EXHIBIT 13(b)
                        MANAGEMENT DISCUSSION & ANALYSIS






<PAGE>
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY  (Dollars in thousands, except per share amounts)

                                                 1995(a)    1994(a)(b)   1993(a)(e)          1992(a)(f)       1991(a)
                                               ----------- -----------  -----------          ----------     ---------
<S>                                            <C>         <C>         <C>                  <C>            <C>       
Income before the cumulative
  effect of an accounting change (c)           $   63,984  $   53,029  $   49,751           $   30,376     $   21,828

Net income (c)                                     63,984      53,029      49,751               36,976         21,828

Earnings per share (c)(d):
  Primary:
    Income before the cumulative
      effect of an accounting change           $     2.12  $     1.78  $     1.72          $     1.15      $      .80
    Net income                                       2.12        1.78        1.72                1.42             .80
  Fully Diluted:
    Income before the cumulative
      effect of an accounting change           $     2.11  $     1.77  $     1.71          $     1.14      $      .79
    Net Income                                       2.11        1.77        1.71                1.40             .79

Interest income                                $  417,308  $  381,864  $  366,711          $  325,057      $  333,157
Interest expense                                  234,171     204,222     202,493             198,058         225,992
Net interest income                               183,137     177,642     164,218             126,999         107,165
Provision for losses on loans                       9,738       6,824      10,570              15,779          19,037
Loss on impairment of mortgage-related 
  securities (c)                                       --      (9,000)         --                  --              --
Non-interest income                                44,291      42,294      44,758              38,023          41,467
Non-interest expense                              118,602     120,367     118,964             101,540          93,095
          
Total assets                                    5,471,108   5,501,824   5,181,772           4,309,067       3,609,917
Loans receivable and mortgage-related 
  securities                                    4,887,561   4,972,938   4,532,456           3,795,083       3,171,800
Intangible assets                                  21,481      26,726      31,392              23,278          22,576
Deposits                                        4,424,525   4,381,455   4,388,122           3,531,062       3,234,078
Borrowings                                        570,508     708,446     455,797             487,237         110,353
Stockholders' equity                              384,917     327,308     280,643             239,979         190,405
Shares outstanding (d)                         29,676,365  29,125,858  27,858,088          27,999,113      23,038,404
Stockholders' equity per share (d)             $    12.97  $    11.24  $    10.07          $     8.57      $     8.26
Dividends declared per share (d)                      .48         .40         .35                 .22             .16

Return on average assets (g)                         1.17%       .99%        .99%                 .92%            .61%
Return on average equity (g)                        18.03%     17.21%      19.15%               17.57%          12.08%
Average equity to average assets                     6.50%      5.72%       5.17%                5.25%           5.01%
<FN>
(a)   In  February  1995,  the  company  acquired  FirstRock  Bancorp,  Inc.  of
      Rockford,  Illinois  through an exchange of stock.  This  transaction  was
      accounted for as a pooling-of-interests and, accordingly,  results for all
      periods  presented have been restated to include the results of FirstRock,
      except the earnings per share information for 1991 and 1992 are based only
      on the historical  net income and weighted  average shares of common stock
      and common stock  equivalents  of the company prior to the October 2, 1992
      conversion of FirstRock.

(b)   In  February  1994,  the  company  acquired   NorthLand  Savings  Bank  of
      Wisconsin,  SSB of Ashland,  Wisconsin  through an exchange of stock. This
      transaction  was  accounted  for  as  a  pooling-of-interests.  Since  the
      NorthLand  acquisition  was  immaterial in relation to the company,  prior
      years' results have not been restated.

(c)   Net income for 1994 was  negatively  affected  by a pre-tax  $9.0  million
      impairment    loss    relative   to   two    private-issue    subordinated
      mortgage-related  securities,  which were  downgraded to below  investment
      grade and became non-performing during 1994.

(d)   As adjusted for a 2-for-1 stock split on March 5, 1993 and a 2-for-1 stock
      split on April 16, 1992.

(e)   In January 1993, the company's  major  subsidiary,  First  Financial Bank,
      acquired  Westinghouse  Federal  Bank,  FSB d/b/a  United  Federal Bank of
      Galesburg,  Illinois for cash.  In addition,  in August 1993,  the company
      completed  the  assumption  of  deposits  and the  purchase  of the branch
      facilities  of four Quincy,  Illinois-area  branches of American  Savings.
      Each acquisition has been accounted for as a purchase.

(f)   In separate transactions during 1992, the company completed the assumption
      of  deposits  and  the  purchase  of  branch  facilities  of  ten  Peoria,
      Illinois-area   branches  from  the  LaSalle  Talman  Bank,  FSB  and  the
      Resolution Trust Corporation. Each acquisition has been accounted for as a
      purchase.

(g)   Ratio is based upon income prior to the cumulative effect of an accounting
      change.
</FN>
</TABLE>
                                       -1-

<PAGE>





QUARTERLY DATA

The following  table sets forth the  company's  unaudited  quarterly  income and
expense data for 1995 and 1994(a).
<TABLE>
<CAPTION>



                                Dec. 31,     Sept. 30,     June 30,      March 31,     Dec. 31,    Sept. 30,  June 30,     March 31,
                                  1995         1995          1995          1995          1994        1994       1994       1994(b)
                                --------     ---------     --------      ---------     --------    ---------  --------     ---------
                                                         (Dollars in thousands, except per share amounts)
<S>                              <C>           <C>           <C>           <C>          <C>          <C>       <C>         <C>    
Interest income:
  Loans and mortgage-related
     securities                  $100,880      $101,258      $101,011      $ 99,362     $96,354      $93,503   $90,306     $86,885
  Investments                       3,739         3,895         3,723         3,440       3,626        3,271     3,625       4,294
                                 --------      --------      --------      --------     -------      -------   -------     -------
     Interest income              104,619       105,153       104,734       102,802      99,980       96,774    93,931      91,179

Interest expense:
  Deposits                         50,768        50,939        49,949        45,167      44,691       43,518    43,166      43,444
  Borrowings                        8,108         8,525         9,278        11,437       9,415        7,859     6,738       5,391
                                 --------      --------      --------      --------     -------      -------   -------     -------
     Interest expense              58,876        59,464        59,227        56,604      54,106       51,377    49,904      48,835
                                 --------      --------      --------      --------     -------      -------   -------     -------

Net interest income                45,743        45,689        45,507        46,198      45,874       45,397    44,027      42,344
Provision for losses on loans      (2,673)       (2,873)       (2,073)       (2,119)     (1,731)      (1,731)   (1,894)     (1,468)
Unrealized loss on impairment of
   mortgage-related securities                                                                                  (9,000)
Gain on sales of assets (c)         1,045         2,542           286            38         174           34     1,355       2,273
Non-interest income                 9,862        10,220        10,083        10,215      10,215        9,365     9,532       9,346
                                 --------      --------      --------      --------     -------      -------   -------     -------
                                   53,977        55,578        53,803        54,332      54,532       53,065    44,020      52,495
Non-interest expense               25,331        27,770        28,503        36,998      29,849       29,830    29,935      30,753
                                 --------      --------      --------      --------     -------      -------   -------     -------
Income before income taxes         28,646        27,808        25,300        17,334      24,683       23,235    14,085      21,742
Income taxes                        9,587        10,015         8,995         6,507       8,867        8,252     5,336       8,261
                                 --------      --------      --------      --------     -------      -------   -------     -------
Net income                       $ 19,059      $ 17,793      $ 16,305      $ 10,827     $15,816      $14,983   $ 8,749     $13,481
                                 ========      ========      ========      ========     =======      =======   =======     =======

Earnings per share:
  Primary                        $    .63      $    .59      $    .54      $    .36     $   .53      $   .50   $   .29     $   .45
  Fully diluted                  $    .63      $    .59      $    .54      $    .36     $   .53      $   .50   $   .29     $   .45

Cash dividends per share         $    .12      $    .12      $    .12      $    .12     $   .10      $   .10   $   .10     $   .10


<FN>
(a)   In  February  1995,  the  company  acquired  FirstRock  Bancorp,  Inc.  of
      Rockford,  Illinois  through an exchange of stock.  This  transaction  was
      accounted for as a pooling-of-interests  and accordingly,  results for all
      periods presented have been restated to include the results of FirstRock.

(b)   The NorthLand  acquisition was completed in February,  1994 and results of
      operations were included from January 1, 1994.

(c)   Includes  net gains  (losses) on the  disposition  of loans held for sale,
      available for sale securities and other assets.
</FN>
</TABLE>






                                       -2-

<PAGE>



                              Results of Operations
              Comparison of Years Ended December 31, 1995 and 1994


General.  First  Financial  Corporation  ("FFC")  reported  net  income of $64.0
million for the year ended  December 31, 1995,  which  represents an increase of
$11.0  million from the $53.0  million  reported  for 1994.  Net income for 1995
includes  a charge  for  acquisition  related  costs  incurred  relative  to the
acquisition  of FirstRock  Bancorp,  Inc.  ("FirstRock")  of Rockford,  Illinois
during the first quarter of 1995. The acquisition charge aggregated $6.5 million
on a pre-tax basis,  and $4.0 million or $0.14 per share on an after-tax  basis.
Earnings for 1994 were affected by an after-tax charge of $5.9 million, or $0.20
per share,  relating to allowances  established  to cover  possible  losses on a
portion of FFC's  mortgage-related  securities ("MBS") portfolio.  The FirstRock
acquisition  was  accounted  for  as a  pooling-of-interests,  and  accordingly,
financial  statements  for all periods  presented  have been restated to include
FirstRock's  operations.  The  annualized  returns on average assets and average
equity for 1995,  excluding  the  acquisition  charge,  were  1.25% and  19.16%,
respectively,  as compared to 0.99% and 17.21%,  respectively,  for 1994.  Fully
diluted  earnings per share increased to $2.11 per share for 1995 as compared to
$1.77 per share  reported for 1994.  Excluding  the  acquisition  charge,  fully
diluted earnings would have been $2.24 per share for 1995.

Net  Interest  Income.  Net  interest  income  increased  $5.5 million to $183.1
million during 1995 from $177.6 million for 1994. The net interest margin, which
is net  interest  income as a  percentage  of average  interest-earning  assets,
increased to 3.51% for 1995 from 3.46%  reported for 1994.  Interest  income and
interest expense  increased $35.4 million and $30.0 million,  respectively,  for
1995 as  compared  to 1994.  The average  balances  of  interest-earning  assets
increased  from $5.14  billion in 1994 to $5.21  billion in 1995,  while average
balances of interest-bearing liabilities increased to $5.02 billion in 1995 from
$4.98  billion in 1994.  The  increase  in average  interest-earning  assets was
complemented   by  i)  a  slightly   lower  increase  in  the  average  cost  on
interest-bearing  liabilities  (4.10% in 1994 versus  4.66% in 1995) than in the
average  yield of  interest-earning  assets (7.43% in 1994 versus 8.00% in 1995)
and ii) an  improvement  in the  ratio of  earning  assets  to  interest-bearing
liabilities  to 103.78% in 1995 from 103.21% in 1994. At the end of 1995,  FFC's
net  interest  margin  was  3.46%  as  compared  to  3.37%  at the end of  1994.
Historically, FFC's net interest margin has been at its lowest point at year-end
due to seasonal  factors,  including  the  disbursement  of mortgage loan escrow
accounts for real estate taxes.

