SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

         For the Fiscal Year Ended March 31, 2001
                                       OR

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

                         Commission File Number: 0-22435


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

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

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

Registrant's telephone number, including area code:              (208) 746-9610
                                                               ----------------
Securities registered pursuant to Section 12(b) of the Act:            None
                                                                      -----
Securities registered pursuant to Section 12(g) of the Act:

                                          Common Stock, par value $.01 per share
                                          --------------------------------------
                                                        (Title of Class)

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

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

         The Registrant's revenues for the year ended March 31, 2001 were $23.3
million.

         The aggregate market value of voting stock held by nonaffiliates of the
Registrant was $15,829,141 based on the last reported sale price of the common
stock of the Registrant on the Nasdaq National Market on June 15, 2001. 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 15, 2001, there were 1,510,792 shares outstanding of the
Registrant's common stock.

         Transitional Small Business Disclosure format (check one):
YES  [ ]   NO  [X]

                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Portions of the Registrant's definitive proxy statement for its annual
     meeting of stockholders to be held on July 18, 2001 are incorporated by
     reference into Part II of this Form 10-KSB.
<PAGE>
                                     PART I
ITEM 1.  BUSINESS

GENERAL

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

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

         The Bank is a community-oriented financial institution, operating in
one business segment, that engages primarily in the business of attracting
deposits from the general public and using those funds to originate residential
mortgage loans, commercial, and agricultural real estate loans within the Bank's
market area. The Bank also is active in originating construction, and consumer
and other non-real estate loans. The Bank has adopted a mortgage banking
strategy pursuant to which it generally sells a majority of the fixed-rate
residential mortgage loans with maturities in excess of 15 years that it
originates while retaining the servicing rights on most of the conventional
loans it sells, although in the year ended March 31, 2001 the Bank retained some
30-year fixed rate loans for its portfolio.

MARKET AREA

         FirstBank's general market area includes Northern Idaho and Eastern
Washington. Administratively headquartered in Lewiston, Idaho, the Bank operates
eight full-service offices in Lewiston, Lewiston Orchards, Moscow, Grangeville,
Coeur d'Alene, and Post Falls, Idaho, and in Clarkston and Liberty Lake,
Washington. The Bank also operates three real estate loan production offices, in
Lewiston, Moscow and Coeur d'Alene, and commercial and agricultural production
centers in Lewiston and Moscow. Most of the Bank's depositors reside in the
communities surrounding the Bank's offices. The vast majority of the Bank's
loans are made to borrowers residing in the counties in which the Bank's offices
are located and in the surrounding counties.

         In general, the market areas served by the Bank are dependent on
agriculture, mining, tourism and the forest products industry, and the local
economies reflect the health or weakness of those industries. Agricultural
activity in the Bank's market area is mainly dry land farming, the primary crop
being wheat. Other major crops are barley, peas, lentils, beans and grass seed.
Livestock production is also a major part of the region's economy. Lewiston is
the largest city in Northern Idaho and serves as the regional center for state
government. The economy of Lewiston, in Nez Perce County, is connected to that
of Clarkston, Washington, which is separated from Lewiston by the Snake River.
The Lewis-Clark Valley has a population of approximately 58,000. Forest products
and agriculture are the dominant industries in the Lewiston-Clarkston area.
Medical services, light manufacturing and tourism have helped keep the economy
stable in recent years. Moscow, Idaho, in Latah County, has a population of
approximately 21,000 and the county itself has a population of approximately
34,000. 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. Grangeville, Idaho, in Idaho County, has an economy
based primarily on agriculture, the forest products industry and the U.S. Forest
Service. Declines in the forest products industry has resulted in a decline in
the population of 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 35,000 and
the county itself has approximately 110,000 residents. Tourism, forest products,
mining and agriculture are the major industries of this region. Coeur d'Alene
has experienced significant growth in the past ten years, primarily because of
the expanding tourism industry and migration from more populous

                                       2
<PAGE>

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. Liberty
Lake, Washington, the site of the Bank's newest branch, is located in the
rapidly growing I-90 corridor between Coeur d'Alene, Idaho and Spokane,
Washington. The Bank's growth prospects throughout that region are outstanding
as more businesses and technology firms locate there.

SELECTED FINANCIAL DATA

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

                                                                   At March 31,
                                                      ------------------------------------
FINANCIAL CONDITION DATA:                                 1999         2000         2001
                                                      ----------   ----------   ----------
                                                                   (In Thousands)
<S>                                                   <C>          <C>          <C>
Total assets                                          $  206,745   $  247,898   $  281,062
Loans receivable, net                                    165,617      187,664      219,151
Cash and cash equivalents                                  8,536       12,496       12,805
Investment securities held-to-maturity                       700           --           --
Investment securities available-for-sale                   6,536       11,335       12,568
Mortgage-backed securities held-to-maturity                2,739        2,484        2,335
Mortgage-backed securities available-for-sale             10,135       18,741       17,704
Deposits                                                 133,278      144,907      157,797
Advances from FHLB and other borrowers                    42,027       74,578       90,917
Stockholders' equity                                      27,774       25,866       27,976


                                                                Year Ended March 31,
                                                      ------------------------------------
                                                          1999         2000         2001
                                                      ----------   ----------   ----------
SELECTED OPERATING DATA:                              (In Thousands, except per share data)

Interest income                                       $   14,961   $   16,979   $   20,757
Interest expense                                           7,223        8,437       11,617
                                                      ----------   ----------   ----------
Net interest income                                        7,738        8,542        9,140
Provision for loan losses                                    296          287          303
                                                      ----------   ----------   ----------
Net interest income after provision for loan losses        7,442        8,255        8,837
Non-interest income                                        3,106        2,426        2,594
Non-interest expenses                                      7,593        8,158        8,683
                                                      ----------   ----------   ----------
Income before income tax expense                           2,955        2,523        2,748
Income tax expense                                           923          818          866
                                                      ----------   ----------   ----------
Net income                                            $    2,032   $    1,705   $    1,882
                                                      ==========   ==========   ==========

Per Share Data:
    Basic earnings per share                          $     1.16   $     1.11   $     1.34
    Diluted earnings per share                        $     1.13   $     1.06   $     1.30
                                                      ==========   ==========   ==========

Dividends per share                                   $     0.34   $     0.36   $     0.38
                                                      ==========   ==========   ==========
</TABLE>

                                       3
<PAGE>
<TABLE>
<CAPTION>
                                                                           At or For the
                                                                        Year Ended March 31,
                                                                    ----------------------------
                                                                    1999        2000        2001
                                                                    ----        ----        ----
<S>                                                                 <C>         <C>         <C>
KEY FINANCIAL RATIOS:
Performance Ratios:
Return on average assets (1)                                         1.03%       0.75%       0.71%
Return on average equity (2)                                         6.94        6.36        7.07
Average equity to average assets (3)                                14.88       11.82       10.00
Total equity to total assets at end of year                         13.43       10.43        9.95
Interest rate spread (4)                                             3.88        3.84        3.59
Net interest margin (5)                                              4.36        4.16        3.83
Average interest-earning assets to average interest-bearing
   liabilities                                                     112.07      107.95      104.52
Non-interest expense as a percent of average assets                  3.86        3.60        3.27
Efficiency ratio (6)                                                70.02       72.64       71.82
Dividend payout ratio                                               30.45       36.95       29.19

Equity Ratios:
Tier I capital to average assets                                    10.20       10.00        9.18
Tier I capital to risk-weighted assets                              14.40       13.40       13.52
Total capital to risk-weighted assets                               15.40       13.10       14.45

Asset Quality Ratios:
Nonaccrual and 90 days or more past due loans as a percent
   of loans receivable, net                                          0.38        0.31        0.66
Nonperforming assets as a  percent of total assets                   0.54        0.33        0.53
Allowance for loan losses as a percent of total loans
   receivable                                                        0.76        0.83        0.78
Allowance for loan losses as a percent of nonperforming
   loans                                                           217.76      275.13      121.83
Net charge-offs to average outstanding loans                         0.04        0.02        0.07

</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 establishment
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 $219.2
million at March 31, 2001, representing 78.0% of consolidated total assets. The
Bank uses the FHLB twelve month advance rate as the index for adjustable rate
loans.

                                       4
<PAGE>

         LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition
of the Bank's loan portfolio by type of loan for the years indicated. The Bank
had no concentration of loans exceeding 10.0% of total gross loans other than as
disclosed below.
<TABLE>
<CAPTION>
                                                                    At March 31,
                                 -----------------------------------------------------------------------------
                                            1999                       2000                       2001
                                 -----------------------    -----------------------   ------------------------
                                   Amount       Percent       Amount       Percent       Amount       Percent
                                 ----------   ----------    ----------   ----------    ----------   ----------
                                                               (Dollars in Thousands)
<S>                              <C>               <C>      <C>               <C>      <C>               <C>
Real estate loans:
Residential                      $   71,516        39.78%   $   71,796        37.19%   $   74,892        33.35%
Agricultural                         16,257         9.05        16,003         8.29        15,383         6.85
Commercial                           23,484        13.06        24,988        12.95        37,969        16.91
Construction                          9,333         5.19         7,819         4.05         8,028         3.57
                                 ----------   ----------    ----------   ----------    ----------   ----------
Total real estate loans             120,590        67.08       120,606        62.48       136,272        60.68
                                 ----------   ----------    ----------   ----------    ----------   ----------

Consumer and other loans:
Commercial                           27,969        15.56        32,800        16.99        41,789        18.61
Home equity                          18,166        10.10        24,626        12.76        27,323        12.17
Other consumer                        8,687         4.83         7,533         3.90         8,255         3.67
Agricultural operating                4,357         2.43         7,467         3.87        10,938         4.87
                                 ----------   ----------    ----------   ----------    ----------   ----------
Total consumer and other loans       59,179        32.92        72,426        37.52        88,305        39.32
                                 ----------   ----------    ----------   ----------    ----------   ----------

Total loans receivable              179,769       100.00%      193,032       100.00%      224,577       100.00%
                                              ==========                 ==========                 ==========

Less:
Loans in process                     12,237                      3,349                      3,248
Unearned loan fees and discounts        554                        415                        420
Allowance for loan losses             1,361                      1,604                      1,758
                                 ----------                 ----------                 ----------
Loans receivable, net            $  165,617                 $  187,664                 $  219,151
                                 ==========                 ==========                 ==========
</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, 2001, $74.9 million, or
33.4%, 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, 2001 the Bank retained some 30-year, fixed-rate loans for
its portfolio. The Bank generally retains all of the ARM loans it originates. A
majority of the loans sold by the Bank are sold to private investors. The
remainder of loans sold are purchased by the Federal National Mortgage
Association ("Fannie Mae") or Freddie Mac. 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 on occasion, in the past the Bank has sold loans with
recourse. As of March 31, 2001, the Bank remains contingently liable for
approximately $431,000 of loans sold with recourse. The Bank's decision to hold
or sell loans is based on its asset/liability management policies and goals and
the market conditions for mortgages. See "-- Lending Activities -- Loan
Originations, Sales and Purchases."

