SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB/A

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

         For the Fiscal Year Ended March 31, 1998

                                       OR

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

                         Commission File Number: 0-22435


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

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

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

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

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

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

         The Registrant's  revenues for the year ended March 31, 1998 were $15.6
million.

         The aggregate market value of voting stock held by nonaffiliates of the
Registrant  was$37,212,615  based on the last  reported sale price of the common
stock of the  Registrant  on the NASDAQ  National  Market on June 9,  1998.  For
purposes  of this  disclosure,  shares of common  stock held by persons who hold
more than 5% of the  outstanding  common stock and by officers and  directors of
the  Registrant  have been  excluded  in that such  persons  may be deemed to be
affiliates of the Registrant.

As of June 9, 1998, there were 1,837,660 shares  outstanding of the Registrant's
common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.  Portions  of the  Registrant's  definitive  proxy  statement  for its annual
meeting  of  stockholders  to be held on  July  22,  1998  are  incorporated  by
reference into Part II of the Form 10-KSB.

<PAGE>

                                     PART I
ITEM 1.  BUSINESS

GENERAL

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

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

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

MARKET AREA

         The  Bank  is  headquartered  in  Lewiston,   Idaho  and  operates  six
full-service offices in Lewiston,  Lewiston Orchards, Moscow,  Grangeville,  and
Coeur d'Alene, Idaho, and Clarkston, Washington. The Bank also operates two loan
production offices, one in Lewiston and one in Coeur d'Alene. Most of the Bank's
depositors reside in the communities surrounding the Bank's offices. Most of the
Bank's loans are made to borrowers  residing in the counties in which the Bank's
offices are located and in the surrounding counties.

         In  general,  the  market  areas  served by the Bank are  dependent  on
agriculture,  mining,  tourism and the forest products  industry,  and the local
economies reflect the health or weakness of those industries. Agriculture in the
Bank's market area is dry land farming.  The primary crop is wheat.  Other major
crops are barley, peas, lentils,  beans and grass seed. Livestock is also raised
in the Bank's  market area.  Lewiston is the largest city in northern  Idaho and
serves as the regional center for state government.  The economy of Lewiston, in
NezPerce  County,  is  connected  to that of  Clarkston,  Washington,  which  is
separated  from  Lewiston  by the Snake  River.  The  Lewis-Clark  Valley  has a
population of  approximately  58,000.  Forest  products and  agriculture are the
dominant  industries in the  Lewiston-Clarkston  area.  Medical services,  light
manufacturing  and tourism have helped keep the economy  stable in recent years.
Moscow,  Idaho, in Latah County,  has a population of approximately  21,000. The
county population is approximately 33,000.  Agriculture and higher education are
the primary  industries in Moscow.  The University of Idaho is located in Moscow
and is the city's largest employer. In addition,  Washington State University is
located  eight miles west of Moscow in Pullman,  Washington.  Both  universities
have been  expanding in recent  years,  which  resulted in increased  demand for
housing.  The growth of the universities  has slowed recently,  which has caused
some slow down in the real estate market.  Grangeville,  Idaho, in Idaho County,
has an economy based mostly on agriculture, the forest products industry and the
U.S. Forest Service.  Declines in the forest products industry has resulted in a
decline in population  in Idaho County over the last decade.  Tourism has become
increasingly  important  to the  Grangeville  economy  in  recent  years.  Coeur
D'Alene,  Idaho, in Kootenai County, has a population of approximately 31,000 in
a county with almost 100,000  residents.  Tourism,  forest products,  mining and
agriculture are the major industries of this

                                       2
<PAGE>

region. Coeur d'Alene has experienced  significant growth in the past ten years,
primarily  because of the expanding  tourism  industry and  migration  from more
populous parts of the western and northwestern  United States. As a result, real
estate activity has been high with a large amount of new home construction.

SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
                                                          At  March 31,
                                               ------------------------------------
FINANCIAL CONDITION DATA:                           1996       1997       1998
                                                    ----       ----       ----
                                                          (In Thousands)

<S>                                               <C>        <C>        <C>     
Total assets                                      $129,832   $137,652   $183,563
Loans receivable, net                               93,817    113,048    145,697
Cash and cash equivalents                           13,581      5,303      8,417
Investment securities held-to-maturity              10,545      5,199      2,449
Investment securities available-for-sale             1,328         --      2,654
Mortgage-backed securities held-to-maturity          2,488      2,281      3,420
Mortgage-backed securities available-for-sale           --      2,599      7,970
Deposits                                           115,324    107,596    114,495
Advances from FHLB                                   2,304     13,922     35,656
Stockholders' equity                                10,356     11,011     30,008
</TABLE>


<TABLE>
<CAPTION>
                                                          Year Ended March 31,
                                                   ---------------------------------
                                                        1996     1997      1998
                                                        ----     ----      ----
SELECTED OPERATING DATA:                                  (In Thousands, except
                                                              per share data)

<S>                                                   <C>       <C>       <C>    
Interest income                                       $ 9,552   $10,192   $13,321
Interest expense                                        5,158     5,338     6,573
                                                      -------   -------   -------
Net interest income                                     4,394     4,854     6,748
Provision for loan losses                                 150       310       200
                                                      -------   -------   -------
Net interest income after provision for loan losses     4,244     4,544     6,548
Non-interest income                                     1,980     2,245     2,282
Non-interest expenses                                   5,261     5,877     6,179
                                                      -------   -------   -------
Income before income tax expense                          963       912     2,651
Income tax expense                                        375       263       945
                                                      -------   -------   -------
Net income                                            $   588   $   649   $ 1,706
                                                      =======   =======   =======

Per Share Data:
  Pro forma amounts (unaudited):
    Net income per share - basic and diluted              N/A       N/A   $  0.93
                                                      =======   =======   =======
Historical:
    Dividends                                             N/A       N/A   $  0.14
                                                      =======   =======   =======
</TABLE>

                                       3
<PAGE>

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

                                                                   1996      1997     1998
                                                                   ----      ----     ----
<S>                                                                <C>       <C>       <C>  
KEY FINANCIAL RATIOS:
PERFORMANCE RATIOS:
Return on average assets (1)                                       0.50%     0.50%     1.02%
Return on average equity (2)                                       5.81      5.99      6.98
Average equity to average assets (3)                               8.55      8.34     14.63
Total equity to total assets at end  of year                       7.98      8.00     16.35
Interest rate spread (4)                                           3.61      3.68      3.72
Net interest margin (5)                                            3.89      3.92      4.27
Average interest-earning assets to average interest-bearing
   liabilities                                                   106.09    105.62    113.26
Non-interest expense as a percent of average assets                4.44      4.52      3.70
Efficiency ratio (6)                                              82.54     82.79     68.43
Dividend payout ratio                                               N/A       N/A     15.01

EQUITY RATIOS:
Tier I capital to average assets                                   7.98      8.02     11.36
Tier I capital to risk-weighted assets                            13.24     12.51     17.10
Total capital to risk-weighted assets                             14.14     13.59     18.05

ASSET QUALITY RATIOS:
Nonaccrual and 90 days or more past due loans as a percent
   of loans receivable, net                                        0.74      1.00      0.31
Nonperforming assets as a  percent of total assets                 0.59      0.99      0.73
Allowance for loan losses as a percent of total loans
   receivable                                                      0.70      0.82      0.73
Allowance for loan losses as a percent of nonperforming
   loans                                                         101.30     86.58    245.61
Net charge-offs to average outstanding loans                       0.00      0.03      0.04
</TABLE>


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

LENDING ACTIVITIES

         GENERAL.  The principal lending activity of the Bank is the origination
of  conventional  mortgage  loans for the purpose of purchasing  or  refinancing
owner-occupied,   one-   to   four-family   residential   property.   With   the
implementation of the Commercial Loan Department in fiscal 1998, commercial real
estate and commercial  non-real estate lending have become a significant portion
of the lending activities.  The Bank is also active in originating  construction
and  agricultural  real estate loans.  The Bank's net loans  receivable  totaled
$145.7  million at March 31,  1998,  representing  79.4% of  consolidated  total
assets.

                                       4
<PAGE>

         LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition
of the Bank's loan  portfolio by type of loan at the years  indicated.  The Bank
had no  concentration  of loans exceeding 10% of total gross loans other than as
disclosed below.


<TABLE>
<CAPTION>
                                                             At March 31,
                                    ----------------------------------------------------------------
                                           1996                  1997                   1998
                                           ----                  ----                   ----
                                     Amount    Percent     Amount     Percent     Amount     Percent
                                     ------    -------     ------     -------     ------     -------
                                                         (Dollars in  Thousands)

<S>                                 <C>         <C>       <C>          <C>       <C>          <C>   
Real estate loans:
 Residential                        $62,818     62.41%    $ 77,408     65.32%    $ 87,985     57.06%
Agricultural                         11,945     11.87       11,998     10.12       14,602      9.47
Commercial                            4,036      4.01        5,392      4.55       12,433      8.06
Construction                         13,832     13.74       11,861     10.01        7,966      5.17
                                    -------    ------     --------    ------     --------    ------
Total real estate loans              92,631     92.03      106,659     90.00     $122,986     79.76

Consumer and other loans:
Commercial                               --        --        1,692      1.43       16,627     10.78
Home equity                           5,229      5.20        5,003      4.22        6,175      4.00
Other consumer                        2,206      2.19        4,125      3.48        6,109      3.96
Agricultural operating                  589      0.58        1,030      0.87        2,305      1.50
                                    -------    ------     --------    ------     --------    ------
Total consumer and other loans        8,024      7.97       11,850     10.00       31,216     20.24
                                    -------    ------     --------    ------     --------    ------

Total loans receivable              100,655    100.00%     118,509    100.00%     154,202    100.00%
                                    -------    ======     --------    ======     --------    ======

Less:
Loans in process                      5,726                  4,108                  6,934
Unearned loan fees and discounts        411                    379                    451
Allowance for loan losses               701                    974                  1,120
                                    -------               --------               --------
Loans receivable, net               $93,817               $113,048               $145,697
                                    =======               ========               ========
</TABLE>



         RESIDENTIAL REAL ESTATE LENDING.  The principal lending activity of the
Bank is the  origination  of mortgage  loans to enable  borrowers to purchase or
refinance  existing  residential real estate. At March 31, 1998, $123.0 million,
or 79.8%, of the Bank's total gross loan portfolio consisted of loans secured by
residential  real estate.  The Bank presently  originates  both  adjustable rate
mortgage ("ARM") loans and fixed-rate mortgage loans with maturities of up to 30
years. Substantially all of the Bank's residential mortgage loans are secured by
property  located in the Bank's primary market area.  Very few of the properties
securing  the Bank's  residential  mortgage  loans are second  homes or vacation
properties.  The Bank's conventional  mortgage loans are generally  underwritten
and documented in accordance with the guidelines established by the Federal Home
Loan Mortgage Corporation ("Freddie Mac").

