HOLDING COMPANY LOAN AGREEMENT

1.

FACILITY A: VARIABLE RATE TERM LOAN ($9 MILLION).

(a)

Borrower will pay this loan in 35 regular payments of $64,205.69 each and one Irregular last payment estimated at $8,627,394.44. Borrower’s first payment is due June 15, 2009, and all subsequent payments are due on the same day of each month after that. Borrower’s final payment will be due on May 8, 2012, and will be for all principal and all accrued interest not yet paid. Payments Include principal and interest.

(b)

The Borrower may prepay amounts outstanding under Facility A in full or in part at any time; however. Borrower must pay Bank a prepayment fee equal to 1.00% of the Obligations then outstanding under Facility A.

2.

FACILITY B: VARIABLE RATE TERM LOAN ($11 MILLION).

(a)

Borrower will pay this loan in 35 regular payments of $60,607.26 each and one irregular last payment estimated at $10,286,950.81. Borrower’s first payment is due June 15, 2009, and all subsequent payments are due on the same day of each month after that. Borrower’s final payment will be due on May 8, 2012, and will be for all principal and all accrued interest not yet paid. Payments include principal and interest.

(b)

The Borrower may prepay the loan in full or in part at any time. The prepayment will be applied to the most remote payment of principal due under the Agreement.

(a)

The interest rate is the Bank’s interest rate for 12-month certificates of deposit, as determined by Bank and as of May 8, 2009, plus 2.35% per year. Said interest rate will reset on each anniversary of May 8, 2009 as the rate in effect on such anniversary date (or the next preceding business day).

3.1

Outstanding Term Loan. As of the date or this Agreement, $3,000,000 of the Prior Loan is deemed outstanding as Facility C under this Agreement, and is subject to all the terms and conditions stated in this Agreement.

3.2

Interest Rate. The interest rate is 10.00% per year.

3.3

Repayment Terms.

(a)

Borrower will pay this loan in 35 regular payments of $27,575.07 each and one irregular last payment estimated at $2,935,394.19. Borrower’s first payment is due June 15, 2009, and all subsequent payments are due on the same day of each month after that, Borrower’s final payment will be due on May 8, 2012, and will be for all principal and all accrued interest not yet paid. Payments include principal and interest.

(b)

The Borrower may prepay the loan in full or in part at any time. The prepayment will be applied to the most remote payment of principal due under this Agreement.

4.

RESERVED.

5.

FEES AND EXPENSES.

(a)

Loan Fee . The Borrower agrees to pay a Facility A loan fee in the amount of $67,500, a Facility B loan fee in the amount of $27,500 and a Facility C loan fee in the amount of $30,000 for a total of $125,000. This total fee is due on or before May 8, 2009.

(b)

Waiver Fee. If the Bank, at its discretion, agrees to waive or amend any terms of this Agreement, the Borrower will, all the Bank’s option, pay the Bank a fee for each waiver or amendment in an amount advised by the Bank at the time the Borrower requests the waiver or amendment. Nothing in this paragraph shall imply that the Bank is obligated to agree to any waiver or amendment requested by the Borrower. The Bank may impose additional requirements as a condition to any waiver or amendment.

(c)

Late Fee . To the extent permitted by law, the Borrower agrees to pay a late fee in an amount not to exceed five percent (5%) of any payment that is more than ten (10) days late. The imposition and payment of a late fee shall not constitute a waiver of the Bank’s rights with respect to the default.

(a)

The Borrower agrees to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses include, but are not limited to, reasonable attorneys’ fees. Including any allocated costs of the Bank’s in-house counsel to the extent permitted by applicable law.

(b)

The Borrower agrees to reimburse the Bank for the cost of periodic field examinations of the Borrower’s books, records and collateral, and appraisals of the collateral, at such intervals as the Bank may reasonably require. The actions described in this paragraph may be performed by employees of the Bank or by independent appraisers.

6.1

Collateral for Facility A and Facility C. The real and personal property listed below now owned or owned in the future by the parties listed below will secure Borrower’s Obligations to Bank arising with respect to Facility A and Facility C. The collateral is further defined in security agreement(s) executed by the owners of the collateral. All real and personal property collateral securing any other present or future Obligations of Borrower to Bank (other than collateral pledged under Section 6.2 below) will also secure Borrower’s Obligations to Bank arising under Facility A and Facility C.

Regulation U of the Board of Governors of the Federal Reserve System places certain restrictions on loans secured by margin stock (as defined in the Regulation). The Bank and the Borrower must comply with Regulation U. If any of the collateral is margin stock, the Borrower must provide to the Bank a Form U-1 Purpose Statement.

6.2

Collateral for Facility B, The personal property listed below now owned or owned in the future by the parties listed below will secure Borrower’s Obligations to Bank arising with respect to Facility B. The collateral is further defined in security agreement(s) executed by the owners of the collateral.

7.

DISBURSEMENTS, PAYMENTS AND COSTS.

(a)

Each payment by the Borrower will be made in U.S. Dollars and immediately available funds by debit to a deposit account, as described in this Agreement or otherwise authorized by the Borrower. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs; then to any late charges; then to any accrued unpaid interest; and then to principal.

(b)

The Bank may honor instructions given by any one of the Individuals authorized to sign loan agreements on behalf of the Borrower, or any other individual designated by any one of such authorized signers (each an “Authorized Individual”).

(c)

For any payment under this Agreement made by debit to a deposit account, the Borrower will maintain sufficient immediately available funds in the deposit account to cover each debit. If there are insufficient immediately available funds in the deposit account on the date the Bank enters any such debit authorized by this Agreement, the Bank may reverse the debit.

