Exhibit 13

                        Annual Report to Security Holders

<PAGE>

[COVER]

                                No company just ends up in an enviable position.
                                                       It must put itself there.







                       WesterFed Financial Corporation.  The 1999 Annual Report.


<PAGE>

Financial Highlights

FOR FISCAL YEAR 1999
(Dollars in thousands, except per share amounts)

FOR THE YEAR
Net Income                 $6,923
Net Interest Income        $31,554

PER COMMON SHARE
Net Income                 $1.37
Book Value                 $20.08

AT YEAR END
Assets                     $1,007,349
Loans                      $631,371
Deposits                   $645,549
Stockholders' Equity       $91,149
Shares Outstanding         4,538,557

FINANCIAL RATIOS
Return on average assets   .70%
Return on equity           6.93%
Stockholders' equity
     to total assets       9.05%
Net interest margin
     for the year          3.46%
Non-performing assets
    to total assets        .42%

COMPANY FACTS
Deposit Accounts           93,803
Loan Accounts              25,999

[BAR CHART]                               [BAR CHART]

Assets                                    Net Income Per Common Share - Diluted
Year Ended June 30 (shown in millions)    Year Ended June 30 (shown in dollars)

       1995                 $563.3                 1995                 $1.01
       1996                 $563.9                 1996                 $1.08
       1997                 $955.6                 1997                  $.96
       1998                 $1,022                 1998                 $1.29
       1999                 $1,007                 1999                 $1.37

[PIE CHARTS]

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

                             1997        1998         1999
                            -------     -------      -------
Agriculture                   4.1%        5.2%         5.4%
Commercial                   12.2%       14.7%        18.1%
Consumer                     20.6%       23.5%        23.3%
Construction                  3.1%        2.6%         2.0%
Residential Mortgage         60.0%       54.0%        51.2%
<PAGE>

To Our Shareholders

         OUR  POSITION.  There  is,  in  the  pages  of an  annual  report,  the
temptation  to enumerate  only the concrete - earnings,  losses,  share  prices,
dividends,  deposits, loan portfolios,  holdings - for these form the foundation
upon which a  financial  institution  is built as well as much of the impetus to
invest in a company.  We're pleased to report, these quantifiable  measures were
positive  in fiscal  year  1999,  and  included  record  earnings  per share for
shareholders and solid increases in consumer and commercial lending.

         Yet, they are not the thrust of this letter.

         Over the last year, your management team has worked hard to put Western
Security  Bank,  our  sole  subsidiary,  into  a  position  for  future  growth.
Certainly,  our  financial  results  have  helped,  but assets  much  tougher to
quantify  - people,  image and  service  - have  been at least as  critical.  We
believe these are ultimately the assets that define potential. More importantly,
they're the assets responsible for realizing it.

[PICTURE OF RALPH K. HOLLIDAY AND LYLE R. GRIMES]

         Consider just a few of the changes made at your company in 1999.

          o    Lyle Grimes retired as President of Western Security Bank and has
               been  succeeded  by Ralph  Holliday,  formerly of the Key Bank of
               Seattle.
          o    Our consumer  image as Western  Federal  Savings was shed and the
               bank focused on building commercial businesses.

                             [BOX]
                             "Your management team has worked hard to put
                             Western Security Bank into an enviable position for
                             future growth."

          o    Y2K  compliance  and the formation of a  contingency  plan in the
               event of outside Y2K problems were established.
          o    A relationship  was begun with Invest  Financial,  enabling us to
               provide financial planning and investment services.
          o    Our   image-building   efforts   are  being   handled  by  a  new
               communications agency.

         The impact of these changes is far from  quantifiable,  their influence
in share  price  far  from  immediate,  yet  they are  vital to the life of your
company and the dividends paid on your stock.

         Therefore,  this  letter is not merely a numerical  recitation.  It's a
look at how over the last year,  our  people  have  moved  your  company  into a
position  to  exceed  the  expectations  of  its  officer,  its  employees,  its
customers, the financial markets, and you.

                                        1

<PAGE>



         EMPOWERING  MANAGERS TO BE  EFFICIENT.  One of the key  indicators of a
bank's  success is its  efficiency  ratio.  For fiscal  year 1999,  the  Western
Security  Bank  ratio was 69%,  or 69 cents  spent for every  dollar of  revenue
earned.  That's  too high,  and  lowering  it is a major goal for the next year.
Toward that end, we've  streamlined and  re-organized our management team. We've
restructured  branches and empowered our managers to make individual  decisions.
If we are to succeed, our managers must have the flexibility to act on behalf of
their branches.

               [BOX]

               "We  want  our  management  team  to  make  sound  decisions,  to
               understand  the  implications  of those  decisions,  and how each
               relates specifically to their branch's efficiency."

         Along   with  this  new   structure   comes   accountability.   Monthly
profitability  reports  have been made  mandatory  for each  branch.  Management
training seminars have begun in earnest and will continue.  We want to equip our
management  team with the knowledge to make sound  decisions,  to understand the
implications  of those  decisions,  and how each relates  specifically  to their
branch's  efficiency.  Once that level of  understanding  is achieved,  a marked
improvement in efficiency should quickly follow.

         THE  IMPORTANCE  OF  SELLING.  As we alluded to earlier,  consumer  and
commercial  loan  numbers  increased  compared to the previous  year.  You'll be
pleased to know that in keeping with our goal of maintaining a more  "bank-like"
loan  portfolio,  commercial  and  consumer  loans  grew by 3.2%.  In  addition,
deposits  increased by $9.1  million,  with money  market and  checking  account
assets  increasing by $28.3 million.  These gains clearly helped our fiscal 1999
performance. Still, we do not intend to rest quietly.

         As a whole,  our loan  portfolio  shrank,  due to a 10.0%  decrease  in
residential  loans. More telling yet, our recently  conducted  consumer research
indicates the 47% of our retail  customers and 52% of our  commercial  customers
also bank with another bank. And many of these customers don't consider  Western
Security to be their main financial institution. Some might call this a problem,
we call it an immense opportunity for growth.

         To  capitalize,  we intend to  greatly  advance  our sales  culture  by
setting goals and offering  incentives  to employees  and  managers.  We're also
dedicated to bringing back "relationship  banking" by informing  customers about
the  expertise  of our  bankers.  Lastly,  we've  unveiled  new products to keep
customers  relying on the bank.  In 1999,  these  included  a Seniors'  checking
account  with  an  eligibility  age of 50,  financial  planning  and  investment
services through Invest Financial, and the promise of on-line banking (due to be
ready in early 2000).

         In short, if the average bank customer uses five bank services, we want
all five of them,  not just one or two.  We'd also like to sell them a couple of
others they may not know they need

                          [BOX]
                          "While improving service comes with a price tag, it is
                          small compared to the costs of insufficient service."


                                        2

<PAGE>

         MEASURING,  IMPROVING AND DELIVERING QUALITY SERVICE. Because consumers
tend to give their business to intelligent,  helpful individuals whom they like,
service might also be called  passive  selling.  Our research shows that Montana
commercial  and retail  customers  rank service issues first when choosing where
they bank.

         In the spring of 1999,  your management team embarked on a major effort
to cultivate service at every level of the bank, from commercial  lending to the
drive-up  teller window to the corporate  offices.  We've begun by measuring our
current level of service through consumer research and mystery shopping. At this
point,  the results are not complete,  bu we believe they'll shed light on where
our  service  needs to  improve.  Once we know our  shortcomings,  we'll work to
correct them through courtesy  training,  product  seminars,  sales seminars and
continuing  education  across all levels.  While improving  service comes with a
price tag, it is small compared to the costs of  insufficient  service.  This is
especially true at a time when it's vital for Western  Security Bank to maximize
each contact with customers and prospects.

         To further help, we'll be unveiling some new tools for our bankers. One
such too, Compass, will be mailed to commercial customers and prospects. Compass
is an economic quarterly newsletter covering Montana and the Northwest. Our goal
is to bring  back  relationship  banking  by  giving  our  people  the tools and
knowledge they need to create and cement relationships with customers.

         IMPROVING EFFICIENCY AND MAXIMIZING FINANCIAL RESULTS. Fiscal year 1999
was a record year for earnings per share.  Shareholders received  fourth-quarter
earnings of $0.39 per share,  annual earnings of $1.37 per share,  and dividends
of $0.62 per share.  Each of these figures is a record.  This financial  showing
was  spurred  by the  bank's  performance  as well as  actions  taken to enhance
shareholder value, specifically the Dutch Auction repurchase of 1,082,854 shares
in December of 1998,  and the overall  reduction in common stock  outstanding to
4,538,557.  Additionally,  your company maintained stockholders' equity of 9.05%
to assets, and the Board of Directors announced the intent to repurchase another
5% of WesterFed stock during the next 12 months at prevailing market prices.

                                    [BOX]
                                    "1999 was a good year for earnings per
                                    share.  Our intent is to make next year even
                                    better."

While 1999 was a good year for  earnings  per share,  our intent is to make next
year even better.  For example,  non-interest  expenses increased by $467,000 in
fiscal 1999, a number that was reflected in our efficiency  rating (though it is
important to note this was due in part to costs associated with Y2K compliance).
To curb this,  we've begun, and will continue to take a hard look at the cost of
offering  products  versus the reward gained from those  products.  As a result,
auto loans originated  through dealers and our Visa card program were terminated
in 1999.  Products  from which fees can be earned,  such as financial  planning,
were  added.  We  believe  that by  stressing  service  and sales,  and  through
restructuring,  we can  begin to  improve  our  efficiency  rating,  the  bank's
profits, and your earnings.

                                        3

<PAGE>

         ENHANCING  YOUR  BANK'S  IMAGE.   In  May  of  1999,  we  hired  a  new
communications  agency with the hope of re-tooling  our public image.  The first
step was to complete extensive  consumer  research.  This research revealed that
name  recognition for Western  Security Bank is very high (over 90%). While this
is welcome  news and shows our name change  efforts have been  successful,  more
needs to be done.

         The research also showed that most  consumers  (even our customers) had
no real opinion of the bank. Furthermore,  commercial and retail consumers could
name only the most basic of banking  products  offered by Western Security Bank.
We believe strongly that in order to increase shareholder value and achieve your
company's  potential,  the  bank  must  stand  for  something  in the  minds  of
consumers.  What will that  image be?  We want  consumers  to see our  people as
helpful,  service-oriented  individuals with a complete portfolio of products at
their  disposal.  Once  again,  the  goal is to  form a  relationship  with  our
customers, thereby gaining a greater share of their banking business.

[BOX]
"We believe strongly  that  in order to
increase shareholder value and  achieve
your company's potential, the bank must
stand  for  something  in  the minds of
consumers."

         POSITIONED  FOR THE FUTURE.  In  summary,  during  1999,  far-reaching,
difficult  decisions  were made for the  betterment of your company.  We believe
these decisions have put your bank into a sound financial position, and prepared
it for growth.
                                      [BOX]
                                      "Western Security Bank now has the people,
                                      the products and the tools to become a
                                      strong leader in banking across Montana."

         Western Security Bank now has the people, the products,  the tools, and
the focus to become a strong  leader in  Montana,  and an example of  innovative
banking throughout the Northwest.

         Clearly, we are optimistic about our future. And clearly, much work has
yet to be done. But as we move into a new century,  and undoubtedly a new era in
banking,  Western  Security Bank has never been in a better position to meet the
challenges that lie ahead.

                               /s/ Ralph K. Holliday
                               -------------------------------------------------
                               Ralph Holliday
                               President and Chief Executive Officer
                               Western Security bank


                               /s/ Lyle R. Grimes
                               -------------------------------------------------
                               Lyle R. Grimes
                               Chairman, President and Chief Executive Officer
                               WesterFed Financial Corporation

                                        4


<PAGE>

Selected Consolidated Financial and Other Data
<TABLE>
<S>                                               <C>          <C>          <C>          <C>           <C>
(Dollars in thousands, except per share data)         1999        1998          1997        1996          1995
                                                  -----------  -----------  -----------  -----------   -----------
At  June 30,
Selected Financial Condition Data:
Total assets                                      $ 1,007,349  $ 1,022,136  $   955,639  $   563,931   $   563,285
Loans receivable, net and loans held for sale         631,371      657,293      630,277      368,193       313,121
Mortgage-backed securities, net                       151,749      126,433      149,169      104,947       143,825
Investment securities, FHLB stock and other           139,271      155,351       98,885       64,108        82,375
    interest-earning assets
Deposits                                              645,549      636,441      630,869      350,212       344,155
Borrowed funds and repurchase agreements              251,185      255,186      199,236      125,838       134,704
Stockholders' equity                                   91,149      109,700      104,259       78,607        75,146
Book value per common share outstanding                 20.08        19.64        18.74        17.88         17.09
Tangible book value per common share outstanding        15.93        16.01        14.99        17.88         17.09

