Executive Officers of the Company and Bank" above.

         Audit Committee Financial Expert
         --------------------------------

         The Audit Committee, consists of Directors Cox (Chairman), Jurgens,
Gentry and Powell. Each member of the Audit Committee is independent, in
accordance with the requirements for companies quoted on The Nasdaq Stock
Market. The Board of Directors has designated Director Powell as the audit
committee financial expert, as defined by the SEC's Regulation S-K. Director
Powell is independent as that term is used in Item 7(d)(3)(iv) of Schedule 14A
under the Exchange Act.

         Code of Ethics
         --------------

         On January 15, 2004, the Board of Directors adopted the Officer and
Director Code of Ethics, which was reviewed and approved by the Board on
September 16, 2004 in conjunction with the review and approval of the Bank's
Personnel Policy and Procedures. On March 3, 2005 and May 25, 2006, the Code of
Ethics was reviewed by the Corporate Governance and Nominating Committee and no
changes or amendments were recommended. The Code is applicable to each of the
Company's officers and employees, including the principal executive officer and
senior financial officers, and requires individuals to maintain the highest
standards of professional conduct. A copy of the Code of Ethics is being filed
as Exhibit 14 to this Form 10-K and is available on the Company's website at
www.fbnw.com.

         Compliance with Section 16(a) of the Exchange Act
         -------------------------------------------------

         The information required by this Item with respect to Item 405 of
Regulation S-K is incorporated by reference to the section captioned "Section
16(a) Beneficial Ownership Reporting Compliance" in the 2006 Proxy Statement.

Item 11. Executive Compensation
-------------------------------

         The information required by this Item is incorporated by reference to
the sections captioned "Directors' Compensation" and "Executive Compensation" in
the 2006 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and
---------------------------------------------------------------------------
Related Stockholder Matters
---------------------------

         (a)      Security Ownership of Certain Beneficial Owners

         The information required by this Item is incorporated by reference to
         the sections captioned "Security Ownership of Certain Beneficial Owners
         and Management" in the 2006 Proxy Statement.

         (b)      Security Ownership of Management

         The information required by this Item is incorporated by reference to
         the sections caption "Security Ownership of Certain Beneficial Owners
         and Management" in the 2006 Proxy Statement.

         (c)      Changes in Control

         The Company is not aware of any arrangements, including any pledge by
         any person of securities of the Company, the operation of which may at
         a subsequent date result in a change in control of the Company.

                                       62
<PAGE>

         (d)      Equity Compensation Plan Information

         The following table sets forth certain information with respect to
         securities to be issued under the Company's equity compensation plans
         as of March 31, 2006. All references reflect the two-for-one stock
         split paid as of the close of business on February 9, 2006.

<TABLE>
<CAPTION>
                                                      (a)                (b)                 (c)
                                                   Number of          Weighted-      Number of securities
                                               securities to be        average      remaining available for
                                                  issued upon       exercise price   future issuance under
                                                  exercise of       of outstanding    equity compensation
                                                  outstanding          options,         plans (excluding
                                               options, warrants     warrants and     securities reflected
                 Plan category                    and rights            rights           in column (a))
         ------------------------------         ---------------     ---------------     ---------------
<S>                                                   <C>                <C>                 <C>
         Equity compensation plans
          approved by security holders:
               1998 Stock Option Plan                 224,480            $ 8.69              53,250
               1999  Management Recognition
                 and Development Plan (1)                  --            $   --                  --
               Oregon Trail 1998 Stock Option
                 Plan                                  48,776            $ 7.31                  --

         Equity compensation plans not
          approved by security holders:                   N/A               N/A                  N/A
                                                      -------            ------               ------

         Total                                        273,256            $ 8.44               53,250
                                                      =======            ======               ======
</TABLE>

     (1)  During fiscal 1999, 158,700 shares of restricted stock were awarded to
          the Company's directors and certain employees. The fair market value
          at the date of the award was $7.905 per share. As of March 31, 2006,
          there were no restricted shares issued and outstanding pursuant to the
          1999 Management Recognition and Development Plan.

Item 13. Certain Relationships and Related Transactions
-------------------------------------------------------

         The information required by this Item is incorporated by reference to
the information under the caption "Transactions with Management" in the 2006
Proxy Statement.

Item 14. Principal Accounting Fees and Services
-----------------------------------------------

         This information set forth under the section captioned "Ratification of
Appointment of Independent Auditors" in the 2006 Proxy Statement is incorporated
herein by reference.

                                       63
<PAGE>

Item 15. Exhibits, Financial Statement Schedules
------------------------------------------------

         (a)      Exhibits

                  3.1 (a)   Articles of Incorporation of the Registrant (1)
                  3.1 (b)   Amendment to the Articles of Incorporation (2)
                  3.2 (a)   Bylaws of the Registrant (1)
                  3.2 (b)   Bylaws Amendment adopted by the Board of Directors
                            on May 23, 2002. (3)
                  10.1      Employment Agreement between FirstBank Northwest,
                            FirstBank Corp. and Clyde E. Conklin (4)
                  10.2      Employment Agreement between FirstBank Northwest,
                            FirstBank Corp. and Larry K. Moxley (4)
                  10.3      Salary Continuation Agreement between First Federal
                            Bank of Idaho, F.S.B. and Clyde E. Conklin (4)
                  10.4      Salary Continuation Agreement between First Federal
                            Bank of Idaho, F.S.B. and Larry K. Moxley (4)
                  10.5      Management Recognition and Development Plan (5)
                  10.5      Change in Control Agreement between FirstBank
                            Northwest, FirstBank NW Corp. and Richard R.
                            Acuff (6)
                  10.6      1998 Stock Option Plan (5)
                  10.6      Change in Control Agreement between FirstBank
                            Northwest, FirstBank NW Corp. and Terence A. Otte(7)
                  10.7      Oregon Trail 1998 Stock Option Plan (8)
                  10.7      Change in Control Agreement between FirstBank
                            Northwest, FirstBank NW Corp. and Donn L. Durgan (7)
                  10.8      FirstBank Northwest Executive Non-Qualified
                            Retirement Plan (4)
                  10.9      FirstBank Northwest Deferred Compensation Plan (4)
                  14        Code of Ethics
                  21        Subsidiaries of the Registrant
                  23.1      Consent of Independent Registered Public Accounting
                            Firm
                  31.1      Certification of Chief Executive Officer of
                            FirstBank NW Corp. Pursuant to Section 302 of the
                            Sarbanes-Oxley Act of 2002
                  31.2      Certification of Chief Financial Officer of
                            FirstBank NW Corp. Pursuant to Section 302 of the
                            Sarbanes-Oxley Act of 2002
                  32.1      Certification of Chief Executive Officer of
                            FirstBank NW Corp. Pursuant to Section 906 of the
                            Sarbanes-Oxley Act of 2002
                  32.2      Certification of Chief Financial Officer of
                            FirstBank NW Corp. Pursuant to Section 906 of the
                            Sarbanes-Oxley Act of 2002

(1)      Incorporated by reference to the exhibits to the Registrant's Annual
         Report on Form 10-KSB for the year ended March 31, 2000 filed on June
         19, 2000.
(2)      Incorporated by reference to the exhibits to the Registrant's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 2005 filed on
         November 14, 2005 and to the Registrant's Current Report on Form 8K
         filed on March 17, 2005.
(3)      Incorporated by reference to the exhibits to the Registrant's Annual
         Report on Form 10-KSB for the year ended March 31, 2002 filed on June
         26, 2002.
(4)      Incorporated by reference to the Registrant's Quarterly Report on Form
         10-Q for the quarter ended December 31, 2005 filed on February 13,
         2006.
(5)      Incorporated by reference to the exhibits to the Registrant's
         Registration Statement on Form S-8 filed on September 28, 1998.
(6)      Incorporated by reference to the Registrant's Current Report on Form
         8-K filed on October 5, 2005.
(7)      Incorporated by reference to the Registrant's Quarterly Report on Form
         10-Q for the quarter ended September 30, 2005 filed on November 14,
         2005.
(8)      Incorporated by reference to the exhibits to the Registrant's
         Registration Statement on Form S-8 filed on November 5, 2003.

                                       64
<PAGE>

         (b)      Financial Statement Schedules

                  The Consolidated Financial Statements and Notes thereto are
included in Item 8 of this Form 10-K.


                                   SIGNATURES

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

                                       FIRSTBANK NW CORP.


Date:  May 30, 2006                    By: /s/ CLYDE E. CONKLIN
                                           -------------------------------------
                                           Clyde E. Conklin
                                           President and Chief Executive Officer
                                           (Duly Authorized Representative)

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

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

/s/ CLYDE E. CONKLIN               President, Chief                 May 30, 2006
----------------------------       Executive Officer and
Clyde E. Conklin                   Director (Principal
                                   Executive Officer)

/s/ LARRY K. MOXLEY                Executive Vice President,        May 30, 2006
----------------------------       Chief Financial Officer,
Larry K. Moxley                    and Director (Principal
                                   Financial Officer)

/s/ CYNTHIA M. MOORE               Controller                       May 30, 2006
----------------------------       (Principal Accounting Officer)
Cynthia M. Moore

/s/ STEVE R. COX                   Director and Chairman of         May 30, 2006
----------------------------       the Board
Steve R. Cox

/s/ JAMES N. MARKER                Director and First Vice          May 30, 2006
----------------------------       Chairman
James N. Marker

/s/ W. DEAN JURGENS                Director                         May 30, 2006
----------------------------
W. Dean Jurgens

/s/ RUSSELL H. ZENNER              Director                         May 30, 2006
----------------------------
Russell H. Zenner

/s/ JOHN W. GENTRY                 Director                         May 30, 2006
----------------------------
John W. Gentry

/s/ SANDRA T. POWELL               Director                         May 30, 2006
----------------------------
Sandra T. Powell

/s/ MICHAEL F. REULING             Director                         May 30, 2006
----------------------------
Michael F. Reuling

                                       65
<PAGE>

                                INDEX TO EXHIBITS

       14          Code of Ethics
       21          Subsidiaries of the Registrant
       23.1        Consent of Independent Registered Public Accounting Firm
       31.1        Certification of Chief Executive Officer of FirstBank NW
                   Corp. Pursuant to Section 302 of the Sarbanes-Oxley Act of
                   2002
       31.2        Certification of Chief Financial Officer of FirstBank NW
                   Corp. Pursuant to Section 302 of the Sarbanes-Oxley Act of
                   2002
       32.1        Certification of Chief Executive Officer of FirstBank NW
                   Corp. Pursuant to Section 906 of the Sarbanes-Oxley Act of
                   2002
       32.2        Certification of Chief Financial Officer of FirstBank NW
                   Corp. Pursuant to Section 906 of the Sarbanes-Oxley Act of
                   2002

                                  66

<PAGE>

                       FirstBank NW Corp. and Subsidiaries


                   Index to Consolidated Financial Statements



Report of Independent Registered Public Accounting Firm                      F-2

Financial Statements:
Consolidated Statements of Financial Condition                         F-3 - F-4
Consolidated Statements of Income                                            F-5
Consolidated Statements of Comprehensive Income                              F-6
Consolidated Statements of Changes in Stockholders' Equity             F-7 - F-8
Consolidated Statements of Cash Flows                                 F-9 - F-10
Summary of Accounting Policies                                       F-11 - F-20
Notes to Consolidated Financial Statements                           F-21 - F-57


                                      F-1

--------------------------------------------------------------------------------
<PAGE>

Financial Statements
--------------------

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
FirstBank NW Corp. and Subsidiaries
Clarkston, Washington

We have audited the accompanying consolidated statement of financial condition
of FirstBank NW Corp. and subsidiaries as of March 31, 2006 and 2005, and the
related consolidated statements of income, comprehensive income, changes in
stockholders' equity, and cash flows for the years ended March 31, 2006, 2005,
and 2004. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States). The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement in all material respects.
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 statements presentation. We believe
that our audit provides 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 NW Corp. and subsidiaries as of March 31, 2006 and 2005, and the
consolidated results of their operations and their cash flows for the years
ended March 31, 2006, 2005, and 2004 in conformity with accounting principles
generally accepted in the United States of America.


