Exhibit 13

                        Annual Report to Security Holders


<PAGE>

President's letter
------------------

Lyle R. Grimes, President/Chief Executive Officer


When  Meriwether  Lewis and William  Clark set out on their  journey  nearly two
hundred  years ago, they faced  enormous  challenges.  However,  their desire to
improve  their  country's  fortunes  motivated  them  to meet  those  challenges
head-on.  We at WesterFed are inspired by their legendary journey as we face the
enormous  challenges  of  enhancing  long-term   shareholder  value  in  today's
competitive financial world.

As I reported to you a year ago,  WesterFed  took a major step in meeting  these
challenges in February,  1997, when we purchased Security Bank to merge with our
only subsidiary, the former Western Federal Savings Bank. I am pleased to report
that the two banks have been successfully merged as Western Security Bank.

------------------------------------
Western Federal Savings Bank and
Security Bank have been successfully
merged as Western Security Bank.
------------------------------------

Our  confidence  has grown as we have spent the past year planning and preparing
for our  future.  That  includes  the near  flawless  computer  conversion  to a
commercial  banking data system. In this conversion,  all of our 34 branches (18
former Western Federal  branches and 16 former Security  branches) moved on to a
Y2K certified, commercial banking platform and software systems.

Since the computer  conversion  meant change or  modification in virtually every
service the bank offers,  our primary  objective was to make sure no failures in
service  occurred in the  process.  That's why we  executed a carefully  planned
computer  training program for each of our employees.  That planning paid off as
employees at each branch were well prepared (though  understandably  nervous) on
"opening day."

Customer  response to the bank's new name and  direction  has been  enthusiastic
throughout  the state.  Our customers are  especially  pleased that they can now
access their accounts at any Western Security  office,  as their account records
are available through the unified system.



                        WESTERFED FINANCIAL CORPORATION

                                       1

<PAGE>

Since  our  customers  are the  lifeblood  of our  business,  we are  constantly
searching  for new  and  innovative  ways  to  serve  them.  That's  why all our
employees  completed a formal sales and customer  service  training program this
year. This program was designed and overseen by a professional training company,
giving each employee new insight to identifying  customer needs and matching the
bank's services to those needs. Cross-selling was a major focus of this program.
We have 73,600 customers and each Western Security  household uses an average of
just 1.6 services,  meaning we have a lot of  opportunity to enhance our current
customer relationships.

--------------------------------------
Acquiring a sense of unity is vital in
developing pride within the Bank and
building positive employee attitudes.
--------------------------------------

Also on the  subject  of  employees,  I am happy to report  that  members of our
hard-working  staff have taken  advantage of  opportunities  to get to know each
other  during the year.  The sales and  computer  classes were held in different
locations around the state, bringing department and branch employees together. I
feel  this was an  important  step in  combining  two  large  corporations  with
hundreds of employees spread across Montana. Acquiring a sense of unity is vital
in developing pride within the Bank and building positive employee attitudes.

As we prepared and executed the conversion and  integration of the two banks, we
kept our eye on the ball in conducting  day-to-day  operations.  For example, we
opened a new branch in Billings in the  growing  commercial  area on King Avenue
West. Our deposit accounts grew to $636.4 million and loan originations  reached
a  record  of  $366.7  million.  And,  perhaps  best of all,  we met our goal of
broadening   the  bank's  lending   business  with   consumer,   commercial  and
agricultural  lending as we  carefully  added to our  portfolio  in those areas.
Consumer,  commercial and agricultural loans increased 16.9% last year to 43% of
our gross loan  portfolio  from  36.9%.  We also added  commercial  lenders  and
support  staff in Billings,  Butte,  Missoula and Great Falls.  Theses  lenders,
along  with our new  commercial  software,  will  enhance  the  ability of those
branches to



                        WESTERFED FINANCIAL CORPORATION

                                       2

<PAGE>

serve  business  customers.  This  will also  allow us to enter  the  commercial
banking deposit services market in other Montana communities where we previously
provided retail services only.

With these major changes and preparations,  we have positioned the bank to reach
future goals of  maintaining  or improving net interest  margin,  increasing fee
income, increasing consumer and commercial lending,  expanding our customer base
and improving our efficiency ratio.

Maintaining  net  interest  margin  is quite a  challenge  in our  current  rate
environment.  A flat  interest  rate yield curve with  intense  competition  for
deposits and loan business have squeezed that ratio in the banking  industry for
some  time.  That  makes our  growth in the  higher-yield  lending  arena a very
important strategy right now. Increasing  low-interest checking accounts on both
the retail and commercial  levels,  and increasing our  competitive  position in
consumer and commercial lending are vital to net interest margin and fee income.

Western Security Bank spent about $0.68 to produce $1.00 in income during fiscal
year  1997-98.  Improving  this ratio will be our primary  focus during our next
fiscal  year.  By using our time and new  technology  more  efficiently,  we are
attempting to improve that rate by lowering costs and increasing income.  Adding
more  efficient   (cost-versus-income)   services  and  eliminating  inefficient
services will help us achieve this goal.

Our overall objective has always been to increase long-term shareholder value. I
feel we can do that by taking advantage of all the attributes of the new Western
Security.  We will continue to work hard and enhance our appeal to the customers
we  serve.  Since I  recently  witnessed  our  employees  rise  to the  enormous
challenge of changing their "tool box" while maintaining  "business as usual," I
am  extremely  confident  we will  make  the  progress  necessary  to  meet  our
objectives.  Just as Lewis and Clark capitalized on their strengths and overcame
their  weaknesses,  so too will we meet the  challenges  we face and continue to
prosper.

Sincerely,

/s/ Lyle R. Grimes

Lyle R. Grimes
President/Chief Executive Officer



                        WESTERFED FINANCIAL CORPORATION

                                       3

<PAGE>

Opportunities on the horizon
----------------------------

The legendary journey of Lewis & Clark required heart, character and vision. The
result  of  their  determination  and  fortitude  was  a  new  horizon  full  of
opportunities  and growth for our nation.  As Montana  prepares to celebrate the
bicentennial of the Corps of Discovery,  we at WesterFed are facing new horizons
of our own.

These  horizons  are the  result  of a  growth  strategy  for  WesterFed's  only
subsidiary,  Western  Security Bank,  formerly Western Federal Savings Bank. Our
1997  acquisition of Security Bank not only helped create a new name, but also a
new dimension for the bank.  Security's  commercial lending expertise  perfectly
complemented  Western Federal's strong mortgage and consumer lending background,
making for an exciting future with a world of possibilities.

----------------------------------
Our 1997 acquisition of Security
Bank meant not only new name, but
also a new dimension for the bank.
----------------------------------

Changing the name of the subsidiary and combining the resources of the two banks
required a one-time  investment  of more than $3  million.  That  investment  is
already showing results.  Initial  announcements of the name change helped bring
in thousands of new accounts, and the bank saw a 22.5% increase this year in the
number of commercial and consumer loans.

A large  portion  of the  capital  spent on the  merger of the two banks was for
computer hardware and software,  which not only allowed the two banks to be part
of a unified data processing  system,  but also brought many other advantages to
the new bank. For example,  we're happy to report that in bringing the two banks
together and upgrading our computers,  we took major steps in becoming compliant
with Year  2000  requirements.  While  this  problem  continues  to plague  many
companies,  Western  Security  believes it has made nearly all of the  necessary
upgrades.

Updated  technology  also  expanded the bank's  horizons by  improving  customer
services. For example, our customers



                        WESTERFED FINANCIAL CORPORATION

                                       4

<PAGE>

can now access their  accounts at any of our 34 offices,  located  throughout 20
different Montana communities.


              [CHART TITLED "DIVIDENDS DECLARED" SUMMARIZED BELOW]

                   March 31, 1996 ....................  0.085
                   June 30, 1996 (1) .................  0.123
                   September 30, 1996 ................  0.095
                   December 31, 1996 .................  0.100
                   March 31, 1997 ....................  0.105
                   June 30, 1997 (2) .................  0.151
                   September 30, 1997 ................  0.115
                   December 31, 1997 .................  0.120
                   March 31, 1998 ....................  0.125
                   June 30, 1998 (3) .................  0.180
----------
(1)  Declared June 26, 1996,  payable August 20 to stockholders of record August
     6. Includes a special dividend of $0.033 per share.

(2)  Declared June 30, 1997,  payable August 20 to stockholders of record August
     6. Includes a special dividend of $0.041 per share.

(3)  Declared June 23, 1998,  payable August 24 to stockholders of record August
     10. Includes a special dividend of $0.05 per share.


Technology  also brought "batch deposit  processing" to Western  Security.  This
system allows customers to make high item volume deposits in just seconds. Since
our commercial  customers often make several deposits throughout a business day,
this improves the efficiency of the bank and makes us more competitive.

These technological  improvements will help Western Security achieve the goal of
creating  long-term  shareholder value by providing  quality services.  However,
technology is not enough.  The human factor will always be of primary importance
to our success.  That's why we've been  promoting a "sales and service  culture"
throughout  our offices.  Every bank employee has been trained in  cross-selling
and  tailoring  bank products to customers'  individual  needs.  Keeping all our
customers informed of the many services we offer will continue to create longer,
more profitable relationships.

--------------------------------------
We took major steps in becoming
compliant with Year 2000 requirements.
--------------------------------------

A sales culture also  emphasizes  creating a  customer-friendly  atmosphere that
many customers appreciate.  While some of our competitors continue to lose their
"home-town"  touch,  Western Security is determined to give customers the option
of face-to-face banking while remaining on the cutting edge of bank technology.



                        WESTERFED FINANCIAL CORPORATION

                                       5

<PAGE>

                        Percent of Total Loan Portfolio

           The following pie charts detail how the bank's total loan
                 portfolio continues to become more diversified.

                                                     1998        1997
                                                     ----        ----
          Consumer ................................  23.5%       20.6%
          Agriculture .............................   5.2%        4.1%
          Commercial ..............................  14.3%       12.2%
          Construction ............................   2.6%        3.1%
          Residential Mortgage ....................  54.4%       60.0%


On the  facilities  front,  the  unification  process  allowed us to consolidate
operations and close two redundant  offices.  The building in Lewistown has been
sold,  while the Bozeman  building is currently on the market.  We also opened a
new office in  Billings in the rapidly  growing  commercial  area on King Avenue
West.  Customers  have  found  this  new  full-service  office  to be  extremely
convenient.


                                [PHOTO OMITTED]

               Our new Billings office is in the rapidly growing
                      commercial area on King Avenue West.


The  horizons we face as a result of these  changes are  bright,  indeed.  We've
remained  a strong  institution  for more  than 87  years by  displaying  heart,
character  and vision.  These traits have allowed us to adapt and prosper in the
always-changing  financial  world.  We are now a $1 billion bank that originated
$366.7 million in loans last year.

As Montana's largest savings bank, we are proud of the  accomplishments  we made
last year. More importantly, we look forward to putting these accomplishments to
work in the future to stay  competitive  in the mortgage  and  consumer  market,
increase our share of the  commercial  banking  business and increase  long-term
shareholder value.



                        WESTERFED FINANCIAL CORPORATION

                                       6

<PAGE>

               Our Financial Performance
               --------------------------------------------------


               Table of Contents

                8     Selected Financial Data
                9     Management's Discussion and Analysis
               27     Independent Auditor's Report
               28     Consolidated Financial Statements and Notes
               59     Corporate Information
               64     Branch Locations



                        WESTERFED FINANCIAL CORPORATION

                                       7

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Selected Consolidated Financial and Other Data
--------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)


<TABLE>
<CAPTION>
At  June 30,                                          1998         1997        1996         1995          1994
----------------------------------------------------------------------------------------------------------------
Selected Financial Condition Data:
<S>                                               <C>          <C>          <C>          <C>           <C>      
Total assets                                      $1,022,136   $  955,639   $  563,931   $  563,285    $ 515,675
Loans receivable, net and loans held for sale        657,293      630,277      368,193      313,121      274,840
Mortgage-backed securities, net                      126,433      149,169      104,947      143,825      145,025
Investment securities, FHLB stock and other
    interest-earning assets                          155,351       98,885       64,108       82,375       74,168
Deposits                                             636,441      630,869      350,212      344,155      349,121
Borrowed funds and repurchase agreements             255,186      199,236      125,838      134,704       85,087
Stockholders' equity                                 109,700      104,259       78,607       75,146       74,168
Book value per common share                            19.64        18.74        17.88        17.09        16.03
Tangible book value per common share                   16.01        14.99        17.88        17.09        16.03
----------------------------------------------------------------------------------------------------------------

Year Ended June 30,                                    1998        1997         1996        1995          1994
----------------------------------------------------------------------------------------------------------------
Selected Operations Data:
Total interest income                              $  74,524   $   51,260   $   42,544   $   37,783    $  31,933
Total interest expense                                42,286       28,407       24,737       20,984       16,391
----------------------------------------------------------------------------------------------------------------
   Net interest income                                32,238       22,853       17,807       16,799       15,542
Provision for loan losses                               (840)        (400)          --           --           --
Non-interest income                                    8,381        4,685        3,312        2,670        2,999
Non-interest expense                                 (27,759)     (20,568)     (14,004)     (12,868)     (11,426)
----------------------------------------------------------------------------------------------------------------
   Income before income taxes
     and cumulative effect of change in
     accounting for income taxes                      12,020        6,570        7,115        6,601        7,115
Income taxes                                          (4,760)      (2,063)      (2,556)      (2,473)      (2,681)
----------------------------------------------------------------------------------------------------------------
   Income before cumulative effect
     of change in accounting for income taxes          7,260        4,507        4,559        4,128        4,434
Cumulative effect of change in accounting for
     income taxes                                         --           --           --           --          795
----------------------------------------------------------------------------------------------------------------
Net income                                         $   7,260   $    4,507   $    4,559   $    4,128    $   5,229
================================================================================================================
Net income per share:
   Income before cumulative effect of change in
accounting for income taxes - diluted              $    1.29   $     0.96   $     1.08   $     1.01         1.04
   Cumulative effect of change in accounting for
      income taxes                                        --           --           --           --         0.19
----------------------------------------------------------------------------------------------------------------
Net income per share - diluted                     $    1.29   $     0.96   $     1.08   $     1.01         1.23
================================================================================================================
Dividends per share                                $    0.54   $     0.45   $     0.36   $     0.30         0.05
================================================================================================================
Dividend payout ratio(1)                               41.86%       46.88%       33.33%       29.70%        4.07%
================================================================================================================
Selected Financial Ratios and Other Data:
Return on assets (ratio of net income to average
  total assets)                                         0.72%        0.65%        0.79%        0.76%        1.14%
Return on equity (ratio of net income to
  average equity)                                       6.73         5.15         5.90         5.54        10.07
Interest rate spread, at end of period                  2.99         3.38         2.67         2.38         2.80
Net interest margin(2)                                  3.46         3.53         3.23         3.23         3.54
Ratio of non-interest expense to average
  total assets                                          2.67         2.98         2.43         2.47         2.60
Non-performing assets to total assets, at
  end of period                                         0.49         0.25         0.13         0.10         0.16
Total allowance for loan losses to total
  non-performing assets                                97.44       191.01       280.42       350.35       238.82
Stockholders' equity to total assets,
  at end of period                                     10.73        10.91        13.94        13.34        14.38
Ratio of average interest-earning assets to
average interest-bearing liabilities                  105.74       110.56       113.58       113.51       110.16
Number of offices                                         34           36           19           18           18
=================================================================================================================
</TABLE>
------------------
(1)  Dividends paid per share divided by net income per share.
(2)  Net interest income divided by average interest-earning assets.

                                       8

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations
--------------------------------------------------------------------------------


                                     GENERAL

WesterFed  Financial  Corporation  ("WesterFed"  or the "Company") was formed as
part of the  conversion  of Western  Security  Bank  ("Western  Security" or the
"Bank"),  then known as Western Federal Savings Bank of Montana,  from a federal
mutual to a stock  savings  bank,  which was  completed  on January 6, 1994 (the
"Conversion").  Currently the Company has no business activity other than acting
as the  holding  company  for  Western  Security.  As a  result,  the  following
discussion relates primarily to the activities of the Bank.

The  Company's  results of operations  are  dependent  primarily on net interest
income  and fee  income.  Net  interest  income is the  difference  between  the
interest income earned on its loans,  mortgage-backed securities, and investment
portfolio and its cost of funds, consisting of interest paid on its deposits and
borrowed  money  ("spread").  The  Company's  results  of  operations  are  also
significantly   affected  by  general   economic  and  competitive   conditions,
particularly  changes in market interest rates,  government policies and actions
of regulatory authorities.

The Company serves the financial needs of communities throughout Montana through
its main office  located in  Missoula,  34 branch  offices,  one loan  servicing
office and two loan processing  offices.  The Company attracts deposits from the
general public and uses the deposits,  together with borrowings and other funds,
to originate  loans secured by mortgages on  owner-occupied  one- to four-family
residences,  multi-family,  commercial, agriculture and construction real estate
loans and non real estate  commercial,  agriculture  and  consumer  loans in its
primary market areas.  The Company also invests in  mortgage-backed  securities,
investment securities and other short-term liquid assets.

On February 28, 1997, the Company  completed its acquisition of Security Bancorp
(the  "Acquisition"),  accounted for as a purchase  transaction and accordingly,
the  consolidated  statements  of income  include the results of  operations  of
Security  Bancorp  commencing  March 1,  1997.  Under  the  purchase  method  of
accounting,  assets and  liabilities  of Security  Bancorp are adjusted to their
estimated fair value and combined with the historical recorded book value of the
assets and liabilities of the Company.  The Company issued  1,150,175  shares of
WesterFed  Common Stock and paid  $25,995,480 in cash for all of the outstanding
shares of Security Bancorp Common Stock, for total  consideration  (based on the
$18.49 per share average closing price of WesterFed  Common Stock as reported on
the NASDAQ  National Market System for the twenty business days from January 16,
1997 through  February 12,  1997) of $48.7  million.  At the time of the merger,
Security Bancorp had assets on a consolidated basis of $372.6 million,  deposits
of $286.5 million and stockholders equity of $30.8 million.  In addition,  as of
such date,  Security Bank, a federally  chartered  stock savings bank and wholly
owned  subsidiary  of Security  Bancorp,  merged  with and into the Bank.  After
having received  regulatory  approval,  the name of Western Federal Savings Bank
was changed to Western Security Bank in February, 1998.

         Changes in Financial Condition, June 30, 1997 to June 30, 1998

Total  assets  increased  $66.4  million to $1.0  billion at June 30,  1998 from
$955.6 million at June 30, 1997. Loans receivable and loans available- for- sale
increased $27.0 million,  investment  securities,  Federal Home Loan Bank (FHLB)
stock and all other interest  earning assets  increased  $56.5 million and other
assets increased $5.7 million while  mortgage-backed  securities decreased $22.8
million.

Loans receivable increased $27.0 million to $657.3 million at June 30, 1998 from
$630.3  million at June 30, 1997.  The $27.0 million  increase was primarily the
result of $366.7 million in new loan  originations and $1.0 million in purchases
of loans, which were partially offset by principal  repayments of $244.5 million
and the sale of whole loans of $96.5 million.  Included in the $366.7 million in
new loan  originations  were $91.2 million in consumer  loans,  $63.7 million in
commercial and agriculture  non-real estate loan  originations and $28.6 million
in  non-residential  real estate  secured  loans.  The consumer  loan  portfolio
increased  $24.4  million,  or 18.3%,  to $157.5  million at June 30,  1998 from
$133.1  million  at June  30,  1997,  which  includes  $45.2  million  in  loans
originated  through the Bank's  indirect auto and  recreational  dealer  lending
program. The $366.7 million in new loan originations represents an

                                       9
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


increase of $139.9  million from fiscal 1997.  Included in loans  receivable  at
June 30, 1998 were $11.1 million of  agriculture  real estate loans and non-real
estate  commercial  and  agriculture  loans of $34.4  million and $24.0  million
respectively  as  compared to $8.0  million,  $28.9  million  and $18.9  million
respectively at June 30, 1997.

Mortgage-backed securities decreased $22.8 million to $126.4 million at June 30,
1998 from  $149.2  million at June 30,  1997.  The $22.8  million  decrease  was
primarily  the result of principal  repayments  of $26.6 million and the sale of
mortgage-backed securities  available-for-sale of $3.2 million, partially offset
by the  purchase  of 7.0 million of  mortgage-backed  securities.  The  decrease
reflects  management's  goal to increase loan related  assets through the retail
markets as compared  to the  non-retail  markets in an attempt to obtain  higher
yields on assets.