Years Ended June 30,                                  1999         1998         1997         1996         1995
                                                  -----------  -----------  -----------  -----------   -----------
Selected Operations Data:
Total interest income                              $  70,798   $   74,524   $   51,260   $   42,544    $  37,783
Total interest expense                                39,244       42,286       28,407       24,737       20,984
                                                   ---------   ----------   ----------   ----------    ---------
   Net interest income                                31,554       32,238       22,853       17,807       16,799
Provision for loan losses                             (1,300)        (840)        (400)          --           --
Non-interest income                                    9,298        8,381        4,685        3,312        2,670
Non-interest expense                                 (28,226)     (27,759)     (20,568)     (14,004)     (12,868)
                                                   ---------   ----------   ----------   ----------    ---------
   Income before income taxes                         11,326       12,020        6,570        7,115        6,601
Income taxes                                          (4,403)      (4,760)      (2,063)      (2,556)      (2,473)
                                                   ---------   ----------   ----------   ----------    ---------
Net income                                         $   6,923   $    7,260   $    4,507   $    4,559    $   4,128
                                                   =========   ==========   ==========   ==========    =========
Net income per common share = basic                $    1.43   $     1.37   $     1.01   $     1.08    $    1.01
                                                   =========   ==========   ==========   ==========    =========
Net income per common share = diluted              $    1.37   $     1.29   $     0.96   $     1.08    $    1.01
                                                   =========   ==========   ==========   ==========    =========
Dividends per share                                $    0.62   $     0.54   $     0.45   $     0.36    $    0.30
                                                   =========   ==========   ==========   ==========    =========
Dividend payout ratio1                                 45.25%       41.86%       46.88%       33.33%       29.70%
                                                   =========   ==========   ==========   ==========    =========

</TABLE>


<TABLE>
<S>                                                  <C>        <C>        <C>       <C>        <C>
Selected Financial Ratios and Other Data:
Return on assets (ratio of net income to average        0.70%      0.72%      0.65%     0.79%      0.76%
total assets)
Return on equity (ratio of net income to average        6.93       6.73       5.15      5.90       5.54
equity)
Interest rate spread, at end of period                  3.16       2.99       3.38      2.67       2.38
Net interest margin1                                    3.46       3.46       3.53      3.23       3.23
Ratio of non-interest expense to average total          2.84       2.74       2.98      2.43       2.47
assets
Non-performing assets to total assets, at end of        0.42       0.49       0.25      0.13       0.10
period
Total allowance for loan losses to total non-         121.13      97.44     191.01    280.42     350.35
performing assets
Stockholders' equity to total assets, at end of         9.05      10.73      10.91     13.94      13.34
period
Ratio of average interest-earning assets to average   104.69     105.74     110.57    113.58     113.51
     interest-bearing liabilities
Number of offices                                         34         34         36        19         18
<FN>
--------
1 Dividends per share divided by net income per share.
2 Net interest income divided by average interest-earning assets.
</FN>
</TABLE>
                                       5

<PAGE>

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 corporate 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.  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.  The name of
Western  Federal  Savings Bank was changed to Western  Security Bank in February
1998.

         Changes in Financial Condition, June 30, 1998 to June 30, 1999

Total assets  decreased to $1.007 billion at June 30, 1999 as compared to $1.022
billion  at June 30,  1998.  Loans  receivable  and  loans  available-  for-sale
decreased $25.9 million and investment securities,  Federal Home Loan Bank stock
and  all  other   interest   earning  assets   decreased   $16.1  million  while
mortgage-backed  securities  increased $25.3 million.  Total deposits  increased
$9.1 million and total  stockholders'  equity  decreased  $18.6 million to $91.1
million.

Loans receivable and loans available-for-sale  decreased $25.9 million to $631.4
million at June 30, 1999 from $657.3 million at June 30, 1998. The $25.9 million
decrease was primarily the result of principal  repayments of $279.0 million and
the sale of loans  available  for sale of $105.1  million that exceeded new loan
originations  of $357.9  million.  Included  in the  $357.9  million in new loan
originations  were $81.2 million in consumer loan originations and $56.6 million
in commercial and agriculture loan  originations.  The $81.2 million of consumer
loan originations  included $32.9 million of loans originated through the Bank's
indirect auto and  recreational  dealer lending program that ceased operation in
May 1999. Loans receivable at June 30, 1999 included $71.2 million of commercial
real estate loans,  $11.4 million of agriculture  real estate loans and non-real
estate  commercial  and  agriculture  loans of $40.2  million and $23.2  million
respectively  as compared to $61.4  million,  $11.1  million,  $34.4 million and
$24.0 million  respectively  at June 30, 1998.  One- to four-family  residential
loans decreased $34.3 million, or 11.1%, to $275.8 million at June 30, 1999 from
$310.1  million  at June 30,  1998.  This  decrease  is a result  of the  Bank's
business  strategy  of  having  more  commercial  bank-type  loans  in its  loan
portfolio  while  limiting the Bank's  exposure to rising  interest rates due to
reducing longer term fixed rate mortgage loans held in portfolio.

                                       6
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

Mortgage-backed securities increased $25.3 million to $151.7 million at June 30,
1999 from  $126.4  million at June 30,  1998.  The $25.3  million  increase  was
primarily  the  result  of the  purchase  of $58.5  million  of  mortgage-backed
securities  that  exceeded  principal  repayments  of $31.8  million.  The $58.5
million of purchases  were  comprised of $23.0  million of  adjustable  rate and
$35.5 million of fixed rate  mortgage-backed  securities to partially offset the
decline in the balances of real estate loans.

Investment  securities,  FHLB stock and other interest  earning assets decreased
$16.1 million to $139.3 million at June 30, 1999 from $155.4 million at June 30,
1998.  The $16.1 million  decrease was  primarily  the result of maturities  and
principal  payments of $136.0  million , the sale of $22.0 million of investment
securities available-for-sale and decreases in interest-bearing deposits and due
from banks of $4.7 million,  partially  offset by the purchase of $146.1 million
of investment  securities  and an increase of $1.3 million in FHLB stock and the
cash surrender value of life insurance policies.

Deposits  increased  $9.1 million to $645.5 million at June 30, 1999 from $636.4
million at June 30,  1998.  Checking and money market  accounts  increased  $8.4
million and $19.9 million respectively while certificates of deposit and savings
accounts  decreased  $14.6 million and $4.6 million  respectively,  reflecting a
$23.7 million increase in non-certificate of deposit accounts while certificates
of deposits  decreased $14.6 million.  This change in deposit mix is a result of
the Bank's business  strategy of having a more commercial  bank-type deposit mix
while limiting the Bank's  exposure to interest  rates due to reducing  interest
sensitive  certificates of deposit.  Interest  credited to deposit  accounts for
fiscal 1999 was $24.3 million.

Borrowed  funds and  repurchase  agreements  decreased  $4.0  million  to $251.2
million,  at June 30,  1999 from  $255.2  million at June 30,  1998.  There were
$319.6  million of  additional  new  borrowings,  of which  $62.4  million  were
advances  of four years or more to  partially  fund new  longer  term fixed rate
loans added to the portfolio, $247.2 million were less than one year in maturity
and were  used to fund  short-term  cash  requirements  and $10.0  million  were
advances  with  maturities  of one to  four  years.  Net  change  in  repurchase
agreements and principal repayments on borrowed funds were $323.6 million.

Stockholders'  equity  decreased  $18.6 million,  or 17.0 %, to $91.1 million at
June 30, 1999 from $109.7 million at June 30, 1998. This decrease was due to the
repurchase  of 1,082,854  shares of common stock at $20.00 per share for a total
of $21.9  million.  This  decrease was  partially  offset by increases in equity
resulting from net income for the fiscal year of $6.9 million,  $549,000 related
to  contributions  to Employee Stock Ownership Plan and shares earned and issued
under the  Recognition and Retention plan, and the issuance of 36,116 new common
shares with a recorded  value of $404,000  related to exercised  stock  options.
Stockholders' equity was also reduced $2.8 million for dividends declared during
the fiscal year and a decrease of $1.7 million  related to changes in unrealized
losses  associated  with  securities  classified  as  available-for-sale   being
adjusted to market value in accordance  with  Statement of Financial  Accounting
Standards No. 115.

                                       7

<PAGE>

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, 1999
                                               ---------------------------------------
                                                  Average        Interest
                                                Outstanding      Earned/       Yield/
                                                  Balance1         Paid        Rate1
                                                      (Dollars in Thousands)
<S>                                             <C>            <C>           <C>
Interest-Earnings Assets:
     Loans receivable2 3                        $  641,001     $   53,773       8.39%
     Mortgage-backed securities                    126,339          8,033       6.36
     Investments                                   128,920          8,048       6.24
     Other interest-earning assets4                  9,090            606       6.67
     Cash surrender value of life insurance          6,842            338       4.94
                                                ----------     ----------       ----
           Total interest-earning assets        $  912,192     $   70,798       7.76%
                                                ==========     ==========       ====
Interest-Bearing Liabilities:
     Certificates of deposit                    $  374,155     $   20,444       5.46%
     Savings deposits                               90,586          2,264       2.50
     Demand and NOW deposits                       112,744            876       0.78
     Money market accounts                          64,481          2,503       3.88
                                                ----------     ----------       ----
           Total deposits                          641,966         26,087       4.06
     FHLB advances and other borrowed money        229,389         13,157       5.74
                                                ----------     ----------       ----
           Total interest-bearing liabilities   $  871,355     $   39,244       4.50%
                                                ==========     ==========       ====
Net interest income                                            $   31,554
                                                               ==========
Net interest rate spread                                                        3.26%
                                                                                ====
Net interest=earning assets                     $   40,837
                                                ==========
Net interest margin 5                                                           3.46%
                                                                                ====
Average interest=earning assets to average
  interest=bearing liabilities                                     104.69%
                                                               ==========
-------------------
<FN>

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.
</FN>
</TABLE>

                                       8
<PAGE>

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

<TABLE>
<CAPTION>

                                             Year Ended June 30, 1998              Year Ended June 30, 1997
                                        ----------------------------------   --------------------------------------
                                           Average    Interest                  Average      Interest
                                         Outstanding   Earned/    Yield/      Outstanding     Earned/    Yield/
                                          Balance6      Paid       Rate1        Balance1       Paid       Rate1
                                        ------------ ---------- ----------- --------------- ----------- -----------
                                                                  (Dollars in Thousands)
<S>                                      <C>          <C>       <C>            <C>            <C>      <C>
Interest-Earnings Assets:
     Loans receivable7 8                 $ 662,536    $ 56,261     8.49%       $ 451,771      $ 37,923    8.39%

     Mortgage-backed securities            140,994       9,676     6.86          116,836         8,185    7.01
     Investments                           113,412       7,580     6.68           61,241         3,884    6.34
     Other interest-earning assets9          8,702         675     7.76           13,732         1,045    7.61
     Cash surrender value of life
     insurance                               6,540         332     5.08            4,187           223    5.33
                                         ---------    --------   ------        ---------      --------  ------
        Total interest-earning assets    $ 932,184    $ 74,524     7.99%       $ 647,767      $ 51,260    7.91%
                                         =========    ========   ======        =========      ========  ======
Interest-Bearing Liabilities:
     Certificates of deposit             $ 380,726    $ 21,824     5.73%       $ 264,588      $ 14,986    5.66%
     Savings deposits                       96,966       2,658     2.74           76,829         2,223    2.89
     Demand and NOW deposits               106,392       1,209     1.14           66,203           883    1.33
     Money market accounts                  52,496       2,112     4.02           31,873         1,146    3.60
                                         ---------    --------   ------        ---------      --------  ------
           Total deposits                  636,580      27,803     4.37          439,493        19,238    4.38
     FHLB advances and other
     borrowed money                        244,964      14,483     5.91          146,413         9,169    6.26
                                         ---------    --------   ------        ---------      --------  ------
           Total interest-bearing
           liabilities                   $ 881,544    $ 42,286     4.80%       $ 585,906      $ 28,407    4.85%
                                         =========    ========   ======        =========      ========  ======
Net interest income                                   $ 32,238                                $ 22,853
                                                      ========                                ========
Net interest rate spread                                           3.19%                                  3.06%
                                                                 ======                                 ======
Net interest-earning assets              $  50,640                             $  61,861
                                         =========                             =========
Net interest margin 10                                             3.46%                                  3.53%
                                                                 ======                                 ======
Average interest-earning assets to
average interest-bearing liabilities                    105.74%                                 110.57%
                                                      ========                                ========
<FN>
--------
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.
</FN>
</TABLE>

                                       9
<PAGE>
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>
                                                1999 vs 1998                             1998 vs 1997
                                   ---------------------------------------  --------------------------------------
                                   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)
<S>                                <C>       <C>       <C>      <C>          <C>      <C>       <C>     <C>
Interest-Earning Assets:
    Loans receivable                $ (1,829) $  (682)  $   23   $ (2,488)   $17,692   $   443   $ 203   $18,338
    Mortgage-backed securities        (1,006)    (712)      75     (1,643)     1,693      (167)    (35)    1,491
    Investments                        2,107   (1,282)    (357)       468      3,596        51      49     3,696
    Other interest-earning assets       (386)     741     (424)       (69)       (63)     (327)     20      (370)
    Cash surrender value of life
    insurance                             15       (9)      --          6        125       (10)     (6)      109
                                    --------  -------   ------   --------    -------   -------   -----   -------
         Total interest-earning
         assets                     $ (1,099) $(1,944)  $ (683)  $ (3,726)   $23,043   $   (10)  $ 231   $23,264
                                    ========  =======   ======   ========    =======   =======   =====   =======
Interest-Bearing Liabilities:
    Certificates of deposit         $   (377) $(1,020)  $   17   $ (1,380)    $6,578   $   180   $  80   $ 6,838
    Savings deposits                    (175)    (235)      16       (394)       583      (117)    (31)      435
    Demand and NOW deposits               72     (382)     (23)      (333)       536      (131)    (79)      326
    Money market accounts                482      (74)     (17)       391        742       136      88       966
                                    --------  -------   ------   --------    -------   -------   -----   -------
         Total Deposits                    2   (1,711)      (7)    (1,716)     8,439        68      58     8,565
    FHLB advances and other
    borrowed money                      (921)    (431)      26     (1,326)     6,070      (434)   (322)    5,314
                                    --------  -------   ------   --------    -------   -------   -----   -------
         Total interest-bearing
         liabilities                $   (919) $(2,142)  $   19   $ (3,042)   $14,509   $  (366)  $(264)  $13,879
                                    ========  =======   ======   ========    =======   =======   =====   =======
Changes to net interest income      $   (180) $   198   $ (702)  $   (684)    $8,534   $   356   $ 495   $ 9,385
                                    ========  =======   ======   ========    =======   =======   =====   =======