/s/ Moss Adams LLP
Spokane, Washington
May 26, 2006

                                      F-2

--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>

FIRSTBANK NW CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Dollars in Thousands)
------------------------------------------------------------------------------------------------

                                     ASSETS

                                                                             March 31,
                                                                     ---------------------------
                                                                         2006           2005
                                                                     ------------   ------------
<S>                                                                  <C>            <C>
Cash and cash equivalents:
   Noninterest-bearing cash deposits                                 $     26,637   $     39,769
   Interest-bearing cash deposits                                             266          2,032
                                                                     ------------   ------------

      Total cash and cash equivalents                                      26,903         41,801

Investment securities:  (Note 2)
   Held-to-maturity, fair value of $31,440 and $30,869                     31,651         30,907
   Available-for-sale                                                      16,890         17,427
Mortgage-backed securities: (Note 2)
   Held-to-maturity, fair value of $21,661 and $22,147                     22,312         22,463
   Available-for-sale                                                      29,843         39,441
Loans held for sale                                                         3,785          3,999
Loans receivable, net of allowance for loan losses of
   $8,138 in 2006 and $7,254 in 2005 (Note 4)                             632,543        562,101
Accrued interest receivable                                                 4,657          3,834
Equity securities, at cost (Note 3)                                        12,789         12,789
Premises and equipment, net (Note 6)                                       17,558         18,688
Bank-owned and cash surrender value of life insurance policies             24,415         23,318
Mortgage servicing rights                                                     533            614
Goodwill (Note 7)                                                          16,599         16,683
Other intangible assets (Note 7)                                            2,212          2,927
Other assets                                                                3,313          4,130
                                                                     ------------   ------------

         TOTAL ASSETS                                                $    846,003   $    801,122
                                                                     ============   ============
</TABLE>

See accompanying notes.            F-3

--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>

FIRSTBANK NW CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Dollars in Thousands)
------------------------------------------------------------------------------------------------

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                             March 31,
                                                                     ---------------------------
                                                                         2006           2005
                                                                     ------------   ------------
<S>                                                                  <C>            <C>
LIABILITIES
  Deposits: (Note 9)
      Noninterest-bearing deposits                                   $     95,304   $     76,072
      Interest-bearing deposits                                           474,736        442,604
                                                                     ------------   ------------

    Total deposits                                                        570,040        518,676

  Securities sold under agreements to repurchase                            9,636         16,023
  Advances from borrowers for taxes and insurance                             972            913
  FHLB advances and other borrowings (Note 10)                            176,817        185,337
  Deferred income tax liability, net (Note 11)                                 23            543
  Accrued expenses and other liabilities                                    9,385          7,319
                                                                     ------------   ------------

       TOTAL LIABILITIES                                                  766,873        728,811
                                                                     ------------   ------------

COMMITMENTS AND CONTINGENCIES (NOTES 4 AND 20)

STOCKHOLDERS' EQUITY
  Common stock, $0.01 par value, 49,500,000 and
    5,000,000 shares authorized, 6,053,186 and 5,997,190
    shares issued, 5,928,312 and 5,855,604 shares
    outstanding at March 31, 2006 and 2005, respectively                       61             30
  Additional paid-in capital                                               45,944         45,249
  Unearned ESOP shares                                                       (635)          (719)
  Retained earnings, substantially restricted                              33,915         27,602
  Accumulated other comprehensive income (loss)                              (155)           149
                                                                     ------------   ------------

       TOTAL STOCKHOLDERS' EQUITY                                          79,130         72,311
                                                                     ------------   ------------
       TOTAL LIABILITIES AND STOCKHOLDERS'
          EQUITY                                                     $    846,003   $    801,122
                                                                     ============   ============
</TABLE>

See accompanying notes.            F-4

--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>

FIRSTBANK NW CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Dollars in Thousands)
----------------------------------------------------------------------------------------------------------

                                                                         Year Ended March 31,
                                                                ------------------------------------------
                                                                    2006           2005           2004
                                                                ------------   ------------   ------------
<S>                                                             <C>            <C>            <C>
Interest and dividend income:
   Loans receivable                                             $     46,426   $     34,102   $     23,167
   Mortgage-backed securities                                          2,532          3,092          1,850
   Investment securities, taxable                                        726            704            416
   Investment securities, tax-exempt                                   1,343          1,287            745
   Other interest-earning assets                                       1,161          1,446          1,237
                                                                ------------   ------------   ------------
         Total interest and dividend income                           52,188         40,631         27,415
                                                                ------------   ------------   ------------

Interest expense:
Deposits                                                              11,417          7,236          5,253
FHLB advances and other borrowings                                     7,654          5,964          4,633
Securities sold under agreements to repurchase                           243            119             48
                                                                ------------   ------------   ------------
         Total interest expense                                       19,314         13,319          9,934
                                                                ------------   ------------   ------------

         Net interest income                                          32,874         27,312         17,481

Provision for loan losses                                             (1,799)        (1,528)          (395)
                                                                ------------   ------------   ------------

         Net interest income after provision for loan losses          31,075         25,784         17,086
                                                                ------------   ------------   ------------

Non-interest income:
   Gain on sale of loans                                               1,771          1,044          2,188
   Recovery of impairment of mortgage servicing rights, net               64             81             --
   Service fees and charges                                            4,817          4,504          3,120
   Commissions and other                                                 281            381            208
                                                                ------------   ------------   ------------
         Total non-interest income                                     6,933          6,010          5,516
                                                                ------------   ------------   ------------

Non-interest expenses:
   Compensation and related benefits                                  15,161         14,044         10,095
   Occupancy                                                           2,901          2,844          2,077
   Supplies and postage                                                  912            994            681
   Data and automated teller machine processing                          936            963            780
   Professional fees                                                   1,135            667            283
   Advertising                                                           676            542            506
   Travel and meals                                                      272            240            154
   Impairment of mortgage servicing rights, net                           --             --            121
   Debit and credit card expense                                       1,248            977            681
   Telephone                                                             417            445            294
   Insurance                                                             387            315            232
   Bank service charges                                                   77            159            170
   Charitable contributions                                              109             75             92
   Organizational dues                                                   110            106             75
   Loan expense                                                          623            148            103
   Foreclosed real estate expense                                         --            118            107
   Other                                                                 620            512            311
                                                                ------------   ------------   ------------
         Total non-interest expense                                   25,584         23,149         16,762
                                                                ------------   ------------   ------------

         Income before income tax expense                             12,424          8,645          5,840

Income tax expense                                                     3,908          2,367          1,482
                                                                ------------   ------------   ------------

         NET INCOME                                             $      8,516   $      6,278   $      4,358
                                                                ============   ============   ============

Basic earnings per share                                        $       1.45   $       1.08   $       1.13

Diluted earnings per share                                      $       1.41   $       1.05   $       1.06

Weighted average common shares outstanding - basic                 5,879,598      5,792,614      3,851,608

Weighted average common shares outstanding - diluted               6,020,332      5,995,260      4,111,270
</TABLE>

See accompanying notes.            F-5

--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>

FIRSTBANK NW CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(Dollars in Thousands)
----------------------------------------------------------------------------------------------------------

                                                                          Year Ended March 31,
                                                                ------------------------------------------
                                                                    2006           2005           2004
                                                                ------------   ------------   ------------
<S>                                                             <C>            <C>            <C>
Net income                                                      $      8,516   $      6,278   $      4,358
                                                                ------------   ------------   ------------
Other comprehensive income (loss):
   Net change in unrealized gain (loss) on securities
      available-for-sale                                                (512)        (1,844)           622
   Less deferred income tax (benefit) provision                          208            726           (240)
   Net change in unrealized gain on cash flow hedge                       --            (38)          (208)
   Less deferred income tax provision                                     --             15             81
                                                                ------------   ------------   ------------

         Net other comprehensive income (loss)                          (304)        (1,141)           255
                                                                ------------   ------------   ------------

         COMPREHENSIVE INCOME                                   $      8,212   $      5,137   $      4,613
                                                                ============   ============   ============
</TABLE>

See accompanying notes.            F-6
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>

FIRSTBANK NW CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Dollars in Thousands)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Accumulated
                                                                                                                Other
                                                                                                   Retained     Compre-     Total
                                            Common Stock      Additional   Unearned                Earnings,    hensive    Stock-
                                      ---------------------    Paid-In      ESOP      Deferred  Substantially   Income     holders'
                                        Shares      Amount     Capital      Shares  Compensation  Restricted    (Loss)      Equity
                                      ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
<S>                                  <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Balance, March 31, 2003               2,761,984   $      14   $   9,842   $    (884)  $    (157)  $  20,214   $   1,035   $  30,064

   Repurchase of common stock          (335,964)         (2)     (5,121)                                                     (5,123)
   Amortization of deferre
      compensation                                                                          157                                 157
   Dividends paid                                                                                    (1,296)                 (1,296)
   Net change in unrealized gain
      on securities available
      for sale,  net of tax                                                                                         382         382
   Net change in unrealized gain
      on cash flow hedge, net of tax                                                                               (127)       (127)
   ESOP shares released                                             139          82                                             221
   Stock issued from the exercise
      of stock option                   493,946           2       2,811                                                       2,813
   Stock issued in acquisition        2,960,128          15      33,213                                                      33,228
   Stock options issued in
      acquisition                                                 4,563                                                       4,563
   Tax benefit of stock options
      exercised                                                      92                                                          92
   Net income                                                                                         4,358                   4,358
                                      ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------

Balance, March 31, 2004               5,880,094          29      45,539        (802)         --      23,276       1,290      69,332

   Repurchase of common stock          (187,864)         (1)     (2,646)                                                     (2,647)
   Dividends paid                                                                                    (1,952)                 (1,952)
   Net change in unrealized gain
      on securities available
      for sale, net of tax                                                                                       (1,118)     (1,118)
   Net change in unrealized gain
      on cash flow hedge, net of tax                                                                                (23)        (23)
   ESOP shares released                                             152          83                                             235
   Stock issued from the exercise
      of stock option                   304,960           2       2,142                                                       2,144
   Tax benefit of stock options
      exercised                                                      62                                                          62
   Net income                                                                                         6,278                   6,278
                                      ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------

Balance, March 31, 2005               5,997,190   $      30   $  45,249   $    (719)  $      --   $  27,602   $     149   $  72,311
                                      ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
</TABLE>

See accompanying notes.           F-7
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>

FIRSTBANK NW CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
----------------------------------------------------------
(Dollars in Thousands)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Accumulated
                                                                                                                Other
                                                                                                   Retained     Compre-     Total
                                            Common Stock      Additional   Unearned                Earnings,    hensive    Stock-
                                      ---------------------    Paid-In      ESOP      Deferred  Substantially   Income     holders'
                                        Shares      Amount     Capital      Shares  Compensation  Restricted    (Loss)      Equity
                                      ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
<S>                                  <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
Balance, March 31, 2005               5,997,190   $      30   $  45,249   $    (719)  $      --   $  27,602   $     149   $  72,311

   Dividends paid                                                                                    (2,173)                 (2,173)
   Net change in unrealized gain
      on securities available
      for sale, net of tax                                                                                         (304)       (304)
   ESOP shares released                                             162          84                                             246
   Stock issued from the exercise
      of stock options                   55,996           1         432                                                         433
      Stock split                                        30                                             (30)
      Tax benefit of stock options
      exercised                                                     101                                                         101
   Net income                                                                                         8,516                   8,516
                                      ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------

Balance, March 31, 2006               6,053,186   $      61   $  45,944   $    (635)  $      --   $  33,915   $    (155)  $  79,130
                                      ---------   ---------   ---------   ---------   ---------   ---------   ---------   ---------
</TABLE>

See accompanying notes.            F-8

--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>

FIRSTBANK NW CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Dollars in Thousands)
-------------------------------------------------------------------------------------------------------------------------------

                                                                                               Year Ended March 31,
                                                                                    ------------------------------------------
                                                                                        2006          2005            2004
                                                                                    ------------   ------------   ------------
<S>                                                                                 <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                       $      8,516   $      6,278   $      4,358
   Adjustments to reconcile net income to net cash provided by
      operating activities:
      Depreciation                                                                         1,429          1,381          1,047
      Amortization (accretion), net                                                          109           (492)          (422)
      Provision for loan losses                                                            1,799          1,528            395
      Net increase in bank-owned and cash surrender value of life insurance               (1,097)        (1,062)          (620)
      Gain on sale of loans held for sale                                                 (1,771)        (1,044)        (2,188)
      Proceeds from sale of loans held for sale                                           99,160         82,317        155,127
      Originations of loans held for sale                                                (97,175)       (79,891)      (154,249)
      Other (gains) losses, net                                                              (44)          (111)            83
      Deferred income taxes                                                                 (312)           953           (352)
      FHLB stock dividends                                                                    --           (284)          (398)
      Deferred compensation expense                                                           --             --            157
      ESOP compensation expense                                                              246            235            221
      Impairment (recovery) of mortgage servicing rights                                     (64)           (81)           121
      Changes in assets and liabilities:
         Accrued interest receivable and other assets                                       (462)          (184)         2,375
         Income taxes receivable                                                             218            282            272
         Accrued expenses and other liabilities                                            2,025            405         (1,486)
                                                                                    ------------   ------------   ------------