         The Bank generally retains all of the conventional fixed-rate mortgages
with  maturities  of 15 years or less and sells all of the  fixed-rate  mortgage
loans with maturities in excess of 15 years that it originates,  although in the
year ended March 31, 1998 the Bank retained some 30-year,  fixed-rate  loans for
its  portfolio.  The  Bank  generally  retains  all of the  ARM  loans  that  it
originates.  Most of the loans  sold by the Bank are sold to  Freddie  Mac.  The
remainder  of  loans  sold  are  purchased  by  the  Federal  National  Mortgage
Association ("Fannie Mae") or private investors. The Bank sells loans to Freddie
Mac and Fannie Mae on a  servicing-retained  basis,  while loans sold to private
investors  are sold  servicing-released.  Generally,  all loans are sold without
recourse,  although  in the past the Bank has sold  loans with  recourse.  As of
March 31, 1998,  the Bank remains  contingently  liable for  approximately  $1.3
million of loans sold with recourse.  The Bank's  decision to hold or sell loans
is based on its  asset/liability  management  policies  and goals and the market
conditions for mortgages. See "-- Lending Activities -- Loan Originations, Sales
and Purchases."

                                       5
<PAGE>

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

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

         A significant  portion of the Bank's ARM loans are not readily saleable
in the secondary  market because they are not originated in accordance  with the
purchase  requirements  of Freddie Mac or Fannie  Mae.  The Bank  requires  that
non-conforming  loans demonstrate  appropriate  compensating factors that offset
their lack of  conformity.  Although such loans satisfy the Bank's  underwriting
requirements,  they are  "non-conforming"  because they do not satisfy  property
limits, credit requirements,  repayment capacities or various other requirements
imposed by Freddie Mac and Fannie Mae.  Accordingly,  the Bank's  non-conforming
loans can be sold only to private  investors on a negotiated basis. At March 31,
1998,  the  Bank's   residential   loan   portfolio   included  $19  million  of
non-conforming ARM loans. Generally,  the Bank's non-conforming ARM loans bear a
higher  rate of  interest  than  similar  conforming  ARM  loans.  The  Bank has
historically found that its origination of non-conforming loans has not resulted
in high amounts of nonperforming loans.

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

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

                                       6
<PAGE>

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

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

         CONSTRUCTION  LENDING.  The  Bank  invests  a  proportion  of its  loan
portfolio in residential  construction loans. This activity has been prompted by
favorable economic  conditions in northern Idaho,  especially in the area around
Coeur  d'Alene,  lower  long-term  interest  rates and an  increased  demand for
housing units as a result of the population  growth in northern  Idaho. At March
31, 1998,  construction  loans totaled $8.0 million,  or 5.2% of total loans. At
such date, the average amount of the Bank's construction loans was approximately
$95,000,  which reflects that much of the construction in the Coeur d'Alene area
is of entry-level housing. The largest construction loan in the Bank's portfolio
at  March  31,  1998 was  $500,000.  During  the  year  ended  March  31,  1998,
construction loans constituted 8.5% of total loan originations.

         The Bank originates  construction  loans to professional  home builders
and to  individuals  building  their primary  residence.  In addition,  the Bank
occasionally  makes  loans to builders  for the  acquisition  of building  lots.
Construction  loans made by the Bank to professional  home builders include both
those with a sales  contract or permanent  loan in place for the finished  homes
and those for which  purchasers for the finished homes may be identified  either
during or following the construction  period  (speculative  loans). At March 31,
1998, speculative loans totaled $4.8 million, or 60.3% of the total construction
loan portfolio. Construction loans to individuals generally convert to permanent
mortgage loans upon completion of the  construction  period.  At March 31, 1998,
custom  construction loans to individuals  totaled $2.5 million, or 31.4% of the
total construction loan portfolio.

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

         Loans  to  builders  for  the   construction  of  one-  to  four-family
residences  are generally  made for a term of 12 months.  The Bank's loan policy
includes a maximum  loan-to-value  ratio of 75%.  The Bank  maintains  a list of
major builders and establishes an aggregate  credit limit for each major builder
based  on the  builder's  financial  strength,  experience  and  reputation  and
monitors their borrowings on a monthly basis.  Each major builder is required to
provide the Bank with annual financial  statements and other credit information.
At March 31,  1998,  the Bank had  approved  four major  builders,  the  largest
borrowing capacity of which was approximately  $1.6 million.  At March 31, 1998,
the Bank's major builders had total loans of $1.3 million  outstanding.  For all
other  builders,  the Bank  reviews  the  financial  strength  and credit of the
builder on a loan by loan basis.

                                       7
<PAGE>

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

         AGRICULTURAL  LENDING.  Agricultural  real  estate  lending has been an
important  part of the Bank's lending  strategy  since the mid-1980s.  The Chief
Executive  Officer has 24 years of  experience  and the Senior  Vice  President,
Agricultural  and Consumer  Lending has 18 years of experience  in  agricultural
real estate  lending.  The addition of two loan  officers to the existing  staff
establishes  FirstBank as the most experienced  agricultural lender in the area.
At March 31, 1998, agricultural real estate loans totaled $14.6 million, or 9.5%
of the Bank's total loan portfolio.

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

         Agricultural  real estate loans  generally are  underwritten to Federal
Agricultural  Mortgage Corporation ("Farmer Mac") standards so as to qualify for
sale in the secondary market,  although the Bank currently retains most of these
loans for its portfolio.  In originating an  agricultural  real estate loan, the
Bank considers the debt service coverage of the borrower's cash flow, the amount
of working  capital  available to the  borrower,  the  financial  history of the
farmer and the appraised value of the underlying  property as well as the Bank's
experience with and knowledge of the borrower.  An  environmental  assessment is
also performed.  The maximum loan-to-value for agricultural real estate loans is
75%.  At March 31,  1998,  the  largest  agricultural  real estate loan was $1.0
million and the average  Bank  agricultural  real estate loan was  approximately
$107,000.

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

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

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

                                       8
<PAGE>

         COMMERCIAL  REAL ESTATE  LENDING.  Commercial  real  estate  lending is
becoming a significant part of the Bank's lending  strategy.  At March 31, 1998,
the Bank's commercial real estate loan portfolio totaled $12.4 million,  or 8.1%
of total loans.  The Bank has been more active in  originating  commercial  real
estate  loans  in  recent  periods.  During  the  year  ended  March  31,  1998,
originations of commercial real estate loans totaled $9.6 million. In connection
with the expansion of the Bank's community banking activities,  the Bank intends
to further increase its emphasis on commercial real estate lending.

         The Bank's  commercial  real  estate  loans  include  loans  secured by
storage  facilities,  a manufactured home park, small office  buildings,  retail
shops,   multi-family   residential   properties  and  other  small   commercial
properties.  Commercial real estate loans in the Bank's portfolio  include loans
originated by the Bank and participation  interests in loans originated by other
institutions.  At March 31, 1998, the average size of the Bank's commercial real
estate loans was $107,000 and the largest was $966,000. Appraisals on properties
that  secure  commercial  real  estate  loans are  performed  by an  independent
appraiser  engaged  by the  Bank  before  the  loan is  made.  An  environmental
assessment  is also  performed.  Underwriting  of  commercial  real estate loans
includes a thorough  analysis of the cash flows  generated by the real estate or
the borrower's business to support the debt service and the financial resources,
experience,  and income level of the borrowers.  Annual operating  statements on
each commercial real estate loan are required and reviewed by management.

         In  addition  to loans  secured by  commercial  properties,  the Bank's
commercial  real  estate  portfolio   includes  loans  for  the  development  of
residential  subdivisions.  Such loans  totaled  $1.8 million at March 31, 1998.
During the year ended March 31, 1998,  originations of loans for the development
of residential  subdivisions  totaled $1.0 million.  Other types of loans in the
commercial  portfolio  include SBA guaranteed loans, B & I guaranteed loans, and
participation loans with other banks.

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

         CONSUMER AND OTHER LENDING.  The Bank  originates a variety of consumer
and other  non-mortgage  loans.  Such  loans  generally  have  shorter  terms to
maturity and higher  interest rates than mortgage  loans. At March 31, 1998, the
Bank's  consumer  and  other  non-mortgage  loans  totaled  approximately  $31.2
million,  or 20.2% of the Bank's total loans.  The Bank's consumer loans consist
primarily of secured and unsecured consumer loans, automobile loans, boat loans,
recreation  vehicle loans, home improvement and equity loans and deposit account
loans.  The Bank also originates a small amount of agricultural  operating loans
and equipment  loans.  The growth of the consumer loan portfolio in recent years
has consisted  primarily of an increase in home equity loans, which the Bank has
more aggressively marketed.

         At March 31, 1998,  home equity loans  totaled $6.2  million.  The Bank
offers both home equity second mortgage loans and lines of credit. Substantially
all of the Bank's home equity loans are primarily secured by second mortgages on
residential  real estate located in the Bank's primary market area.  Home equity
second mortgage loans are generally  offered with terms of five or ten years and
only with fixed  interest  rates.  Home equity  lines of credit  generally  have
adjustable interest rates based on the prime rate.

         At March 31, 1998,  agricultural  operating loans totaled $2.3 million.
Agricultural operating loans or lines of credit generally are made for a term of
one to three years and may be secured or unsecured. Such loans may be secured by
a first or second mortgage, or liens on property, vehicles, accounts receivable,
crop held or growing crop. Personal guarantees are frequently required for loans
made to corporations and other business entities.