Investment  securities,  FHLB stock and other interest  earning assets increased
$56.5 million to $155.4  million at June 30, 1998 from $98.9 million at June 30,
1997.  The $56.5  million  increase was  primarily the result of the purchase of
$148.8 million of investment securities,  increases in interest-bearing deposits
and due from banks of $7.6  million and  increases of $2.7 million in FHLB stock
and the cash surrender  value of life insurance  policies.  These increases were
partially  offset by maturities and principal  payments of $87.3 million and the
sale of $16.1 million of investment securities.

Deposits  increased  $5.6 million to $636.4 million at June 30, 1998 from $630.9
million at June 30, 1997. Checking accounts increased $2.6 million, money market
accounts increased $6.4 million,  certificates of deposit increased $4.9 million
while savings  accounts  decreased  $8.3 million.  Interest  credited to deposit
accounts for fiscal 1998 was $26.9 million.

Borrowed  funds and  repurchase  agreements  increased  $56.0  million to $255.2
million,  at June 30,  1998 from  $199.2  million at June 30,  1997.  There were
$344.2 million of additional new borrowings, of which $4.7 million were advances
of five years or more to  partially  fund new longer term fixed rate loans added
to the  portfolio,  $221.2  million were less than one year in maturity and were
used to fund short-term cash  requirements and $118.3 million were advances with
maturities  of one to four  years.  Net  change  in  repurchase  agreements  and
principal repayments on borrowed funds were $288.3 million.

Stockholders'  equity increased $5.4 million, or 5.2%, to $109.7 million at June
30, 1998 from $104.3  million at June 30, 1997.  This increase was primarily due
to $7.3  million of net income  offset by $2.9  million for  dividends  declared
during  the  fiscal  year and  $379,000  for the  purchase  of 17,500  shares of
treasury  stock.  Stockholders'  equity also  increased  $58,000  related to the
change in unrealized gain associated  with investment  securities  classified as
available-for-sale  being adjusted to market value in accordance  with Statement
of  Financial  Accounting  Standards  No. 115,  and $1.4  million was related to
contributions  to the Employee  Stock  Ownership  Plan,  shares earned under the
Recognition  and Retention  Plan and 37,978 shares issued under the Stock Option
Plan.

                                       10

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


                              Results of Operations

Net Interest  Income  Analysis.  The  following  table  presents for the periods
indicated   the  total   dollar   amount  of  interest   income   from   average
interest-earning  assets  and the  resultant  yields,  as  well as the  interest
expense on average interest-bearing  liabilities,  expressed both in dollars and
rates. No tax equivalent  adjustments  were made.  Non-accruing  loans have been
included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
                                                                      Year Ended June 30, 1998
                                                 -------------------------------------------------------------------
                                                        Average              Interest
                                                      Outstanding             Earned/                Yield/
                                                       Balance(1)               Paid                  Rate
--------------------------------------------------------------------------------------------------------------------
                                                                       (Dollars in Thousands)
Interest-Earnings Assets:
<S>             <C>                                   <C>                   <C>                       <C>  
Loans receivable(2)(3)                                $  662,536            $   56,261                8.49%
         Mortgage-backed securities                      140,994                 9,675                6.86
         Investments                                     113,412                 7,581                6.68
         Other interest-earning assets(4)                  8,702                   675                7.76
Cash surrender value of life insurance                     6,540                   332                5.08
--------------------------------------------------------------------------------------------------------------------
    Total interest-earning assets                     $  932,184            $   74,524                7.99%
====================================================================================================================

Interest-Bearing Liabilities:
         Certificates of deposit                      $  380,726            $   21,824                5.73%
         Savings deposits                                 96,966                 2,658                2.74
         Demand and NOW deposits                         106,392                 1,209                1.14
         Money market accounts                            52,496                 2,112                4.02
--------------------------------------------------------------------------------------------------------------------
    Total deposits                                       636,580                27,803                4.37
FHLB advances and other borrowed money                   244,339                14,364                5.88
Collateralized mortgage obligations                          625                   119               19.04
--------------------------------------------------------------------------------------------------------------------

    Total interest-bearing liabilities                $  881,544            $   42,286                4.80%
====================================================================================================================
Net interest income                                                         $   32,238
====================================================================================================================
Net interest rate spread                                                                              3.19%
====================================================================================================================
Net interest-earning assets                           $   50,640
====================================================================================================================
Net interest margin(5)                                                                                3.46%
====================================================================================================================
Average interest-earning assets to average
  interest-bearing liabilities                                                  105.74%
====================================================================================================================
</TABLE>
-----------------
(1)  Based on average monthly balances.
(2)  Calculated net of deferred loan fees, loan discounts,  loans in process and
     loss reserves.
(3)  Includes loans held for sale.
(4)  Includes primarily short-term liquid assets.
(5)  Net interest income divided by average interest-earning assets.

                                       11


<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                             Year Ended June 30, 1997              Year Ended June 30, 1996
                                        ----------------------------------------------------------------------------
                                           Average    Interest                  Average      Interest
                                         Outstanding   Earned/    Yield/      Outstanding     Earned/    Yield/
                                          Balance(1)    Paid       Rate         Balance(1)     Paid       Rate
--------------------------------------------------------------------------------------------------------------------
                                                                  (Dollars in Thousands)
Interest-Earnings Assets:
<S>             <C>                      <C>          <C>          <C>         <C>            <C>         <C>  
Loans receivable(2)(3)                   $ 451,771    $ 37,923     8.39%       $ 347,084      $ 28,640    8.25%

         Mortgage-backed securities        116,836       8,185     7.01          132,629         9,167    6.91
         Investments                        61,241       3,884     6.34           59,004         3,769    6.39
         Other interest-earning assets(4)   13,732       1,045     7.61            9,533           787    8.26
Cash surrender value of life insurance       4,187         223     5.33            3,059           181    5.92
--------------------------------------------------------------------------------------------------------------------
    Total interest-earning assets        $ 647,767    $ 51,260     7.91%       $ 551,309      $ 42,544    7.72%
====================================================================================================================
Interest-Bearing Liabilities:
         Certificates of deposit         $ 264,588    $ 14,986     5.66%        $212,458      $ 12,405    5.84%
         Savings deposits                   76,829       2,223     2.89           64,881         1,940    2.99
         Demand and NOW deposits            66,203         883     1.33           47,664           889    1.87
         Money market accounts              31,873       1,146     3.60           24,786           851    3.43
--------------------------------------------------------------------------------------------------------------------
    Total deposits                         439,493      19,238     4.38          349,789        16,085    4.60
FHLB advances and other borrowed money     145,446       9,011     6.20          134,211         8,442    6.29
Collateralized mortgage obligations            967         158    16.33            1,380           210   15.22
--------------------------------------------------------------------------------------------------------------------
    Total interest-bearing liabilities   $ 585,906    $ 28,407     4.85%       $ 485,380      $ 24,737    5.10%
====================================================================================================================
Net interest income                                   $ 22,853                                $ 17,807
====================================================================================================================
Net interest rate spread                                           3.06%                                  2.62%
====================================================================================================================
Net interest-earning assets              $  61,861                             $  65,929
====================================================================================================================
Net interest margin(5)                                             3.53%                                  3.23%
====================================================================================================================
Average interest-earning assets to
   average interest-bearning liabilities                110.57%                                 113.58%
====================================================================================================================
</TABLE>
----------------
(1)  Based on average monthly balances.
(2)  Calculated net of deferred loan fees, loan discounts,  loans in process and
     loss reserves.
(3)  Includes loans held for sale.
(4)  Includes primarily short-term liquid assets.
(5)  Net interest income divided by average interest-earning assets.


                                       12

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


                              Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and
interest expense for components of interest-earning  assets and interest-bearing
liabilities. It distinguishes between the increase related to higher outstanding
balances and that due to the volatility of interest rates.  For each category of
interest-earning  assets  and  interest-bearing   liabilities,   information  is
provided  on changes  attributable  to (i) changes in volume  (i.e.,  changes in
volume  multiplied  by old rate),  (ii)  changes in rate (i.e.,  changes in rate
multiplied  by old  volume),  (iii)  changes  in  rate-volume  (changes  in rate
multiplied by the change in volume), and (iv) the net change.

<TABLE>
<CAPTION>

                                                   1998 vs 1997                             1997 vs 1996
                                      ---------------------------------------  ----------------------------------------
                                      Increase/(Decrease) Due To:              Increase/(Decrease) Due To:
                                                                     Total                                    Total
                                                           Rate/    Increase                         Rate/   Increase
                                       Volume     Rate     Volume  (Decrease)    Volume     Rate    Volume  (Decrease)
-----------------------------------------------------------------------------  ----------------------------------------
                                                                 (Dollars In Thousands)
Interest-Earning Assets:
<S>                                    <C>       <C>       <C>      <C>          <C>      <C>       <C>      <C>    
  Loans receivable                     $17,692   $  443    $  203   $ 18,338     $8,639   $   493   $  151   $ 9,283
  Mortgage-backed securities             1,693     (168)      (35)     1,490     (1,092)      124      (14)     (982)
  Investments                            3,596       52        49      3,697       (423)      607      (69)      115
  Other interest-earning assets            (63)    (327)       20       (370)     1,078      (346)    (474)      258
  Cash surrender value of life
   insurance                               125      (10)      (6)        109         67       (18)      (7)       42
-----------------------------------------------------------------------------  ----------------------------------------
    Total interest-earning assets      $23,043   $  (10)   $  231   $ 23,264     $8,269   $   860   $ (413)  $ 8,716
=============================================================================  ========================================
Interest-Bearing Liabilities:
  Certificates of deposit              $ 6,578   $  180    $   80   $  6,838     $2,530   $    37   $   14   $ 2,581
  Savings deposits                         583     (117)      (31)       435        636      (269)     (84)      283
  Demand and NOW deposits                  536     (131)      (79)       326        346      (253)     (99)       (6)
  Money market accounts                    742      136        88        966        243        40       12       295
-----------------------------------------------------------------------------  ----------------------------------------
    Total Deposits                     $ 8,439   $   68    $   58   $  8,565     $3,755   $  (445)  $ (157)  $ 3,153
FHLB advances and other borrowed
 money                                   6,126     (460)     (313)     5,353        707      (128)     (10)      569
Collateralized mortgage obligations        (56)      26        (9)       (39)       (63)       15       (4)      (52)
-----------------------------------------------------------------------------  ----------------------------------------
    Total interest-bearing
     liabilities                       $14,509   $ (366)   $ (264)  $ 13,879     $4,399   $  (558)  $ (171)  $ 3,670
=============================================================================  ========================================
Changes to net interest income         $ 8,534   $  356    $  495   $  9,385     $3,870   $ 1,418   $ (242)  $ 5,046
=============================================================================  ========================================
</TABLE>


                                       13

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


The  following  table sets forth the weighted  average  yields on the  Company's
interest-earning assets, the weighted average interest rates on interest-bearing
liabilities and the interest rate spread between the weighted average yields and
rates for the  Company  at the dates  indicated.  Non-accruing  loans  have been
included in the table as loans carrying a zero yield.


<TABLE>
<CAPTION>
                                                                    At June 30,
                                                      -----------------------------------------
                                                          1998         1997          1996
---------------------------------------------------------------------------------------------
Weighted average yield on:
<S>                                                       <C>          <C>          <C>  
  Loans receivable(1)(2)                                  8.34%        8.49%        8.12%
  Mortgage-backed securities                              6.73         7.27         7.06
  Investments                                             6.32         6.73         6.25
  Other interest-earning assets                           6.15         5.58         5.31
  Cash surrender value of life insurance                  5.22         5.11         6.50
---------------------------------------------------------------------------------------------
  Combined weighted average yield on interest-
   earning assets                                         7.78         8.08         7.68
---------------------------------------------------------------------------------------------
Weighted average rate paid on:
  Certificates of deposit                                 5.77         5.52         5.82
  Savings deposits                                        2.77         2.80         3.00
  Demand and NOW deposits                                 0.96         1.15         1.66
  Money market accounts                                   4.10         3.94         3.46
---------------------------------------------------------------------------------------------
    Total deposits                                        4.38         4.24         4.54
  FHLB advances and other borrowed money                  5.81         6.11         6.26
  Collateralized mortgage obligations                    11.48        11.37        11.27
---------------------------------------------------------------------------------------------
  Combined weighted average rate paid on interest-
   bearing liabilities                                    4.79         4.70         5.01
---------------------------------------------------------------------------------------------
  Interest rate spread                                    2.99%        3.38%        2.67%
=============================================================================================
</TABLE>
----------------
(1)  Calculated net of deferred loan fees, loan discounts and loans in process.
(2)  Does not include interest on loans 90 days or more delinquent.

                                       14

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


The following table  summarizes the major components of the Company's net income
for the last three  fiscal  years and the  changes  which  occurred  between the
periods shown:

<TABLE>
<CAPTION>
                                                             Year Ended June 30,
Components of net income:                       1998                      1997                 1996
----------------------------------------------------------------------------------------------------------
                                                                (In Thousands)
                                          Amount       Change       Amount       Change        Amount
----------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>          <C>          <C>          <C>         
Interest income                       $   74,524   $   23,264   $   51,260   $    8,716   $     42,544
Interest expense                          42,286       13,879       28,407        3,670         24,737
----------------------------------------------------------------------------------------------------------
    Net interest income                   32,238        9,385       22,853        5,046         17,807
Provision for loan losses                   (840)        (440)        (400)        (400)            --
Non-interest income                        8,381        3,696        4,685        1,373          3,312
Non-interest expense                     (27,759)      (7,191)     (20,568)      (6,564)       (14,004)
----------------------------------------------------------------------------------------------------------
Income before income taxes                12,020        5,450        6,570         (545)         7,115
Income taxes                              (4,760)      (2,697)      (2,063)        (493)        (2,556)
----------------------------------------------------------------------------------------------------------
    Net income increase (decrease)    $    7,260   $    2,753   $    4,507   $      (52)  $      4,559
==========================================================================================================
</TABLE>


        Comparison of Operating Results for the Years Ended June 30, 1998
                                and June 30, 1997

General.  Net income  increased $2.8 million to $7.3 million for the fiscal year
ended June 30, 1998 as  compared to $4.5  million for the fiscal year ended June
30,  1997.  Included in net income for the fiscal year ended June 30, 1997 was a
one-time  after-tax  charge to  earnings of $1.4  million,  levied on all thrift
institutions,  to recapitalize the Savings Association  Insurance Fund ("SAIF").
The $2.8  million  increase  in net income was  comprised  of an increase in net
interest  income of $9.4  million and a $3.7  million  increase in  non-interest
income,  offset by an  increase  in  non-interest  expense of $7.2  million,  an
increase in provision  for loan losses of $440,000 and an increase in income tax
expense of $2.7 million.  Only four months of combined operations resulting from
the  Acquisition  are  included in net income for the fiscal year ended June 30,
1997. The interest rate spread decreased to 2.99% at June 30, 1998 from 3.38% at
June 30, 1997.  While the Company has adopted  interest rate risk policies in an
effort to protect net interest income from  significant  increases in short term
interest rates, the Company's net income could still be adversely  affected by a
narrowing of its net interest rate spread. See "Interest Rate Risk Management."

Interest  Income.  Interest income  increased $23.2 million to $74.5 million for
the fiscal year ended June 30, 1998 from $51.3 million for the fiscal year ended
June 30, 1997. This increase resulted from an increase in the average balance of
interest  earning  assets of $284.4 million to $932.2 million during fiscal 1998
from $647.8  million  during fiscal 1997 and an increase in the average yield on
interest-earning  assets to 7.99% during  fiscal 1998 from 7.91%  during  fiscal
1997.

Interest earned on loans  receivable  increased $18.3 million due primarily to a
$210.7  million  increase in the average  balance of loans  receivable to $662.5
million  during fiscal 1998 from $451.8 million during fiscal 1997. In addition,
the average  yield on loans  increased  to 8.49%  during  fiscal 1998 from 8.39%
during fiscal 1997. The increase in the average balance of loans  receivable and
the  increase in yield was  primarily  the result of having the higher  yielding
loans from the  Acquisition  for the full fiscal year 1998 as compared to only a
portion for fiscal 1997.

                                       15

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


Interest  earned  on  mortgage-backed  securities  increased  $1.5  million  due
primarily to a $24.2 million increase in the average balance of  mortgage-backed
securities  outstanding to $141.0 million during fiscal 1998 from $116.8 million
during  fiscal  1997.  The  increase in the average  balance of  mortgage-backed
securities was the result of having the mortgage-backed  securities purchased in
the  Acquisition for the full fiscal year 1998 as compared to only a portion for
fiscal 1997.

Interest earned on investment securities increased $3.7 million due primarily to
a $52.2  million  increase in the average  balance of  investment  securities to
$113.4  million  during the fiscal year 1998 from $61.2  million  during  fiscal
1997.  The  increase  in the  average  balance  of  investment  securitiess  was
primarily the result of having the securities  purchased in the  Acquisition for
the full  fiscal  year 1998 as  compared  to a portion  for fiscal  1997 and the
purchase of securities in excess of maturities and sales.  Management  purchases
the securities in the  institutional  markets in an attempt to increase earnings
using excess available capital.

Interest  earned on other  interest-earning  assets and cash surrender  value of
life  insurance  decreased  $261,000 due  primarily to a decrease in the average
balance of other interest-earning assets of $2.7 million to $15.2 million during
fiscal 1998 from $17.9 million during fiscal 1997.

Interest  Expense.  Interest expense increased $13.9 million to $42.3 million in
fiscal 1998 from $28.4 million in fiscal 1997.  This  increase  resulted from an
increase  in the  average  balance  of  interest-bearing  liabilities  of $295.6
million to $881.5  million  during fiscal 1998 from $585.9 million during fiscal
1997.  Interest expense on deposits  increased $8.6 million  primarily due to an
increase in the average  balance of deposits of $197.1 million to $636.6 million
during fiscal 1998 from $439.5 million during fiscal 1997. The average rate paid
on deposits  decreased  slightly to 4.37%  during  fiscal 1998 from 4.38% during
fiscal 1997.  The increase in the average  balance of deposits was the result of
the purchase of $287.0 million of deposits  related to the Acquisition in fiscal
1997.  Interest expense on FHLB advances and other borrowed money increased $5.3
million to $14.5  million in fiscal 1998 from $9.2 million in fiscal 1997.  This
increase was the result of an increase of $104.6 million in the average  balance
of FHLB advances and other  borrowed  money to $244.3 million during fiscal 1998
from $145.4  million  during  fiscal  1997.  The  increase in FHLB  advances was
primarily to fund the growth in investment securities.

Provision  for Loan  Losses.  The  provision  for loan losses is  determined  by
management  as the amount to be added to the allowance for loan losses after net
charge-offs  have been  deducted  to bring  the  allowance  to a level  which is
considered  adequate  to  absorb  losses  inherent  in  the  loan  portfolio  in
accordance with generally accepted accounting  principles.  The Company provided
$840,000  for loan losses for the fiscal year ended June 30,  1998.  At June 30,
1998, the Company had $5.0 million of non-performing  assets (representing 0.49%
of total assets) compared to $2.4 million at June 30, 1997  (representing  0.25%
of total assets). At June 30, 1998, the Company had allowance for loan losses to
non-performing  assets  of 97.44%  as  compared  to  191.01%  at June 30,  1997.
Management's  evaluation of the adequacy of its loan loss reserves,  the quality
of the loan  portfolio  and  economic  conditions  in  Montana  resulted  in the
$840,000 provision for loan losses.  Future additions to the Company's allowance
for loan losses and any change in the related  ratio of the  allowance  for loan
losses  to   non-performing   loans  are  dependent  upon  the  performance  and
composition of the Company's loan portfolio, the economy, inflation,  changes in
real estate values and interest rates and the view of the regulatory authorities
toward adequate reserve levels.