         Net cash provided by operating activities                                        12,577         10,230          4,441
                                                                                    ------------   ------------   ------------
CASH FLOWS FROM  INVESTING ACTIVITIES
   Proceeds from maturities of mortgage-backed securities; held-to-maturity                   81            339            159
   Proceeds from maturities of mortgage-backed securities; available-for-sale              8,928         16,408          9,724
   Proceeds from maturities of investment securities; available-for-sale                     367            960            289
   Proceeds from maturities of investment securities; held-to-maturity                        22             44             --
   Proceeds from sale of mortgage-backed securities; available-for-sale                       --             --         21,671
   Proceeds from sale of investment securities; available-for-sale                            --             --          2,774
   Proceeds from call of mortgage-backed securities; held-to-maturity                         --             19             --
   Purchase of mortgage-backed securities; held-to-maturity                                   --             --        (20,871)
   Purchase of mortgage-backed securities; available-for-sale                                 --         (3,028)       (19,328)
   Purchase of investment securities; held-to-maturity                                      (853)       (11,364)       (10,217)
   Purchase of investment securities; available-for-sale                                      (1)          (117)          (382)
   Other net change in loans receivable                                                  (72,393)      (105,412)       (11,321)
   Net cash in acquisition                                                                    --             --         24,707
   Purchases of premises and equipment                                                      (299)        (1,899)        (3,336)
   Proceeds from disposition of assets                                                        --             90              2
   Proceeds from the sale of foreclosed and repossessed assets                               821          1,015            888
                                                                                    ------------   ------------   ------------

         Net cash used by investing activities                                           (63,327)      (102,945)        (5,241)
                                                                                    ------------   ------------   ------------
</TABLE>

See accompanying notes.            F-9

--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>


FIRSTBANK NW CORP. AND SUBSIDIARIES
-----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Dollars in Thousands)
------------------------------------------------------------------------------------------------------------------------------

                                                                                               Year Ended March 31,
                                                                                    ------------------------------------------
                                                                                        2006          2005            2004
                                                                                    ------------   ------------   ------------
<S>                                                                                 <C>            <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Net increase in deposits                                                         $     51,842   $     38,968   $     19,331
   Net increase (decrease) in securities sold under agreements to repurchase              (6,387)         5,536           (664)
   Net increase (decrease) in advances from borrowers for taxes
        and insurance                                                                         59            (47)          (237)
   FHLB advances and other borrowings                                                    786,115        636,722        165,069
   Repayments on FHLB advances and other borrowings                                     (794,037)      (582,605)      (165,437)
   Repurchase of common stock                                                                 --         (2,647)        (5,123)
   Cash dividends paid on common stock                                                    (2,173)        (1,952)        (1,296)
   Proceeds from the exercise of stock options                                               433          2,144          2,813
                                                                                    ------------   ------------   ------------

         Net cash provided by financing activities                                        35,852         96,119         14,456
                                                                                    ------------   ------------   ------------

         NET CHANGE IN CASH AND CASH EQUIVALENTS                                         (14,898)         3,404         13,656

Cash and cash equivalents, beginning of year                                              41,801         38,397         24,741
                                                                                    ------------   ------------   ------------

Cash and cash equivalents, end of year                                              $     26,903   $     41,801   $     38,397
                                                                                    ============   ============   ============
Supplemental disclosures for cash flow information:
 Cash paid during the year for:
      Interest                                                                      $     19,405   $     14,069   $      9,997
                                                                                    ============   ============   ============

      Income taxes                                                                  $      4,695   $      2,067   $      1,628
                                                                                    ============   ============   ============
Noncash investing and financing activities:
   Unrealized gain (loss) on securities; available for sale, net of tax             $       (304)  $     (1,118)  $        382
                                                                                    ============   ============   ============

   Unrealized gain on interest rate swap, net of tax                                $         --   $        (23)  $       (127)
                                                                                    ============   ============   ============

   Transfer from loans receivable to real estate acquired
      through foreclosure                                                           $         --   $        984   $      1,192
                                                                                    ============   ============   ============

   Transfer from loans receivable to repossessed assets acquired
      through repossession                                                          $        175   $        117   $         70
                                                                                    ============   ============   ============

   Loans receivable charged to allowance for loan losses                            $      1,033   $        698   $        478
                                                                                    ============   ============   ============

   Financing of real estate sold                                                    $         --   $        522   $         --
                                                                                    ============   ============   ============
</TABLE>

See accompanying notes.           F-10

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

<PAGE>

Note 1 - Summary of Accounting Policies

Organization and principles of consolidation:
FirstBank NW Corp. (the Company) was organized as a Delaware corporation on
March 12, 1997, to acquire all of the capital stock of FirstBank Northwest (the
Bank) as part of the Bank's conversion from a federally chartered mutual savings
bank to a federally chartered stock savings bank (the Conversion) and to
complete an initial public offering of the Company's common stock. On January
30, 1998, the Bank converted to a Washington chartered savings bank and on
September 1, 1999 the Company changed its state of incorporation from Delaware
to Washington. The Company is the parent company of the Bank and of Tri Star
Financial Corporation (Tri Star), and Pioneer Development Corp., which are
collectively referred to as the Company and constitute these consolidated
financial statements. All significant intercompany transactions and balances are
eliminated in consolidation.

On October 31, 2003, the Company completed the acquisition of Oregon Trail
Financial Corp. (Oregon Trail) and its wholly-owned subsidiary, Pioneer Bank, A
Federal Savings Bank (Pioneer Bank), for approximately $36.5 million in cash and
2,960,128 shares of FirstBank common stock for consideration of the 3,108,657
shares of Oregon Trail common stock outstanding as of the completion date of the
acquisition. See Note 22 for additional information concerning the Company's
acquisition of Oregon Trail.

Nature of business and concentration of credit risk:
The Company's principal business consists of the operations of the Bank and Tri
Star that operate in one business segment. 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 and commercial loans and, to a lesser
extent, construction, agricultural, consumer, and other loans. The Bank
primarily originates loans to customers located in northern and southwestern
Idaho, eastern Washington, and eastern Oregon.

Use of estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported assets and liabilities and
disclosures of 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, the calculation of the
deferred tax assets and liabilities, the valuation of the core deposit
intangible, and the valuation of mortgage servicing rights.

The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. In connection with the determination
of the estimated losses on loans, management obtains independent appraisals for
significant collateral.

                                      F-11
<PAGE>

Note 1 - Summary of Accounting Policies (Continued)

Use of estimates (continued):
The Company's loans are generally secured by specific items of collateral
including real property, business assets, and consumer assets. Although the
Company has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent on local economic conditions.

While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Company to recognize additional
losses based on their judgments about information available to them at the time
of their examination. Because of these factors, it is reasonably possible that
the estimated losses on loans may change in the near term. However, the amount
of the change that is reasonably possible cannot be estimated.

Reclassifications:
Certain prior year amounts have been reclassified to conform to the current
presentation. These reclassifications had no impact on net income or on
stockholders' equity.

Cash and cash equivalents:
Cash equivalents are any highly liquid debt instrument with a remaining maturity
of three months or less at the date of purchase. Cash and cash equivalents are
on deposit with other banks and financial institutions in amounts that
periodically exceed the federal insurance limit. The Bank evaluates the credit
quality of these banks and financial institutions to mitigate its credit risk.
In addition, the Bank sells excess funds to financial institutions on an
overnight basis.

Investments and mortgage-backed securities:
The Company accounts for securities according to the provisions of Statement of
Financial Accounting Standards (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.

o    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 investments and mortgage
     backed securities to maturity and, accordingly, they are not adjusted for
     temporary declines in their fair value.

                                      F-12
<PAGE>

Note 1 - Summary of Accounting Policies (Continued)

Investments and mortgage-backed securities (continued):
o    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.

o    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.

Purchase premiums and discounts are recognized in interest income using the
level yield method over the terms of the securities. Declines in the fair value
of held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
Gains and losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.

Loans receivable:
The Company grants mortgage, commercial, consumer, and agricultural loans to
customers. A substantial portion of the loan portfolio is represented by loans
originated in northern and southwestern Idaho, eastern Washington, and eastern
Oregon.

The ability of the Company's debtors to honor their contracts is dependent upon
the general economic conditions in this area.

Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances adjusted for charge offs, the allowance for loan
losses, and any deferred fees or costs on originated loans. Deferred loan
origination fees and discounts are amortized over the contractual life of the
loan using the level-yield method. Interest income is accrued on any unpaid
principal balances.

The accrual of interest on loans is discontinued at the time the loan is 90 days
delinquent based upon contractual terms unless the credit is well-secured and in
process of collection. Loans are placed on nonaccrual or charged off at an
earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual
or charged off is reversed against interest income or the loan loss reserve as
appropriate. The interest on these loans is accounted for on the cash basis or
cost recovery method, until qualifying for return to accrual. Loans are returned
to accrual status when all the principal and interest amounts contractually due
are brought current and future payments are reasonably assured. Suspended
interest ultimately collected is credited to interest income in the period of
recovery.

                                      F-13
<PAGE>

Note 1 - Summary of Accounting Policies (Continued)

Allowance for loan losses:
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.

The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect a borrower's ability to repay, estimated
value of any underlying collateral, and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

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 amended 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, based on current information and events, it is probable that the
Company will be unable to collect the scheduled payments or principal or
interest when due according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled principal
and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan-by-loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Company does not separately identify individual
consumer and residential loans for impairment disclosures.

Loans held for sale:
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Market
values are determined by discounting future cash flows at current market rates.
Net unrealized losses, if any, are recognized through a valuation allowance by
charges to income.

                                      F-14
<PAGE>

Note 1 - Summary of Accounting Policies (Continued)

Other real estate owned:
Assets acquired through loan foreclosure are held for sale and are initially
recorded at fair value at the date of foreclosure, establishing a new cost
basis. Subsequent to foreclosure, management periodically performs valuations
and the assets are carried at the lower of carrying amount or fair value less
cost to sell. Revenue and expenses from operations and changes in the valuation
allowance are included in other non-interest income or other non-interest
expense, respectively.

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 readily determinable market exists for such stock and it has no
quoted market value. Accordingly, the Company reports its investment in FHLB
stock at cost.

Premises and equipment:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, ranging from three to forty years. Expenditures for
new properties and equipment and major renewals or betterments are capitalized.
Expenditures for repairs and maintenance are charged to expense as incurred.
Upon sale or retirement, the cost and related accumulated depreciation are
removed from the respective property or equipment accounts and the resulting
gains or losses are reflected in operations.

Bank-owned and cash surrender value of life insurance policies:
Bank-owned life insurance is carried at the cash surrender value net of any
loans against any policy and surrender charges expected to be incurred. The
policies are primarily in place to provide executive life insurance benefits to
the Bank and for investment purposes. Single premium life policies at March 31,
2006 and 2005 were $20.9 million and $19.9 million, respectively. Flexible
premium life policies at March 31, 2006 and 2005 were $3.5 million and $3.4
million, respectively. At March 31, 2006 and 2005 there were no loans offset
against the cash surrender values and no restrictions against the use of the
proceeds. Bank-owned and cash surrender value of life insurance policies at
March 31, 2006 and 2005 were $24.4 million and $23.3 million, respectively.

Income taxes:
The Company accounts for income taxes according to the provisions of 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.

                                      F-15
<PAGE>

Note 1 - Summary of Accounting Policies (Continued)

Mortgage servicing rights:
Servicing assets are recognized as separate assets when rights are acquired
through the purchase or sale of financial assets. Capitalized servicing rights
are reported separately in the statement of financial condition and are
amortized into non-interest income in proportion to, and over the period of, the
estimated future net servicing income of the underlying financial assets.
Servicing assets are evaluated for impairment based upon the fair value of the
rights as compared to amortized cost. Impairment is determined by stratifying
rights by predominant characteristics, such as interest rates and terms. Fair
value is determined using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions. Impairment is recognized to the extent that the
capitalized amount for the stratum exceeds their fair value.

Securities Sold Under Agreements to Repurchase:
The Company enters into sales of securities under agreements to repurchase that
are treated as financing arrangements. Accordingly, the obligations to
repurchase securities sold are reflected as a liability in the consolidated
balance sheets, and the securities underlying the agreements remain in the asset
accounts.

Advertising Costs:
Advertising costs are charged to operations when incurred. Advertising expense
for the years ended March 31, 2006, 2005 and 2004 was $676,000, $542,000 and
$506,000, respectively.

Employee Stock Ownership Plan:
The Company sponsors an Employee Stock Ownership Plan (the ESOP). The ESOP is
accounted for in accordance with the American Institute of Certified Public
Accountants Statement of Position No. 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.

                                      F-16
<PAGE>

Note 1 - Summary of Accounting Policies (Continued)

Stock-based compensation:
SFAS No. 123(R), Share-Based Payment, requires that the compensation cost
relating to share-based payment transactions (for example, stock options granted
to employees of the Company) be recognized in financial statements. That cost
will be measured based on the fair value of the equity or liability instruments
used. Public entities will be required to apply SFAS No. 123(R) as of the
beginning of the next fiscal year that begins after June 15, 2005. The Company
plans to adopt the provisions of SFAS No. 123(R) effective April 1, 2006. For
the year ended March 31, 2006, the Company has chosen to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations and to furnish the pro forma disclosures required
under SFAS No. 123(R). Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.