         Commercial  lending has become an important  part of the Bank's lending
strategy  this past year.  The Senior Vice  President has 18 years of commercial
lending  experience  and  was  able,  with  the  help of two  other  experienced

                                       9
<PAGE>

commercial lenders to increase  commercial non-real estate loans to 10.8% of the
total loan portfolio.  The Bank presently  originates both  adjustable-rate  and
fixed-rate loans secured by equipment,  accounts receivable and inventory. Loans
secured by accounts  receivable and inventory are generally  operating  lines of
credit of one year while  equipment  secured  loans may be for a term as long as
five years. Nonresidential commercial lending has increased from $1.7 million to
$16.6  million  from  fiscal year ended 1997 and 1998,  respectively.  The major
component of this increase was the  origination of two tax  anticipation  notes:
one with the City of Lewiston  for $3.4  million and the other with the Lewiston
School  District  for $3.3  million,  both of which have a term of less than one
year.

         Consumer and non-mortgage loans entail greater risk than do residential
mortgage loans,  particularly in the case of loans that are unsecured or secured
by rapidly  depreciating assets such as automobiles and farm equipment.  In such
cases, any repossessed  collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the  outstanding  loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining deficiency
often does not  warrant  further  substantial  collection  efforts  against  the
borrower  beyond  obtaining a deficiency  judgment.  In addition,  consumer loan
collections are dependent on the borrower's continuing financial stability,  and
thus are more likely to be adversely affected by job loss,  divorce,  illness or
personal bankruptcy.  Similarly, payments on agricultural operating loans depend
on the  successful  operation of the farm,  which may be  adversely  affected by
weather  conditions  that limit crop yields,  fluctuations  in market prices for
agricultural  products,  and changes in government  regulations  and  subsidies.
Furthermore,  the  application  of various  federal  and state  laws,  including
federal and state  bankruptcy and insolvency laws, may limit the amount that can
be  recovered  on such loans.  At March 31,  1998,  the Bank had no consumer and
non-mortgage loans accounted for on a nonaccrual basis.


MATURITY OF LOAN PORTFOLIO.  The following table sets forth certain  information
at March 31, 1998 regarding the dollar amount of principal  repayments for loans
becoming due during the years  indicated.  All loans are included in the year in
which the final contractual payment is due. Demand loans, loans having no stated
schedule of repayments  and no stated  maturity,  and overdrafts are reported as
due within one year.  The table does not  include any  estimate  of  prepayments
which  significantly  shorten  the  average  life of all loans and may cause the
Bank's actual repayment experience to differ from that shown below.


<TABLE>
<CAPTION>
                                                     One        After 5 Years  After 10 Years
                                   Within        Year Through      Through         Through         Beyond
                                  One Year         5 Years        10 Years        15 Years        15 Years          Total
                                  --------         -------        --------        --------        --------          -----
                                                                     (In   Thousands)
<S>                               <C>             <C>             <C>             <C>             <C>             <C>     
Real estate loans:
  Residential                     $ 25,507        $ 17,352        $  8,488        $ 15,201        $ 21,437        $ 87,985
  Construction                       7,735             231               0               0               0           7,966
  Commercial                         1,263          10,168             795               0             207          12,433
  Agricultural                      11,154           1,832           1,225             391               0          14,602
Commercial non-real estate          11,222           5,099             306               0               0          16,627
Consumer and other loans             9,269           3,222           1,310               0             788          14,589
                                  --------        --------        --------        --------        --------        --------
Total loans receivable            $ 66,150        $ 37,904        $ 12,124        $ 15,592        $ 22,432        $154,202
                                  ========        ========        ========        ========        ========        ========
</TABLE>

                                                             10
<PAGE>

         The following table sets forth the dollar amount of all loans due after
March 31, 1998,  that have fixed  interest rates and have floating or adjustable
interest rates.

                                             Fixed        Floating or
                                             Rates     Adjustable Rates
                                             -----     ----------------
                                                 (In  Thousands)
                                                  -------------
Real estate loans:
  Residential                               $48,708        $39,277
  Construction                                7,966              0
  Commercial                                  1,811         10,622
  Agricultural                                1,218         13,384
Commercial non-real estate                   10,082          6,545
Consumer and other loans                      5,332          9,257
                                            -------        -------
Total loans receivable                      $75,117        $79,085
                                            =======        =======

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

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

         Residential  real estate loans up to $227,150  that qualify for sale in
the  secondary  market may be  approved  by the Bank's  underwriters.  All other
portfolio  real estate  loans up to $500,000  must be approved by two members of
the management loan committee.  Delegated loan approval authority to residential
lending  centers is  authorized  within  prescribed  limits for  approved  major
builder loans.  All other  construction  loans  resulting in total  extension of
credit to one  borrower  up to  $500,000  must be approved by two members of the
management loan committee.  Any loan that would result in the total extension of
credit to one  borrower  to be in excess of  $500,000  or to a major  builder in
excess of its maximum  credit  limit must be approved by the Board of  Directors
Loan  Committee.  Consumer  loans  up to  $25,000  and home  equity  loans up to
$100,000 may be approved by designated underwriters. All other consumer and home
equity loans must be approved by two members of the management loan committee.

         LOAN ORIGINATIONS,  SALES AND PURCHASES. While the Bank originates both
adjustable-rate  and fixed-rate loans, its ability to generate each type of loan
is dependent upon relative customer demand for loans in its market. For the year
ended March 31, 1998, the Bank originated  $145.3 million of loans.  Residential
real estate loan originations totaled $96.1 million for the year ended March 31,
1998. Of the $145.3 million of loans originated  during the year ended March 31,
1998, 14% were adjustable-rate loans and 86% were fixed-rate loans.

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

                                       11
<PAGE>

contribution  to the Bank's  profitability  depends on  maintaining a sufficient
volume of loan  originations.  Changes  in the level of  interest  rates and the
local economy  affect the amount of loans  originated by the Bank and, thus, the
amount of loan sales as well as origination and loan fees earned. Gains on sales
of loans totaled $1.2 million and $1.0 million  during the years ended March 31,
1997, and 1998. The Bank sells loans on a loan-by-loan  basis.  Generally a loan
is  committed  to be sold  and a price  for the  loan is  fixed  at the time the
interest  rate on the loan is fixed,  which may be at the time the Bank issues a
loan commitment or at the time the loan closes.  This eliminates the risk to the
Bank that a rise in market  interest  rates will  reduce the value of a mortgage
before it can be sold. Where a loan is committed to be sold before it is closed,
the Bank is subject to the risk that the loan fails to close or that the closing
of the loan is delayed beyond the specified  delivery  date. In such event,  the
Bank may be  required to  compensate  the  purchaser  for failure to deliver the
loan. Generally,  all loans are sold without recourse,  although in the past the
Bank has sold loans  with  recourse.  As of March 31,  1998,  the Bank  remained
contingently liable for approximately $1.3 million of loans sold with recourse.

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

                                       12
<PAGE>

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

<TABLE>
<CAPTION>
                                                          Year Ended March 31,
                                              --------------------------------------------
                                                   1996           1997           1998
                                                   ----           ----           ----
                                                             (In Thousands)

<S>                                              <C>            <C>            <C>     
Total loans receivable at  beginning of year     $ 88,810       $100,655       $118,509
                                                 --------       --------       --------

Loans originated:
Real estate loans:
   Residential                                     83,551         80,721         96,124
   Construction                                    29,569         26,359         12,377
   Agricultural                                     1,023          1,326          4,395
   Commercial                                       1,481          4,887          9,555
Commercial non-real estate                             --          1,692         16,526
Consumer and other loans                            5,270          4,537          6,297
                                                 --------       --------       --------
Total loans originated                            120,894        119,522        145,274
                                                 --------       --------       --------

Loans purchased:
   Real estate loans:
   Residential                                         25             43            160
   Construction                                        --             --             --
   Agricultural                                        --             --             --
   Commercial                                          --             --             --
Commercial non-real estate                             --             --            144
Consumer and other loans                               --             --             --
                                                 --------       --------       --------
Total loans purchased                                  25             43            304
                                                 --------       --------       --------

Loans sold:

Servicing retained                                (21,219)       (25,140)       (25,435)
Servicing released                                (48,550)       (33,585)       (39,860)
                                                 --------       --------       --------
Total loans sold                                  (69,769)       (58,725)       (65,295)

Loan principal repayments                         (32,112)       (33,905)       (25,747)

Other(1)                                           (7,193)        (9,081)       (18,843)
                                                 --------       --------       --------
Change in total loans receivable                   11,845         17,854         35,693
                                                 --------       --------       --------
Total loans receivable at end of year            $100,655       $118,509       $154,202
                                                 ========       ========       ========
</TABLE>

(1)      Consists of refinanced loans.

         LOAN  COMMITMENTS.  The Bank  issues  commitments  to  originate  loans
conditioned upon the occurrence of certain events.  Such commitments are made on
specified  terms and  conditions and are honored for up to 90 days from the date
of loan approval.  The Bank had outstanding  loan  commitments of  approximately
$22.4 million at March 31, 1998.

         LOAN ORIGINATION AND OTHER FEES. The Bank, in some instances,  receives
loan  origination  fees.  Loan fees are a fixed dollar amount or a percentage of
the  principal  amount of the mortgage  loan that is charged to the borrower for
funding the loan.  The amount of fees charged by the Bank generally is 1% of the
loan amount.  Current accounting 

                                       13
<PAGE>

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 $451,000 of unearned loan fees and discounts at March 31, 1998.

         LOAN SERVICING. The Bank sells residential real estate loans to Freddie
Mac and Fannie Mae on a servicing-retained basis and receives fees in return for
performing  the  traditional  services of  collecting  individual  payments  and
managing  the loans.  In the past,  the Bank has sold  agricultural  real estate
loans to private investors on a servicing-retained basis. At March 31, 1998, the
Bank was servicing $135.6 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, 1998,  the Bank held $2.0
million in escrow for its portfolio of loans serviced for others.