</TABLE>

                                       10

<PAGE>
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.
                                                              At June 30,
                                                       ---------------------
                                                        1999   1998     1997
                                                       ------ ------  ------
Weighted average yield on:
 Loans receivable 1  2                                   8.01%  8.34%   8.49%
 Mortgage-backed securities                              6.48   6.73    7.27
 Investments                                             6.09   6.32    6.73
 Other interest-earning assets                           5.46   6.15    5.58
 Cash surrender value of life insurance                  5.07   5.22    5.11
                                                       ------ ------  ------
 Combined weighted average yield on interest-
          earning assets                                 7.46   7.78    8.08
                                                       ------ ------  ------
Weighted average rate paid on:
 Certificates of deposit                                 5.21   5.77    5.52
 Savings deposits                                        2.34   2.77    2.80
 Demand and NOW deposits                                 0.65   0.96    1.15
 Money market accounts                                   3.69   4.10    3.94
                                                       ------ ------  ------
          Total deposits                                 3.83   4.38    4.24
 FHLB advances and other borrowed money                  5.49   5.81    6.11
 Collateralized mortgage obligations                    11.48  11.48   11.37
                                                       ------ ------  ------
 Combined weighted average rate paid on interest-
          bearing liabilities                            4.30   4.79    4.70
                                                       ------ ------  ------
 Interest rate spread                                    3.16%  2.99%   3.38%
                                                       ====== ======  ======

--------
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.

                                       11

<PAGE>
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:


                                               Year Ended June 30,
                                -----------------------------------------------
Components of net income:                1999              1998          1997
                                -------------------- ---------------- ---------
                                                  (In Thousands)
                                    Amount   Change   Amount   Change   Amount
                                ---------- --------- -------- ------- ---------
Interest income                  $ 70,798  $(3,726)  $74,524  $23,264 $ 51,260
Interest expense                   39,244   (3,042)   42,286   13,879   28,407
                                 --------  -------   -------  ------- --------
  Net interest income              31,554     (684)   32,238    9,385   22,853
Provision for loan losses          (1,300)    (460)     (840)    (440)    (400)
Non-interest income                 9,298      917     8,381    3,696    4,685
Non-interest expense              (28,226)    (467)  (27,759)  (7,191) (20,568)
                                 --------  -------   -------  ------- --------
Income before income taxes         11,326     (694)   12,020    5,450    6,570
Income taxes                       (4,403)    (357)   (4,760)   2,697   (2,063)
                                 --------  -------   -------  ------- --------
  Net income increase (decrease) $  6,923  $  (337)  $ 7,260  $ 2,753 $  4,507
                                 ========  =======   =======  ======= ========


        Comparison of Operating Results for the Years Ended June 30, 1999
                                and June 30, 1998

General. Net income decreased $337,000 to $6.9 million for the fiscal year ended
June 30,  1999 as  compared  to $7.3  million for the fiscal year ended June 30,
1998.  The  $337,000  decrease in net income was  comprised of a decrease in net
interest income of $684,000,  a $467,000 increase in non-interest  expense and a
$460,000  increase  in  provision  for loan  losses,  offset by an  increase  in
non-interest  income of  $917,000  and a  decrease  in  income  tax  expense  of
$357,000.  The  interest  rate spread  increased  to 3.16% at June 30, 1999 from
2.99% at June 30,  1998.  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  "Quantitative and
Qualitative Disclosures About Market Risk."

Interest Income. Interest income decreased $3.7 million to $70.8 million for the
fiscal  year ended June 30,  1999 from $74.5  million  for the fiscal year ended
June 30, 1998. This decrease  resulted from a decrease in the average balance of
interest  earning  assets of $20.0 million to $912.2  million during fiscal 1999
from $932.2  million  during  fiscal 1998 and a decrease in the average yield on
interest-earning  assets to 7.76% during  fiscal 1999 from 7.99%  during  fiscal
1998.

Interest  earned on loans  receivable  decreased $2.5 million due primarily to a
$21.5  million  decrease in the average  balance of loans  receivable  to $641.0
million  during fiscal 1999 from $662.5 million during fiscal 1998. In addition,
the average  yield on loans  decreased  to 8.39%  during  fiscal 1999 from 8.49%
during fiscal 1998. The decrease in the average balance of loans  receivable was
the  result of the sale  $105.0  million  of loans  available-for-sale  and loan
repayments  of $279.0  million  that  exceeded new loan  originations  of $357.9
million. The decline in interest rates during the fiscal year contributed to the
decline in the yield on the loan portfolio.

Interest  earned  on  mortgage-backed  securities  decreased  $1.6  million  due
primarily to a $14.7 million decrease in the average balance of  mortgage-backed
securities  outstanding to $126.3 million during fiscal 1999 from $141.0 million
during  fiscal  1998.  The  decrease in the average  balance of  mortgage-backed
securities  was  primarily  the result of a general  decline in  interest  rates
during the fiscal year that resulted in repayments of principal of $31.8 million
and also  contributed  to the decrease in the average  yield on  mortgage-backed
securities to 6.36% during fiscal 1999 from 6.86% during fiscal 1998.


                                       12
<PAGE>

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

Interest earned on investment  securities  increased $468,000 due primarily to a
$15.5 million increase in the average balance of investment securities to $128.9
million  during the fiscal year 1999 from $113.4 million during fiscal 1998. The
average yield earned on investment  securities  decreased to 6.24% during fiscal
year 1999 from 6.68%  during the same period last year due to a general  decline
in interest rates during fiscal 1999.

Interest  Expense.  Interest expense  decreased $3.1 million to $39.2 million in
fiscal 1999 from $42.3  million in fiscal 1998.  This  decrease  resulted from a
decrease in the average balance of interest-bearing liabilities of $10.1 million
to $871.4  million during fiscal 1999 from $881.5 million during fiscal 1998 and
a decrease in the average  rate paid on  interest-bearing  liabilities  to 4.50%
during fiscal 1999 from 4.80% during fiscal 1998.  Interest  expense on deposits
decreased $1.7 million  primarily due to a decrease in the rate paid on deposits
to 4.06% during fiscal 1999 from 4.37% during fiscal 1998 . The average  balance
of deposits  increased  $5.4 million to $642.0  million  during fiscal 1999 from
$636.6 million during fiscal 1998.  Interest  expense on FHLB advances and other
borrowed money decreased $1.3 million to $13.2 million in fiscal 1999 from $14.5
million  in  fiscal  1998.  The  average  rate paid on FHLB  advances  and other
borrowed  money also  decreased  to 5.74%  during  fiscal 1999 from 5.91% during
fiscal 1998 and was primarily the result of a general  decline in interest rates
during fiscal 1999.

Provision for Loan Losses.  The provision for loan losses increased  $460,000 to
$1.3  million for fiscal year 1999 from  $840,000 for the same period last year.
The  increased  provision  for loan losses is primarily  related to the consumer
loan dealer  finance  program.  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.  At June 30, 1999, the
Company had $4.2 million of non-performing  assets  (representing 0.42% of total
assets) compared to $5.0 million at June 30, 1998  (representing  0.49% of total
assets).  At June 30,  1999,  the  Company  had  allowance  for loan  losses  to
non-performing  assets of  121.13%  as  compared  to  97.44%  at June 30,  1998.
Management's  evaluation of the adequacy of its loan loss reserves,  the quality
and  composition  of the loan  portfolio  and  economic  conditions  in  Montana
resulted in the $1.3 million 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.   For  additional
information, see "Loan Quality."

Non-interest  Income.  Non-interest income increased $917,000 to $9.3 million in
fiscal 1999 from $8.4  million  during  1998.  The  $917,000  increase  resulted
primarily from increases in fees and service fees, net gain on sale of loans and
securities  available-for-sale  and other operating income of $350,000,  $96,000
and $471,000 respectively. The low interest rate environment that existed during
fiscal 1999 produced strong  mortgage loan refinance  activity which resulted in
$3.7   million   of  loan   origination   fees  and   gains  on  sale  of  loans
available-for-sale  as compared  to $3.2  million for the same period last year.
Seasonal  fluctuations  in loan  volume  and a  decline  in loan  volume  due to
increased  interest rates could adversely  affect  origination fees and gains on
sale of loans  available-for-  sale.  Included in non-interest income for fiscal
1999 is a net gain of $314,000  from the sale of the Bank's credit card program,
the sale of a building,  life insurance  proceeds and the write down of mortgage
servicing rights that reduced servicing fee income on loans serviced for others.

Non-interest  Expense.  Non-interest expense increased $467,000 to $28.2 million
in fiscal 1999 from $27.8  million in fiscal  1998.  Compensation  and  employee
benefits and equipment and furnishings  expense increased  $546,000 and $467,000
respectively  while occupancy,  marketing and other expense decreased  $118,000,
$173,000 and $276,000 respectively.  Included in non-interest expense for fiscal
1999 is $834,000 related to year 2000 readiness  expenditures,  early retirement
incentives for certain executive officers,  non-recurring  professional fees and
data center conversion costs.

Income Taxes.  Income tax expenses decreased $357,000 to $4.4 million for fiscal
1999 from $4.8  million for fiscal  1998.  The  $357,000  decrease in income tax
expense was  primarily  the result of the decrease in income  before  income tax
expense of  $694,000  and the  non-tax  deductibility  of  $666,000  of goodwill
amortization for fiscal 1999.

                                       13

<PAGE>

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

        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.

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.

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.

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 $98.6  million in the average  balance
of FHLB advances and other  borrowed  money to $245.0 million during fiscal 1998
from $146.4  million  during  fiscal  1997.  The  increase in FHLB  advances was
primarily to fund the growth in investment securities.

                                       14
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

Provision for Loan Losses. 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.

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 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.

                                  Loan Quality

Total  non-performing  assets decreased  $800,000 to $4.2 million at fiscal year
end June 30,  1999  from $5.0  million  at fiscal  year end June 30,  1998.  The
$800,000 decrease was primarily in real estate loans. Non-performing assets as a
percentage  of total  assets  decreased  to 0.42% at June 30, 1999 from 0.49% at
June 30, 1998. The 0.42% is substantially  less than the national  composite for
thrifts of 0.73% at March 31, 1999,  which is the latest  available  information
reported by the Office of Thrift  Supervision.  In  addition  to  non-performing
loans and foreclosed  assets as of June 30, 1999, 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, 1999 and June 30, 1998 - Provision  for Loan  Losses."  The
Company does not own any trading assets.

                                       15

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

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  1999  $105.1  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,  1999,  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 1999, these
swaps and caps had the effect of  increasing  the Bank's  cost of funds.  During
fiscal 1999, the increase in the cost of funds  attributable  to these swaps and
caps was $111,000. The Bank's interest rate caps expire in 1999 and 2000.

At June 30,  1999 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

                                       16

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

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") and an Interest  Rate
Sensitivity Measure 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.  Interest Rate Sensitivity  Measure is the magnitude of the decline in
an  institution's  NPV ratio that occurs as a result of an adverse rate shock of
200 basis points.  The measure  equals the difference  between an  institution's
pre-shock  NPV ratio and its  post-shock  NPV ratio,  and is  expressed in basis
points.  The Bank's  Asset/Liability  Management  Committee has  established the
minimum level of interest rate risk 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.

Presented  below, as of June 30, 1999, 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.

                            Board                 Actual at June 30, 1999
   Change in Market        Minimum                  as Measured by OTS
    Interest Rate        Permissible
    (Basis Points)        NPV Rate
-------------------  ---------------  -----------------------------------------
                                            NPV as a % of PV of assets
-------------------  ---------------  -----------------------------------------
                                                                   Change
                                            NPV Ratio          (Basis Points)
-------------------  ---------------  ---------------------- ------------------
      +300                    6.00                    6.51%           -271
      +200                    7.00                    7.55%           -167
      +100                    8.00                    8.48%            -74
      -0-                     8.50                    9.22%            -0-
      -100                    9.00                    9.71%            +49
      -200                    9.50                   10.05%            +84
      -300                   10.00                   10.40%           +118


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  7.55%  NPV  ratio,
representing  a 167 basis  point  change  from the 9.22%  pre-shock  NPV  ratio,
indicates a risk rating of minimal for the Bank at June 30, 1999.

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 118 basis point increase in NPV in a
declining  rate  environment  and a 271 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 271
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.

                                       17

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

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.

                                       18

<PAGE>
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, 1999, 1998 and 1997.