The following table illustrates the effect on net income if the Company had
applied the fair value recognition provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation at the years
ended March 31, 2006, 2005 and 2004.
<TABLE>
<CAPTION>

                                                            Year Ended March 31,
                                                 ------------------------------------------
                                                     2006            2005          2004
                                                 ------------   ------------   ------------
                                                  (In Thousands, except per share data)
<S>                                              <C>            <C>            <C>
Net income as reported                           $      8,516   $      6,278   $      4,358
Pro forma adjustment for effect of fair value
   accounting for stock options                           (15)            (9)            (1)
                                                 ------------   ------------   ------------

         Pro forma net income                    $      8,501   $      6,269   $      4,357
                                                 ============   ============   ============

Basic earnings per share:
   As reported                                   $       1.45   $       1.08   $       1.13
   Pro forma                                     $       1.45   $       1.08   $       1.13

   Diluted earnings per share:
   As reported                                   $       1.41   $       1.05   $       1.06
   Pro forma                                     $       1.41   $       1.05   $       1.06
</TABLE>

                                      F-17
<PAGE>

Note 1 - Summary of Accounting Policies (Continued)

Earnings per share:
The Company reports earnings per share (EPS) in accordance with SFAS No. 128,
Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting 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.
Stock options are the only potentially dilutive instruments issued by the
Company. ESOP shares that are unallocated and not yet committed to be released
are excluded from the weighted average shares outstanding calculation (see Note
15).

On January 4, 2006, the Company's Board of Directors declared a two-for-one
stock split in the form of a 100% per share stock dividend on the Company's
outstanding common stock. The stock dividend was paid as of the close of
business on February 9, 2006. Each shareholder of record as of the close of
business on January 26, 2006 received one additional share for every share
outstanding on the record date. As a result of the split, 3,022,716 additional
shares were issued increasing common stock by $30,227 and retained earnings were
reduced by $30,227. All references in these consolidated financial statements to
the number of common shares and per-share amounts have been restated to reflect
the two-for-one stock split.

Comprehensive income:
SFAS No. 130, Reporting Comprehensive Income, requires that certain changes in
assets and liabilities, such as unrealized gains and losses on
available-for-sale securities and certain derivative instruments, are reported
as a separate component of the equity section of the balance sheet. Such items,
along with net income, are components of comprehensive income.

Off-balance-sheet financial instruments:
In the ordinary course of business, the Company has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit and standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded or related fees are incurred or
received.

                                      F-18
<PAGE>

Note 1 - Summary of Accounting Policies (Continued)

Derivative financial instruments designated as hedges:
As part of the Company's asset/liability management, the Company uses a swap
agreement to hedge interest rate risk. The derivative used as part of the
asset/liability management process is linked to specific assets and has a high
correlation between the contract and the underlying item being hedged, both at
inception and throughout the hedge period. The derivative is designated as a
cash flow hedge in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137 and No. 138. SFAS
No. 133 establishes accounting and reporting standards for financial
derivatives, including certain financial derivatives embedded in other
contracts, and hedging activities. The standard requires the recognition of all
financial derivatives as assets or liabilities in the Company's statement of
financial condition at fair value. The accounting treatment of changes in fair
value is dependent upon whether or not a financial derivative is designated as a
hedge and if so, the type of hedge.

In accordance with SFAS No. 133, the Company recognizes all derivatives on the
statement of financial condition at fair value. Fair value is based on dealer
quotes, or quoted prices from instruments with similar characteristics. The
Company uses financial derivatives designated for hedging activities as cash
flow hedges. For derivatives designated as cash flow hedges, changes in fair
value are recognized in other comprehensive income, until the hedge items are
recognized in earnings.

The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. The Company also formally assesses (both
at the hedge's inception and on an ongoing basis) whether the derivatives that
are used in hedging transactions have been highly effective in offsetting
changes in cash flows of hedged items and whether those derivatives may be
expected to remain highly effective in future periods. The Company will
discontinue hedge accounting prospectively when it determines that the
derivative is no longer an effective hedge, the derivative expires or is sold,
or management discontinues the derivative's hedge designation. The Company had
entered into a swap agreement which terminated on May 29, 2004.

New accounting pronouncements:
In March 2006, the FASB issued SFAS No 156, Accounting for Services of Financial
Assets. This statement revises and clarifies the criteria for derecognition of
transferred financial assets and places restrictions on the ability of a
qualifying special purpose entity to roll over beneficial interests such as
short-term commercial paper. This statement also will permit, but not require,
an entity to account for one or more classes of servicing rights (i.e., mortgage
servicing right, or MSRs) at fair value, with changes in fair value recorded in
income. The statement is effective as of the beginning of the first fiscal year
that begins after September 15, 2006. Management is currently evaluating the
effect of the statement on the Company's results of operations and financial
condition.

                                      F-19
<PAGE>

Note 1 - Summary of Accounting Policies (Continued)

New accounting pronouncements (continued):
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments. This statement permits, but does not require, fair value
accounting for any hybrid financial instrument that contains an embedded
derivative that would otherwise require bifurcation in accordance SFAS No. 133.
The statement also subjects beneficial interests issued by securitization
vehicles to the requirements of SFAS No. 133. The statement is effective as of
January 1, 2007 with earlier adoption permitted. Management is currently
evaluating the effect of the statement on the Company's results of operations
and financial condition.

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment. This
statement replaces SFAS No. 123, Accounting for Stock-Based Compensation and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS
No. 123(R) requires that the compensation cost relating to share-based payment
transactions (for example, stock options granted to employees of the Company) be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments used. SFAS 123(R) covers a wide
range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Public entities will be required to apply SFAS
No. 123(R) as of the first annual reporting period that begins after June 15,
2005. The Company adopted the provisions of SFAS No. 123(R) effective April 1,
2006.

                                      F-20
<PAGE>

Note 2 - Securities

The amortized cost and fair value of securities, with gross unrealized gains and
losses, at March 31, 2006 and 2005 are as follows:
<TABLE>
<CAPTION>

                                                                    March 31, 2006
                                       ------------------------------------------------------------------------
                                                                   (In Thousands)

                                                                                       Gross
                                                                        Gross        Unrealized
                                                                      Unrealized       Losses
                                                         Gross        Losses Less     Greater
                                         Amortized     Unrealized      Than 12        Than 12         Fair
                                           Cost          Gains          Months         Months         Value
                                       ------------   ------------   ------------   ------------   ------------
<S>                                    <C>            <C>            <C>            <C>            <C>
Securities Available-for-Sale
   State, county, and municipal        $     14,896   $        498   $         --   $       (145)  $     15,249
   Corporate bonds                              945            104             --             --          1,049
   Other investments                            619              2             (2)           (27)           592
                                       ------------   ------------   ------------   ------------   ------------
   Total investments securities              16,460            604             (2)          (172)        16,890
   Mortgage-backed securities                30,549             53           (274)          (485)        29,843
                                       ------------   ------------   ------------   ------------   ------------
                                       $     47,009   $        657   $       (276)  $       (657)  $     46,733
                                       ============   ============   ============   ============   ============
Securities Held-to-Maturity
  U.S. government and agency                 14,094             --             --           (312)        13,782
  State, county, and municipal               15,547             83            (63)            --         15,567
  Corporate bonds                             2,010             81             --             --          2,091
                                       ------------   ------------   ------------   ------------   ------------
   Total investments securities              31,651            164            (63)          (312)        31,440
   Mortgage-backed securities                22,312             --             (1)          (650)        21,661
                                       ------------   ------------   ------------   ------------   ------------
                                       $     53,963   $        164   $        (64)  $       (962)  $     53,101
                                       ============   ============   ============   ============   ============
</TABLE>

                                      F-21
<PAGE>
<TABLE>
<CAPTION>

Note 2 - Securities (Continued)

                                                                    March 31, 2005
                                       ------------------------------------------------------------------------
                                                                   (In Thousands)

                                                                                       Gross
                                                                        Gross        Unrealized
                                                                      Unrealized       Losses
                                                         Gross        Losses Less     Greater
                                         Amortized     Unrealized      Than 12        Than 12         Fair
                                           Cost          Gains          Months         Months         Value
                                       ------------   ------------   ------------   ------------   ------------
<S>                                    <C>            <C>            <C>            <C>            <C>
Securities Available-for-Sale
   State, county, and municipal        $     15,261   $        622   $         (3)  $       (106)  $     15,774
   Corporate bonds                            1,008             50             --             --          1,058
   Other investments                            615             --             (2)           (18)           595
                                       ------------   ------------   ------------   ------------   ------------
   Total investments securities              16,884            672             (5)          (124)        17,427
   Mortgage-backed securities                39,748            133           (439)            (1)        39,441
                                       ------------   ------------   ------------   ------------   ------------

                                       $     56,632   $        805   $       (444)  $       (125)  $     56,868
                                       ============   ============   ============   ============   ============
Securities Held-to-Maturity
   U.S. government and agency                14,122             --           (160)            --         13,962
   State, county, and municipal              14,740             53            (21)           (15)        14,757
   Corporate bonds                            2,045            105             --             --          2,150
                                       ------------   ------------   ------------   ------------   ------------
   Total investments securities              30,907            158           (181)           (15)        30,869
   Mortgage-backed securities                22,463              1           (313)            (4)        22,147
                                       ------------   ------------   ------------   ------------   ------------

                                       $     53,370   $        159   $       (494)  $        (19)  $     53,016
                                       ============   ============   ============   ============   ============
</TABLE>

                                      F-22
<PAGE>

The fair value and unrealized loss of temporarily impaired securities that were
in an unrealized loss position at March 31, 2006 were as follows:
<TABLE>
<CAPTION>

                                                                           March 31, 2006
                                       ---------------------------------------------------------------------------------------
                                                                          (In Thousands)
                                            Less than 12 Months          12 Months or Longer                   Total
                                       ---------------------------   ---------------------------   ---------------------------
                                                       Unrealized                    Unrealized                    Unrealized
                                        Fair Value        Loss       Fair Value         Loss       Fair Value         Loss
                                       ------------   ------------   ------------   ------------   ------------   ------------
<S>                                    <C>            <C>            <C>            <C>            <C>            <C>
State, county, and municipal           $      6,515   $         63   $      2,750   $        145   $      9,265   $        208
U.S. government and agencies                     --             --         13,782            312         13,782            312
Mortgage-backed securities                   10,223            275         37,905          1,135         48,128          1,410
Other investments                                80              2            473             27            553             29
                                       ------------   ------------   ------------   ------------   ------------   ------------
Total temporarily impaired
     securities                        $     16,818   $        340   $     54,910   $      1,619   $     71,728   $      1,959
                                       ============   ============   ============   ============   ============   ============
</TABLE>

The Bank has the ability and intent to hold these investments until a market
price recovery, therefore management does not believe that any individual
unrealized loss as of March 31, 2006 represents an other-than-temporary
impairment. The decline in fair market value of these securities is generally
attributable to changes in interest rates and changes in market-desired spreads
subsequent to their purchase. For the years ended March 31, 2006 and 2005, there
were no proceeds from sales of securities available-for-sale. There were no
gross realized gains for the years ended March 31, 2006 and 2005.

                                      F-23
<PAGE>

Note 2 - Securities (Continued)

The amortized cost and fair value of U.S. government, federal agency, and
mortgage-backed securities by contractual maturity at March 31, 2006, were as
follows:
<TABLE>
<CAPTION>

                                                                           March 31, 2006
                                             -----------------------------------------------------------------------
                                                          Held-to-Maturity                   Available-for-Sale
                                             ----------------------------- -----------   ---------------------------
                                              Weighted       Amortized        Fair         Amortized        Fair
                                               Yield           Cost           Value          Cost           Value
                                            ------------   ------------   ------------   ------------   ------------
<S>                                                 <C>    <C>            <C>            <C>            <C>
Amounts maturing in:
   One year or less                                 4.48%  $         --   $         --   $        584   $        555
   After one year through five years                3.78         14,203         13,890            156            154
   After five years through ten years               7.85          4,354          4,352          3,722          3,882
   After ten years                                  7.48         13,094         13,198         11,998         12,299
                                            ------------   ------------   ------------   ------------   ------------

                                                    6.41         31,651         31,440         16,460         16,890
Mortgage-backed securities                          4.97         22,312         21,661         30,549         29,843
                                            ------------   ------------   ------------   ------------   ------------

                                                    5.99%  $     53,963   $     53,101   $     47,009   $     46,733
                                            ============   ============   ============   ============   ============
</TABLE>

Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.