DELINQUENCIES AND CLASSIFIED ASSETS

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

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

                                       14
<PAGE>

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


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

                                                  1996        1997        1998
                                                  ----        ----        ----
                                                      (Dollars in Thousands)
Loans accounted for on a  nonaccrual basis:
Real estate loans:
   Residential                                   $  399      $  526      $  418
   Construction                                     194         595          36
   Agricultural                                      --          --          --
   Commercial                                        --          --          --
Commercial non-real estate                           --          --          --
Consumer and other loans                             --           4          --
                                                 ------      ------      ------
Total                                               593       1,125         454
                                                 ------      ------      ------

Accruing loans which are contractually
 Past due 90 days or more:
Real estate loans:
   Residential                                       97          --           2
   Construction                                      --          --          --
   Agricultural                                      --          --          --
   Commercial                                        --          --          --
Commercial non-real estate                           --          --          --
Consumer and other loans                              2          --          --
                                                 ------      ------      ------
Total                                                99          --           2
                                                 ------      ------      ------

Total of nonaccrual and 90 days past
   due loans                                        692       1,125         456
Real estate owned                                    76         234         883
                                                 ------      ------      ------
Total nonperforming assets                       $  768      $1,359       $1339
                                                 ======      ======      ======

   Restructured loans                            $1,760      $1,742          --

Nonaccrual and 90 days or more past due
   loans as a percent of loans receivable, net     0.74%       1.00%       0.31%
Nonaccrual and 90 days or more past
   due loans as a percent of total assets          0.53%       0.82%       0.25%
Nonperforming assets as a percent of
   total assets                                    0.59%       0.99%       0.73%
Total nonperforming assets to total loans          0.76%       1.15%       0.87%



         Interest  income that would have been recorded for the year ended March
31, 1998 had  nonaccruing  loans been current in accordance  with their original
terms  amounted to  approximately  $66,000.  The amount of interest  included in
interest  income on such loans for the year ended  March 31,  1998  amounted  to
approximately $31,000.

                                       15
<PAGE>

         REAL  ESTATE  OWNED.  Real  estate  acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
("REO") until it is sold.  When property is acquired it is recorded at the lower
of its cost,  which is the unpaid  principal  balance of the  related  loan plus
foreclosure  costs,  or fair market  value.  Subsequent to  foreclosure,  REO is
carried at the lower of the  foreclosed  amount or fair  value,  less  estimated
selling costs. At March 31, 1998, the Bank had $883,000 of REO.

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

         At March 31,  1998,  classified  assets  of the  Company  totaled  $2.2
million.  Assets  classified as loss totaled  $19,000 and consisted of overdrawn
negotiable order of withdrawal ("NOW") accounts totaling $16,500 and installment
loans of $2,500.  Assets  classified  as  substandard  totaled  $1.6 million and
consisted of REO totaling  $883,000,  one consumer loan in the amount of $1,000,
four  construction  loans  totaling  $416,000,  6 residential  real estate loans
totaling $276,000 and overdrawn NOW accounts totaling $22,000. Assets designated
as special  mention  totaled  $569,000 and consisted of seven  residential  real
estate loans  totaling  $479,000,  one  agricultural  real estate loan  totaling
$90,000.  The  aggregate  amounts of the Bank's  classified  assets at the dates
indicated were as follows:

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

                                       1996       1997       1998
                                      ------     ------     ------
                                              (In Thousands)
Loss                                  $    2     $   20     $   19
Doubtful                              ------     ------     ------
Substandard                            1,219      2,006      1,598
Special mention                          342        618        569
                                      ------     ------     ------
Total classified assets               $1,563     $2,644     $2,186
                                      ======     ======     ======


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

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

                                       16
<PAGE>

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

         At March 31, 1998,  the Bank had an  allowance  for loan losses of $1.1
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  may  adversely  affect  the  Bank's  financial
condition and results of operations.

                                       17
<PAGE>

         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,
                                                 ---------------------------------

                                                    1996       1997       1998
                                                    ----       ----       ----
                                                      (Dollars in Thousands)

<S>                                                 <C>        <C>       <C>   
Allowance at beginning of year                      $555       $701      $  974

Provision for loan losses(1)                         150        310         200

Recoveries                                            --         --          --

Charge-offs:
Real estate loans:
   Residential                                        --         --          --
   Construction                                       --         36          51
   Agricultural                                       --         --          --
   Commercial                                         --         --          --
Commercial non-real estate                            --         --          --
Consumer and other loans                               4          1           3
                                                    ----       ----      ------
Total charge-offs                                      4         37          54
                                                    ----       ----      ------
Net charge-offs                                        4         37          54
                                                    ----       ----      ------
Balance at end of year                              $701       $974      $1,120
                                                    ====       ====      ======

Allowance for loan losses as a percent of total
   loans receivable                                 0.70%      0.82%       0.73%
Net charge-offs to average outstanding loans          --       0.03%       0.04%
</TABLE>

(1)  See "Item 6.  Management's  Discussion and Analysis or Plan of Operation --
     Comparison of Operating Results for the Years Ended March 31, 1997 and 1998
     -- Provisions for Loan Losses" for a discussion of the factors  responsible
     for changes in the Bank's provision for loan losses between the years.

                                       18
<PAGE>

         The following  table sets forth the breakdown of the allowance for loan
losses by loan category for the years  indicated.  Management  believes that the
allowance  can be  allocated  by  category  only on an  approximate  basis.  The
allocation of the allowance to each  category is not  necessarily  indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.


<TABLE>
<CAPTION>
                                                               At March 31,
                                   --------------------------------------------------------------------------
                                           1996                    1997                      1998
                                   --------------------------------------------------------------------------
                                                           (Dollars in Thousands)
                                                % of Loans               % of Loans               % of Loans
                                                in Category              in Category              in Category
                                                 to Total                 to Total                 to Total
                                    Amount        Loans      Amount        Loans       Amount       Loans
                                    ------        -----      ------        -----       ------       -----
<S>                                  <C>          <C>         <C>          <C>         <C>          <C>   
Real estate loans:
   Residential                       $375         62.41%      $317         65.32%      $  367       57.06%
   Construction                       135         13.74        261         10.01          181        5.17
   Agricultural                       119         11.87        216         10.12          202        9.47
   Commercial                          --          4.01         97          4.55          310        8.06
Consumer and other loans               72          7.97         83         10.00           60       20.24
                                     ----        ------       ----        ------       ------      ------
Total allowance for loan losses      $701        100.00%      $974        100.00%      $1,120      100.00%
                                     ====        ======       ====        ======       ======      ======
</TABLE>


INVESTMENT ACTIVITIES

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

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

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

                                       19
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                At March 31,
                                 -------------------------------------------------------------------------
                                                          (Dollars in Thousands)
                                        1996                      1997                     1998
                                        ----                      ----                     ----

                                 Carrying   Percent of    Carrying     Percent of   Carrying    Percent of
                                  Value     Portfolio      Value       Portfolio     Value      Portfolio
                                  -----     ---------      -----       ---------     -----      ---------

<S>                              <C>            <C>        <C>          <C>         <C>           <C>
AVAILABLE-FOR-SALE:
Investment securities            $ 1,328        9.25%      $    --          --%     $ 2,654       16.09%
Mortgage-backed securities            --          --         2,599       25.79        7,970       48.32
                                 -------      ------       -------      ------      -------      ------
Total available-for-sale           1,328        9.25         2,599       25.79       10,624       64.41

HELD-TO-MATURITY:
U.S. Government and federal 
   agency obligations             10,545       73.43         5,199       51.58        2,449       14.85
Mortgage-backed securities         2,488       17.32         2,281       22.63        3,420       20.74
                                 -------      ------       -------      ------      -------      ------
Total held-to-maturity            13,033       90.75         7,480       74.21        5,869       35.59
                                 -------      ------       -------      ------      -------      ------

Total                            $14,361      100.00%      $10,079      100.00%     $16,493      100.00%
                                 =======      ======       =======      ======      =======      ======
</TABLE>


The table below sets forth certain  information  regarding  the carrying  value,
weighted   average   yields  and   maturities  of  the  Bank's   investment  and
mortgage-backed securities at March 31, 1998.

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

                               Amount     Yield     Amount     Yield     Amount   Yield     Amount     Yield
                               ------     -----     ------     -----     ------   -----     ------     -----
<S>                             <C>       <C>       <C>         <C>       <C>     <C>       <C>         <C>  
U.S. Government and
  federal agency obligation    $   --        --%    $2,449      5.99%    $   --      --%   $ 2,654      7.75%
Mortgage-backed
  securities                        3      5.23         --        --         --      --     11,387      6.41
                               ------      ----     ------      ----     ------   -----    -------      ----
Total                          $    3      5.23%    $2,449      5.99%    $   --      --%   $14,041      6.66%
                               ======      ====     ======      ====     ======   =====    =======      ====
</TABLE>

                                                     20
<PAGE>

DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS

         GENERAL.  Deposits  and loan  repayments  are the major  sources of the
Bank's  funds  for  lending  and  other  investment  purposes.   Scheduled  loan
repayments are a relatively  stable source of funds,  while deposit  inflows and
outflows and loan  prepayments are influenced  significantly by general interest
rates and money market conditions.  Borrowings through the FHLB-Seattle are used
to compensate  for reductions in the  availability  of funds from other sources.
Presently, the Bank has no other borrowing arrangements.

         DEPOSIT ACCOUNTS.  Savings deposits are the primary source of funds for
the Bank's  lending  and  investment  activities  and for its  general  business
purposes. Substantially all of the Bank's depositors are residents of the States
of Idaho and  Washington.  Deposits are attracted  from within the Bank's market
area through the offering of a broad selection of deposit instruments, including
NOW  accounts,   money  market  deposit  accounts,   regular  savings  accounts,
certificates  of deposit  and  retirement  savings  plans.  The Bank also offers
"TT&L"  (treasury,  taxes and  loans)  accounts  for local  businesses.  Deposit
account terms vary, according to the minimum balance required,  the time periods
the funds must remain on deposit and the interest rate, among other factors.  In
determining the terms of its deposit accounts, the Bank considers current market
interest rates,  profitability  to the Bank,  matching deposit and loan products
and its customer preferences and concerns.  The Bank reviews its deposit mix and
pricing weekly.  Currently,  the Bank does not accept brokered deposits, nor has
it aggressively  sought jumbo certificates of deposit,  although the Bank has in
the past accepted brokered  certificates of deposit. At March 31, 1998, the Bank
had no brokered  deposit.  In March 31, 1998,  certificates  of deposit that are
scheduled to mature in less than one year totaled  $52.8  million.  See "Item 6.
Management's  Discussion  and Analysis or Plan of  Operation  --  Liquidity  and
Capital Resources."