                                       5
<PAGE>

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

         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,
2001, the Bank's residential loan portfolio included $13.1 million of
non-conforming ARM loans. Generally, the Bank's non-conforming ARM loans bear a
higher rate of interest than similar conforming ARM loans. The Bank has
historically found that its origination of non-conforming loans has not resulted
in high amounts of nonperforming loans.

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

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

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

         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.

                                       6
<PAGE>

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

         CONSTRUCTION LENDING. The Bank invests a portion of its loan portfolio
in residential construction loans. This activity has been prompted by favorable
economic conditions in Northern Idaho, especially in the area around Coeur
d'Alene, lower long-term interest rates and an increased demand for housing
units as a result of the population growth in Northern Idaho. At March 31, 2001,
construction loans totaled $8.0 million, or 3.6% of total loans. At such date,
the average amount of the Bank's construction loans was approximately $100,000.
The largest construction loan in the Bank's portfolio at March 31, 2001 was
$247,000. During the year ended March 31, 2001, construction loans constituted
9.6% 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 financing in place for the finished
homes and those for which purchasers for the finished homes may be identified
either during or following the construction period (speculative loans). At March
31, 2001, speculative loans totaled $3.3 million, or 40.9% of the total
construction loan portfolio. Construction loans to individuals are generally
converted to permanent mortgage loans upon completion of the construction
period. At March 31, 2001, custom construction loans to individuals totaled
$804,000 or 10.0% of the total construction loan portfolio.

         Construction lending provides the Bank with the opportunity to achieve
higher interest rates and fees with shorter terms to maturity than does its
single-family permanent mortgage lending. Construction lending, however, is
generally considered to involve a higher degree of risk than single-family
permanent mortgage lending because of the inherent difficulty in estimating both
a property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value upon completion proves to be inaccurate, the Bank may be confronted with a
project whose value is insufficient to assure full repayment. Projects may also
be jeopardized by disagreements between borrowers and builders and by the
failure of builders to pay subcontractors. Loans to builders to construct homes
for which no purchaser has been identified (i.e., speculative loans) carry more
risk because the payoff for the loan is dependent on the builder's ability to
sell the property prior to the time that the construction loan is due. The Bank
has sought to address these risks by adhering to strict underwriting policies,
disbursement procedures, and monitoring practices. In addition, 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,
2001, the Bank had approved five major builders, the largest borrowing capacity
of which was approximately $2.5 million. At March 31, 2001, the Bank's major
builders had total loans of $3.6 million outstanding. For all other builders,
the Bank reviews the financial strength and credit of the builder on a loan by
loan basis.

         The construction loan documents require that construction loan proceeds
be disbursed in increments as construction progresses. Disbursements are based
on periodic on-site inspections by 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

                                       7
<PAGE>

and to carry the short-fall between construction costs and the loan amount,
based on their financial strength, until the property is sold.

         AGRICULTURAL LENDING. Agricultural lending has been an important part
of the Bank's lending strategy since the mid-1980s. The Chief Executive Officer
has 27 years of experience, the Chief Operating Officer has 21 years of
experience, and the Vice President of Agricultural Lending has 24 years of
experience in agricultural lending. The existing staff's experience maintains
the Bank as the most experienced agricultural lender in the area. At March 31,
2001, agricultural real estate loans totaled $15.4 million, or 6.9% of the
Bank's total loan portfolio.

         AGRICULTURAL REAL ESTATE LENDING. The Bank presently originates both
adjustable-rate and fixed-rate loans secured by farmland located in the Bank's
market area, primarily around Lewiston. 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.

         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, 2001, the largest agricultural real estate loan was $963,000,
which was performing according to its terms, and the Bank's average agricultural
real estate loan was approximately $121,000.

         Agricultural real estate lending provides the Bank the opportunity to
earn yields higher than those generally available on standard conforming
residential real estate lending. However, agricultural real estate lending
involves a greater degree of risk than residential real estate 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 Bank is approved to originate agricultural real estate loans
qualifying for purchase by the Farmer Mac II program, which requires Farm
Service Agency guarantees up to a maximum of 90% of the principal and interest.
Once the guaranteed loan has been funded, the Bank generally sells the
guaranteed portion of the loan to Farmer Mac II, while retaining the servicing
rights on the entire loan.

         AGRICULTURAL OPERATING AND EQUITY LENDING. At March 31, 2001,
agricultural operating loans totaled $10.9 million, or 4.9% of total loans.
Agricultural operating loans or lines of credit generally are made for a term of
one to three years and may be secured or unsecured. Such loans may be secured by
a first or second mortgage, or liens on property, vehicles, accounts receivable,
crop held or growing crop. Personal guarantees are frequently required for loans
made to corporations and their business entities. Payments on agricultural
operating loans depend on the successful operation of the farm, which may be
adversely affected by weather conditions that limit crop yields, fluctuations in
market prices for agricultural products, and changes in government regulations
and subsidies. Underwriting requires substantial cash working capital and annual
production income sufficient to meet payment obligations on an annual basis.

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

                                       8
<PAGE>

         COMMERCIAL REAL ESTATE LENDING. Commercial real estate lending has
become a significant part of the Bank's lending strategy. At March 31, 2001, the
Bank's commercial real estate loan portfolio totaled $38.0 million, or 16.9% of
total loans. During the year ended March 31, 2001, originations of commercial
real estate loans totaled $10.2 million. In connection with the expansion of the
Bank's community banking activities, the Bank intends to continue commercial
real estate lending, subject to market conditions.

         The Bank's commercial real estate loans include loans secured primarily
by owner-occupied buildings, storage facilities, manufactured home parks, small
office buildings, retail shops, multi-family residential properties and other
small commercial properties. The portfolio also contains a very limited amount
of specialty realty (i.e., restaurants, motel, etc.). Commercial real estate
loans in the Bank's portfolio only includes loans originated by the Bank. At
March 31, 2001, the average size of the Bank's commercial real estate loans was
$317,000 and the largest was $2.5 million. Appraisals on properties that secure
commercial real estate loans are performed by an independent appraiser engaged
by the Bank before the loan is made. An environmental assessment is also
performed. Underwriting of commercial real estate loans includes a thorough
analysis of the cash flows generated by the real estate or the borrower's
business to support the debt service and the financial resources, experience,
and income level of the borrowers. Security debt coverage ratios, total debt
coverage ratios, and working capital assessments are key underwriting criteria.
Operating statements on most commercial loans are prepared and submitted to the
Bank on an annual basis.

         COMMERCIAL BUSINESS LENDING. Commercial lending has become increasingly
important to the Bank's lending strategy in recent years. The Bank's real estate
relationships have resulted in increased commercial lending opportunities with
these customers. This reflects the Bank's objective to provide its commercial
and small business customers with a complete lending and banking relationship.
The Company's staff of experienced lenders was able to increase commercial
non-real estate loans to 18.6% of the total loan portfolio as of March 31, 2001
from 17.0% of the total loan portfolio at March 31, 2000. The Bank presently
originates both adjustable-rate and fixed-rate loans secured by equipment,
accounts receivable and inventory. Loans secured by accounts receivable and
inventory are generally operating lines of credit renewed annually while
equipment secured loans may be for a term as long as five years. Nonresidential
commercial lending has increased from $32.8 million to $41.8 million from fiscal
year ended 2000 and 2001, respectively. To more accurately reflect the overall
interest rate environment, the Bank has changed the index used for adjustable
rate loans from the one year Treasury constant maturity to the FHLB twelve month
advance rate.

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

         Of the commercial loan production in the fiscal year ended 2001,
operating loans represent 47.8%, equipment loans 14.5%, working capital loans
7.0%, letters of credit 10.1%, governmental and school districts loans 18.2%,
and small business and industry loans 2.4%. The Bank participates in small
business and industry guarantee programs that are designed to assist businesses
that cannot qualify for conventional financing.

         CONSUMER AND OTHER LENDING. The Bank originates a variety of consumer
and other non-mortgage loans. Such loans generally have shorter terms to
maturity and higher interest rates than mortgage loans. At March 31, 2001, the
Bank's consumer and other non-mortgage loans totaled approximately $35.6
million, or 15.8% 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 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.

                                       9
<PAGE>

         At March 31, 2001, home equity loans totaled $27.3 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 with
fixed interest rates and ten year term loans with adjustable interest rates.
Home equity lines of credit generally have adjustable interest rates based on
the prime rate. Home equity loans are generally underwritten at 80% loan to
value including the first mortgage with exceptions granted for demonstrated
exceptional financial strength.