                                                   For the Year Ended June 30,
                                                -------------------------------
                                                  1999       1998       1997
                                                               (In Thousands)
-------------------------------------------------------------------------------
Net Income                                       $ 6,923    $  7,260  $   4,507
Adjustments to reconcile net income to net
 cash provided by operating activities            32,740      23,475     19,598
-------------------------------------------------------------------------------
Net cash provided by operating activities         39,663      30,735     24,105
Net cash (used) by investing activities            4,606     (51,101)   (21,642)
Net cash provided (used)
 by financing activities                         (44,391)     32,275      1,397
-------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
 equivalents                                        (122)     11,909      3,860
Cash and cash equivalents at
 beginning of period                              29,068      17,159     13,299
-------------------------------------------------------------------------------
Cash and cash equivalents at end of period      $ 28,946    $ 29,068   $ 17,159
-------------------------------------------------------------------------------

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,  1999,  1998 and 1997,  the  Company's  loan  originations
totaled $357.9 million,$366.7 million and$226.8 million, respectively.

Purchases of mortgage-backed  securities totaled $58.5 million, $7.0 million and
$98.4 million for fiscal years ended June 30, 1999, 1998 and 1997, respectively.
Purchases of investment  securities  totaled $146.1 million,  $148.8 million and
$109.7  million  for the  fiscal  years  ended  June 30,  1999,  1998 and  1997,
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, 1999, 1998 and 1997, 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
$573.9  million,  $474.2 million,  and $313.5 million for the respective  fiscal
years.

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 $44.4 million for the fiscal year ended June
30, 1999.

                                       19

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

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 4%. The
Bank's regulatory liquidity ratio was 16.5% at June 30, 1999.

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, 1999, the Bank's regulatory liquid assets totaled $117.0 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 advances. At June 30, 1999, the Bank
had outstanding  borrowings of $251.2 million,  which included $244.1 million of
FHLB   advances,   $6.7  million  of  repurchase   agreements  and  $435,000  of
collateralized mortgage obligations and other borrowed money.

At June 30, 1999, the Bank had  outstanding  commitments  to originate  loans of
$22.6 million,  of which $4.7 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, 1999 totaled $273.6 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  Note  2  of  the  Notes  to
Consolidated  Financial Statements for information  regarding limitations of the
Bank's ability to pay dividends to the Company.


                                       20
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

                         Year 2000 Readiness Disclosure

General.  The Year 2000 ("Y2K") issue  confronting  the Bank and its  suppliers,
customers,  customer's  suppliers,  and competitors  centers on the inability of
computer systems to recognize the Year 2000. Many existing computer programs and
systems  originally  were programmed with six digit dates that provided only two
digits to identify the calendar  year in the date field.  With the impending new
millennium,  these  programs and computers  will recognize "00" as the year 1900
rather than the year 2000.  The Year 2000 issue affects  virtually all companies
and organizations.

Financial  institution  regulators  recently have increased their focus upon Y2K
compliance issues and have issued guidance  concerning the  responsibilities  of
senior management and directors.  The Federal Financial Institution  Examination
Council  ("FFIEC")  has issued  several  interagency  statements  on Y2K Project
Management Awareness.  These statements require financial institutions to, among
other things, examine the Y2K implications of their reliance on vendors and with
respect  to data  exchange  and the  potential  impact of the Y2K issue on their
customers,   suppliers,  and  borrowers.  These  statements  also  require  each
federally  regulated financial  institution to survey its exposure,  measure its
risk,  and prepare a plan to address  the Y2K issue.  In  addition,  the federal
banking regulators have issued safety and soundness guidelines to be followed by
insured depository  institutions,  such as the Bank, to assure resolution of any
Y2K problems.  The federal  banking  agencies have asserted that Y2K testing and
certification is a key safety and soundness issue in conjunction with regulatory
examinations and, thus, that an institution's  failure to address  appropriately
the Y2K issue could result in supervisory action, including the reduction of the
institution's  supervisory  rating,  the denial of applications  for approval of
mergers or acquisitions, or the imposition of civil monetary penalties.

Risk.  Like  most  financial  institution  service  providers,  the Bank and its
operations may be significantly  affected by the Y2K issue due to its dependence
on technology and date-sensitive  data. Computer software and hardware and other
equipment,  both within and outside the Bank's direct  control and third parties
with whom the Bank electronically or operationally interfaces (including without
limitation its customers and third party vendors), are likely to be affected. If
computer systems are not modified in order to be able to identify the Year 2000,
many computer  applications could fail or create erroneous results. As a result,
many  calculations  which  rely  on date  field  information  such as  interest,
payments,  or due dates, and other operating  functions,  could generate results
which are significantly misstated, and the Bank could experience an inability to
process transactions,  prepare statements,  or engage in similar normal business
activities.  Likewise,  under  certain  circumstances,  a failure to  adequately
address  the Y2K issue  could  adversely  affect  the  viability  of the  Bank's
suppliers and creditors and the creditworthiness of its borrowers.  Thus, if not
adequately addressed, the Y2K issue could result in a significant adverse impact
on the Bank's  operations  and, in turn,  its financial  condition and result of
operations.

State of Readiness.  During July 1997,  the Bank  formulated its plan to address
the Y2K issue. Since that time, the Bank has taken the following steps:

     o    Established senior management advisory and review responsibilities;  o
          Completed a Bank-wide  assessment of applications and system software;
          o Built an  internal  tracking  database  for  application  and vendor
          software;
     o    Developed compliance plans and schedules for all lines of business;
     o    Initiated vendor compliance verification;
     o    Began  awareness  and  education   activities  for  employees  through
          existing internal communication channels;
     o    Developed a process to respond to customer  inquiries  as well as help
          educate customers on the Y2K issue;
     o    Converted  to new  certified  Y2K primary  data system  including:  1)
          loans,  deposit,  and general ledger software;  2) data center service
          provider; and 3) PC-based hardware and software throughout the Bank;
     o    Developed contingency plans for each mission critical system;
     o    Established a business remediation plan;
     o    Developed systems verification procedures for after rollover; and
     o    Assessed the Bank's Y2K cash needs.

                                       21

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

The following paragraphs summarize the phases of the Bank's Y2K plan:

Awareness  Phase.  The Bank  formally  established a Y2K plan headed by a senior
manager,  and a Y2K committee  was assembled for  management of the Y2K project.
The Y2K  committee  created a plan of action that  includes  milestones,  budget
estimates,  strategies,  and methodologies to track and report the status of the
project.  Members of the Y2K committee also received regulatory publications and
attended  conferences and information sharing sessions to gain more insight into
the Y2K issue and potential strategies for addressing it.

Assessment  Phase. The Bank's  strategies were further developed with respect to
how the  objectives  of the Y2K plan would be achieved,  and a Y2K business risk
assessment  was made to  quantify  the  extent of the Bank's  Y2K  exposure.  An
assessment of applications  and software  (which is periodically  updated as new
technology is acquired and as systems  progress through  subsequent  phases) was
developed  to  identify  and  monitor  Y2K  readiness  for  information  systems
(hardware,  software,  utilities,  and vendors) as well as environmental systems
(security systems, facilities, etc.). Systems were prioritized based on business
impact and available alternatives.  Mission critical systems supplied by vendors
were researched to determine Y2K readiness.  Where  Y2K-ready  versions were not
immediately  available,  the Bank is monitoring vendor renovation progress.  The
Bank  identified  functional  replacements  which  were  either  up-gradable  or
currently Y2K-ready,  and a formal plan developed to repair, upgrade, or replace
all mission critical systems.

Beginning in August 1998,  all credits  greater than $250,000 were evaluated for
Y2K exposure by the relationship account officer using a questionnaire developed
by the Bank's credit  administration staff. Because the Bank's loan portfolio is
primarily  real  estate  based and is  diversified  with  regard  to  individual
borrowers and types of  businesses,  and the Bank's  primary  market area is not
significantly  dependent  on one  employer or  industry.  As part of the current
credit approval  process,  all new and renewed loans are evaluated for Y2K risk.
During the course of these  evaluations,  Bank personnel  have met  individually
with each of its larger  borrowers to discuss and obtain  information  regarding
each borrower's dependence on information technology and third party vendors and
the nature of steps  being  taken by the  borrowers  to address  their Y2K risk.
While the Bank will  continue to monitor the  progress  being made by its larger
borrowers  in  addressing  their  own Y2K  risk,  to date the Bank is  generally
satisfied  with these  customers  responses  to the Bank's  inquiries  and their
progress in addressing their Y2K risk.

Renovation  Phase.  The Bank's  assessment of  applications  and system software
revealed  that Y2K  upgrades  were  available  for all vendor  supplied  mission
critical systems.  All of the Y2K-ready  versions have been delivered and placed
into  production and have entered the  validation  process with the exception of
the Bank's utility company. The Bank has not yet received sufficient information
from this vendor to predict the outcome of their Y2K efforts.

Validation  Phase.  The  validation  phase is  designed  to test the  ability of
hardware and software to accurately  process date  sensitive  data. The Bank has
conducted  validation  testing  of each  mission  critical  system.  During  the
validation  testing, no significant Y2K problems were identified relating to any
mission critical systems.

Implementation  Phase. The Bank's plan calls for putting  Y2K-ready systems into
production before having actually  completed Y2K validation  testing.  Y2K-ready
modified or upgraded  versions have been  installed  and placed into  production
with respect to all missions  critical  systems with the exception of the Bank's
utility company.


Bank  Resources  Invested.  The Bank's Y2K  committee  was  assigned the task of
ensuring  that all  systems  across the Bank are  identified,  analyzed  for Y2K
compliance,  corrected,  if necessary,  tested and changes implemented.  The Y2K
committee members  represent all functional areas of the Bank,  including senior
management,  accounting,  central operations,  commercial/agricultural  lending,
internal audit, and information systems. The  Vice-President-Audit/Compliance is
the Y2K coordinator  and heads the Y2K committee.  The Bank's Board of Directors
oversees  the Y2K plan and  provides  guidance  and  resources  to, and receives
monthly updates from the Y2K coordinator.

Management currently estimates total costs of the Bank's Year 2000 compliance to
be less than  $280,000;  $189,000 of which has already been  incurred.  The Bank
does not believe 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

                                       22
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
--------------------------------------------------------------------------------

affect its future financial results, or cause its reported financial information
not to be necessarily indicative of future financial condition.

There  are  numerous  risks  associated  with  the  Year  2000,   including  the
possibility  of a failure  of third  parties  to  remediate  their own Year 2000
issues.  The  failure  of  third  parties,  which  the  Bank  has  financial  or
operational  relationships  with,  to remediate  their  technology  systems in a
timely manner could result in a material  financial risk to the Bank.  While the
Bank exercises no control over third parties, the Bank's Year 2000 plan includes
a survey  assessment of critical third party responses and remediation plans and
their potential impact to the Bank.

Contingency  Plans.  During the assessment  phase, the Bank developed back-up or
contingency  plans for each of its mission critical  systems.  These contingency
plans were reviewed for adequacy and employee training was conducted. Validation
of the contingency  plans will be substantially  completed by September 30, 1999
and reviewed by the Bank's Internal Audit Department.  The Bank also developed a
Remediation Plan for the Corporate offices.

System  Verification   Procedures  for  After  Rollover:   Systems  verification
procedures  are a critical  phase of the Bank's  project  management  process to
ensure the integrity of all data. Validation will occur on all core applications
and testing will also be performed on system software.  In addition,  testing to
validate  historical  or archive data will be  conducted.  Systems  verification
procedures will be conducted for all core  applications on January 2, 2000 (Year
end-December 31st);  January 4, 2000 (1st business day-January 3rd); February 1,
2000  (Month-end-January  31st);  and March 1, 2000 (Leap  year-February  29th).
System  verification  procedures  for all system  software  will be conducted on
January 1, 2000 (Year end-December 31st).

Cash and Liquidity Plan: Management has established a cash and liquidity plan to
ensure that  adequate  funds are  available for the Bank's Y2K needs and details
both a primary and secondary source of funding for Y2K cash needs in addition to
alternative  sources  of funds.  Y2K cash  needs will be  reviewed  and  updated
monthly to account  for any  changes in the  environment  related to Y2K. In the
event  additional  funds are needed to meet Y2K  demands,  the Bank will  obtain
these funds in the most cost effective way.

                                       23

<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, 1999 and 1998, and the
related   consolidated   statements   of   income,   stockholders'   equity  and
comprehensive  income,  and cash  flows for each of the years in the  three-year
period ended June 30, 1999.  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, 1999 and 1998, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period ended June 30, 1999 in  conformity  with  generally  accepted  accounting
principles.