                                       21
<PAGE>

         The  following  table  sets  forth  information  concerning  the Bank's
deposits at March 31, 1998.



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

                                         (In Thousands)
<S>            <C>        <C>                                   <C>       <C>           <C>   
               1.23%      NOW                                   $  --     $ 19,389      16.93%
               3.05       Money Market Deposit                     --        9,078       7.93
               3.03       Passbook                                 --       13,418      11.72
                                                                          --------     ------
                                   Total Checking &  Passbook             $ 41,885      36.58

                          CERTIFICATES OF DEPOSIT
               4.51       7 days to 179 days                    2,500       10,096       8.82
               5.61       11 months special/non-renewable         500       12,973      11.33
               5.42       6 months to less than 1 year          1,000        9,665       8.44
               3.03       14 months special/non-renewable         500          368       0.32
               6.50       1 year to less than 2 years             500        7,625       6.66
               5.95       27 months special/non-renewable         500       10,328       9.02
               5.57       2 years to less than 3 years            500        7,160       6.25
               5.66       New 2 years to 5 years-Add on           100        2,768       2.42
               5.76       3 years to less than 4 years            500        4,391       3.84
               5.58       4 years to less than 5 years            500          624       0.55
               6.04       5 years to less than 10 years           500        5,746       5.02
               5.45       IRA Variable                             --          866       0.75
                                                                          --------     ------
                                   Total Certificates of  Deposit           72,610      63.42
                                                                          --------     ------

                                                   Total  Deposits        $114,495     100.00%
                                                                          ========     ======
</TABLE>

         The  following   table   indicates  the  amount  of  the  Bank's  jumbo
certificates  of deposit by time remaining  until maturity as of March 31, 1998.
Jumbo certificates of deposit are certificates in amounts of more than $100,000.


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

          Three months or less                                   $ 5,506
          Over three through six months                            3,991
          Over six through 12 months                               1,581
          Over 12 months                                           3,060
                                                                 -------

          Total jumbo certificates of deposit                    $14,138
                                                                 =======

                                       22
<PAGE>

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


<TABLE>
<CAPTION>
                                                                          At March 31,
                                   ---------------------------------------------------------------------------------------
                                                 1996                             1997                   1998
                                   ---------------------------------------------------------------------------------------
                                                Percent               Percent                          Percent
                                                  of                    of      Increase                 of     Increase
                                      Amount     Total    Amount       Total   (Decrease)   Amount      Total   (Decrease)
                                      ------     -----    ------       -----   ----------   ------      -----   ----------
                                                                     (Dollars in Thousands)

<S>                                 <C>          <C>     <C>           <C>      <C>        <C>          <C>       <C>   
    NOW accounts                    $ 14,617     12.67%  $ 15,943      14.82%   $ 1,326    $ 19,389     16.93%    $3,446
    Passbook accounts                 13,861     12.02     14,164      13.16        303      13,418     11.72       (746)
    Money market deposit
      accounts                         7,167      6.21      6,968       6.48       (199)      9,078      7.93      2,110
    Fixed-rate certificates
      which mature:
         Within 1 year                52,692     45.69     53,120      49.37        428      52,836     46.15       (284)
         After 1 year, but within  
          2 years                     16,329     14.16     11,139      10.35     (5,190)     13,111     11.45      1,972
         After 2 years, but within
          5 years                     10,639      9.23      6,241       5.80     (4,398)      6,626      5.79        385
         Certificates maturing
           thereafter                     19      0.02         21       0.02          2          37      0.03         16
                                    --------    ------   --------     ------    -------    --------    ------         --
    Total                           $115,324    100.00%  $107,596     100.00%   $(7,728)   $114,495    100.00%    $6,899
                                    ========    ======   ========     ======    =======    ========    =======    ======
</TABLE>




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

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

                                           1996           1997            1998
                                           ----           ----            ----
                                                     (In Thousands)
       3.0 - 3.99%                       $ 1,706         $   997         $ 1,001
       4.0 - 4.99%                         7,748           7,132         $ 7,995
       5.0 - 5.99%                        33,623          42,816          55,992
       6.0 - 6.99%                        31,263          17,082           6,638
       7.0 - 7.99%                         2,858           1,990             483
       8.0 - 8.99%                         1,993              51              49
       9% and over                           488             453             452
                                         -------         -------         -------
       Total                             $79,679         $70,521         $72,610
                                         =======         =======         =======

                                       23
<PAGE>

The  following  table sets forth the amount and  maturities  of time deposits at
March 31, 1998.

<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>  
 3.0 - 3.99%                  $ 1,001     $    --     $   --     $   --     $ --     $ 1,001       1.38%
 4.0 - 4.99%                    7,836         113         46         --       --       7,995      11.01
 5.0 - 5.99%                   37,668      12,536      3,983      1,290      515      55,992      77.11
 6.0 - 6.99%                    6,313         325         --         --       --       6,638       9.14
 7.0 - 7.99%                        1         116        245          2      119         483       0.67
 8.0 - 8.99%                        5           4         40         --       --          49       0.06
 9% and over                       12          17        423         --       --         452       0.62
                              -------     -------     ------     ------     ----     -------     ------
 Total                        $52,836     $13,111     $4,737     $1,292     $634     $72,610     100.00%
                              =======     =======     ======     ======     ====     =======     ======
</TABLE>


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


                                             Year ended March 31,
                                     ------------------------------------
                                       1996          1997          1998
                                       ----          ----          ----
                                                (In Thousands)
Beginning balance                    $ 88,787      $115,324      $107,596
                                     --------      --------      --------

Net increase (decrease)
  before interest credited             21,769       (11,902)        3,396
Interest credited                       4,768         4,174         3,503
                                     --------      --------      --------
Net increase (decrease)
  in savings deposits                  26,537        (7,728)        6,899
                                     --------      --------      --------

Ending balance                       $115,324      $107,596      $114,495
                                     ========      ========      ========


         BORROWINGS.  The  Bank  utilizes  advances  from  the  FHLB-Seattle  to
supplement  its  supply  of  lendable  funds  and  to  meet  deposit  withdrawal
requirements.  The  FHLB-Seattle  functions as a central  reserve bank providing
credit for savings associations and certain other member financial institutions.
As a member of the  FHLB-Seattle,  the Bank is required to own capital  stock in
the FHLB-Seattle and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally securities
that are obligations of, or guaranteed by, the U.S. Government) provided certain
creditworthiness  standards have been met. Advances are made pursuant to several
different  credit  programs.  Each credit  program has its own interest rate and
range of  maturities.  Depending  on the program,  limitations  on the amount of
advances are based on the financial  condition of the member institution and the
adequacy  of  collateral  pledged to secure the  credit.  The Bank is  currently
authorized to borrow from the FHLB up to an amount equal to 40% of total assets.

                                       24
<PAGE>

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


<TABLE>
<CAPTION>
                                                             At or For the
                                                          Year Ended March 31,
                                                ---------------------------------------
                                                     1996        1997          1998
                                                     ----        ----          ----
                                                         (Dollars in Thousands)
<S>                                                <C>          <C>          <C>    
Maximum amount of FHLB advances outstanding
  At any month end during the year                 $ 9,688      $15,060      $39,323
Approximate average FHLB advances
  Outstanding during the year                        4,862        8,488       32,566
Balance of FHLB advances outstanding
  at end of year                                     2,304       13,922       35,656
Weighted average rate paid on
  FHLB advances at end of year                        6.10%        5.87%        5.84%
Approximate weighted average rate paid on
  FHLB advances during the year                       6.19%        5.90%        6.26%
</TABLE>




<TABLE>
<CAPTION>
                                                      One Year to     Five Years to
                                     Less than One   Less than Five   Less than Ten   Greater than
                                          Year           Years           Years          Ten Years
                                          ----           -----           -----          ---------
<S>                                     <C>             <C>              <C>             <C>   
Maturities of advances from FHLB        $22,579         $11,606          $  --           $1,471
Percentage of total advances              63.32%          32.55%          0.00%            4.13%
</TABLE>





COMPETITION

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


SUBSIDIARY ACTIVITIES

      The Bank has one subsidiary,  Tri-Star  Financial who sells life insurance
and tax deferred  annuities on an agency  basis.  At March 31, 1998,  the Bank's
equity investment in its subsidiary was $47,000.

                                       25
<PAGE>

PERSONNEL

      As of  March  31,  1998,  the  Bank  had 87  full-time  and  11  part-time
employees. The employees are not represented by a collective bargaining unit and
the Bank believes its relationship with its employees to be good.




                                   REGULATION

FIRST BANK NORTHWEST

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

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

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

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

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

                                       26
<PAGE>

deposits.  The DIF Act  provides for the merger of the BIF and the SAIF into the
Deposit  Insurance  Fund on January 1, 1999,  but only if no insured  depository
institution is a savings  association on that date. The DIF Act contemplates the
development  of  a  common  charter  for  all  federally  chartered   depository
institutions  and the  abolition of separate  charters  for  national  banks and
federal savings associations.

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

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

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

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

         At March 31, 1998, the Bank was categorized as "well capitalized" under
the prompt corrective action regulations of the FDIC.

         STANDARDS  FOR SAFETY AND  SOUNDNESS.  The federal  banking  regulatory
agencies have prescribed,  by regulation,  standards for all insured  depository
institutions  relating  to:  (i)  internal  controls,  information  systems  and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest  rate risk  exposure;  (v) asset  growth;  (vi)  asset  quality;  (vii)
earnings;  and  (viii)  compensation,  fees  and  benefits  ("Guidelines").  The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes  impaired.  If the FDIC determines that the Bank fails to
meet any standard prescribed by the Guidelines,  the agency may require the Bank
to submit to the  agency  an  acceptable  plan to  achieve  compliance  with the
standard.