                                      F-24
<PAGE>

Note 2 - Securities (Continued)

The amortized cost and market value of securities pledged to secure obligations
or pledged as collateral by obligor at March 31, 2006 and 2005 were as follows:
<TABLE>
<CAPTION>

                                                                      March 31,
                                            ---------------------------------------------------------
                                                        2006                         2005
                                            ---------------------------   ---------------------------
                                             Amortized        Market         Amortized       Market
                                                Cost          Value            Cost          Value
                                            ------------   ------------   ------------   ------------
                                                                 (In Thousands)
<S>                                         <C>            <C>            <C>            <C>
Obligations under repurchase agreements     $     14,098   $     14,577   $     15,270   $     15,876
Public deposits                                   10,609         10,568          8,901          8,855
Deposits over $100,000                            21,511         21,271         25,579         25,445
FHLB advances                                     43,365         42,216         50,363         49,832
Treasury, taxes and loans                            321            317            462            463
Oregon Trail Consumer Cooperative                  3,183          3,087          2,973          2,939
                                            ------------   ------------   ------------   ------------

                                            $     93,087   $     92,036   $    103,548   $    103,410
                                            ============   ============   ============   ============
</TABLE>

Note 3 - Equity Securities

Equity securities carried at cost at March 31, 2006 and 2005 consisted of the
following:

                                                      March 31,
                                            ---------------------------
                                                2006           2005
                                            ------------   ------------
                                                   (In Thousands)

FHLB stock                                  $     12,785   $     12,785
FarmerMac stock                                        4              4
                                            ------------   ------------

         Equity securities                  $     12,789   $     12,789
                                            ============   ============

                                      F-25
<PAGE>

Note 3 - Equity Securities (Continued)

The FHLB revised its capital structure from the issuance of one class of stock
to two, B(1) and B(2) stock. B(1) stock can be sold back to the FHLB at cost,
but is restricted as to purchase, sale, and redemption based on the level of
business activity the Company is doing with the FHLB. Class B(2) is not a
required investment for institutions and is not restricted as to purchase and
sale, but has the same redemption restrictions as class B(1). The Company had
$12.5 million in B(1) stock and $251,000 in B(2) stock at March 31, 2006. Stock
is a required investment for institutions that are members. The required
investment in the common stock is based on a predetermined formula and is
carried at cost on the consolidated statement of financial condition. Interest
income from FHLB dividends, in other interest-earning assets, was $0, $284,000,
and $398,000 for the years ended March 31, 2006, 2005 and 2004, respectively.

Note 4 - Loans Receivable

Loans receivable at March 31, 2006 and 2005 consisted of the following:

                                                      March 31,
                                            ---------------------------
                                                2006           2005
                                            ------------   ------------
                                                  (In Thousands)
Real estate loans:
   Residential                              $    123,461   $    117,541
   Commercial                                    201,282        173,757
   Agricultural                                   18,792         19,434
   Construction                                  108,650         69,148
Other loans:
   Commercial (non-real estate)                   91,628         92,780
   Other consumer                                 39,089         38,724
   Home equity                                    40,926         37,806
   Agricultural operating                         19,333         22,625
                                            ------------   ------------

      Total loans receivable                     643,161        571,815
Less:
   Unearned loan fees and discounts                2,480          2,460
   Allowance for loan losses                       8,138          7,254
                                            ------------   ------------

      Loans receivable, net                 $    632,543   $    562,101
                                            ============   ============

                                      F-26
<PAGE>

Note 4 - Loans Receivable (Continued)

At March 31, 2006, the contractual principal payments due on outstanding loans
receivable are shown below. Actual payments may differ from expected payments
because borrowers have the right to prepay loans, with or without prepayment
penalties.

Year Ending March 31,
(In Thousands)

 2007                                                      $    199,210
 2008                                                            63,853
 2009                                                            15,026
 2010                                                            24,474
 2011                                                            23,900
 Thereafter                                                     316,698
                                                           ------------

                                                           $    643,161
                                                           ============

The following summarizes the changes in the allowance for loan losses at March
31, 2006, 2005 and 2004:

<TABLE>
<CAPTION>

                                                                            March 31,
                                                           ------------------------------------------
                                                               2006           2005           2004
                                                           ------------   ------------   ------------
                                                                         (In Thousands)
<S>                                                        <C>            <C>            <C>
Allowance for loan losses, beginning of year               $      7,254   $      6,314   $      3,414
   Addition through acquisition                                      --             --          2,863
   Provision for loan losses                                      1,799          1,528            395
   Charge offs, net                                                (915)          (588)          (358)
                                                           ------------   ------------   ------------

Allowance for loan losses, end of year                     $      8,138   $      7,254   $      6,314
                                                           ============   ============   ============
</TABLE>

As of March 31, 2006 and 2005, loans on a nonaccrual status totaled
approximately $308,000 and $719,000, respectively. The effect of not recognizing
interest income on nonaccrual loans in accordance with the original terms
totaled approximately $10,000 during 2006, $68,000 during 2005, and $126,000
during 2004. The following information at March 31, 2006, 2005 and 2004 relates
to the Bank's impaired loans which include troubled debt restructurings that
meet the definition of impaired loans:

                                      F-27
<PAGE>

Note 4 - Loans Receivable (Continued)
<TABLE>
<CAPTION>

                                                              March 31,
                                             ------------------------------------------
                                                 2006           2005           2004
                                             ------------   ------------   ------------
                                                          (In Thousands)
<S>                                         <C>            <C>            <C>
Impaired loans with a specific allowance    $        349   $        363   $      1,119
Impaired loans with no specific allowance          1,315          1,406            816
                                            ------------   ------------   ------------

         Total impaired loans               $      1,664   $      1,769   $      1,935
                                            ============   ============   ============

Total allowance related to impaired loans   $        292   $        279   $        424
                                            ============   ============   ============
Average aggregate balance of impaired
     loans for the year                     $      2,006   $      1,977   $      2,989
                                            ============   ============   ============
Interest income recognized on impaired
   loans for cash payments received         $        148   $        203   $         57
                                            ============   ============   ============
Loans 90 days or more past due and
     still accruing                         $          4   $        377   $         --
                                            ============   ============   ============
<CAPTION>

Outstanding commitments of the Bank to originate loans as of March 31, 2006,
were as follows:

                                                             Variable
                                             Fixed Rate        Rate          Total
                                            ------------   ------------   ------------
                                                          (In Thousands)
<S>                                         <C>            <C>            <C>
First mortgage loans                        $     14,890   $     53,896   $     68,786
Other loans                                        7,593         67,655         75,248
                                            ------------   ------------   ------------
         Outstanding Loan
            Commitments                     $     22,483   $    121,551   $    144,034
                                            ============   ============   ============
</TABLE>

                                      F-28
<PAGE>

Note 4 - Loans Receivable (Continued)

Interest rates on fixed rate loan commitments range from 5.00% to 8.875% and are
committed through September 25, 2006. 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 $96.8 million,
commitments to fund standby letters of credit of $6.9 million, and commitments
to fund credit card lines of approximately $10.4 million at March 31, 2006.
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 changed since the time the commitment was made.

The Bank remains contingently liable for $5,000 of loans sold with recourse as
of March 31, 2006. At March 31, 2006, the Bank had indemnification agreements
with the Federal Housing Administration ("FHA") for two residential mortgage
loans insured by FHA. The agreements require the Bank to reimburse FHA for any
loss incurred upon foreclosure of these loans and subsequent liquidation of the
homes held as collateral.

Note 5 - Loan Servicing

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, 2006 and 2005 were as follows:


                                                 March 31,
                                       ---------------------------
                                           2006           2005
                                       ------------   ------------
                                             (In Thousands)
Loan portfolios serviced for:
   FNMA                                $      3,379   $      4,560
   FHLMC                                     50,352         58,517
   Others                                     4,525          4,141
                                       ------------   ------------

                                       $     58,256   $     67,218
                                       ============   ============

The balance of capitalized mortgage servicing rights at March 31, 2006 and 2005
was $533,000 and $614,000, respectively. The fair value of mortgage servicing
rights was determined using discount rates ranging from 9.50% to 12.00% and
prepayment speeds ranging from 12.86% to 105.17%, depending upon the
stratification of the specific mortgage servicing right. The allowance for
impairment on mortgage servicing rights for the years ended March 31, 2006, 2005
and 2004 was $282,000, $346,000 and $427,000, respectively.

                                      F-29
<PAGE>

Note 5 - Loan Servicing (Continued)

Estimates of fair value on the mortgage servicing rights portfolio are based on
the objective characteristics of the servicing portfolio and are derived through
a discounted cash flow analysis. This analysis takes into consideration existing
conditions in the secondary servicing markets (levels of supply and demand), as
well as recently executed servicing transactions. Published values represent
gross price levels, with deductions that would net gross proceeds varying
dependent upon transaction composition and levels of supply and demand in the
marketplace. Deductions are most often associated with foreclosures. The
delinquent loans, loans in litigation, and potential loss associated with
foreclosures. The gross price levels assume that standard industry
representations and warranties related to the servicing and origination of the
loans would be offered by the seller (and acceptable to the buyer), and that the
financial strength of the seller would be acceptable to the buyer.

The following summarizes mortgage servicing rights activity for the years ended
March 31, 2006, 2005 and 2004:
<TABLE>
<CAPTION>

                                                                  March 31,
                                                 ------------------------------------------
                                                     2006           2005           2004
                                                 ------------   ------------   ------------
                                                              (In Thousands)
<S>                                                        <C>            <C>           <C>
Mortgage servicing asset, beginning of year      $        614   $        710   $        826
   Capitalized                                             61             29            199
   Amortization                                          (206)          (206)          (194)
   Impairment recovery/(charge)                            64             81           (121)
                                                 ------------   ------------   ------------

Mortgage servicing asset, end of year            $        533   $        614   $        710
                                                 ============   ============   ============
</TABLE>

                                      F-30
<PAGE>

Note 6 - Premises and Equipment

Premises and equipment at March 31, 2006 and 2005 consisted of the following:

                                                          March 31,
                                                 ---------------------------
                                                     2006           2005
                                                 ------------   ------------
                                                        (In Thousands)

Land, buildings, and building improvements       $     19,958   $     19,950
Furniture, fixtures, and equipment                     11,922         11,709
Construction in progress                                   15            523
                                                 ------------   ------------

                                                       31,895         32,182
Accumulated depreciation                              (14,337)       (13,494)
                                                 ------------   ------------

         Premises and equipment, net             $     17,558   $     18,688
                                                 ============   ============


Depreciation expense for the years ended March 31, 2006, 2005 and 2004, was $1.4
million $1.4 million, and $1.0 million, respectively.

Note 7 - Goodwill and Other Intangible Assets

Goodwill will be periodically evaluated for impairment. No impairment loss on
goodwill was recorded for the year ended March 31, 2006 because there were no
impairment indicators during the period. Goodwill continues to decrease due to
the tax benefits on exercises of stock options acquired in the acquisition of
Oregon Trail. Goodwill at March 31, 2006 and 2005 was $16.6 and $16.7 million,
respectively.

Core deposits are a dependable, long-term source of funds for the Company. The
core deposit intangible asset will be amortized under the straight line method
over the estimated life of the depositor relationships of 5.5 years. Core
deposit intangible at March 31, 2006 was $2.2 million, net of accumulated
amortization of $1.7 million. Core deposit intangible at March 31, 2005 was $2.9
million, net of accumulated amortization of $1.0 million. Amortization expense
for the years ended March 31, 2006, 2005 and 2004 was $715,000, $715,000 and
$297,000, respectively. Amortization expense for the net carrying amount of the
core deposit intangible at March 31, 2006 is estimated to be as follows:

                                      F-31
<PAGE>

Note 7 - Goodwill and Other Intangible Assets (Continued)

For the year ended March 31,
(In Thousands)
   2007                                                            $      715
   2008                                                                   715
   2009                                                                   715
   2010                                                                    67
                                                                   ----------
Estimated total core deposit intangible amortization expense       $    2,212
                                                                   ==========


Note 8 - Foreclosed Real Estate

There was no foreclosed real estate included in other assets on the Consolidated
Statements of Financial Condition at March 31, 2006. There was $603,000 in
foreclosed real estate included in other assets on the Consolidated Statements
of Financial Condition at March 31, 2005.

                                      F-32
<PAGE>
Note 9 - Deposits

Deposits and the related weighted-average interest rates at March 31, 2006 and
2005 consisted of the following:

                                                                March 31,
                                                     ---------------------------
                                                         2006           2005
                                                     ------------   ------------
                                                           (In Thousands)
Transaction accounts:
   Checking accounts (0.04% and 0.04%)               $    161,938   $    141,374
   Statement savings accounts (0.25% and 0.25%)            36,614         41,189
   Money market accounts (3.00% and 1.63%)                116,857        118,881
                                                     ------------   ------------

     Total transaction accounts                           315,409        301,444
                                                     ------------   ------------

Certificates of deposit:
   0.00% to 1.99%                                             800         55,533
   2.00% to 2.99%                                          49,669         62,238
   3.00% to 3.99%                                          88,712         47,069
   4.00% to 4.99%                                          97,874         33,841
   5.00% to 5.99%                                          14,274         16,144
   6.00% to 6.99%                                           2,964          2,407
   7.00% to 7.99%                                             338             --
                                                     ------------   ------------

     Total certificates of deposit                        254,631        217,232
                                                     ------------   ------------

     Total deposits                                  $    570,040   $    518,676
                                                     ============   ============

                                      F-33
<PAGE>

Note 9 - Deposits (Continued)

The scheduled maturities of certificates of deposit at March 31, 2006 were as
follows:

Year ending March 31,
(In Thousands)
  2007                                                             $    177,762
  2008                                                                   46,682
  2009                                                                    7,658
  2010                                                                   14,262
  2011                                                                    5,309
  Thereafter                                                              2,958
                                                                   ------------

Total certificates of deposit                                      $    254,631
                                                                   ============

Interest expense on deposits for the years ended March 31, 2006, 2005 and 2004
consisted of the following:

                                                Year Ended March 31,
                                     ------------------------------------------
                                         2006           2005            2004
                                     ------------   ------------   ------------
                                                  (In Thousands)
Checking and money market            $      3,535   $      2,116   $      1,028
Statement savings                              95            127            110
Certificates of deposit .                   7,787          4,993          4,115
                                     ------------   ------------   ------------

         Interest expense            $     11,417   $      7,236   $      5,253
                                     ============   ============   ============


Certificates of deposit in excess of $100,000 totaled approximately $100.1
million and $89.0 million at March 31, 2006 and 2005, respectively. Deposit
balances in excess of $100,000 totaled approximately $249.8 million and $233.1
million at March 31, 2006 and 2005, respectively, are not insured by the Federal
Deposit Insurance Corporation (FDIC).