Billings, Montana
July 23, 1999

                                       24
<PAGE>


WesterFed Financial Corporation and Subsidiaries

Consolidated Balance Sheets
--------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)
                                                                June 30,
                                                            1999        1998
Assets
Cash and due from banks............................... $    25,867      19,440
Interest-bearing bank deposits........................       3,079       9,628
                                                         ---------   ---------
        Cash and cash equivalents.....................      28,946      29,068

Interest-bearing deposits.............................       1,985         100
Investment securities available-for-sale..............     103,441     108,511
Investment securities, at amortized
    cost (estimated fair value of
    $9,255 in 1999 and $16,974 in 1998)...............       9,235      16,847
Mortgage-backed securities available-for-sale.........      68,029      24,135
Mortgage-backed securities, at
    amortized cost (estimated fair value of
    $85,252 in 1999 and $104,962 in 1998).............      83,720     102,298
Loans available-for-sale..............................       3,740       6,922
Loans receivable, net.................................     627,631     650,371
Interest receivable...................................       7,635       7,778
Stock in Federal Home Loan Bank of Seattle, at cost...      14,615      13,560
Premises and equipment, net...........................      28,269      30,089
Core deposit intangible...............................       3,741       4,518
Goodwill..............................................      15,096      15,762
Cash surrender value of life insurance policies.......       6,916       6,705
Other assets..........................................       4,350       5,472
                                                         ---------   ---------

                                                       $ 1,007,349   1,022,136
                                                         =========   =========

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

Liabilities and Stockholders' Equity
Deposits.............................................. $   645,549     636,441
Repurchase agreements.................................       6,702       6,233
Borrowed funds........................................     244,483     248,953
Advances from borrowers for taxes and insurance.......       3,302       4,052
Income taxes - current and deferred...................       1,552       2,289
Accrued interest payable..............................       6,156       4,480
Accrued expenses and other liabilities................       8,456       9,988
                                                         ---------   ---------
        Total liabilities.............................     916,200     912,436
                                                         ---------   ---------

Stockholders' equity:
    Preferred stock, $.01 par value,
        5,000,000 shares authorized;
        none outstanding..............................          -           -
    Common stock, $.01 par value,
        10,000,000 shares authorized;
        5,872,807 shares issued, 4,538,557
        outstanding in 1999; 5,836,691
        shares issued, 5,585,295
        outstanding in 1998...........................          56          56
    Paid-in capital...................................      69,572      68,923
    Common stock acquired by ESOP/RRP.................      (2,216)     (2,520)
    Treasury stock, at cost ..........................     (25,319)     (3,461)
    Accumulated other comprehensive income (loss).....      (1,717)         23
    Retained earnings.................................      50,773      46,679
                                                         ---------   ---------

        Total stockholders' equity....................      91,149     109,700
                                                         ---------   ---------

Commitments and contingencies
                                                       $ 1,007,349   1,022,136
                                                         =========   =========

Book value per common share outstanding............... $      20.08      19.64
                                                         ==========  =========

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

                                       25


<PAGE>


WesterFed Financial Corporation and Subsidiaries

Consolidated Statements of Income
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
                                                        Year Ended June 30,
                                                 -------------------------------
                                                   1999       1998        1997
                                                 --------   --------    --------
Interest income:
    Loans receivable.......................... $   53,773     56,261      37,923
    Mortgage-backed securities................      8,033      9,676       8,185
    Investment securities.....................      8,048      7,580       3,884
    Interest-bearing deposits.................        606        675       1,045
    Other.....................................        338        332         223
                                                 --------   --------    --------
        Total interest income.................     70,798     74,524      51,260
                                                 --------   --------    --------

Interest expense:
    NOW and money market demand...............      3,379      3,321       2,029
    Savings...................................      2,264      2,658       2,223
    Certificates of deposit...................     20,444     21,824      14,986
                                                 --------   --------    --------
                                                   26,087     27,803      19,238
    Borrowed funds and repurchase agreements..     13,157     14,483       9,169
                                                 --------   --------    --------
        Total interest expense................     39,244     42,286      28,407
                                                 --------   --------    --------

        Net interest income...................     31,554     32,238      22,853
Provision for loan losses.....................      1,300        840         400
                                                 --------   --------    --------
        Net interest income after
                provision for loan losses          30,254     31,398      22,453
                                                 --------   --------    --------

Non-interest income:
    Loan origination fees on loans sold.......      2,633      2,268         667
    Service fees..............................      4,471      4,486       3,034
    Net gain on sale of loans and
        securities available-for-sale.........      1,149      1,053         678
    Other.....................................      1,045        574         306
                                                 --------   --------    --------
        Total non-interest income.............      9,298      8,381       4,685
                                                 --------   --------    --------

Non-interest expense:
    Compensation and employee benefits........     13,695     13,149       9,342
    Net occupancy expense of premises.........      2,035      2,153       1,373
    Equipment and furnishings.................      2,313      1,846       1,009
    Data processing...........................      1,627      1,644         962
    Deposit insurance premium.................        344        358         517
    SAIF assessment...........................         -          -        2,297
    Intangibles amortization..................      1,443      1,391         532
    Marketing and advertising.................        616        789         571
    Other.....................................      6,153      6,429       3,965
                                                 --------   --------    --------
        Total non-interest expense............     28,226     27,759      20,568
                                                 --------   --------    --------

        Income before income taxes............     11,326     12,020       6,570

Income taxes..................................      4,403      4,760       2,063
                                                 --------   --------    --------

        Net income............................ $    6,923      7,260       4,507
                                                 ========   ========    ========

Net income per common share:
    Basic..................................... $     1.43        1.37       1.01
                                                 ========   =========   ========

    Diluted................................... $     1.37        1.29        .96
                                                 ========   =========   ========

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

                                       26
<PAGE>

<TABLE>
<CAPTION>

WesterFed Financial Corporation and Subsidiaries

Consolidated Statements of Stockholders' Equity and Comprehensive Income
-------------------------------------------------------------------------------------------------------------------
 (Dollars in thousands, except per share data)                                 Accumulated
                                                                                  other
                                                                                 compre-
                                             Common   Paid-in   ESOP/ Treasury   hensive      Retained
                                              stock   capital   RRP    stock   income (loss)  earnings     Total
                                            -------- -------- ------- -------- ------------- ----------- ----------

<S>                                          <C>     <C>     <C>       <C>        <C>        <C>         <C>
Balance at June 30, 1996.................    $   46   45,451  (3,558)   (3,079)    (226)       39,973      78,607

Comprehensive income:
    Net income...........................         -        -       -         -        -         4,507       4,507
    Unrealized gain on securities
        available-for-sale, net
        of reclassification adjustment...         -        -       -         -      191             -         191
                                                                                                           ------
          Total comprehensive income.....                                                                   4,698

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 $200....        10   21,052       -         -        -             -      21,062
    Issuance of options
        allowing holders to
        acquire 94,696 shares............         -      873       -         -        -             -         873
Cash dividends declared ($.45 per share).         -        -       -         -        -        (2,166)     (2,166)
                                            -------  -------  ------  --------  -------      --------     -------
Balance at June 30, 1997................         56   67,941  (2,936)   (3,081)     (35)       42,314     104,259

Comprehensive income:
    Net income...........................         -        -       -         -        -         7,260       7,260
    Unrealized gain on securities
      available-for-sale, net
      of reclassification adjustment.....         -        -       -         -       58             -          58
                                                                                                          -------
          Total comprehensive income.....                                                                   7,318

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
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

Comprehensive income:
    Net income...........................         -        -       -         -        -         6,923       6,923
    Unrealized loss on securities
      available-for-sale, net
      of reclassification adjustment.....         -        -       -         -   (1,740)            -      (1,740)
                                                                                                          -------
          Total comprehensive income                                                                        5,183

Purchase of 1,082,854 shares of
    treasury stock, net of
    acquisition costs of $200............         -        -       -   (21,858)       -             -     (21,858)
ESOP shares committed to be released.....         -      245     227         -        -             -         472
Amortization of RRP......................         -        -      77         -        -             -          77
Common stock options exercised
     (36,116 shares).....................         -      404       -         -        -             -         404
Cash dividends declared ($.62 per share).         -        -       -         -        -        (2,829)     (2,829)
                                            -------  -------  ------  --------  -------      --------     -------
Balance at June 30, 1999.................   $    56   69,572  (2,216)  (25,319)  (1,717)       50,773      91,149
                                            =======  =======  ======  ========  =======      ========     =======
<FN>

-----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

                                       27
<PAGE>

<TABLE>
<CAPTION>

WesterFed Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows
-----------------------------------------------------------------------------------------
(Dollars in thousands)
                                                                  Year Ended June 30,
                                                          -------------------------------
                                                              1999       1998      1997
                                                          ----------  --------    -------
<S>                                                       <C>        <C>        <C>
Net cash provided by operating activities...............  $   39,663    30,735     24,105
                                                          ----------  --------    -------

Cash flows from investing activities:
    Net change in interest-bearing deposits.............      (1,885)    1,900      1,000
    Purchases of:
        FHLB stock......................................           -    (1,129)         -
        Investment securities...........................           -    (5,483)    (9,956)
        Investment securities available-for-sale........    (146,138) (143,279)   (79,804)
        Mortgage-backed securities......................           -         -     (5,950)
        Mortgage-backed securities available-for-sale...     (58,499)   (6,990)      (983)
    Proceeds from maturities:
        Investment securities...........................       7,636    16,316      9,351
        Investment securities available-for-sale........     127,651    70,545     61,289
    Proceeds from sales of:
        Investment securities available-for-sale........      21,961    16,065      5,192
        Mortgage-backed securities available-for-sale...           -     3,222     31,937
        Real estate owned...............................         204        -           -
    Principal payments from:
        Investment securities available-for-sale........         748       437        385
        Mortgage-backed securities......................      18,782    15,661      8,897
        Mortgage-backed securities available-for-sale...      12,981    10,955     14,113
    Net change in loans receivable......................      21,557   (24,516)   (43,911)
    Proceeds from sales of premises and equipment.......         611     1,162          -
    Purchases of premises and equipment.................      (1,003)   (5,682)    (2,426)
    Purchase of life insurance policies.................           -      (285)         -
    Acquisition of Security Bancorp, net of cash and
        cash equivalents acquired of $16,013............           -         -    (10,776)
                                                          ----------  --------    -------
           Net cash provided by (used in)
                 investing activities...................       4,606   (51,101)   (21,642)
                                                          ----------  --------    -------
Cash flows from financing activities:
    Net change in deposits..............................     (15,212)  (21,366)   (25,093)
    Net change in repurchase agreements.................         469    (1,553)       974
    Proceeds from borrowings............................     319,560   344,165    136,090
    Payments on borrowings..............................    (324,078) (286,719)  (108,606)
    Net change in advances from borrowers for taxes
        and insurance...................................        (750)      299       (295)
    Dividends paid to stockholders......................      (2,926)   (2,729)    (1,867)
    Proceeds from exercise of options and stock issuances        404       557        194
    Payments to acquire treasury stock..................     (21,858)     (379)         -
                                                          ----------  --------    -------
    Net cash provided by (used in) financing activities      (44,391)   32,275      1,397
                                                          ----------  --------    -------

Net increase (decrease) in cash and cash equivalents....        (122)   11,909      3,860
Cash and cash equivalents at beginning of year..........      29,068    17,159     13,299
                                                          ----------  --------    -------
Cash and cash equivalents at end of year................  $   28,946    29,068     17,159
                                                          ==========  ========    =======

Supplemental  disclosure of cash flow  information:
  Payments  during the period for:
        Interest........................................  $   12,856    13,900      8,942
        Income taxes, net...............................       3,933     4,080      3,014
                                                          ==========  ========    =======
<FN>

--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

                                       28
<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.,
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. 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.

At June 30, 1999, the Company was required to have aggregate reserves, exclusive
of cash on hand, with the Federal Reserve Bank of approximately $2,260.

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.

                                       29

<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 are 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 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.

                                       30
<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 $370 and
$421 of real estate and other personal property acquired through  foreclosure at
June 30, 1999 and 1998, 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  tangible and intangible assets 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,  1999  and 1998  was  $1,499  and  $833,
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,
1999 and 1998 was $1,867 and $1,090, respectively.

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.

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.

                                       31
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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

Comprehensive Income

The  Company  adopted  the  provisions  of  Statement  of  Financial  Accounting
Standards (SFAS) No. 130,  "Reporting  Comprehensive  Income"  effective July 1,
1998.  SFAS No. 130  requires  companies  to report  comprehensive  income which
includes  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 unrealized
gains and losses on  available-for-sale  securities.  SFAS No. 130 requires only
additional  disclosures in the consolidated  financial  statements;  it does not
affect the Company's  financial  position or results of  operations.  Prior year
financial  statements have been  reclassified to conform to the  requirements of
SFAS No. 130.


Earnings Per Share

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.

Reclassifications

Certain  reclassifications  have been made to the 1998  financial  statements to
conform with the 1999 presentation.

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

(2)   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.

The OTS has amended its capital distribution regulation effective April 1, 1999.
Associations  that are  subsidiaries  of a savings and loan holding company must
file a notice with the OTS at least 30 days before the proposed declaration of a
dividend  or  approval  of the  proposed  capital  distribution  by its Board of
Directors.  In addition,  the savings institution now must obtain prior approval
from the OTS if it fails to meet  certain  regulatory  conditions  or if,  after
giving  effect  to  the  proposed   distribution,   the  institution's   capital
distributions  in a calendar year would exceed its  year-to-date net income plus
retained net income for the preceding two years or the association  would not be
at least adequately capitalized.

The Bank may also not declare or pay a cash dividend 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 a liquidation  account,  which
was established at the date the Bank completed its conversion from a mutual to a
stock form of savings bank.

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 undercapitalized. The Bank's
total risk-based,  Tier 1 and core capital ratios were 12.26%, 11.44% and 7.23%,
respectively,  at June 30, 1999.  The Bank's total  risk-based,  Tier 1 and core
capital ratios were 13.81%, 13.03% and 8.27%, respectively, at June 30, 1998.
At June 30, 1999 and 1998, the Bank was categorized as "well-capitalized."