                                       27
<PAGE>

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

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

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

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

         The Division requires that net worth equal at least 5% of total assets.
Intangible  assets  must be deducted  from net worth and assets  when  computing
compliance  with  this  requirement.  At March 31,  1998,  the Bank had a Tier 1
capital  to average  assets  ratio of 11.4%,  a Tier 1 capital to  risk-weighted
assets  ratio of 17.1%,  and a Total  capital to  risk-weighted  assets ratio of
18.1%.

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

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

                                       28
<PAGE>

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

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

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

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

         FEDERAL RESERVE SYSTEM.  In 1980,  Congress enacted  legislation  which
imposed Federal Reserve  requirements  (under  "Regulation D") on all depository
institutions  that maintain  transaction  accounts or nonpersonal time deposits.
These reserves may be in the form of cash or non-interest-bearing  deposits with
the regional Federal Reserve Bank. NOW accounts and other types of accounts that
permit  payments or transfers to third  parties  fall within the  definition  of
transaction  accounts and are subject to Regulation D reserve  requirements,  as
are any  nonpersonal  time deposits at a bank.  Under  Regulation D, a bank must
establish  reserves  equal  to 3% of the  first  $47.8  million  of  transaction
accounts and for amounts greater than $47.8 million,  the reserve requirement is
10% of that portion of total  transaction  accounts in excess of $47.8  million.
The first $4.4 million of otherwise  reservable balances are exempt from reserve
requirements. The reserve requirement on nonpersonal time deposits with original
maturities  of less than 1-1/2 years is 0%. As of March 31,  1998,  the Bank met
its reserve requirements.

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

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

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

                                       29
<PAGE>

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

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

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

SAVINGS AND LOAN HOLDING COMPANY REGULATIONS

         HOLDING COMPANY ACQUISITIONS. The Home Owners Loan Act ("HOLA") and OTS
regulations  issued  thereunder  generally  prohibit a savings and loan  holding
company,  without prior OTS approval,  from acquiring more than 5% of the voting
stock of any other savings  association  or savings and loan holding  company or
controlling  the assets  thereof.  They also prohibit,  among other things,  any
director or officer of a savings and loan holding company, or any individual who
owns or controls  more than 25% of the voting  shares of such  holding  company,
from  acquiring  control of any savings  association  not a  subsidiary  of such
savings and loan holding company, unless the acquisition is approved by the OTS.

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

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

                                       30
<PAGE>

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, 1998, the Bank was in compliance with the QTL test.



ITEM 2.  DESCRIPTION OF PROPERTIES

         The Bank operates six  full-service  facilities  in Lewiston,  Lewiston
Orchards,   Moscow,   Grangeville  and  Coeur  d'Alene,  Idaho,  and  Clarkston,
Washington.  The  Company  owns  all of the  Idaho  facilities  and  leases  the
Washington building on a month-to-month tenancy for three years which began July
1, 1997. The Bank also operates one loan  production  office in Lewiston and one
in  Coeur  d'Alene,  Idaho,  which  is  located  in  the  same  facility  as its
full-service  office.  A portion of the Coeur  d'Alene  facility is leased to an
unaffiliated brokerage firm for a period of ten years expiring in 2006. At March
31, 1998,  the net book value of the properties  (including  land and buildings)
and the Bank's fixtures, furniture and equipment was $4.7 million.


ITEM 3.  LEGAL PROCEEDINGS

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year ended March 31, 1998.

                                       31
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The common stock of FirstBank  Corp.  is traded on the NASDAQ  National
Market under the symbol FBNW.  The table below reflects the high and low closing
and sales prices of the common stock and cash  dividends  paid per share for the
last two fiscal years.  The common stock began trading on July 2, 1997. At March
31, 1998 there were 333 record holders of common stock of the Company.


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


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


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


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

GENERAL

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

                                       32
<PAGE>

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

         The profitability of the Company's  operations depends primarily on its
net interest income, its non-interest  income (principally from mortgage banking
activities) and its non-interest  expense. Net interest income is the difference
between the income the Company receives on its loan and investment portfolio and
its cost of funds,  which consists of interest paid on deposits and  borrowings.
Net interest income is a function of the Company's  interest rate spread,  which
is the difference  between the yield earned on  interest-earning  assets and the
rate paid on interest-bearing  liabilities, as well as a function of the average
balance  of  interest-earning  assets as  compared  to the  average  balance  of
interest-bearing  liabilities.  Non-interest  income is comprised of income from
mortgage  banking  activities,  gain  on  the  occasional  sale  of  assets  and
miscellaneous  fees and income.  Mortgage banking generates income from the sale
of mortgage  loans and from  servicing  fees on loans  serviced for others.  The
contribution  of  mortgage  banking  activities  to  the  Company's  results  of
operations  is  highly  dependent  on the  demand  for  loans by  borrowers  and
investors,  and  therefore  the  amount  of  gain  on sale  of  loans  may  vary
significantly  from  period to period as a result of changes in market  interest
rates and the local and national  economy.  The Company's  profitability is also
affected by the level of non-interest  expense.  Non-interest  expenses  include
compensation and benefits, occupancy and maintenance expenses, deposit insurance
premiums, data servicing expenses,  advertising expenses,  supplies and postage,
and other operating costs. The Company's  results of operations may be adversely
affected  during periods of reduced loan demand to the extent that  non-interest
expenses   associated   with  mortgage   banking   activities  are  not  reduced
commensurate with the decrease in loan originations.


OPERATING STRATEGY

         The   Company's   primary  goal  has  been  to  improve  the  Company's
profitability  while  maintaining a sound capital  position.  To accomplish this
goal,  the Company  has  employed  an  operating  strategy  that  includes:  (1)
originating  for  its  portfolio  residential  mortgage  loans,  primarily  with
adjustable rates or with fixed rates with terms of 15 years or less,  secured by
properties  located in its primary  market area;  (2)  enhancing  net income and
controlling  interest rate risk by originating  fixed-rate  residential mortgage
loans for sale in the secondary market, as market conditions  permit, as a means
of generating current income through the recognition of cash gains on loan sales
and loan servicing  fees;  (3) increasing its average yield on  interest-earning
assets by originating  for portfolio  higher-yielding  construction,  commercial
real estate and agricultural real estate loans; and (4) controlling asset growth
to a level  sustainable  by the  Company's  capital  position.  The  Company has
adopted a  community  banking  strategy  pursuant  to which it will  expand  the
products  and  services  it offers  within its  primary  market area in order to
improve  market  share and increase  the average  yield of its  interest-earning
assets. Specifically, the Company intends to expand its agricultural real estate
and  commercial  real estate  lending  activities.  The Company  also intends to
expand its  non-mortgage  lending  activities  by  increasing  its  emphasis  on
originating  agricultural  operating loans and commercial  business loans. These
loans afford the Company the  opportunity to achieve higher  interest rates with
shorter  terms to maturity  than  residential  mortgage  loans.  As part of this
strategy,  the Company hired an experienced  commercial loan officer to head the
commercial  loan  department in 1997. In fiscal 1998, the commercial  department
added three experienced  officers and the agricultural  department  expanded its
lending capabilities with the addition of two locally established loan officers.
There can be no assurances that the Company will be successful in its efforts to
increase its originations of these types of loans.  Management  anticipates that
the Company will incur ongoing  expenses in connection  with the  implementation
and  maintenance  of the new credit  card and online  banking  programs,  and as
various  programs and services,  such as its commercial real estate and business
lending  operations,  are  introduced or expanded.  These  expenses could reduce
earnings  for a period of time  while  income  from new  programs  and  services
increases to a level sufficient to cover the additional expenses.

                                       33
<PAGE>

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1997 AND MARCH 31, 1998

         Total assets increased $45.9 million,  or 33.4%, from $137.7 million at
March 31,  1997 to $183.6  million  at March 31,  1998.  The growth in assets is
primarily  attributable  to an  increase  in  loans  receivable,  cash  and cash
equivalents, and investment and mortgage-backed securities,  resulting primarily
from the deployment of funds received by the Company from its public offering of
common stock and increased FHLB advances.  Net loans  receivable  increased from
$113.0 million at March 31, 1997 to $145.7 million at March 31, 1998. The mix of
loans has changed reflecting the Company's  community banking strategy.  In real
estate loans:  residential mortgage loans decreased from 65.3% to 57.1% of total
loans,  construction  loans  decreased  from 10.0% to 5.0%,  agricultural  loans
decreased from 10.1% to 9.5% and commercial  mortgage loans  increased from 4.6%
to 8.1%. In non-real estate loans:  home equity lines decreased from 4.2% to 4.0
%,  agricultural  operating  lines  increased  from  0.9% and  1.5%,  commercial
business  loans  increased from 1.4% to 10.8% and other loans from 3.5% to 4.0%.
During the year ended March 31, 1998,  the Company  retained  for its  portfolio
fixed-rate  mortgage loans with terms of 15 years or less totaling $8.4 million.
In addition  adjustable-rate  mortgage loans that adjust after a fixed period of
three or five years, which the Company retains for its portfolio, were in higher
demand by borrowers during this period. Cash and cash equivalents increased from
$5.3  million to $8.4  million and  investment  securities  decreased  from $5.2
million to $5.1 million.  Mortgage-backed securities increased from $4.9 million
to $11.4 million,  due to a portion of the conversion proceeds being invested in
short term collateralized mortgage obligations.

         Total  liabilities  increased  from $126.6 million at March 31, 1997 to
$153.6  million at March 31, 1998.  Deposits  increased $6.9 million from $107.6
million at March 31, 1997 to $114.5  million at March 31,  1998.  FHLB  advances
increased  from $13.9  million at March 31,  1997 to $35.7  million at March 31,
1998.  Included in these advances is $5.0 million in callable  advances,  as the
Company increased its use of borrowings to fund asset growth.


COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1997 AND 1998

         GENERAL.  Net income  increased $1.1 million,  from $649,000 (basic and
diluted per share data not available,  as the company had no shares  outstanding
in fiscal  1997) for the year ended  March 31, 1997 to $1.7  million  ($0.93 per
share basic;  $0.93 per share  diluted)  for the year ended March 31, 1998.  The
Company  experienced an increase in net interest income and non-interest  income
in fiscal 1998 compared to fiscal 1997. However,  these increases were partially
offset by an increase in non-interest expense. Non-interest expense for the year
ended March 31, 1997 included a one-time, special assessment of $584,000 for the
purpose of recapitalizing the SAIF. Excluding the special assessment and related
tax effects, net income would have been $1.0 million for fiscal 1997.

