Exhibit 13

                        Annual Report to Security Holders
<PAGE>

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

General

     Effective  October 5, 1993,  First Federal Savings and Loan  Association of
Independence,  Kansas ("First  Federal" or the  "Association")  converted from a
federally  chartered mutual savings  association to a federally  chartered stock
savings  association and concurrently  became a subsidiary of a holding company,
First  Independence  Corporation  (the  "Company").  The Company owns all of the
outstanding  stock of First  Federal and the  Company's  earnings are  primarily
dependent on the  operations  of First  Federal.  Currently,  the Company has no
other  business  activity  other than  acting as the  holding  company for First
Federal.  As a  result,  the  following  discussion  relates  primarily  to  the
activities of First Federal.  This discussion should be read in conjunction with
the consolidated  Financial Statements and accompanying Notes included elsewhere
in this report.

     The Company's  business  consists of  attracting  deposits from the general
public and using such deposits primarily to make residential  mortgage and other
loans. The Company's  revenues are derived  principally from interest charges on
mortgage loans and  mortgage-backed  securities  and, to a lesser  extent,  from
interest  earned on investment  securities  and  interest-bearing  deposits.  In
addition,  the Company receives fees from loan  originations,  late payments and
for various  services  related to transaction  and other deposit  accounts,  and
dividends  on its Federal  Home Loan Bank  ("FHLB")  stock.  Operating  expenses
consist primarily of employee compensation and benefits, occupancy and equipment
expenses,   federal   deposit   insurance   premiums   and  other   general  and
administrative expenses.

     The operations of the Company,  and savings  institutions and their holding
companies in general, are significantly  affected by general economic conditions
and the related  monetary and fiscal  policies of regulatory  agencies.  Deposit
flows  and  cost  of  funds  are  influenced  by  interest  rates  on  competing
investments  and  general  market  rates of  interest.  Lending  activities  are
affected by the demand for  financing  of real estate and other types of assets,
which in turn is affected by the interest  rates at which such  financing may be
offered and other  factors  including  the  availability  of funds.  The primary
sources of funds for  lending  activities  include  deposits,  loan  repayments,
borrowings,  sales and  maturities  of  securities  available for sale and funds
provided from operations.

     On  February  18,  1998,  the  Boards  of  Directors  of the  Company,  the
Association and The Neodesha Savings and Loan  Association,  FSA,  respectively,
adopted a Plan of Merger Conversion. Pursuant to the Plan, Neodesha will combine
with the  Association  through the  conversion of Neodesha from a mutual savings
and  loan   association  to  a  stock  savings  and  loan  association  and  the
simultaneous  merger of Neodesha into the Association.  The Merger Conversion is
subject to  certain  conditions,  including  the prior  approval  of the Plan of
Merger  Conversion by certain of Neodesha's  members at a Special  Meeting to be
held on December 22, 1998. The  transaction is scheduled to close during January
1999. See Note N of the Notes to Consolidated Financial Statements.

Forward-Looking Statements

     Certain  statements  in this  report that  relate to the  Company's  plans,
objectives or future performance may be deemed to be forward-looking  statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are based on Management's current expectations. Actual strategies and
results in future periods may differ  materially from those  currently  expected
because of various  risks and  uncertainties.  Additional  discussion of factors
affecting  the  Company's  business and  prospects is contained in the Company's
periodic filings with the Securities and Exchange Commission.

Asset/Liability Management and Market Risk

     Qualitative  Aspects  of  Market  Risk.  The  Company  derives  its  income
primarily from the excess of interest collected over interest paid. The rates of
interest  the  Company  earns on assets and pays on  liabilities  generally  are
established  contractually  for a period of time.  Market  interest rates change
over time. Accordingly,  the Company's results of operations, like those of many
financial  institutions,  are  impacted  by  changes in  interest  rates and the
Company's  ability to adapt to changes in  interest  rates is known as  interest
rate risk and is the Company's most significant market risk.

     Quantitative  Aspects of Market Risk.  In an attempt to manage our exposure
to changes in interest rates and comply with applicable regulations, the Company
monitors its interest rate risk. In monitoring  interest rate risk,  the Company
continually  analyzes and manages assets and liabilities  based on their payment
streams  and  interest  rates,  the  timing  of  their  maturities,   and  their
sensitivity to actual or potential changes in market interest rates.

     The matching of assets and  liabilities  may be analyzed by  examining  the
extent  to  which  they are  "interest  rate  sensitive"  and by  monitoring  an
institution's  interest rate sensitivity "gap." An asset or liability is said to
be interest  rate  sensitive  within a specific time period if it will mature or
reprice within that time period. The interest rate sensitivity gap is defined as
the difference between the amount of interest-earning assets anticipated,  based
upon certain assumptions, to mature or reprice within a specific time period and
the amount of  interest-bearing  liabilities  anticipated,  based  upon  certain
assumptions,  to mature or  reprice  within  that  same  time  period.  A gap is
considered  positive when the amount of interest rate  sensitive  assets exceeds
the amount of interest rate sensitive liabilities.  A gap is considered negative
when the amount of interest  rate  sensitive  liabilities  exceeds the amount of
interest rate  sensitive  assets.  During a period of rising  interest  rates, a
negative  gap would tend to  adversely  affect  operations  while a positive gap
would tend to benefit operations.

                                        4

<PAGE>


     Since the early  1980's,  the  Company  has  stressed  the  origination  of
adjustable  rate  residential   mortgage  loans  ("ARMs"),   subject  to  market
conditions.  In recent periods,  the Company has also purchased  adjustable-rate
mortgage-backed  securities. At September 30, 1998, approximately $24.3 million,
or 24.0% of the Company's total loans secured by real estate,  were ARMs. On the
same date, the Company also had $10.4 million in adjustable-rate mortgage-backed
securities.

     The Company's ARMs and adjustable-rate mortgage-backed securities adjust to
various indices.  The Company monitors the mix of indices on its adjustable rate
assets and seeks, consistent with market conditions, to achieve a close match in
the repricing characteristics of its assets and liabilities.

     To increase the interest rate  sensitivity  of its assets,  the Company has
also  maintained  a  relatively  high  level  of  short  and   intermediate-term
investment  securities and other assets.  At September 30, 1998, the Company had
$2.8 million of investment securities and interest-bearing  deposits maturing or
repricing  within  three  years.  Finally,  the Company has  undertaken  various
marketing programs from time to time over the last decade in order to extend the
term  of  its  deposit  liabilities.  In  1993,  the  Company  introduced  a new
certificate  of deposit  program in an attempt to reduce  deposit  outflows  and
attract  longer term  deposits  which were being lost as a result of the general
decline  in market  rates of  interest.  This  program  offers  two  certificate
products which have 4- and 5-year terms.  At September 30, 1998, the Company had
approximately $7.6 million in these two certificates.

     In the future,  in managing  its  interest  rate  sensitivity,  the Company
intends  to  continue  to stress  the  origination  of ARMs,  subject  to market
conditions,  the purchase of adjustable-rate  mortgage-backed securities and the
maintenance  of a  relatively  high  level of  short-term  securities  and other
assets.

     Office of Thrift Supervision  ("OTS")  regulations  provide a Net Portfolio
Value ("NPV") approach to the  quantification of interest rate risk. In essence,
this approach  calculates the  difference  between the present value of expected
cash  flows  from  assets  and the  present  value of  expected  cash flows from
liabilities, as well as cash flows from off-balance-sheet contracts arising from
an assumed 200 basis point  increase  or decrease in interest  rates  (whichever
results in the greater pro forma  decrease in NPV).  Under OTS  regulations,  an
institution's  "normal" level of interest rate risk in the event of this assumed
change in interest rates is a decrease in the institution's NPV in an amount not
to  exceed 2% of the  present  value of its  assets.  Thrift  institutions  with
greater than "normal"  interest  rate exposure must take a deduction  from their
total  capital  available  to determine  if they meet their  risk-based  capital
requirement.  The amount of that deduction is one-half of the difference between
(a) the institution's actual calculated exposure to the 200 basis point interest
rate change and (b) its "normal"  level of exposure,  which is 2% of the present
value of its assets. Savings associations, such as First Federal, with less than
$300  million  in assets  and a  risk-based  capital  ratio in excess of 12% are
exempt from this requirement  unless the OTS determines  otherwise.  The OTS has
postponed  the  implementation  of  the  capital  deduction  component  of  this
regulation  until it completes its analysis of the methods of interest rate risk
measurements proposed by the other banking regulators.

     Presented  below,  as  of  September  30,  1998,  is  an  analysis  of  the
Association's interest rate risk as measured by changes in NPV for instantaneous
and sustained parallel shifts in the yield curve, in 100 basis point increments,
up and down 200 basis points and compared to Board policy limits.  The table was
prepared  and  furnished  to the  Association  by the OTS.  Assumptions  used in
calculating  the amounts in this table were  determined  by the OTS  (dollars in
thousands):

                                                  Net Portfolio Value
              Change in                          At September 30, 1998
            interest rate   Board Limit   -----------------------------------
           (Basis Points)   % Change      $ Amount      $ Change     % Change
         -----------------  -----------   --------      --------     --------
               +200           -40%        $ 9,861       $(3,213)        -25%
               +100           -25          11,769        (1,305)        -10
                  0            --          13,074            --          --
               -100           -25          13,780           706          +5
               -200           -40          14,569         1,495         +11

     As  illustrated  in the table,  management  has  structured  its assets and
liabilities  to minimize its exposure to interest  rate risk.  In the event of a
200 basis point change in interest rates,  the Association  would  experience an
11%  increase in NPV in a declining  rate  environment  and a 25%  decrease in a
rising rate  environment.  During periods of rising interest rates, the value of
monetary assets and liabilities generally decline. Conversely, during periods of
falling interest rates,  the value of monetary assets and liabilities  generally
increase.  However,  the  amount  of  change  in value of  specific  assets  and
liabilities  due to  changes  in  interest  rates  is not the  same in a  rising
interest rate environment as in a falling  interest rate  environment  (i.e., as
indicated  above, the amount of value increase under a specific rate decline may
not equal the amount of value decrease under an identical upward rate movement).

     Certain  shortcomings  are inherent in the method of analysis  presented in
the foregoing  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 ARMs, have features which
restrict changes in

                                       5

<PAGE>


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

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
would likely deviate  significantly from those assumed in calculating the table.
Finally, the ability of many borrowers to service their debt may decrease in the
event of an interest rate increase.  As a result,  the actual effect of changing
interest rates may differ from that presented in the foregoing table.

Asset Quality

     The ratio of non-performing  assets to total assets is one indicator of the
Company's exposure to credit risk.  Non-performing assets of the Company consist
of non-accruing loans,  accruing loans delinquent 90 days or more, troubled debt
restructurings,  and foreclosed assets,  which have been acquired as a result of
foreclosure   or   deed-in-lieu   of   foreclosure.   At  September   30,  1998,
non-performing assets were approximately $1,325,000, which represents a decrease
of  $78,000,   or  5.6%  as  compared  to  September  30,  1997.  The  ratio  of
non-performing  assets to total assets at September 30, 1998 was 1.07%  compared
to 1.25% at September 30, 1997.  Included in non-accruing loans at September 30,
1998 were nine  loans  totaling  $279,000  secured by one- to  four-family  real
estate,  one loan totaling  $21,000 secured by  non-residential  real estate and
eight consumer loans totaling $35,000.  All non-accruing  loans at September 30,
1998, were located in the Company's  primary market area. At September 30, 1998,
accruing  loans  delinquent 90 days or more  included  thirteen  loans  totaling
$913,000  secured  by one- to  four-family  real  estate and one  consumer  loan
totaling  $5,000.  At September 30, 1998,  all of the Company's  accruing  loans
delinquent 90 days or more were secured by real estate  located in the Company's
primary market area except for one loan totaling  $336,000,  secured by a single
family  residence  located in Texas.  At September 30, 1998,  the Company's real
estate acquired through  foreclosure  consisted of two single family  residences
located in the Company's  market area. The  properties  have a carrying value of
$72,000 and are currently offered for sale.