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

         MATURITY OF LOAN PORTFOLIO. The following table sets forth certain
information at March 31, 2001 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 shortens the average life of all
loans and may cause the Bank's actual repayment experience to differ from that
shown below.
<TABLE>
<CAPTION>

                                                         After       After
                                              One       5 Years     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                $      253   $    1,698   $    4,174   $   12,052   $   56,715   $   74,892
  Construction                    8,028           --           --           --           --        8,028
  Commercial                      5,536        4,437          450       11,156       16,390       37,969
Agricultural                      5,841        5,148        2,510        3,010        9,812       26,321
Commercial non-real estate       21,240       14,391        5,156          619          383       41,789
Consumer and other loans          3,006        6,451       16,873        8,136        1,112       35,578
                             ----------   ----------   ----------   ----------   ----------   ----------
Total loans receivable       $   43,904   $   32,125   $   29,163   $   34,973   $   84,412   $  224,577
                             ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>

         The following table sets forth the dollar amount of all loans due after
March 31, 2001, that have fixed interest rates and have floating or adjustable
interest rates.

<TABLE>
<CAPTION>
                                                                        Fixed        Floating or
                                                                        Rates      Adjustable Rates
                                                                     ----------    ----------------
                                                                            (In Thousands)
<S>                                                                  <C>                 <C>
Real estate loans:
  Residential                                                        $   47,102          $   27,790
  Construction                                                            7,556                 472
  Commercial                                                              5,447              32,522
Agricultural                                                              3,084              23,237
Commercial non-real estate                                               16,576              25,213
Consumer and other loans                                                 25,835               9,743
                                                                     ----------          ----------
Total loans receivable                                               $  105,600          $  118,977
                                                                     ==========          ==========
</TABLE>
                                       10
<PAGE>

         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, which includes Moscow, 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 $275,000 that qualify for sale in
the secondary market may be approved by the Bank's underwriters. All other
portfolio real estate loans up to $750,000 must be approved by two members of
the management loan committee. Delegated loan approval authority to residential
lending centers is authorized within prescribed limits for approved major
builder loans. All other construction loans resulting in total extension of
credit to one borrower up to $750,000 must be approved by two members of the
management loan committee. Any loan that would result in the total extension of
credit to one borrower to be in excess of $750,000 or to a major builder in
excess of its maximum credit limit must be approved by the Board of Directors
Loan Committee. Consumer loans up to $25,000 and home equity loans up to
$100,000 may be approved by designated underwriters. All other consumer and home
equity loans must be approved by two members of the management loan committee.

         LOAN ORIGINATIONS, SALES AND PURCHASES. While the Bank originates both
adjustable-rate and fixed-rate loans, its ability to generate each type of loan
is dependent upon relative customer demand for loans in its market. For the year
ended March 31, 2001, the Bank originated $168.4 million of loans. Residential
real estate loan originations totaled $60.1 million for the year ended March 31,
2001. Of the $113.8 million of loans originated during the year ended March 31,
2001, 51.5% were adjustable-rate loans and 48.5% were fixed-rate loans.

         In the early 1990's, the Bank adopted a mortgage banking strategy
pursuant to which it seeks to generate income from the sale of loans (which may
be sold either servicing-retained or servicing-released) and from servicing fees
from loans sold on a servicing-retained basis. Generally, the level of loan sale
activity and, therefore, its contribution to the Bank's profitability depends on
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 $1.1 million and $840,000 during
the years ended March 31, 2000 and 2001, respectively. The Bank sells loans on a
loan-by-loan basis. Generally a loan is committed to be sold and a price for the
loan is fixed at the time the interest rate on the loan is fixed, which may be
at the time the Bank issues a loan commitment or at the time the loan closes.
This eliminates the risk to the Bank that a rise in market interest rates will
reduce the value of a mortgage before it can be sold. Where a loan is committed
to be sold before it is closed, the Bank is subject to the risk that the loan
fails to close or that the closing of the loan is delayed beyond the specified
delivery date. In such event, the Bank may be required to compensate the
purchaser for failure to deliver the loan. Generally, all loans are sold without
recourse, although in the past the Bank has sold loans with recourse. As of
March 31, 2001, the Bank remained contingently liable for approximately $431,000
of loans sold with recourse.

                                       11
<PAGE>

         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.

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

                                                         Year Ended March 31,
                                               --------------------------------------
                                                   1999          2000          2001
                                               ----------    ----------    ----------
                                                            (In Thousands)
<S>                                            <C>           <C>           <C>
Total loans receivable at  beginning of year   $  154,202    $  179,769    $  193,032
                                               ----------    ----------    ----------
Loans originated:
Real estate loans:
   Residential                                    105,939        66,323        60,085
   Construction                                    15,411        10,492        10,864
   Agricultural                                     4,249         4,493           786
   Commercial                                      14,726         5,255        10,184
Commercial non-real estate                         18,539        26,763        15,995
Consumer and other loans                            6,763        19,559        15,872
                                               ----------    ----------    ----------
Total loans originated                            165,627       132,885       113,786
                                               ----------    ----------    ----------

Loans purchased:
   Real estate loans:
   Residential                                      1,270           940            10
   Construction                                        --            --           703
   Agricultural                                       775         1,980         2,212
   Commercial                                          --           239            --
Commercial non-real estate                             --            --            --
Consumer and other loans                               --            --         1,900
                                               ----------    ----------    ----------
Total loans purchased                               2,045         3,159         4,825
                                               ----------    ----------    ----------

Loans sold:
Servicing retained                                (38,204)      (40,239)       (7,529)
Servicing released                                (55,722)      (42,290)      (41,842)
                                               ----------    ----------    ----------
Total loans sold                                  (93,926)      (82,529)      (49,371)
                                               ----------    ----------    ----------

Loan principal repayments                         (23,841)      (34,790)      (30,803)
                                               ----------    ----------    ----------

Refinanced loans                                  (24,338)       (5,462)       (6,892)
                                               ----------    ----------    ----------
Change in total loans receivable                   25,567        13,263        31,545
                                               ----------    ----------    ----------
Total loans receivable at end of year          $  179,769    $  193,032    $  224,577
                                               ==========    ==========    ==========

</TABLE>

         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
$25.1 million at March 31, 2001. In addition, the Bank had commitments to fund
outstanding credit lines of approximately $28.7 million and commitments to fund
credit card lines of approximately $3.0 million at March 31, 2001.

                                       12
<PAGE>

         LOAN ORIGINATION AND OTHER FEES. The Bank, in some instances, receives
loan origination fees. Loan fees are a fixed dollar amount or a percentage of
the principal amount of the mortgage loan that is charged to the borrower for
funding the loan. The amount of fees charged by the Bank generally is 1% of the
loan amount. Current accounting standards require fees received (net of certain
loan origination costs) for originating loans to be deferred and amortized into
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 $420,000 of unearned loan fees and discounts at
March 31, 2001and $415,000 of unearned loan fees and discounts at March 31,
2000.

         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, 2001, the
Bank was servicing $138.2 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, 2001, the Bank held $1.4
million in escrow for its portfolio of loans serviced.

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.

                                       13
<PAGE>

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

                                                                          At March 31,
                                                                   ------------------------
                                                                    1999     2000     2001
                                                                   ------   ------   ------
                                                                    (Dollars in Thousands)
<S>                                                                <C>       <C>       <C>
Loans accounted for on a  nonaccrual basis:
Real estate loans:
   Residential                                                     $  386   $  488   $  308
   Construction                                                        --       --      316
   Agricultural                                                        --       --       57
   Commercial                                                          --       29       --
Commercial non-real estate                                            182       --      226
Consumer and other loans                                               44       65      254
                                                                   ------   ------   ------
Total                                                                 612      582    1,161
                                                                   ------   ------   ------

Accruing loans which are contractually past due 90 days or more:
Real estate loans:
   Residential                                                         --       --      125
   Construction                                                        13       --       --
   Agricultural                                                        --       --       --
   Commercial                                                          --       --       --
Commercial non-real estate                                             --       --      157
Consumer and other loans                                               --       --       --
                                                                   ------   ------   ------
Total                                                                  13       --      282
                                                                   ------   ------   ------

Total of nonaccrual and 90 days past
  due loans                                                           625      582    1,443
Real estate owned                                                     299       44       33
                                                                   ------   ------   ------
Total nonperforming loans                                             924      626    1,476

   Restructured loans                                              $  201   $  198   $   --
                                                                   ------   ------   ------

Total nonperforming assets                                         $1,124   $  824   $1,476
                                                                   ======   ======   ======

Nonaccrual and 90 days or more past due
   loans as a percent of loans receivable, net                       0.38%    0.31%    0.66%
Nonaccrual and 90 days or more past
   due loans as a percent of total assets                            0.30%    0.23%    0.51%
Nonperforming assets as a percent of
   total assets                                                      0.54%    0.33%    0.53%
Total nonperforming assets to total loans                            0.63%    0.43%    0.66%
</TABLE>

         Interest income that would have been recorded for the year ended March
31, 2001 had nonaccruing loans been current in accordance with their original
terms amounted to approximately $59,000. The amount of interest included in
interest income on such loans for the year ended March 31, 2001 amounted to
approximately $11,000.