         NET INTEREST  INCOME.  Net interest income  increased $1.9 million,  or
38.8%,  from $4.9  million for the year ended March 31, 1997 to $6.8 million for
the year ended March 31, 1998. The most significant portion of this increase was
a result of earnings  from the  investment  of  conversion  proceeds  which were
utilized to purchase  mortgage-backed  securities  and to originate and retain a
larger   portion  of  loans.   The  Company's   spread   between  the  yield  on
interest-earning  assets  and  the  rate  paid on  interest-bearing  liabilities
increased from 3.68% for fiscal 1997 to 3.72% for fiscal 1998.

         Total interest income increased $3.1 million from $10.2 million for the
year ended  March 31, 1997 to $13.3  million for the year ended March 31,  1998.
Interest income on loans receivable  increased $2.5 million, or 27.2%, from $9.2
million for fiscal 1997 to $11.7  million for fiscal 1998.  The increase was the
result  of a  larger  average  balance  of loans in  fiscal  1998,  and a slight
increase  in  average  yield  on  the  loan   portfolio.   Interest   income  on
mortgage-backed  and related  securities  increased $466,000 from fiscal 1997 to
fiscal 1998 primarily as a result of a larger average balance of mortgage-backed
securities in fiscal 1998.  Interest income on investment  securities  decreased
$242,000  from  fiscal  1997 to fiscal  1998 as a result  of a  smaller  average
balance in fiscal 1998, and a decrease in the average yield.  Interest income on
other interest-earning assets increased $459,000 from fiscal 1997 to fiscal 1998
as a result of a larger average balance and a higher yield in fiscal 1998.

                                       34
<PAGE>

         Interest expense  increased by $1.2 million,  from $5.3 million for the
year ended  March 31, 1997 to $6.5  million  for the year ended March 31,  1998.
Interest expense on deposits  decreased  $181,000,  or 3.7%, from fiscal 1997 to
fiscal 1998. The average balance of deposits decreased slightly from fiscal 1997
to fiscal  1998,  and the  average  rate paid on  deposits  decreased.  Interest
expense on FHLB advances  increased $1.4 million from $499,000 in fiscal 1997 to
$1.9  million  in  fiscal  1998 as a  result  of a  larger  average  balance  of
borrowings in fiscal 1998.

         PROVISION FOR LOAN LOSSES.  The provision for loans losses was $200,000
for the year ended March 31, 1998  compared to $310,000 for the year ended March
31, 1997.  Management  increased  the  provision  for loan losses in fiscal 1997
after  considering the anticipated  growth of the loan portfolio,  including the
growth of commercial real estate and consumer loans, which generally are riskier
than  residential  mortgage  loans.  In 1998 the  provision  for loan losses was
increased  according  to the actual  mix of loans  funded  during the year.  The
Company's  allowance  for loan  losses  was  $1,120,000  or 0.8% of total  loans
receivable,  at March 31,  1998,  compared to  $974,000,  or 0.8% of total loans
receivable,  at March 31, 1997. Net loan  charge-offs were $54,000 during fiscal
1998 compared to $37,000 during fiscal 1997.

         NON-INTEREST  INCOME.  Total non-interest  income increased $36,000, or
1.6%,  from  fiscal  1997 to  fiscal  1998.  Income  on gain on  sales  of loans
decreased  $181,000,  or 15.1%,  from  fiscal  1997 to fiscal  1998 due to lower
servicing  released  premiums caused by lower interest  rates.  Service fees and
charges increased $174,000,  which was caused by an increase in checking account
fee income.  This  increase  was due to a growing  number of NOW accounts and an
increase in corresponding fees charged. Commissions increased $43,000, resulting
from higher life and accidental health insurance sales on installment loans.

         NON-INTEREST EXPENSE. Total non-interest expense increased $302,000, or
5.1%,  from $5.9  million for the year ended March 31, 1997 to $6.2  million for
the year ended  March 31,  1998.  Compensation  and related  benefits  increased
$439,000,  or 14.1%, from fiscal 1997 to 1998.  Advertising  expenses  increased
$47,000,  or 29.1% and data processing  expenses increased  $132,000,  or 83.5%,
between the periods while legal fees  increased  $46,000.  These  increases were
primarily the result of the increased  level of operations in 1998 undertaken by
the Company. All other non-interest expenses decreased  approximately  $362,000,
or 14.9%.

         INCOME  TAXES.  Income taxes were $944,000 for the year ended March 31,
1998 compared  with $264,000 for the year ended March 31, 1997.  The increase in
income tax  expense in fiscal  1998 was  primarily  the result of an increase in
taxable income.

                                       35
<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 yields and
costs.  Such  yields and costs for the years  indicated  are derived by dividing
income or  expense by the  average  monthly  balance  of assets or  liabilities,
respectively,  for the  years  presented.  Average  balances  are  derived  from
month-end  balances.  Management  does not  believe  that  the use of  month-end
balances  instead of daily  balances has caused any material  difference  in the
information presented.
<TABLE>
<CAPTION>
                                                                   Years Ended March 31,
                                ------------------------------------------------------------------------------------------
                                             1996                          1997                          1998
                                             ----                          ----                          ----
                                           Interest   Average            Interest   Average            Interest    Average
                                Average      and      Yield/    Average     and     Yield/   Average      and      Yield/
                                Balance   Dividends    Cost     Balance  Dividends   Cost    Balance   Dividends    Cost
                                -------   ---------    ----     -------  ---------   ----    -------   ---------    ----
                                                                  (Dollars in Thousands)
<S>                            <C>          <C>        <C>      <C>       <C>        <C>     <C>        <C>        <C>  
Interest-earning assets(1):
Loans receivable               $ 91,849     $8,408     9.15%    $106,295  $ 9,249    8.70%   $133,294   $11,695    8.77%
Mortgage-backed securities        2,622        157     5.99        2,588      147    5.68       9,589       613    6.39
Investment securities             6,553        457     6.97        8,955      534    5.96       5,164       292    5.65
Other earning assets             12,026        530     4.41        5,834      262    4.49      10,005       721    7.21
                               --------     ------              --------  -------            --------   -------
Total interest-earning assets   113,050      9,552     8.45      123,672   10,192    8.24     158,052    13,321    8.43

Non-interest-earning assets       5,460                            6,259                        9,011
                               --------                         --------                     --------
Total assets                   $118,510                         $129,931                     $167,063
                               ========                         ========                     ========

Interest-earning liabilities:
Passbook, NOW and money
   market accounts             $ 35,072        876     2.50     $ 36,457      818    2.24    $ 38,245       890    2.33
Certificates of deposit          66,066      3,917     5.93       72,550    4,021    5.54      70,743     3,769    5.33
                               --------     ------              --------  -------            --------   -------
Total deposits                  101,138      4,793     4.74      109,007    4,839    4.44     108,988     4,659    4.27

Advances from FHLB                5,419        365     6.74        8,080      499    6.18      30,560     1,914    6.26
                               --------     ------              --------  -------            --------   -------
Total interest-bearing
    liabilities                 106,557      5,158     4.84      117,087    5,338    4.56     139,548     6,573    4.71
                                            ------                        -------                       -------
Non-interest-bearing 
    liabilities                   1,826                            2,003                        3,067
                               --------                         --------                     --------
Total liabilities               108,383                          119,090                      142,615
                               --------                         --------                     --------
Total stockholders' equity       10,127                           10,841                       24,448
                               --------                         --------                     --------

Total liabilities and
   total stockholders' equity  $118,510                         $129,931                     $167,063
                               ========                         ========                     ========

Net interest income                         $4,394                        $ 4,854                       $ 6,748
                                            ======                        =======                       =======

Interest rate spread                                   3.61%                         3.68%                         3.72%
                                                       ====                          ====                          ====

Net interest margin                           3.89%                          3.92%                         4.27%
                                            ======                        =======                       =======

Ratio of average interest-
   earning assets to
   average interest-bearing
   liabilities                   106.09%                                   105.62%                       113.26%
                               ========                                   =======                       =======
</TABLE>

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

                                                            36
<PAGE>

RATE/VOLUME ANALYSIS

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


<TABLE>
<CAPTION>
                                        Year Ended March 31, 1997                     Year Ended March 31, 1998
                                         Compared to Year Ended                        Compared to Year Ended
                                              March 31, 1996                              March 31, 1997
                                              --------------                              --------------
                                           Increase (Decrease)                          Increase (Decrease)
                                                  Due to                                      Due to
                                                  ------                                      ------
                                                        Rate/                              Rate/
                                   Rate      Volume    Volume       Net        Rate       Volume    Volume      Net
                                   ----      ------    ------       ---        ----       ------    ------      ---
                                                                   (In Thousands)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>        <C>       <C>   
Interest-earning assets:
Loans receivable(1)                $(38)      $814       $65        $841       $ 75       $2,352     $ 19      $2,446
Mortgage-backed securities           (8)        (2)       --         (10)        18          398       50         466
Investment securities               (66)       167       (24)         77       (115)        (161)      34        (242)

Other earning assets                 10       (273)       (5)       (268)       211          138      110         459
                                   ----       ----       ---        ----       ----       ------     ----      ------

Total net change in income
on interest-earning assets         (102)       706        36         640        180        2,727      213       3,129
                                   ----       ----       ---        ----       ----       ------     ----      ------

Interest-bearing liabilities:
 Passbook, NOW and money
   market accounts                  (90)        36        (4)        (58)        32           37        2          71
Certificates of deposit            (258)       386       (24)        104       (156)        (100)       4        (252)
FHLB advances                       (29)       178       (15)        134          7        1,389       20       1,416
                                   ----       ----       ---        ----       ----       ------     ----      ------

Total net change in expense
on interest-bearing liabilities    (377)       600       (43)        180       (117)       1,326       26       1,235
                                   ----       ----       ---        ----       ----       ------     ----      ------

Net increase (decrease) in net
  interest income                  $275       $106       $79        $460       $306       $1,401     $187      $1,894
                                   ====       ====       ===        ====       ====       ======     ====      ======
</TABLE>


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


ASSET AND LIABILITY MANAGEMENT

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

                                       37
<PAGE>

of funds.  As part of its interest rate risk  management  strategy,  the Company
promotes  non-interest-bearing  transaction accounts and certificates of deposit
with longer maturities (up to five years) to reduce the interest  sensitivity of
its interest-bearing liabilities.