[GRAPH]

  [THE FOLLOWING TABLE IS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

        NON-PERFORMING ASSETS TO TOTAL ASSETS

                  1994       1.27%
                  1995       0.77%
                  1996       0.57%
                  1997       1.25%
                  1998       1.07%

     Management  has  taken  into  account  its  non-performing  assets  and the
composition of the loan portfolio in establishing its allowance for loan losses.
The allowance  for loan losses  totaled  $656,000 at September  30, 1998,  which
represented  a $12,000  decrease from the allowance for loan losses at September
30, 1997. The ratio of the allowance for loan losses as a percent of total loans
decreased  from  .90% at  September  30,  1997 to .70% at  September  30,  1998,
primarily  due to the increase in total loans  receivable at September 30, 1998.
The allowance  for loan losses as a percent of  non-performing  loans  increased
from 48.05% at  September  30, 1997 to 52.3% at September  30, 1998,  due to the
decrease in  non-performing  loans at September 30, 1998. At September 30, 1998,
the  Company's   non-performing  loans  were  comprised  primarily  of  one-  to
four-family residential loans.

     The  allowance  for loan losses is  determined  based upon an evaluation of
pertinent  factors  underlying  the types and qualities of the Company's  loans.
Management  considers  such  factors  as the  repayment  status  of a loan,  the
estimated net  realizable  value of the  underlying  collateral,  the borrower's
ability to repay the loan,  current and anticipated  economic  conditions  which
might affect the  borrower's  ability to repay the loan and the  Company's  past
statistical history concerning charge-offs.


                                       6

<PAGE>


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

Results of Operations

     Average Balances,  Interest Rates and Yields.  The following table presents
for the  periods  indicated  the total  dollar  amount of  interest  income from
average  interest-earning  assets and related  yields,  as well as the  interest
expense on average interest-bearing  liabilities,  expressed both in dollars and
rates. No tax equivalent adjustments were made. All average balances are monthly
average  balances.  The use of monthly  averages rather than daily averages does
not have a significant  effect upon the Company's  results.  Non-accruing  loans
have been included in the table as loans carrying a zero yield.
<TABLE>
<CAPTION>
                                                                           Year Ended September 30,
                                  --------------------------------------------------------------------------------------------------
                                                1998                               1997                                   1996
                                  --------------------------------------------------------------------------------------------------
                                   Average    Interest             Average     Interest              Average   Interest
                                  Outstanding  Earned/    Yield/  Outstanding   Earned/    Yield/  Outstanding  Earned/       Yield/
                                   Balance      Paid       Rate    Balance      Paid        Rate     Balance     Paid          Rate
                                  --------------------------------------------------------------------------------------------------
                                                                            (Dollars in Thousands)
<S>                              <C>         <C>           <C>     <C>        <C>           <C>    <C>        <C>              <C>
Interest-earning assets:
   Loans receivable (1)          $ 85,966    $  7,032      8.18%   $ 71,188   $  5,684      7.98%  $ 63,152   $  5,190         8.22%
   Mortgage-backed securities      20,596       1,354      6.57      26,137      1,727      6.61     29,510      1,930         6.54
   Investment securities            7,315         462      6.32       7,598        513      6.75      7,233        479         6.62
   FHLB stock                       1,443         110      7.60       1,314         89      6.79      1,103         70         6.38
   Federal funds sold               1,679          90      5.37         567         34      6.02      1,434         79         5.53
   Other                              435          27      6.23         318         22      6.83        445         25         5.64
                                 --------    --------              --------   --------             --------   --------
      Total interest-earning
      assets                      117,434       9,075      7.72     107,122      8,069      7.53    102,877      7,773         7.56
                                 --------    --------              --------   --------             --------   --------
Interest-bearing liabilities:
   Demand and NOW deposits         26,079       1,083      4.15      22,019        914      4.15     18,765        762         4.06
   Savings deposits and
   certificates                    54,209       2,928      5.40      51,219      2,745      5.36     51,950      2,820         5.43
   FHLB advances                   26,492       1,545      5.83      23,583      1,400      5.93     19,133      1,087         5.68
                                 --------    --------              --------   --------             --------   --------
      Total interest-bearing
      liabilities                 106,780       5,556      5.20      96,821      5,059      5.22     89,848      4,669         5.20
                                 --------    --------              --------   --------             --------   --------
Net interest income                          $  3,519                         $  3,010                        $  3,104
                                             ========                         ========                        ========
Net interest rate spread                                   2.52%                            2.31%                              2.36%
                                                       ========                         ========                         ==========
Net earning assets               $ 10,654                          $ 10,301                        $ 13,029
                                 ========                          ========                        ========
Net yield on average interest-
earning assets                                             2.99%                            2.81%                              3.02%
                                                       ========                         ========                         ==========
Average interest-earning assets
to average interest-bearing
liabilities                                    109.98%                          110.64%                         114.50%
                                             ========                         ========                        ========
</TABLE>


----------
(1)  Calculated net of deferred loan fees, loan discounts,  loans in process and
     loss reserves.

                                       7

<PAGE>


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

Rate/Volume Analysis of Net Interest Income

     The  following  schedule  presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning  assets and
interest-bearing  liabilities.  For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (i.e.,  changes in volume multiplied by old rate) and (ii)
changes in rate (i.e.,  changes in rate multiplied by old volume).  For purposes
of this table,  changes  attributable  to both rate and volume,  which cannot be
segregated,  have been allocated proportionately to the change due to volume and
the change due to rate.
<TABLE>
<CAPTION>
                                                           Year Ended September 30,
                                     ----------------------------------------------------------------------
                                              1998 vs. 1997                        1997 vs. 1996
                                     --------------------------------      --------------------------------
                                                Increase                              Increase
                                               (Decrease)                            (Decrease)
                                                 Due to                                Due to
                                     --------------------------------      --------------------------------
                                                             Total                                 Total
                                                            Increase                              Increase
                                      Volume      Rate     (Decrease)      Volume       Rate     (Decrease)
                                     --------   --------   ----------      -------     -------    ---------
                                                           (Dollars in Thousands)
<S>                                  <C>        <C>        <C>             <C>        <C>        <C>
Interest-earning assets:
   Loans receivable                  $ 1,206    $   142    $ 1,348         $   645    $  (151)   $   494
   Mortgage-backed securities           (363)       (10)      (373)           (223)        20       (203)
   Investment securities                 (19)       (32)       (51)             24         10         34
   FHLB stock                              9         12         21              14          5         19
   Federal funds sold                     60         (4)        56             (52)         7        (45)
   Other                                   7         (2)         5              (8)         5         (3)
                                     -------    -------    -------         -------    -------    -------
      Total interest-earning assets      900        106      1,006             400       (104)       296
                                     -------    -------    -------         -------    -------    -------
Interest-bearing liabilities:
Demand and NOW deposits                  169         --        169             135         17        152
Savings deposits and certificates        162         21        183             (39)       (36)       (75)
FHLB advances                            169        (24)       145             262         51        313
                                     -------    -------    -------         -------    -------    -------
Total interest-bearing liabilities   $   500    $    (3)       497         $   358    $    32        390
                                     =======    =======    =======         =======    =======    =======
      Net interest income                                  $   509                               $   (94)
                                                           =======                               =======
</TABLE>

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

                                                             At September 30,   
                                                          ---------------------
                                                           1998   1997     1996
                                                          -----   -----   -----
Weighted average yield on:                                
   Loans receivable                                        7.80%   7.74%   7.78%
   Mortgage-backed securities                              6.34    6.66    6.53
   Investment securities                                   6.38    6.97    6.68
   Federal funds sold                                      5.36    5.28    5.48
   Other interest-earning assets                           5.51    5.22    4.93
   Combined weighted average yield on interest-earning    
   assets                                                  7.48    7.40    7.34
                                                          
Weighted average rate paid on:                            
   Savings deposits and certificates                       5.44    5.38    5.38
   Demand and NOW deposits                                 4.04    4.06    4.03
   FHLB advances                                           5.74    6.11    5.65
   Combined weighted average rate paid on interest-       
   bearing liabilities                                     5.19    5.21    5.17
   Spread                                                  2.29    2.19    2.17
                                                        
                                       8

<PAGE>


--------------------------------------------------------------------------------
                              FINANCIAL CONDITION

     The Company's total assets increased $11.8 million,  or 10.5%,  from $112.5
million at  September  30, 1997 to $124.3  million at September  30, 1998.  This
increase  was  primarily  due to  increases  in net  loans  receivable  of $19.1
million,  investment securities of $1.1 million, Federal Home Loan Bank stock of
$200,000 and other assets of $200,000.  These increases in assets were funded by
increases in advances from the Federal Home Loan Bank of Topeka of $6.4 million,
savings deposits of $4.4 million, and decreases in mortgage-backed securities of
$6.7 million and cash and cash equivalents of $2.3 million.


  [THE FOLLOWING TABLE IS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

                                  TOTAL ASSETS
                                 (In thousands)
                          1994                   $ 94,593
                          1995                   $101,904
                          1996                   $108,539
                          1997                   $112,523
                          1998                   $124,337
                            
     Total  loans  receivable  increased  $19.1  million  from $74.6  million at
September 30, 1997,  to $93.7  million at September  30, 1998.  The increase was
primarily  due to  construction  loan  originations  at the  Company's  new loan
production office in Lawrence,  Kansas.  These construction loans generally have
terms of nine  months or less and  interest  rates tied to the prime rate plus a
margin.  The increase in construction  loans also  contributed to an increase in
loans in process due to the  disbursement of funds  throughout the  construction
period.  To a  lesser  extent,  the  increase  was  due to  originations  in the
Company's market area consisting  primarily of 15- and 30-year fixed-rate loans,
mortgage loans with a fixed rate for the first three years of the loan term that
automatically  convert to one-year  adjustable rate loans during the fourth year
of the loan term, and to a lesser extent, one-year adjustable rate mortgages.

  [THE FOLLOWING TABLE IS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]

               Multi-family                   .99%
               Non-residential                8.9%
               Construction                 15.87%
               Home Equity                    .83%
               Other Consumer                2.28%
               1-4 Family                   71.06%
                                
     Total  deposits  increased $4.4 million from $76.2 million at September 30,
1997, to $80.6 million at September 30, 1998.  Deposits increased primarily as a
result of public units  depositing  short-term  funds into the "Platinum"  money
fund account and new accounts opened at the  Coffeyville,  Kansas branch office.
The "Platinum"  money fund account offers tiered rates on a limited  transaction
account with the highest rate paid on balances of $50,000 and above.  Management
feels the "Platinum" money fund provides a lower risk,  insured  alternative for
deposit  customers  considering  higher risk  investments in order to get higher
yields than money market accounts.

     Total borrowed funds increased $6.4 million from $23.7 million at September
30, 1997 to $30.1 million at September 30, 1998.  The increase was from advances
obtained from the Federal Home Loan Bank of Topeka.  The FHLB  advances  allowed
the  Association to invest the funds borrowed in loans  receivable at a positive
spread.