Non-interest Income.  Non-interest income increased $3.7 million to $8.4 million
in fiscal 1998 from $4.7 million during 1997. The $3.7 million increase resulted
from increases in loan origination fees, service fees, net gain on sale of loans
and securities  available-for-sale  and other operating  income of $1.6 million,
$1.5 million,  $375,000 and $268,000 respectively.  The $1.6 million increase in
loan  origination fees was primarily the result of increased loan production and
the subsequent sale of loans to the secondary  markets.  The lower interest rate
environment in fiscal 1998 as compared to the prior year resulted in substantial
increases in loan refinancing  volume and the loan  origination  volume also was
greater than the prior year due to a full year of loan  production  as result of
the  Acquisition.  The $1.5 million  increase in service fees was  primarily the
result of increases in checking fees and ATM fees from the

                                       16

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


promotion  of  checking  accounts  and the  increased  fee  income  received  on
transaction  accounts  purchased in the Acquisition and were earned for the full
fiscal 1998 as compared to a portion of fiscal 1997.

Non-interest  Expense.  Non-interest  expense  increased  $7.2  million to $27.8
million in fiscal  1998 from  $20.6  million in fiscal  1997.  The $7.2  million
increase was primarily the result of the Acquisition and the resulting  expenses
for the full  fiscal  year 1998 as  compared  to a portion  of fiscal  1997.  In
addition, expenses in excess of $700,000 were incurred in the conversion of data
centers and approximately $3.0 million of new equipment was purchased related to
the data center conversion,  resulting in increased  depreciation  costs. Fiscal
1997 included a one-time $2.3 million  special  assessment to  recapitalize  the
SAIF.

Income  Taxes.  Income tax expenses  increased  $2.7 million to $4.8 million for
fiscal 1998 from $2.1  million for fiscal  1997.  The $2.7  million  increase in
income tax expense  was  primarily  the result of an  increase in income  before
income tax expense of $5.4 million and the non-tax  deductibility of $633,000 of
goodwill amortization for fiscal 1998.

        Comparison of Operating Results for the Years Ended June 30, 1997
                                and June 30, 1996

General.  Net income remained  relatively  stable at $4.5 million for the fiscal
year ended June 30, 1997 as  compared to $4.6  million for the fiscal year ended
June 30, 1996.  The decrease  was the result of a one-time  after-tax  charge to
earnings of $1.4 million, levied on all thrift institutions, to recapitalize the
Savings Association Insurance Fund ("SAIF").  The $52,000 decrease in net income
was  comprised of an increase in net  interest  income of $5.0  million,  a $1.4
million increase in non-interest  income and a decrease in income tax expense of
$493,000,  offset by an increase in non-interest  expense of $6.6 million and an
increase in provision for loan losses of $400,000.  Only four months of combined
operations  resulting  from the  Acquisition  are included in net income for the
fiscal year ended June 30, 1997. The interest rate spread  increased to 3.38% at
June 30, 1997 from 2.67% at June 30, 1996.

Interest Income. Interest income increased $8.8 million to $51.3 million for the
fiscal  year ended June 30,  1997 from $42.5  million  for the fiscal year ended
June 30, 1996. This increase resulted from an increase in the average balance of
interest  earning  assets of $96.5 million to $647.8  million during fiscal 1997
from $551.3  million  during fiscal 1996 and an increase in the average yield on
interest-earning  assets to 7.91% during  fiscal 1997 from 7.72%  during  fiscal
1996.

Interest  earned on loans  receivable  increased $9.3 million due primarily to a
$104.7  million  increase in the average  balance of loans  receivable to $451.8
million  during fiscal 1997 from $347.1 million during fiscal 1996. In addition,
the average  yield on loans  increased  to 8.39%  during  fiscal 1997 from 8.25%
during fiscal 1996. The increase in the average balance of loans  receivable was
the result of continued  loan  production in excess of principal  repayments and
the sale and  securitization  of loans as well as the purchase of $218.3 million
of loans as a result of the Acquisition. The increase in yield was the result of
new loans being  originated at rates higher than the average rate of those loans
being repaid as a result of an increase in originations of non-real estate loans
that have higher interest rates than real estate loans.

Interest  earned  on  mortgage-backed  securities  decreased  $1.0  million  due
primarily to a $15.8 million decrease in the average balance of  mortgage-backed
securities  outstanding to $116.8 million during fiscal 1997 from $132.6 million
during  fiscal  1996.  The  decrease in the average  balance of  mortgage-backed
securities was the result of management's decision during the fiscal year to use
a portion of the  mortgage-backed  securities  portfolio to  partially  fund the
growth in loans  receivable  in an attempt  to earn  yields  greater  than those
available on mortgage-backed securities.

Interest earned on investment  securities  increased $115,000 due primarily to a
$2.2 million  increase in the average balance of investment  securities to $61.2
million during the fiscal year 1997 from $59.0 million during fiscal 1996.

                                       17

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


Interest  earned on other  interest-earning  assets and cash surrender  value of
life  insurance  increased  $300,000 due primarily to an increase in the average
balance of other interest-earning assets of $4.2 million to $13.7 million during
fiscal 1997 from $9.5 million during fiscal 1996.

Interest  Expense.  Interest expense  increased $3.7 million to $28.4 million in
fiscal 1997 from $24.7 million in fiscal 1996.  This  increase  resulted from an
increase  in the  average  balance  of  interest-bearing  liabilities  of $100.5
million to $585.9  million  during fiscal 1997 from $485.4 million during fiscal
1996.  Interest expense on deposits  increased $3.2 million  primarily due to an
increase in the average  balance of deposits of $89.7 million to $439.5  million
during fiscal 1997 from $349.8 million during fiscal 1996. The average rate paid
on deposits decreased to 4.38% during fiscal 1997 from 4.60% during fiscal 1996.
The  increase in the average  balance of deposits was the result of the purchase
of $287.0 million of deposits  related to the  Acquisition.  Interest expense on
FHLB advances and other  borrowed  money  increased  $517,000 to $9.2 million in
fiscal 1997 from $8.7 million in fiscal 1996. This increase was the result of an
increase of $11.2  million in the  average  balance of FHLB  advances  and other
borrowed  money to $145.4  million during fiscal 1997 from $134.2 million during
fiscal 1996.

Provision  for Loan  Losses.  The  provision  for loan losses is  determined  by
management  as the amount to be added to the allowance for loan losses after net
charge-offs  have been  deducted  to bring  the  allowance  to a level  which is
considered  adequate  to  absorb  losses  inherent  in  the  loan  portfolio  in
accordance with generally accepted accounting  principles.  The Company provided
$400,000  for loan losses for the fiscal year ended June 30,  1997.  At June 30,
1997, the Company had $2.4 million of non-performing  assets (representing 0.25%
of total assets)  compared to $715,000 at June 30, 1996  (representing  0.13% of
total  assets).  At June 30, 1997,  the Company had allowance for loan losses to
non-performing  assets  of  191.0%  as  compared  to  280.4%  at June 30,  1996.
Management's  evaluation of the adequacy of its loan loss reserves,  the quality
of the loan  portfolio  and  economic  conditions  in  Montana  resulted  in the
$400,000 provision for loan losses.

Non-interest Income.  Non-interest income increased $1.4 million to $4.7 million
in fiscal 1997 from $3.3 million during 1996. The $1.4 million increase resulted
from increases in loan origination fees, service fees, net gain on sale of loans
and  securities  available-for-sale  and other  operating  income  of  $319,000,
$914,000,  $101,000 and $39,000  respectively.  The $914,000 increase in service
fees was the  result  of  increases  in  checking  fees  and ATM  fees  from the
promotion  of  checking  accounts  and the  increased  fee  income  received  on
transaction accounts purchased in the Acquisition.

Non-interest  Expense.  Non-interest  expense  increased  $6.6  million to $20.6
million in fiscal  1997 from  $14.0  million in fiscal  1996.  The $6.6  million
increase in expenses was partially the result of a $2.3 million one-time special
assessment to recapitalize  the SAIF and the increased costs associated with the
Acquisition,  including  $532,000 for the  amortization  of Acquisition  related
intangibles.  The Bank incurred significant expenses during the fiscal year 1997
related to extensive training of all Bank employees in sales skills in an effort
to  improve  the  Bank's  ability  to meet  the  increasing  competition  in the
financial services market.

Income Taxes.  Income tax expenses decreased $493,000 to $2.1 million for fiscal
1997 from $2.6  million for fiscal  1996.  The  $493,000  decrease in income tax
expense  was  primarily  the result of a decrease  in income  before  income tax
expense  of  $545,000,   the  non-tax  deductibility  of  $200,000  of  goodwill
amortization  for fiscal 1997 and the reversal of deferred  income taxes related
to  the  cash  surrender  value  of  insurance  policies  which  resulted  in an
additional reduction in income tax expense of $489,000.

                                       18

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


                                  LOAN QUALITY

The  following  table sets forth the amounts and  categories  of  non-performing
assets in the Company's loan portfolio.  For all periods presented,  the Company
did not have any troubled debt restructuring  which involved forgiving a portion
of interest or principal on any loans or making loans at a rate  materially less
than market rates.  Foreclosed  assets include assets  acquired in settlement of
loans,  and are  recorded at the lower of the  related  loan  balance,  less any
specific allowance for loss, or fair value at the date of foreclosure.

<TABLE>
<CAPTION>
                                                                                 June 30,
                                                     ---------------------------------------------------------------
                                                         1998        1997         1996        1995         1994
--------------------------------------------------------------------------------------------------------------------
                                                                              (In Thousands)
<S>                                                   <C>         <C>           <C>         <C>         <C>
Non-accruing loans:
Real Estate:
  One- to four-family                               $   1,967   $      842   $      21   $      --    $     119
  Multi-family                                             89           --          --          --           --
  Commercial                                               35           --          --         166          207
  Construction                                            362           --          --          --           --
Commercial - non-real estate                               32          102          --          --           --
Consumer                                                1,504          573         383         153            9
--------------------------------------------------------------------------------------------------------------------
    Total                                               3,989        1,517         404         319          335
--------------------------------------------------------------------------------------------------------------------
Accruing loans delinquent 90 days or more:
Real Estate:
  One- to four-family                                     442          231         288         253          425
  Multi-family                                             --           --          --          --           --
  Commercial                                               --           --          --          --           --
  Construction                                             --           --          --          --           --
Commercial - non-real estate                               10           --          --          --           --
Consumer                                                  174          605          23           1            5
--------------------------------------------------------------------------------------------------------------------
    Total                                                 626          836         311         254          430
--------------------------------------------------------------------------------------------------------------------
Foreclosed assets:
Real Estate:
  One- to four-family                                     279           --          --          --           85
  Multi-family                                             --           --          --          --           --
  Commercial                                               --           --          --          --           --
  Land                                                     28           --          --          --           --
Consumer                                                  114           82          --          --           --
--------------------------------------------------------------------------------------------------------------------
    Total                                                 421           82          --          --           85
--------------------------------------------------------------------------------------------------------------------
Total non-performing assets                         $   5,036   $    2,435   $     715   $     573    $     850
====================================================================================================================
</TABLE>


Total  non-performing  assets  increased  $2.6 million to $5.0 million at fiscal
year end June 30, 1998 from $2.4 million at fiscal year end June 30,  1997.  The
$2.6  million  increase  was due  primarily  to an  increase  in  non-performing
residential,  construction,  consumer,  and  foreclosed  assets of $1.5 million,
$362,000,  $500,000,  and  $339,000  respectively.  Non-performing  assets  as a
percentage of total assets increased to 0.49% at June 30, 1998 from 0.25%

                                       19

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


at June 30,  1997 and  decreased  from  0.64% at March 31,  1998.  The  national
composite for thrifts was updated to 0.94% at June 30, 1998, which is the latest
available  information  as  reported  by the  Office of Thrift  Supervision.  In
addition  to the  non-performing  loans and  foreclosed  assets set forth in the
preceding  table, as of June 30, 1998, there were no additional loans identified
by the Company with respect to which information known about the possible credit
problems of the  borrowers  or the cash flows of the  security  properties  have
caused  management  to have some  concerns as to the ability of the borrowers to
comply  with  present  loan  repayment  terms and which may result in the future
inclusion of such items in the non-performing asset categories.

                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

As a financial  institution,  the Company's  primary component of market risk is
interest rate volatility.  Fluctuations in interest rates will ultimately impact
both the  level  of  income  and  expense  recorded  on a large  portion  of the
Company's assets and liabilities,  and the market value of all  interest-earning
assets, other than those which possess a short term to maturity. All significant
interest rate risk  management  procedures  are performed at the Company  level.
Based upon the  Company's  nature of  operations,  the Company is not subject to
foreign currency  exchange or commodity price risk. The Company's loan portfolio
is  concentrated  primarily  within the State of Montana and is subject to risks
associated with the local economy.  See Comparison of Operating  Results for the
years ended June 30, 1998 and June 30, 1997 -  Provision  for Loan  Losses.  The
Company does not own any trading assets.

In an attempt to manage its  exposure to changes in interest  rates,  management
closely  monitors  the  Bank's  interest  rate  risk  position.  The Bank has an
Asset/Liability  Management  Committee  consisting of certain  members of senior
management and two non-employee members of the Board of Directors (the "Board").
This committee  meets to review the Bank's interest rate risk position and makes
recommendations for adjusting such position to the Board. In addition, the Board
reviews on a quarterly basis the Bank's  interest rate risk position,  including
simulations  of the  effect on the  Bank's  capital  of  various  interest  rate
scenarios.

The Bank has an Investment Committee consisting of certain members of the senior
management  which meets at least monthly to review the Bank's interest rate risk
position using the Office of Thrift Supervision  ("OTS") and the Bank's internal
model  simulating  the effect on the Bank's  capital  in various  interest  rate
scenarios.  The Investment  Committee makes  recommendations  for adjusting such
position to the Bank's Asset/Liability Management Committee. The Asset/Liability
Management Committee reviews the Bank's investments, mortgage-backed securities,
loan  portfolio,  loan  production,  borrowed funds and deposit  structure.  The
Committees   develop   investment   strategies   and   oversee  the  timing  and
implementation  of transactions to assure  attainment of Board objectives in the
most effective manner.

In managing its  asset/liability  mix, the Bank,  depending on the  relationship
between long- and  short-term  interest  rates,  market  conditions and consumer
preference,  may place somewhat  greater emphasis on maximizing its net interest
margin than on more closely matching the interest rate sensitivity of its assets
and  liabilities  in an effort to improve  its net  interest  income  Management
believes that the increased net interest income resulting from a mismatch in the
maturity of its asset and liability  portfolios can, during periods of declining
or stable interest  rates,  provide high enough returns to justify the increased
exposure  to  negative  effects  which can result  from  sudden  and  unexpected
increases in interest rates.

To the extent  consistent  with its interest  rate spread  objectives,  the Bank
attempts  to reduce  its  interest  rate risk and has taken a number of steps to
more closely match the maturities of its assets and  liabilities.  To accomplish
this  objective the Bank has focused its lending  efforts on the  origination of
non-residential  loans for its portfolio  and increased its marketing  effort to
increase  the Bank's  balance  of  non-interest  bearing  demand  accounts.  The
non-residential  loans being originated for portfolio generally mature or change
interest  rates  within five to seven years as  compared to the  origination  of
fixed rate fifteen and thirty year residential mortgages.  The Bank also sold in
fiscal

                                       20

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


1998 $96.5  million  of  primarily  30  year-fixed  rate 1-4 family  residential
mortgage  loans to the  secondary  market in an attempt to limit the exposure to
rising interest rates.

In addition,  depending on the Bank's interest rate risk position,  the Bank may
also sell or  convert  to  Federal  Home  Loan  Mortgage  Corporation  ("FHLMC")
participation   certificates  ("PC's")  newly  originated  30-year,   fixed-rate
residential  loans.  The Bank  securitizes  such loans to limit  credit risk and
increase its liquidity. The Bank's policy is to carry FHLMC PC's created in this
manner  in its  "available-for-sale"  portfolio  until a  rising  interest  rate
scenario or the need for liquidity dictates their sale.

Additionally,  since the  mid-1980's,  the Bank has used  interest rate exchange
(i.e.,  "swap" and "cap")  agreements to assist in  synthetically  extending the
life of  interest-bearing  liabilities.  Under  the  Bank's  current  investment
policy,  the Bank may engage in swap and cap  agreements  with the Federal  Home
Loan Bank ("FHLB") of Seattle or certain investment firms approved in the Bank's
investment policy.

At June  30,  1998,  the  Bank  was a party  to  three  interest  rate  exchange
agreements,  two of which were  agreements  with the FHLB of Seattle  covering a
total of $10.0  million in notional  principal  amounts and one for $5.0 million
with an  investment  firm.  Historically,  the  swaps and caps have been used to
reduce the Bank's cost of funds during periods of high interest rates;  however,
in the interest rate environment  experienced  during most of fiscal 1998, these
swaps and caps had the effect of  increasing  the Bank's  cost of funds.  During
fiscal 1998, the increase in the cost of funds  attributable  to these swaps and
caps was $110,000. The Bank's interest rate caps expire in 1999 and 2000.

At June 30,  1998 the Bank did not have any  interest  rate swap  agreements  in
place.

The Board of  Directors  reviews  the  level of  interest  rate risk  management
activity on a monthly  basis.  Currently,  the Board of Directors has authorized
management to engage in interest rate swaps and caps with notional  principal of
up to $108  million.  An  increase  in this  type of  activity  may  result in a
decrease  in the  Bank's  income  in the  future if  interest  rates do not rise
significantly. See Note 15 of the Notes to Consolidated Financial Statements.

OTS  regulations   provide  a  Net  Portfolio  Value  ("NPV")  approach  to  the
quantification of interest rate risk. NPV is defined as the net present value of
an institution's existing assets, liabilities,  and off-balance sheet contracts.
An  institution's  NPV ratio for a given interest rate scenario is calculated by
dividing  the net  portfolio  value that would  result in that  scenario  by the
present value of the institution's assets in that same scenario and is expressed
in percentage terms. The NPV ratio is analogous to the  capital-to-assets  ratio
used to measure regulatory  capital,  but NPV is measured in economic values (or
present  values) in a  particular  rate  scenario.  The  Bank's  Asset/Liability
Management Committee has established the minimum NPV ratio that they are willing
to allow under current  interest rates and for a range of hypothetical  interest
rate  scenarios.  These six scenarios are  represented by immediate,  permanent,
parallel  movements in the term  structure  of interest  rates of plus and minus
100, 200, and 300 basis points from the actual term structure at quarter end.

                                       21

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


Presented  below, as of June 30, 1998, is an OTS analysis of the Bank's interest
rate risk as measured by changes in NPV for instantaneous and sustained parallel
shifts in the yield curve, in 100 basis point increments,  up and down 300 basis
points and compared to Board policy limits.  Assumptions used in calculating the
amounts in this table are OTS assumptions.


                                                   Actual at June 30, 1998
                                                      as Measured by OTS
                                          --------------------------------------
                             Board              NPV as a % of PV of assets
    Change in Marked         Minimum        ------------------------------------
      Interest Rate        Permissible                              Change
     (Basis Points)          NPV Rate           NPV Ratio        (Basis Points)
  -------------------   -----------------   -----------------   ----------------
          +300                7.00                7.91%               -282
          +200                7.00                9.01%               -172
          +100                8.00                9.99%                -74
           -0-                8.50               10.73%                -0-
          -100                9.00               11.31%                +58
          -200                9.50               11.71%                +98
          -300               10.00               12.25%               +152


The OTS has  established  guidelines for  determining the level of interest rate
risk for an OTS regulated  institution and has developed an interagency  uniform
ratings  system  establishing  several  levels of interest rate risk:  "minimal,
"moderate",  "significant,"  "high'" and "imminent threat." Based on a 200 basis
point  increase  in  interest  rates  the  Bank's  post-shock  9.0%  NPV  ratio,
representing  a 172 basis  point  change  from the 10.73%  pre-shock  NPV ratio,
indicates a risk rating of minimal for the Bank at June 30, 1998.

Management has  structured its assets and  liabilities to attempt to control its
exposure to interest  rate risk.  In the event of a 300 basis point  decrease in
interest rates, the Bank would experience a 152 basis point increase in NPV in a
declining  rate  environment  and a 282 basis  point  decrease  in a rising rate
environment.  During periods of rising rates,  the value of monetary  assets and
monetary liabilities declines.  Conversely, during periods of falling rates, the
value of  monetary  assets and  liabilities  increases.  However,  the amount of
change in value of specific  assets and  liabilities  due to changes in rates is
not the same in a rising  rate  environment  as in a  falling  rate  environment
(i.e.,  the amount of value increase under a specific rate decline may not equal
the amount of value decrease under an identical  upward rate movement).  The 282
basis  point  decrease  in NPV as a result  of a 300  basis  point  increase  in
interest  rates  indicates  that the Bank is  susceptible  to a reduction in net
interest  income in a rising interest rate  environment due to  interest-bearing
liabilities potentially repricing more rapidly than interest-earning assets.