Provisions for Losses On Loans. Provisions for losses on loans increased to $9.7
million for 1995 compared to $6.8 million for 1994. The increased  provision for
losses on loans reflects i) growth in the overall loan portfolio during 1995 and
ii) increased net credit card charge-offs in 1995 as that portfolio continues to
increase  in  size.  The  increase  in  credit  card   charge-offs   reflects  a
traditionally higher experience for that portfolio, although FFC's experience is
well below industry and national credit card averages.  For a further discussion
of allowances  for losses on loans and related loan portfolio  information,  see
"Allowances for Loan and Foreclosure Losses" and "Loans Receivable."

Non-Interest Income.  Non-interest income increased $11.0 million during 1995 as
compared to 1994 due to the net effect of several factors,  the most significant
of which relates to a 1994 $9.0 million MBS impairment loss (see "Non-Performing
MBSs").  Deposit account service fees increased $1.5 million in 1995 as a result
of i) increased fees relating to

                                       -3-

<PAGE>



the  growth  of the  "Absolutely  Free  Checking"  product  during  1995 and ii)
introduction of automated teller machine charges in certain markets during 1995.
Loan fees and service  charges  increased $1.3 million in 1995 as a result of i)
increased credit card fees as that portfolio continued to grow and ii) increased
interchange fees resulting from a successful debit card program. Service fees on
loans sold decreased in 1995 as i) the loan servicing  portfolio  decreased from
$2.42  billion at the end of 1994 to $2.33  billion at year end 1995 and ii) the
average  servicing margin decreased in 1995 due to the continuing impact of very
competitive  conditions in the  secondary  mortgage  market into which  mortgage
loans are sold and  thereby  added to the  servicing  portfolio.  Excluding  the
effect of i) a 1994 gain of $1.3  million  on the sale of credit  card loans and
ii) a  $400,000  gain  realized  in 1994  upon the sale of the  finance  company
receivables of NorthLand Savings Bank of Wisconsin, SSB bank ("NorthLand") which
FFC acquired in 1994,  gains on sales of loans  increased  $1.7 million in 1995.
This  increase is due to a $1.7 million gain realized in 1995 as a result of the
capitalization  of originated  mortgage  servicing rights upon FFC's adoption of
Statement of Financial Accounting Standard ("SFAS") or the ("Statement") No. 122
(See Note A to the Consolidated  Financial Statements for further  information).
FFC's subsidiary, First Financial Bank ("FF Bank"), sells long-term,  fixed-rate
mortgage loans in the normal course of interest-rate  risk management.  Gains or
losses realized from the sale of loans held for sale can fluctuate significantly
from period to period  depending  upon the  volatility of interest rates and the
volume of loan originations. Thus, results of sales in any one period may not be
indicative of future results.  Gains on sales of  available-for-sale  securities
increased  $100,000 in 1995 over 1994,  as a $1.2  million  gain was realized in
1995 upon the purchase and sale of a zero coupon treasury bond as interest rates
declined during 1995.

Non-Interest Expense. Non-interest expenses decreased approximately $1.8 million
in 1995 as compared to 1994,  primarily due to the net effect of i)  acquisition
costs and charges  totaling  $6.5  million  incurred  relative to the  FirstRock
acquisition  and ii) the  cost  savings  resulting  from  the  consolidation  of
operations  following  that  acquisition.  The  acquisition  costs  included  i)
transaction-related  costs, including investment banker fees, attorneys fees and
accounting   fees,   ii)  payments   relating  to   employment/change-in-control
agreements upon termination of certain FirstRock senior officers, iii) retention
bonuses and severance payments made to other FirstRock employees, iv) writedowns
of assets not needed by FFC in the conduct of FirstRock's business following the
acquisition  and v) other  writeoffs/accruals  relating to those  contracts  and
business practices of FirstRock not having future value to FFC.

The 1995 decreases in non-interest  expense  resulting from the consolidation of
FirstRock  operations  are most  noticeably  apparent  in the  compensation  and
benefits  expense  category,  which  declined  $6.2  million  in 1995.  Employee
benefits expense was reduced $3.0 million in 1995 as a result of the utilization
of an  Employee  Stock  Ownership  Plan  ("ESOP"),  acquired  in  the  FirstRock
transaction, in place of FFC's normal profit sharing contributions for 1995. The
ESOP shares,  which were purchased in 1992, are grandfathered  from Statement of
Position  ("SOP") No. 93-6 issued by the American  Institute of Certified Public
Accountants.  As such,  expense for ESOP shares  allocated to FFC  employees was
recorded  at cost as opposed to market  value as  required  by SOP No.  93-6 for
shares acquired after 1992.

Non-interest  expenses  decreased as a percentage of average assets to 2.05% for
1995 as compared to 2.24% in 1994.  The  improvement in this ratio is reflective
of i) the  effectiveness of the  consolidation of operations after the FirstRock
and NorthLand

                                       -4-

<PAGE>



acquisitions,  ii)  cost  savings  of  $1.0  million  realized  after  the  1994
consolidation  of FFC's then existing  banking  subsidiaries,  iii) decreases in
writedowns on foreclosed  commercial real estate and iv) ongoing expense control
measures.

The ratio of controllable  non-interest  expenses to average total assets, which
excludes the FirstRock acquisition charge, the amortization of intangible assets
and the net cost of operations of foreclosed properties,  decreased to 1.96% for
1995 as compared to 2.12% for 1994. In addition,  FFC's  efficiency ratio (which
represents  the ratio of  controllable  expenses  to net  interest  income  plus
recurring  non-interest  income)  improved  to 47.89% for 1995,  as  compared to
52.58% for 1994.

Income Taxes.  Income tax expense increased $4.4 million for 1995 as compared to
1994. The effective  income tax rate, as a percent of pre-tax income,  decreased
to 35.4% in 1995 from 36.7% in 1994.  The decrease in the effective tax rate for
1995 relates to i) implementation of tax planning  strategies and ii) the change
in the valuation  allowance of certain deferred tax assets  established in prior
years.

Accounting  Changes.  Effective  January  1,  1995,  FFC  adopted  SFAS No.  122
("Accounting  for Mortgage  Servicing  Rights").  SFAS No. 122  requires  that a
mortgage banking enterprise  recognize as a separate asset the rights to service
mortgage loans for others, whether those rights are purchased or originated.  In
accordance with the Statement,  an enterprise that acquires  mortgage  servicing
rights through either the origination or purchase of mortgage loans and sells or
securitizes those loans with servicing rights retained should allocate the total
cost of the  mortgage  loans to the mortgage  servicing  rights and to the loans
(without the mortgage  servicing rights) based on their relative fair values. As
a result of the adoption of SFAS No. 122 in 1995, FFC realized a pre-tax gain of
$1.7  million   ($1.1   million   after  tax,  or  $0.04  per  share)  upon  the
capitalization of originated mortgage servicing rights.

Effective  January 1, 1995, FFC adopted SFAS No. 114  ("Accounting  by Creditors
for  Impairment of a Loan").  Statement No. 114,  which was amended by Statement
No. 118,  requires  that  impaired  loans be  measured  at the present  value of
expected future cash flows discounted at the loans' effective interest rate, or,
as a practical  expedient,  at the loan's  observable  market  price or the fair
value of the  collateral  if the loan is collateral  dependent.  The adoption of
Statements No. 114 and 118 had no effect on FFC's financial condition or results
of operations.

Pending  Accounting Change.  The Financial  Accounting  Standards Board ("FASB")
issued SFAS No. 123 ("Accounting for Stock-Based  Compensation") in October 1995
relative  to  financial  accounting  and  reporting  standards  for  stock-based
employee  compensation  plans.  SFAS  No.  123 is  effective  for  fiscal  years
beginning  after  December 15, 1995.  The  Statement  defines a fair value based
method of accounting for employee  stock options or similar  equity  instruments
and  encourages all entities to adopt that method of accounting for all employee
stock  compensation  plans.  However,  the  Statement  also  allows an entity to
continue to measure  compensation  cost for these plans using an intrinsic value
based method of accounting prescribed by Accounting Principles Board Opinion No.
25 ("APB No. 25").  Entities  electing to retain the accounting  treatment under
APB No. 25 must make pro forma  footnote  disclosures of net income and earnings
per share as if the fair  value  based  method  of  accounting  defined  in this
statement  has been  applied.  Management  has not decided  which method it will
elect.


                                       -5-

<PAGE>



                              Results of Operations
              Comparison of Years Ended December 31, 1994 and 1993


General.  For the year ended December 31, 1994, FFC reported net income of $53.0
million,  up from the $49.8 million reported for 1993.  Earnings for fiscal 1994
were  negatively  affected by a pre-tax $9.0 million  impairment  loss  recorded
relative to two private issue  subordinated  MBSs which were i)  transferred  to
non-performing  status during 1994 and ii) also  downgraded to below  investment
grade by a national  independent  rating  agency.  As a result of the impairment
loss, the returns on average assets and average  stockholders'  equity decreased
to 0.99% and  17.21%,  respectively,  for  fiscal  1994 from  0.99% and  19.15%,
respectively,  for fiscal 1993.  Fully  diluted  earnings per share  improved to
$1.77 for the year ended December 31, 1994 from $1.71 for 1993.

Net Interest  Income.  Net interest  income  increased  $13.4  million to $177.6
million for 1994 from $164.2 million for 1993. The net interest  margin of 3.46%
for 1994 was up from the 3.43% reported for 1993.  Interest  income and interest
expense  increased  $15.2  million and $1.7 million,  respectively,  for 1994 as
compared  to  1993.  The  average  balances  of   interest-earning   assets  and
interest-bearing  liabilities  increased  from $4.79 billion and $4.66  billion,
respectively, in 1993 to $5.14 billion and $4.98 billion, respectively, in 1994.
The  ratio  of  average  interest-earning  assets  to  average  interest-bearing
liabilities  increased to 103.21% for 1994 as compared to 102.79% for 1993.  The
1994  increases  in  average  balances  were due to i) asset  growth  funded via
Federal Home Loan Bank ("FHL Bank") advances and ii) the effect of acquisitions.
The  increase  in  average  interest-earning  assets,  as well  as the  improved
earning-asset ratio noted above, was primarily  responsible for the stability in
the net interest margin. The net interest spread increased to 3.33% in 1994 from
3.31% in 1993 as the average  yield on  interest-earning  assets  (7.66% in 1993
versus 7.43% in 1994)  decreased  slightly less than the decrease in the average
cost of interest-bearing liabilities (4.35% in 1993 versus 4.10% in 1994).