                                       32
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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


The  Bank's  compliance  with  capital  requirements  at June 30,  1999 and 1998
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, 1999:
  Total capital (to risk-weighted
      assets).................... $  76,384     12.26%  $   49,830     8.00%  $  62,287     10.00%
  Core (Tier 1) capital (to
      risk-weighted assets)......    71,275     11.44       24,915     4.00      37,372      6.00
  Core (Tier 1) capital (to
      adjusted assets)...........    71,275      7.23       39,447     4.00      49,309      5.00
  Tangible capital (to tangible
      assets)....................    71,275      7.23       14,793     1.50      14,793      1.50
                                    =======    ======     ========  =======     =======    ======

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
                                    =======    ======     ========  =======     =======    ======
</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, 1999 and 1998:
                                                            1999        1998
                                                          --------     -------
Capital per consolidated financial statements..........   $ 91,149     109,700
 Less:Nonqualifying equity.............................     (2,160)     (6,263)
      Goodwill and other intangibles...................    (18,837)    (20,280)
      Nonqualifying purchased mortgage loan servicing..       (602)     (1,062)
      Unrealized losses (gains) on certain securities
          available-for-sale...........................      1,725         (11)
                                                          --------     -------

Tangible and Core capital..............................     71,275      82,084

 Add:   general valuation allowance....................      5,109       4,891
                                                          --------     -------

Risk-based capital.....................................   $ 76,384      86,975
                                                          ========     =======

                                       33
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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


(3)   INVESTMENT SECURITIES

The amortized  cost and estimated  fair values of investment  securities at June
30, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>

                                                                     1999
                                               -----------------------------------------------
                                                             Gross       Gross       Estimated
                                               Amortized   unrealized  unrealized       fair
                                                  cost       gains       losses         value
                                               ---------     ------      -------       -------
<S>                                            <C>           <C>         <C>           <C>
Investment securities held-to-maturity:
Corporate obligations.......................   $   6,985         16           (6)        6,995
Other investments...........................       2,250         10            -         2,260
                                               ---------     ------      -------       -------
    Total investment securities
    held-to-maturity........................   $   9,235         26           (6)        9,255
                                               =========     ======      =======       =======
Investment securities available-for-sale:
Federal agency obligations..................   $  81,323          2       (1,340)       79,985
Corporate obligations.......................      23,509         32         (167)       23,374
Other.......................................           3         79            -            82
                                               ---------     ------      -------       -------
    Total investment securities
    available-for-sale......................   $ 104,835        113       (1,507)      103,441
                                               =========     ======      =======       =======
</TABLE>

<TABLE>

                                                                     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>

                                       34
<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, 1999, by contractual maturity, are shown below:
                                                                     Fair
                                                     Cost            value
Investment securities held-to-maturity
Due in:
    Less than one year........................   $   3,032           3,047
    One to five years.........................       3,991           3,986
    Five to ten years.........................         567             567
    After ten years...........................       1,645           1,655
                                                   -------         -------

           ...................................   $   9,235           9,255
                                                   =======         =======

Investment securities available-for-sale
Due in:
    Less than one year........................   $  10,859          10,894
    One to five years.........................      91,598          90,212
    Other.....................................       2,378           2,335
                                                   -------         -------

           ...................................   $ 104,835         103,441
                                                   =======         =======


Gross proceeds from sales of investment securities  available-for-sale for 1999,
1998 and 1997 were  $21,961,  $16,065  and  $5,192,  respectively.  These  sales
resulted  in  gross  gains  of  $89,  $68  and  $18  in  1999,  1998  and  1997,
respectively,  and  gross  losses  of $0,  $0 and $34 in 1999,  1998  and  1997,
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.

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

(4)   MORTGAGE-BACKED SECURITIES

A summary of mortgage-backed securities at June 30, 1999 and 1998 is as follows:

                                                        1999
                                     -------------------------------------------
                                                 Gross       Gross     Estimated
                                     Amortized unrealized  unrealized    fair
                                       cost       gains      losses      value
                                     --------  ----------  ----------  ---------
Mortgage-backed securities
     held-to-maturity:
Collateralized mortgage
obligations - federal agency.......  $ 43,292    1,142         (8)      44,426
FHLMC   ...........................    27,587      219        (26)      27,780
GNMA...............................    10,774       21         (6)      10,789
FNMA...............................        26       -         (26)          -
Other..............................     2,041      218         (2)       2,257
                                     --------    -----      -----      -------
Total mortgage-backed securities
   held-to-maturity................  $ 83,720    1,600        (68)      85,252
                                     ========    =====      =====      =======


                                       35
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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

                                                        1999
                                     -------------------------------------------
                                                 Gross       Gross     Estimated
                                     Amortized unrealized  unrealized    fair
                                       cost       gains      losses      value
                                     --------  ----------  ----------  ---------
Mortgage-backed securities
     available-for-sale:
Collateralized mortgage
     obligations - federal agency.. $22,444        13          (647)     21,810
FHLMC   ...........................  15,216        30          (201)     15,045
GNMA...............................   8,381         -          (151)      8,230
FNMA...............................  17,442        35          (456)     17,021
Other..............................   5,923         -             -       5,923
                                    -------     -----       -------     -------
 Total mortgage-backed securities
   available-for-sale.............. $69,406        78        (1,455)     68,029
                                    =======     =====       =======     =======

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

Mortgage-backed securities
     available-for-sale:
Collateralized mortgage
     obligations - federal agency  $  3,711         -            (7)      3,704
FHLMC   ..........................   12,265       112          (109)     12,268
GNMA..............................      438         4             -         442
FNMA..............................    7,742        49           (70)      7,721
                                   --------     -----       -------     -------
  Total mortgage-backed securities
     available-for-sale........... $ 24,156       165          (186)      24,135
                                   ========     =====       =======     =======

Gross proceeds from sales of mortgage-backed  securities  available-for-sale for
1999, 1998 and 1997 were $0, $3,222 and $31,937, resulting in gross gains of $0,
$40 and $76 and gross losses of $0, $11 and $19, 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 16.6 years at June 30, 1999.


Mortgaged  backed  securities with amortized cost of $31,674 and $34,799 at June
30, 1999 and 1998,  respectively,  were  pledged to secure  public  deposits and
securities sold under  repurchase  agreements.  The approximate  market value of
securities  pledged  at  June  30,  1999  and  1998  was  $31,949  and  $35,431,
respectively.

Mortgage-backed  securities  with a recorded value of  approximately  $1,039 and
$1,474 have been pledged to secure  collateralized  mortgage obligations at June
30, 1999 and 1998, respectively.


                                       36
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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


(5)   LOANS RECEIVABLE

A  summary  of loans  receivable  at June 30,  1999  and 1998 is  summarized  as
follows:

                                                        1999              1998
------------------------------------------------------------------------------
Loans secured by real estate:
    1-4 residential units.......................... $  275,792          310,062
    5 or more residential units....................     41,619           42,716
    Construction...................................     12,542           17,523
    Commercial.....................................     71,221           61,415
    Agriculture....................................     11,421           11,066
    Other nonresidential...........................      4,445            2,735
    FHA insured or VA guaranteed...................     10,122            8,601
                                                      --------         --------
        Total real estate loans ...................    427,162          454,118
Less:
    Net deferred loan origination fees.............     (1,144)          (1,453)
    Undisbursed loan funds.........................     (3,611)          (5,178)
    Purchased discounts............................       (954)          (1,159)
    Allowance for loan losses......................     (2,219)          (2,177)
                                                      --------         --------
        Net real estate loans......................    419,234          444,151

Other loans:
    Commercial (Non real estate)...................     40,237           34,384
    Agriculture (Non real estate)..................     23,193           24,036
    Loans to depositors, secured by deposits.......      1,745            3,194
    Indirect consumer loans........................     66,406           64,287
    Other consumer loans - real estate secured.....     39,031           54,619
    Other consumer loans...........................     44,385           35,352
    Allowance for loan losses......................     (2,860)          (2,730)
                                                      --------         --------
        Net other loans............................    212,137          213,142
                                                      --------         --------

                                                       631,371          657,293
Less loans available-for-sale......................     (3,740)          (6,922)
                                                      --------         --------

           ........................................ $  627,631          650,371
                                                      ========         ========

A summary of nonperforming loans at June 30, 1999, 1998 and 1997 follows:

                                           1999          1998          1997
                                        --------       -------       ------

Nonaccrual loans......................  $  3,049         3,989        1,517
Loans 90 days or more delinquent
    and still accruing................       775           626          836
                                          ------       -------       ------

    Total nonperforming loans.........  $  3,824         4,615        2,353
                                          ======       =======       ======

Contractual interest due..............  $    223           271           71
                                          ======       =======       ======

Interest income  recognized on nonaccrual  loans during the years ended June 30,
1999,  1998  and  1997  was  insignificant.  At June  30,  1999,  there  were no
commitments to lend additional  funds to borrowers whose loans are classified as
nonperforming.

                                       37
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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


Included  in  impaired  loans at June 30,  1999 and 1998 are $1,837 and  $2,485,
respectively,  of loans for which no impairment  allowance was deemed necessary.
The average  recorded  investment in impaired loans for the years ended June 30,
1999, 1998 and 1997 was approximately $2,161, $1,715 and $483, respectively.

An  analysis of the  allowance  for loan losses for each of the years ended June
30, 1999, 1998 and 1997 is as follows:

                                             1999         1998          1997
                                             ----         ----          ----

Balance at beginning of year...........  $  4,907         4,651        2,005
Reserves acquired......................        -             -         2,481
Provision charged to operations........     1,300           840          400
Charge-offs............................    (1,228)         (637)        (253)
Recoveries.............................       100            53           18
                                           ------       -------       ------

Balance at end of year.................  $  5,079         4,907        4,651
                                           ======       =======       ======
--------------------------------------------------------------------------------

(6)   INTEREST RECEIVABLE

A summary of interest receivable at June 30, 1999 and 1998 is as follows:

                                                   1999         1998
                                                ----------   ---------

Loans........................................   $  4,736         5,520
Mortgage-backed securities...................        795           776
Investment securities........................      2,096         1,475
Interest-bearing deposits....................          8             7
                                                --------        ------

                                                $  7,635         7,778
                                                ========        ======
--------------------------------------------------------------------------------

(7)   PREMISES AND EQUIPMENT

Premises and equipment at June 30, 1999 and 1998 is summarized as follows:

                                                      1999         1998
                                                   ----------   ----------

Land............................................   $  5,822         5,593
Office buildings and leasehold improvements.....     26,609        26,887
Furniture, fixtures and equipment...............     10,887        10,789
                                                    -------       -------
                                                     43,318        43,269
Less accumulated depreciation and amortization..    (15,049)      (13,180)
                                                    -------       -------

                                                    $28,269        30,089
                                                    =======       =======

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

                                       38

<PAGE>
WesterFed Financial Corporation and Subsidiaries

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


(8)   DEPOSITS

Deposits at June 30, 1999 and 1998 are summarized as follows:

                                                1999            1998
                                            -------------     ---------

Certificates of deposit..................   $   366,569         381,223
Savings accounts.........................        89,975          94,557
Money market accounts....................        75,398          55,464
NOW accounts.............................        77,899          74,673
Noninterest-bearing demand...............        35,708          30,524
                                              ---------        --------

                                            $   645,549         636,441
                                              =========        ========

Certificates of deposit at June 30, 1999 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%..................... $   2,872        6        4       23        8     -      2,913
4.00% to 4.99%.....................   123,584   13,290    3,115      180      369     -    140,538
5.00% to 5.99%.....................    78,800   28,909   11,773    1,760    2,013     33   123,288
6.00% to 6.99%.....................    26,263   15,070    1,869    4,575       95     -     47,872
7.00% to 8.99%.....................     2,720       -         7        6       -      -      2,733
                                      -------  -------  -------  -------  -------   ----  --------
                                      234,239   57,275   16,768    6,544    2,485     33   317,344
Jumbo ($100,000 or more)...........    39,391    6,910    1,761      963      200     -     49,225
                                      -------  -------  -------  -------  -------   ----  --------

    Total certificates of deposit.. $ 273,630   64,185   18,529    7,507    2,685     33   366,569
                                      =======  =======  =======  =======  =======   ====  ========

</TABLE>

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

(9)   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,
1999  and  1998,   securities  sold  under  agreements  to  repurchase  averaged
approximately  $6,568 and $8,113,  respectively.  The maximum outstanding at any
month end during the years ended June 30, 1999 and 1998 was approximately $7,211
and $9,645, respectively.

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

(10)  BORROWED FUNDS

Advances  from the  FHLB  and  other  borrowings  at June 30,  1999 and 1998 are
summarized as follows:

                                                             1999       1998
                                                         ----------  ---------

Advances from Federal Home Loan Bank of Seattle.......   $  244,048   248,133
Collateralized mortgage obligations...................          242       511
8.5% contract payable.................................          193       309
                                                           --------   -------

                                                         $  244,483   248,953
                                                           ========   =======

                                       39
<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
4.62% to 8.11%.  Principal  requirements are presented at the earlier of Call or
maturity as follows:

         Years ending June 30
             2000.................................................   $  144,700
             2001.................................................       19,984
             2002.................................................       45,658
             2003.................................................        9,405
             2004.................................................        8,239
             Thereafter...........................................       16,062
                                                                       --------

                                                                     $  244,048
                                                                       ========

Advances  from the FHLB are  secured by  pledges  of FHLB  stock of $14,615  and
$13,560 at June 30, 1999 and 1998, respectively, and a blanket assignment of the
Bank's  unpledged,  qualifying  mortgage loans,  mortgage-backed  securities and
investment securities.

The contract  payable requires monthly payments of principal and interest of $3,
maturing in November 2016. The contract payable is secured by real estate.

The Bank has amounts  available  for  borrowing  under the FHLB Cash  Management
Advance  Program up to  $49,728.  There were no  amounts  outstanding  under the
program as of June 30, 1999.