     Total  stockholders'  equity  increased  $570,000  from  $11.5  million  at
September  30, 1997 to $12.1  million at September  30,  1998.  The increase was
primarily due to the Company's  net earnings from  operations of $901,000,  fair
value adjustment of $125,000 on ESOP shares committed for release, the repayment
of employee stock ownership debt of $73,000,  the amortization of unearned stock
compensation of $44,000,  unrealized  gains on securities  available for sale of
$37,000,  and common stock options  exercised of $31,000.  These  increases were
partially offset by the Company's use of $377,000 to repurchase 25,298 shares of
common stock and dividends of $265,000 paid to stockholders.

  [THE FOLLOWING TABLE IS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

                      STOCKHOLDERS' EQUITY TO TOTAL ASSETS

                        1994                  14.11%
                        1995                  13.35%
                        1996                  11.98%
                        1997                  10.25%
                        1998                   9.73%
                       
                

                                       9

<PAGE>


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

     Comparison of Fiscal Years Ended September 30, 1998 and September 30, 1997

     General.  Net  earnings for the fiscal year ended  September  30, 1998 were
$901,000 as compared to $712,000 for the fiscal year ended  September  30, 1997,
an increase of $189,000,  or 26.7%.  The increase in net earnings was  primarily
due to increases in net interest income of $509,000 and  non-interest  income of
$33,000.  These  increases  were  partially  offset by  increases  in income tax
expense of $181,000 and non-interest expense of $171,000.


  [THE FOLLOWING TABLE IS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]

                                  NET EARNINGS
                                 (In thousands)
                           1994               $1,448
                           1995               $1,087
                           1996               $  815
                           1997               $  712
                           1998               $  901
                                   
     Net Interest Income. Net interest income increased $509,000,  or 16.9%, for
the fiscal  year ended  September  30, 1998 as compared to the fiscal year ended
September  30, 1997.  This increase was due primarily to an increase in interest
income of $1.0 million,  or 12.5%;  offset  partially by an increase in interest
expense of $497,000, or 9.8%. Interest income increased primarily due to a $10.3
million  increase in the average balance of  interest-earning  assets,  and a 19
basis point  increase  in the  average  yield on  interest-earning  assets.  The
average yield on interest-earning assets increased primarily due to construction
loan  originations at the Lawrence loan production  office.  These  construction
loans  generally  have terms of nine  months or less and carry  higher  rates of
interest than loans  originated  for the purchase of  single-family  residences.
Interest  expense  increased  primarily due to a $10.0  million  increase in the
average balance of interest-bearing  liabilities,  offset partially by a 2 basis
point  decrease in the average rate paid on  interest-bearing  liabilities.  The
average rate paid on interest-bearing  liabilities  decreased primarily due to a
$4.1 million increase in the average balance of low cost demand and NOW deposits
(resulting in a larger  percentage of  interest-bearing  liabilities)  and, to a
lesser extent,  a decrease in interest rates on Federal Home Loan Bank of Topeka
advances.

     Interest  Income.  Interest  income for the fiscal year ended September 30,
1998,  increased  to $9.1  million  from $8.1  million for the fiscal year ended
September  30,  1997.  This  increase was caused  primarily  by a $10.3  million
increase in the average outstanding  balance of  interest-earning  assets during
the fiscal year ended  September  30, 1998, as compared to the fiscal year ended
September 30, 1997;  due to the increase in the average  balance of loans.  To a
lesser  extent,  the  increase in interest  income was due to an increase in the
average yield on interest-earning  assets. The average yield on interest-earning
assets  increased 19 basis  points to 7.72% for the fiscal year ended  September
30, 1998, from 7.53% for the fiscal year ended September 30, 1997. This increase
was caused  primarily by increases  in yield on the  Association's  Federal Home
Loan Bank  stock  from  6.79% to 7.60% and on its loan  portfolio  from 7.98% to
8.18% for the fiscal year ended  September  30, 1998,  as compared to the fiscal
year ended  September  30, 1997.  These  increases  were  partially  offset by a
decrease in the investment  securities  portfolio  yield from 6.75% to 6.32% and
mortgage-backed  securities  from  6.61%  to 6.57%  for the  fiscal  year  ended
September 30, 1998, as compared to the fiscal year ended September 30, 1997. The
increase in yield on the loan portfolio was primarily due to  construction  loan
originations  at the Company's new loan production  office in Lawrence,  Kansas.
These  construction  loans  generally  have  terms  of nine  months  or less and
interest  rates tied to the prime rate plus a margin.  The  decrease in yield on
investment  securities  was primarily due to the  reinvestment  of proceeds from
called securities into lower yielding investments.

     Interest Expense.  Interest expense for the fiscal year ended September 30,
1998,  increased by $497,000 to $5.6 million as compared to $5.1 million for the
fiscal year ended  September 30, 1997. This increase was primarily the result of
a $10.0 million increase in the average  outstanding balance of interest-bearing
liabilities  during the fiscal year ended  September 30, 1998 as compared to the
fiscal year ended September 30, 1997. This increase was partially  offset by a 2
basis  point  decrease  in the average  interest  rate paid on  interest-bearing
liabilities, caused by an increase in the average balance of low cost demand and
NOW deposits (resulting in a larger percentage of interest-bearing  liabilities)
and, to a lesser extent,  a decrease in interest rates on Federal Home Loan Bank
advances.  The increase in  interest-bearing  liabilities was primarily due to a
$7.1  million  increase  in the  average  outstanding  balance of  deposits  due
primarily to new accounts  opened at the  Coffeyville,  Kansas branch office and
seasonal deposits from public units.

     Provision  for Loan Losses.  There was no provision for losses on loans for
the fiscal years ended  September 30, 1998 and  September  30, 1997.  Management
determined that additional provisions were not necessary based upon its analysis
of the  established  allowance  and  review  of  the  composition  of  the  loan
portfolio.  The Company will  continue to monitor its  allowance for loan losses
and make future additions to the allowance through the provision for loan losses
as  economic  and  regulatory  conditions  dictate.  However,  there  can  be no
assurance  that  future  losses  will  not  exceed  estimated  amounts  or  that
additional provisions for loan losses will not be required in future periods. In
addition,  the  Company's  determinations  as to the amount of the allowance for
loan losses are subject to review by the regulatory agencies which can order the
establishment of additional general or specific allowances.

     Non-interest  Income.  Non-interest  income  increased  $33,000 to $192,000
during the fiscal year ended  September 30, 1998 as compared to $159,000 for the
fiscal  year ended  September  30,  1997.  The  increase  was  primarily  due to
increased  checking and deposit  account fees as a result of new accounts in the
Coffeyville  branch. To a lesser extent,  the increase was due to increased fees
associated with mortgage loans. Recurring non-interest income generally consists
of  servicing  fees as well as  deposit  and other  types of fees.  Non-interest
income  levels are  anticipated  to remain stable in the future due to the small
number of checking accounts held by the Company.


                                       10

<PAGE>


--------------------------------------------------------------------------------
     Non-interest Expense.  Total non-interest expense increased to $2.2 million
for the fiscal year ended  September  30, 1998 from $2.0  million for the fiscal
year ended  September 30, 1997, an increase of $171,000,  or 8.6%.  The increase
was  primarily  due to  increases  in  compensation  and  employee  benefits  of
$117,000,  occupancy  and  equipment  of $67,000,  and data  processing  fees of
$46,000.  These  increases  were  primarily  due to the  opening  of a new  loan
production office in Lawrence,  Kansas, resulting in additional staff, occupancy
and equipment, stationery, printing and office supplies expense. Data processing
expenses also  increased  due to increased  account  volumes at the  Coffeyville
branch and  processing  price  increases.  To a lesser  extent,  the increase in
compensation  expense was the result of normal,  annual cost of living increases
in salaries and bonuses, and increased  compensation expense associated with the
Company's ESOP plan due to the Company's  higher stock price during a portion of
the year.  These increases were partially  offset by decreases in other expenses
of $43,000 and federal deposit insurance premiums of $17,000.

     Income Tax  Expense.  Income tax expense was  $649,000  for the fiscal year
ended  September  30,  1998  compared  to  $468,000  for the  fiscal  year ended
September 30, 1997, an increase of $181,000.  This increase was primarily due to
an increase in pre-tax  earnings  during the 1998 period as compared to the 1997
period.  The  Company's  effective tax rates were 41.9% and 39.7% for the fiscal
years ended  September  30, 1998 and  September  30, 1997,  respectively.  Rates
exceed effective combined federal and state statutory rates of 38% due primarily
to  compensation  expense  associated  with the ESOP,  of which a portion is not
deductible for income tax purposes.

     Comparison of Fiscal Years Ended September 30, 1997 and September 30, 1996

     General.  Net  earnings for the fiscal year ended  September  30, 1997 were
$712,000 as compared to $815,000 for the fiscal year ended September 30, 1996, a
decrease of $103,000,  or 12.6%.  The decrease in net earnings was primarily due
to a non-recurring $251,000 gain on the sale of FHLMC stock which was recognized
in the fiscal year ended  September  30, 1996,  with no similar  activity in the
fiscal year ended  September 30, 1997. To a lesser  extent,  the decrease in net
earnings was due to decreases in net interest  income of $94,000 and income from
real  estate  operations  of  $60,000.  These  decreases  to net  earnings  were
partially  offset by decreases in  non-interest  expenses of $278,000 and income
tax expense of $19,000.

     Net Interest Income. Net interest income decreased  $94,000,  or 3.02%, for
the fiscal  year ended  September  30, 1997 as compared to the fiscal year ended
September  30, 1996.  This decrease was due primarily to an increase in interest
expense of  $390,000,  or 8.34%,  offset  partially  by an  increase in interest
income of $296,000, or 3.81%. Interest expense increased primarily due to a $7.0
million increase in the average balance of interest-bearing  liabilities and, to
a  lesser  extent,  a 2  basis  point  increase  in the  average  rate  paid  on
interest-bearing liabilities.  Interest income increased primarily due to a $4.2
million increase in the average balance of  interest-earning  assets,  partially
offset by a 3 basis point decrease in yield on interest-earning assets.

     Interest  Income.  Interest  income for the fiscal year ended September 30,
1997,  increased  to $8.1  million  from $7.8  million for the fiscal year ended
September  30,  1996.  This  increase  resulted  primarily  from a $4.2  million
increase in the average outstanding  balance of interest-earning  assets (due to
the  increase  in  the  average  balance  of  loans  receivable  and  investment
securities  financed with  borrowings  from the Federal Home Loan Bank of Topeka
and increased savings deposits) during the fiscal year ended September 30, 1997,
as compared to the fiscal year ended  September 30, 1996.  These  increases were
partially offset by a decrease in the average yield on interest-earning  assets.
The average yield on  interest-earning  assets decreased 3 basis points to 7.53%
during  fiscal 1997,  from 7.56% during  fiscal 1996.  This  decrease was caused
primarily by a decrease in yield on the Company's loans receivable from 8.22% to
7.98% due to new loans  being  originated  at  interest  rates  lower than those
currently  in the loan  portfolio.  This  decrease  was  partially  offset by an
increase  in yield  on  mortgage-backed  securities  from  6.54%  to  6.61%  and
investment securities from 6.62% to 6.75%.