Provisions for Losses On Loans.  Provisions  for losses on loans  decreased $3.8
million from $10.6  million for 1993 to $6.8 million for 1994,  reflecting  i) a
low charge-off  experience,  ii) a lower level of loan  delinquencies and iii) a
change in the mix of the loan  portfolio  due to the  growth in the  residential
mortgage loan portfolio,  which  traditionally  displays a much lower charge-off
experience.

Non-Interest Income.  Non-interest income decreased $11.5 million during 1994 as
compared to 1993 with the  primary  decrease  relating  to the $9.0  million MBS
impairment loss (see  "Non-Performing  MBSs").  Increases of $600,000 in deposit
account service fees,  $500,000 in insurance and brokerage sales commissions and
$1.5 million in gains on sales of available-for-sale securities were offset by a
$5.6 million decrease in gains on sales of loans held for sale. The net gains on
sales of loans for 1994  decreased  $5.6 million as noted above to $2.7 million,
despite  a $1.3  million  gain  on the  sale  of  credit  card  loans  upon  the
termination of a credit card affinity group  relationship  and the $400,000 gain
realized on the sale of finance company  receivables of NorthLand.  Exclusive of
this latter sale,  gains  realized from the sale of mortgage loans held for sale
decreased  $7.3 million to $1.0  million in 1994.  The $1.5 million of net gains
realized on sales of available-for-sale  securities relates primarily to actions
taken by management to i) protect the value of that  portfolio as interest rates
rose  sharply  in the  first  half  of 1994  and  ii) to  reduce  the  level  of
subordinated mezzanine position MBSs held by FFC.

                                       -6-

<PAGE>




Non-Interest  Expense.  Non-interest expenses increased $1.4 million for 1994 as
compared  to 1993.  The level of  non-interest  expenses  reflects  i)  inherent
increases in the expanded  scope of  operations as a result of the 1993 and 1994
acquisitions,  ii) effective  cost  controls,  iii)  reductions in writedowns of
foreclosed  commercial real estate  properties in 1994 and iv) a higher level of
federal deposit  insurance costs.  The major categories of non-interest  expense
affected  by  acquisitions  are  compensation,  occupancy  and  federal  deposit
insurance.

Federal deposit  insurance expense increased $2.3 million in 1994 as compared to
1993, due in part to the increase in insured  deposits as a result of the recent
acquisitions.  However,  also  affecting the  comparison  was a reduction in the
level of premiums  assessed to FF Bank in 1993 as the Federal Deposit  Insurance
Corporation  ("FDIC") allowed a one-time premium reduction  (approximately  $1.7
million) representing FF Bank's previously unutilized credits from the dissolved
Secondary  Reserve of the Federal  Savings and Loan Insurance  Corporation.  The
credits  in the  Secondary  Reserve  had  been  written-off  in 1987  due to the
uncertainty of recoverability.

The net cost of operations of foreclosed  properties  decreased  $2.2 million in
1994 as  compared  to 1993 when a higher  level of  writedowns  was  experienced
relative to foreclosed commercial real estate properties.

Non-interest  expenses  decreased as a percentage of average assets to 2.24% for
1994 as compared to 2.37% for 1993.  Controllable  non-interest expenses,  which
exclude the amortization of intangible  assets and the net cost of operations of
foreclosed properties, decreased to 2.12% of average assets for 1994 as compared
to 2.18% for 1993. In addition,  FFC's  efficiency  ratio (which  represents the
ratio  of   controllable   expenses  to  net  interest   income  plus  recurring
non-interest income) improved to 52.58% in 1994 as compared to 54.34% for 1993.

Income Taxes.  Income tax expense increased $1.0 million for 1994 as compared to
1993. The effective  income tax rate, as a percent of pre-tax income,  decreased
to 36.7% in 1994 from 37.4% in 1993.  The decrease in the effective tax rate for
1994 relates to a one-time adjustment arising from a change in filing status for
state tax purposes.


                                       -7-

<PAGE>



                      MARKET PRICE AND DIVIDEND INFORMATION


FFC's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock
MarketSM  ("NASDAQ")  under the symbol of FFHC.  At December 31,  1995,  FFC has
29,676,365 outstanding shares and 4,393 shareholders of record.

The following table presents market price information and cash dividends paid on
FFC's common stock.  The prices  displayed  represent high and low sales prices,
for each quarter over the past two years, as reported by NASDAQ.
<TABLE>
<CAPTION>

                                                          Market Price
                                                     -----------------------              Cash
                                                      High              Low             Dividend
                                                     -----             -----            --------
Quarter Ended:

<S>         <C> <C>                                  <C>              <C>                <C>  
   December 31, 1995                                 $23.750          $20.250            $ .12
   September 30, 1995                                 21.625           17.000              .12
   June 30, 1995                                      18.000           15.250              .12
   March 31, 1995                                     16.250           13.500              .12

   December 31, 1994                                 $17.250          $13.250            $ .10
   September 30, 1994                                 17.250           14.500              .10
   June 30, 1994                                      17.250           14.500              .10
   March 31, 1994                                     17.000           14.250              .10

</TABLE>

                                       -8-


<PAGE>



AVERAGE INTEREST-EARNING ASSETS, AVERAGE INTEREST-BEARING LIABILITIES,  INTEREST
RATE SPREAD AND NET INTEREST MARGIN

The  following  table sets forth the  weighted  average  yields  earned on FFC's
consolidated loan and investment portfolios, the weighted average interest rates
paid on deposits and borrowings,  the interest rate spread between yields earned
and rates paid and the net interest margin during the years 1995, 1994 and 1993.
Balances of interest-sensitive  assets and liabilities arising from the 1993 and
1994  acquisitions  are  included  from  the  respective  dates  of the  related
transactions.

<TABLE>
<CAPTION>


                                                                  Year Ended December 31,
                                              1995                          1994                                1993
                                -----------------------------  ----------------------------     -----------------------------------
                                Average               Average   Average             Average       Average                  Average
                                Balance     Interest   Rate     Balance   Interest    Rate        Balance      Interest      Rate
                               ----------   --------  -------  ---------   -------- -------     ----------     --------     -------
                                                                   (Dollars in thousands)
<S>                            <C>          <C>        <C>    <C>          <C>        <C>      <C>             <C>            <C>  
Interest-earning assets:
   Mortgage loans (1)(2)       $2,384,057   $183,434   7.69%  $2,304,429   $176,914   7.68%    $2,154,037      $175,998       8.17%
   Mortgage-related secur-
     ities (1)                  1,388,338     98,821   7.12    1,507,334     89,379   5.93      1,467,250        89,965       6.13
   Other loans (1)              1,182,380    120,256  10.17    1,027,942    100,755   9.80        822,284        84,595      10.29
   U.S. Government and agency     127,598      6,709   5.26      121,521      6,331   5.21        132,196         6,840       5.17
   Other securities                68,254      4,091   5.99      106,378      4,912   4.62         87,939         4,648       5.29
   Cash equivalents                28,371      1,651   5.82       38,371      1,522   3.97         94,439         2,806       2.97
   FHL Bank stock                  35,323      2,346   6.64       34,416      2,051   5.96         31,000         1,859       6.00
                               ----------   -------- ------   ----------   -------- ------     ----------      --------     ------

                                5,214,321    417,308   8.00    5,140,391    381,864   7.43      4,789,145       366,711       7.66
Interest-bearing liabilities:
   Passbook                       730,363     21,017   2.88      833,291     25,159   3.02        844,460        26,932       3.19
   Checking                       433,904      4,202    .97      473,850      6,426   1.36        431,731         7,302       1.69
   Money Market Accounts          311,479     10,450   3.36      297,604      8,943   3.00        303,496         9,266       3.05
   Certificates                 2,969,537    161,154   5.43    2,848,596    134,291   4.71      2,681,083       136,266       5.08
   FHL Bank advances              444,110     26,742   6.02      436,019     21,335   4.89        311,181        14,216       4.57
   Other borrowings               134,801     10,606   7.87       91,151      8,068   8.85         87,225         8,511       9.76
                               ----------   -------- ------   ----------   -------- ------     ----------      --------     ------

                                5,024,194    234,171   4.66    4,980,511    204,222   4.10      4,659,176       202,493       4.35
                               ----------   -------- ------   ----------   -------- ------     ----------      --------     ------
Net earning assets and
   interest rate spread        $  190,127              3.34%  $  159,880              3.33%    $  129,969                     3.31%
                               ==========            ======   ==========            ======     ==========                   ======

Earning asset ratio                103.78%                        103.21%                          102.79%
                               ==========                     ==========                       ==========

Average interest-earning
   assets, net interest income,
   and net interest margin on
   average interest-earning
   assets                      $5,214,321    $183,137  3.51%  $5,140,391   $177,642  3.46%     $4,789,145      $164,218      3.43%
                               ==========    ======== =====   ==========   ======== =====      ==========      ========     =====

<FN>
(1)  Includes non-accruing loans and/or MBSs.

(2)  Includes loans held for sale.
</FN>
</TABLE>
                                                           -9-

<PAGE>



RATE VOLUME ANALYSIS

The most significant  impact on FFC's net income between periods is derived from
the  interaction  of  changes  in the  volume  of and  rates  earned  or paid on
interest-earning assets and interest-bearing  liabilities. The volume of earning
dollars in loans and  investments,  compared  to the volume of  interest-bearing
liabilities  represented by deposits and  borrowings,  combined with the spread,
produces the changes in net interest income between periods.

The following table shows the relative contribution of changes in average volume
and average  interest  rates to changes in net  interest  income for the periods
indicated.  The change in interest income and interest  expense  attributable to
changes in both volume and rate, which cannot be segregated,  has been allocated
proportionately to the change due to volume and the change due to rate.

<TABLE>
<CAPTION>

                                                Year Ended December 31, 1995                  Year Ended December 31, 1994
                                                    Compared to Year Ended                        Compared to Year Ended
                                                      December 31, 1994                             December 31, 1993
                                           ---------------------------------------       ---------------------------------------
                                             Rate           Volume          Total          Rate           Volume           Total
                                           --------        --------       ---------      --------        --------        -------
                                                                           (Dollars in thousands)
<S>                                        <C>             <C>            <C>            <C>             <C>             <C>     
Interest-earning assets:
        Mortgage loans(1)(2)               $    394        $  6,126       $  6,520       $(10,974)       $ 11,890        $    916
        Mortgage-related securities(1)       16,898          (7,456)         9,442         (3,007)          2,421            (586)
        Other loans(1)                        3,908          15,593         19,501         (4,157)         20,317          16,160
        U.S. Government and agency               59             319            378             47            (556)           (509)
        Other securities                      1,226          (2,047)          (821)          (634)            898             264
        Cash equivalents                        592            (463)           129            739          (2,023)         (1,284)
        FHL Bank stock                          240              55            295            (12)            204             192
                                           --------        --------       --------       --------        --------        --------
            Total                          $ 23,317        $ 12,127         35,444       $(17,998)       $ 33,151          15,153
                                           ========        ========       ========       ========        ========        ========


Interest-bearing liabilities:
        Passbook                           $ (1,140)       $ (3,002)        (4,142)      $ (1,421)       $   (352)         (1,773)
        Checking                             (1,718)           (506)        (2,224)        (1,542)            666            (876)
        Money Market Accounts                 1,077             430          1,507           (145)           (178)           (323)
        Certificates                         20,973           5,890         26,863        (10,203)          8,228          (1,975)
        FHL Bank advances                     5,004             403          5,407          1,072           6,047           7,119
        Other borrowings                       (977)          3,515          2,538           (814)            371            (443)
                                           --------        --------       --------       --------        --------        --------
            Total                          $ 23,219        $  6,730         29,949       $(13,053)       $ 14,782           1,729
                                           ========        ========       --------       ========        ========        --------


            Increase in net interest income                               $  5,495                                       $ 13,424
                                                                          ========                                       ========

<FN>
(1)  Includes non-accruing loans and/or MBSs.