MARKET RISK

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

INTEREST RATE RISK

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

         The simulation model captures the impact of changing  interest rates on
the  interest  income  received  and  interest  expense  paid on all  assets and
liabilities  reflected on the Company's balance sheet as well as for off balance
sheet derivative  financial  instruments,  if any. This sensitivity  analysis is
compared to ALCO policy limits which specify a maximum  tolerance  level for NII
exposure over a one year horizon, assuming no balance sheet growth, given both a
200 basis point (bp) upward and downward shift in interest rates. A parallel and
pro rata  shift in  rates  over a 12 month  period  is  assumed.  The  following
reflects the Company's NII sensitivity analysis as of March 31, 1998 as compared
to the 10.00% Board approved policy limit.


                                      -200 BP        Flat       +200 BP
                                      -------        ----       -------
                                           (Dollars in Thousands)
Year 1 NII                            $6,932        $6,994      $6,928
NII $ Change                             (62)           --         (66)
NII % Change                           (0.89%)          --       (0.94%)


         The  preceding  sensitivity  analysis  does  not  represent  a  Company
forecast and should not be relied upon as being  indicative  of expected  future
operating  results.   These  hypothetical  estimates  are  based  upon  numerous
assumptions  including:  the nature and timing of interest rate levels including
yield curve shape,  prepayments  on loans and  securities,  deposit decay rates,
pricing decisions on loans and deposits,  reinvestment/replacement  of asset and
liability  cashflows,  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.

                                       38
<PAGE>

Furthermore,  the sensitivity  analysis does not reflect actions that ALCO might
take in responding to or anticipating changes in interest rates.

LIQUIDITY AND CAPITAL RESOURCES

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

         The Company must maintain an adequate  level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to  satisfy   financial   commitments   and  to  take  advantage  of  investment
opportunities.  The Company generally  maintains  sufficient cash and short-term
investments to meet short-term liquidity needs. At March 31, 1998, cash and cash
equivalents  totaled $8.4  million,  or 4.6% of total  assets In  addition,  the
Company  maintains a credit facility with the  FHLB-Seattle,  which provides for
immediately  available  advances.  Advances under this credit  facility  totaled
$35.7 million at March 31, 1998.

         The primary  investing  activity of the Company is the  origination  of
mortgage  loans.  During the years ended  March 31,  1997 and 1998,  the Company
originated   loans  in  the  amounts  of  $119.5   million  and  $145.3  million
respectively. At March 31, 1998, the Company had loan commitments totaling $22.4
million and undisbursed lines of credit totaling $8.4 million, undisbursed loans
in process  totaling $6.9  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, 1998 totaled $52.8 million. Historically, the Company has been able to
retain a  significant  amount  of its  deposits  as they  mature.  In  addition,
management  of the Company  believes  that it can adjust the  offering  rates of
savings certificates to retain deposits in changing interest rate environments.

         The Bank is required to maintain  specific  amounts of capital pursuant
to the FDIC and the State of Washington requirements.  As of March 31, 1998, the
Bank was in  compliance  with all  regulatory  capital  requirements  which were
effective as of such date with Tier 1 Capital to average assets,  Tier 1 Capital
to risk-weighted  assets and Total capital to risk-weighted  assets 11.4%, 17.1%
and  18.1%,  respectively.  For a  detailed  discussion  of  regulatory  Capital
requirements,  see  "REGULATION - State  Regulation  and  Supervision -- Capital
Requirements."


YEAR 2000 ISSUES

         The  Year  2000  issue  exists   because  many  computer   systems  and
applications  use two-digit date fields to designate a year. As the century date
change  occurs,  date-sensitive  systems may recognize the year 2000 as 1900, or
not at all.  This  inability to  recognize  or properly  treat the year 2000 may
cause systems to process financial and operational information incorrectly.

         All of the  material  data  processing  of the  Company  that  could be
affected  by this  problem is  provided by a third  party  service  bureau.  The
Company's  service  bureau  informed the Company that it intends to complete its
year 2000 adjustment by June 1998 and to make its systems  available for testing
in December  1998.  The Company has  developed a plan and created a committee of
the Board of Directors  to analyze how the year 2000 will impact its  operations
and to monitor the status of its vendors.  The Company will  continue to monitor
its status as well as its service  providers'  status in their efforts to become
year 2000 compliant. The Company does not believe that the costs associated with
its  actions  and those of its vendors  will be  material  to the  Company.  The
Company's  service bureau will make available  certain  software that will allow
the Company to test its critical  applications.  The Company estimates the costs
incurred  for the  implementation  and testing of such  software to be $100,000.
Such  costs are  expected  to be  incurred  during  fiscal  1999.  The costs for
accomplishing  the Company's plans to complete the year 2000  modifications  and
testing processes are based on management's  best estimates,  which were derived
utilizing  numerous  assumption  of  future  events,   including  the  continued
availability of various resources, third-party

                                       39
<PAGE>

modification  plans and other factors.  However,  there can be no guarantee that
these  estimates  will be achieved,  and actual  results could differ from those
plans.  In the event the  Company's  service  bureau  is unable to  fulfill  its
contractual  obligations  to the Company,  it could have a  significant  adverse
impact on the financial condition and results of operations of the Company.

IMPACT OF NEW ACCOUNTING STANDARDS

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

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


EFFECT OF INFLATION AND CHANGING PRICES

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


ITEM 7.  FINANCIAL STATEMENTS

         The  information  required by this item is  incorporated  by  reference
under the caption "Consolidated Financial Statements" in the 1998 Annual Report.


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

         None.

                                       40
<PAGE>

                                    PART III

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

         The  information  concerning the Company's  directors  required by this
Item is  incorporated  by  reference  form the  information  set forth under the
caption  "Proposal 1 - Election of Director" in the Company's  definitive  Proxy
Statement  concerning the Annual Meeting of  Stockholders to be held on July 22,
1998 (the "1998 Proxy Statement").

         The  information  concerning  compliance  with  Section  16(a)  of  the
Securities  Exchange  Act  of  1934,  as  amended,  required  by  this  Item  is
incorporated  by  reference  to the  information  set forth  under  the  caption
"Compliance with Section 16(a) of the Exchange Act" in the 1998 Proxy Statement.

<TABLE>
<CAPTION>
                   EXECUTIVE OFFICERS OF THE COMPANY AND BANK


                                                  Position
                     Age at                       --------
                     March 31,
Name                 1998        Company                           Bank
----                 ----        -------                           ----

<S>                   <C>    <C>                               <C>
Clyde E. Conklin      46     President and Chief Executive     Chief Executive Officer
                             Officer

Larry K. Moxley       47     Executive Vice President,         Chief Financial Officer and
                             Chief Financial Officer and       Secretary/Treasurer
                             Corporate Secretary

Terence A. Otte       41     --                                Senior Vice President, Agricultural and
                                                               Consumer Lending

Donn L. Durgan        43     --                                Senior Vice President, Residential Lending

Douglas R. Ax         42     --                                Senior Vice President, Commercial Lending
</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.  From September 1994 to February 1996,
Mr.  Conklin  served as Senior Vice  President - Lending.  In 1993,  Mr. Conklin
became  Vice  President - Lending.  Prior to that time,  Mr.  Conklin  served as
Agricultural Lending Manager.

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

TERENCE A. OTTE joined the Bank in June 1989 as an  Agricultural  Loan  Officer.
From 1 991 to 1994, he served as manager of the Bank's Moscow,  Idaho branch. In
1994 he became Vice  President-Lending  and Agricultural  Lending Manager and in
1996 became Vice  President,  Agricultural  and Consumer  Lending and Compliance
Officer.

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

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

                                       41
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

         The  information  provided by this Item is incorporated by reference to
the  information  under the captions  "Directors'  Compensation"  and "Executive
Compensation" in the 1998 Proxy Statement.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  information  required by this Item is incorporated by reference to
the  information  under the caption  "Security  Ownership of Certain  Beneficial
Owners and Management" in the 1998 Proxy Statement.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required by this Item is incorporated by reference to
the information  under the caption  "Transactions  with  Management" in the 1998
Proxy Statement.



                                     PART IV

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

         (a)      Exhibits

                  21       Subsidiaries of the Registrant
                  22       Consolidated Financial Statements of Firstbank Corp.
                           and Subsidiaries
                  27       Financial Data Schedule

         (b)      Reports on Form 8-K

                  No  Reports on Form 8-K were filed  during the  quarter  ended
                  March 31, 1998.


                                       42
<PAGE>

                                   SIGNATURES

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

                                   FIRSTBANK CORP.


Date:  June 16, 1998               By: /s/ CLYDE E. CONKLIN
                                       ---------------------------
                                           Clyde E. Conklin
                                           President and Chief Executive Officer

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

SIGNATURES                           TITLE                              DATE


/s/ CLYDE E. CONKLIN             President, Chief                  June 16, 1998
-----------------------------    Executive Officer and 
    Clyde E. Conklin             Director (Principal   
                                 Executive Officer)    


/s/ LARRY K. MOXLEY              Chief Financial Officer           June 16, 1998
-----------------------------    and Director (Principal 
    Larry K. Moxley              Financial Officer)


/s/ CYNTHIA M. MOORE             Controller                        June 16, 1998
-----------------------------    (Principal Accounting Officer)
    Cynthia M. Moore


/s/ WILLIAM J. LARSON            Director                          June 16, 1998
-----------------------------
    William J. Larson


/s/ STEVE R. COX                 Director                          June 16, 1998
-----------------------------
    Steve R. Cox


/s/ ROBERT S. COLEMAN, SR.       Director                          June 16, 1998
-----------------------------
    Robert S. Coleman, Sr.


/s/ JAMES N. MARKER              Director                          June 16, 1998
-----------------------------
    James N. Marker


/s/ W. DEAN JURGENS              Director                          June 16, 1998
-----------------------------
    W. Dean Jurgens

                                       43