     Interest Expense.  Interest expense for the fiscal year ended September 30,
1997,  increased by $400,000 to $5.1 million as compared to $4.7 million for the
fiscal year ended  September 30, 1996. This increase was primarily the result of
a $7.0 million increase in the average  outstanding  balance of interest-bearing
liabilities  during the fiscal year ended  September 30, 1997 as compared to the
fiscal year ended  September  30,  1996.  To a lesser  extent,  the  increase in
interest  expense was due to a 2 basis point increase in average  interest rates
paid  on   interest-bearing   liabilities.   The  increase  in  interest-bearing
liabilities  was  primarily  due  to a $4.5  million  increase  in  the  average
outstanding  amount of  advances  obtained  from the  Federal  Home Loan Bank of
Topeka and a $3.3 million increase in demand and Now deposits. The advances were
used by the Company to invest in loans  receivable at a positive spread over the
term of the advances.

     Provision  for Loan Losses.  There was no provision for losses on loans for
the fiscal years ended  September 30, 1997 and  September  30, 1996.  Management
determined  that  additional  provisions  were not  necessary  based  upon their
analysis of the established  allowance and review of the composition of the loan
portfolio.  The Company will  continue to monitor its  allowance for loan losses
and make future additions to the allowance through the provision for loan losses
as  economic  and  regulatory  conditions  dictate.  However,  there  can  be no
assurance  that  future  losses  will  not  exceed  estimated  amounts  or  that
additional provisions for loan losses will not be required in future periods. In
addition,  the  Company's  determinations  as to the amount of the allowance for
loan losses are subject to review by the regulatory agencies which can order the
establishment of additional general or specific allowances.


                                       11

<PAGE>


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

     Non-interest  Income.  Non-interest  income decreased  $306,000 to $159,000
during the fiscal year ended  September 30, 1997 as compared to $465,000 for the
fiscal year ended  September  30,  1996.  The decrease  was  primarily  due to a
non-recurring  $251,000 gain on the sale of FHLMC stock which was  recognized in
the  fiscal  year  ended  September  30,  1996,  with no  gains  on the  sale of
securities  recognized in the fiscal year ended  September 30, 1997. To a lesser
extent, the decrease was due to a decrease of $60,000 in income from real estate
operations  for the fiscal  year ended  September  30,  1997 as  compared to the
fiscal year ended September 30, 1996.  Recurring  non-interest  income generally
consists  of  servicing  fees  as well as  deposit  and  other  types  of  fees.
Non-interest income levels are anticipated to remain stable in the future due to
the small number of checking accounts held by the Company.

     Non-interest  Expense.  Total non-interest  expense decreased to $1,989,000
for the fiscal year ended September 30, 1997 from $2,267,000 for the fiscal year
ended  September  30, 1996, a decrease of $278,000,  or 12.3%.  The decrease was
primarily due to a one-time  pre-tax  charge of $432,000  during the fiscal year
ended  September 30, 1996,  with no similar  charge during the fiscal year ended
September 30, 1997. The charge was related to a special assessment of 65.7 basis
points on deposits of  SAIF-insured  institutions as of March 31, 1995, in order
to recapitalize the Savings Association  Insurance Fund. To a lesser extent, the
decrease  was due to a reduction  in the  Company's  ongoing  deposit  insurance
premium  of  $94,000,  as a  result  of  the  recapitalization  of  the  Savings
Association  Insurance Fund.  These decreases were partially offset by increases
in compensation  and employee  benefits of $142,000,  other expenses of $58,000,
occupancy and equipment of $37,000,  and data  processing  fees of $12,000.  The
increase  in  compensation  expense was  primarily  due to annual  increases  in
salaries and bonuses and expense  associated  with the Company's ESOP due to the
increase in the Company's stock price. In addition,  the opening of a new branch
office  in  Coffeyville,  Kansas  resulted  in  additional  staff,  advertising,
stationery, printing and office supplies expense.

     Income Tax  Expense.  Income tax expense was  $468,000  for the fiscal year
ended  September  30,  1997  compared  to  $487,000  for the  fiscal  year ended
September 30, 1996, a decrease of $19,000. The decrease was primarily the result
of a decrease in pre-tax  income.  The Company's  effective tax rates were 39.7%
and 37.4% for the fiscal years ended  September 30, 1997 and September 30, 1996,
respectively.

Liquidity and Capital Resources

     The OTS requires  minimum levels of liquid  assets.  At September 30, 1998,
OTS  regulations  required First Federal to maintain an average daily balance of
investments  in an amount equal to at least 4.0% of the sum of its average daily
balance of net withdrawable  deposit accounts and borrowings payable in one year
or  less.  Such  requirements  may be  changed  from  time to time by the OTS to
reflect changing economic conditions. Such investments are intended to provide a
source of relatively liquid funds upon which First Federal may rely if necessary
to fund deposit  withdrawals and other short-term funding needs. First Federal's
regulatory  liquidity at September  30, 1998 was 7.01%,  as compared to 7.20% at
September  30,  1997.  First  Federal  normally  attempts to maintain  liquidity
between 7% and 9%.

     The  Company's  primary  sources of funds  consist of deposits and loan and
mortgage-backed   securities  repayments.   Other  potential  sources  of  funds
available include borrowings from the Federal Home Loan Bank ("FHLB") of Topeka.
The Company uses its liquid resources  principally to meet on-going commitments,
to fund maturing certificates of deposit and deposit withdrawals,  to invest, to
fund existing and future loan commitments,  to maintain  liquidity,  and to meet
operating  expenses.  Management believes that loan repayments and other sources
of funds will be adequate to meet the Company's foreseeable liquidity needs.

     The Company's  primary  investing  activity is the  origination of mortgage
loans and the purchase of mortgage-backed and other securities. At September 30,
1998, mortgage loans and mortgage-backed  securities  accounted for 89.2% of the
Company's  total assets.  The Company has been able to generate  sufficient cash
through the retail deposit market,  its traditional  funding source, and through
short-term borrowings,  to provide the cash utilized in investing activities.  A
$9.0  million line of credit has also been  established  with the FHLB of Topeka
with an  outstanding  balance of $1.7 million at September 30, 1998. The line of
credit is  scheduled  to mature on  February  5, 1999,  and will most  likely be
renewed for another one year term at that time. The line of credit is subject to
various conditions,  including the pledge of acceptable collateral.  The primary
purpose of the line of credit is to serve as a back-up  liquidity  facility  for
the  Company,  however,  the Company  may from time to time  utilize the line of
credit to purchase investment securities and fund other commitments.

     Liquidity  management  is  both a daily  and  long-term  responsibility  of
management.  The Company  adjusts its  investments  in liquid  assets based upon
management's  assessment  of (i) expected  loan demand,  (ii)  expected  deposit
flows,  (iii)  yields  available  on  interest-bearing  deposits,  and  (iv) the
objectives  of its  asset/liability  management  program.  Excess  liquidity  is
invested generally in  interest-bearing  overnight deposits and other short-term
government and agency  obligations.  If the Company requires  additional  funds,
beyond its internal ability to generate,  it has additional  borrowing  capacity
with the FHLB of Topeka.

     The Company  anticipates  that it will have  sufficient  funds available to
meet  current  loan  commitments.   At  September  30,  1998,  the  Company  had
outstanding  commitments  to  extend  credit  which  amounted  to $2.4  million,
including  commitments on  construction  loans.  The Company is not aware of any
trends, events or uncertainties which will have or that are reasonably likely to
have a  material  effect  on  the  Company's  liquidity,  capital  resources  or
operations.

     Certificates  of  deposit  scheduled  to  mature  in one  year  or  less at
September 30, 1998 totaled approximately $39.2 million. Management believes that
a significant  portion of such deposits will remain with the Company.  There can
be no assurance, however, that the Company


                                       12

<PAGE>


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

can retain all such  deposits.  At  September  30,  1998,  the Company had $30.1
million in advances  from the FHLB of Topeka with $8.6  million  maturing in one
year or less.

     The Financial  Institutions  Reform,  Recovery and  Enforcement Act of 1989
("FIRREA"),  among other  things,  mandated the adoption of new minimum  capital
requirements  that are no less stringent than the minimum  capital  requirements
for national  banks.  These  minimum  capital  standards  generally  require the
maintenance of regulatory  capital  sufficient to meet each of three tests:  the
tangible capital requirement,  the core capital requirement,  and the risk-based
capital  requirement.  The  tangible  capital  requirement  provides for minimum
tangible capital (defined as retained earnings less all intangible assets) equal
to 1.5% of adjusted  total  assets.  The core capital  requirement  provides for
minimum core capital (tangible capital plus supervisory  goodwill) equal to 3.0%
of assets.  The risk-based capital  requirement  provides for the maintenance of
core  capital  plus  general loss  allowances  (less a specified  percentage  of
certain equity investments) equal to 8.0% of risk-weighted  assets. In computing
risk-weighted assets, the Association multiplies the book value of each asset on
its balance sheet by a defined  risk-weighting factor (e.g., one- to four-family
residential loans carry a risk-weighted factor of 50%).  Management has reviewed
these capital  standards and  determined  that the  Association is in compliance
with each of the three requirements. As of September 30, 1998, the Association's
tangible capital,  core capital, and risk-based capital of $10.5 million,  $10.5
million,  and $11.2 million exceeded the applicable minimum requirements by $8.7
million, $6.8 million, and $6.1 million, respectively.

     The  following  table sets  forth the  Association's  compliance  with such
requirements at September 30, 1998.

                                                     Association capital level
                      OTS  requirement                 at September 30, 1998
                      ----------------             ---------------------------
                       % of                         % of               Amount
Capital standard      Assets   Amount              Assets    Amount  of Excess
                      ------- -------              -------  -------  ---------
                                           (Dollars in Thousands)
Tangible capital      1.50%  $ 1,846                8.54%   $10,505   $ 8,659
Core capital (1)      3.00     3,691                8.54     10,505     6,814
Risk-based capital    8.00     5,012               17.82     11,161     6,149


----------
(1)  Based on current core capital requirement of 3%.

     See Note L of Notes to  Consolidated  Financial  Statements  for additional
information.

     Management has reviewed the  restriction in FIRREA relating to loans to one
borrower,  qualification as a qualified thrift lender, and other restrictions on
lending and  investment,  and has determined  that,  based on the  Association's
capital position and lending and investment  policies,  these  restrictions have
not had a material impact on the Association's operations.

Impact of Inflation and Changing Prices

     The  financial  statements  and  related  data  presented  herein have been
prepared in accordance  with generally  accepted  accounting  principles,  which
require the measurement of financial position and results of operations in terms
of historical  dollars without  considering  changes in the relative  purchasing
power of money over time because of inflation.  As a result, interest rates have
a more significant  impact on the Association's  performance than the effects of
general levels of inflation.  Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services.

Year 2000 Compliance Issues

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

     The Board of Directors and management  view the year 2000-date  (Y2K) issue
as a  potentially  serious  interruption  to  the  conduct  of  our  day  to day
operations.   To  alleviate  this  potential   interruption,   the  Company  has
established a year 2000 Committee to assess the risk of potential  problems that
might arise from the failures of computer programming to recognize the year 2000
and to develop a plan to mitigate any such risk.  This committee  reports to the
Board at least quarterly about the status and progress of our Y2K plan.

     Our Y2K action plan covers five areas; awareness of the problem,  inventory
& assessment of hardware and software for Y2K problems,  renovation of necessary
systems,  validation of testing plans and  implementation of system changes.  At
the time of this report we have  completed the first three steps of the plan and
are  working on the next two steps.  We  anticipate  that we will be through the
testing  phase  by the  first  quarter  of 1999  and  will  have  implementation
completed by the middle of 1999.  Our major Y2K system  critical  function  lies
with our third party data processing service bureau, Fi-Serv. Fi-Serv is working
closely with their clients and we believe that they will be Y2K compliant before
the middle of the 1999 deadline.