(2)  Includes loans held for sale.
</FN>
</TABLE>
                                                       -10-

<PAGE>



NET INTEREST MARGIN AT YEAR-END


The following  table sets forth the weighted  average yields on FFC's loan, MBS,
and investment  security  portfolios,  the weighted average cost of deposits and
borrowings,  the interest rate spread between the  anticipated  yields and costs
and the resulting net interest margin at the indicated dates.

<TABLE>
<CAPTION>

                                                                               December 31,
                                                                    ----------------------------------
                                                                    1995           1994          1993
                                                                    ----           ----          -----
<S>                                                                  <C>            <C>           <C>  
Weighted average yield:
   Mortgage loans                                                    7.74%          7.65%         7.73%
   Mortgage-related securities                                       7.15           6.42          5.86
   Other loans                                                       9.99           9.81          9.99
   Investments                                                       5.64           5.40          4.72
                                                                    -----          -----         -----
   Combined weighted average yield on
     loans and investments                                           8.03           7.64          7.38

Weighted average cost:
   Deposits and advance payments from
     borrowers for taxes and insurance                               4.55           4.14          3.99
   Borrowings                                                        6.31           6.07          5.27
                                                                    -----          -----         -----
   Combined weighted average cost
     of deposits and borrowings                                      4.75           4.41          4.11
                                                                    -----          -----         -----

Interest rate spread                                                 3.28%          3.23%         3.27%
                                                                    =====          =====         =====

Net interest margin                                                  3.46%          3.37%         3.38%
                                                                    =====          =====         =====


                                      -11-

<PAGE>



FINANCIAL CONDITION


GENERAL

Total  assets of FFC were  $5.47  billion at the end of 1995  compared  to $5.50
billion at year-end 1994.  Stockholders'  equity increased to 384.9 million,  or
7.04% of total  assets,  at December  31,  1995 from  $327.3  million and 5.95%,
respectively, at the end of 1994.

LIQUIDITY AND CAPITAL RESOURCES

On an unconsolidated  basis, FFC had cash of $13.6 million and subordinated debt
of $54.9  million at December  31, 1995.  On January 15, 1996,  FFC redeemed the
subordinated  debt at par plus  accrued  interest  with the  proceeds of a $50.0
million cash dividend received from FF Bank.

FF Bank is subject to certain regulatory  limitations relative to its ability to
pay  dividends  to FFC.  Management  believes  that FFC  will  not be  adversely
affected by these dividend  limitations and that projected future dividends from
FF Bank will be sufficient to meet the parent  company's  liquidity  needs.  See
Note L to the consolidated  financial statements for further discussion of these
limitations.  In addition to dividends from FF Bank, FFC also could sell capital
stock or debt  issues  through  the capital  markets as  alternative  sources of
funds.

FFC also has  available an unused  line-of-credit  in the amount of  $18,000,000
which is available  through April 1996. The  line-of-credit  agreement  contains
various  covenants  relative to the  operations of FFC and FF Bank.  All of such
covenants  were  met  during  1995.  See  Note J to the  consolidated  financial
statements for further discussion. In addition, FFC would pledge its stock in FF
Bank as collateral should the line-of-credit be drawn upon.

FF Bank is required to maintain  minimum  levels of liquid  assets as defined by
Office of Thrift Supervision ("OTS") regulations. This requirement, which may be
varied by the OTS, is based upon a percentage of average deposits and short-term
borrowings.  The  required  ratio  is  currently  5%.  FF Bank is  currently  in
compliance  with this  requirement.  FF Bank's  principal  sources  of funds are
amortization and prepayment of loan principal, deposits, sales of mortgage loans
originated for sale, FHL Bank advances, other borrowings and funds provided from
operations.  These  funds  are  used  to  meet  loan  commitments,   make  other
investments, fund deposit withdrawals and repay borrowings.

Total consolidated liquidity,  consisting of cash, cash equivalents,  short-term
securities and investment securities, increased $55.3 million during 1995. Total
consolidated  liquidity,  as a percent of total assets,  increased from 5.77% at
the end of 1994 to 6.81% at the end of 1995,  as a result  of the net  effect of
FFC's various operating, investing and financing activities.

In October 1995, the FASB approved a modification of SFAS No. 115 providing that
from  November  15, 1995  through  December  31, 1995 the Bank had the  one-time
opportunity to reconsider its classification of investment and  mortgage-related
securities as held-to-maturity, trading, or available-for-sale.  Accordingly, on
December  21,  1995,   FFC  chose  to   reclassify   certain   investments   and
mortgage-related securities from held-to-maturity to available-for-

                                      -12-

<PAGE>



sale. At the date of transfer,  the aggregate  amortized  cost of the investment
and mortgage-related securities was $20,734,000 and $391,537,000,  respectively,
and the  aggregate  net  unrealized  gain on those  securities  was $895,000 and
$410,000, respectively, which is included in stockholders' equity.

Operating activities resulted in a net cash inflow of $122.1 million.  Operating
cash flows for 1995  included  earnings  of $64.0  million  and  $211.7  million
realized  from the sale of mortgage  loans held for sale,  less  $210.2  million
disbursed for loans originated for sale.

Investing  activities  in 1995  resulted in a net cash inflow of $76.8  million.
Major investing activities resulting in cash outflows were $78.5 million for the
purchase of investment  securities  and $726.9  million for the  origination  of
loans for portfolio. The most significant cash inflows from investing activities
were principal  payments of $564.1 million and $233.9 million  received on loans
receivable and MBSs, respectively, as well as $60.7 million from the proceeds of
maturities of  investment  securities.  In addition,  $18.8 million was received
upon the sale of securities available for sale.

Financing  activities  for 1995 resulted in a net cash outflow of $145.7 million
represented  by a net increase in deposits of $38.9  million,  a net decrease in
borrowings of $137.9  million,  a cash outflow of $35.0 million for borrower tax
escrow checks, and $14.2 million in cash dividends paid to FFC stockholders.

At December 31, 1995, FF Bank had outstanding  commitments to originate mortgage
loans totaling $40.2 million and no commitments  outstanding to purchase  loans.
At that date, FF Bank also had commitments  outstanding to sell $43.3 million of
mortgage  loans  that were held for sale or for which FF Bank was  committed  to
originate. Loans held for sale totaled $26.7 million at the end of 1995. FF Bank
had no  commitments  to purchase  MBSs at  year-end  1995.  Management  believes
liquidity  levels  are proper  and that  adequate  capital  and  borrowings  are
available  through  the  capital  markets,  the FHL Bank of  Chicago  and  other
sources.


                                      -13-

<PAGE>



LOANS RECEIVABLE

Total  loans  receivable,  including  loans  held for sale,  increased  to $3.62
billion at the end of 1995 from $3.47 billion at the end of 1994. The components
of this increase are summarized, by type of loan collateral, as follows:


</TABLE>
<TABLE>
<CAPTION>

                                                                  December 31,                 Increase
                                                            1995              1994            (Decrease)
                                                         -----------       -----------       -----------
                                                                       (Dollars in thousands)
<S>                                                      <C>               <C>               <C>        
Real estate mortgage loans:
   One- to four-family                                   $2,038,103        $2,064,232        $  (26,129)
   Multi-family                                             220,772           215,703             5,069
   Commercial and other                                     153,173           143,762             9,411
                                                         ----------        ----------        ----------

      Total real estate mortgage loans                    2,412,048         2,423,697           (11,649)

Other loans:
   Consumer                                                 362,659           304,771            57,888
   Home equity                                              284,700           240,915            43,785
   Education                                                240,650           192,542            48,108
   Credit cards                                             214,107           200,747            13,360
   Manufactured housing                                     139,385           152,674           (13,289)
   Business                                                  17,198            19,023            (1,825)

Less: net items to loans receivable                         (53,947)          (63,922)            9,975
                                                         ----------        ----------        ----------

Total loans receivable (including
        loans held for sale)                             $3,616,800        $3,470,447        $  146,353
                                                         ==========        ==========        ==========
</TABLE>


The major components of the increase in total loans receivable  during 1995 were
a $57.9 million  increase in consumer  loans,  a $43.8 million  increase in home
equity loans, and a $48.1 million increase in education loans.

Consumer  loans  increased  $57.9 million in 1995 due to  continuing  success in
marketing a second mortgage  product and increased  automobile  financing.  Home
equity  loans have  increased  $43.8  million in 1995 as customer  usage of this
product continues to grow.  Education loans increased $48.1 million in 1995 as a
result of increased government guaranteed portfolio acquisitions and origination
referrals from other lenders. Manufactured housing loan balances decreased $13.3
million as FFC  continued  to  restrict  new  originations  of such loans to the
Midwest.  FFC exited the retail  manufactured  housing lending  business in late
1994 due to pricing  practices by  competitors.  During 1995, FFC purchased on a
wholesale  basis $18.8  million of seasoned  manufactured  housing  loans from a
government agency.

Aggregate  real estate  mortgage loans  decreased  $11.6 million during 1995. As
interest rates fell in 1995,  borrowers  turned to fixed rate financing and such
long-term fixed rate loans are generally sold into the secondary market.

MORTGAGE-RELATED SECURITIES

The total carrying value of the MBS portfolio  decreased $231.7 million to $1.27
billion  at  December  31,  1995 from  $1.50  billion  at the end of 1994.  This
decrease was the net result of i) repayments of $233.9  million,  and ii) a $1.6
million decline in the net unrealized holding loss on the available-for-sale MBS
portfolio. At the end of 1995, FFC had no commitments to purchase MBSs.

                                      -14-


<PAGE>




The following tables set forth, at the dates  indicated,  the composition of the
MBS portfolio  including issuer,  security type,  amortized cost, fair value and
financial  statement  carrying  value  as well as  classification  according  to
available-for-sale  or  held-to-maturity  status. See Note D to the consolidated
financial  statements for i) a further breakdown of the available-  for-sale and
held-to-maturity classifications of the MBS portfolio and ii) a summary of gains
and losses realized upon the disposition of  available-for-sale  MBSs during the
past three years.