                                       14
<PAGE>

         REAL ESTATE OWNED. Real estate acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
("REO") until it is sold. When property is acquired it is recorded at the lower
of its cost, which is the unpaid principal balance of the related loan plus
foreclosure costs, or 90 day liquidation value. Subsequent to foreclosure, REO
is carried at the lower of the foreclosed amount or fair value, less estimated
selling costs. At March 31, 2001, the Bank had $33,000 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, 2001, classified assets of the Company totaled $2.4
million. Assets classified as loss totaled $26,000 and consisted of overdrawn
negotiable order of withdrawal ("NOW") accounts totaling $2,000, installment
loans of $9,000, and a mortgage loan of $15,000. Assets classified as
substandard totaled $2.4 million, which consists of $1.3 million of commercial
loans, $399,000 of consumer loans, $382,000 of residential loans, $229,000 of
construction loans, $90,000 of agricultural loans, and a $33,000 REO. Of the
substandard assets, 76.3% resulted from the decline in the timber industry,
unpredictable management decisions, and loss of income. The aggregate amounts of
the Bank's classified assets at the dates indicated were as follows:

                                                   At March 31,
                                            --------------------------
                                             1999      2000      2001
                                            ------    ------    ------
                                                  (In Thousands)
              Loss                          $   26    $   17    $   26
              Doubtful                          --        --        --
              Substandard                      697       667     2,417
                                            ------    ------    ------
              Total classified assets       $  723    $  684    $2,443
                                            ======    ======    ======

         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.

         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.

                                       15
<PAGE>

         At March 31, 2001, the Bank had an allowance for loan losses of $1.8
million. The allowance for loan losses is maintained at an amount management
considers adequate to absorb losses inherent in the portfolio. Although
management believes that it uses the best information available to make such
determinations, future adjustments to the allowance for loan losses may be
necessary and results of operations could be significantly and adversely
affected if circumstances differ substantially from the assumptions used in
making the determinations.

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

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

                                                                    Year Ended March 31,
                                                                --------------------------
                                                                 1999      2000      2001
                                                                ------    ------    ------
                                                                  (Dollars in Thousands)
<S>                                                             <C>       <C>       <C>
              Allowance at beginning of year                    $1,120    $1,361    $1,604

              Provision for loan losses(1)                         296       287       303

              Recoveries                                             1        --         6

              Charge-offs:
              Real estate loans:
                 Residential                                        21         3        44
                 Construction                                       --        --        --
                 Agricultural                                       --        --        --
                 Commercial                                         --        --        --
              Commercial non-real estate                            --        --        --
              Consumer and other loans                              35        41       111
                                                                ------    ------    ------
              Total charge-offs                                     56        44       155
                                                                ------    ------    ------
              Net charge-offs                                       55        44       149
                                                                ------    ------    ------
              Balance at end of year                            $1,361    $1,604    $1,758
                                                                ======    ======    ======

              Allowance for loan losses as a percent of total
                 loans receivable                                 0.76%     0.83%     0.78%
              Net charge-offs to average outstanding loans        0.04%     0.02%     0.07%
</TABLE>
(1)  See "Item 6. Management's Discussion and Analysis or Plan of Operation --
     Comparison of Operating Results for the Years Ended March 31, 2000 and 2001
     -- Provisions for Loan Losses" for a discussion of the factors contributing
     to changes in the Bank's provision for loan losses between the years.

                                       16
<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,
                                  ---------------------------------------------------------
                                       1999                2000                 2001
                                  ------------------ ------------------- ------------------
                                                   (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>
Residential                       $  288     39.78%  $  273     37.19%  $  234      33.35%
Construction                         217      5.19      119      4.05      140       3.57
Agricultural                         252     11.48      290     12.16      318      11.72
Commercial                           527     28.62      655     29.94      882      35.52
Consumer and other loans              77     14.93      267     16.66      184      15.84
                                  ------    ------   ------    ------    ------    ------
Total allowance for loan losses   $1,361    100.00%  $1,604    100.00%   $1,758    100.00
                                  ======    ======   ======    ======    ======    ======
</TABLE>

INVESTMENT ACTIVITIES

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

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

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

                                       17
<PAGE>
         Investment securities are purchased primarily for managing liquidity.
Generally, the Bank purchases mortgage-backed securities during times of reduced
loan demand. The Bank's investments are primarily long term, insured Bank
Qualified State of Idaho Municipal Bonds. Most of the mortgage-backed securities
are longer-term FHLMC and FNMA back securities.

         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,
                             ------------------------------------------------------------
                                    1999                 2000                2001
                             -------------------- ------------------- -------------------
                                        Percent             Percent             Percent
                             Carrying   of        Carrying  of        Carrying  of
                             Value      Portfolio Value     Portfolio Value     Portfolio
                             -------    --------- -------   --------- -------   ---------
                                                 (Dollars in Thousands)
<S>                          <C>         <C>      <C>        <C>      <C>        <C>
Available-for-sale:
Investment securities        $ 6,536     32.50%   $11,335    34.81%   $12,568    38.54%
Mortgage-backed securities    10,135     50.40     18,741    57.56     17,704    54.30
                             -------    ------    -------   ------    -------   ------
Total available-for-sale      16,671     82.90     30,076    92.37     30,272    92.84
                             -------    ------    -------   ------    -------   ------

Held-to-maturity:
Investment securities            700      3.48         --       --         --       --
Mortgage-backed securities     2,739     13.62      2,484     7.63      2,335     7.16
                             -------    ------    -------   ------    -------   ------
Total held-to-maturity         3,439     17.10      2,484     7.63      2,335     7.16
                             -------    ------    -------   ------    -------   ------
Total                        $20,110    100.00%   $32,560   100.00%   $32,607   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, 2001.
<TABLE>
<CAPTION>

                                           Over             Over
                          Less Than       One to           Five to            Over Ten
                          One Year       Five Years       Ten Years             Years
                       --------------  -------------  -----------------    ----------------
                       Amount   Yield  Amount  Yield  Amount     Yield      Amount    Yield
                       ------   -----  ------  -----  -------   -------    --------   -----
                                               (Dollars in Thousands)
<S>                     <C>            <C>            <C>          <C>     <C>        <C>
Investment Securities   $  --     --%  $  --     --%  $ 1,172      7.52%   $ 11,396   7.80%
Mortgage-backed
  securities               --     --      --     --        19      7.60      20,020   6.85
                        -----   ----   -----   ----   -------   -------    --------   ----
Total                   $  --     --%  $  --     --%  $ 1,191      7.52%   $ 31,416   7.19%
                        =====   ====   =====   ====   =======   =======    ========   ====

</TABLE>

                                       18
<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.
The Company also maintains additional credit facilities with Wells Fargo Bank,
and the Federal Reserve Bank of San Francisco.

         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 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 accepts brokered deposits with maturities between ninety
days and two years. At March 31, 2001, the Bank had $2.8 million in brokered
deposits, which is 1.4% of total assets. At March 31, 2001, certificates of
deposit that are scheduled to mature in less than one year totaled $67.1
million. See "Item 6. Management's Discussion and Analysis or Plan of Operation
-- Liquidity and Capital Resources."

                                       19
<PAGE>

         The following table sets forth information concerning the Bank's
deposits at March 31, 2001.
<TABLE>
<CAPTION>

       Weighted
        Average                                                                        Percentage
       Interest       Checking and                     Minimum                           of Total
           Rate      Savings Deposits                   Amount         Balance           Deposits
       --------    --------------------               ----------     ----------        ----------
                                        (In Thousands, except minimum amount)
<S>        <C>                                        <C>            <C>                    <C>
           0.75%   NOW                                  $     --     $   40,502             25.67%
           3.69    Money Market Deposit                       --         15,033              9.53
           2.00    Passbook                                   --         12,349              7.83
                                                                     ----------            ------
                                        Total Checking & Passbook        67,884             43.03
                                                                     ----------            ------

                   Certificates of Deposit
                   -----------------------
           4.41    7 days to 179 days                      2,500         13,226              8.38
           5.56    6 months to less than 1 year            2,500         15,114              9.58
           5.84    1 year to less than 2 years             2,500          6,768              4.29
           5.60    2 years to less than 3 years            2,500          7,408              4.69
           5.62    New 2 years to 5 years-
                   Add on                                    500          4,913              3.11
           5.54    3 years to less than 4 years            2,500          1,696              1.07
           5.68    4 years to less than 5 years            2,500          1,115              0.71
           5.56    5 years to less than 10 years           2,500          3,424              2.17
           4.76    IRA Variable                              500            775              0.49
           6.40    Special, Less than 1 year              10,000         17,249             10.93
           6.38    Special, 1 year to less than
                   2 years                                10,000          9,259              5.87
           6.49    Special, 2 years to less than
                   3 years                                10,000          8,966              5.68
                                                                     ----------            ------

                                   Total Certificates of  Deposit        89,913             56.97
                                                                     ----------            ------

                                                  Total  Deposits    $  157,797            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, 2001.
Jumbo certificates of deposit are certificates in amounts of more than $100,000.