                                       13

<PAGE>


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

     The Company is expensing all costs associated with training and software as
those costs are incurred, and such costs are being funded through operating cash
flows.  Hardware  cost will be  capitalized  and expensed  under our fixed asset
guidelines.  The total cost of the Y2K  conversion  project  for the  Company is
estimated to be $110,000.  Expenses of  approximately  $65,000 were incurred and
expensed by the Company through  September 30, 1998. The Company does not expect
significant   increases  in  future  data  processing   costs  relating  to  Y2K
compliance.  While we believe  this amount will be  sufficient  to complete  the
requirements  of becoming Y2K  compliant,  it is an estimate.  As such,  we will
review  our budget  monthly to help  ensure  that we have  allocated  sufficient
resources to this  project.  Any  deviations to the  preliminary  budget will be
reported to the Board of Directors.

     During the  assessment  phase,  the  Company  began to  develop  back-up or
contingency plans for each of its mission critical systems. Virtually all of the
Company's  mission  critical  systems are dependent  upon third party vendors or
service providers,  therefore,  contingency plans include selecting a new vendor
or service  provider  and  converting  to their  system.  In the event a current
vendor's system fails during the validation  phase and it is determined that the
vendor is unable or unwilling  to correct the failure,  the Company will convert
to a new system from a pre-selected list of prospective  vendors.  In each case,
realistic  trigger  dates  have  been  established  to  allow  for  orderly  and
successful  conversions.  For some systems,  contingency  plans consist of using
spreadsheet software or reverting to manual systems until system problems can be
corrected.

     The impact on the  Company for Y2K risk are many and  include,  but are not
limited to, the risk of insufficient  liquidity,  communication loss, power loss
and the  inability  to  process  customer  data.  The  potential  impact  to the
profitability of the Company related to these risks and those not yet identified
cannot be measured or known at this time.

Effect of New Accounting Standards

     In June 1997, the Financial  Accounting  Standards Board "FASB" issued SFAS
No. 130, "Reporting  Comprehensive Income." This statement establishes standards
for reporting and display of comprehensive  income and its components  (revenue,
expenses,  gains  and  losses)  in  a  full  set  of  general-purpose  financial
statements.  This  Statement  requires  that all items that are  required  to be
recognized under accounting  standards as components of comprehensive  income be
reported in a financial  statement that is displayed with the same prominence as
other  financial  statements.  Income  tax  effects  must  also be  shown.  This
statement is effective for fiscal years  beginning  after December 15, 1997. The
adoption of SFAS No. 130 relates  solely to disclosure  provisions and therefore
will not have a  material  impact on the  results  of  operations  or  financial
condition of the Company.

     In June 1997, The FASB issued SFAS No. 131,  "Disclosures about Segments of
an Enterprise and Related  Information." SFAS No. 131 establishes  standards for
the way that public  business  enterprises  report  information  about operating
segments in annual  financial  statements  and requires  that those  enterprises
report  selected  information  about  operating  segments  in interim  financial
reports  issued to  shareholders.  It also  establishes  standards  for  related
disclosures about products and services,  geographic areas, and major customers.
This Statement is effective for financial statements for periods beginning after
December 15, 1997.  The  adoption of SFAS No. 131 relates  solely to  disclosure
provisions  and  therefore  will not have a  material  impact on the  results of
operations or financial condition of the Company.

     In June 1998,  the FASB  issued SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts, and for hedging activities. It required
that an entity  recognize all derivatives as either assets or liabilities in the
statement of financial  position and measure  those  instruments  at fair value.
This  Statement is effective for all fiscal  quarters of fiscal years  beginning
after June 15, 1999.  The Company  currently  has no plans to adopt SFAS No. 133
early  or  to  reclassify  securities  from  held  to  maturity  upon  adoption.
Management  believes adoption of SFAS No. 133 will not have a material effect on
the Company's  financial  position or results of  operations,  nor will adoption
require additional capital resources.


                                       14

<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------


Board of Directors
First Independence Corporation and Subsidiary

We  have  audited  the  accompanying   consolidated   balance  sheets  of  First
Independence  Corporation  and Subsidiary as of September 30, 1998 and 1997, and
the related consolidated  statements of earnings,  stockholders' equity and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of First Independence
Corporation  and  Subsidiary  as  of  September  30,  1998  and  1997,  and  the
consolidated  results of their operations and their  consolidated cash flows for
the  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.


Wichita, Kansas
October 23, 1998


                                       15

<PAGE>


First Independence Corporation and Subsidiary
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

September 30,

<TABLE>
<CAPTION>

                                                                                                   1998             1997
                                                                                               -------------    -------------
<S>                                                                                            <C>              <C>
ASSETS
Cash and due from banks                                                                        $     474,406    $     961,350
Federal funds sold                                                                                        --        1,600,000
Other interest-bearing deposits                                                                      439,174          589,877
                                                                                               -------------    -------------
          Cash and cash equivalents                                                                  913,580        3,151,227

Investment securities held to maturity (estimated fair value of $5,004,700 in 1998 and
   $2,996,300 in 1997)                                                                             5,000,000        3,000,000
Investment securities available for sale                                                           3,418,311        4,311,406
Mortgage-backed securities held to maturity (estimated fair value of $17,403,143 in 1998 and
   $23,748,569 in 1997)                                                                           17,274,238       23,527,689
Mortgage-backed securities available for sale                                                             --          471,618
Loans receivable, net                                                                             93,684,258       74,558,783
Premises and equipment, net                                                                        1,309,633        1,297,500
Federal Home Loan Bank stock, at cost                                                              1,574,000        1,368,900
Accrued interest receivable                                                                          753,970          712,298
Real estate acquired through foreclosure                                                              71,596           12,131
Other                                                                                                337,008          111,107
                                                                                               -------------    -------------
          Total assets                                                                         $ 124,336,594    $ 112,522,659
                                                                                               =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits                                                                                       $  80,573,077    $  76,229,176
Advances from borrowers for taxes and insurance                                                      745,520          693,069
Deferred income taxes                                                                                126,889           34,048
Advances from Federal Home Loan Bank                                                              30,100,000       23,700,000
Accrued expenses and other                                                                           692,067          337,085
                                                                                               -------------    -------------
          Total liabilities                                                                      112,237,553      100,993,378

Stockholders' equity
   Preferred stock, $.01 par value, 500,000 shares authorized; none issued                                --               --
   Common stock, $.01 par value, 2,500,000 shares authorized; 1,498,392 shares issued                 14,984           14,984
   Additional paid-in capital                                                                      7,239,207        7,122,744
   Retained earnings - substantially restricted                                                   10,077,091        9,441,054
   Unrealized gain on securities available for sale, net of related taxes                             52,497           15,112
   Required contributions for shares acquired by Employee Stock Ownership Plan (ESOP)               (145,475)        (218,212)
   Unearned stock compensation - recognition and retention plan (RRP)                                     --          (43,634)
   Treasury stock, 539,073 shares in 1998 and 520,059 shares in 1997 - at cost                    (5,139,263)      (4,802,767)
                                                                                               -------------    -------------
          Total stockholders' equity                                                              12,099,041       11,529,281
                                                                                               -------------    -------------
          Total liabilities and stockholders' equity                                           $ 124,336,594    $ 112,522,659
                                                                                               =============    =============
</TABLE>

The accompanying notes are an integral part of these statements.


                                       16

<PAGE>


First Independence Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF EARNINGS
--------------------------------------------------------------------------------

Year ended September 30,

                                                          1998           1997
                                                       ----------     ----------

Interest income
     Loans                                             $7,032,289     $5,684,053
     Mortgage-backed securities                         1,353,937      1,726,754
     Investment securities                                462,407        513,223
     Interest-bearing deposits and other                  226,914        145,016
                                                       ----------     ----------
         Total interest income                          9,075,547      8,069,046

Interest expense
     Deposits                                           4,010,717      3,659,320
     Borrowed funds                                     1,545,727      1,399,263
                                                       ----------     ----------
         Total interest expense                         5,556,444      5,058,583
                                                       ----------     ----------
Net interest income                                     3,519,103      3,010,463

Noninterest income
     Service charges                                      105,277         77,929
     Real estate operations                                 3,177         34,179
     Other                                                 83,620         46,795
                                                       ----------     ----------
                                                          192,074        158,903
Noninterest expense
     Employee compensation and benefits                 1,235,386      1,117,986
     Occupancy and equipment                              235,043        167,944
     Data processing fees                                 197,134        150,896
     Federal deposit insurance premiums                    48,550         65,626
     Other operating                                      444,557        487,516
                                                       ----------     ----------
                                                        2,160,670      1,989,968
                                                       ----------     ----------
Earnings before income taxes                            1,550,507      1,179,398
Income tax expense                                        649,087        467,718
                                                       ----------     ----------
         NET EARNINGS                                  $  901,420     $  711,680
                                                       ==========     ==========
Earnings per share
     Basic                                             $      .98     $      .73
     Diluted                                           $      .92     $      .68

The accompanying notes are an integral part of these statements.


                                       17

<PAGE>


First Independence Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

Years ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
                                                                         Unrealized
                                                                            gain     Required
                                                                         (loss) on   contri-
                                                                         securities  butions    Unearned
                                               Additional                available  for shares   stock
                                       Common   paid-in       Retained   for sale,   acquired    compen-    Treasury
                                       stock    capital       earnings      net      by ESOP    sation RRP    stock        Total
                                      -------  ----------   -----------  ---------- ----------  ---------- -----------  -----------

<S>                                   <C>      <C>          <C>          <C>        <C>         <C>        <C>          <C>
Balance at October 1, 1996            $ 7,492  $7,053,143   $ 8,960,098  $(11,293)  $(290,949)  $(87,278)  $(2,628,704) $13,002,509
Net earnings for the year                  --          --       711,680        --          --         --            --      711,680
Cash dividends of $.238 per share          --          --      (230,724)       --          --         --            --     (230,724)
Common stock options exercised             --     (12,499)           --        --          --         --        59,769       47,270
Appreciation of securities available
   for sale                                --          --            --    26,405          --         --            --       26,405
ESOP loan repayments                       --          --            --        --      72,737         --            --       72,737
Fair value adjustment on ESOP
   shares committed for release            --      89,592            --        --          --         --            --       89,592
Amortization of unearned stock
   compensation                            --          --            --        --          --     43,644            --       43,644
Purchase of 197,963 shares of
   treasury stock                          --          --            --        --          --         --    (2,233,832)  (2,233,832)
Two-for-one stock split                 7,492      (7,492)           --        --          --         --            --           --
                                      -------  ----------   -----------  --------   ---------   --------   -----------  -----------
Balance at September 30, 1997          14,984   7,122,744     9,441,054    15,112    (218,212)   (43,634)   (4,802,767)  11,529,281
Net earnings for the year                  --          --       901,420        --          --         --            --      901,420
Cash dividends of $.2875 per share         --          --      (265,383)       --          --         --            --     (265,383)
Common stock options exercised             --      (8,641)           --        --          --         --        40,061       31,420
Appreciation of securities available
   for sale                                --          --            --    37,385          --         --            --       37,385
ESOP loan repayments                       --          --            --        --      72,737         --            --       72,737
Fair value adjustment on ESOP
   shares committed for release            --     125,104            --        --          --         --            --      125,104
Amortization of unearned stock
   compensation                            --          --            --        --          --     43,634            --       43,634
Purchase of 25,298 shares of
   treasury stock                          --          --            --        --          --         --      (376,557)    (376,557)
                                      -------  ----------   -----------  --------   ---------   --------   -----------  -----------
Balance at September 30, 1998         $14,984  $7,239,207   $10,077,091  $ 52,497   $(145,475)  $     --   $(5,139,263) $12,099,041
                                      =======  ==========   ===========  ========   =========   ========   ===========  ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                       18