In evaluating the Bank's  exposure to interest rate risk,  certain  shortcomings
inherent  in the method of analysis  presented  in the  foregoing  table must be
considered.  For  example,  although  certain  assets and  liabilities  may have
similar maturities or periods to repricing,  they may react in different degrees
to changes in market interest  rates.  Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates,  while  interest  rates on other  types may lag behind  changes in market
rates.  Further,  in the event of a change in interest  rates,  prepayments  and
early withdrawal levels would likely deviate significantly from those assumed in
calculating the table.  Finally,  the ability of many borrowers to service their
debt may decrease in the event of an interest rate  increase.  As a result,  the
actual effect of changing  interest  rates may differ from that presented in the
foregoing table.

                                       22

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


                         Liquidity and Capital Resources

The  Company's  primary  sources of funds are new  deposits  and the  payment of
principal  and  interest  on  loans,  mortgage-backed  securities  and  maturing
investments.   While   maturities  and  scheduled   amortization  of  loans  and
mortgage-backed  securities are a predictable source of funds, deposit flows and
mortgage  prepayments are greatly influenced by market interest rates,  economic
conditions  and  competition.  In a period of declining  interest  rates,  it is
anticipated  that  mortgage  prepayments  would  increase.  As a  result,  these
proceeds from mortgage  prepayments would be invested in lower yielding loans or
other investments which have the effect of reducing interest income. In a period
of rising  interest  rates, it is anticipated  that mortgage  prepayments  would
decrease  and the  proceeds  from such  prepayments  would be invested in higher
yielding loans or investments which would have the effect of increasing interest
income.

The Company's liquidity,  represented by cash and cash equivalents,  is a result
of its  operations,  investing and financing  activities.  These  activities are
summarized below for the fiscal years ended June 30, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                                                For the Year Ended June 30,
                                                          -----------------------------------------
                                                               1998         1997         1996
                                                                        (In Thousands)
 --------------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>            <C>     
 Net Income                                                 $  7,260    $   4,507      $  4,559
 Adjustments to reconcile net income to net
   cash provided by operating activities                      23,475       19,598        14,998
 --------------------------------------------------------------------------------------------------
     Net cash provided by operating activities                30,735       24,105        19,557
 Net cash (used) by investing activities                     (51,101)     (21,642)       (2,018)
 Net cash provided (used) by financing activities             32,275        1,397       (19,614)
 --------------------------------------------------------------------------------------------------
     Net increase (decrease) in cash and cash
        equivalents                                           11,909        3,860        (2,075)
 Cash and cash equivalents at beginning of period             17,159       13,299        15,374
 --------------------------------------------------------------------------------------------------
     Cash and cash equivalents at end of period             $ 29,068     $ 17,159      $ 13,299
 ==================================================================================================
</TABLE>


The primary investing activities of the Company are the origination of loans and
the purchase of investment  and  mortgage-backed  securities.  During the fiscal
years  ended June 30,  1998,  1997 and 1996,  the  Company's  loan  originations
totaled $366.7 million,  $226.8 million and $165.5 million,  respectively.  Loan
originations  increased  in the  last  fiscal  year due to an  increase  in loan
refinancing  activity  and an  increase  in  commercial  real  estate  loans and
consumer loans  resulting from an interest rate  environment  that was generally
lower than the prior year and management's emphasis on increasing the commercial
and  agricultural  real  estate  loans and other  commercial,  agricultural  and
consumer loans.

Purchases of mortgage-backed  securities totaled $7.0 million, $98.4 million and
$22.3 million for fiscal years ended June 30, 1998, 1997 and 1996, respectively.
Purchases of investment  securities  totaled $148.8 million,  $109.7 million and
$35.9  million  for the  fiscal  years  ended  June 30,  1998,  1997  and  1996,
respectively.  Mortgage-backed securities and investment securities purchased in
fiscal 1997 included  $91.4 million and $20.0 million  respectively,  related to
the Acquisition.

During  fiscal  1997 a net $10.8  million of cash  ($26.8  million  paid in cash
consideration  and direct  Acquisition costs less $16.0 million in cash and cash
equivalents purchased) was used to acquire Security Bancorp.

During the fiscal years ended June 30, 1998, 1997 and 1996, investing activities
were funded  primarily  by  principal  repayments  on loans and  mortgage-backed
securities and investment  securities and the maturity of investment  securities
and the sale of  loans,  mortgage-backed  securities  and  investments  totaling
$474.2  million,  $313.5 million,  and $232.3 million for the respective  fiscal
years.

                                       23
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


The major  sources of cash flows from  financing  activities  are deposits  into
savings  accounts and additional  borrowings.  The major uses of cash flows from
financing  activities  are  withdrawals  from  savings  accounts and payments on
borrowings. For the fiscal year ended June 30, 1998 and 1997 the net increase in
cash  flows  from  financing  activities  was  $32.3  million  and $1.4  million
respectively, and a net decrease of $19.6 million for the fiscal year ended June
30, 1996.

The Bank is required to maintain  minimum  levels of liquid assets as defined by
OTS regulations.  This requirement,  which may be waived at the direction of the
OTS  depending  upon  economic  conditions  and deposit  flows,  is based upon a
percentage of deposits and short-term borrowings.  The required ratio is 5%. The
Bank's regulatory liquidity ratio was 18.8% at June 30, 1998.

The Bank's  most  liquid  assets  are cash and cash in banks and highly  liquid,
short-term  investments.  The levels of these assets are dependent on the Bank's
operating, financing, lending, and investing activities during any given period.
At June 30, 1998, the Bank's regulatory liquid assets totaled $139.1 million.

Liquidity  management for the Bank is both a daily and long-term function of the
Company's management strategy. Excess funds are generally invested in short-term
investments  such as FHLB  certificates  of deposit.  If the Bank should require
funds  beyond its ability to generate  them  internally,  additional  sources of
funds are  available  through the use of FHLB of Seattle  advances.  At June 30,
1998,  the Bank had  outstanding  borrowings of $255.2  million,  which included
$248.1 million of FHLB advances, $511,000 of collateralized mortgage obligations
and $6.6 million of repurchase agreements and other borrowed money.

At June 30, 1998, the Bank had  outstanding  commitments  to originate  loans of
$18.9 million,  of which $8.9 million was at fixed interest  rates.  These loans
are to be secured by properties  located in the Bank's primary market areas. The
Bank  anticipates  that it will  have  sufficient  funds  available  to meet its
current loan  commitments.  Certificates of deposit  scheduled to mature in less
than one year from June 30, 1998 totaled $282.1 million.

                     Impact of Inflation and Changing Prices

The Consolidated  Financial  Statements and Notes thereto  presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial  position and operating results in terms of
historical  dollars without  considering the changes in the relative  purchasing
power of money over time due to inflation.  The impact of inflation is reflected
in the  increased  cost of the  Company's  operations.  Unlike  most  industrial
companies,  nearly all the assets and liabilities of the Company are monetary in
nature.  As a result,  interest  rates  have a greater  impact on the  Company's
performance  than do the effects of general levels of inflation.  Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.

                                    Dividends

The Board of  Directors  intends  to  continue  the  payment of  quarterly  cash
dividends, dependent on the results of operations and financial condition of the
Bank, tax  considerations,  industry  standards,  economic  conditions,  general
business practices and other factors.  The Company's ability to pay dividends is
dependent  on the dividend  payments it receives  from its  subsidiary,  Western
Security,  which are subject to regulations and the Bank's continued  compliance
with all  regulatory  capital  requirements.  See  Notes 2 and 3 of the Notes to
Consolidated  Financial Statements for information  regarding limitations of the
Bank's ability to pay dividends to the Company.

                                       24

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------


                              Year 2000 Compliance

As the year 2000  approaches,  significant  concerns  have been  expressed  with
respect to the ability of existing  computer  software  programs  and  operating
systems to function  properly with respect to data containing  dates in the year
2000 and thereafter.  Many existing  application software products were designed
to  accommodate  only a two digit year (e.g.,  1998 is reflected  as "98").  The
Company's operating,  processing and accounting  operations are computer reliant
and could be affected by the Year 2000 issues. Both the Bank and the Company are
reliant  on  third-party  vendors  for their  data  processing  needs as well as
certain other significant functions and services (e.g.,  securities  safekeeping
services,  securities pricing data, etc.). The Company currently is working with
its third-party  vendors in order to assess their Year 2000 readiness.  While no
assurance  can be  given  that  such  third  party  vendors  will be  Year  2000
compliant, management believes that such vendors are taking appropriate steps to
address the issues on a timely basis.  Based on certain  preliminary  estimates,
the Company  currently  believes that its costs related to upgrading its systems
and  software for Year 2000 issues will not exceed  $600,000.  While the Company
currently has no reason to believe that the cost of addressing  such issues will
materially   affect  the  Bank's  products,   services  or  ability  to  compete
effectively,  no  assurance  can be made that the  Company  or the  third  party
vendors on which it relies will become Year 2000  compliant in a successful  and
timely  fashion.  Nevertheless,  the Company  does not believe  that the cost of
addressing  the Year 2000 issues will be a material  event or  uncertainty  that
would cause reported financial  information not to be necessarily  indicative of
future operating results or financial  conditions,  nor does it believe that the
costs or the consequences of incomplete or untimely  resolution of its Year 2000
issues represent a known material event or uncertainty that is reasonably likely
to  affect  its  future  financial  results,  or cause  its  reported  financial
information not to be necessarily indicative of future financial condition.


                                       25


<PAGE>







                         WESTERFED FINANCIAL CORPORATION
                                AND SUBSIDIARIES

                        Consolidated Financial Statements

                         Three years ended June 30, 1998

                   (With Independent Auditors' Report Thereon)














                                       26

<PAGE>

                          Independent Auditors' Report
                          ----------------------------



The Board of Directors
WesterFed Financial Corporation:

We have  audited  the  accompanying  consolidated  balance  sheets of  WesterFed
Financial  Corporation  and  subsidiaries  as of June 30, 1998 and 1997, and the
related consolidated statements of income,  stockholders' equity, and cash flows
for each of the  years in the  three-year  period  ended  June 30,  1998.  These
consolidated  financial  statements are the  responsibility of the Corporation's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of WesterFed Financial
Corporation  and  subsidiaries  as of June 30, 1998 and 1997, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 30, 1998 in  conformity  with  generally  accepted  accounting
principles.






Billings, Montana
July 24, 1998



                                       27

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Consolidated Balance Sheets
--------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)

                                                                 June 30,
                                                           --------------------
                                                              1998        1997
                                                           ----------   -------
Assets
------
Cash and due from banks .................................  $   19,440    16,999
Interest-bearing due from banks .........................       9,628       160
                                                           ----------   -------
      Cash and cash equivalents .........................      29,068    17,159
                                                          
Interest-bearing deposits ...............................         100     2,000
Investment securities available-for-sale ................     108,511    51,683
Investment securities, at amortized cost (estimated       
  fair value of $16,974 in 1998 and $27,728 in 1997) ....      16,847    27,466
Stock in Federal Home Loan Bank of Seattle, at cost .....      13,560    11,456
Mortgage-backed securities available-for-sale ...........      24,135    31,388
Mortgage-backed securities, at amortized cost             
  (estimated fair value of $104,962 in 1998               
  and $119,193 in 1997) .................................     102,298   117,781
Loans available-for-sale ................................       6,922     3,700
Loans receivable, net ...................................     650,371   626,577
Interest receivable .....................................       7,778     6,957
Premises and equipment, net .............................      30,089    29,291
Core deposit intangible .................................       4,518     5,276
Goodwill ................................................      15,762    15,562
Cash surrender value of life insurance policies .........       6,705     6,120
Other assets ............................................       5,472     3,223
                                                           ----------   -------
                                                           $1,022,136   955,639
                                                           ==========   =======
--------------------------------------------------------------------------------
Liabilities and Stockholders' Equity                      
------------------------------------
Deposits ................................................  $  636,441   630,869
Repurchase agreements ...................................       6,233     7,786
Borrowed funds ..........................................     248,953   191,450
Advances from borrowers for taxes and insurance .........       4,052     3,753
Income taxes - current and deferred .....................       2,289     3,504
Accrued interest payable ................................       4,480     3,593
Accrued expenses and other liabilities ..................       9,988    10,425
                                                           ----------   -------
      Total liabilities .................................     912,436   851,380
                                                           ----------   -------
Stockholders' equity:                                     
  Preferred stock, $.01 par value, 5,000,000 shares       
    authorized; none outstanding ........................          --        --
  Common stock, $.01 par value, 10,000,000 shares         
    authorized; 5,836,691 shares issued, 5,585,303        
    outstanding in 1998; 5,798,713 shares issued,         
    5,564,904 outstanding in 1997 .......................          56        56
  Paid-in capital .......................................      68,923    67,941
  Common stock acquired by ESOP/RRP .....................      (2,520)   (2,936)
  Treasury stock, at cost ...............................      (3,461)   (3,081)
  Net unrealized gain (loss) on securities                
    available-for-sale ..................................          23       (35)
  Retained earnings .....................................      46,679    42,314
                                                           ----------   -------
      Total stockholders' equity ........................     109,700   104,259
                                                           ----------   -------
Commitments and contingencies ...........................  $1,022,136   955,639
                                                           ==========   =======
Book value per common share outstanding .................  $    19.64     18.74
                                                           ==========   =======
                                                             
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.

                                       28

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Consolidated Statements of Income
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

                                                         Year Ended June 30,
                                                     ---------------------------
                                                       1998      1997      1996
                                                     -------    ------    ------
Interest income:
  Loans receivable ..............................    $56,261    37,923    28,640
  Mortgage-backed securities ....................      9,676     8,185     9,167
  Investment securities .........................      7,580     3,884     3,769
  Interest-bearing deposits .....................        675     1,045       787
  Other .........................................        332       223       181
                                                     -------    ------    ------
      Total interest income .....................     74,524    51,260    42,544
                                                     -------    ------    ------
Interest expense:
  NOW and money market demand ...................      3,321     2,029     1,740
  Savings .......................................      2,658     2,223     1,940
  Certificates of deposit .......................     21,714    14,737    12,074
  Cost of Swaps and Caps ........................        110       249       331
                                                     -------    ------    ------
                                                      27,803    19,238    16,085
  Borrowed funds ................................     14,483     9,169     8,652
                                                     -------    ------    ------
      Total interest expense ....................     42,286    28,407    24,737
                                                     -------    ------    ------
      Net interest income .......................     32,238    22,853    17,807
Provision for loan losses .......................        840       400        --
                                                     -------    ------    ------
      Net interest income after provision
        for loan losses .........................     31,398    22,453    17,807
                                                     -------    ------    ------
Non-interest income:
  Loan origination fees on loans sold ...........      2,268       667       348
  Service fees ..................................      4,486     3,034     2,120
  Net gain on sale of loans and securities
    available-for-sale ..........................      1,053       678       577
  Other .........................................        574       306       267
                                                     -------    ------    ------
      Total non-interest income .................      8,381     4,685     3,312
                                                     -------    ------    ------
Non-interest expense:
  Compensation and employee benefits ............     13,149     9,342     7,523
  Net occupancy expense of premises .............      2,153     1,373       880
  Equipment and furnishings .....................      1,846     1,009       643
  Data processing ...............................      1,644       962       632
  Deposit insurance premium .....................        358       517       806
  SAIF assessment ...............................         --     2,297        --
  Intangibles amortization ......................      1,391       532        --
  Marketing and advertising .....................        789       571       559
  Other .........................................      6,429     3,965     2,961
                                                     -------    ------    ------
      Total non-interest expense ................     27,759    20,568    14,004
                                                     -------    ------    ------
      Income before income taxes ................     12,020     6,570     7,115

Income taxes ....................................      4,760     2,063     2,556
                                                     -------    ------    ------
      Net income ................................    $ 7,260     4,507     4,559
                                                     =======    ======    ======
Net income per common share:
  Basic .........................................    $  1.37      1.01      1.13
                                                     =======    ======    ======
  Diluted .......................................    $  1.29       .96      1.08
                                                     =======    ======    ======

--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.

                                       29

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Consolidated Statements of Stockholders' Equity
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                  Net
                                                                                               unrealized
                                                                                              gain (loss)
                                                                                             on securities
                                                       Common   Paid-in    ESOP/   Treasury    available-    Retained
                                                        stock   capital     RRP      stock      for-sale     earnings    Total
                                                       ------   -------   ------   --------  -------------   --------    -----
<S>                                                     <C>      <C>      <C>       <C>           <C>         <C>        <C>   
Balance at June 30, 1995 ............................   $ 46     45,232   (4,271)   (3,066)       295         36,910     75,146
Net income ..........................................     --         --       --        --         --          4,559      4,559
ESOP shares committed to be released ................     --        219      227        --         --             --        446
Amortization of RRP .................................     --         --      473        --         --             --        473
Shares forfeited by RRP participants--1,252 shares ..     --         --       13       (13)        --             --         --
Net change in unrealized gain on securities
  available-for-sale, net of income taxes of $317 ...     --         --       --        --       (521)            --       (521)
Cash dividends declared ($.36 per share) ............     --         --       --        --         --         (1,496)    (1,496)
                                                        ----     ------   ------    ------       ----         ------    -------
Balance at June 30, 1996 ............................     46     45,451   (3,558)   (3,079)      (226)        39,973     78,607

Net income ..........................................     --         --       --        --         --          4,507      4,507
ESOP shares committed to be released ................     --        265      227        --         --             --        492
Amortization of RRP .................................     --         --      499        --         --             --        499
Shares forfeited by RRP participants--195 shares ....     --         --        2        (2)        --             --         --
Common stock acquired by RRP (5,418 shares)  ........     --        106     (106)       --         --             --         --
Common stock options exercised (13,768 shares) ......     --        184       --        --         --             --        184
Common stock issued (534 shares) ....................     --         10       --        --         --             --         10
Security Bancorp acquisition:
  Issuance of 1,150,175 shares, net of issuance
    costs of $200 ...................................     10     21,052       --        --         --             --     21,062
  Issuance of options allowing holders to
    acquire 94,696 shares ...........................     --        873       --        --         --             --        873
Net change in unrealized loss on securities
  available-for-sale, net of income taxes of $112 ...     --         --       --        --        191             --        191
Cash dividends declared ($.45 per share) ............     --         --       --        --         --         (2,166)    (2,166)
                                                        ----     ------   ------    ------       ----         ------    -------
Balance at June 30, 1997 ............................     56     67,941   (2,936)   (3,081)       (35)        42,314    104,259

Net income ..........................................     --         --       --        --         --          7,260      7,260
Purchase of treasury stock, at cost--17,500 shares ..     --         --       --      (379)        --             --       (379)
ESOP shares committed to be released ................     --        425      227        --         --             --        652
Amortization of RRP .................................     --         --      188        --         --             --        188
Shares forfeited by RRP participants--75 shares .....     --         --        1        (1)        --             --         --
Common stock options exercised (37,978 shares) ......     --        557       --        --         --             --        557
Net change in unrealized loss on securities
  available-for-sale, net of income taxes of $34 ....     --         --       --        --         58             --         58
Cash dividends declared ($.54 per share) ............     --         --       --        --         --         (2,895)    (2,895)
                                                        ----     ------   ------    ------       ----         ------    -------
Balance at June 30, 1998 ............................   $ 56     68,923   (2,520)   (3,461)        23         46,679    109,700
                                                        ====     ======   ======    ======       ====         ======    =======
</TABLE>

--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.