                                      F-34
<PAGE>

Note 10 - FHLB Advances and Other Borrowed Funds

FHLB advances and other borrowings had weighted average interest rates at March
31, 2006 and 2005 of 5.08% and 4.28%, respectively. Maturity dates of advances
at March 31, 2006 and 2005 were as follows:

                                                           March 31,
                                                 ---------------------------
                                                     2006           2005
                                                 ------------   ------------
                                                        (In Thousands)
Advances from FHLB and other borrowings due:
   Less than one year                            $    111,094   $    109,681
   After one year through two years                    10,441         12,697
   After two years through three years                  3,158         10,475
   After three years through four years                 5,000          3,174
   After four years through five years                 31,177          5,000
   More than five years                                15,947         44,310
                                                 ------------   ------------

                                                 $    176,817   $    185,337
                                                 ============   ============

Advances are collateralized by all FHLB stock owned by the bank, deposits with
the FHLB- Seattle, and certain mortgages or deeds of trust securing such
properties.

The Bank has available credit with FHLB for up to 30% of total assets, or $253.8
million, at March 31, 2006. On March 31, 2006 the FHLB borrowings are
collateralized by $300.3 million in investment securities, residential real
estate loans, and commercial real estate loans. Interest is charged at the
market rate for federal funds purchased. There was $168.5 million and $180.4
million outstanding of FHLB advances, gross of merger premium of $2.2 million
and $2.8 million, at March 31, 2006 and 2005, respectively.

The Bank has an unsecured operating line of credit with US Bank for $20.0
million. There was no outstanding balance at March 31, 2006 and 2005. The
Company has an unsecured operating line of credit with US Bank for $3.5 million.
There was an outstanding balance of $3.1 million and $2.2 million under the line
of credit at March 31, 2006 and 2005, respectively. Interest expense recognized
for the years ended March 31, 2006 and 2005 for the US Bank borrowing was
$177,000 and $61,000, respectively.

On June 10, 2005, the Bank entered into a Subordinated Debenture Purchase
Agreement with US Bank, under which the Bank issued an aggregated principal
amount of $3.0 million in floating rate unsecured subordinated debt. All amounts
due under the subordinated debenture must be repaid in full on June 10, 2015.
There was an outstanding balance of $3.0 million at March 31, 2006. Interest
expense recognized for the year ended March 31, 2006 was $143,000.

                                      F-35
<PAGE>

Note 10 - FHLB Advances and Other Borrowed Funds (Continued)

If the subordinated debenture ceases to qualify as Tier 2 capital for capital
reporting purposes, or at any time after June 10, 2010, the Bank may, after
receiving approval from the Federal Deposit Insurance Corporation, prepay all or
a portion of the outstanding amount of the subordinated debenture. In addition,
if the subordinated debenture no longer qualifies as Tier 2 capital, the Bank
and the lender may restructure the debt as a senior unsecured obligation of the
Bank or the Bank may repay the debt.

Securities sold under agreements to repurchase generally mature within one to
four days from the transaction date. Securities underlying the agreements are
presented in Note 2.

Information concerning securities sold under agreements to repurchase at March
31, 2006, 2005 and 2004 are summarized as follows:
<TABLE>
<CAPTION>

                                                             March 31,
                                            ------------------------------------------
                                                2006           2005           2004
                                            ------------   ------------   ------------
                                                         (In Thousands)
<S>                                         <C>            <C>            <C>
Average balance during the year             $      8,694   $     12,808   $     10,465
                                            ============   ============   ============

Average interest rate during the year               2.80%          0.93%          0.46%
                                            ============   ============   ============

Maximum month-end balance during the year   $     12,180   $     16,023   $     11,272
                                            ============   ============   ============
<CAPTION>

Note 11 - Income Taxes

The components of income tax expense for the years ended March 31, 2006, 2005
and 2004 are summarized as follows:

                                                     Year Ended March 31,
                                            ------------------------------------------
                                                2006           2005           2004
                                            ------------   ------------   ------------
                                                         (In Thousands)
<S>                                         <C>            <C>            <C>
Current tax expense                         $      4,220   $      1,414   $      1,834
Deferred tax expense (benefit)                      (312)           953           (352)
                                            ------------   ------------   ------------

         Income tax expense                 $      3,908   $      2,367   $      1,482
                                            ============   ============   ============
</TABLE>

                                      F-36
<PAGE>

Note 11 - Income Taxes (Continued)

Deferred tax liabilities and assets at March 31, 2006 and 2005 consisted of the
following:
<TABLE>
<CAPTION>

                                                                March 31,
                                                      ---------------------------
                                                          2006           2005
                                                      ------------   ------------
                                                             (In Thousands)
<S>                                                   <C>            <C>
Deferred tax assets:
   Unearned loan fees                                 $          4   $          7
   Allowance for loan losses                                 3,180          2,834
   Deferred compensation                                       496            433
   Change of control payments                                   72            206
   Premium on FHLB advances                                    834          1,063
   Premium on certificates of deposits                         153            336
   Unrealized loss on securities available-for-sale            107             --
   Other                                                       158            137
                                                      ------------   ------------

         Total deferred tax assets                           5,004          5,016
                                                      ------------   ------------

Deferred tax liabilities:
   FHLB stock dividends                                     (2,642)        (2,642)
   Mortgage servicing rights                                  (208)          (240)
   Depreciation                                               (709)          (705)
   Unrealized gain on securities available-for-sale             --           (101)
   Premium on securities available-for-sale                   (192)          (325)
   Core deposit intangible                                    (833)        (1,103)
   Loan fees                                                  (443)          (443)
                                                      ------------   ------------

         Total deferred tax liabilities                     (5,027)        (5,559)
                                                      ------------   ------------

         Net deferred income tax liability            $        (23)  $       (543)
                                                      ============   ============
</TABLE>

At March 31, 2006 and 2005, an income tax receivable of $2.3 million and $2.4
million, respectively, was included in other assets on the Consolidated
Statements of Financial Condition.

                                      F-37
<PAGE>

Note 11 - Income Taxes (Continued)

A reconciliation of the statutory federal income tax rate to the effective
income tax rate for the years ended March 31, 2006, 2005 and 2004 follows:
<TABLE>
<CAPTION>

                                                                                   March 31,
                                            ---------------------------------------------------------------------------------------
                                                        2006                          2005                          2004
                                            ---------------------------   ---------------------------   ---------------------------
                                               Amount         Percent        Amount        Percent         Amount        Percent
                                            ------------   ------------   ------------   ------------   ------------   ------------
                                                                           (Dollars in Thousands)
<S>                                         <C>                    <C>    <C>                    <C>    <C>                    <C>
Income tax expense at statutory rates       $      4,224           34.0%  $      2,939           34.0%  $      1,986           34.0%
Effect of permanent differences                     (857)          (6.9)          (949)         (11.0)          (749)         (12.8)
Effect of state income taxes, net of
   federal benefit                                   541            4.4            377            4.4            245            4.2
                                            ------------   ------------   ------------   ------------   ------------   ------------

                                            $      3,908           31.5%  $      2,367           27.4%  $      1,482           25.4%
                                            ============   ============   ============   ============   ============   ============
</TABLE>

Note 12 - 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 I capital to risk-weighted assets and of Tier I capital
to average assets all as defined in the regulations. Management believes, as of
March 31, 2006, that the Bank meets all capital adequacy requirements to which
it is subject.

As of February 14, 2005, the most recent notification from the FDIC 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 I risk-based and Tier I 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
categorization.

                                      F-38
<PAGE>

Note 12 - Equity (Continued)

The Bank's actual regulatory capital amounts and ratios for the years ended
March 31, 2006 and 2005 are presented in the table below:
<TABLE>
<CAPTION>

                                                                                                          To Be Well Capitalized
                                                                               Capital Adequacy           Under Prompt Corrective
                                                                                   Purposes                  Action Provisions
                                                                          ---------------------------   ---------------------------
                                                Actual                       Actual                         Actual
                                                Amount         Ratio         Amount         Rate            Amount        Rate
                                            ------------   ------------   ------------   ------------   ------------   ------------
                                                                             (Dollars in Thousands)
<S>                                        <C>                     <C>   <C>                     <C>   <C>                     <C>
March 31, 2006
Tier 1 capital (to average assets)          $     60,253         7.3%     $     33,015         4.0%     $     41,269         5.0%
Tier 1 capital (to risk-weighted assets)          60,253         9.8%           24,593         4.0%           36,890         6.0%
Total capital (to risk-weighted assets)           70,939        11.6%           48,923         8.0%           61,154        10.0%

March 31, 2005
Tier 1 capital (to average assets)          $     51,006         6.7%     $     30,451         4.0%     $     38,064         5.0%
Tier 1 capital (to risk-weighted assets)          51,006         9.0%           22,669         4.0%           34,004         6.0%
Total capital (to risk-weighted assets)           58,063        10.3%           45,097         8.0%           56,372        10.0%
</TABLE>

Federal and state banking regulations place certain restrictions on dividends
paid and loans or advances made by the Bank to the Company. The total amount of
dividends, which may be paid at any date, is generally limited to the retained
earnings of the Bank.

The payment of dividends to the Company by the Bank is subject to various
federal and state regulatory limitations. Under current guidelines, at March 31,
2006, the Bank could have declared approximately $9.8 million of aggregate
dividends in addition to amounts previously paid.

Dividends paid by the Bank to the Company would be prohibited if the effect
thereof would cause the Bank's capital to be reduced below applicable minimum
capital requirements.

On April 12, 2006, the Board of Directors of the Company declared a cash
dividend of $0.10 per common share to shareholders of record of the Company as
of May 4, 2006. The dividend was paid on May 18, 2006.

On August 27, 2004, the Company authorized a 5% stock repurchase plan, or
295,732 shares. As of March 31, 2006, 105,000 shares had been repurchased under
this program leaving 190,732 shares available for repurchase. The intent of the
stock repurchase program is to enhance trading liquidity and stock value. The
shares are purchased on the open market at market value through an authorized
broker.

                                      F-39
<PAGE>

Note 12 - Equity (Continued)

On January 4, 2006, the Company's Board of Directors declared a two-for-one
stock split in the form of a 100% per share stock dividend on the Company's
outstanding common stock. The stock dividend was paid as of the close of
business on February 9, 2006. Each shareholder of record as of the close of
business on January 26, 2006 received one additional share for every share
outstanding on the record date. As a result of the split, 3,022,716 additional
shares were issued, and retained earnings were reduced by $30,227. All
references in the accompanying financial statements to the number of common
shares and per-share amounts have been restated to reflect the two-for-one stock
split.

Note 13 - Related Party Transactions

The following schedule summarizes the activity in loans to directors and
officers at or for the years ended March 31, 2006 and 2005:

                                                     March 31,
                                            ---------------------------
                                                2006           2005
                                            ------------   ------------
                                                  (In Thousands)

Balance, beginning of year                  $      1,808   $      1,786
   Additional advances on loans                    1,873          1,084
   Repayments and sales proceeds                  (1,658)        (1,062)
                                            ------------   ------------

         Balance, end of year               $      2,023   $      1,808
                                            ============   ============

The Bank also accepts deposits from its executive officers, directors, and
affiliated companies on substantially the same terms as unrelated persons. The
aggregate amount of deposits from such related parties at March 31, 2006 and
2005 was $823,000 and $571,000, respectively.

                                      F-40
<PAGE>

Note 14 - Employee Benefit Plans

The Company has entered into a salary continuation agreements 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 $144,000 for life on the insured and a guarantee
period ranging from 15 to 20 years for the beneficiaries. 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 approximately
$161,000, $233,000, and $194,000 for the years ended March 31, 2006, 2005 and
2004, respectively. At March 31, 2006 and 2005, an obligation of $1.3 million
and $1.1 million, respectively, was included in accrued expenses and other
liabilities. The Bank retained bank-owned life insurance policies of Pioneer
Bank through the acquisition of Oregon Trail with a cash value of $14.3 million
at October 31, 2003. At March 31, 2006 and 2005, cash value of life insurance of
$24.4 million and $23.3 million, respectively, was recorded. Net earnings on the
life insurance contracts were $1.1 million, $1.1 million, and $620,000 for the
years ended March 31, 2006, 2005 and 2004, respectively.