<TABLE>
<CAPTION>

                                       December 31, 1995                        December 31, 1994
                               ----------------------------------      ------------------------------------
                               Amortized      Fair        Carrying     Amortized       Fair        Carrying
Issuer/Security Type              Cost        Value        Value          Cost         Value         Value
--------------------           ----------   ---------     --------     ----------   ---------     ----------
                                                          (Dollars in thousands)
<S>                            <C>          <C>           <C>          <C>          <C>           <C>       
U.S. Government agencies:
 Mortgage-backed certi-
      ficates                  $  347,177   $  353,712    $  349,216   $  397,325   $  383,830    $  395,544
 Collateralized mortgage
      obligations                 341,521      331,764       342,190      349,267      336,328       347,817
                               ----------   ----------    ----------   ----------   ----------    ----------
    Total agencies                688,698      685,476       691,406      746,592      720,158       743,361
                               ----------   ----------    ----------   ----------   ----------    ----------

Private issuers:
 Mortgage-backed certi-
  ficates
    Senior position               492,401      485,411       487,914      660,922      644,136       658,508
    Mezzanine position             98,459       90,829        90,829      103,864       98,507        98,507
 Collateralized mort-
      gage obligations                612          637           612        2,115        2,061         2,115
                               ----------   ----------    ----------   ----------   ----------    ----------
    Total private issuers         591,472      576,877       579,355      766,901      744,704       759,130
                               ----------   ----------    ----------   ----------   ----------    ----------

        Totals                 $1,280,170   $1,262,353    $1,270,761   $1,513,493   $1,464,862    $1,502,491
                               ==========   ==========    ==========   ==========   ==========    ==========

Total carrying value per consolidated
 financial statements, by classification:
    Available-for-sale portfolio                          $  571,293                              $  201,373
    Held-to-maturity portfolio                               699,468                               1,301,118
                                                          ----------                              ----------
        Total carrying value                              $1,270,761                              $1,502,491
                                                          ==========                              ==========
</TABLE>


Since MBSs are asset-backed securities, they are subject to inherent risks based
upon the future performance of the underlying  collateral (i.e., mortgage loans)
for these  securities.  Among these risks are prepayment risk and  interest-rate
risk. Should general  interest-rate  levels decline,  the MBS portfolio would be
subject to i) prepayments as borrowers  typically would seek to obtain financing
at lower rates,  ii) a decline in interest  income  received on  adjustable-rate
MBSs, and iii) an increase in fair value of fixed-rate MBSs. Conversely,  should
general interest-rate levels increase,  the MBS portfolio would be subject to i)
a longer  term to  maturity as  borrowers  would be less likely to prepay  their
loans, ii) an increase in interest income received on adjustable-rate MBSs, iii)
a decline  in fair value of  fixed-rate  MBSs and iv) a decline in fair value of
adjustable-rate  MBSs to an extent  dependent  upon the  level of  interest-rate
increases,  the time  period to the next  interest-rate  repricing  date for the
individual  security and the applicable  periodic  (annual and/or  lifetime) cap
which  could limit the degree to which the  individual  security  could  reprice
within a given time period.

As noted in the above table, included in FFC's MBS portfolio are private issuer,
primarily  adjustable-rate,  MBSs having a carrying  value of $578.7  million at
December 31, 1995. Unlike U.S.  Government agency MBSs which include a guarantee
of principal and interest payments on the underlying  collateral,  these private
issuer securities are generally  structured with a senior ownership position and
subordinate  ownership  position(s)  providing  credit  support  for the  senior
position. In a limited number of cases, this support is instead provided through
letters of credit or cash reserves.  Included in FFC's private issuer  portfolio
are several  mezzanine MBSs which are subordinate to the most senior position of
a given security but are also superior to other more subordinate positions.  The
structure of the

                                      -15-


<PAGE>



private  issuer MBSs may expose FFC to credit risk in addition to  interest-rate
risk and  prepayment  risk as discussed  above.  In this regard,  management has
instituted a monitoring  system for tracking  the major  factors  affecting  the
performance  of a private issuer MBS including i)  delinquencies,  foreclosures,
repossessions  and  recoveries   relative  to  the  underlying   mortgage  loans
collateralizing each security, ii) the level of available subordination or other
credit  enhancements,  iii) the  competence  of the  servicer of the  underlying
mortgage  portfolio and iv) the rating  assigned to each security by independent
national rating agencies. This ongoing monitoring process has confirmed that all
private  issuer MBSs,  with the exclusion of two  non-performing  mezzanine MBSs
(see "Non- Performing  MBSs"),  continue to be performing and do not display the
underlying problems experienced in the case of the two non-performing  mezzanine
securities.  Although  management  believes that the  performing  private issuer
securities will continue to contractually perform based on its review, there can
be no  assurance  that such  performance  will  continue  in the  future  should
economic conditions, market conditions, or other factors change significantly.

The aggregate  $485.4 million fair value of FFC's senior position private issuer
MBSs at the end of 1995  improved  to  98.6%  of the  aggregate  $492.4  million
amortized cost of those securities,  compared to a similar relationship of 97.5%
at the end of 1994. This improvement  relates  primarily to lower  interest-rate
levels in 1995.  Despite the improvement in interest-rate  levels, the aggregate
fair value of mezzanine  securities  of $90.8  million  declined to 92.3% of the
aggregate  amortized  cost of $98.5  million  at the end of 1995  compared  to a
similar  relationship of 94.8% at the end of 1994. The decrease in fair value of
the  mezzanine  securities  was  attributable  to a  continuing  thin market for
mezzanine  securities,  thus leading to limited  liquidity in these  securities.
Based upon i) the results of management's most current review of the performance
characteristics of the underlying mortgage loans  collateralizing  these private
issue securities (see discussion of FFC's  monitoring  system above) and ii) the
fact that those  securities not  classified as non-accrual  continue to perform,
management  believes that the private issuer MBSs have a net realizable value in
excess  of  their  indicated  fair  value  and/or  amortized  cost  and that the
indicated  impairment in fair value is not  permanent.  Management  also has the
intent and the ability to retain its investment in these securities for a period
of time sufficient to allow for any anticipated recovery of market value.

FFC's portfolio of MBSs totaled  approximately  $1.27 billion at the end of 1995
and, except for those securities discussed in "Non-Performing MBSs," were either
i) U.S.  Government  agency-backed or ii) rated at a minimum of investment grade
quality by at least one nationally  recognized  independent  rating  agency,  as
displayed below:
<TABLE>
<CAPTION>

                                                 Amortized                    Fair                     Carrying
Issuer                                              Cost                      Value                      Value
-------------------------                        ----------                 ----------                -----------
                                                                      (Dollars in thousands)
<S>                                              <C>                         <C>                       <C>
U.S. Government agencies                         $  688,698                  $  685,476                $  691,406
Private issuers:
  Securities rated AA or
   above                                            503,325                     498,101                   500,403
  Securities rated below
    AA, but of investment
    grade                                            54,642                      49,897                    50,073
  Securities rated below
    investment grade                                 33,505                      28,879                    28,879
                                                 ----------                  ----------                ----------
                                                 $1,280,170                  $1,262,353                $1,270,761
                                                 ==========                  ==========                ==========
</TABLE>


                                      -16-


<PAGE>



NON-PERFORMING ASSETS


Non-performing   assets   (consisting   of  impaired  and   non-accrual   loans,
non-performing MBSs,  foreclosed  properties,  and other repossessed  collateral
assets)  decreased to $29.8  million at December 31, 1995 from $32.3  million at
December 31, 1994.  The 1995 decrease in  non-performing  assets  relates to the
reduction in carrying value of $2.6 million of two private- issue mezzanine MBSs
placed in non-accrual status during 1994 (see "Non-Performing  MBSs" below). The
carrying  value for these two MBS's  decreased  due to i) amounts  written  down
through charges against the $9.0 million allowance for losses established during
1994 and, ii) certain limited  payments  received in 1995.  Other loan and asset
category  fluctuations  generally  offset.  As a  percentage  of  total  assets,
non-performing  assets  decreased  from 0.59% at  December  31, 1994 to 0.54% at
December 31, 1995.  During the five years ended  December 31, 1995,  FFC has not
had any troubled debt  restructurings.  Non-performing  assets are summarized as
follows for the dates indicated:

<TABLE>
<CAPTION>

                                                                    December 31,
                                              --------------------------------------------------------
                                               1995        1994         1993         1992        1991
                                              ------      ------       ------       ------      ------
                                                               (Dollars in thousands)
<S>                                           <C>         <C>          <C>          <C>         <C>    
Non-accrual loans:
   One- to four-family
      residential                             $ 6,449     $ 5,706      $ 6,361      $ 7,320     $11,641
   Multi-family residential                       873         585          374          314         475
   Commercial real estate                         162         271          340        6,496       2,651
   Manufactured housing                           926       1,034        1,063        1,295       1,851
   Consumer and other                           3,836       2,968        2,117        1,961       3,019
                                              -------     -------      -------      -------     -------
      Total non-accrual loans                  12,246      10,564       10,255       17,386      19,637

Non-performing MBSs                            12,858      15,455           --           --          --
Real estate judgments                           1,436       2,503        2,236        2,761       3,572
Real estate foreclosed
      properties                                1,538       2,446        6,126       17,262      28,017
Real estate held for sale                       1,309       1,089           --           --          --
Repossessed collateral assets                     405         267          163          462         889
                                              -------     -------      -------      -------     -------

      Total non-performing
        assets                                $29,792     $32,324      $18,780      $37,871     $52,115
                                              =======     =======      =======      =======     =======

Non-accrual loans as a
   percentage of net loans                       .34%        .30%         .33%         .71%        .88%

Non-performing assets as a
   percentage of total assets                    .54%        .59%         .36%         .88%       1.44%

</TABLE>

Non-Accrual and Impaired Loans. FFC places loans into a non-accrual  status when
loans are contractually  delinquent more than ninety days. When a loan is placed
on  non-accrual  status,  previously  accrued but unpaid  interest is  reversed.
Non-accrual  loans have increased as a percentage of net loans to .34% from .30%
at  December  31,  1995  and  1994,  respectively.   The  total  of  residential
non-accrual loans increased by $1.0 million to $7.3 million at December 31, 1995
from year-end  1994 and the  non-accrual  consumer and other loans  increased by
$800,000 for the same period. These increased  non-accrual loan categories total
$1.8  million  and  account  for  the net  increase  of $1.6  million  in  total
non-accrual  loans from 1994  year-end to December  31,  1995.  The  non-accrual
loans,  in the  aggregate,  at  December  31,  1995,  1994 and 1993  represented
$900,000, $700,000 and

                                      -17-


<PAGE>



$800,000 of  interest  which would have been  reflected  in 1995,  1994 and 1993
income, respectively, if the loans had been contractually current.