                                       30

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                                      Year Ended June 30,
                                                               --------------------------------
                                                                  1998        1997        1996
                                                               ---------    --------    -------
<S>                                                            <C>            <C>        <C>   
Net cash provided by operating activities ..................   $  30,735      24,105     19,557
                                                               ---------    --------    -------
Cash flows from investing activities:
  Net change in interest-bearing deposits ..................       1,900       1,000       (898)
  Purchases of:
    FHLB stock .............................................      (1,129)         --       (200)
    Investment securities ..................................      (5,483)     (9,956)    (4,594)
    Investment securities available-for-sale ...............    (143,279)    (79,804)   (31,325)
    Mortgage-backed securities .............................          --      (5,950)      (990)
    Mortgage-backed securities available-for-sale ..........      (6,990)       (983)   (21,274)
  Proceeds from maturities:
    Investment securities ..................................      16,316       9,351      8,100
    Investment securities available-for-sale ...............      70,545      61,289     40,536
  Proceeds from sales of:
    Investment securities available-for-sale ...............      16,065       5,192      3,840
    Mortgage-backed securities available-for-sale ..........       3,222      31,937     30,862
  Principal payments from:
    Investment securities available-for-sale ...............         437         385      1,102
    Mortgage-backed securities .............................      15,661       8,897      8,896
    Mortgage-backed securities available-for-sale ..........      10,955      14,113     20,721
  Net change in loans receivable ...........................     (24,516)    (43,911)   (53,541)
  Proceeds from sales of premises and equipment ............       1,162          --         --
  Purchases of premises and equipment ......................      (5,682)     (2,426)    (3,253)
  Purchase of life insurance policies ......................        (285)         --         --
  Acquisition of Security Bancorp, net of cash and cash
    equivalents acquired of $16,013 ........................          --     (10,776)        --
                                                               ---------    --------    -------
      Net cash used in investing activities ................     (51,101)    (21,642)    (2,018)
                                                               ---------    --------    -------
Cash flows from financing activities:
  Net change in deposits ...................................     (21,366)    (25,093)    (9,667)
  Net change in repurchase agreements ......................      (1,553)        974         --
  Proceeds from borrowings .................................     344,165     136,090     77,720
  Payments on borrowings ...................................    (286,719)   (108,606)   (86,658)
  Net change in advances from borrowers for taxes
    and insurance ..........................................         299        (295)       (54)
  Dividends paid to stockholders ...........................      (2,729)     (1,867)      (955)
  Proceeds from exercise of options and stock issuances ....         557         194         --
  Payments to acquire treasury stock .......................        (379)         --         --
                                                               ---------    --------    -------
      Net cash provided by (used in) financing activities ..      32,275       1,397    (19,614)
                                                               ---------    --------    -------
Net increase (decrease) in cash and cash equivalents .......      11,909       3,860     (2,075)

Cash and cash equivalents at beginning of year .............      17,159      13,299     15,374
                                                               ---------    --------    -------
Cash and cash equivalents at end of year ...................   $  29,068      17,159     13,299
                                                               =========    ========    =======
Supplemental disclosure of cash flow information:
  Payments during the period for:
    Interest ...............................................   $  13,900       8,942      8,938
    Income taxes, net ......................................       4,080       3,014      2,441
                                                               =========    ========    =======
</TABLE>

--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.

                                       31

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation

WesterFed  Financial   Corporation   ("WesterFed,"  and  collectively  with  its
subsidiary,  the "Company")  serves the financial needs of 20 communities in the
state of Montana through its wholly-owned subsidiary, Western Security Bank (the
"Bank"),  a  federally  chartered  savings  bank.  In  addition  to  traditional
financial institution services,  the Company provides insurance,  investment and
other related  services  through Western  Security  Investment  Services,  Inc.,
WesterFed Insurance Services,  Service Corporation of Montana, Monte Mac I, Inc.
and COAD Limited Partnership, all wholly-owned subsidiaries of the Bank.

The Company's consolidated financial statements have been prepared in conformity
with generally  accepted  accounting  principles.  All significant  intercompany
balances and transactions  have been eliminated in  consolidation.  In preparing
the consolidated financial statements,  management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance  sheet and revenues and expenses for the period.  Actual
results could differ significantly from those estimates.

Material  estimates that are particularly  susceptible to significant  change in
the near-term relate to the  determination of the allowance for loan losses.  In
connection with the  determination of the allowance for loan losses,  management
generally  obtains  independent   appraisals  for  significant   properties.   A
substantial  portion of the  Company's  loans are secured by  collateral  in the
state of Montana. Accordingly, as with most financial institutions in the market
area, the  collectibility of a substantial  portion of the carrying value of the
Company's loan portfolio is susceptible to changes in market conditions.

Management believes the allowance for loan losses is adequate.  While management
uses available information to recognize losses on loans, future additions to the
allowance  may be  necessary  based on changes  in  economic  conditions  in the
Company's  market area and the composition of the loan  portfolio.  In addition,
various regulatory  agencies,  as an integral part of their examination process,
periodically  review the Company's  allowance for loan losses. Such agencies may
require the  Company to  recognize  additions  to the  allowance  based on their
judgments about information available to them at the time of their examination.

Fiscal Year

The Company's fiscal year ends on June 30 each year.  Reference to a fiscal year
refers to the year in which such fiscal year ends.

Cash Equivalents

For purposes of the statements of cash flows, cash equivalents  consist of daily
interest  demand   deposits,   non-interest-bearing   deposits  with  banks  and
interest-bearing deposits having original maturities of three months or less.

Investment and Mortgage-Backed Securities

Investment and mortgage-backed securities  available-for-sale include securities
that management intends to use as part of its overall asset/liability management
strategy  and that may be sold in  response  to  changes in  interest  rates and
resultant    prepayment   risk   and   other   related    factors.    Securities
available-for-sale  are carried at fair value,  and unrealized  gains and losses
(net of related tax  effects)  are  excluded  from  earnings  and  included as a
separate component of stockholders'  equity. Upon realization,  gains and losses
are included in earnings using the specific  identification  method.  Investment
securities  and  mortgage-backed  securities,  other  than those  designated  as
available-for-sale  or trading,  are comprised of debt  securities for which the
Bank has  positive  intent and  ability to hold to  maturity  and are carried at
cost. All securities are adjusted for  amortization of premiums and accretion of
discounts  using  the  level-yield  method  over  the  estimated  lives  of  the
securities.

Management   determines  the  appropriate   classification   of  investment  and
mortgage-backed securities at the purchase date.

                                       32

<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

Stock in Federal Home Loan Bank

Member  institutions of the Federal Home Loan Bank (FHLB) system are required to
hold common stock of its district FHLB according to predetermined formulas. FHLB
provides  a source of  borrowed  funds  for its  member  institutions  which are
secured by this FHLB stock.

Loans Receivable, Net

Loans receivable, other than loans available-for-sale,  are stated at the unpaid
principal  balance,  net of premiums,  unearned  discounts,  net  deferred  loan
origination fees, and the allowance for loan losses.

Loans are placed on nonaccrual  status when  collection of principal or interest
is  considered  doubtful  (generally  loans past due 90 days or more).  Interest
income previously  accrued on these loans, but not yet received,  is reversed in
the current period. Interest subsequently recovered is credited to income in the
period collected.  Discounts are accreted and premiums amortized to income using
the level-yield  method over the estimated lives of the loans. Loans that can be
contractually  prepaid or otherwise settled in such a way that the Company would
not recover  substantially all of its recorded investment are measured like debt
securities available-for-sale.

Loan fees and certain direct loan  origination  costs are deferred,  and the net
fee or cost is recognized in interest income using the  level-yield  method over
the estimated life of the  individual  loans,  adjusted for actual  prepayments.
Amortization of deferred loan  origination  fees are suspended during periods in
which the related loan is in nonaccrual status.

Loans  available-for-sale  are carried at the lower of cost or market  using the
aggregate method. Valuation adjustments, if applicable, are reflected in current
operations.   Gains  and  losses  on  sales  are  recorded  using  the  specific
identification method.

Management determines the appropriate  classification of loans as either held to
maturity or available-for-sale at origination, in conjunction with the Company's
overall asset/liability management strategy.

The cost of loan  servicing  rights  acquired is  included  in other  assets and
amortized in  proportion  to, and over the period of,  estimated  net  servicing
revenues.

The carrying  value of loan  servicing  rights and the  amortization  thereon is
periodically  evaluated in relation to estimated future net servicing  revenues.
The  Company  evaluates  the  carrying  value  of the  servicing  portfolio  for
impairment by estimating the future net servicing  income of the portfolio based
on management's  best estimate of remaining loan lives and contractual  interest
rates.

Allowance for Loan Losses

The  allowance  for  loan  losses  is based on  management's  evaluation  of the
adequacy of the  allowance,  including an assessment of known and inherent risks
in the portfolio,  review of individual  loans for adverse  situations  that may
affect the borrower's  ability to repay,  the estimated  value of any underlying
collateral, and consideration of current economic conditions.

Additions  to the  allowance  arise  from  charges  to  operations  through  the
provision  for loan losses or from the  recovery of amounts  previously  charged
off. The  allowance is reduced by loan  charge-offs.  Loans are charged off when
management  believes  there  has been  permanent  impairment  of their  carrying
values.

The Company also  provides an allowance  for losses on specific  loans which are
deemed  to  be  impaired.  Groups  of  small  balance  homogeneous  basis  loans
(generally   the  Company's   consumer   loans)  are  evaluated  for  impairment
collectively. A loan is considered impaired when, based upon current information
and events, it is probable that the Bank will be unable to collect,  on a timely
basis,  all principal  and interest  according to the  contractual  terms of the
loan's  original  agreement.  When a specific loan is determined to be impaired,
the allowance for possible loan losses is increased  through a charge to expense
for the amount of the  impairment.  For all  non-consumer  loans,  impairment is
measured  based  on  value  of  the  underlying  collateral.  The  value  of the
underlying  collateral  is  determined  by reducing the  collateral's  estimated
current value by anticipated selling costs. The Company's impaired loans are the
same as those non-consumer loans currently reported as non-accrual.  The Company
recognizes  interest  income on  impaired  loans  only to the  extent  that cash
payments are received.

                                       33
<PAGE>
WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

Real Estate Owned

Real estate owned is recorded at the fair value at the date of acquisition, with
a charge  to the  allowance  for loan  losses  for any  excess of cost over fair
value.  Subsequently,  real estate owned is carried at the lower of cost or fair
value,  less  estimated  selling  costs.  Certain  costs  incurred in  preparing
properties  for  sale  are  capitalized,  and  expenses  of  holding  foreclosed
properties are charged to operations as incurred.  Other assets include $421 and
$82 of real estate and other personal property  acquired through  foreclosure at
June 30, 1998 and 1997, respectively.

Cash Surrender Value of Life Insurance

The Company has acquired life insurance  policies covering certain key employees
for which the Company is the  beneficiary.  The Company makes one-time  lump-sum
payments as key employees are identified. Earnings on the premiums paid, usually
in the form of lump-sum  payments,  are expected to exceed  future  premiums and
expenses associated with the policies and thus result in an increase in the cash
surrender value of the policies.

Premises and Equipment

Premises and equipment,  including leasehold  improvements,  are stated at cost,
less accumulated  amortization and  depreciation.  Depreciation and amortization
are computed using the  straight-line  and double declining balance methods over
the estimated useful lives of the assets or leases ranging from 5 to 40 years.

Long-Lived Assets

Long-lived  assets and  identifiable  intangibles  are reviewed  for  impairment
whenever  events or  circumstances  provide  evidence that suggests the carrying
amount of the asset may not be recoverable.  An impairment loss is recognized if
the sum of the expected  future cash flows is less than the  carrying  amount of
the asset.

Goodwill

Goodwill  reflects the excess of cost over fair value of identifiable net assets
which  were  acquired  during  1997.   Goodwill  is  amortized  over  25  years.
Accumulated  amortization  at  June  30,  1998  and  1997  was  $833  and  $200,
respectively.

Core Deposit Intangible

Core  deposit   intangible   represents  the   intangible   value  of  depositor
relationships  resulting from deposit  liabilities assumed in a 1997 acquisition
and is amortized using an accelerated method based on an estimated runoff of the
related deposits, not exceeding 10 years.  Accumulated  amortization at June 30,
1998 and 1997 was $1,080 and $332, respectively.

Collateralized Mortgage Obligations

Bonds issued are recorded at par value net of discounts.  Discounts are accreted
to interest expense using the level-yield  method over the estimated life of the
bonds.

Income Taxes

Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and  liabilities  are measured using the enacted tax
rates  applicable  to  taxable  income  for the years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period that includes the enactment date.

WesterFed and its subsidiaries  file  consolidated  Federal and state income tax
returns.

Financial Instruments

The Company  periodically  enters into interest rate exchange agreements (Swaps)
and interest rate cap agreements  (Caps) as part of its overall  asset/liability
management  strategies.  Estimated  amounts to be  received  or paid on the Swap
settlement  dates  are  accrued  when  realized.  The net Swap  settlements  are
reflected  in  interest  expense.  Transaction  fees on Caps  are  amortized  to
interest  expense  over the life of the  related  Caps  using the  straight-line
method. Any payments received on Caps are reflected in operations.

                                       34
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


Stock Based Compensation

The cost of stock based compensation  issued to third parties is measured at the
grant  date  based on the fair  value of the  award.  For  grants to  employees,
compensation  cost is the excess of the  market  price of the stock at the grant
date over the amount an employee must pay to acquire the stock.

Per Share Data

The Company adopted Statement of Financial  Accounting Standards (SFAS) No. 128,
"Earnings  Per Share."  SFAS No. 128 revises  the manner in which  earnings  per
share (EPS) is  calculated by replacing  the  presentation  of primary and fully
diluted EPS with a presentation  of basic and diluted EPS.  Fiscal 1998 EPS have
been presented in accordance  with SFAS No. 128 and all prior periods  presented
have been restated to conform with SFAS No. 128.

Basic  earnings  per common  share is  calculated  by dividing net income by the
weighted  average  number of common  shares  outstanding  during the period less
unvested RRP and unallocated  ESOP shares.  Diluted earnings per common share is
calculated  by  dividing  net income by the  weighted  average  number of common
shares used to compute basic EPS plus the incremental amount of potential common
stock determined by the treasury stock method.
--------------------------------------------------------------------------------
(2)  CONVERSION TO STOCK OWNERSHIP

WesterFed was formed in September  1993. On January 6, 1994,  the Bank completed
its  conversion  from a  mutual  to a stock  form  savings  bank at  which  time
WesterFed  issued  4,436,657  shares of common stock at $10 per share  realizing
$43,057 after deducting stock offering expense of $1,309. WesterFed used $21,529
to purchase 100 percent of the common stock of the Bank.

As part of the conversion,  the Bank  established a liquidation  account for the
benefit of eligible  depositors who continue to maintain their deposit  accounts
in the Bank after conversion. In the unlikely event of a complete liquidation of
the Bank,  each  eligible  depositor  will be entitled to receive a  liquidation
distribution from the liquidation  account,  in the proportionate  amount of the
then current adjusted balance for deposit accounts held, before distribution may
be made with respect to the Bank's common stock. The Bank may not declare or pay
a cash dividend to its holding company, WesterFed, on, or repurchase any of, its
common stock if the effect  thereof  would cause the  regulatory  capital of the
Bank to be reduced below the amount required for the liquidation account. Except
for  such  restrictions,  the  existence  of the  liquidation  account  does not
restrict the use or application of retained earnings.
--------------------------------------------------------------------------------
(3)  REGULATORY MATTERS

WesterFed's ability to pay dividends is dependent upon the dividends it receives
from the  Bank,  which are  subject  to  regulations  and the  Bank's  continued
compliance with all regulatory  capital  requirements as specified by the Office
of Thrift  Supervision  (OTS).  A "Tier 1"  institution,  which is defined as an
institution   that  has  capital   immediately   prior  to  a  proposed  capital
distribution  that is equal to or greater than the amount of its fully phased-in
capital  requirement,  is  authorized  to make  capital  distributions  during a
calendar  year up to the  higher of 100% of its net  income to date  during  the
calendar year plus the amount that would reduce by one-half its surplus  capital
ratio at the  beginning of the calendar  year, or 75% of its net income over the
most recent four-quarter period. The Bank is a Tier 1 institution.

Capital standards require the Bank to have minimum  regulatory  tangible capital
equal to 1.5% of adjusted total assets, a minimum 3.0% core capital ratio and an
8.0%  risk-based  capital  ratio.  In addition,  federal  banking  agencies have
adopted  regulations which establish a system for prompt  regulatory  corrective
action with respect to depository institutions which do not meet minimum capital
requirements.  The  "prompt  corrective  action"  regulations  established  five
categories  related to the level of capital of the depository  institution:  (1)
well-capitalized,   (2)  adequately  capitalized,  (3)  under-capitalized,   (4)
significantly undercapitalized, and (5) critically

                                       35
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


undercapitalized.  A  "well-capitalized"  institution  meets the  minimum  level
required by regulation (i.e.,  total risk-based capital ratio of 10% or greater,
a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio of 5% or
greater).  The Bank's  total  risk-based,  Tier 1 and core  capital  ratios were
13.81%,  13.03% and 8.27% at June 30, 1998. The Bank's total risk-based,  Tier 1
and core capital ratios were 14.54%,  13.75% and 8.54% at June 30, 1997. At June
30, 1998, the Bank was categorized as "well-capitalized."

The  Bank's  compliance  with  capital  requirements  at June 30,  1998 and 1997
follows:

<TABLE>
<CAPTION>
                                                      Minimum to          Minimum
                                                    be adequately        to be well
                                                  capitalized under  capitalized under
                                                  prompt corrective  prompt corrective
                                     Actual       actions provision  actions provision
                                ---------------   -----------------  -----------------
                                 Amount   Ratio     Amount   Ratio     Amount   Ratio
                                -------   -----    -------   -----    -------   -----
<S>                             <C>       <C>      <C>       <C>      <C>       <C>   
As of June 30, 1998:
  Total capital (to
    risk-weighted assets) ...   $86,975   13.81%   $50,394   8.00%    $62,992   10.00%
  Core (Tier 1) capital (to
    risk-weighted assets) ...    82,084   13.03     25,197   4.00      37,795    6.00
  Core (Tier 1) capital (to
    adjusted assets) ........    82,084    8.27     39,724   4.00      49,655    5.00
  Tangible capital (to
    tangible assets) ........    82,084    8.27     14,896   1.50      14,896    1.50
                                =======   =====    =======   ====     =======   =====
As of June 30, 1997:
  Total capital (to
    risk-weighted assets) ...   $84,393   14.54%   $46,424   8.00%    $58,030   10.00%
  Core (Tier 1) capital (to
    risk-weighted assets) ...    79,768   13.75     23,212   4.00      34,818    6.00
  Core (Tier 1) capital (to
    adjusted assets) ........    79,768    8.54     37,377   4.00      46,722    5.00
  Tangible capital (to
    tangible assets) ........    79,768    8.54     14,016   1.50      14,016    1.50
                                =======   =====    =======   ====     =======   =====
</TABLE>

The  following  is a  reconciliation  of  capital  as shown on the  consolidated
financial statements and tangible, core and risk-based regulatory capital of the
Bank at June 30, 1998 and 1997:

                                                               1998       1997
                                                             --------   -------
Capital per consolidated financial statements .............  $109,700   104,259
  Less: Nonqualifying equity ..............................    (6,263)   (3,597)
        Goodwill and other intangibles ....................   (20,280)  (20,838)
        Nonqualifying purchased mortgage loan servicing ...    (1,062)      (14)
        Unrealized losses on certain securities
          available-for-sale ..............................       (11)      (42)
                                                             --------   -------
Tangible and Core capital .................................    82,084    79,768
  Add:  general valuation allowance .......................     4,891     4,625
                                                             --------   -------
Risk-based capital ........................................  $ 86,975    84,393
                                                             ========   =======

                                       36

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


(4)  INVESTMENT SECURITIES

The amortized  cost and estimated  fair values of investment  securities at June
30, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
                                                                             1998
                                                       -----------------------------------------------
                                                                      Gross        Gross     Estimated
                                                       Amortized   unrealized   unrealized      fair
                                                          cost        gains       losses       value
                                                       ---------   ----------   ----------   ---------
<S>                                                     <C>           <C>          <C>        <C>  
Investment securities held-to-maturity:
Federal agency obligations ..........................   $  2,994        27           --         3,021
U.S. Government obligations .........................        100        --           --           100
Corporate obligations ...............................     11,473        87           --        11,560
Other investments ...................................      2,280        13           --         2,293
                                                        --------      ----         ----       -------
    Total investment securities held-to-maturity ....     16,847       127           --        16,974
                                                        ========      ====         ====       =======
Investment securities available-for-sale:
Federal agency obligations ..........................   $ 89,792       100         (111)       89,781
Corporate obligations ...............................     18,658        62           --        18,720
Other ...............................................          3         7           --            10
                                                        --------      ----         ----       -------
    Total investment securities available-for-sale ..   $108,453       169         (111)      108,511
                                                        ========      ====         ====       =======
</TABLE>

<TABLE>
<CAPTION>
                                                                             1997
                                                       -----------------------------------------------
                                                                      Gross        Gross     Estimated
                                                       Amortized   unrealized   unrealized      fair
                                                          cost        gains       losses       value
                                                       ---------   ----------   ----------   ---------
<S>                                                     <C>           <C>          <C>        <C>  
Investment securities held-to-maturity:
Federal agency obligations ..........................   $ 18,804       184           --        18,988
U.S. Government obligations .........................        297         1           --           298
Corporate obligations ...............................      5,980        66           --         6,046
Other investments ...................................      2,385        13           (2)        2,396
                                                        --------      ----         ----       -------
    Total investment securities held-to-maturity ....   $ 27,466       264           (2)       27,728
                                                        ========      ====         ====       =======
Investment securities available-for-sale:
Federal agency obligations ..........................   $ 46,067       113         (211)       45,969
Corporate obligations ...............................      5,622        54           (1)        5,675
Other ...............................................          3        36           --            39
                                                        --------      ----         ----       -------
    Total investment securities available-for-sale ..   $ 51,692       203         (212)       51,683
                                                        ========      ====         ====       =======
</TABLE>

                                       37

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


Expected  maturities may differ from contractual  maturities because issuers may
have the  right to call or repay  obligations  at par value  without  prepayment
penalties.  The cost and estimated  fair value of investment  securities at June
30, 1998, by contractual maturity, are shown below:

                                                                           Fair
                                                              Cost        Value
                                                            --------     -------
Investment securities held-to-maturity
Due in:
  Less than one year ....................................   $    100         100
  One to five years .....................................     14,538      14,651
  Five to ten years .....................................        236         236
  After ten years .......................................      1,973       1,987
                                                            --------     -------
                                                            $ 16,847      16,974
                                                            ========     =======
Investment securities available-for-sale
Due in:
  Less than one year ....................................   $ 39,288      39,244
  One to five years .....................................     68,034      68,126
  After ten years .......................................      1,128       1,070
  Other .................................................          3          71
                                                            --------     -------
                                                            $108,453     108,511
                                                            ========     =======

Gross proceeds from sales of investment securities  available-for-sale for 1998,
1997 and 1996  were  $16,065,  $5,192  and  $3,840,  respectively.  These  sales
resulted  in  gross  gains  of  $68,  $18  and  $23  in  1998,  1997  and  1996,
respectively,  and  gross  losses  of $0,  $34 and $27 in 1998,  1997 and  1996,
respectively.