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

(11)  COMPREHENSIVE INCOME

A  summary  of  the  reclassification   amounts  and  related  tax  effects  for
comprehensive income follows:
                                                         Year Ended June 30,
                                                     --------------------------
                                                       1999      1998     1997
                                                     -------   ------   -------
Disclosure of reclassification amount:
    Unrealized and realized holding gains
        (losses) arising during the period,
        net of income tax expense (benefit)
        of $(1,032), $73 and $133
        in 1999, 1998 and 1997, respectively.......  $(1,685)     118       216
    Lessreclassification  adjustment
        for gains  included in net income,
        net of income tax of $34, $37 and
        $16 in 1999, 1998 and 1997, respectively...      (55)     (60)      (25)
                                                     -------   ------   -------
Net unrealized gain (loss) on
        available-for-sale investment securities     $(1,740)      58       191
                                                     =======   ======   =======
--------------------------------------------------------------------------------

(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. The Company has provided a deferred tax
liability on the excess deductions which are payable over six years beginning in
1997.

                                       40
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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


A summary of the  provision  for income taxes for the years ended June 30, 1999,
1998 and 1997 follows:

                                       1999         1998          1997
                                       ----         ----          ----
Federal:
    Current.....................   $  3,469         3,582        2,095
    Deferred....................        141           315         (408)
                                     ------       -------       ------
                                      3,610         3,897        1,687
                                     ------       -------       ------
State:
    Current.....................        762           753          440
    Deferred....................         31           110          (64)
                                     ------       -------       ------
                                        793           863          376
                                     ------       -------       ------

                                   $  4,403         4,760        2,063
                                     ======       =======       ======

The  effective  tax rates for 1999,  1998 and 1997 are  38.8%,  39.6% and 31.4%,
respectively.  A  reconciliation  between  income  tax  expense  and the  amount
computed by  multiplying  the applicable  statutory  federal income tax rate for
1999, 1998 and 1997 is as follows:
                                                1999         1998          1997
                                                ----         ----          ----

Computed "expected" Federal tax expense...  $  3,851         4,086        2,234
Earnings on life insurance policies.......      (147)          (99)         (53)
State income taxes, net of
    Federal income tax benefit............       523           567          248
Reversal of deferred taxes - cash
    surrender value increases.............         -            -          (397)
Goodwill amortization.....................       226           215           68
Tax credit................................       (75)          (77)         (74)
Other.....................................        25            68           37
                                              ------       -------       ------

                                            $  4,403         4,760        2,063
                                              ======       =======       ======

The tax effects of temporary  differences  that give rise to deferred tax assets
and liabilities at June 30, 1999 and 1998 are as follows:
                                                           1999          1998
Deferred tax assets:
 Loans, principally allowance for loan losses.........  $   1,954        1,887
 Purchased excess tax bases...........................      1,165        1,283
 Loan, principally differences in bases...............        367          446
 Deposits, principally difference in bases............         45          113
 Investment securities, principally
     differences in bases.............................        639          669
 Employee benefits, principally deferred
     compensation and accrued vacation................      1,315        1,043
 Market value adjustment of investment
     securities and mortgage-backed
     securities available-for-sale....................      1,054           -
 Other................................................         -           231
                                                          -------       ------
     Gross deferred income tax assets.................      6,539        5,672
                                                          -------       ------

                                       41

<PAGE>
WesterFed Financial Corporation and Subsidiaries

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

                                                        1999         1998
Deferred tax liabilities:
    FHLB stock dividends..........................  $   3,407        3,002
    Core deposit intangible.......................      1,438        1,738
    Deferred loan fees and origination costs......        367          315
    Life insurance contract income................         48           43
    Loans, due primarily to tax bad debt
        reserves in excess of base year
        amount....................................        488          612
    Loan servicing premium........................        125          277
    Fixed assets, principally difference
        in bases and depreciation.................      1,572        1,475
    Market value adjustment of investment
        securities and mortgage-backed
        securities available-for-sale.............         -            14
    Other.........................................        376          374
                                                      -------       ------
        Gross deferred income tax liabilities.....      7,821        7,850
                                                      -------       ------

        Net deferred income tax liability.........  $   1,282        2,178
                                                      =======       ======

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 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,  1999,  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.  Total rental expense for the years ended June 30, 1999, 1998
and 1997 was $198, $197 and $114, respectively.  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, 1999 are as follows:

        Years ended June 30,                                 Amount

                2000                                       $   194
                2001                                           148
                2002                                           136
                2003                                           136
                2004                                           136
             Thereafter                                      1,416
                                                           -------
 Total minimum future rental expense                       $ 2,166
                                                           =======

                                       42

<PAGE>
WesterFed Financial Corporation and Subsidiaries

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

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, 1999 are as follows:

        Years ended June 30,                                 Amount

                2000                                       $   808
                2001                                           403
                2002                                           210
                2003                                           103
                2004                                            53
             Thereafter                                          -
                                                           -------
 Total minimum future rental income                        $ 1,577
                                                           =======

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.

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

(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.  Dividends on unallocated ESOP shares are
reflected as compensation expense.

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 $472, $652 and $492 during the years ended June 30, 1999, 1998 and 1997,
respectively.


                                       43
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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

The ESOP shares as of June 30, 1999 and 1998 were as follows:

                          1999        1998
                        --------    --------

Allocated shares....     166,774     141,344
Unallocated shares..     188,159     213,589
                        --------    --------
  Original ESOP
    common shares...     354,933     354,933
Shares distributed to
  participants......     (24,756)    (15,820)
                        --------    --------
Common shares held
  by ESOP...........     330,177     339,113
                        ========    ========

At June 30, 1999,  the fair value of the  unallocated  shares was  approximately
$3,082.

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).

At June 30, 1997,  the Company had granted all options  available  (the options)
under the Stock Option Plan. The term of the outstanding  options may not exceed
10 years from the date the  options are  granted.  Stock  options are  generally
granted at an option  price of not less than the fair market  value at the grant
date. For incentive  stock options,  a maximum of 10,000 shares per Stock Option
Plan  participant  are  exercisable  per year.  All stock  options  awarded were
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 in the form of stock options during the
years  ended June 30, 1999 and 1997 which  allow  holders to acquire  50,000 and
57,085 common  shares,  respectively.  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 Board of Directors  of the Company  periodically  grants stock  options on a
discretionary  basis  to  employees.  During  the  year  ended  June  30,  1999,
discretionary  options  were  granted  for the option  holder to acquire  10,000
shares. There were no such grants in the years ended June 30, 1998 and 1997.

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 $77, $188 and $499 has been recorded for the years ended
June 30, 1999, 1998 and 1997, respectively.


                                       44
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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

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

                                                     Common
                                                     Shares      Exercise Price
Year ending June 30, 1997:
    Options outstanding, beginning of year.........  419,707    $10.00 - 12.13
    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

Year ending June 30, 1999:
    Granted........................................   60,000         16.16
    Exercised......................................  (36,116)     3.65 - 12.72
                                                    --------

    Outstanding, end of year.......................  558,710    $ 3.65 - 21.50
                                                    ========

Information  regarding  options  outstanding  and  exercisable  at June 30, 1999
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   13,350    $   5.94            3.1      13,350      $  5.94
   10.00 - 12.72  413,191       10.26            4.6     413,191        10.26
   16.75 - 21.50  132,169       18.53            8.7      56,969        19.30
                  -------                                -------

                  558,710                                483,510
                  =======                                =======

No  compensation  cost has been  recognized  in the  consolidated  statements of
income 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:

                                        1999         1998          1997
                                        ----         ----          ----

Net income, as reported..........   $  6,923         7,260        4,507
                                      ======       =======       ======

Net income, pro forma............   $  6,842         7,228        4,367
                                      ======       =======       ======

Income per common share:
    As reported:
    Basic  ......................   $    1.43          1.37         1.01
                                      =======      ========      =======
    Diluted......................   $    1.37          1.29          .96
                                      =======      ========      =======

    Pro forma:
    Basic  ......................   $    1.42          1.36          .98
                                      =======      ========      =======
    Diluted......................   $    1.35          1.29          .93
                                      =======      ========      =======

                                       45
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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

The fair value of the options  granted  during the years ended June 30, 1999 and
1997 was estimated using the Black-Scholes model with the following assumptions:
for 1999; dividend yield of 2.6%;  expected life of 5 years;  volatility of 22%;
and a  risk-free  interest  rate of  5.6%;  for  1997;  dividend  yield of 2.4%;
expected  life of 7 years;  volatility  of 19% and a risk-free  interest rate of
6.4%. No options were granted  during the year ended June 30, 1998.  The average
fair  value of  options  granted  during  1999 and 1997  was  $8.11  and  $6.07,
respectively, 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 $33, $20 and $48 for the years ended
June 30, 1999, 1998 and 1997, respectively.

Former Security Bank employees were included in a noncontributory multi-employer
trustee defined benefit pension plan.  Actuarially determined pension costs were
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 1997,  the employees of the former  Security Bank
were included in the Company's  non-contributory  multi-employer defined benefit
pension plan.

Deferred Compensation Agreements

The Company has entered into deferred  compensation  agreements with certain key
employees that provide for  predetermined  periodic payments over 10 to 15 years
upon retirement or death. The agreements specify a vesting schedule, 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 $154, $346 and $86
for 1999, 1998 and 1997, 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.   Company
contributions match 50% of an employee's contributions, up to a maximum of 3% of
the participating employee's wages. Savings plan expense for 1999, 1998 and 1997
totaled approximately $166, $184 and $103, respectively.

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 Company has in  particular  classes of financial
instruments.

                                       46
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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

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.


Commitments to Extend Credit

Commitments to extend credit at June 30, 1999 are as follows:

Fixed rate..............................................  $   4,745
Variable rate...........................................     17,840
                                                            -------

 ........................................................  $  22,585
                                                            =======


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, 1999:

   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.

                                       47
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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


(16)  RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standard  (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, 2000.

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

(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 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
                                                             1999     1998      1997
                                                         ---------  --------  --------

<S>                                                      <C>        <C>       <C>
Net income.............................................  $   6,923    7,260     4,507
Adjustments to reconcile net income to
    net cash provided by operating activities:
    Amortization of:
        Deferred loan origination fees.................       (470)    (440)     (439)
        Premiums and discounts on securities,
        loans and borrowings...........................       (632)    (900)   (1,138)
    RRP deferred compensation..........................         77      188       499
    ESOP shares committed to be released...............        472      652       492
    Provision for loan losses..........................      1,300      840       400
    Net (gain) loss on sales of:
        Mortgage-backed securities
        available-for-sale.............................          -      (29)      (57)
        Investment securities available-
        for-sale.......................................        (89)     (68)       16
        Loans..........................................     (1,060)    (956)     (637)
        Real estate owned..............................        (13)      -         -
        Premises and equipment.........................       (276)     (17)       -
    Depreciation and amortization of
        premises and equipment.........................      2,488    2,147     1,208
    Goodwill and core deposit amortization.............      1,443    1,391       532
    Federal Home Loan Bank stock dividends.............     (1,055)    (975)     (712)
    Origination of loans available-for-sale............   (105,129) (96,520)  (54,396)
    Proceeds from sales of loans
        available-for-sale.............................    109,370   94,254    55,300
    Decrease (increase) in interest receivable.........        143     (821)     (562)
    Interest expense credited to deposit accounts......     24,320   26,938    18,704
    Changes in other assets and liabilities............      1,851   (2,209)      388
                                                         ---------  -------   -------

        Net cash provided by operating activities......  $  39,663   30,735    24,105
                                                           =======  =======   =======
</TABLE>

                                       48
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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


(18)  NON-CASH INVESTING AND FINANCING ACTIVITIES

On June 24, 1999, the Company declared a dividend of approximately $908 which is
recorded in accrued expenses and other liabilities at June 30, 1999.

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 $839 which is
recorded in accrued expenses and other liabilities at June 30, 1997.

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 1999 or 1998.

Real  estate  owned  acquired  through  foreclosures  of  loans  receivable  was
approximately  $559 and $546 for 1999 and  1998,  respectively.  No real  estate
owned was acquired in fiscal 1997.

Treasury  stock of  approximately  $1 and $2 was recorded due to  forfeitures of
unearned  RRP  shares  for  fiscal  1998 and 1997,  respectively.  There were no
forfeitures in fiscal 1999.

In  conjunction  with the  acquisition of Security  Bancorp,  the Company issued
common  shares  valued at $21,062 and stock  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, 1999 and 1998. 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.

                                       49
<PAGE>
WesterFed Financial Corporation and Subsidiaries

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


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.

The estimated fair values of financial instruments at June 30 are as follows:
<TABLE>
<CAPTION>

                                                         1999                     1998
                                                ---------------------     --------------------
                                                Carrying       Fair       Carrying      Fair
                                                  value        value        value       value
                                                ----------  ---------     ----------  --------
<S>                                             <C>         <C>          <C>          <C>
Financial assets:
    Cash and cash equivalents.............      $ 28,946      28,946       29,068       29,068
    Interest-bearing deposits.............         1,985       1,985          100          100
    Investment securities available-for-sale     103,441     103,441      108,511      108,511
    Investment securities.................         9,235       9,255       16,847       16,974
    Mortgage-backed securities
        available-for-sale................        68,029      68,029       24,135       24,135
    Mortgage-backed securities............        83,720      85,252      102,298      104,962
    Loans available-for-sale..............         3,740       3,740        6,922        6,922
    Loans, net............................       627,631     624,583      650,371      654,037
    Stock in Federal Home Loan Bank of Seattle    14,615      14,615       13,560       13,560

Financial liabilities:
    Deposits..............................       645,549     644,574      636,441      637,529
    Repurchase agreements.................         6,702       6,702        6,233        6,233
    Borrowed funds........................       244,483     243,467      248,953      249,792

Off-balance-sheet items:
    Interest rate cap agreements: notional
        amount of $15,000.................            -            9           -            24
                                                ========     =======     ========      =======

</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.