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.

During 1995, the Bank established a profit sharing plan pursuant to Section
401(k) of the Internal Revenue Code of 1986, as amended (Code), whereby
participants may contribute a percentage of compensation, but not in excess of
the maximum allowed under the Code. The plan was amended during 1998, making
Bank contributions discretionary. Approximately $385,000, $263,000, and $148,000
were contributed by the Company to the plan for the years ended March 31, 2006,
2005 and 2004, respectively.

Note 15 - Employee Stock Ownership Plan

The Bank established for eligible employees an ESOP and related trust in
connection with the Conversion. 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 will
become participants. The ESOP borrowed $1.6 million from the Company in order to
purchase 317,400 shares of common stock of the Company. The loan will be repaid
principally from the Bank's contributions to the ESOP over a period of 25 years,
as amended during fiscal 1999, and the collateral for the loan is the
unreleased, restricted common stock purchased by the ESOP. Contributions to the
ESOP are 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 stated interest rate for the loan is 8.5%.

                                      F-41
<PAGE>

Note 15 - Employee Stock Ownership Plan (Continued)

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. Shares are released based on the ratio of
total ESOP loan payments made during the period to the remaining total payments
due on the loan. 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, 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, 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 was
approximately $246,000, $235,000, and $221,000 for the years ended March 31,
2006, 2005 and 2004, respectively. As of March 31, 2006, the Company has
allocated 188,348 shares to participant accounts and has 129,052 unallocated
shares. The Company has committed to release 4,178 shares of stock resulting in
124,874 unallocated, restricted shares remaining to be released. The market
value of unallocated, restricted shares held by the ESOP trust was approximately
$2.4 million at March 31, 2006.

Note 16 - Stock Award Plans

Stock Option Plans:
On July 22, 1998, the shareholders of the Company voted to approve the 1998
Stock Option Plan (the SOP) for employees, officers and directors of the
Company. The SOP is administered by the Board of Directors. Under the SOP, a
maximum of 396,750 shares were available for grant. Generally, the SOP provides
that the terms under which options may be granted are to be determined by a
Committee subject to certain requirements as follows: (1) the exercise price
will not be less than 100% of the market price per share of the common stock of
the Company at the time stock option is granted; and (2) the option purchase
price will be paid in full on the date of purchase. Generally, options vest over
a period of five years. The SOP provides that options may be transferred only by
will or by laws of descent and distribution and may be exercised during the
optionee's lifetime only by the optionee or by the optionee's guardian or legal
representative.

                                      F-42
<PAGE>

Note 16 - Stock Award Plans (Continued)

On November 4, 2003, the Company adopted the Oregon Trail 1998 Stock Option Plan
(the SOP) for employees, officers and directors of Oregon Trail. All of the
Oregon Trail options were vested as of the date the merger was completed. The
SOP is administered by the Board of Directors. Under the SOP, a maximum of
801,458 shares were available for grant. The SOP provides that options may be
transferred only by will or by laws of descent and distribution and may be
exercised during the optionee's lifetime only by the optionee or by the
optionee's guardian or legal representative.

Stock option transactions for the above described plan are summarized as
follows:
<TABLE>
<CAPTION>

                                                                                            Weighted-
                                                                                            Average
                                                             Weighted-                     Fair Value
                                                             Average                       of Options
                                                             Exercise        Options     Granted During
                                               Shares         Price        Exercisable     the Year
                                            ------------   ------------   ------------   ------------
<S>                                            <C>       <C>                 <C>       <C>
Outstanding options at March 31, 2003            294,000   $       7.91
   Granted as a result of merger                 801,458           6.13
   Exercised                                    (493,946)          5.70
   Forfeited                                        (300)          7.91
                                            ------------   ------------   ------------   ------------
Outstanding options at March 31, 2004            601,212   $       7.35        592,812   $         --
                                            ============   ============   ============   ============

   Granted                                        28,000          13.41
   Exercised                                    (304,960)          7.03
   Forfeited                                          --             --
                                            ------------   ------------   ------------   ------------

Outstanding options at March 31, 2005            324,252   $       8.17        290,652   $       2.22
                                            ============   ============   ============   ============

   Granted                                         5,000          18.39
   Exercised                                     (55,996)          7.74
   Forfeited                                          --             --
                                            ------------   ------------   ------------   ------------

Outstanding options at March 31, 2006            273,256   $       8.44        243,056   $       5.71
                                            ============   ============   ============   ============
</TABLE>

                                      F-43
<PAGE>

Note 16 - Stock Award Plans (Continued)

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for the fiscal grant:

                                                  March 31,       March 31,
                                                    2006            2005
                                                 ------------   ------------
Dividend yield                                           2.20%          2.61%
Expected volatility                                     29.60%         15.11%
Risk free interest rates                                 4.55%          3.94%
Expected option lives                                 7 years        7 years

The following table presents information about the options as of March 31, 2006:
<TABLE>
<CAPTION>

                                Options Outstanding                  Options Exercisable
                   ------------------------------------------   ---------------------------
                                     Weighted      Weighted                      Weighted
                                     Average       Average                       Average
                                    Remaining      Exercise                      Exercise
Range of             Number of     Contractual     Price Per     Number of       Price Per
Exercise Price         Shares         Life           Share         Shares         Share
--------------     ------------   ------------   ------------   ------------   ------------
<S>                      <C>              <C>    <C>                  <C>      <C>
$5.46-$5.74              15,638           2.87   $       5.51         15,638   $       5.51
$5.75-$7.91             197,080           2.83           7.91        194,280           7.91
$7.92-$18.39             60,538           7.13          10.94         33,138           8.15
                   ------------   ------------   ------------   ------------   ------------

                        273,256           3.79   $       8.44        243,056   $       7.78
                   ============   ============   ============   ============   ============
</TABLE>

Restricted stock:
During fiscal 1999, the shareholders of the Company approved the Management
Recognition and Development Plan (MRDP). Under the MRDP, the Company is
authorized to grant up to 158,700 shares of restricted stock to employees,
officers and directors of the Company. During fiscal 1999, 158,700 shares of
restricted stock were awarded to the deferred compensation plan. The fair market
value at the date of award was $7.905 per share. These awards vest ratably over
a five-year period. Deferred compensation resulting from these awards is
amortized as a charge to expense over the five-year period; expense recognized
by the Company was $157,000 for the year ending March 31, 2004. There was no
expense recognized for the years ending March 31, 2005 and 2006. The balance of
deferred compensation is shown as a reduction of stockholders' equity.

                                      F-44
<PAGE>

Note 17 - Earnings per Share

The Company reports EPS (earnings per share) in accordance with SFAS No. 128,
Earnings per Share. SFAS No. 128 establishes standards for computing and
presenting 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.
Stock options are the only potentially dilutive instruments issued by the
Company. ESOP shares that are unallocated and not yet committed to be released
are excluded from the weighted average shares outstanding calculation (see Note
16).

Information used to calculate earnings per share for the years ended March 31,
2006, 2005 and 2004 was as follows:
<TABLE>
<CAPTION>

                                                            Year Ended March 31,
                                                 ------------------------------------------
                                                     2006           2005           2004
                                                 ------------   ------------   ------------
                                                           (Dollars in Thousands,
                                                           except Per Share Data)
<S>                                              <C>            <C>            <C>
Net income                                       $      8,516   $      6,278   $      4,358
                                                 ============   ============   ============
Basic weighted-average number of
     common shares outstanding                      5,879,598      5,792,614      3,851,608
Dilutive effect of potential common shares            140,734        202,646        259,662
                                                 ------------   ------------   ------------

         Diluted weighted-average
            number of shares outstanding            6,020,332      5,995,260      4,111,270
                                                 ============   ============   ============
Net income per common share
   Basic                                         $       1.45   $       1.08   $       1.13
   Diluted                                       $       1.41   $       1.05   $       1.06
</TABLE>

Note 18 - 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.

                                      F-45
<PAGE>

Note 18 - Fair Values of Financial Instruments (Continued)

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,
                                                      ---------------------------------------------------------
                                                                  2006                         2005
                                                      ---------------------------   ---------------------------
                                                        Carrying      Estimated      Carrying       Estimated
                                                         Amount       Fair Value      Amount        Fair Value
                                                      ------------   ------------   ------------   ------------
                                                                             (In Thousands)
<S>                                                   <C>            <C>            <C>            <C>
Financial Assets:
   Cash and cash equivalents                          $     26,903   $     26,903   $     41,801   $     41,801
   Investment securities held-to-maturity                   31,651         31,440         30,907         30,869
   Investment securities available-for-sale                 16,890         16,890         17,427         17,427
   Mortgage-backed securities held-to-maturity              22,312         21,661         22,463         22,147
   Mortgage-backed securities available-for-sale            29,843         29,843         39,441         39,441
   Loans held for sale                                       3,785          3,785          3,999          3,999
   Loans receivable                                        632,543        625,657        562,101        563,307
   Equity securities                                        12,789         12,789         12,789         12,789
   Cash surrender value of life
      insurance                                             24,415         24,415         23,318         23,318

Financial Liabilities:
   Deposits                                           $    570,040   $    566,838   $    518,676   $    517,278
   Securities sold under agreements to repurchase            9,636          9,645         16,023         16,004
   Advances from borrowers for
      taxes and insurance                                      972            972            913            913
   FHLB advances and other borrowings                      176,817        178,527        185,337        188,178
</TABLE>

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 mortgaged-backed securities available for sale and
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.

                                      F-46
<PAGE>

Note 18 - Fair Values of Financial Instruments (Continued)

Loans held for sale:
The fair value of loans held for sale is estimated by discounting the future
cash flows at current rates.

Loans receivable:
For certain homogeneous categories of loans, such as fixed and variable rate
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 bank owned and other life insurance policies:
The carrying amount of these policies approximates their fair value.

Equity securities:
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.

Securities sold under agreements to repurchase:
The fair value of securities sold under agreements to repurchases is the amount
payable on demand at the reporting date.

Advances to borrowers for taxes and insurance:
The fair value of advances to borrowers for taxes and insurance is the amount
payable on demand at the reporting date.

FHLB Advances:
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.

                                      F-47
<PAGE>

Note 18 - Fair Values of Financial Instruments (Continued)

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 is significant to the Company's consolidated financial
position.

Note 19 - Liquidation Account

At the time of the Bank's conversion from mutual to stock form 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.

Note 20 - Commitments and Contingencies

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

                                      F-48
<PAGE>

Note 20 - Commitments and Contingencies (Continued)

The Company rents branch and office space under various operating leases. Total
rent expense recognized during the years ended March 31, 2006, 2005 and 2004,
was $229,000, $201,000, and $194,000, respectively. Future minimum rental
payments under the operating lease agreements are:

Year Ending March 31,
(In Thousands)
   2007                                                            $        218
   2008                                                                     135
   Thereafter                                                                32
                                                                   ------------

                                                                   $        385
                                                                   ============

The Company subleases portions of its branch facilities under noncancelable
operating lease agreements. Total sublease income recognized during the years
ended March 31, 2006, 2005 and 2004 was $108,000, $98,000, and $113,000,
respectively. Future minimum rental payments due to the Company under subleases
are as follows:

Year Ending March 31, 2007 (In Thousands)                          $         66
                                                                   ============

                                      F-49
<PAGE>
<TABLE>
<CAPTION>

Note 21 - Selected Quarterly Financial Data

                                                            Year ended March 31, 2006
                                            ---------------------------------------------------------
                                              June 30      September 30    December 31     March 31
                                            ------------   ------------   ------------   ------------
                                                         (In Thousands, Except Share Data)
<S>                                         <C>            <C>            <C>            <C>
Total interest income                       $     12,140   $     12,998   $     13,287   $     13,763
Total interest expense                             4,328          4,765          4,963          5,258
                                            ------------   ------------   ------------   ------------

Net interest income                                7,812          8,233          8,324          8,505
Provision for loan losses                            868            272            422            237
                                            ------------   ------------   ------------   ------------

Net interest income after provision                6,944          7,961          7,902          8,268

Non-interest income                                1,657          1,766          1,794          1,716
Non-interest expense                               5,950          6,436          6,552          6,646
                                            ------------   ------------   ------------   ------------

Income before income taxes                         2,651          3,291          3,144          3,338
Provision for income taxes                           799          1,041            978          1,090
                                            ------------   ------------   ------------   ------------
Net income                                  $      1,852   $      2,250   $      2,166   $      2,248
                                            ============   ============   ============   ============

Basic earnings per share                    $      0.316   $      0.383   $      0.369   $      0.380

Diluted earnings per share                  $      0.309   $      0.374   $      0.360   $      0.371

Cash dividends declared                     $      0.085   $      0.085   $      0.085   $      0.100
</TABLE>