Pursuant to a collateral  agreement  with the FHLB,  all  unpledged,  qualifying
investment securities, including those available-for-sale, are pledged to secure
advances from the FHLB.
--------------------------------------------------------------------------------
(5)  MORTGAGE-BACKED SECURITIES

A summary of mortgage-backed securities at June 30, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                                               1998
                                                         -----------------------------------------------
                                                                        Gross        Gross     Estimated
                                                         Amortized   unrealized   unrealized      fair
                                                            cost        gains       losses       value
                                                         ---------   ----------   ----------   ---------
<S>                                                       <C>           <C>          <C>        <C>  
Mortgage-backed securities held-to-maturity:
FHLMC ..................................................  $ 39,508        786          --        40,294
GNMA ...................................................    14,776        194          --        14,970
Collateralized mortgage obligations--federal agency ....    44,874      1,666          --        46,540
Other ..................................................     3,140         49         (31)        3,158
                                                          --------      -----        ----       -------
  Total mortgage-backed securities held-to-maturity ....  $102,298      2,695         (31)      104,962
                                                          ========      =====        ====       =======
</TABLE>

                                       38

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                               1998
                                                         -----------------------------------------------
                                                                        Gross        Gross     Estimated
                                                         Amortized   unrealized   unrealized      fair
                                                            cost        gains       losses       value
                                                         ---------   ----------   ----------   ---------
<S>                                                       <C>           <C>          <C>        <C>  
Mortgage-backed securities available-for-sale:
FHLMC ..................................................  $ 12,265        112        (109)       12,268
GNMA ...................................................       438          4          --           442
FNMA ...................................................     7,742         49         (70)        7,721
Collateralized mortgage obligations--federal agency ....     3,711         --          (7)        3,704
                                                          --------      -----        ----       -------
  Total mortgage-backed securities available-for-sale ..  $ 24,156        165        (186)       24,135
                                                          ========      =====        ====       =======
</TABLE>

<TABLE>
<CAPTION>
                                                                               1997
                                                         -----------------------------------------------
                                                                        Gross        Gross     Estimated
                                                         Amortized   unrealized   unrealized      fair
                                                            cost        gains       losses       value
                                                         ---------   ----------   ----------   ---------
<S>                                                       <C>           <C>          <C>        <C>  
Mortgage-backed securities held-to-maturity:
FHLMC ..................................................  $ 49,630        354        (200)       49,784
GNMA ...................................................    18,291        223          --        18,514
Collateralized mortgage obligations--federal agency ....    45,815        842         (86)       46,571
Other ..................................................     4,045        279          --         4,324
                                                          --------      -----        ----       -------
  Total mortgage-backed securities held-to-maturity ....  $117,781      1,698        (286)      119,193
                                                          ========      =====        ====       =======
Mortgage-backed securities available-for-sale:
FHLMC ..................................................  $ 16,496        106        (162)       16,440
GNMA ...................................................       562         --          (3)          559
FNMA ...................................................    12,372         73        (101)       12,344
Other ..................................................     2,004         41          --         2,045
                                                          --------      -----        ----       -------
  Total mortgage-backed securities available-for-sale ..  $ 31,434        220        (266)       31,388
                                                          ========      =====        ====       =======
</TABLE>

Gross proceeds from sales of mortgage-backed  securities  available-for-sale for
1998, 1997 and 1996 were $3,222,  $31,937 and $30,862,  resulting in gross gains
of $40, $76 and $673 and gross losses of $11, $19 and $279, respectively.

Expected  maturities of mortgage-backed  securities will differ from contractual
maturities  because  issuers  may have the right to prepay  obligations  with or
without  penalties.  The contractual  weighted  average life of  mortgage-backed
securities is 18.4 years at June 30, 1998.

Mortgaged  backed  securities with amortized cost of $39,350 and $35,582 at June
30, 1998 and 1997,  respectively,  were  pledged to secure  public  deposits and
securities sold under  repurchase  agreements.  The approximate  market value of
securities  pledged  at  June  30,  1998  and  1997  was  $40,189  and  $35,939,
respectively.

Mortgage-backed  securities  with a recorded value of  approximately  $1,474 and
$1,920 have been pledged to secure  collateralized  mortgage obligations at June
30, 1998 and 1997, respectively.

                                       39

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


(6)  LOANS RECEIVABLE

A  summary  of loans  receivable  at June 30,  1998  and 1997 is  summarized  as
follows:

                                                            1998          1997
                                                          --------      -------
Loans secured by real estate:
  1-4 residential units .............................     $310,062      334,894
  5 or more residential units .......................       42,716       40,237
  Construction ......................................       17,523       19,858
  Commercial ........................................       61,415       49,348
  Agriculture .......................................       11,066        7,970
  Other nonresidential ..............................        2,735          701
  FHA insured or VA guaranteed ......................        8,601       13,683
                                                          --------      -------
      Total real estate loans .......................      454,118      466,691
Less:
  Net deferred loan origination fees ................       (1,453)      (1,813)
  Undisbursed loan funds ............................       (5,178)      (9,489)
  Purchased discounts ...............................       (1,159)      (1,383)
  Allowance for loan losses .........................       (2,177)      (2,631)
                                                          --------      -------
      Net real estate loans .........................      444,151      451,375

Other loans:
  Commercial (Non real estate) ......................       34,384       28,924
  Agriculture (Non real estate) .....................       24,036       18,866
  Loans to depositors, secured by deposits ..........        3,194        4,101
  Indirect consumer loans ...........................       64,287       40,708
  Other consumer loans--real estate secured .........       54,619       58,551
  Other consumer loans ..............................       35,352       29,772
  Allowance for loan losses .........................       (2,730)      (2,020)
                                                          --------      -------
      Net other loans ...............................      213,142      178,902
                                                          --------      -------
                                                           657,293      630,277
Less loans available-for-sale .......................       (6,922)      (3,700)
                                                          --------      -------
                                                          $650,371      626,577
                                                          ========      =======

The Bank has pledged,  under a blanket assignment,  its unpledged and qualifying
mortgage portfolio to secure advances from the FHLB.

A summary of nonperforming loans at June 30, 1998 and 1997 follows:

                                                             1998          1997
                                                           --------       ------
Nonaccrual loans ......................................     $3,989        1,517
Loans 90 days or more delinquent and still accruing ...        626          836
                                                            ------        -----
      Total nonperforming loans .......................     $4,615        2,353
                                                            ======        =====

                                       40

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


If interest income on nonaccrual loans had been accrued in accordance with their
original  terms,  approximately  $271, $71 and $22 of interest income would have
been recorded in 1998, 1997 and 1996,  respectively.  Interest income recognized
on  nonaccrual  loans during the years ended June 30, 1998,  1997,  and 1996 was
insignificant.  At June 30, 1998,  there were no commitments to lend  additional
funds to borrowers whose loans are classified as nonperforming.

An  analysis of the  allowance  for loan losses for each of the years ended June
30, 1998, 1997 and 1996 is as follows:

                                                      1998       1997      1996
                                                     ------     -----     -----
Balance at beginning of year .....................   $4,651     2,005     2,011
Reserves acquired ................................       --     2,481        --
Provision charged to operations ..................      840       400        --
Charge-offs ......................................     (637)     (253)      (11)
Recoveries .......................................       53        18         5
                                                     ------     -----     -----
Balance at end of year ...........................   $4,907     4,651     2,005
                                                     ======     =====     =====
--------------------------------------------------------------------------------
(7)  INTEREST RECEIVABLE

A summary of interest receivable at June 30, 1998 and 1997 is as follows:

                                                                 1998      1997
                                                                ------    -----
Loans .......................................................   $5,520    4,768
Mortgage-backed securities ..................................      776    1,004
Investment securities .......................................    1,475    1,148
Interest-bearing deposits ...................................        7       37
                                                                ------    -----
                                                                $7,778    6,957
                                                                ======    =====
--------------------------------------------------------------------------------
(8)  PREMISES AND EQUIPMENT

Premises and equipment at June 30, 1998 and 1997 is summarized as follows:

                                                                 1998     1997
                                                               -------  -------
Land ........................................................  $ 5,593    6,007
Office buildings and leasehold improvements .................   26,887   28,013
Furniture, fixtures and equipment ...........................   10,789    7,509
                                                               -------  -------
                                                                43,269   41,529
Less accumulated depreciation and amortization ..............  (13,180) (12,238)
                                                               -------  -------
                                                               $30,089   29,291
                                                               =======  =======

                                       41
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


(9)  DEPOSITS

Deposits at June 30, 1998 and 1997 are summarized as follows:

                                                                1998       1997
                                                              --------   -------
Certificates of deposit ....................................  $381,223   376,252
Savings accounts ...........................................    94,557   102,923
Money market accounts ......................................    55,464    49,062
NOW accounts ...............................................    74,673    76,582
Noninterest-bearing demand .................................    30,524    26,050
                                                              --------   -------
                                                              $636,441   630,869
                                                              ========   =======

Certificates of deposit at June 30, 1998 mature as follows:

<TABLE>
<CAPTION>
                                         Less     One to   Two to    Three    Four to 
                                         than       two     three   to four     five    There-
                                       one year    years    years    years     years     after    Total
                                       --------   ------   ------   -------   -------   ------   -------
<S>                                    <C>        <C>      <C>       <C>       <C>       <C>     <C>
2.00% to 3.99% ......................  $  1,572       22       --       --        --       --      1,594
4.00% to 4.99% ......................     6,748      148       --       --        --       --      6,896
5.00% to 5.99% ......................   192,004   27,330    7,151    2,079     1,412       31    230,007
6.00% to 6.99% ......................    35,295   26,153   15,112    1,796     4,749       --     83,105
7.00% to 8.99% ......................     5,979    2,443       --       --         6       --      8,428
                                       --------   ------   ------    -----     -----     ----    -------
                                        241,598   56,096   22,263    3,875     6,167       31    330,030
Jumbo ...............................    40,541    6,670    2,357      927       698       --     51,193
                                       --------   ------   ------    -----     -----     ----    -------
    Total certificates of deposit ...  $282,139   62,766   24,620    4,802     6,865       31    381,223
                                       ========   ======   ======    =====     =====     ====    =======
</TABLE>
--------------------------------------------------------------------------------
(10) REPURCHASE AGREEMENTS

Repurchase  agreements  generally mature on the next banking day. The securities
underlying  agreements to repurchase are for the same securities originally sold
and are held in a custody account by a third party. For the years ended June 30,
1998  and  1997,   securities  sold  under  agreements  to  repurchase  averaged
approximately  $8,113 and $7,557,  respectively.  The maximum outstanding at any
month end during the years ended June 30, 1998 and 1997 was approximately $9,645
and $7,786, respectively.
--------------------------------------------------------------------------------
(11) BORROWED FUNDS

Advances  from the  FHLB  and  other  borrowings  at June 30,  1998 and 1997 are
summarized as follows:

                                                                1998       1997
                                                              --------   -------
Advances from Federal Home Loan Bank of Seattle ............  $248,133   190,338
Collateralized mortgage obligations ........................       511       797
8.5% contract payable ......................................       309       315
                                                              --------   -------
                                                              $248,953   191,450
                                                              ========   =======

                                       42
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


Advances  from  Federal  Home Loan Bank of Seattle  bear  interest at rates from
4.75% to 8.11% and mature as follows:

          Years ending June 30
          --------------------
                  1999 ......................................  $171,768
                  2000 ......................................    15,000
                  2001 ......................................    13,156
                  2002 ......................................    19,658
                  2003 ......................................     6,691
                  Thereafter ................................    21,860
                                                               --------
                                                               $248,133
                                                               ========

Advances  from the FHLB are  secured by  pledges  of FHLB  stock of $13,560  and
$11,456 at June 30, 1998 and 1997,  respectively,  and a blanket assignment (the
blanket  assignment)  of  the  Bank's  unpledged,   qualifying  mortgage  loans,
mortgage-backed securities and investment securities.

The  Bank is party to two  $400,000  forward  commitments  with  the  FHLB.  The
commitments  bear interest at 6.15% and have a seven year term. The  commitments
must be drawn by July 31, 1998 and October 31, 1998.

The contract  payable requires monthly payments of principal and interest of $3,
maturing in November 2016. The contract payable is secured by real estate.
--------------------------------------------------------------------------------
(12) INCOME TAXES

Prior to July 1, 1996, if certain conditions were met, the Company was allowed a
special bad debt deduction in determining income for tax purposes. The deduction
was based on either a specified  experience  formula or a percentage  of taxable
income before such deduction (most recently 8%). Under new  legislation  enacted
in August 1996, the special bad debt deduction was eliminated  effective for tax
years beginning after December 31, 1995.

Retained earnings at June 30, 1998 includes  approximately  $13,800 for which no
provision for income tax has been made. This amount primarily  represents income
offset by the percentage  bad debt deduction for income tax purposes only.  This
amount  is  treated  as a  permanent  difference  and  deferred  taxes  are  not
recognized  unless it appears that this amount will result in taxable  income in
the  foreseeable  future.  Also  included  in the August 1996  legislation  were
provisions  which  require the Bank to recapture  bad debt  deductions  taken in
excess of its base year  reserves.  The  Company  has  provided a  deferred  tax
liability on the excess deductions which are payable over six years beginning in
1997. At June 30, 1998,  management  does not foresee any events under which the
base year amount of $13,800 would become taxable.

A summary of the  provision  for income taxes for the years ended June 30, 1998,
1997 and 1996 follows:

                                                       1998       1997      1996
                                                      ------     -----     -----
Federal:
  Current .........................................   $3,582     2,095     1,894
  Deferred ........................................      315      (408)      254
                                                      ------     -----     -----
                                                       3,897     1,687     2,148
                                                      ------     -----     -----
State:
  Current .........................................      753       440       377
  Deferred ........................................      110       (64)       31
                                                      ------     -----     -----
                                                         863       376       408
                                                      ------     -----     -----
                                                      $4,760     2,063     2,556
                                                      ======     =====     =====

                                       43
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

In the fourth  quarter of 1997,  the  Company  entered  into  split-dollar  life
insurance agreements with certain key officers which resulted in the reversal of
previously  provided  deferred  income  taxes  related to the  increase  in cash
surrender  values.  The effective  tax rates for 1998,  1997 and 1996 are 39.6%,
31.4% and 35.9%, respectively.

A  reconciliation  between  the income tax  expense  and the amount  computed by
multiplying the applicable  statutory federal income tax rate for 1998, 1997 and
1996 is as follows:

<TABLE>
<CAPTION>
                                                                1998     1997    1996
                                                               ------   -----   -----
<S>                                                            <C>      <C>     <C>  
Computed "expected" tax expense .............................  $4,086   2,234   2,419
Accumulated earnings on life insurance policies .............     (99)    (53)    (50)
State income taxes, net of Federal income tax benefit .......     567     248     270
Reversal of deferred taxes--cash surrender value increases ..      --    (397)     --
Goodwill amortization .......................................     215      68      --
Tax credit ..................................................     (77)    (74)     --
Other .......................................................      68      37     (83)
                                                               ------   -----   -----
                                                               $4,760   2,063   2,556
                                                               ======   =====   =====
</TABLE>

The tax effects of temporary  differences  that give rise to deferred tax assets
and liabilities at June 30, 1998 and 1997 are as follows:

                                                                   1998     1997
                                                                  ------   -----
Deferred tax assets:
  Loans, principally allowance for loan losses .................  $2,112   1,789
  Purchased excess tax bases ...................................   1,283   1,400
  Loan servicing premium .......................................     277     326
  Deposits, principally difference in bases ....................     113     182
  Investment securities, principally differences in bases ......     669     781
  Employee benefits, principally deferred compensation and
    accrued vacation ...........................................   1,043   1,199
  Market value adjustment of investment securities and
    mortgage-backed securities available-for-sale ..............      --      20
  Other ........................................................       6     135
                                                                  ------   -----
      Gross deferred income tax assets .........................   5,503   5,832
                                                                  ------   -----
Deferred tax liabilities:
  FHLB stock dividends .........................................   3,002   2,626
  Core deposit intangible ......................................   1,738   2,029
  Deferred loan fees and origination costs .....................     315     348
  Life insurance contract income ...............................      43     470
  Loans, due primarily to tax bad debt reserves in excess
    of base year amount ........................................     612     902
  Loans, principally difference in bases .......................     446     525
  Fixed assets, principally difference in bases
    and depreciation ...........................................   1,475   2,296
  Market value adjustment of investment securities and
    mortgage-backed securities available-for-sale ..............      14      --
  Other ........................................................      36      --
                                                                  ------   -----
      Gross deferred income tax liabilities ....................   7,681   9,196
                                                                  ------   -----
      Net deferred income tax liability ........................  $2,178   3,364
                                                                  ======   =====

In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent upon the existence of, or generation of, taxable income in the periods
which those  temporary  differences  are  deductible.  Management  considers the
scheduled reversal of

                                       44

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


deferred  tax  liabilities,  taxes paid in  carryback  years,  projected  future
taxable income,  and tax planning  strategies in making this  assessment.  Based
upon the level of historical  taxable  income and  projection for future taxable
income over the periods  which the deferred tax assets are  deductible,  at June
30, 1998,  management  believes it is more likely than not that the Company will
realize the benefits of these deductible differences.
--------------------------------------------------------------------------------

(13) COMMITMENTS AND CONTINGENCIES

The Company leases certain land, premises and equipment from third parties under
operating  leases.  The total future minimum rental  commitments  required under
operating  leases that have  initial or remaining  noncancelable  lease terms in
excess of one year at June 30, 1998 are as follows:

          Years ended June 30,                                  Amount
          --------------------                                  ------
                  1999 ......................................   $  205
                  2000 ......................................      207
                  2001 ......................................      206
                  2002 ......................................      136
                  2003 ......................................      136
               Thereafter ...................................    1,505
                                                                ------
          Total minimum future rental expense ...............   $2,395
                                                                ======

The  Company  is the lessor of office  space in  certain  of its  branch  office
buildings under operating leases expiring in future years. Management expects as
operating  leases expire in the normal course of business,  they will be renewed
or replaced by leases on other  properties at current market rental rates at the
time of  renewal.  Approximate  minimum  future  rentals  to be  received  under
non-cancelable leases subsequent to June 30, 1998 are as follows:

          Years ended June 30,                                  Amount
          --------------------                                  ------
                  1999 ......................................   $  533
                  2000 ......................................      403
                  2001 ......................................      286
                  2002 ......................................       61
                  2003 ......................................       35
               Thereafter ...................................       46
                                                                ------
          Total minimum future rental income ................   $1,364
                                                                ======

The deposits of the Bank are insured by the Savings  Association  Insurance Fund
(SAIF),  one  of  two  funds  administered  by  the  Federal  Deposit  Insurance
Corporation  (FDIC).  Prior to  September  1,  1996 the Bank  paid  premiums  of
approximately  0.23% of deposits.  On September 30, 1996, the Deposit  Insurance
Funds  Act of 1996 was  signed,  which  authorized  the FDIC to impose a special
assessment  on  certain  deposits  held by  thrift  institutions.  This  special
assessment,  was intended to recapitalize the SAIF. The assessment of $2,297 and
a  related  tax  benefit  of  approximately  $900 were  recorded  by the Bank on
September 30, 1996. The assessment was paid in November 1996.