                                       50
<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 1999, 1998 and 1997 are presented below:

                                            1999         1998          1997
                                            ----         ----          ----

Origination fees......................  $  2,633         2,268          667
Servicing fees........................       412           795          694
Net gains on sales of loans...........     1,060           956          637
                                          ------        ------        -----

Total mortgage banking revenues.......  $  4,105         4,019        1,998
                                          ======        ======        =====

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated  financial  statements.  The unpaid  balances  of these  loans were
approximately  $223,400,  $260,300 and $268,600 at June 30, 1999, 1998 and 1997,
respectively.

Mortgage  servicing  rights are  included  in other  assets and an  analysis  of
activity is as follows:

                                               1999         1998          1997
                                               ----         ----          ----

Balance at beginning of fiscal year....... $  1,062         1,239          132
Additions.................................       23            37        1,221
Amortization..............................     (213)         (214)        (114)
Provision for impairment..................     (270)            -            -
                                             ------        ------        -----

Balance at end of fiscal year............. $    602         1,062        1,239
                                             ======        ======        =====

At June 30, 1999, carrying value approximates fair value.

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

(21)  WESTERFED INFORMATION

The  summarized   condensed   financial   information  for  WesterFed  Financial
Corporation  as of and for the years ending June 30, 1999 and 1998 are presented
below:

Condensed Balance Sheets                                     1999        1998
                                                             ----        ----

Assets:
    Cash and cash equivalents............................ $     116        17
    Interest-bearing and due from banks deposits.........       383       402
    Investment securities available-for-sale.............     1,099     5,146
    Taxes receivable.....................................         5       336
    Other assets.........................................        46        47
    Investment in subsidiaries...........................    90,426   104,897
                                                            -------   -------

           Total assets.................................. $  92,075   110,845
                                                            =======   =======

Liabilities and Stockholders' Equity:
    Other liabilities.................................... $     926     1,145
    Stockholders' Equity:
        Common stock.....................................        56        56
        Additional paid-in capital.......................    69,572    68,923
        Common stock acquired by ESOP/RRP................    (2,216)   (2,520)
        Treasury stock at cost...........................   (25,319)   (3,461)
        Accumulated other comprehensive income (loss)....    (1,717)       23
        Retained earnings................................    50,773    46,679
                                                            -------   -------
           Total stockholders' equity....................    91,149   109,700
                                                            -------   -------

           Total liabilities and stockholders' equity.... $  92,075   110,845
                                                            =======   =======
                                       51

<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                                1999        1998
                                                              ----        ----

Dividends from the Bank................................... $ 20,000       5,000
Interest income...........................................      266         233
Non-interest expense......................................     (653)       (677)
                                                            -------     -------
    Income before income taxes............................   19,613       4,556
Income tax benefit........................................      120          79
                                                            -------     -------
    Income before undistributed
    earnings of subsidiaries..............................   19,733       4,635

Undistributed (distributions in excess of)
    earnings of subsidiaries..............................  (12,810)      2,625
                                                            -------     -------
    Net income............................................ $  6,923       7,260
                                                            =======     =======

Condensed Statements of Cash Flows

Operating Activities:
    Net income............................................ $  6,923       7,260
    Adjustments to reconcile net income
        to net cash provided by
        operating activities:
        Distributions in excess of
           (equity in undistributed) earnings
           of subsidiaries................................   12,810      (2,625)
        Amortization of premiums on
           investment securities
           available-for-sale.............................     (223)       (182)
        ESOP shares committed to be released..............      472         652
        Increase in other assets
           and liabilities, net...........................      213        (686)
                                                           --------     -------
               Net cash provided by
               operating activities.......................   20,195       4,419
                                                           --------     -------

Investing Activities:
    Net change in interest-bearing deposits...............       19         561
    Purchase of investment securities.....................  (37,985)    (23,766)
    Proceeds from maturities of
         investment securities............................   42,250      21,350
                                                           --------     -------
               Net cash provided by (used in)
               investing activities.......................    4,284      (1,855)
                                                           --------     -------

Financing Activities:
    Dividends paid to stockholders........................   (2,926)     (2,729)
    Proceeds from exercise of stock
         options and stock issuances......................      404         557
    Purchase of treasury stock............................  (21,858)       (379)
                                                           --------     -------
      Net cash used in financing activities...............  (24,380)     (2,551)
                                                           --------     -------

Increase in cash and cash equivalents.....................       99          13
Cash and cash equivalents at beginning of year............       17           4
                                                           --------     -------

      Cash and cash equivalents at end of year............ $    116          17
                                                           ========     =======
                                       52

<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
<TABLE>
<CAPTION>

                                                                   Fiscal 1999
                                                 ---------------------------------------------
                                                 Fourth        Third      Second        First
                                                 Quarter      Quarter     Quarter      Quarter
                                                 -------      -------     -------      -------
<S>                                            <C>          <C>         <C>          <C>
    Interest income.........................   $  17,468       17,082      17,828       18,420
    Interest expense........................       9,443        9,371       9,865       10,565
                                                 -------      -------     -------      -------
           Net interest income..............       8,025        7,711       7,963        7,855

    Provision for loan losses...............        (445)        (345)       (270)        (240)
    Noninterest income......................       2,542        2,052       2,377        2,327
    Noninterest expense.....................      (7,316)      (6,956)     (6,985)      (6,969)
                                                 -------      -------     -------      -------
           Income before income tax expense.       2,806        2,462       3,085        2,973

    Income tax expense......................      (1,050)        (878)     (1,256)      (1,219)
                                                 -------      -------     -------      -------

           Net income.......................   $   1,756        1,584       1,829        1,754
                                                 =======      =======     =======      =======

    Net income per share:
        Basic...............................   $      .40         .37          .35         .33
                                                 ========     =======     ========     =======
        Diluted.............................   $      .39         .35          .33         .31
                                                 ========     =======     ========     =======
</TABLE>

<TABLE>
<CAPTION>


                                                                   Fiscal 1998
                                                 ---------------------------------------------
                                                 Fourth        Third      Second        First
                                                 Quarter      Quarter     Quarter      Quarter
                                                 -------      -------     -------      -------
<S>                                            <C>          <C>         <C>          <C>
    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
                                                 ========     =======     ========     =======
</TABLE>

                                       53
<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:

For the year ended                                  1999      1998        1997
                                                    ----      ----        ----

Number of shares on which basic earnings
    per share is calculated:
       Average outstanding shares during the
           fiscal year.......................... 4,830,068  5,317,577  4,458,079

       Add: Incremental shares under stock
                option plans....................   240,270    296,316    220,259
            Incremental shares related to RRPs..     1,225     13,425     25,901
                                                 ---------  ---------  ---------

Number of shares on which diluted earnings per
   share is calculated.......................... 5,071,563  5,627,318  4,704,239
                                                 ---------  ---------  ---------

Net income applicable to common stockholders.... $   6,923      7,260      4,507
                                                 =========  =========  =========

Basic earnings per share........................ $    1.43       1.37       1.01
                                                 =========  =========  =========

Diluted earnings per share...................... $    1.37       1.29        .96
                                                 =========  =========  =========

Stock  options  to  purchase   72,169  and  57,085  shares  in  1999  and  1997,
respectively,  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.

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

(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 fiscal 1997  includes the results of
      operations of Security Bancorp commencing March 1, 1997.  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.  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.

                                       54
<PAGE>

GENERAL CORPORATE AND STOCKHOLDERS' INFORMATION
<TABLE>
<S>                                                           <C>

CORPORATE HEADQUARTERS                                        FORM 10-K
110 E. Broadway                                               This report is available to stockholders of
Missoula, MT  59802                                           record without charge upon written request to:
(406)  721-5254                                               Suzanne Loewen
                                                              Corporate Secretary
                                                              WesterFed Financial Corporation
INDEPENDENT ACCOUNTANTS                                       110 E. Broadway
KPMG LLP                                                      Missoula, MT   59802
Billings, MT

                                                              STOCK INFORMATION
GENERAL COUNSEL                                               WesterFed stock is traded in the over-the-counter
Worden, Thane and Haines, P.C.                                market with quotations through the Nasdaq National
Missoula, MT                                                  Market System under the symbol "WSTR."

                                                              At June 30,  1999,
                                                              there  were  1,031
                                                              stockholders    of
                                                              record.
SPECIAL COUNSEL
Silver, Freedman and Taff, LLP                                At June 30, 1999, there were approximately 2,400
Washington, D.C.                                              beneficial stockholders.

TRANSFER AGENT, REGISTRAR AND
DIVIDEND DISBURSING AGENT
Stockholder inquiries regarding transfer requirements,        To request information on dividend
dividends, lost certificates and changes of address           reinvestment, please contact:
should be directed to the transfer agent:                     Investor Relations
Davidson Trust Co.                                            WesterFed Financial Corporation
9 Third Street North, Suite 200                               110 E. Broadway
P.O. Box 2309                                                 Missoula, MT  59802
Great Falls, MT  59403-2309                                   Phone:  406-721-5254
1-800-634-5526

ANNUAL  MEETING  The annual  meeting of  stockholders  will be held on  Tuesday,
October 26, 1999,  beginning at 9 a.m. at the Southgate  Office,  2601 Garfield,
Missoula, MT
</TABLE>

                                       55
<PAGE>

GENERAL CORPORATE AND STOCKHOLDERS' INFORMATION


Dividends                               Stock Prices
Quarter Ended
                                     High           Low         Declared

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**

September 30, 1998               $24.875       17.00          .135
December 31, 1998                $20.125       17.188         .14

March 31, 1999                   $18.625       16.188         .145
June 30, 1999                    $17.25        15.938         .20***

*    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.
***  Declared June 24, 1999,  payable July 21 to  stockholders of record July 7.
     Includes a special dividend of $0.05 per share.

MARKET MAKERS
Strike  Technologies LLC Keefe,  Bruyette & Woods,  Incorporated D.A. Davidson &
Co.,  Incorporated  Spear,  Leeds & Kellogg  Friedman  Billings Ramsey & Company
Everen Securities Incorporated Sandler O'Neill & Partners Knight Securities L.P.

WESTERFED OFFICERS

Lyle R. Grimes
Chairman, President and Chief Executive Officer
James A. Salisbury, CPA
Executive Vice President, Treasurer/Chief Financial Officer
Suzanne Loewen
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
Davind W. Jorgenson
William Leslie

                                       56
<PAGE>


<TABLE>
<S>                                     <C>                                     <C>

DIRECTORS AND OFFICERS


BOARD OF DIRECTORS
Lyle R. Grimes                          Laurie C. DeMarois                      Dr. Otto Klein, Jr.
Chairman, President and                 Owner, Garden City Floral, Missoula.    Opthamologist
Chief Executive Officer                 Elected 1996.                           Rocky Mountain Eye &
WesterFed Financial Corp., Missoula.                                            Ear Center, Missoula.
Elected 1983.                                                                   Elected 1988.
John E. Roemer                          Robert F. Burke                         William Leslie
Vice Chairman                           Financial Planner                       Chairman, President
Retired                                 American Express, Missoula.             Quality Concrete Company, Billings.
Roemer Tire Center, Missoula.           Elected 1994.                           Elected 1997.
Elected 1978.
Ralph K. Holliday                       David W. Jorgenson                      Dr. Marvin Reynolds
President &                             Executive Vice President                Dentist, Missoula.
Chief Executive Officer                 Eastern Region Manager                  Elected 1969.
Western Security Bank, Missoula.        Western Security Bank, Billings.
Elected 1999.                           Elected 1997                            Donovan Worden, Jr.
                                                                                Director Emeritus
                                                                                Retired
SENIOR MANAGEMENT
Ralph K. Holliday                       Charles E. Eiseman                      Scott Sanders
President, Chief Executive Officer      Sr. Vice President                      Sr. Vice President
                                        Western Region Manager                  Commercial Real Estate Lending
David W. Jorgenson                      Marcia Johnson                          John Cromwell
Executive Vice President                Sr. Vice President                      Sr. Vice President
Eastern Region Manager                  Central Operations Manager              Human Resources
James A. Salisbury, CPA                 Stan R. Hill                            Sharon E. Woldstad
Treasurer                               Sr. Vice President                      Corporate Secretary
Executive Vice President/               Commercial Lending                      Sr. Vice President
Chief Financial Officer                                                         Data Center Coordinator
                                                                                Suzanne M. Loewen
                                                                                Vice President
                                                                                Audit/Compliance
DEPARTMENT HEADS
Desiree Bagnell, CPA                    Nancy Rhoads                            Debi Turner
Controller                              Vice President                          Branch Coordinator
                                        Loan Servicing Manager
Ronald F. Halls                         Gary Hewitt                             Brenda Ratcliff
Vice President                          Assistant Vice President                Sales Coordinator
Quality Control Manager                 Property Manager - Security Officer
Laura Lustgraff                         Glenn Nelson                            Sue Hay
Vice President                          Assistant Vice President                Assistant Corporate Secretary/
Deposit Support Services Manager        Information Services Department         Loan Systems Coordinator

</TABLE>

                                       57
<PAGE>

[BACK COVER]





























                                    110 East Broadway, Missoula, Montana   59802