The increase in residential  mortgage non-accrual loans is more than offset by a
reduction of $1.6 million in residential  mortgage  delinquencies  of 30-90 days
from  year-end  1994 to  December  31,  1995.  While  a  portion  of such  30-90
delinquent   residential   mortgage  loans  continued  to  become   increasingly
delinquent and converted to non-accrual  status,  the remainder improved or were
paid off.  The credit  card  non-accrual  loans  increased  throughout  the year
similar to the national trend for credit card accounts but at lower  delinquency
percentages  compared to the  national  comparative  statistics.  FFC's  overall
delinquency  ratios for credit card accounts remain at  approximately  25% below
national averages in spite of trending upward during 1994 and 1995.

Non-Performing MBSs. At December 31, 1995, FFC had two non-accrual MBSs, held in
the available for sale portfolio,  with an amortized cost of $12.9 million,  net
of applicable allowances for loss, and a carrying value of $9.5 million. Each of
these MBSs is a mezzanine security,  which is subordinate to the senior position
of that issue but still  superior  to other  subordinate  positions  designed to
absorb  first  losses.  FFC has not  received  full  monthly  payments  on these
securities  since 1993. The payments have been  interrupted due to delinquencies
and foreclosures in the underlying  mortgage  portfolio and substantially all of
the cash  flows are  currently  directed  to owners of the  senior  position(s).
Further delayed receipt of payments is probable. The underlying loans comprising
these securities had been serviced by a California institution under the control
of the Resolution Trust Corporation ("RTC"). During 1994 and 1995, servicing was
transferred  from  the RTC to the  trustee  and  subsequently  to a  third-party
servicer.  In  1994,  independent  national  rating  agencies  downgraded  these
securities  to  below  investment  grade.  Subsequent  to  the  downgrading,  an
allowance  for loss was  recorded  reflecting  a permanent  impairment  of these
securities.  The  allowance  amount was based upon  information  from the rating
agencies as well as discounted cash flow analyses performed by management, based
upon assumptions for delinquency  levels,  foreclosure rates and recovery ratios
in the underlying portfolios. Relative to one mezzanine issue, having a carrying
value of $4.2 million,  FFC's  subordinated  protection has been  eliminated and
principal  losses,  which were anticipated in the  aforementioned  provision for
loss, of approximately  $750,000 have been realized during 1995. FFC's mezzanine
position for the second issue, having a carrying value of $5.3 million,  remains
superior to subordinate  positions amounting to 4.42% of the aggregate par value
of that issue at the end of 1995.

Also  in  1994,  independent  national  rating  agencies  downgraded,  to  below
investment  grade,  an  unrelated  senior  position  security of the above noted
issuer.  This senior  position  security had a carrying value of $6.3 million at
the  end of  1995.  During  1995,  independent  national  rating  agencies  have
downgraded,  to below  investment  grade,  additional  MBSs of  three  unrelated
issuers in which FFC had senior  ownership  positions having a carrying value of
$13.1 million at December 31, 1995. The aggregate par value,  amortized cost and
carrying value of all of the above  discussed  senior-position  MBSs rated below
investment  grade,  each of which is held in the available  for sale  portfolio,
were $21.8 million, $21.9 million and $19.4 million,  respectively,  at December
31, 1995. These senior position  securities continue to be performing assets and
are superior to subordinate positions amounting to 5.8% of the current aggregate
par value of the securities in question at year-end 1995.


                                      -18-


<PAGE>



Management  believes  that the  allowance  for  losses on the  above  referenced
securities is adequate based upon its  evaluations,  including  information from
the rating  agencies  as well as  discounted  cash flow  analyses  performed  by
management,  which are based upon  certain  assumptions  for future  delinquency
levels,  foreclosure  rates and recovery  ratios in the  underlying  portfolios.
There can be no  assurance  that these  evaluations  will remain the same in the
future should economic  conditions,  market conditions,  or other factors differ
significantly  from the assumptions used.  Management has the intent and ability
to retain its investment in these  securities for a period of time sufficient to
allow for anticipated recovery of fair value.

Other  Non-Performing  Assets. The increase in non-accrual loans discussed above
was offset by a decrease  in FFC's  other  non-performing  assets.  Real  estate
judgments,  foreclosed  properties  and real estate held for sale decreased $1.7
million from  year-end  1994 to December 31, 1995  consisting of $1.5 million in
dispositions and $200,000 of charge-offs during 1995. FFC has been able to limit
its  inventory  of large  commercial  real  estate  properties  owned  (having a
carrying  value of $1.0  million or greater)  to two  properties  totaling  $2.1
million at December 31, 1995.  One retail  property for $1.0 million at December
31, 1995 was acquired in the FirstRock  acquisition.  The remaining $1.1 million
property  was held by FFC at December 31, 1994 and is real estate held for sale.
The remainder of the real estate  judgments and  foreclosed  properties  consist
primarily of one- to four-family or small multi-family properties located in the
Midwest.

Summary.   Non-performing   and  impaired  (as  defined)  assets  have  declined
significantly  during the five-year period ended December 31, 1995 due to i) the
disposition of such properties  acquired in the acquisition of a troubled thrift
institution  in 1985,  ii)  improved  collection  efforts and iii) a  management
decision to restrict lending primarily to Wisconsin, Illinois and other selected
Midwestern states.

All non-performing and impaired assets have been considered by management in the
review of the adequacy of allowances for losses.

ALLOWANCES FOR LOSSES ON LOANS AND FORECLOSED PROPERTIES

FFC's loan  portfolios,  foreclosed  properties and off-balance  sheet financial
guarantees  are  evaluated on a continuing  basis to determine the necessity for
additions to the allowances for losses and the related  aggregate balance of the
allowances.  These  evaluations  consider  several  factors  including,  but not
limited to,  general  economic  conditions,  collateral  value,  loan  portfolio
composition, prior loss experience and management's estimate of future potential
losses.  The evaluation of allowances for loan losses  includes a review of both
known loan problems as well as potential  problems based upon historical  trends
and ratios. The allowances for losses on foreclosed properties are maintained at
levels adequate to absorb  potential future declines in the estimated fair value
of the properties.


                                      -19-


<PAGE>
A summary of activity in the allowances for losses on loans follows:
<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                              -------------------------------------------------------------
                                               1995         1994          1993          1992          1991
                                              ------       ------        ------        ------        ------
                                                                 (Dollars in thousands)

<S>                                           <C>          <C>           <C>           <C>           <C>    
Balance at beginning of year                  $25,180      $25,905       $19,540       $17,493       $16,165

Charge-offs:
   Residential real estate                     (1,111)        (864)         (839)       (1,691)       (2,155)
   Commercial real estate                          (3)        (288)         (501)       (1,044)       (2,165)
   Manufactured housing                        (1,397)      (1,477)       (2,731)       (4,212)       (7,365)
   Credit card                                 (7,912)      (6,658)       (5,890)       (6,142)       (5,640)
   Consumer-related                              (383)        (371)         (525)         (524)         (711)
   Commercial                                    (281)        (214)           --        (1,367)       (1,051)
                                              -------      -------       -------       -------       -------
      Total charge-offs                       (11,087)      (9,872)      (10,486)      (14,980)      (19,087)
                                              -------      -------       -------       -------       -------

Recoveries:
   Residential real estate                        147          604           138           242           219
   Commercial real estate                          80           --            --             3             1
   Manufactured housing                           204          181           179           288           272
   Credit card                                    878          593           653           584           653
   Consumer-related                                86          127           426           131           233
   Commercial                                       9            2            --            --            --
                                              -------      -------       -------       -------       -------
      Total recoveries                          1,404        1,507         1,396         1,248         1,378
                                              -------      -------       -------       -------       -------

Net charge-offs                                (9,683)      (8,365)       (9,090)      (13,732)      (17,709)

Provisions for losses                           9,738        6,824        10,570        15,779        19,037

Acquired banks' allowances                         --          816         4,885            --            --
                                              -------      -------       -------       -------       -------

Balance at end of year                        $25,235      $25,180       $25,905       $19,540       $17,493
                                              =======      =======       =======       =======       =======

Ratio of net charge-offs to
   average loans outstanding                     .27%         .25%          .31%          .59%          .76%

Ratio of allowance for losses
   on loans to average loans
   outstanding                                   .71%         .76%          .87%          .84%          .75%


A summary of the activity in the allowance  for losses on foreclosed  properties
follows:

</TABLE>
<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                              ------------------------------------------------------------
                                               1995         1994          1993          1992         1991
                                              ------       ------        ------        ------       ------
                                                                 (Dollars in thousands)

<S>                                           <C>          <C>           <C>           <C>          <C>   
Balance at beginning of year                  $1,146       $3,561        $3,377        $2,569       $2,378
Charge-offs                                     (213)      (3,415)       (3,335)       (5,016)      (3,377)
Provision                                         60        1,000         3,519         5,824        3,568
                                              ------       ------        ------        ------       ------

Balance at end of year                        $  993       $1,146        $3,561        $3,377       $2,569
                                              ======       ======        ======        ======       ======
</TABLE>

The  provisions  for  losses  on  foreclosed  properties  are  included  in  the
consolidated  statements  of  income in "net cost of  operations  of  foreclosed
properties."

FFC's allowance for losses on loans remained steady at $25.2 million at December
31, 1995 compared to December 31, 1994.  The ratio of  allowances  for losses on
loans to average loans, however,  decreased from year-end 1994 to year-end 1995,
from .76% to .71%,  respectively.  This  decline in the ratio of  allowances  to
loans is the result of both  increased  loan portfolio size during 1995 and also
the detailed  analysis of the reserve  levels  appropriate  for the various loan
categories based on historical data and current trends.

                                      -20-


<PAGE>




The  aggregate  allowances  for losses on loans was  virtually the same at $25.2
million at both year-ends  1995 and 1994, but there were certain  changes in the
allocation  of  balances  by loan  type.  The most  significant  increases  were
$700,000  in the  residential  real estate loan  allowance  and  $600,000 in the
consumer loan allowance.  Management strengthened the real estate loan allowance
to a slightly  higher ratio to related loan balances for this largest segment of
the total  portfolio.  Consumer  loan growth  during 1995 is also  substantially
collateralized  by  residential  real estate and  allowances  were  increased in
relation to such growth.

The major  decreases in  allowances  for losses  occurred in the  allowance  for
losses for the  manufactured  housing loan portfolio  which continues to decline
since FFC left that  market.  The  allowance  for  losses on credit  card  loans
decreased  $300,000 from year-end  1994 to year-end  1995.  This decrease in the
credit card  allowance  is the result of net  charge-offs  exceeding  provisions
added to the allowance during 1995. National delinquency and charge-off data for
credit card portfolios are trending upward and FFC is experiencing  the same but
at lower levels than most lenders.  Recent data show FFC is  experiencing  about
25% lower delinquency and charge-off  balances than national averages.  However,
as a result  of FFC's  charge-off's  for  credit  card  loans to  average  loans
increasing  to 3.51% for 1995  from  3.09% for  1994,  management  is  carefully
monitoring  the credit  card  portfolio,  the related  allowance  for losses and
related provision for losses.