The Bank is a defendant in various matters of litigation generally incidental to
its business.  In the opinion of management,  following  consultation with legal
counsel,  liabilities  arising from these  proceedings,  if any, will not have a
material impact on the Company's  liquidity,  financial  condition or results of
operations.

                                       45

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


The Year 2000 issues  involve the use of only two digits to identify a year in a
date field, potentially causing application failures or erroneous results at the
Year 2000. The Company and its customers'  operating,  processing and accounting
operations  are computer  reliant and could be affected by the Year 2000 issues.
The Company is reliant on third-party vendors for their data processing needs as
well as certain  other  significant  functions  and services  (e.g.,  securities
safekeeping  services,  securities pricing data, etc.). The Company is currently
working  with its  third-party  vendors  in  order to  assess  their  Year  2000
readiness. While no assurance can be given that such third party vendors will be
Year  2000  compliant,   management   believes  that  such  vendors  are  taking
appropriate  steps to  address  the issues on a timely  basis.  Based on certain
preliminary estimates,  the Company currently believes that its costs related to
upgrading  its  systems  and  software  for Year  2000  issues  will not  exceed
$600,000.  While the Company currently has no reason to believe that the cost of
addressing such issues will materially affect the Company's  products,  services
or ability to compete  effectively,  no assurance  can be made that the Company,
its  customers  or the third  party  vendors on which it relies will become Year
2000 compliant in a successful and timely fashion.
--------------------------------------------------------------------------------
(14) EMPLOYEE BENEFIT PLANS

Employee Stock Ownership Plan (ESOP)

Effective  July 1, 1993 the Board of Directors  approved the adoption of an ESOP
covering  substantially  all  employees.  The ESOP  purchased  354,933 shares of
WesterFed's  common stock for $10 per share in connection with the conversion to
stock  ownership.  The ESOP borrowed $3,549 from WesterFed to fund the purchase,
evidenced  by a note  receivable  recorded by  WesterFed,  secured by the common
stock purchased by the ESOP. The terms of the note require  quarterly  principal
payments from the ESOP of approximately $57, bearing interest at 7.26%, maturing
December 2008.  Contributions  of cash or common stock are made from the Bank to
the ESOP at the discretion of the Board of Directors. Dividends on common shares
held by the ESOP are paid to the ESOP and, together with Bank contributions, are
used by the ESOP to repay  principal and interest on the  outstanding  note. For
financial reporting  purposes,  the note receivable is classified as a reduction
of consolidated  stockholders' equity and amounts paid to WesterFed for interest
have been eliminated in consolidation.

The Company  records  compensation  expense equal to the fair value of shares at
the date such shares are made  available for  allocation  to plan  participants'
accounts.  Shares become  available  for  allocation as the ESOP repays the note
receivable recorded by WesterFed. The Company recognized expense relating to the
ESOP of $652, $492 and $446 during the years ended June 30, 1998, 1997 and 1996,
respectively.

The ESOP shares as of June 30, 1998 and 1997 were as follows:

                                                          1998        1997
                                                        -------     -------
     Allocated shares ...............................   141,344     114,842
     Unallocated shares .............................   213,589     240,091
                                                        -------     -------
       Original ESOP common shares ..................   354,933     354,933

     Shares distributed to participants .............   (15,820)    (10,847)
                                                        -------     -------
       Common shares held by ESOP ...................   339,113     344,086
                                                        =======     =======

At June 30, 1998,  the fair value of the  unallocated  shares was  approximately
$5,233.

Recognition and Retention Plan (RRP)

Under the RRP, common stock has been granted to certain officers,  directors and
employees.  Deferred  compensation  is  recorded  at the date of the stock award
based on the fair value of the shares  granted.  Vesting  occurs in four  equal,
annual  installments and the related deferred  compensation is expensed over the
same  period.  For  financial   reporting  purposes  the  unamortized   deferred
compensation balance is classified as a reduction of consolidated  stockholders'
equity.  Officers,  directors and employees  awarded shares retain voting rights
and, if dividends are paid,  dividend  privileges during the vesting period. RRP
compensation  expense  of $188,  $499 and $473 has been  recorded  for the years
ended June 30, 1998, 1997 and 1996, respectively.

                                       46
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


Stock Option and Incentive Plan

The  stockholders  have  approved a Stock Option and  Incentive  Plan (the Stock
Option Plan).  The terms of the Stock Option Plan provide for the granting of up
to 443,665 shares of common stock to certain  officers and directors.  The Stock
Option Plan provides for the granting of incentive  stock options,  nonqualified
stock options,  stock appreciation rights, limited stock appreciation rights, or
restricted stock, or any combination thereof (collectively, the Awards).

The Company has granted  incentive stock options and nonqualified  stock options
(the options). The term of the options may not exceed 10 years from the date the
options are granted.  Incentive stock options granted to stockholders  with more
than 10% of the  total  combined  voting  power of all  classes  of stock of the
Company  shall be granted  at an option  price of not less than 110% of the fair
market  value at the grant  date,  and the term of the  option  may not exceed 5
years from the date of grant.  For incentive stock options,  a maximum of 10,000
shares per Stock Option Plan participant are exercisable per year. All incentive
and nonqualified stock options awarded are exercisable at the grant date.

Equity Incentive Plan

In  conjunction  with the  acquisition  of Security  Bancorp  (see Note 24), the
stockholders of the Company  approved the Equity  Incentive Plan (the "Incentive
Plan").  The Incentive  Plan provides for granting  various awards to directors,
officers,  and employees of WesterFed or any of its subsidiary  corporations  of
various awards up to 250,000 shares of Common Stock. The Incentive Plan provides
for  awards  in the form of stock  options,  stock  appreciation  rights,  other
securities and property and restricted stock (collectively, Incentive Awards).

The  Company has granted  Incentive  Awards  during the year ended June 30, 1997
which allow holders to acquire 42,000 common shares. The term of the options may
not exceed 15 years from the date the options are granted.  The  exercise  price
for the  purchase of shares  subject to a stock option may not be less than 100%
of the market  value of the  shares  covered by the option on the date of grant.
During any calendar year, no participant may be granted  Incentive  Awards under
the Incentive Plan with respect to more than 50,000 shares. There were no awards
granted in the year ended June 30, 1998.

The  following  table  reflects  options  for both  the  Stock  Option  Plan and
Incentive Plan:

                                                         Common
                                                         Shares   Exercise Price
                                                        -------   --------------
Year ending June 30, 1996:
  Options outstanding, beginning of year ............   419,707    $10.00-12.13
  Granted ...........................................        --         --
                                                        -------
  Outstanding, end of year ..........................   419,707    $10.00-12.13

Year ending June 30, 1997:
  Granted in conjunction with acquisition
    of Security Bancorp .............................    36,668      3.65- 6.54
  Granted in conjunction with acquisition
    of Security Bancorp .............................    58,028     10.67-12.72
  Granted ...........................................    72,169     16.75-21.50
  Exercised .........................................   (13,768)    10.00-14.12
                                                        -------
  Outstanding, end of year ..........................   572,804    $ 3.65-21.50

Year ending June 30, 1998:
  Granted ...........................................        --         --
  Exercised .........................................   (37,978)     3.65-12.72
                                                        -------
  Outstanding, end of year ..........................   534,826    $ 3.65-21.50
                                                        =======

                                       47

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


Information  regarding  options  outstanding  and  exercisable  at June 30, 1998
follows:

                         Options Outstanding               Options Exercisable
               ---------------------------------------  ------------------------
                                            Weighted
  Range of                  Weighted         average                 Weighted
  exercise      Common       average         remain      Common       average
    price       shares   exercise price   life in yrs.   shares   exercise price
------------   -------   --------------   ------------  -------   --------------
$ 3.65- 6.54    35,066       $ 5.35            3.7       35,066       $ 5.35
 10.00-12.72   427,591        10.28            5.6      426,105        10.28
 16.75-21.50    72,169        20.51            8.6       72,169        20.51
               -------                                  -------
               534,826        11.34                     533,340        11.34
               =======                                  =======

No  compensation  cost has been  recognized  in the  consolidated  statements of
operations  for  options  granted  under the plans.  Had  compensation  cost for
options granted been determined based on the estimated fair value of the options
issued at the dates of grant,  the  Company's  net  income and income per common
share amounts for the years ended June 30 would have been as follows:

                                                            1998       1997
                                                           ------     -----
     Net income, as reported ...........................   $7,260     4,507
                                                           ======     =====
     Net income, pro forma .............................   $7,228     4,367
                                                           ======     =====
     Income per common share:
       As reported:
         Basic .........................................   $ 1.37      1.01
                                                           ======     =====
         Diluted .......................................   $ 1.29       .96
                                                           ======     =====
       Pro forma:
         Basic .........................................   $ 1.36       .98
                                                           ======     =====
         Diluted .......................................   $ 1.29       .93
                                                           ======     =====

No options were granted during the years ended June 30, 1998 and 1996.

The fair value of the  options  granted  during the year ended June 30, 1997 was
estimated  using the  Black-Scholes  model with the following  assumptions:  for
1997; dividend yield of 2.4%; expected life of 7 years;  volatility of 19% and a
risk-free  interest  rate of 6.4%.  The effects of applying SFAS No. 123 in this
pro-forma  disclosure  may not be indicative of future  results as the pro forma
disclosures do not apply to awards prior to July 1, 1995.
Additional awards in future years are anticipated.

Pension Plan

The Company  participates in a non-contributory  multi-employer  defined benefit
pension  plan  covering  substantially  all  employees.  Actuarially  determined
pension  costs are funded as  accrued.  Separate  actuarial  valuations  are not
prepared for each employer in the plan.  Substantially  all employees who attain
the age of 21 years and complete one year of service are eligible to participate
in this plan.  Retirement  benefits are based upon a formula  utilizing years of
service and average compensation,  as defined. Participants are vested 100% upon
the  completion  of five years of  service.  Total  pension  expense,  including
administrative  charges, was approximately $48 and $321 for the years ended June
30, 1997 and 1996, respectively.

Former Security Bank employees are included in a noncontributory  multi-employer
trustee defined benefit pension plan.  Actuarially  determined pension costs are
funded  as  required  by  the  plan  trustee.  Contributions  to  the  plan  and
administrative  charges amounted to approximately $38 during the year ended June
30, 1997.

Effective February 1998, the employees of the former Security Bank were included
in the Company's  non-contributory  multi-employer defined benefit pension plan.
Total pension expense,  including  administrative charges, was approximately $20
for the year ended June 30, 1998.

                                       48
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


Deferred Compensation Agreements

The Company has entered into deferred  compensation  agreements with certain key
employees that provide for  predetermined  periodic  payments over 10 years upon
retirement or death.

Former key  employees  of Security  Bank are  covered by  deferred  compensation
agreements that provide for  predetermined  periodic payments over 15 years upon
retirement or death. The agreements  specify a vesting schedule where by the key
employees  vest 10% per year,  but are not eligible for benefits if  termination
occurs prior to completing  three years of service  beginning on the date of the
agreement.  In the event of  acquisition  of the Company by a third  party,  the
deferred compensation agreements require any successor corporation to assume the
obligations of the agreements.

Amounts expensed under these agreements totaled approximately $346, $86 and $144
for 1998, 1997 and 1996, respectively.

Savings Plan

The Company has adopted an employee  savings  plan. To be eligible for the plan,
an employee must complete one year of full time employment. Annual contributions
match  50%  of an  employee's  contributions,  up  to a  maximum  of  3% of  the
participating  employee's  wages.   Contributions  for  1997  and  1996  totaled
approximately $77 and $86, respectively.

Former  employees  of Security  Bank were  covered  under a separate  plan until
February 1998. The Company  matched 50% of an employee's  contributions  up to a
maximum of 3% of the participating  employee's  wages.  Savings plan expense for
the year ended June 30, 1997 was approximately $26.

Effective February 1998, the Company merged the two savings plans.  Savings plan
expense for the year ended June 30, 1998 for the combined plan was approximately
$184.

Employment Agreements

The Company has entered into  employment  contracts with certain senior officers
that provide benefits under certain conditions  following a termination  without
cause or a change in control of the Company.
--------------------------------------------------------------------------------
(15) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Company is a party to financial instruments with  off-balance-sheet  risk in
the normal course of business to meet the  financing  needs of its customers and
to reduce its own exposure to fluctuations  in interest  rates.  These financial
instruments   include  commitments  to  extend  credit  and  interest  rate  cap
agreements.  These instruments  involve, to varying degrees,  elements of credit
and  interest  rate risk in excess of  amounts  recognized  in the  consolidated
balance sheets.  The contract or notional amounts of these  instruments  reflect
the  extent of  involvement  the Bank has in  particular  classes  of  financial
instruments.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making  commitments  and  conditional  obligations as it
does for  on-balance-sheet  instruments.  For interest rate cap agreements,  the
contract or notional  amounts do not  represent  exposure  to credit  loss.  The
Company controls the credit risk of those instruments  through credit approvals,
limits, and monitoring procedures.

                                       49

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


Commitments to Extend Credit

Commitments to extend credit at June 30, 1998 are as follows:

     Fixed rate .................................................   $ 8,925
     Variable rate ..............................................    10,022
                                                                    -------
                                                                    $18,947
                                                                    =======

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have terms which  specify  commitment  periods of 45 days at interest
rates  which  approximate  current  market  rates,   adjusted  for  management's
assessment of the creditworthiness of the customer. In some cases, customers may
be required to pay a fee for the Company's commitment to lend. Since many of the
commitments  are  expected  to  expire  without  being  drawn  upon,  the  total
commitment amounts do not necessarily  represent future cash  requirements.  The
Company evaluates each customer's  creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary,  upon extension of credit is
based on management's evaluation of the counterparty. Collateral held varies but
may include personal property,  residential real property,  and income-producing
commercial properties.

Interest Rate Caps

Interest rate caps entitle the Company to receive various  interest  payments in
exchange  for payment of a  transaction  fee,  provided  the  three-month  LIBOR
exceeds an agreed upon interest rate.  Transaction  fees paid in connection with
interest rate cap agreements are amortized to interest  expense as an adjustment
of the interest cost of  liabilities.  Interest rate cap  agreements are used to
manage   interest   rate   risk  by   synthetically   extending   the   life  of
interest-bearing liabilities.

The following summarizes interest rate cap agreements at June 30, 1998:

     Notional principal amount          Agreement termination          Cap
     -------------------------          ---------------------          ---
            $5,000 (1)                        July 1999                6.5%
             5,000 (1)                        July 1999                7.0%
             5,000 (2)                        July 2000                6.0%

     (1)  The counterparty to the cap agreement is the FHLB of Seattle.
     (2)  The counterparty to the cap agreement is Merrill Lynch.
--------------------------------------------------------------------------------
(16) RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In June 1997, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
130,  "Reporting  Comprehensive  Income"  which the Company  will be required to
adopt on July 1, 1998. SFAS No. 130 requires  companies to report  comprehensive
income.  Comprehensive  income will include net income, as well as other changes
in stockholders'  equity that result from transactions and economic events other
than  those  with  stockholders.  The  Company's  only  significant  element  of
comprehensive  income is the unrealized  gains and losses on  available-for-sale
securities.

In June 1997,  the FASB issued SFAS No. 131,  "Disclosures  about Segments of an
Enterprise  and Related  Information."  SFAS No. 131  requires  public  business
enterprises to disclose selected  information about operating segments including
segment  income,  revenues and asset data.  It also  establishes  standards  for
related  disclosures  about  products and services,  geographic  areas and major
customers. SFAS No. 131

                                       50

<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


is effective for financial  statements for periods  beginning after December 15,
1997. Management of the Company is current assessing the effect of SFAS No. 131,
if any, on its financial statements.

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards  requiring  that  every  derivative  instrument  (including
certain derivative  instruments  embedded in other contracts) be recorded in the
balance sheet as either an asset or liability  measured at its fair value.  SFAS
No. 133  requires  that  changes in the  derivative's  fair value be  recognized
currently  in  earnings  unless  specific  hedge  accounting  criteria  are met.
Management  of the Company is  currently  assessing  the effect,  if any, on its
financial  statements of implementing SFAS No. 133. The Company will be required
to adopt the standard on July 1, 1999.
--------------------------------------------------------------------------------
(17) RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES

The  reconciliation  of net income to net cash provided by operating  activities
for fiscal 1998, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                                                                      1998        1997       1996
                                                                                    --------     -------    -------
<S>                                                                                 <C>           <C>        <C>  
Net income ......................................................................   $  7,260      4,507      4,559
Adjustments to reconcile net income to net cash provided by operating activities:
  Amortization of:
    Deferred loan origination fees ..............................................       (440)      (439)      (445)
    Premiums and discounts on securities, loans and borrowings ..................       (900)    (1,138)       (63)
  RRP deferred compensation .....................................................        188        499        473
  ESOP shares committed to be released ..........................................        652        492        446
  Provision for loan losses .....................................................        840        400         --
  Net (gain) loss on sales of:
    Mortgage-backed securities available-for-sale ...............................        (29)       (57)      (394)
    Investment securities available-for-sale ....................................        (68)        16          4
    Loans .......................................................................       (956)      (637)      (187)
    Premises and equipment ......................................................        (17)        --        127
  Depreciation and amortization of premises and equipment .......................      2,147      1,208        740
  Goodwill and core deposit amortization ........................................      1,391        532         --
  Federal Home Loan Bank stock dividends ........................................       (975)      (712)      (521)
  Origination of loans available-for-sale .......................................    (96,520)   (54,396)   (31,185)
  Proceeds from sales of loans available-for-sale ...............................     94,254     55,300     30,365
  Decrease (increase) in interest receivable ....................................       (821)      (562)       180
  Interest expense credited to deposit accounts .................................     26,938     18,704     15,724
  Changes in other assets and liabilities .......................................     (2,209)       388       (266)
                                                                                    --------    -------    -------
      Net cash provided by operating activities .................................   $ 30,735     24,105     19,557
                                                                                    ========    =======    =======
</TABLE>
--------------------------------------------------------------------------------
(18) NON-CASH INVESTING AND FINANCING ACTIVITIES

On June 23, 1998, the Company declared a dividend of approximately  $1,005 which
is recorded in accrued expenses and other liabilities at June 30, 1998.

On June 24, 1997, the Company declared a dividend of approximately $840 which is
recorded in accrued expenses and other liabilities at June 30, 1997.

                                       51
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


On June 28, 1996, the Company declared a dividend of approximately $541 which is
recorded in accrued expenses and other liabilities at June 30, 1996.