<PAGE>


First Independence Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
Year ended September 30,
<TABLE>
<CAPTION>
                                                                                                          1998              1997
                                                                                                     ------------      ------------
<S>                                                                                                  <C>               <C>         
Cash flows from operating activities
   Net earnings                                                                                      $    901,420      $    711,680
   Adjustments to reconcile net earnings to net cash provided by operating activities
      Depreciation                                                                                        102,889            84,077
      Amortization of premiums and discounts on investments and mortgage-backed
         securities                                                                                        67,751            88,993
      Amortization of deferred loan origination fees                                                     (164,663)          (60,988)
      Amortization of expense related to employee benefit plans                                           241,475           205,973
      Gain on sale of real estate acquired through foreclosure                                             (6,515)          (41,216)
      Deferred income taxes                                                                                69,928           191,768
      Other                                                                                                    --               229
      Increase (decrease) in cash due to changes in
         Accrued interest receivable                                                                      (41,672)          (44,378)
         Other assets                                                                                      13,157            22,957
         Accrued expenses and other liabilities                                                           250,495          (862,622)
         Income taxes payable                                                                             148,643            50,864
                                                                                                     ------------      ------------
          Net cash provided by operating activities                                                     1,582,908           347,337
Cash flows from investing activities
   Proceeds from maturities and repayment of securities
      Available for sale                                                                                1,466,372         2,188,741
      Held to maturity                                                                                  9,164,071         6,412,465
   Purchase of securities
      Available for sale                                                                                 (224,832)       (1,154,129)
      Held to maturity                                                                                 (5,000,000)       (3,000,000)
   Purchase of loans                                                                                   (3,691,591)         (546,000)
   Net increase in loans                                                                              (15,341,907)       (6,284,223)
   Capital expenditures                                                                                  (115,022)         (470,993)
   Proceeds from sale of real estate acquired through foreclosure                                          11,147            24,136
                                                                                                     ------------      ------------
          Net cash used in investing activities                                                       (13,731,762)       (2,830,003)
Cash flows from financing activities
   Net increase in deposits                                                                          $  4,343,901      $  6,872,754
   Net increase in advances from borrowers for taxes and insurance                                         52,451            14,996
   Advances from Federal Home Loan Bank                                                                27,700,000        17,500,000
   Repayment of Federal Home Loan Bank advances                                                       (21,300,000)      (18,100,000)
   Cash dividends paid                                                                                   (265,383)         (230,724)
   Purchase of treasury stock                                                                            (376,557)       (2,233,832)
   Stock issuance costs                                                                                  (274,625)               --
   Stock options exercised                                                                                 31,420            47,270
                                                                                                     ------------      ------------
          Net cash provided by financing activities                                                     9,911,207         3,870,464
                                                                                                     ------------      ------------
Net increase (decrease) in cash and cash equivalents                                                   (2,237,647)        1,387,798
Cash and cash equivalents at beginning of year                                                          3,151,227         1,763,429
                                                                                                     ------------      ------------
Cash and cash equivalents at end of year                                                             $    913,580      $  3,151,227
                                                                                                     ============      ============
Supplemental disclosures of cash flow information
   Cash paid during the year for
      Income taxes                                                                                   $    430,516      $    225,086
      Interest                                                                                          5,532,187         4,935,024
   Noncash investing and financing activities
      Transfer from loans to real estate acquired through foreclosure                                     138,236            88,772
      Issuance of loans receivable in connection with the sale of real estate acquired
          through foreclosure                                                                              65,550            51,600
</TABLE>

The accompanying notes are an integral part of these statements.


                                       19

<PAGE>


First Independence Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

September 30, 1998 and 1997

NOTE A -- SUMMARY OF ACCOUNTING POLICIES

     First  Independence  Corporation (the  "Corporation") is a savings and loan
holding company whose  activities are primarily  limited to holding the stock of
First Federal Savings and Loan Association of Independence (the  "Association").
Future  references to the  Corporation or the Association are utilized herein as
the context  requires.  The Association  conducts a general banking  business in
southeastern  Kansas  which  consists of  attracting  deposits  from the general
public and applying  those funds to the  origination  of loans for  residential,
consumer  and  nonresidential  purposes  and  the  purchase  of  investment  and
mortgage-backed  securities.  The  Association's  profitability is significantly
dependent on net  interest  income,  which is the  difference  between  interest
income generated from interest-earning  assets (i.e., loans and investments) and
the  interest  expense  paid on  interest-bearing  liabilities  (i.e.,  customer
deposits and borrowed  funds).  Net interest  income is affected by the relative
amount of  interest-earning  assets  and  interest-bearing  liabilities  and the
interest received or paid on these balances. The level of interest rates paid or
received  by the  Association  can be  significantly  influenced  by a number of
environmental factors, such as governmental monetary policy, that are outside of
management's control.

     The consolidated  financial  information presented herein has been prepared
in accordance with generally accepted  accounting  principles (GAAP) and general
accounting  practices  within the  financial  services  industry.  In  preparing
consolidated  financial  statements  in  accordance  with  GAAP,  management  is
required to make estimates and assumptions  that affect the reported  amounts of
assets and liabilities  and the disclosure of contingent  assets and liabilities
at the date of the  financial  statements  and revenues and expenses  during the
reporting period. Actual results could differ from such estimates.

     The  following  is a summary of the  Corporation's  significant  accounting
policies  which  have  been  consistently  applied  in  the  preparation  of the
accompanying consolidated financial statements.

     1.   Principles of consolidation

     The  consolidated  financial  statements  include  the  accounts  of  First
Independence Corporation and its wholly-owned subsidiary,  First Federal Savings
and Loan Association of Independence.  All significant intercompany balances and
transactions have been eliminated.

     2.   Cash equivalents

     For purposes of reporting  cash flows,  cash and cash  equivalents  include
cash, due from banks, federal funds sold and other overnight deposits.

     3.   Investment securities and mortgage-backed securities

     Investment  securities  and  mortgage-backed  securities  are classified in
three  categories  and accounted for as follows:  (a) debt  securities  that the
Corporation  has the  positive  intent  and  ability  to hold  to  maturity  are
classified as  held-to-maturity  securities and reported at amortized  cost, (b)
debt and equity  securities that are bought and held principally for the purpose
of  selling  them in the near term are  classified  as  trading  securities  and
reported at fair value,  with  unrealized  gains and losses included in earnings
and (c) debt and equity  securities  not  classified as either  held-to-maturity
securities or trading securities are classified as available-for-sale securities
and  reported at fair value,  with  unrealized  gains and losses  excluded  from
earnings and reported in a separate component of stockholders' equity.

     Premiums and discounts on investment securities are amortized to operations
over the term of the  security  using  the  level  yield  method.  Premiums  and
discounts on mortgage-backed securities are amortized and accreted to operations
using the level yield method over the  estimated  life of the  underlying  loans
collateralizing  the  securities.  Gains and  losses  on the sale of  securities
designated as available for sale are recorded using the specific  identification
method.

     4.   Loans receivable

     Loans  receivable  that management has the intent and ability to hold until
maturity  or  pay-off  are  reported  at their  outstanding  principal  balance,
adjusted for any charge-offs,  the allowance for loan losses, unearned discounts
and net deferred loan origination fees.

     The  allowance  for loan losses is increased by charges to  operations  and
decreased by charge-offs (net of recoveries).  Management's  periodic evaluation
of the adequacy of the  allowance is based on the  Association's  past loan loss
experience,  known and inherent risks in the portfolio,  adverse situations that
may affect the borrower's  ability to repay,  estimated  value of any underlying
collateral and current economic conditions.

     Specific reserves are established for any impaired  nonresidential loan for
which the recorded  investment  in the loan  exceeds the  measured  value of the
loan.  Loans subject to impairment  valuation are defined as nonaccrual loans or
any other  loan where it is  probable  that all  amounts  due  according  to the
contractual terms will not be collected, exclusive of smaller balance homogenous
loans such as home  equity,  consumer  and 1-4 family  residential  real  estate
loans. The values of loans subject to impairment  valuation are determined based
on the present  value of expected  future  cash flows,  the market  price of the
loans, or the fair values of the underlying collateral if the loan is collateral
dependent.


                                       20

<PAGE>


--------------------------------------------------------------------------------
     Uncollectible  interest on loans that are contractually past due is charged
off or an allowance is established  based on management's  periodic  evaluation.
The  allowance  is  established  by a charge  to  interest  income  equal to all
interest  previously  accrued.  Income is  subsequently  recognized  only to the
extent  cash  payments  are  received  until,  in  management's   judgment,  the
borrower's  ability to make periodic interest and principal  payments is back to
normal,  in which case the loan is returned to accrual status. If the collection
of  principal  in  whole  or in part  is in  doubt,  all  payments  received  on
nonaccrual loans are credited to principal until such doubt is eliminated.

     5. Loan origination fees and related costs

     Loan origination fees received, net of certain direct origination costs are
deferred on a  loan-by-loan  basis and  amortized  to  interest  income over the
contractual life of the loan using the interest method,  giving effect to actual
loan  prepayments.  Loan  origination  costs are  considered  to be direct costs
attributable to originating a loan.

     6. Real estate acquired through foreclosure

     Real estate properties  acquired  through,  or in lieu of, loan foreclosure
are to be  sold  and  are  initially  recorded  at  fair  value  at the  date of
foreclosure  establishing a new cost basis.  After  foreclosure,  valuations are
periodically performed by management and the real estate is carried at the lower
of carrying  amount or fair value less cost to sell.  Revenue and expenses  from
operations  and changes in the  valuation  allowance are included in real estate
operations.

     7. Premises and equipment

     Premises and equipment are carried at cost less  accumulated  depreciation.
Depreciation  is included in occupancy and equipment  expense and is provided by
the straight-line method over the following estimated useful lives:

                                                                   Years
                                                                   -----
      Building                                                     8-50
      Furniture, fixtures and equipment                            5-20
      Automobiles                                                     5

     The costs of maintenance and repairs are charged to operations as incurred.
The costs of  significant  additions,  renewals and  betterments  to depreciable
properties  are  capitalized  and  depreciated  over the  remaining  or extended
estimated  useful lives of the  properties.  Gains and losses on  disposition of
property and equipment are included in operations.

     8. Employee stock ownership plan

     The Corporation  sponsors a leveraged employee stock ownership plan (ESOP).
The ESOP holds company  stock which serves as  collateral  for the ESOP debt. As
shares are  released  from  collateral,  the  Corporation  reports  compensation
expense equal to the current  market price of the shares,  and the shares become
outstanding for earnings-per-share  ("EPS") computations.  Dividends on released
and  allocated  ESOP shares are  recorded as a reduction  of retained  earnings;
dividends on unallocated ESOP shares are recorded as compensation cost.

     9. Stock-based compensation

     The Company uses the intrinsic  value based method of accounting  for stock
options.  Under the  intrinsic  method,  compensation  cost for stock options is
measured as the  excess,  if any, of the quoted  market  price of the  Company's
stock over the exercise price at the measurement date.

     10. Income taxes

     First  Independence  Corporation  and its  subsidiary  file a  consolidated
federal income tax return.  Deferred tax assets and  liabilities  are determined
based on the  differences  between  the  financial  accounting  and tax basis of
assets and  liabilities.  Deferred tax assets or  liabilities at the end of each
period are determined using the currently  enacted tax rate expected to apply to
taxable  income in the periods in which the  deferred  tax asset or liability is
expected to be settled or realized.