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

                   Three months or less                    $ 10,863
                   Over three through six months              2,609
                   Over six through 12 months                 3,416
                   Over 12 months                             3,986
                                                           --------

                   Total jumbo certificates of deposit     $ 20,874
                                                           ========

                                       20
<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,
                                --------------------------------------------------------------------------------------
                                         1999                      2000                            2001
                                --------------------   -----------------------------  --------------------------------
                                            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                   $ 29,277     21.97%   $ 33,986   23.45%   $  4,709  $ 40,502     25.67%    $  6,516
  Passbook accounts                14,958     11.22      17,501   12.08       2,543    12,349      7.83       (5,152)
  Money market deposit
    Accounts                       10,240      7.68      14,245    9.83       4,005    15,033      9.53          788
  Fixed-rate certificates
    which mature:
       Within 1 year               51,365     38.54      59,323   40.94       7,958    67,091     42.52        7,768
       After 1 year, but within
        2 years                    21,838     16.39       8,723    6.02     (13,115)   17,978     11.39        9,255
       After 2 years, but within
        5 years                     5,386      4.04      10,410    7.18       5,024     4,622      2.93       (5,788)
       Certificates maturing
        Thereafter                    214      0.16         719    0.50         505       222      0.13         (497)
                                 --------    ------    --------  ------    --------  --------    ------     --------
  Total                          $133,278    100.00%   $144,907  100.00%   $ 11,629  $157,797    100.00%    $ 12,890
                                 ========    ======    ========  ======    ========  ========    ======     ========

</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,
                        ----------------------------------------
                           1999           2000           2001
                        ----------     ----------     ----------
                                       (In Thousands)
  0.0 - 2.99%           $      689     $      564     $       90
  3.0 - 3.99%               10,758             88          7,375
  4.0 - 4.99%               17,314         19,650          5,295
  5.0 - 5.99%               45,354         48,655         38,581
  6.0 - 6.99%                3,794          9,847         37,874
  7.0 - 7.99%                  402            337            663
  8.0 - 8.99%                   47             34             35
  9% and over                  445             --             --
                        ----------     ----------     ----------
  Total                 $   78,803     $   79,175     $   89,913
                        ==========     ==========     ==========

                                       21
<PAGE>

The following table sets forth the amount and maturities of time deposits at
March 31, 2001.
<TABLE>
<CAPTION>

                                   Amount Due
                                   ----------
                                                                              Percent
                         After     After     After                            of Total
              Less Than  1 to 2    2 to 3    3 to 4    After                 Certificate
              One Year   Years     Years     Years    4 Years    Total        Accounts
              -------   -------   -------   -------   -------   -------      -----------
                             (Dollars in Thousands)
<S>           <C>       <C>       <C>       <C>           <C>   <C>             <C>
0.0 - 2.99%   $    54   $    --   $    34   $     2   $    --   $    90         0.10%
3.0 - 3.99%     7,326        --        --        --        49     7,375         8.20
4.0 -4.99%      4,869       366        22        --        38     5,295         5.89
5.0 - 5.99%    26,674     8,565     1,998       980       364    38,581        42.91
6.0 - 6.99%    27,922     8,806       420       446       280    37,874        42.12
7.0 - 7.99%       246       216       186        15        --       663         0.74
8.0 - 8.99%        --        25        10        --        --        35         0.04
9% and over        --        --        --        --        --        --           --
              -------   -------   -------   -------   -------   -------       ------
Total         $67,091   $17,978   $ 2,670   $ 1,443   $   731   $89,913       100.00%
              =======   =======   =======   =======   =======   =======       ======
</TABLE>

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

                                      Year Ended March 31,
                             ------------------------------------
                                 1999        2000          2001
                             ----------   ----------   ----------
                                         (In Thousands)
Beginning balance            $  114,495   $  133,278   $  144,907
                             ----------   ----------   ----------
Net increase
  before interest credited       13,864        6,189        6,821
Interest credited                 4,919        5,440        6,069
                             ----------   ----------   ----------
Net increase
  in savings deposits            18,783       11,629       12,890
                             ----------   ----------   ----------

Ending balance               $  133,278   $  144,907   $  157,797
                             ==========   ==========   ==========

                                       22
<PAGE>

         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,
providing that the Bank holds sufficient collateral.

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

                                                           At or For the
                                                        Year Ended March 31,
                                              --------------------------------------
                                                   1999         2000        2001
                                              ------------- ------------  ----------
                                                        (Dollars in Thousands)
<S>                                           <C>           <C>           <C>
Maximum amount of FHLB advances outstanding
  at any month end during the year            $   47,227    $   74,578    $  96,580
Approximate average FHLB advances
  outstanding during the year                     41,107        54,242       86,089
Balance of FHLB advances outstanding
  at end of year                                  42,027        74,578       90,917
Weighted average rate paid on
  FHLB advances at end of year                      5.51%         6.05%        5.57%
Approximate weighted average rate paid on
  FHLB advances during the year                     5.72%         5.59%        6.31%

                                                                                    Five Years to
                                                 Less than       One Year to Less   Less than Ten     Greater than
                                                 One Year        than Five Years        Years           Ten Years
                                               -------------     ----------------  ---------------    ------------
Maturities of advances from FHLB                $ 48,372           $ 23,950           $ 17,274           $ 1,321
Range of interest rates                        4.73% - 6.66%      5.10% - 6.62%      4.87% - 5.62%         6.66%
Weighted average interest rate                     5.62%              5.68%              5.16%             6.66%
Percentage of total advances                      53.21%             26.34%             19.00%             1.45%
</TABLE>

         The Company also maintains additional credit facilities with Wells
Fargo Bank, available funds totaling $7.0 million and the Federal Reserve Bank
of San Francisco with available funds totaling $16.0 million. There were no
outstanding advances under these facilities at March 31, 2001.

COMPETITION

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

                                       23
<PAGE>

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, 2001, the Bank's
equity investment in its subsidiary was $52,000.

PERSONNEL

      As of March 31, 2001, the Bank had 113 full-time and 16 part-time
employees. The employees are not represented by a collective bargaining unit and
the Bank believes its relationship with its employees to be good.

                                   REGULATION

FIRSTBANK NORTHWEST

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

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

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

         DEPOSIT INSURANCE. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of depository
institutions. The FDIC currently maintains two separate insurance funds: the
Bank Insurance Fund and the Savings Association Insurance Fund. The Bank's
accounts are insured by the Savings Association Insurance Fund to the maximum
extent permitted by law. As insurer of the Bank's deposits, the FDIC has
examination, supervisory and enforcement authority over the Bank.

         The FDIC has established a risk-based system for setting deposit
insurance assessments. Under the risk-based assessment system, an institution's
insurance assessment varies according to the level of capital the institution
holds on the balance of insured deposits during the preceding two quarters, and
the degree to which it is the subject of supervisory concern. In addition,
regardless of the potential risk to the insurance fund, federal law requires the
ratio of reserves to insured deposits at $1.25 per $100. Both funds currently
meet this reserve ratio. Since 1997, the assessment rate for both SAIF and BIF
deposits ranged from zero to 0.27% of covered deposits. As a well capitalized
bank, the Bank is qualified for the lowest rate on its deposits for 2001.

                                       24
<PAGE>

         In addition to deposit insurance assessments, the FDIC is authorized to
collect assessments against insured deposits to be paid to the Financing
Corporation ("FICO") to service FICO debt incurred in the 1980s to help fund the
thrift industry cleanup. The FICO assessment rate is adjusted quarterly.

         Prior to 2000, the FICO assessment rate for BIF-insured deposits was
one-fifth the rate applicable to deposits insured by the SAIF. Beginning in
2000, SAIF- and BIF-insured deposits were assessed at the same rate by FICO. As
a result, BIF FICO assessments will be higher than in previous periods while
SAIF FICO assessments will be lower. For the first quarter of 2001, the
annualized rate was 1.96 cents per $100 of insured deposits.

         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 that could result in termination of the
deposit insurance of the Bank.

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

         At March 31, 2001, 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. FDIC regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.

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

                                       25
<PAGE>

         The FDIC currently measures an institution's capital using a leverage
limit together with certain risk-based ratios. The FDIC's minimum leverage
capital requirement specifies a minimum ratio of Tier 1 capital to average total
assets. Most banks are required to maintain a minimum leverage ratio of at least
4% to 5% of total assets. The FDIC retains the right to require a particular
institution to maintain a higher capital level based on an institution's
particular risk profile. The Bank calculated their leverage ratio to be 9.4% as
of March 31, 2001.

         FDIC regulations also establish a measure of capital adequacy based on
ratios of qualifying capital to risk-weighted assets. Assets are placed in one
of four categories and given a percentage weight -- 0%, 20%, 50% or 100%-- based
on the relative risk of that category. In addition, certain off-balance-sheet
items are converted to balance-sheet credit equivalent amounts, and each amount
is then assigned to one of the four categories. Under the guidelines, the ratio
of total capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets
must be at least 8%, and the ratio of Tier 1 capital to risk-weighted assets
must be at least 4%. The Bank has calculated their total risk-based ratio to be
14.5%, as of March 31, 2001, and their Tier 1 risk-based capital ratio to be
13.5%. In evaluating the adequacy of a bank's capital, the FDIC may also
consider other factors that may affect a bank's financial condition. Such
factors may include interest rate risk exposure, liquidity, funding and market
risks, the quality and level of earnings, concentration of credit risk, risks
arising from nontraditional activities, loan and investment quality, the
effectiveness of loan and investment policies, and management's ability to
monitor and control financial operating risks.

         Federal statutes establish a supervisory framework based on five
capital categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. An institution's
category depends upon where its capital levels are in relation to relevant
capital measure, which include a risk-based capital measure, a leverage ratio
capital measure, and certain other factors. The federal banking agencies have
adopted regulations that implement this statutory framework. Under these
regulations, an institution is treated as well capitalized if its ratio of total
capital to risk-weighted assets is 10% or more, its ratio of core capital to
risk-weighted assets is 6% or more, its ratio of core capital to adjusted total
assets is 5% or more, and it is not subject to any federal supervisory order or
directive to meet a specific capital level. In order to be adequately
capitalized, an institution must have a total risk-based capital ratio of not
less than 8%, a Tier 1 risk-based capital ratio of not less than 4%, and a
leverage ratio of not less than 4%. Any institution which is neither well
capitalized nor adequately capitalized will be considered undercapitalized.

         Undercapitalized institutions are subject to certain prompt corrective
action requirements, regulatory controls and restrictions which become more
extensive as an institution becomes more severely undercapitalized. Failure by
the Bank to comply with applicable capital requirements would, if unremedied,
result in restrictions on its activities and lead to enforcement actions
including, but not limited to, the issuance of a capital directive to ensure the
maintenance of required capital levels. Banking regulators will take prompt
corrective action with respect to depository institutions that do not meet
minimum capital requirements. Additionally, approval of any regulatory
application filed for their review may be dependent on compliance with capital
requirements.