Effective December 31, 1995, the Company reclassified  approximately  $10,608 of
mortgage-backed  securities from the held-to-maturity to the  available-for-sale
classification.  The  net  unrealized  loss  related  to  these  mortgage-backed
securities was approximately $140 at the date of reclassification.

During 1997, the Company issued common stock under the RRP and recorded deferred
compensation of approximately  $106. No common stock was issued under the RRP in
fiscal 1998 or 1996.

Real  estate  owned  acquired  through  foreclosures  of  loans  receivable  was
approximately $546 for 1998. No real estate owned was acquired in fiscal 1997 or
1996.

Treasury stock of  approximately  $1, $2 and $13 was recorded due to forfeitures
of unearned RRP shares for fiscal 1998, 1997 and 1996, respectively.

In  conjunction  with the  acquisition of Security  Bancorp,  the Company issued
common shares valued at $21,062 and options with an intrinsic value of $873.
--------------------------------------------------------------------------------
(19) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following fair value estimates, methods and assumptions were used to measure
the fair value of each class of financial  instrument  for which it is practical
to estimate that value.

Cash and Cash Equivalents and Interest-Bearing Deposits

For such cash and short-term investments,  the carrying amount was considered to
be a reasonable estimate of fair value.

Investment and Mortgage-Backed Securities

For investment and mortgage-backed  securities, fair values were based on quoted
market prices or dealer quotes. If a quoted market price was not available, fair
values were estimated using quoted market prices for similar securities.

Stock in Federal Home Loan Bank of Seattle

For FHLB stock,  the carrying amount was considered to be a reasonable  estimate
of fair value.

Loans

Fair values were estimated for portfolios of performing and nonperforming  loans
with similar  financial  characteristics.  For certain  analogous  categories of
loans,  such  as  residential  mortgages,  home  equity  loans,  non-residential
mortgages,  and consumer loans, fair value was estimated using the quoted market
prices for securities backed by similar loans,  adjusted for differences in loan
characteristics.  The fair value of other performing loan types was estimated by
discounting  the future cash flows using market  discount rates that reflect the
credit, collateral, and interest rate risk inherent in the loan.

Deposits

The fair value of demand  deposits,  savings  deposits and money market accounts
were the amounts  payable on demand at June 30, 1998 and 1997. The fair value of
certificates  of  deposit  is  estimated  based  on  the  discounted   value  of
contractual  cash flows using rates derived from the U.S.  Treasury yield curve,
adjusted for certificate redemption features.

Short-Term Borrowings

For short-term borrowings, the carrying amount was considered to be a reasonable
estimate of fair value.

Long-Term Borrowings

The fair value for long-term  borrowings was based upon the discounted  value of
the cash  flows.  The  discount  rates  utilized  were based on rates  currently
available with similar terms and maturities.

                                       52
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


The estimated fair values of financial instruments at June 30 are as follows:

<TABLE>
<CAPTION>
                                                            1998                 1997
                                                     ------------------   -----------------
                                                     Carrying     Fair    Carrying    Fair
                                                       value     value      value    value
                                                     --------   -------   --------  -------
<S>                                                  <C>         <C>       <C>       <C>   
Financial assets:
  Cash and cash equivalents ......................   $ 29,068    29,068    17,159    17,159
  Interest-bearing deposits ......................        100       100     2,000     2,000
  Investment securities ..........................     16,847    16,974    27,466    27,728
  Investment securities available-for-sale .......    108,511   108,511    51,683    51,683
  Stock in Federal Home Loan Bank of Seattle .....     13,560    13,560    11,456    11,456
  Mortgage-backed securities .....................    102,298   104,962   117,781   119,193
  Mortgage-backed securities available-for-sale ..     24,135    24,135    31,388    31,388
  Loans, net .....................................    650,371   654,037   626,577   628,058
  Loans available-for-sale .......................      6,922     6,922     3,700     3,700

Financial liabilities:
  Deposits .......................................    636,441   637,529   630,869   630,171
  Repurchase agreements ..........................      6,233     6,233     7,786     7,786
  Borrowed funds .................................    248,953   249,792   191,450   190,115

Off-balance-sheet items:
  Interest rate cap agreements: notional
    amount of $15,000 and $10,000 ................         --        24        --        58
                                                     ========   =======   =======   =======
</TABLE>

Limitations

The foregoing fair value  estimates are made at a specific point in time,  based
on pertinent market data and relevant  information on the financial  instrument.
These estimates do not include any premium or discount that could result from an
offer to sell,  at one time,  the  entire  holdings  of a  particular  financial
instrument or category thereof. Since no market exists for a substantial portion
of the financial  instruments,  fair value estimates were  necessarily  based on
judgments  with respect to future  expected loss  experience,  current  economic
conditions, risk assessments of various financial instruments involving a myriad
of individual borrowers, and other factors. Given the innately subjective nature
of these  estimates,  the  uncertainties  surrounding  them and the  matters  of
significant  judgment that must be applied,  these fair value estimations cannot
be  calculated  with  precision.   Modifications  in  such   assumptions   could
meaningfully alter these estimates.

Since these fair value  approximations  were made solely for on- and off-balance
sheet  financial  instruments,  no  attempt  was made to  estimate  the value of
anticipated  future business and the value of nonfinancial  statement assets and
liabilities.  Other  important  elements  which are not  deemed to be  financial
assets or liabilities  include the value of the Company's retail branch delivery
system,  its existing  core deposit  base,  premises and equipment and goodwill.
Further,  certain tax implications  related to the realization of the unrealized
gains and losses could have a substantial  impact on these fair value  estimates
and have not been incorporated into any of the estimates.

                                       53
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


(20) MORTGAGE BANKING ACTIVITIES

Mortgage banking revenues for fiscal 1998, 1997 and 1996 are presented below:

                                                       1998       1997      1996
                                                      ------     -----     -----
Origination fees ..................................   $2,268       667       348
Servicing fees ....................................      795       694       626
Net gains on sales of loans .......................      956       637       187
                                                      ------     -----     -----
Total mortgage banking revenues ...................   $4,019     1,998     1,161
                                                      ======     =====     =====

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated  financial  statements.  The unpaid  balances  of these  loans were
approximately  $260,300,  $268,600 and $183,300 at June 30, 1998, 1997 and 1996,
respectively.

Mortgage servicing rights were approximately  $1,062 and $1,239 at June 30, 1998
and 1997,  respectively,  and are  recorded in other  assets.  Included in these
amounts  are  $721 and  $847 of  unamortized  servicing  rights  related  to the
acquisition  of  Security  Bancorp  at June  30,  1998 and  1997,  respectively.
Amortization of the mortgage  servicing rights was approximately  $214, $114 and
$54 for fiscal 1998, 1997 and 1996, respectively.
--------------------------------------------------------------------------------
(21) WESTERFED INFORMATION

The  summarized   condensed   financial   information  for  WesterFed  Financial
Corporation  as of and for the years ending June 30, 1998 and 1997 are presented
below:

Condensed Balance Sheets                                       1998       1997
------------------------                                     --------   -------
Assets:
  Cash and cash equivalents ...............................  $     17         4
  Interest-bearing and due from banks deposits ............       402       963
  Investment securities available-for-sale ................     5,146     2,541
  Taxes receivable ........................................       336        --
  Other assets ............................................        47       134
  Investment in subsidiaries ..............................   104,897   102,033
                                                             --------   -------
      Total assets ........................................  $110,845   105,675
                                                             ========   =======
Liabilities and Stockholders' Equity:
  Other liabilities .......................................  $  1,145     1,416
  Stockholders' Equity:
    Common stock ..........................................        56        56
    Additional paid-in capital ............................    68,860    67,941
    Common stock acquired by ESOP/RRP .....................    (2,457)   (2,936)
    Treasury stock at cost ................................    (3,461)   (3,081)
    Net unrealized gain (loss) on securities
      available-for-sale ..................................        23       (35)
    Retained earnings .....................................    46,679    42,314
                                                             --------   -------
      Total stockholders' equity ..........................   109,700   104,259
                                                             --------   -------
      Total liabilities and stockholders' equity ..........  $110,845   105,675
                                                             ========   =======

                                       54
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


                                                            Year ended June 30,
                                                            -------------------
Condensed Statements of Income                                1998        1997
------------------------------                              --------    -------
Dividends from the Bank .................................   $  5,000     14,000
Interest income .........................................        233        735
Non-interest expense ....................................       (677)      (428)
                                                            --------    -------
  Income before income taxes ............................      4,556     14,307
Income taxes ............................................         79       (140)
                                                            --------    -------
  Income before undistributed earnings of subsidiaries ..      4,635     14,167

Undistributed (distributions in excess of) earnings
  of subsidiaries .......................................      2,625     (9,660)
                                                            --------    -------
  Net income ............................................   $  7,260      4,507
                                                            ========    =======
Condensed Statements of Cash Flows
----------------------------------
Operating Activities:
  Net income ............................................   $  7,260      4,507
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Distributions in excess of (equity in undistributed)
      earnings of subsidiaries ..........................     (2,625)     9,660
    Amortization of premiums on investments and
      mortgage-backed securities available-for-sale .....       (182)      (298)
    ESOP shares committed to be released ................        652        492
    Net loss on sale of mortgage-backed securities ......         --          6
    Increase in other assets and liabilities, net .......       (686)       561
                                                            --------    -------
      Net cash provided by operating activities .........      4,419     14,928
                                                            --------    -------
Investing Activities:
  Net change in interest-bearing deposits ...............        561       (189)
  Purchase of investment securities .....................    (23,766)   (20,142)
  Principal payments and sales proceeds of
    mortgage-backed securities ..........................         --      3,059
  Proceeds from maturities of investment securities .....     21,350     30,784
  Acquisition of Security Bancorp, including direct
    acquisition costs of $794 ...........................         --    (26,789)
  Other .................................................         --         12
                                                            --------    -------
      Net cash used in investing activities .............     (1,855)   (13,265)
                                                            --------    -------
Financing Activities:
  Dividends paid to stockholders ........................     (2,729)    (1,867)
  Proceeds from exercise of stock options and
    stock issuances .....................................        557        194
  Purchase of treasury stock ............................       (379)        --
                                                            --------    -------
      Net cash used in financing activities .............     (2,551)    (1,673)
                                                            --------    -------
Increase (decrease) in cash and cash equivalents ........         13        (10)
Cash and cash equivalents at beginning of year ..........          4         14
                                                            --------    -------
      Cash and cash equivalents at end of year ..........   $     17          4
                                                            ========    =======

                                       55
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


(22) CONDENSED QUARTERLY RESULTS OF OPERATIONS

                                                       Fiscal 1998
                                          -------------------------------------
                                           Fourth    Third     Second    First
                                          Quarter   Quarter   Quarter   Quarter
                                          -------   -------   -------   -------
Interest income ........................  $18,565    18,866    18,764    18,329
Interest expense .......................   10,460    10,843    10,651    10,332
                                          -------   -------   -------   -------
    Net interest income ................    8,105     8,023     8,113     7,997

Provision for loan losses ..............     (210)     (210)     (256)     (164)
Noninterest income .....................    2,300     2,123     1,995     1,963
Noninterest expense ....................   (6,910)   (7,581)   (6,415)   (6,853)
                                          -------   -------   -------   -------
    Income before income tax expense ...    3,285     2,355     3,437     2,943

Income tax expense .....................   (1,292)     (995)   (1,339)   (1,134)
                                          -------   -------   -------   -------
    Net income .........................  $ 1,993     1,360     2,098     1,809
                                          =======   =======   =======   =======
Net income per share:
  Basic ................................  $   .37       .26       .40       .34
                                          =======   =======   =======   =======
  Diluted ..............................  $   .35       .24       .37       .32
                                          =======   =======   =======   =======

                                                       Fiscal 1997
                                          -------------------------------------
                                           Fourth    Third     Second    First
                                          Quarter   Quarter   Quarter   Quarter
                                          -------   -------   -------   -------
Interest income ........................  $18,565    18,866    18,764    18,329

Interest income ........................  $17,454    12,585    10,628    10,593
Interest expense .......................    9,623     6,929     5,905     5,950
                                          -------    ------    ------    ------
    Net interest income ................    7,831     5,656     4,723     4,643

Provision for loan losses ..............     (297)      (61)      (27)      (15)
Noninterest income .....................    1,927     1,020       903       835
Noninterest expense ....................   (6,780)   (4,606)   (3,451)   (5,731)
                                          -------    ------    ------    ------
    Income (loss) before income tax
      expense ..........................    2,681     2,009     2,148      (268)

Income tax (expense) benefit ...........     (542)     (814)     (796)       89
                                          -------    ------    ------    ------
    Net income (loss) ..................  $ 2,139     1,195     1,352      (179)
                                          =======    ======    ======    ======
Net income (loss) per share:
  Basic.................................  $   .41       .27       .33      (.04)
                                          =======    ======    ======    ======
  Diluted...............................  $   .38       .25       .32      (.04)
                                          =======    ======    ======    ======

                                       56
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


(23) EARNINGS PER SHARE

The following table sets forth the compilation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
For the year ended June 30,                                      1998        1997        1996
---------------------------                                   ---------   ---------   ---------
<S>                                                           <C>         <C>         <C>      
Number of shares on which basic earnings per share
  is calculated:
    Average outstanding shares during the fiscal year ......  5,317,577   4,458,079   4,036,979

    Add: Incremental shares under stock option plans .......    293,866     220,259     148,599
         Incremental shares related to RRPs ................     12,723      25,901      36,085
                                                              ---------   ---------   ---------
Number of shares on which diluted earnings per
  share is calculated ......................................  5,624,166   4,704,239   4,221,663
                                                              ---------   ---------   ---------
Net income applicable to common stockholders ...............  $   7,260       4,507       4,559
                                                              =========   =========   =========
Basic earnings per share ...................................  $    1.37        1.01        1.13
                                                              =========   =========   =========
Diluted earnings per share .................................  $    1.29         .96        1.08
                                                              =========   =========   =========
</TABLE>

Stock options to purchase 57,085 shares in 1997 were  outstanding,  but were not
included in the  computation of diluted  earnings per share because the options'
exercise  price was greater than the average  market price of the common  shares
and, therefore, the effect would be antidilutive. No stock options were excluded
from the computation of diluted earnings per share in 1998 or 1996.
--------------------------------------------------------------------------------
(24) ACQUISITION

On February 28, 1997,  WesterFed  completed the acquisition of Security Bancorp,
accounted  for as a purchase  transaction  and,  accordingly,  the  consolidated
statement  of income for 1997  includes  the results of  operations  of Security
Bancorp  commencing March 1, 1997.  Under this method of accounting,  assets and
liabilities of Security  Bancorp are adjusted to their  estimated fair value and
combined with the historical  recorded book values of the assets and liabilities
of the Bank.  WesterFed  issued  1,150,175  shares of common  stock,  options to
acquire 94,696 common shares and committed to pay $25,995 in cash for all of the
outstanding shares of Security Bancorp common stock, for total  consideration of
$48,724.  Pursuant to a Merger  Agreement,  Security Bancorp  stockholders  were
given the opportunity to elect to receive either cash, WesterFed common stock or
a  combination  of both in exchange  for Security  Bancorp  common  stock.  As a
result,  stockholders  who elected to receive  cash or did not make an election,
received $30 for each share of Security  Bancorp common stock.  Stockholders who
elected  to  receive  stock,  or a  combination  of cash  and  stock,  exchanged
approximately  46.42%  of the  outstanding  Security  Bancorp  common  stock  in
exchange  for  WesterFed  common  stock  (based  on a ratio  of 1.78  shares  of
WesterFed  common stock for each share of Security Bancorp common stock) and the
remainder in cash.  Stockholders who were due a fractional share,  received cash
in  lieu of the  fractional  share,  paid on the  basis  of $30  per  share.  In
addition,  as of such date,  Security Bank, a federally  chartered stock savings
bank and wholly-owned  subsidiary of Security Bancorp,  merged with and into the
Bank.

                                       57
<PAGE>

WesterFed Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements--Continued
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)


During  February  1998,  WesterFed  finalized its  allocation of purchase  price
related to the acquisition.  Changes in preliminary estimates of the fair values
were as follows:

     Decrease in premises and equipment ........................   $(1,592)
     Decrease in other assets ..................................      (603)
     Decrease in deferred tax liabilities ......................     1,753
     Increase in other liabilities .............................      (391)
                                                                   -------
     Decrease in goodwill ......................................   $  (833)
                                                                   =======

                                       58

<PAGE>


                             Corporate Information

                               [Graphic omitted]

                        WESTERFED FINANCIAL CORPORATION

                                       59

<PAGE>

                 General Corporate and Stockholders' Information


CORPORATE HEADQUARTERS
110 E. Broadway
Missoula, MT  59802
(406) 721-5254

INDEPENDENT ACCOUNTANTS
KPMG Peat Marwick LLP
Billings, MT

GENERAL COUNSEL
Worden, Thane and Haines, P.C.
Missoula, MT

SPECIAL COUNSEL
Silver, Freedman and Taff, LLP
Washington, D.C.

TRANSFER AGENT, REGISTRAR AND
DIVIDEND DISBURSING AGENT
Stockholder   inquiries  regarding  transfer   requirements,   dividends,   lost
certificates and changes of address should be directed to the transfer agent:
Davidson Trust Co.
9 Third Street North, Suite 200
P.O. Box 2309
Great Falls, MT 59403-2309
1-800-634-5526

ANNUAL MEETING
The annual meeting of  stockholders  will be held on Tuesday,  October 27, 1998,
beginning at 9 a.m. at the Southgate Office, 2601 Garfield, Missoula, MT

FORM 10-K
This report is available to  stockholders  of record without charge upon written
request to:
Douglas G. Bardwell
Corporate Secretary
WesterFed Financial Corporation
110 E. Broadway
Missoula, MT  59802

STOCK INFORMATION
WesterFed stock is traded in the over-the-counter market with quotations through
the Nasdaq National Market System under the symbol WSTR.

At June 30, 1998, there were 1,099 stockholders of record.

At June 30, 1998 there were approximately 2,285 beneficial stockholders.

To request information on dividend reinvestment, please contact:
Dale Brevik
Investor Relations
WesterFed Financial Corporation
110 E. Broadway
Missoula, MT  59802
Phone: 406-543-1315


                        WESTERFED FINANCIAL CORPORATION

                                       60
<PAGE>

                General Corporate and Stockholders' Information

                                 Stock Prices    Dividends
Quarter Ended                   High      Low    Declared
-------------                   ----      ---    --------
March 31, 1996                $ 16.75    14.75    .085
June 30, 1996                 $ 14.88    14.00    .123*
                           
September 30, 1996            $ 16.13    13.88    .095
December 31, 1996             $ 18.75    15.63    .10
                           
March 31, 1997                $ 21.75    17.75    .105
June 30, 1997                 $ 20.75    17.25    .151**
                           
September 30, 1997            $ 26.75    20.00    .115
December 31, 1997             $ 27.00    22.25    .12
                           
March 31, 1998                $ 26.75    24.50    .125
June 30, 1998                 $ 26.63    24.00    .18***
                         
* Declared June 26, 1996,  payable August 20 to stockholders of record August 6.
Includes a special dividend of $0.033 per share.

** Declared June 30, 1997, payable August 20 to stockholders of record August 6.
Includes a special dividend of $0.041 per share.

*** Declared June 23, 1998,  payable August 24 to  stockholders of record August
10. Includes a special dividend of $0.05 per share.

MARKET MAKERS

Sandler O'Neill & Partners
Keefe, Bruyette & Woods, Incorporated
Hoefer & Arnett, Incorporated 
Troster Singer Corporation 
D.A. Davidson & Company, Incorporated
Friedman Billings Ramsey & Company 
Everen Securities Incorporated 
Piper Jaffray Companies Incorporated


WESTERFED OFFICERS

Lyle R. Grimes
President, Chairman and Chief Executive Officer

James A. Salisbury, CPA
Treasurer/Chief Financial Officer

Douglas G. Bardwell
Vice President/Secretary

David W. Jorgenson
Vice President

Ronald F. Halls
Assistant Secretary

WESTERFED DIRECTORS

Lyle R. Grimes
Chairman

John E. Roemer
Vice Chairman

Dr. Marvin Reynolds

Dr. Otto Klein, Jr.

Robert F. Burke

Laurie DeMarois

David W. Jorgenson

William Leslie


                        WESTERFED FINANCIAL CORPORATION

                                       61