(d)

Each disbursement by the Bank and each payment by the Borrower will be evidenced by records kept by the Bank. In addition, the Bank may, at Its discretion, require the Borrower to sign one or more promissory notes.

(e)

The Bank will not pay the Borrower interest on any overpayment.

(a)

The Bank may honor telephone or telefax instructions for repayments or for the designation of optional interest rates given, or purported to be given, by any one of the Authorized Individuals.

(b)

Repayments will be withdrawn from account number 001-004035 owned by Borrower, or such other of Borrower’s accounts with the Bank as designated In writing by the Borrower.

(c)

The Borrower will Indemnify and hold the Bank harmless from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions the Bank reasonably believes are made by any Authorized Individual. This paragraph will survive this Agreement’s termination, and will benefit the Bank and its officers, employees, and agents.

8.1

Authorizations. Borrower must deliver to Bank (a) a copy of a resolution of the Board of Directors of Panhandle State Bank stating that dividends will be declared and paid in Borrower in an amount necessary to service Borrower’s indebtedness under this Agreement and (b) a copy of a resolution of Borrower’s Board of Directors authorizing the entry into this Agreement and the agreements related hereto.

8.2

Security Agreements. A signed Commercial Pledge Agreement addendum and a signed Assignment of Deposit Account agreement in form satisfactory to Bank, covering the personal property collateral which the Bank requires.

8.3

Perfection and Evidence of Priority. Evidence that the security interests and liens in favor of the Bank are valid, enforceable, property perfected in a manner acceptable to the Bank and prior to all others’ rights and interests, except those the Bank consents to in writing.

8.4

Payment of Fees, Payment of all fees and other amounts due and owing to the Bank, Including without limitation payment of all accrued and unpaid expenses incurred by the Bank as required by the paragraph entitled “Reimbursement Costs.”

8.5

Repayment of Bonner Note. Evidence that the Bonner Note has been or will be repaid and cancelled on or before May 8, 2009. Borrower represents that as of the date hereof, approximately $930,698 is outstanding under a certain seller note in the original principal amount of $1,130,000 (the “Bonner Note”) payable to Bonner County Investment, Inc. and that the Bonner Note is secured only by a deed of trust on the real estate pledged to Bank.

8.6

Insurance. Evidence of insurance coverage, as required in the “Covenants” section of this Agreement.

8.7

Deed of Trust. Signed and acknowledged original deed of trust and assignment of rents and amendments thereto, as required by the Bank, encumbering the real property collateral and granting Bank a first priority lien on the real property collateral securing all Indebtedness under this Agreement.

8.8

Title Insurance. An ALTA Form B-2006 lender’s extended coverage title Insurance policy (on a form acceptable to the Bank and from a title company acceptable to the Bank), for at least $13,000,00, insuring the Bank’s first priority security interest in the real property collateral, with only such exceptions as may be approved by the Bank and together with such endorsements as the Bank may require.

8.9

Tenant Agreements. A subordination agreement and an estoppel certificate from any tenants leasing the real property collateral.

8.10

Beneficiary Statements. Acceptable lien releases, including reconveyances, from the holders of any prior liens on the real property collateral. Including Bonner County Investments.

8.11

Legal Opinion. An opinion of counsel to Borrower in form and substance satisfactory to Bank.

9.1

Formation. Borrower is a bank holding company in good standing and is duly formed and existing under the laws of the state of Idaho. Borrower owns 100% of the issued end outstanding shares of capital stock of Panhandle. No person other than Borrower has any right to acquire any securities of Panhandle. Borrower has no other subsidiaries other than Panhandle and certain statutory trusts that are issuers of trust preferred securities.

9.2

Authorization. This Agreement, and any instrument or agreement required hereunder, are within the Borrower’s powers, have been duly authorized, and do not conflict with any of its organizational documents or the laws and regulations to
which Borrower is subject.

9.3

Enforceable Agreement This Agreement is a legal, valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable.

9.4

Good Standing. In each state in which the Borrower does business, it is property licensed, in good standing, and, where required, in compliance with fictitious name statutes.

9.5

No Conflicts. This Agreement does not conflict with any law, agreement, or obligation by which the Borrower is bound.

10.

COVENANTS. Some of the covenants in this Agreement may apply to Panhandle State bank, the wholly-owned subsidiary of Borrower (“Panhandle”). Some terms used but not defined in this “Covenants” section are those used in Borrower’s and/or Panhandle’s Consolidated Reports of Conditional Income (FFIEC) for a particular period and applicable laws and regulations (“Call Report”). The Borrower agrees, so long as credit is available under this Agreement and until the Bank is repaid in full:

(a)

Within 90 days of the fiscal year end, the annual financial statements and Annual Report of Borrower and Panhandle, certified and dated by an authorized financial officer. These financial statements may be company- prepared. The statements shall be prepared on a consolidated basis.

(b)

Within 30 days of the period’s and (including the last period in each fiscal year), quarterly financial statements of Borrower, certified and dated by an authorized financial officer. These financial statements may be company- prepared. The statements shall be prepared on a consolidated basis.

(c)

Promptly, upon sending or receipt, copies of any management letters and correspondence relating to management to letters, sent or received by the Borrower to or from the Borrower’s auditor. If no management letter is prepared, the Bank may. In its discretion, request a letter from such auditor stating that no deficiencies were noted that would otherwise be addressed in a management letter.

(d)

Copies of the Form 10-K Annual Report, Form 10-Q Quarterly Report and Form 8-K Current Report for Borrower concurrent with the date of filing with the Securities and Exchange Commission.

(e)

Within 30 days of the end of each quarter, a compliance certificate of the Borrower, signed by an authorized financial officer and setting forth (i) the Information and computations (in sufficient detail) to establish compliance with all financial covenants at the end of the period covered by the financial statements then being