         FDIC capital requirements are designated as the minimum acceptable
standards for banks whose overall financial condition is fundamentally sound,
which are well-managed and have no material or significant financial weaknesses.
The FDIC capital regulations state that, where the FDIC determines that the
financial history or condition, including off-balance sheet risk, managerial
resources and/or the future earnings prospects of a bank are not adequate and/or
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 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, 2001, the Bank had a Tier 1
capital to average assets ratio of 9.2%, a Tier 1 capital to risk-weighted
assets ratio of 13.5%, and a Total capital to risk-weighted assets ratio of
14.5%.

                                       26
<PAGE>

         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.

         Federal law provides 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 must cease the
impermissible activity.

         FEDERAL HOME LOAN BANK SYSTEM. The FHLB - Seattle serves as a reserve
or central bank for the member institutions within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated obligations
of the FHLB. It makes loans (i.e., advances) to members in accordance with
policies and procedures established by the Federal Housing Finance Board and the
Board of Directors of the FHLB - Seattle. As a member, the Bank is required to
purchase and hold stock in the FHLB - Seattle in an amount equal to the greater
of 1% of their aggregate unpaid home loan balances at the beginning of the year
or an amount equal to 5% of FHLB advances outstanding. As of March 31, 2001, the
Bank held stock in the FHLB of Seattle in the amount of $5.0 million and had
advances totaling $90.9 million, which mature in 2001 through 2027 at interest
rates ranging from 4.73% to 6.66%. See "Business -- Deposit Activities and Other
Sources of Funds -- Borrowings."

         FEDERAL RESERVE SYSTEM. The Federal Reserve Board requires under
Regulation D that all depository institutions, including savings banks, maintain
reserves on transaction accounts or non-personal time deposits. These reserves
may be in the form of cash or non-interest-bearing deposits with the regional
Federal Reserve Bank. Negotiable order of withdrawal accounts and other types of
accounts that permit payments or transfers to third parties fall within the
definition of transaction accounts and are subject to Regulation D reserve
requirements, as are any non-personal time deposits at a savings bank. Under
Regulation D, a bank must maintain reserves against net transaction accounts in
the amount of 3% on amounts of $37.3 million or less, plus 10% on amounts in
excess of $37.3 million. In addition, a bank may designate and exempt $5.0
million of certain reservable liabilities from these reserve requirements. These
amounts and percentages are subject to adjustment by the Federal Reserve. The
reserve requirement on non-personal time deposits with original maturities of
less than 1.5 years is 0%. As of March 31, 2001, the Banks deposit with the
Federal Reserve Bank and vault cash exceeded their respective reserve
requirements.

         AFFILIATE TRANSACTIONS. Various legal limitations restrict the Bank
from lending or otherwise supplying funds to the Company, generally limiting
such transactions with the Company to 10% of the Bank's capital and surplus and
limiting all such transactions to 20% of the Bank's capital and surplus. 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.

                                       27
<PAGE>

         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. Banks are also subject to the provisions of
the Community Reinvestment Act of 1977, which requires the appropriate federal
bank regulatory agency, in connection with its regular 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.

         DIVIDENDS. Dividends from the Bank constitute the major source of funds
for dividends which may be paid by the Company. The amount of dividends payable
by the Bank to the Company 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.

                                       28
<PAGE>

         QUALIFIED THRIFT LENDER TEST. The HOLA provides that any savings and
loan holding company that controls a savings association that fails the
qualified thrift lender ("QTL") test must, within one year after the date on
which the Bank ceases to be a QTL, register as and be deemed a bank holding
company subject to all applicable laws and regulations. Currently, the QTL test
requires that either an institution qualify as a domestic building and loan
association under the Internal Revenue Code or that 65% of an institution's
"portfolio assets" (as defined) consist of certain housing and consumer-related
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, 2000, the Bank was in compliance with
the QTL test.

ITEM 2.  DESCRIPTION OF PROPERTIES

         The Bank operates eight full-service facilities in Lewiston, Lewiston
Orchards, Moscow, Grangeville, Coeur d'Alene, and Post Falls, Idaho, and
Clarkston and Liberty Lake, Washington. The Company owns the Lewiston, Lewiston
Orchards, Moscow, Grangeville, and Coeur d'Alene facilities, leases the
Clarkston building on a month-to-month tenancy which began July 1, 1997, and
leases the in-store location of the Post Falls branch on a five year term with
Tidyman's which began March 1, 1999. In November 1999, the Bank opened the newly
constructed Liberty Lake branch, which is located on leased land. The lease is a
ten-year lease. The Bank also operates one loan production office in Coeur
d'Alene, Idaho, which is located in the same facility as its full-service
office, and one loan production office in Lewiston, Idaho, which is a leased
building adjacent to the Lewiston facilities. A portion of the Coeur d'Alene
facility is leased to an unaffiliated brokerage firm for a period of ten years
expiring in 2006. At March 31, 2001, the net book value of the properties
(including land and buildings) and the Bank's fixtures, furniture and equipment
was $6.0 million. The Company believes that its existing facilities are adequate
for the current level of operations.

ITEM 3.  LEGAL PROCEEDINGS

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

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

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 31, 2001.

                                       29
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The common stock of the Company is traded on the Nasdaq National Market
under the symbol "FBNW". The table below reflects the high and low closing and
sales prices of the common stock, cash dividends paid per share, and book value
for the last two fiscal years. The common stock began trading on July 2, 1997.
At March 31, 2001 there were 297 record holders of common stock of the Company.


         2001              High        Low       Dividends   Book Value*
         ----           ---------   ---------    --------    -----------
    First Quarter       $  12.875   $   9.875    $   0.09    $  17.39
    Second Quarter         12.813      11.000        0.09       18.14
    Third Quarter          12.000      11.375        0.10       18.95
    Fourth Quarter         14.875      12.125        0.10       19.39


         2000
         ----
    First Quarter       $  20.375   $  13.000   $    0.09    $   16.35
    Second Quarter         15.125      13.000        0.09        16.63
    Third Quarter          13.750      11.875        0.09        16.90
    Fourth Quarter         13.000       8.500        0.09        17.30


*Book value is computed using actual shares outstanding, excluding unallocated
ESOP shares and including undisbursed MRDP shares.

         The payment of dividends on the common stock is subject to the
requirements of applicable law and the determination by the Board of Directors
of the Company that the net income, capital and financial condition of the
Company, industry trends and general economic conditions justify the payment of
dividends. The rate of such dividends and the continued payment thereof will
depend upon various factors at the intended time of declaration and payment,
including the Bank's profitability and liquidity, alternative investment
opportunities, and regulatory restrictions on dividend payments and on capital
levels applicable to the Bank. Accordingly, there can be no 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 are subject to regulatory restriction under
Federal Reserve policy as well as to limitation under applicable provisions of
Washington corporate law.

                                       30
<PAGE>

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

GENERAL

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

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

         The profitability of the Company's operations depends primarily on its
net interest income, its non-interest income (principally from mortgage banking
activities) and its non-interest expense. Net interest income is the difference
between the income the Company receives on its loan and investment portfolio and
its cost of funds, which consists of interest paid on deposits and borrowings.
Net interest income is a function of the Company's interest rate spread, which
is the difference between the yield earned on interest-earning assets and the
rate paid on interest-bearing liabilities, as well as a function of the average
balance of interest-earning assets as compared to the average balance of
interest-bearing liabilities. Non-interest income is comprised of income from
mortgage banking activities, gain on the occasional sale of assets and
miscellaneous fees and income. Mortgage banking generates income from the sale
of mortgage loans and from servicing fees on loans serviced for others. The
contribution of mortgage banking activities to the Company's results of
operations is highly dependent on the demand for loans by borrowers and
investors, and therefore the amount of gain on sale of loans may vary
significantly from period to period as a result of changes in market interest
rates and the local and national economy. The Company's profitability is also
affected by the level of non-interest expense. Non-interest expenses include
compensation and benefits, occupancy and maintenance expenses, deposit insurance
premiums, data servicing expenses, advertising expenses, supplies and postage,
and other operating costs. Additional expenses that may be incurred in fiscal
2002 include establishing a possible new loan production office and related
personnel, data processing conversion to Windows 2000, and branch refurbishment.
The Company's results of operations may be adversely affected during periods of
reduced loan demand to the extent that non-interest expenses associated with
mortgage banking activities are not reduced commensurate with the decrease in
loan originations.

OPERATING STRATEGY

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

                                       31
<PAGE>

terms to maturity than residential mortgage loans but involve greater credit
risk. As part of this strategy, the Company restructured its Senior Management
to improve lending efficiencies. The Company identified a Chief Operating
Officer and Chief Lending Officer. The commercial banking segment of the Bank
continues to strengthen its presence by adding experienced loan officers in the
Moscow, Coeur d'Alene and Liberty Lake branches. There can be no assurances that
the Company will be successful in its efforts to increase its originations of
these types of loans. Management anticipates that the Company will incur
significant other expenses in connection with the implementation and maintenance
of its online banking programs, and as various programs and services, such as
its commercial real estate and business lending operations, are 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. The Bank does not anticipate opening new branches within the next
fiscal year ending March 31, 2002.

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND MARCH 31, 2001

         Total assets increased $33.2 million, or 13.4%, from $247.9 million at
March 31, 2000 to $281.1 million at March 31, 2001. The growth in assets was due
to an increase in outstanding loans funded by deposits and FHLB advances. Net
loans receivable increased from $187.7 million at March 31, 2000 to $219.2
million at March 31, 2001. The mix of loans has changed reflecting the Company's
community banking strategy. In real estate loans, residential mortgage loans
decreased from 37.2% to 33.4% of total loans, construction loans decreased from
4.1% to 3.6%, agricultural loans decreased from 8.3% to 6.9% and commercial real
estate loans increased from 13.0% in fiscal 2000 to 16.9% in fiscal 2001. In
non-real estate loans, home equity lines decreased from 12.8% to 12.2%,
agricultural operating lines increased from 3.9% to 4.9%, commercial business
loans increased from 17.0% to 18.6% and other consumer loans decreased from 3.9%
to 3.7%, respectively, between these periods. During the year ended March 31,
2001, the Company retained for its portfolio fixed-rate mortgage loans with
terms of 15 years or less totaling $15.6 million. Cash and cash equivalents
increased from $12.5 million to $12.8 million and investment securities
increased from $11.3 million to $12.6 million. Mortgage-backed securities
decreased from $21.2 million to $20.0 million, due to payments received on the
mortgage-backed securities and there were no purchases of mortgage-backed
securities during the year ended March 31, 2001.