The 1995  provisions  for  losses on loans and losses on  foreclosed  properties
totaled $9.7 million and $60,000, respectively, compared to the $6.8 million and
$1.0 million,  respectively,  for 1994.  The overall  increase in provisions for
1995  versus  1994  reflects  the  additional   residential  mortgage  provision
emphasized  by  management  for the largest  segment of the loan  portfolio as a
whole.  Provisions  for credit cards and consumer  loans also increased for 1995
compared to 1994 and those  increases were offset by decreases in the provisions
for losses on manufactured housing loans for the same period. The provisions for
losses  for years  1995,  1994 and 1993  remain at  significantly  lower  levels
compared  to earlier  years 1992 and 1991 when FF Bank's  charge-off  experience
from  certain  portfolio  segments  and  foreclosed  properties  from an earlier
acquisition  required larger  allowances for losses.  Also, see  "Non-Performing
Assets" for further discussion of this trend.

FF  Bank  has  also,  in  the  past,  undertaken   off-balance  sheet  financial
guarantees,  totaling $11.0 million at December 31, 1995,  whereby certain of FF
Bank's  assets,  primarily  MBSs and  securities,  are pledged as  collateral or
letters of credit  have been issued for  industrial  development  revenue  bonds
which were  issued by  municipalities  to  finance  real  estate  owned by third
parties.   Management  has  considered  these  guarantees,   all  of  which  are
performing,  in its review of the adequacy of the allowance for loan losses. See
Note N to the  consolidated  financial  statements  for  further  discussion  of
off-balance sheet financial guarantees.

Management  believes  that  the  December  31,  1995,  allowances  for  loan and
foreclosed  property  losses are adequate  based upon the current  evaluation of
loan  delinquencies,  non-performing  and impaired  assets,  charge-off  trends,
economic  conditions and other factors.  Management also continues to pursue all
practical and legal methods of collection, repossession and disposal, as well as
adhering to high underwriting  standards in the origination process, in order to
continue to maintain such provisions at or below current levels.



                                      -21-


<PAGE>



A  detailed  analysis  of FFC's  allowances  for  losses  on loans  and  related
charge-off information is as follows for the dates and years indicated:

<TABLE>
<CAPTION>

                 At December 31, 1995                   At December 31, 1994                   At December 31, 1993
                 --------------------                   --------------------                   --------------------

                                           Net Charge                             Net Charge                            Net Charge
                                             -offs                                  -offs                                 -offs
                                              As A                                  As A                                  As A
                                             Percent                               Percent                               Percent
                             Allowance    Of Average                  Allowance  Of Average                Allowance   Of Average
                            As A Percent    Related                 As A Percent   Related                As A Percent   Related 
                                Of            Loans                     Of          Loans                     Of          Loans
                            Outstanding     For The                 Outstanding     For The               Outstanding    For The 
                 Allowance    Loans In        Year       Allowance    Loans In       Year        Allowance  Loans In       Year
Type of Loan      Amount     Category   Ended 12/31/95    Amount     Category   Ended 12/31/94    Amount    Category  Ended 12/31/93
------------    ---------    --------   --------------  ---------   ----------  --------------   --------  ---------- --------------
                                                                        (Dollars in thousands)
<S>               <C>           <C>           <C>          <C>            <C>           <C>        <C>             <C>        <C> 
Residential real 
 estate           $ 7,726       .34%          .04%         $ 6,990        .31%          .01%       $ 6,792         .31%       .03%
Commercial real 
 estate             3,823      2.50          (.05)           3,632       2.53           .22          5,353        4.68        .42
Manufactured 
 housing            3,034      2.18           .83            4,267       2.79           .81          4,668        2.83       1.85
Credit cards        6,425      3.00          3.51            6,737       3.36          3.09          6,502        3.10       2.87
Consumer            3,029       .84           .05            2,444        .80           .08          1,820        1.01        .03
Education              51       .02            --               46        .02            --             52         .03        .01
Home equity           562       .20           .04              487        .20           .02            718         .36        .02
Commercial            585      3.40          1.59              577       3.03          1.02             --          --         --
                  -------                                  -------                                 -------
                  $25,235       .70%          .27%         $25,180        .73%          .25%       $25,905         .82%       .31%
                  =======     =====         =====          =======      =====         =====        =======       =====      =====
</TABLE>




FFC's  allowances for losses on loans were allocated to various loan  categories
as follows for the dates indicated:

<TABLE>
<CAPTION>

                                                                    December 31,
                             1995                  1994                1993                   1992                   1991
                      --------------------  -------------------   --------------------  --------------------   --------------------
                                                                                     (Dollars in thousands)
                              Percent Of              Percent Of          Percent Of             Percent Of             Percent Of
                             Loans in Each          Loans In Each        Loans In Each          Loans In Each          Loans In Each
                              Category to            Category to          Category to            Category to            Category to
Type of Loan          Amount  Total Loans   Amount   Total Loans  Amount  Total Loans   Amount   Total Loans   Amount   Total Loans
------------          ------  ------------  ------   ----------   ------  ------------  ------   ------------  ------   -----------
<S>                  <C>         <C>       <C>          <C>     <C>          <C>       <C>          <C>       <C>         <C>  
Residential real 
 estate              $ 7,726     61.5%     $ 6,990      64.5%   $ 6,792      67.6%     $ 4,140      64.5%     $ 3,251     63.8%
Commercial real   
 estate                3,823      4.2        3,632       4.1      5,353       3.6        5,281       4.9        4,788      5.5
Manufactured 
 housing               3,034      3.8        4,267       4.3      4,668       5.1        4,325       5.3        4,492      6.1
Credit cards           6,425      5.8        6,737       5.7      6,502       6.5        4,034       7.2        2,734      7.0
Consumer and other     3,642     24.2        2,977      20.9      2,590      17.2        1,760      18.1        1,138     17.4
Commercial               585       .5          577        .5         --        --           --        --        1,090       .2
                     -------    -----      -------     -----    -------     -----      -------     -----      -------     -----
                     $25,235    100.0%     $25,180     100.0%   $25,905     100.0%     $19,540     100.0%     $17,493    100.0%
                     =======    =====      =======     =====    =======     =====      =======     =====     =======    =====

</TABLE>

                                      -22-


<PAGE>



DEPOSITS

Deposits increased $43.1 million during 1995 as a result of shifting of funds by
depositors  as interest  rates rose  substantially  during  1995.  The  weighted
average cost of deposits  increased to 4.56% at the end of 1995,  from the 4.15%
reported at the end of 1994, due to increases in general interest rate levels.

BORROWINGS

At December 31, 1995, FFC's consolidated  borrowings decreased to $570.5 million
from $708.4  million at the end of 1994. The decrease in borrowings is primarily
attributable to a decrease in FHL Bank advances of $146.8 million.  The weighted
average cost of borrowings  increased to 6.31% at the end of 1995 as compared to
6.07% at year-end  1994 as a result of  generally  higher  interest  rate levels
during 1995.

STOCKHOLDERS' EQUITY

Stockholders'  equity at December 31, 1995 was $384.9  million or 7.04% of total
assets,  compared to $327.3  million or 5.95% of total  assets at  December  31,
1994. The dollar increase in  stockholders'  equity,  after  restatement of 1994
amounts to reflect the stock issued in  connection  with the  FirstRock  merger,
resulted  from  the net  effect  of i) net  income  of $64.0  million,  ii) cash
dividend  payments to  stockholders  of $14.2 million and iii) an improvement of
$2.6  million  in  the  net  unrealized   holding  loss  on   available-for-sale
securities.  Stockholders'  equity per share  increased from $11.24 per share at
year-end 1994 to $12.97 per share at year-end 1995.

REGULATORY CAPITAL

FF Bank is  subject to  various  OTS  capital  measurements  and had  regulatory
capital  well in  excess  of all OTS  requirements  at  December  31,  1995,  as
summarized below:

<TABLE>
<CAPTION>

                                                           OTS Capital Ratios
                                           ------------------------------------------------
                                           Actual                Required
                                           Ratio                  Ratio              Excess
                                           ------                --------            ------

<S>                                           <C>                 <C>                  <C>  
Tangible capital                              7.30%               1.50%                5.80%
Core leverage capital                         7.59%               3.00%                4.59%
Risk-based capital                           15.82%               8.00%                7.82%

</TABLE>

The OTS has adopted a final rule,  effective March 4, 1994,  disallowing any new
core  deposit  intangibles,  acquired  after the  rule's  effective  date,  from
counting as regulatory capital.  Core deposit intangibles  acquired prior to the
effective  date have been  grandfathered  for purposes of this rule. At December
31, 1995, FFC had core deposit  intangibles of $17.3 million,  all of which have
been  grandfathered  from this OTS rule. The OTS has added an interest-rate risk
calculation such that an institution with a measured interest-rate risk exposure
greater than specified levels must deduct an  interest-rate  risk component when
calculating the OTS risk-based capital requirement. Final implementation of this
rule was pending at the end of 1995.  The OTS also has  proposed to increase the
minimum  required  core capital ratio from the current 3.00% to a range of 4.00%
to 5.00% for all but the most healthy financial institutions.  Management of FFC
and FF Bank do not believe these rules

                                      -23-


<PAGE>



will significantly  impact the capital  requirements of FF Bank or cause FF Bank
to fail to meet its regulatory capital requirements.

For a more detailed discussion of regulatory capital requirements, see Note L to
the consolidated financial statements.

ASSET/LIABILITY MANAGEMENT

The objective of FFC's asset/liability policy is to manage interest-rate risk so
as  to  maximize  net  interest  income  over  time  in  changing  interest-rate
environments.  To this end,  management  believes that  strategies  for managing
interest-rate   risk  must  be  responsive  to  changes  in  the   interest-rate
environment and must recognize and accommodate the market demands for particular
types of deposit and loan products.

Interest-bearing  assets  and  liabilities  can be  analyzed  by  measuring  the
magnitude by which such assets and liabilities are  interest-rate  sensitive and
by  monitoring an  institution's  interest-rate  sensitivity  "gap." An asset or
liability is determined  to be  interest-rate  sensitive  within a specific time
frame if it  matures or  reprices  within  that time  period.  An  interest-rate
sensitivity   "gap"  is  defined  as  the  difference   between  the  amount  of
interest-earning  assets anticipated to mature or reprice within a specific time
period and the amount of interest-costing  liabilities  anticipated to mature or
reprice  within the same time  period.  A gap is  considered  positive  when the
amount of  interest-rate  sensitive  assets exceeds the amount of  interest-rate
sensitive liabilities that mature or reprice within a given time frame. A gap is
considered  negative  when the  amount of  interest-rate  sensitive  liabilities
exceeds  the amount of  interest-rate  sensitive  assets  that mature or reprice
within a specified time period.

Summary gap information for FFC is presented below as of year end 1995 and 1994.