                                      F-50
<PAGE>
<TABLE>
<CAPTION>

Note 21 - Selected Quarterly Financial Data (Continued)

                                                           Year ended March 31, 2005
                                            ---------------------------------------------------------
                                              June 30      September 30   December 31      March 31
                                            ------------   ------------   ------------   ------------
                                                         (In Thousands, Except Share Data)
<S>                                         <C>            <C>            <C>            <C>
Total interest income                       $      9,510   $      9,912   $     10,369   $     10,840
Total interest expense                             2,982          3,193          3,366          3,778
                                            ------------   ------------   ------------   ------------

Net interest income                                6,528          6,719          7,003          7,062
Provision for loan losses                            376            194            470            488
                                            ------------   ------------   ------------   ------------

Net interest income after provision                6,152          6,525          6,533          6,574

Non-interest income                                1,718          1,428          1,431          1,433
Non-interest expense                               5,690          5,708          5,896          5,855
                                            ------------   ------------   ------------   ------------

Income before income taxes                         2,180          2,245          2,068          2,152
Provision for income taxes                           628            619            542            578
                                            ------------   ------------   ------------   ------------

Net income                                  $      1,552   $      1,626   $      1,526   $      1,574
                                            ============   ============   ============   ============

Basic earnings per share                    $      0.271   $      0.281   $      0.263   $      0.269

Diluted earnings per share                  $      0.259   $      0.270   $      0.256   $      0.263

Cash dividends declared                     $      0.085   $      0.085   $      0.085   $      0.085
<CAPTION>

                                                           Year ended March 31, 2004
                                            ---------------------------------------------------------
                                              June 30      September 30   December 31      March 31
                                            ------------   ------------   ------------   ------------
                                                         (In Thousands, Except Share Data)
<S>                                         <C>            <C>            <C>            <C>
Total interest income                       $      5,098   $      5,007   $      8,011   $      9,299
Total interest expense                             2,057          2,014          2,795          3,068
                                            ------------   ------------   ------------   ------------

Net interest income                                3,041          2,993          5,216          6,231
Provision for loan losses                            177             78            163            (23)
                                            ------------   ------------   ------------   ------------

Net interest income after provision                2,864          2,915          5,053          6,254

Non-interest income                                1,390          1,158          1,226          1,742
Non-interest expense                               3,147          3,148          4,721          5,746
                                            ------------   ------------   ------------   ------------

Income before income taxes                         1,107            925          1,558          2,250
Provision for income taxes                           328            231            277            646
                                            ------------   ------------   ------------   ------------

Net income                                  $        779   $        694   $      1,281   $      1,604
                                            ============   ============   ============   ============

Basic earnings per share                    $      0.304   $      0.268   $      0.280   $      0.280

Diluted earnings per share                  $      0.288   $      0.254   $      0.258   $      0.263

Cash dividends declared                     $      0.075   $      0.075   $      0.075   $      0.085
</TABLE>

                                      F-51
<PAGE>

Note 22 - Business Combination

On October 31, 2003, the Company completed the acquisition of Oregon Trail and
its wholly-owned subsidiary, Pioneer Bank, for approximately $36.5 million in
cash and 2,960,128 shares of FirstBank common stock for consideration of the
3,108,657 shares of Oregon Trail common stock outstanding as of the completion
date of the acquisition. The value of the 2,960,128 shares of corporate stock
issued was based on the closing price of $11.23 on February 24, 2003, resulting
in a purchase price of $35.5 million. Common stock increased $14,800 and
additional paid in capital increased $33.2 million as a result of the issuance
of common stock for the acquisition. Additional paid in capital increased by
$4.6 million as a result of the purchase of the fair value of Oregon Trail's
unexercised stock options as of the completion date of the acquisition. The
statement of operations includes operations of the acquired entity, Oregon
Trail, for the five month period ended March 31, 2004.

It has been the Company's strategic objective to utilize capital to support
growth, and growth through acquisition was also a longer term strategy. Oregon
Trail complemented the Company's operations and business strategies. Oregon
Trail was a potential acquisition candidate because of its market area that is
geographically contiguous to the Company's existing market areas with no
overlapping branches. Oregon Trail was also considered to be a potential
candidate because of its stable deposit markets, sizable asset base, strong
asset quality, and its community banking philosophy, which is shared by the
Company. In addition, Oregon Trail and the Company have common backgrounds as
converted thrift institutions, and the board of directors and management of the
Company believed that a combination of the two companies would enhance the
Company's competitiveness, with a minimal impact on Oregon Trail's employees. In
fiscal year 2005, the integration for the core processing system platform was
completed and now the entire bank is operating on one operating system. This
completes the system integrations. The acquisition doubled the Company's asset
size and the common stock outstanding. The Company is the surviving holding
company with 100% ownership of the Bank, and the Bank is the surviving thrift
subsidiary.

                                      F-52
<PAGE>

Note 22 - Business Combination (Continued)

The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition.

                               At October 31, 2003
                                 (In Thousands)
Cash and cash equivalents                                          $     61,207
Securities                                                               72,686
Loans, net                                                              196,559
Premises and equipment, net                                               8,411
FHLB Stock                                                                6,378
Bank-owned and cash surrender value of life insurance policies           14,299
Other assets                                                              4,701
Core deposit intangible                                                   3,876
Goodwill                                                                 18,147
                                                                   ------------

Total assets acquired                                              $    386,264
                                                                   ============

Deposits                                                                258,487
Borrowings                                                               50,969
Other liabilities                                                         3,518
                                                                   ------------

Total liabilities assumed                                          $    312,974
                                                                   ============

Net assets acquired                                                $     73,290

Issuance of corporate stock                                              33,227
Fair value of stock options                                               4,563
                                                                   ------------

Aggregate purchase price                                           $     35,500
                                                                   ============

At October 31, 2003, the goodwill asset recorded in connection with the Oregon
Trail acquisition was $18.1 million. None of the goodwill is expected to be
deductible for tax purposes.

                                      F-53
<PAGE>

Note 22 - Business Combination (Continued)

The following table sets forth the supplemental pro forma condensed combined
statement of income for the year ended March 31, 2004, reflecting the
acquisition of Oregon Trail by the Company as if it had occurred at the
beginning of the periods shown.

                               FirstBank NW Corp.
                          Oregon Trail Financial Corp.
                Pro Forma Condensed Combined Statements of Income
                  (Dollars in Thousands, except Per Share Data)

                                                                    Year Ended
                                                                     March 31,
                                                                   ------------
                                                                       2004
                                                                   ------------
Total interest income                                              $     39,917
Total interest expense                                                   13,083
                                                                   ------------
Net interest income                                                      26,834
Provision for loan losses                                                 1,248
                                                                   ------------
Net interest income after provision for loan losses                      25,586
Total non-interest income                                                 7,391
Total non-interest expense                                              (25,187)
                                                                   ------------
Income before income tax expense                                          7,790
Income tax expense                                                        2,006
                                                                   ------------
Net income                                                         $      5,784
                                                                   ============

Pro Forma earnings per share:
   Pro Forma net income per share - basic                          $       1.04
   Pro Forma net income per share - diluted                        $       0.95
   Pro Forma weighted average
         shares outstanding - basic                                   5,587,136
   Pro Forma weighted average
         shares outstanding - diluted                                 6,106,390

                                      F-54
<PAGE>
<TABLE>
<CAPTION>

Note 23 - Parent Company Financial Information

                               FirstBank NW Corp.
                        Statements of Financial Condition
                             (Dollars in Thousands)

                                                          Year Ended March 31,
                                                      ---------------------------
                                                          2006           2005
                                                      ------------   ------------
<S>                                                   <C>            <C>
Assets
   Cash and cash equivalents                          $         25   $        124
   Investment securities; available-for-sale                 1,049          1,058
   Loan receivable from ESOP                                   732            800
   Investment in subsidiaries                               78,999         70,901
   Income taxes receivable                                   1,605          1,966
   Deferred federal and state taxes                             25            154
   Other assets                                                 44             67
                                                      ------------   ------------

       TOTAL ASSETS                                   $     82,479   $     75,070
                                                      ============   ============

Liabilities and Stockholders' Equity
   Deferred change of control payments                $        189   $        537
   Borrowing                                                 3,147          2,162
   Other liabilities                                            13             60
   Stockholders' equity                                     79,130         72,311
                                                      ------------   ------------

       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $     82,479   $     75,070
                                                      ============   ============
</TABLE>

                                      F-55
<PAGE>
<TABLE>
<CAPTION>

Note 23 - Parent Company Financial Information (Continued)

                               FirstBank NW Corp.
                              Statements of Income
                             (Dollars in Thousands)

                                                                      Year Ended March 31,
                                                           ------------------------------------------
                                                               2006           2005           2004
                                                           ------------   ------------   ------------
<S>                                                        <C>            <C>            <C>
Interest income:
   ESOP loan                                               $         66   $         70   $         77
   Cash and cash equivalents                                          1              1              3
   Investment securities                                             14             14              7
Other income:
   Equity in undistributed income of
        subsidiaries, net of taxes                                8,971          6,541          4,574
   Other                                                             --              3             --
                                                           ------------   ------------   ------------

                                                                  9,052          6,629          4,661
                                                           ------------   ------------   ------------

Interest expense:
   Borrowing                                                        177             61             67
Other expense:
   Compensation, payroll taxes, and fringe benefits                 213            157            206
   Other expense                                                    429            303            160
                                                           ------------   ------------   ------------

                                                                    819            521            433
                                                           ------------   ------------   ------------

         Income before income tax benefit                         8,233          6,108          4,228

Income tax benefit                                                  283            170            130
                                                           ------------   ------------   ------------

         NET INCOME                                        $      8,516   $      6,278   $      4,358
                                                           ============   ============   ============
</TABLE>

                                      F-56
<PAGE>
<TABLE>
<CAPTION>

Note 23 - Parent Company Financial Information (Continued)

                                FirstBank NW Corp
                            Statements of Cash Flows
                             (Dollars in Thousands)

                                                                                         Year Ended March 31,
                                                                               ------------------------------------------
                                                                                   2006           2005           2004
                                                                               ------------   ------------   ------------
<S>                                                                            <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income                                                                  $      8,516   $      6,278   $      4,358
   Adjustments to reconcile net income to net cash provided
      (used) by operating activities:
      Equity in undistributed earnings of subsidiaries, net of taxes                 (8,971)        (6,541)        (4,573)
      Amortization of securities                                                         63             64             26
      Amortization of deferred compensation                                              --             --            157
      Changes in assets and liabilities:
         Other assets                                                                    23            (19)           982
         Income taxes receivable                                                        524            537            (24)
         Deferred federal and state taxes                                               109            195            103
         Deferred change of control liability                                          (348)          (597)          (334)
         Other liabilities                                                              (25)            40             20
                                                                               ------------   ------------   ------------

         Net cash provided (used) by operating activities                              (109)           (43)           715
                                                                               ------------   ------------   ------------

CASH FLOWS FROM  INVESTING ACTIVITIES
   Proceeds from sale of investment securities; available-for-sale                       --             --            937
   Dividends received from subsidiaries                                                 750             --         33,600
   Net cash in acquisition                                                               --             --        (31,222)
   Principal repayments on ESOP loan                                                     68             62             56
                                                                               ------------   ------------   ------------

         Net cash provided by investing activities                                      818             62          3,371
                                                                               ------------   ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Redemption of common stock                                                            --         (2,647)        (5,123)
   Proceeds from the exercise of stock options                                          433          2,144          2,813
   Cash dividends paid on common stock                                               (2,173)        (1,952)        (1,296)
   Cash dividends paid on unallocated ESOP Shares to reduce debt                        (53)           (55)           (53)
   Advances from borrowing                                                            4,177          3,837         36,692
   Repayments on advances from borrowing                                             (3,192)        (1,675)       (36,692)
                                                                               ------------   ------------   ------------

         Net cash used by financing activities                                         (808)          (348)        (3,659)
                                                                               ------------   ------------   ------------

         NET CHANGE IN CASH AND CASH EQUIVALENTS                                        (99)          (329)           427

Cash and cash equivalents, beginning of year                                            124            453             26
                                                                               ------------   ------------   ------------

Cash and cash equivalents, end of year                                         $         25   $        124   $        453
                                                                               ============   ============   ============
Supplemental disclosure for cash flow information:
 Cash paid during the year for:
      Interest                                                                 $        177   $         61   $         67
                                                                               ============   ============   ============
      Income taxes                                                             $      4,695   $      2,067   $      1,628
                                                                               ============   ============   ============
NONCASH INVESTING AND FINANCING ACTIVITIES
   ESOP shares released                                                        $        246   $        236   $        220
                                                                               ============   ============   ============
   Unrealized gain (loss) on securities available-for-sale, net of tax         $       (304)  $     (1,118)  $        382
                                                                               ============   ============   ============
   Unrealized gain on interest rate swap, net of tax                           $         --   $        (23)  $       (127)
                                                                               ============   ============   ============
</TABLE>

                                      F-57