         Total liabilities increased from $222.0 million at March 31, 2000 to
$253.1 million at March 31, 2001. Deposits increased $12.9 million from $144.9
million at March 31, 2000 to $157.8 million at March 31, 2001. Of the $12.9
million increase, $10.7 million was in certificate of deposit accounts and $2.2
million was in core deposit accounts. Presently 46.9% of checking accounts are
non-interest bearing. FHLB advances increased from $74.6 million at March 31,
2000 to $90.9 million at March 31, 2001. These advances were used to fund loan
growth.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 2000 AND 2001

         GENERAL. Net income increased $177,000, from $1.7 million ($1.11 per
share - basic, $1.06 per share -diluted) for the year ended March 31, 2000 to
$1.9 million ($1.34 per share - basic, $1.30 per share - diluted) for the year
ended March 31, 2001. The Company experienced an increase in net interest income
and non-interest income in fiscal 2001 compared to fiscal 2000. The majority of
the non-interest expense increase is due to compensation and related benefits
expense.

         NET INTEREST INCOME. Net interest income increased $598,000, or 7.0%,
from $8.5 million for the year ended March 31, 2000 to $9.1 million for the year
ended March 31, 2001. The increase is due to the increase in loan originations
and loans receivable. The yield on interest-earning assets increased from 8.13%
and 8.51% in fiscal years end March 31, 2000 and 2001, but the yield on
interest-bearing liabilities increased from 4.29% to 4.92% in fiscal years end
March 31, 2000 and 2001, resulting mostly from increases in rates paid to
deposit holders. The Company's interest rate spread between the yield on
interest-earning assets and the rate paid on interest-bearing liabilities
decreased from 3.84% for fiscal 2000 to 3.59% for fiscal 2001.

                                       32
<PAGE>

         Total interest income increased $3.8 million from $17.0 million for the
year ended March 31, 2000 to $20.8 million for the year ended March 31, 2001.
Interest income on loans receivable increased $3.1 million, or 20.6%, from $14.9
million for fiscal 2000 to $18.0 million for fiscal 2001. The increase was the
result of a larger average balance of loans in fiscal 2001. Interest income on
mortgage-backed and related securities increased $458,000 from fiscal 2000 to
fiscal 2001 primarily as a result of a larger average balance of mortgage-backed
securities in fiscal 2001. Interest income on additional investment securities
increased $153,000, from fiscal 2000 to fiscal 2001 as a result of purchasing
additional Bank Qualified Idaho Municipal Bonds, which increased the average
balance.

         Interest expense increased by $3.2 million, from $8.4 million for the
year ended March 31, 2000 to $11.6 million for the year ended March 31, 2001.
Interest expense on deposits increased $628,000, or 11.7%, from fiscal 2000 to
fiscal 2001. The average balance of deposits increased from fiscal 2000 to
fiscal 2001 and the average rate paid on deposits increased from 3.78% to 4.08%.
Interest expense on FHLB and other advances increased $2.5 million from $3.1
million in fiscal 2000 to $5.6 million in fiscal 2001 as a result of a larger
average balance of outstanding borrowings in fiscal 2001 and the increased rate
on FHLB and other advances. The average yield on FHLB and other advances in
March 31, 2001 is 6.32% and 5.63% in fiscal year ended March 31, 2000.

         The net interest margin decreased 33 basis points from 4.16% in fiscal
2000 to 3.83% in fiscal 2001. This decrease was due to costs paid on deposits
and advances increasing more quickly than the yields realized on assets, as a
result of the Bank's focus on raising funds for increased commercial lending.

         PROVISION FOR LOAN LOSSES. The provision for loan losses was $287,000
for the year ended March 31, 2000 compared to $303,000 for the year ended March
31, 2001. Management continues to increase the allowance for loan losses as a
result of the growth experienced in the loan portfolio, specifically the growth
of commercial and agricultural operating loans, which generally are riskier than
residential mortgage loans. The Company's allowance for loan losses was $1.8
million or 0.80% of total loans receivable, at March 31, 2001, compared to $1.6
million, or 0.83% of total loans receivable, at March 31, 2000. The allowance
for loan losses increased 9.6% from the prior year, which consists of an
increase in construction, agricultural and commercial allowance for loan losses
of 17.2% and a decrease in residential, consumer and other allowance for loan
losses of 7.6%. Net loan charge-offs increased from $44,000 during fiscal 2000
to $149,000 during fiscal 2001, 0.07% of average outstanding loans for the year.

         NON-INTEREST INCOME. Total non-interest income increased $168,000, or
6.9%, from fiscal 2000 to fiscal 2001. Income on gain on sales of loans
decreased $208,000, or 19.8%, from fiscal 2001 to fiscal 2000 because of lower
volume of sold loans that were originated during the year. Service fees and
charges increased $350,000 due to fees charged on visa check cards and merchant
bank cards offered at the end of fiscal year 2000.

         NON-INTEREST EXPENSE. Total non-interest expense increased $525,000, or
6.4%, from $8.2 million for the year ended March 31, 2000 to $8.7 million for
the year ended March 31, 2001. Compensation and related benefits increased
$403,000, or 8.6%, from fiscal 2000 to fiscal 2001. This increase was a result
of additional commission and referral incentives and annual compensation
adjustments. Occupancy expense increased $105,000. In fiscal year ended March
31, 2001 twelve months of expense was recognized on lease payments for the new
Liberty Lake branch, the new Liberty Lake building and a new computer system,
and only six months of these expenses were recognized in fiscal year ended March
31, 2000. Bankcard expense increased $201,000 due to this new product being
offered at the end of fiscal year 2000. Marketing expense increased $36,000,
which was a result of the Company increasing their exposure through effective
marketing. In fiscal year ended 2000, the Company incurred supply expenses
necessary for the expansion undertaken, so supplies were reduced by $47,000 for
the fiscal year ended 2001. All other non-interest expenses remained relatively
consistent between fiscal years 2000 and 2001.

         INCOME TAXES. Income taxes were $866,000 for the year ended March 31,
2001 compared with $818,000 for the year ended March 31, 2000. The increase was
a result of an increase in taxable income before income tax expense.

                                       33
<PAGE>

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST

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

                                                                        Years Ended March 31,
                                ----------------------------------------------------------------------------------------------------
                                               1999                                2000                             2001
                                --------------------------------  ---------------------------------   ------------------------------
                                             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:
Mortgage loans receivable       $  73,459    $  5,950     8.10%    $  70,306     $  5,434    7.73%    $  72,629   $  5,700    7.85%
Commercial loans receivable        33,369       2,812     8.88        47,301        4,012    8.69        66,492      6,106    9.35
Construction loans receivable       6,319         576     9.11         6,806          655    9.62         5,485        581   10.59
Consumer loans receivable          23,714       2,164     9.12        29,454        2,570    8.73        34,677      3,097    8.93
Agricultural loans receivable      20,438       1,813     8.87        25,178        2,277    9.04        27,258      2,542    9.33
Unearned loan fees and
  discounts and allowance
  for loan losses                  (1,439)         --       --        (1,700)          --      --        (2,095)        --      --
                                ---------    --------     ----     ---------     --------    ----     ---------   --------    ----
Loans receivable, net             155,860      13,315     8.64       177,345       14,948    8.48       204,446     18,026    8.87
Mortgage-backed securities         11,111         623     5.61        15,874          981    6.18        20,279      1,439    7.10
Investment securities               6,816         302     6.22         8,437          461    7.41        11,901        614    7.19
Other earning assets                9,972         721     7.23        10,482          588    5.61        11,479        678    5.91
                                ---------    --------              ---------     --------             ---------   --------
Total interest-earning assets     183,759      14,961     8.29       212,138       16,978    8.13       248,105     20,757    8.51
                                             --------                            --------                         --------
Non-interest-earning assets        13,067                             14,561                             17,802
                                ---------                          ---------                          ---------
Total assets                    $ 196,826                          $ 226,699                          $ 265,907
                                =========                          =========                          =========

Interest-earning liabilities:
Passbook, NOW and money
  market accounts               $  46,749         877     1.88     $  62,230        1,258    2.02     $  63,486      1,186    1.87
Certificates of deposit            76,107       3,993     5.25        80,039        4,123    5.15        83,670      4,823    5.76
                                ---------    --------              ---------     --------             ---------   --------
Total deposits                    122,856       4,870     3.96       142,269        5,381    3.78       147,156      6,009    4.08

Advances from FHLB and
  other                            41,107       2,353     5.72        54,242        3,055    5.63        88,747      5,608    6.32
                                ---------    --------              ---------     --------             ---------   --------
Total interest-bearing
    liabilities                   163,963       7,223     4.41       196,511        8,436    4.29       235,903     11,617    4.92
                                             --------                            --------                         --------
Non-interest-bearing                                                   3,393
                                                                   ---------
    liabilities                     3,574                                                                 3,408
                                ---------                                                             ---------
Total liabilities                 167,537                            199,904                            239,311
Total stockholders' equity         29,289                             26,795                             26,596
                                ---------                          ---------                          ---------
Total liabilities and
  total stockholders' equity    $ 196,826                          $ 226,699                          $ 265,907
                                =========                          =========                          =========

Net interest income                          $  7,738                            $  8,542                         $  9,140
                                             ========                            ========                         ========