     11. Earnings per share

     Basic  earnings  per share is  computed  by  dividing  net  earnings by the
weighted average number of common shares outstanding during the year.


                                       21

<PAGE>


First Independence Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
--------------------------------------------------------------------------------

     Diluted  earnings  per share is computed by  dividing  net  earnings by the
weighted  average number of common shares  outstanding  during the year plus the
common share equivalents related to outstanding stock options.  Weighted average
common shares outstanding and diluted shares deemed outstanding were as follows:
<TABLE>
<CAPTION>
                                                                                                        Year ended
                                                                                                       September 30,
                                                                                              ------------------------------
                                                                                                 1998                1997
                                                                                              ---------            ---------
<S>                                                                                             <C>                <C>
Weighted average common shares outstanding                                                      924,091              980,858
Common share equivalents related to outstanding stock options                                    53,403               70,658
                                                                                              ---------            ---------
Adjusted weighted average common shares deemed to be outstanding                                977,494            1,051,516
                                                                                              =========            =========
</TABLE>

     Common shares outstanding  exclude unallocated and committed shares held by
the ESOP trust.

     12. Common stock split

     On December  18, 1996,  the  Corporation's  Board of Directors  announced a
two-for-one stock split effected in the form of a stock dividend to stockholders
of record as of January 10, 1997. All references in the financial  statements to
number of  shares,  per share  amounts  and market  prices of the  Corporation's
common stock have been retroactively restated to reflect the increased number of
common shares outstanding.

NOTE B -- INVESTMENT SECURITIES

     The amortized cost, gross  unrealized  gains,  gross unrealized  losses and
estimated fair value of investment securities are as follows:

<TABLE>
<CAPTION>
                                                                                           September 30, 1998
                                                                       -------------------------------------------------------------
                                                                                           Gross            Gross          Estimated
                                                                        Amortized       unrealized       unrealized          fair
          Held to maturity                                                cost             gains            losses          value
          ----------------                                             ----------       ----------       ----------       ----------
<S>                                                                    <C>              <C>              <C>              <C>
U.S. Government agency obligations                                     $5,000,000       $    4,700       $       --       $5,004,700
                                                                       ==========       ==========       ==========       ==========
         Available for sale
         ------------------
                                                                                                                          ----------
Intermediate term liquidity portfolio                                  $  346,749       $    5,862       $       --       $  352,611
U.S. Government and agency obligations                                  2,986,888           78,812               --        3,065,700
                                                                       ----------       ----------       ----------       ----------
                                                                       $3,333,637       $   84,674       $       --      $3 ,418,311
                                                                       ==========       ==========       ==========       ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                                           September 30, 1997
                                                                      --------------------------------------------------------------
                                                                                          Gross            Gross          Estimated
                                                                       Amortized        unrealized       unrealized         fair
          Held to maturity                                               cost             gains            losses           value
          ----------------                                            -----------       ----------       ----------       ----------
<S>                                                                    <C>              <C>              <C>              <C>
U.S. Government agency obligations                                     $3,000,000       $    2,860       $    6,560       $2,996,300
                                                                       ==========       ==========       ==========       ==========
         Available for sale
         ------------------

Intermediate term liquidity portfolio                                  $  327,017       $      639       $       --       $  327,656
U.S. Government and agency obligations                                  3,961,757           29,213            7,220        3,983,750
                                                                       ----------       ----------       ----------       ----------
                                                                       $4,288,774       $   29,852       $    7,220       $4,311,406
                                                                       ==========       ==========       ==========       ==========
</TABLE>

     The amortized cost and estimated  fair value of U.S.  Government
and agency obligations at September 30, 1998, by term to maturity are
as follows:

<TABLE>
<CAPTION>
                                                                                                                           Estimated
                                                                                                         Amortized           fair
          Held to maturity                                                                                 cost              value
          ----------------                                                                               ---------        ----------
<S>                                                                                                      <C>              <C>       
Due in two to five years                                                                                 $5,000,000       $5,004,700
                                                                                                         ==========       ==========
         Available for sale
         ------------------
Due in one year or less                                                                                  $  993,726       $1,001,000
Due in two to five years                                                                                  1,993,162        2,064,700
                                                                                                         ----------       ----------
                                                                                                         $2,986,888       $3,065,700
                                                                                                         ==========       ==========
</TABLE>

     The intermediate  term liquidity  portfolio does not have a contractual due
date.

     Investment  securities  with a fair value of  $3,065,700  and  $993,440  at
September  30, 1998 and 1997,  respectively,  are  pledged to secure  government
deposits.


                                       22

<PAGE>


NOTE C -- MORTGAGE-BACKED SECURITIES

     The amortized cost, gross  unrealized  gains,  gross unrealized  losses and
estimated fair value of mortgage-backed securities are summarized as follows:

<TABLE>
<CAPTION>
                                                                                        September 30, 1998
                                                             -----------------------------------------------------------------------
                                                                                    Gross              Gross             Estimated
                                                              Amortized          unrealized          unrealized             fair
          Held to maturity                                      cost                gains              losses               value
          ----------------                                   -----------         -----------         -----------        ------------
<S>                                                          <C>                 <C>                 <C>                 <C>
GNMA certificates                                            $    39,291         $     3,673         $        --         $    42,964
FHLMC certificates                                             6,188,601              82,373               6,104           6,264,870
FNMA certificates                                              4,361,636             101,460              25,069           4,438,027
Collateralized mortgage obligations
   FHLMC                                                       3,661,107               9,022               9,764           3,660,365
   FNMA                                                        3,023,603               5,750              32,436           2,996,917
                                                             -----------         -----------         -----------         -----------
                                                             $17,274,238         $   202,278         $    73,373         $17,403,143
                                                             ===========         ===========         ===========         ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                                        September 30, 1997
                                                             -----------------------------------------------------------------------
                                                                                    Gross              Gross              Estimated
                                                              Amortized          unrealized          unrealized             fair
          Held to maturity                                      cost                gains              losses               value
          ----------------                                   -----------         -----------        -----------          -----------
<S>                                                          <C>                 <C>                 <C>                 <C>
GNMA certificates                                            $    88,687         $     8,094         $        --         $    96,781
FHLMC certificates                                             8,304,231             145,519              10,514           8,439,236
FNMA certificates                                              6,535,590             154,284              29,048           6,660,826
Collateralized mortgage obligations
   FHLMC                                                       4,799,170               2,250              44,099           4,757,321
   FNMA                                                        3,800,011              23,289              28,895           3,794,405
                                                             -----------         -----------         -----------         -----------
                                                             $23,527,689         $   333,436         $   112,556         $23,748,569
                                                             ===========         ===========         ===========         ===========
         Available for sale
         ------------------
FHLMC certificates                                           $   469,874         $     1,744         $        --         $   471,618
                                                             ===========         ===========         ===========         ===========
</TABLE>


     Mortgage-backed  securities  generally mature ratably over the 30-year term
of the underlying loans  collateralizing the securities.  Expected maturities on
mortgage-backed  securities  will differ  from  contractual  maturities  because
borrowers may have the right to call or prepay  obligations with or without call
or prepayment penalties.

     Mortgage-backed securities with a fair value of $10,637,352 and $13,295,170
at September 30, 1998 and 1997,  respectively,  are pledged to secure government
and other deposits.


                                       23

<PAGE>


First Independence Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
--------------------------------------------------------------------------------

NOTE D -- LOANS RECEIVABLE

     Loans receivable at September 30 are summarized as follows:

                                                      1998              1997
                                                 ------------      ------------
First mortgage loans
   One-to-four family residences                 $ 71,854,962      $ 64,152,604
   Multi-family residences                          1,001,302         1,164,442
   Nonresidential                                   9,065,316         7,478,908
   Construction                                    16,049,334           763,712
                                                 ------------      ------------
      Total first mortgage loans                   97,970,914        73,559,666
Consumer and other loans
   Savings                                            396,736           349,531
   Automobile                                         961,613           704,519
   Home equity and second mortgages                   837,396           550,008
   Unsecured home improvement                         233,947           274,267
   Other                                              713,796           661,209
                                                 ------------      ------------
      Total consumer and other loans                3,143,488         2,539,534
Less
   Allowance for loan losses                         (655,745)         (668,185)
   Loans in process                                (6,437,204)         (571,808)
   Unearned discounts                                  (2,483)           (2,726)
   Deferred loan origination fees                    (334,712)         (297,698)
                                                 ------------      ------------
                                                   (7,430,144)       (1,540,417)
                                                 ------------      ------------
      Net loans receivable                       $ 93,684,258      $ 74,558,783
                                                 ============      ============

Activity in the allowance for loan losses is summarized as follows for the years
ended September 30:

                                                    1998            1997
                                                 ---------       ---------
     Balance at beginning of year                $ 668,185       $ 690,009
     Loans charged off                             (12,440)        (21,824)
                                                 ---------       ---------
     Balance at end of year                      $ 655,745       $ 668,185
                                                 =========       =========

     The Association's  lending efforts have historically focused on one-to-four
family  residential real estate loans,  which comprise  approximately 71% (1998)
and 84%  (1997) of the total  loan  portfolio.  Approximately  2% (1998)  and 4%
(1997) of the Association's one-to-four family residential real estate loans are
collateralized  by  properties  located  outside of the primary  lending area of
Montgomery and  surrounding  Kansas  counties.  Generally,  such loans have been
underwritten  on  the  basis  of  80% to 90%  loan-to-value  ratio  or  mortgage
insurance was required.  The Association,  as with any lending  institution,  is
subject to the risk that real estate  values  could  deteriorate  in its primary
lending area thereby impairing collateral values. Management believes,  however,
that real estate values in the Association's  primary lending area are currently
stable or increasing.

     Approximately  10% (1998) and 11% (1997) of the loan portfolio is comprised
of  nonresidential  and multi-family  real estate loans with  approximately  10%
(1998) and 13% (1997) of this total collateralized by properties located outside
the Association's primary lending area. During the year ended September 30, 1998
the Association began originating  construction loans at its new loan production
office in Lawrence,  Kansas.  These  construction  loans generally have terms of
nine months or less with permanent financing provided by other lenders.

     Serviced  loans,  primarily  under a County  Mortgage  Revenue  Bond,  were
$1,734,818 and $2,199,519 at September 30, 1998 and 1997, respectively.


                                       24

<PAGE>


     In the normal course of business, the Association makes loans to directors,
executive officers and related entities.  An analysis of aggregate loan activity
with this group is as follows:

     Loans outstanding at October 1, 1997                        $ 527,884
     New loans                                                      59,260
     Repayments                                                    (82,093)
                                                                 ---------
     Loans outstanding at September 30, 1998                     $ 505,051
                                                                 =========

     Loan  impairment is measured by estimating  the expected  future cash flows
and discounting them at the respective effective interest rate or by valuing the
underlying collateral.  The recorded investment in these loans and the valuation
allowance for losses related to loan impairment at September 30 are as follows:

                                                                     1997
                                                                   --------
     Principal amount of impaired loans                            $206,691
     Less valuation allowance                                        69,691
                                                                   --------
                                                                   $137,000
                                                                   ========

     The  Association  has provided an allowance for loan losses on all impaired
loans.  Interest  income of $16,023 and $9,537 was  recognized  and collected on
impaired loans during the years ended September 30, 1998 and 1997, respectively.
The  Association has no impaired loans which are not included in smaller balance
homogeneous home equity,  consumer and 1-4 family  residential real estate loans
at September 30, 1998.