<TABLE>
<CAPTION>

                                                          Ratio of Cumulative
                                                      Negative Gap To Total Assets
                                       -----------------------------------------------------------
                                        One Year                Three Years              Five Years
                                        --------                -----------              ----------
<S>      <C> <C>                          <C>                     <C>                      <C>    
December 31, 1995                         (3.65)%                 (4.01)%                  (3.15)%
December 31, 1994                         (1.93)                  (4.29)                   (6.06)
</TABLE>



FFC's  negative  one-year  gap  increased to $199.8  million,  or 3.65% of total
assets, at the end of 1995 from $106.1 million, or 1.93% of total assets, at the
end of 1994.  FFC's  consolidated  one-year  negative  gap  position of 3.65% at
December 31, 1995 falls within  management's  currently  acceptable range of 10%
positive to 10% negative. Traditionally,  management of FFC and FF Bank have not
utilized  off-balance  sheet  derivative  financial  instruments  as part of its
efforts to control  interest-rate  risk.  In view of the  current  interest-rate
environment  and the related impact on customer  behavior,  management  believes
that it is  important  to  weigh  and  balance  the  effect  of  asset/liability
management  decisions in the  short-term in its efforts to maintain net interest
margins and acceptable future  profitability.  As such, management believes that
it has been able to achieve a consistent net interest margin while still meeting
asset/liability management objectives.

In this regard,  FF Bank also  measures and evaluates  interest-rate  risk via a
separate  methodology.  The net market  value of  interest-sensitive  assets and
liabilities  is  determined  by measuring  the net present  value of future cash
flows under  varying  interest  rate  scenarios  in which  interest  rates would
theoretically increase or decrease up to 400 basis points on a

                                      -24-


<PAGE>



sudden  and  prolonged  basis.  This  theoretical  analysis  at the  end of 1995
indicates that FF Bank's current financial position should adequately protect FF
Bank, and thus FFC, from the effects of rapid rate changes. The OTS has added an
interest-rate  risk  calculation  such  that  an  institution  with  a  measured
interest-rate  risk  exposure  greater  than  specified  levels  must  deduct an
interest-rate  risk  component  when  calculating  the  OTS  risk-based  capital
requirement.  The final  implementation  of this rule was  pending at the end of
1995 as the OTS has delayed the  effective  date of the  regulation  pending its
adoption of a process by which an  institution  may appeal an OTS  interest-rate
risk capital  deduction  determination.  At December 31, 1995, FF Bank would not
have  been  required  to deduct  an  interest-rate  risk  component  under  this
regulation.

Asset/Liability  Repricing Schedule.  The table on the following page sets forth
the combined estimated  maturity/repricing  structure of FFC's  interest-earning
assets  (including net items) and  interest-costing  liabilities at December 31,
1995.  Assumptions  regarding  prepayment and withdrawal rates are based upon FF
Bank's  historical  experience,  and management  believes such  assumptions  are
reasonable.  The table  does not  necessarily  indicate  the  impact of  general
interest-rate  movements on FF Bank's net interest  income because  repricing of
certain categories of assets and liabilities through,  for example,  prepayments
of loans and withdrawals of deposits,  is beyond FF Bank's control. As a result,
certain assets and liabilities indicated as repricing within a stated period may
in fact  reprice  at  different  times and at  different  rate  levels.  Certain
shortcomings are inherent in the method of analysis  presented in the gap table.
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.
Additionally, certain assets, such as adjustable-rate loans, have features which
restrict  changes in interest  rates on a short-term  basis and over the life of
the asset.  Further, in the event of a change in interest rates,  prepayment and
early  withdrawal  levels  could  deviate  significantly  from those  assumed in
calculating the data in the table.



                                      -25-


<PAGE>



<TABLE>
<CAPTION>

FIRST FINANCIAL CORPORATION CONSOLIDATED GAP ANALYSIS AT DECEMBER 31, 1995



                                      Three       Four       Greater      Greater      Greater     Greater
                                      Months      Months     Than One    Than Three   Than Five   Than Ten     Greater
                                       And       Through      Through      Through     Through     Through       Than
                                      Under      One Year   Three Years  Five Years   Ten Years    20 Years    20 Years     Total
                                    ---------    --------   -----------  ----------   ---------   ----------  ----------  --------
                                                                         (Dollars in thousands)
<S>                                <C>         <C>          <C>          <C>          <C>         <C>        <C>        <C>        
Rate-sensitive assets:
   Investments and interest-
     earning deposits, including
     federal funds (a)(b)          $  122,154  $   56,263   $   42,020   $  28,146    $    572    $ 35,456   $     --   $   284,611
   Mortgage-related securities (b)    552,083     630,077       34,332      20,172      23,168      10,605        324     1,270,761
   Mortgage loans:
     Fixed-rate (c)(d)                 61,857     155,776      361,280     241,778     387,156     140,937      8,624     1,357,408
     Adjustable-rate (c)              170,205     425,547      414,863          --          --          --         --     1,010,615
   Other loans                        679,569     183,327      199,763      79,180      81,580      24,175      1,183     1,248,777
                                    ---------   ---------    ---------    --------    --------    --------   --------    ----------
                                    1,585,868   1,450,990    1,052,258     369,276     492,476     211,173     10,131     5,172,172

Rate-sensitive liabilities:
   Deposits (e)(f):
     Checking                         129,157      27,032       67,487      52,665      82,363      73,909     40,590       473,203
     Money market accounts             83,660      39,206       90,086      46,845      39,583      10,049      1,116       310,545
     Passbook                         273,473     198,662       60,431      43,510      62,655      39,875      9,354       687,960
     Certificates of deposit          666,949   1,262,832      847,927     176,382       3,716          --         --     2,957,806
   Borrowings                         535,297      20,368        5,984       2,797         832       1,910      3,320       570,508
                                    ---------   ---------    ---------    --------    --------    --------   --------    ----------
                                    1,688,536   1,548,100    1,071,915     322,199     189,149     125,743     54,380     5,000,022
                                    ---------   ---------    ---------    --------    --------    --------   --------    ----------

GAP (repricing difference)         $ (102,668) $  (97,110)  $ ( 19,657)  $  47,077    $303,327    $ 85,430   $(44,249)   $  172,150
                                    =========   =========    =========    ========    ========    ========   ========    ==========

Cumulative GAP                     $ (102,668) $ (199,778)  $ (219,435)  $ (172,358)  $130,969    $216,399   $172,150
                                    =========   =========    =========    ========    ========    ========   ========

Cumulative GAP/Total Assets             (1.88)%     (3.65)%      (4.01)%     (3.15)%      2.39%       3.96%      3.15%
                                    =========   =========    =========    =========   ========    ========   ========


<FN>
(a)   Investments  are adjusted to include FHL Bank stock totaling $35.5 million
      as investments in the "Greater than Ten Through 20 Years" category.

(b)   Investment  and  mortgage-related  securities  are  presented  at carrying
      value, including net unrealized holding gain or loss on available-for-sale
      securities.

(c)   Based upon 1) contractual maturity,  2) repricing date, if applicable,  3)
      scheduled  repayments  of  principal  and  4)  projected   prepayments  of
      principal based upon FFC's  historical  experience as modified for current
      market conditions.

(d)   Includes loans held for sale.

(e)   Deposits  include $13.2  million of advance  payments by borrowers for tax
      and insurance and exclude accrued interest of $8.2 million.

(f)   FFC has assumed that its  passbook  savings,  checking  accounts and money
      market accounts would have projected annual withdrawal  rates,  based upon
      FFC's historical experience, of 26%, 34% and 42%, respectively.
</FN>
</TABLE>

                                      -26-

<PAGE>




REGULATORY ISSUES

FF Bank's  deposits  are  insured  by the  Savings  Association  Insurance  Fund
("SAIF") of the FDIC.  Deposit insurance  premiums to both the SAIF and the Bank
Insurance  Fund ("BIF") of the FDIC were  identical when both funds were created
in 1989,  with an eight cent  differential  between the  premiums  paid by well-
capitalized institutions and the premiums paid by under-capitalized institutions
(23  cents  to 31 cents  per $100 of  assessable  deposits).  Deposit  insurance
premiums  for the SAIF and the BIF,  which  insures  deposits  in  national  and
state-chartered  banks, are set to facilitate each fund achieving its designated
reserve ratio. In August 1995, the FDIC determined that the BIF had achieved its
designated reserve ratio and lowered BIF deposit insurance premium rates for all
but the riskiest institutions.  Effective January 1, 1996, BIF deposit insurance
premiums  for  well-capitalized  banks were  further  reduced  to the  statutory
minimum  of  $2,000  per  institution   per  year.   Because  the  SAIF  remains
significantly  below  its  designated  reserve  ratio,  SAIF  deposit  insurance
premiums  were not reduced and remain at 0.23% to 0.31% of deposits,  based upon
an  institution's  supervisory  evaluations  and  capital  levels.  The  current
discrepancy  in deposit  insurance  premiums  between the BIF and the SAIF could
place FF Bank at a competitive disadvantage to BIF insured institutions.

The current financial condition of the SAIF has resulted in proposed legislation
to recapitalize the SAIF through a one-time special assessment (of approximately
80 cents to 85 cents per $100 of assessable  SAIF deposits as of March 31, 1995)
and in  legislation  to then  merge  the  SAIF  into  the  BIF.  If the  special
assessment is enacted,  a special  one-time  assessment of  approximately  $24.0
million,  net of tax  effect,  would be  imposed on FF Bank.  After the  special
assessment,  it is expected that the SAIF would achieve its  designated  reserve
ratio and that SAIF premium rates would then become comparable to BIF rates. The
proposed  legislation also contemplates a merger of the SAIF into the BIF, which
would  require  separate  legislation.  FFC is unable to  predict  whether  this
legislation will be enacted or the amount or applicable  retroactive date of any
one-time  assessment  or the rates  that would  then  apply to  assessable  SAIF
deposits.

Legislation  also has been  proposed that could  eliminate  the federal  savings
association  charter.  If such legislation is enacted, FF Bank would be required
to convert its federal savings bank charter to either a national bank charter or
to a state  depository  institution  charter.  Pending  legislation  may provide
relief as to recapture of the bad debt  deduction  for federal tax purposes that
otherwise would be applicable if FF Bank converted its charter, provided that FF
Bank  meets  a  proposed  residential  loan  origination  requirement.   Pending
legislation  also may result in FFC becoming  regulated  at the holding  company
level by the Federal  Reserve  Board rather than by the OTS.  Regulation  by the
Federal  Reserve  Board could subject FFC to capital  requirements  that are not
currently  applicable to FFC as a holding  company under OTS  regulation and may
result in statutory  limitations on the type of business activities in which FFC
may engage at the holding company level, which business activities currently are
not  restricted.  FFC is unable to  predict  whether  such  legislation  will be
enacted or, if enacted,  whether it will contain  relief as to the  recapture of
bad debt deductions previously taken.


                                      -27-

<PAGE>