Interest rate spread                                      3.88%                              3.84%                            3.59%
                                                          ====                               ====                             ====

Net interest margin                              4.36%                               4.15%                            3.83%
                                             ========                            ========                         ========

Ratio of average interest-
   earning assets to average
   interest-bearing liabilities                112.07%                             107.95%                          105.17%
                                             ========                            ========                         ========
</TABLE>

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

                                       34
<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, 2000                  Year Ended March 31, 2001
                                        Compared to Year Ended                      Compared to Year Ended
                                             March 31, 1999                             March 31, 2000
                                   ---------------------------------------    ---------------------------------------
                                             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)               $  (178)   $ 1,835   $   (25)   $ 1,633    $   590    $ 2,299   $    90    $ 2,979
Mortgage-backed securities              64        267        27        358        145        272        40        458
Investment securities                   70         72        17        159        (26)       189       (10)       153
Other earning assets                  (162)        37        (8)      (133)        31         56         3         90
                                   -------    -------   -------    -------    -------    -------   -------    -------

Total net change in income
 on interest-earning assets           (205)     2,211        11      2,017        740      2,817       123      3,680
                                   -------    -------   -------    -------    -------    -------   -------    -------

Interest-bearing liabilities:
 Passbook, NOW and money
   market accounts                      68        290        23        381        (95)        25        (2)       (72)
Certificates of deposit                (73)       206        (4)       130        491        187        22        700
FHLB advances and other               (223)       770       (35)       511      1,074      1,497       684      3,255
                                   -------    -------   -------    -------    -------    -------   -------    -------

Total net change in expense
 on interest-bearing liabilities      (228)     1,266       (16)     1,022      1,470      1,709       704      3,883
                                   -------    -------   -------    -------    -------    -------   -------    -------

Net increase (decrease) in net
  interest income                  $    22    $   945   $    28    $   995    $  (730)   $ 1,108   $   581    $  (203)
                                   =======    =======   =======    =======    =======    =======   =======    =======
</TABLE>

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

ASSET AND LIABILITY MANAGEMENT

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

                                       35
<PAGE>

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,
2001and 2000 as compared to the 10.00% Board approved policy limit.

MARCH 31, 2001:                         -200 BP       Flat      +200 BP
                                       --------     --------   --------
                                             (Dollars in Thousands)
Year 1 NII                             $ 10,183     $ 10,278   $ 10,279
NII $ Change                               (95)           --          1
NII % Change                             -0.92%           --       0.01%


MARCH 31, 2000:                         -200 BP       Flat      +200 BP
                                       --------     --------   --------
                                             (Dollars in Thousands)
Year 1 NII                             $  9,340     $  9,160   $  8,820
NII $ Change                                180           --       (340)
NII % Change                               1.97%          --      -3.71%

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

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

                                       36
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

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

         The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. The Company generally maintains sufficient cash and short-term
investments to meet short-term liquidity needs. At March 31, 2001, cash and cash
equivalents totaled $12.8 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
$90.9 million at March 31, 2001. The Company also maintains additional credit
facilities with Wells Fargo Bank, available funds totaling $7.0 million and the
Federal Reserve Bank of San Francisco with available funds totaling $16.0
million. There were no outstanding advances under these facilities at March 31,
2001.

         The primary investing activity of the Company is the origination of
mortgage loans. During the years ended March 31, 2000 and 2001, the Company
originated loans in the amounts of $132.9 million and $113.8 million,
respectively. At March 31, 2001, the Company had loan commitments totaling $25.0
million, undisbursed lines of credit totaling $28.7 million, credit card
available balances of $3.0 million and undisbursed loans in process totaling
$3.2 million. The Company anticipates that it will have sufficient funds
available to meet its current loan origination commitments. Certificates of
deposit that are scheduled to mature in less than one year from March 31, 2001
totaled $67.1 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, 2001, the
Bank was in compliance with all regulatory capital requirements which were
effective as of such date with Tier 1 Capital to average assets, Tier 1 Capital
to risk-weighted assets and total capital to risk-weighted assets of 9.2%,
13.5%, and 14.5%, respectively. For a detailed discussion of regulatory capital
requirements, see "REGULATION -- State Regulation and Supervision" and "--
Capital Requirements."

IMPACT OF NEW ACCOUNTING STANDARDS

         In September 2000, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 140 ("SFAS No. 140"), Accounting for
Transfers and Servicing of Financial Assets and Liabilities. SFAS No. 140
revises certain criteria promulgated in previous accounting literature (SFAS No.
125) for accounting for securitizations and other transfers of financial assets
and collateral and requires additional disclosures concerning these activities.
The accounting requirements of SFAS No. 140 for securitizations and other
transfers of financial assets are effective for securitizations and transfers
occurring on or after April 1, 2001. The applicable disclosures are required to
be adopted for the Company's year end March 31, 2001, and accordingly, have been
incorporated in these Notes to the Consolidated Financial Statements. The
Company is currently evaluating the effects of adopting the remaining provisions
of SFAS No. 140 on its current accounting policies for loan securitizations and
other transfers of financial assets. The Company believes that the impact, if
any, of adopting SFAS No. 140 will be insignificant to its financial position
and net income.

         In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in the financial
statements. The Company has reviewed its existing revenue recognition practices
related to various products and services and has determined these practices are
in compliance with the recognition rules prescribed in SAB 101 and the recent
interpretive guidance issued by the SEC.

                                       37
<PAGE>

         In June 1998, the Financial  Accounting  Standards Board issued
Statements  of  Financial   Accounting  Standards  No.  133  ("SFAS  No.  133"),
Accounting  for  Derivative  Instruments  and Hedging  Activities.  SFAS No. 133
requires  companies to recognize  all  derivative  contracts as either assets or
liabilities  in the balance  sheet and to measure  them at fair  value.  In June
2000, the Financial  Accounting  Standards  Board issued  Statement on Financial
Accounting Standards No. 138 ("SFAS No. 138"), Accounting for Certain Derivative
Instruments and Certain  Hedging  Activities.  If certain  conditions are met, a
derivative may be specifically  designated as a hedge, the objective of which is
to match the timing of gain or loss  recognition on the hedging  derivative with
the  recognition  of (i) the  changes in the fair  value of the hedged  asset or
liability that are  attributable  to the hedged risk (ii) the earnings effect of
the hedged forecasted transaction.  For a derivative not designated as a hedging
instrument,  the gain or loss is  recognized  as income in the period of change.
SFAS  No.  133 and 138  are  effective  for all  fiscal  quarters  fiscal  years
beginning after June 15, 2000. The Company anticipated adopting SFAS No. 133 and
No. 138 as of the  beginning  of the  fiscal  year  2002.  It is the  opinion of
management  that  the  adoption  of SFAS  No.  133 and No.  138 did not have any
initial impact on its consolidated 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 2001 Annual Report.

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

         None.

                                    PART III

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


         The information concerning the Company's directors required by this
Item is incorporated by reference from the information set forth under the
caption "Proposal 1 - Election of Directors" in the Company's definitive Proxy
Statement concerning the Annual Meeting of Stockholders to be held on July 18,
2001 (the "2001 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 2001 Proxy Statement.

                                       38

<PAGE>

                   EXECUTIVE OFFICERS OF THE COMPANY AND BANK

                  Age at
                  March 31,  Position
Name              2001       Company                       Bank
----              -------    --------                      ----

Clyde E. Conklin   50    President and Chief Executive   Chief Executive
                         Officer                         Officer
Larry K. Moxley    50    Executive Vice President,       Chief Financial
                         Chief Financial Officer and     Officer and
                         Corporate Secretary             Secretary/Treasurer
Terence A. Otte    44    --                              Senior Vice President,
                                                         Chief OperatingOfficer
Donn L. Durgan     47    --                              Senior Vice President,
                                                         Chief Lending Officer

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 the Agricultural Lending Manager.

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

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

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


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 2001 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 2001 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 2001
Proxy Statement.

                                       39
<PAGE>

                                     PART IV

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

         (a)      Exhibits

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

-------------------
*   Incorporated by reference to the Registrant's Amended Annual Report on Form
    10-KSB/A for the year ended March 31, 2000.
**  Incorporated by reference to the
    Registrant's Annual Report on Form 10-KSB for the year ended March 31, 2000.
*** Incorporated by reference to the Registrant's Registration Statement on Form
    SB-2 (File No. 333-23395).

         (b)      Reports on Form 8-K

                  No Reports on Form 8-K were filed during the quarter ended
                  March 31, 2001.

                                       40
<PAGE>
                                   SIGNATURES

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

                                                 FIRSTBANK CORP.


Date:  June 18, 2001                             By:  /s/ Clyde E. Conklin
                                                      --------------------
                                                      Clyde E. Conklin
                                                      President and Chief
                                                      Executive Officer

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

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


/s/ Clyde E. Conklin        President, Chief                       June 18, 2001
-------------------------   Executive Officer and
Clyde E. Conklin            Director (Principal
                            Executive Officer)

/s/ Larry K. Moxley         Chief Financial Officer                June 18, 2001
-------------------------   and Director (Principal
Larry K. Moxley             Financial Officer)

/s/ Cynthia M. Moore        Controller                             June 18, 2001
-------------------------   (Principal Accounting Officer)
Cynthia M. Moore

/s/ William J. Larson       Director                               June 18, 2001
-------------------------
William J. Larson


/s/ Steve R. Cox            Director                               June 18, 2001
-------------------------
Steve R. Cox

/s/ Robert S. Coleman, Sr.  Director                               June 18, 2001
-------------------------
Robert S. Coleman, Sr.

/s/ James N. Marker         Director                               June 18, 2001
-------------------------
James N. Marker


/s/ W. Dean Jurgens         Director                               June 18, 2001
-------------------------
W. Dean Jurgens

                                       41