     Nonaccrual  loans totaled $335,554 and $1,049,367 at September 30, 1998 and
1997,  respectively.  Interest  income that would have been  recorded  under the
original  terms of such loans  approximated  $15,000  and  $40,000 for the years
ended  September  30,  1998 and 1997,  respectively.  Interest  income  that was
recorded was  insignificant for the years ended September 30, 1998 and 1997. The
Association is not committed to make  additional  loans to borrowers whose loans
have been modified.


NOTE E -- ACCRUED INTEREST RECEIVABLE

     Accrued interest receivable at September 30 is summarized as follows:

                                                      1998           1997
                                                    --------       --------
     Loans receivable                               $576,798       $450,257
     Mortgage-backed securities                      119,858        171,729
     Investment securities                            57,314         90,312
                                                    --------       --------
                                                    $753,970       $712,298
                                                    ========       ========

NOTE F - PREMISES AND EQUIPMENT

     Premises and equipment at September 30 are summarized as follows:

                                                      1998          1997
                                                   ----------    ----------
     Land                                          $   74,958    $   74,958
     Building                                       1,319,309     1,281,916
     Furniture, fixtures and equipment                458,636       383,148
     Automobiles                                       43,579        43,579
                                                   ----------    ----------
                                                    1,896,482     1,783,601
     Less accumulated depreciation                    586,849       486,101
                                                   ----------    ----------
                                                   $1,309,633    $1,297,500
                                                   ==========    ==========


                                       25

<PAGE>


First Independence Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
--------------------------------------------------------------------------------

September 30, 1998 and 1997

NOTE G -- REAL ESTATE OPERATIONS

     A summary  of real  estate  operations  is as follows  for the years  ended
September 30:
<TABLE>
<CAPTION>
                                                                      1998       1997
                                                                    --------   --------
<S>                                                                 <C>        <C>
     Gain on sale of real estate acquired through foreclosure, net  $  6,515   $ 41,216
     Net operating loss                                               (3,338)    (7,037)
                                                                    --------   --------
     Income from real estate operations                             $  3,177   $ 34,179
                                                                    ========   --------
</TABLE>

     Real estate  operations  of the  Association  consist  primarily  of paying
property taxes and general maintenance expenses on the properties held.

NOTE H -- DEPOSITS

     Deposits at September 30 are summarized as follows:
<TABLE>
<CAPTION>
                                                        Weighted
                                                     average rate at
                                                       September 30,              1998                           1997
                                                     ---------------     -----------------------      -------------------------
                                                     1998       1997        Amount       Percent         Amount         Percent
                                                     ----       ----     -----------     -------      -----------       -------
<S>                                                  <C>        <C>      <C>              <C>          <C>              <C>
     NOW accounts ...........................        2.05%      2.05%    $ 2,507,101        3.11%      $ 2,058,500        2.70%
     First Super NOW accounts ...............        2.30       2.30       1,431,706        1.78         1,704,678        2.24
     First Money Fund accounts ..............        4.47       4.51      21,952,555       27.24        20,702,177       27.15
                                                                         -----------      ------       -----------      ------
          Total demand deposits .............        4.15       4.16      25,891,362       32.13        24,465,355       32.09
     Passbook savings accounts ..............        2.89       2.89       2,744,506        3.41         2,702,740        3.55
     Certificates of deposit
        3.00% to 3.99% ......................        3.80       3.75           3,310         .01             4,539         .01
        4.00% to 4.99% ......................        4.77       4.77       1,792,483        2.22         2,189,277        2.87
        5.00% to 5.99% ......................        5.64       5.55      45,363,830       56.30        39,910,696       52.36
        6.00% to 6.99% ......................        6.28       6.30       4,750,692        5.90         6,930,530        9.09
        7.00% to 7.99% ......................        7.00       7.00          26,894         .03            26,039         .03
                                                                         -----------      ------       -----------      ------
     Total savings certificates .............        5.67       5.62      51,937,209       64.46        49,061,081       64.36
                                                                         -----------      ------       -----------      ------
     Total savings ..........................        5.53       5.48      54,681,715       67.87        51,763,821       67.91
                                                                         -----------      ------       -----------      ------
     Total deposits .........................        5.09       5.06     $80,573,077      100.00%      $76,229,176      100.00%
                                                                         ===========      ======       ===========      ======
</TABLE>


                                       26

<PAGE>


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

     The aggregate  amount of certificates of deposit and savings with a minimum
denomination of $100,000 was $4,621,272 and $3,844,877 at September 30, 1998 and
1997, respectively.

     Scheduled maturities of certificates of deposit are as follows:

September 30, 1998

<TABLE>
<CAPTION>
                                                                                 Less than     One to       Three to
                                                                                 one year    three years   five years     Total
                                                                                -----------  -----------  -----------  -----------
<S>          <C>                                                                <C>          <C>          <C>          <C>
             3.00% to 3.99%                                                     $     3,310  $        --  $        --  $     3,310
             4.00% to 4.99%                                                       1,792,483           --           --    1,792,483
             5.00% to 5.99%                                                      36,468,747    7,854,690    1,040,393   45,363,830
             6.00% to 6.99%                                                         970,954    2,597,477    1,182,261    4,750,692
             7.00% to 7.99%                                                              --       26,894           --       26,894
                                                                                -----------  -----------  -----------  -----------
                                                                                $39,235,494  $10,479,061  $ 2,222,654  $51,937,209
                                                                                ===========  ===========  ===========  ===========
</TABLE>

     September 30, 1997
<TABLE>
<CAPTION>

                                                                                 Less than     One to       Three to
                                                                                 one year    three years   five years     Total
                                                                                -----------  -----------  -----------  -----------
<S>                                                                             <C>          <C>          <C>          <C>        
             3.00% to 3.99%                                                     $     4,539  $        --  $        --  $     4,539
             4.00% to 4.99%                                                       1,734,025      455,252           --    2,189,277
             5.00% to 5.99%                                                      23,918,436   15,493,876      498,384   39,910,696
             6.00% to 6.99%                                                       2,351,745    2,411,600    2,167,185    6,930,530
             7.00% to 7.99%                                                              --       26,039           --       26,039
                                                                                -----------  -----------  -----------  -----------
                                                                                $28,008,745  $18,386,767  $ 2,665,569  $49,061,081
                                                                                ===========  ===========  ===========  ===========
</TABLE>

     Interest expense on deposits for the years ended September 30 is summarized
as follows:

<TABLE>
<CAPTION>

                                                                                                              1998         1997
                                                                                                          -----------  -----------
<S>                                                                                                       <C>          <C>        
          Certificates of deposit                                                                         $ 2,927,897  $ 2,745,188
          NOW accounts                                                                                      1,040,855      878,302
          Demand deposits                                                                                      41,965       35,830
                                                                                                          -----------  -----------
                                                                                                          $ 4,010,717  $ 3,659,320
                                                                                                          ===========  ===========
</TABLE>

NOTE I -- ADVANCES FROM FEDERAL HOME LOAN BANK

     Advances  from the Federal  Home Loan Bank at  September  30 consist of the
following:

<TABLE>
<CAPTION>
                                                             1998                             1997
                                                 ----------------------------     ----------------------------
                                                    Rates            Amount          Rates            Amount
                                                 ------------      ----------     ------------      ----------

<S>                                              <C>               <C>            <C>               <C>
     Variable rates .....................        5.72% - 6.00%     $ 8,600,000    5.67% - 6.00%     $ 8,400,000
     Fixed rates ........................        5.65  - 7.06        9,000,000    4.92  - 7.06       15,300,000
     Fixed rate convertible* ............        4.87  - 5.08       12,500,000              --               --
                                                                   -----------                      -----------
                                                                   $30,100,000                      $23,700,000
                                                                   ===========                      ===========
</TABLE>

     *Due in 2008 unless converted.


                                       27

<PAGE>


First Independence Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
--------------------------------------------------------------------------------

     The Company has a variable  rate line of credit with the Federal  Home Loan
Bank totaling  $9,000,000 with an outstanding balance of $1,700,000 at September
30, 1998 included above.

     Aggregate  maturities  for the years  following  September  30, 1998 are as
follows:

    1999 .....................................     $ 8,600,000
    2001 .....................................       3,000,000
    2002 .....................................       5,000,000
    2003 .....................................       1,000,000
    2008 .....................................      12,500,000
                                                   -----------
      ........................................     $30,100,000
                                                   ===========

     Assets of the  Association  are subject to a blanket  pledge  agreement  to
collateralize the advances.


NOTE J -- EMPLOYEE BENEFITS

     The Corporation sponsors a leveraged employee stock ownership plan ("ESOP")
that covers all  full-time  employees.  All  employees  of the  Corporation  are
eligible to  participate  in the ESOP after they attain age 21 and  complete one
year of service  during  which they work at least 1,000 hours.  The  Corporation
makes annual  contributions  to the ESOP equal to the ESOP's debt  service.  All
dividends  received by the ESOP are credited to the employee's  stock  ownership
account.  The unallocated ESOP shares are pledged as collateral for its debt. As
the debt is repaid,  shares are released from collateral and allocated to active
employees,   based  on  the  proportion  of  debt  service  paid  in  the  year.
Accordingly,  unpaid ESOP debt is  reflected as a deduction  from  stockholders'
equity. ESOP compensation  expense was $208,752 and $174,786 for the years ended
September 30, 1998 and 1997, respectively.

     The ESOP shares as of September 30, 1998 were as follows:

     Allocated shares ..........................................     72,737
     Unreleased shares .........................................     29,095
                                                                   --------
     Total ESOP shares .........................................    101,832
                                                                   ========
     Fair value of unreleased shares at September 30, 1998 .....   $294,587
                                                                   ========

     Additionally, the Corporation has a Recognition and Retention Plan (RRP) as
a means of providing directors and certain key employees of the Association with
an ownership  interest in a manner designed to compensate such directors and key
employees for services to the Corporation.  During fiscal 1994 the RRP purchased
43,642 shares of common stock.  Such shares are earned and allocated  ratably to
participants over five years.  Expense under the RRP totaled $43,634 and $43,644
for the years ended September 30, 1998 and 1997, respectively.

     The  Company  has  adopted a Stock  Option  and  Incentive  Plan  (SOP) for
designated  participants.  The SOP provides  for up to 145,474  shares of common
stock to be issued to participants.  The option price of any options granted may
not be less than the market  value of the common  stock on the date of the grant
and unless  otherwise  specified,  the options expire ten years from the date of
the grant. A summary of the Company's stock option plan as of September 30, 1998
and 1997 and  changes  during  the years  ended as of those  dates is  presented
below:

                                                                    Weighted
                                                                     average
                                                                     exercise
                                                         Shares       price
                                                        -------     ---------
     Outstanding at October 1, 1996                     121,276      $ 5.14
     Exercised                                            9,454        5.00
                                                        ------
                                                        111,822        5.15
     Outstanding at September 30, 1997
     Issued                                               1,000       14.63
     Exercised                                            6,284        5.00
                                                        ------
     Outstanding at September 30,1998                   106,538        5.25
                                                        ======


                                       28

<PAGE>


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

     All options  outstanding at September 30, 1998 were  exercisable and can be
summarized as follows:

                                Exercise             Remaining
          Shares                 price                life
         --------              ----------        -----------------
          91,902                 $5.00           5 years
          11,636                  6.19           5 years 4 months
           2,000                  6.69           5 years 10 months
           1,000                 14.63           9 years 1 month
         -------              
         106,538
         =======

     The stock  option  plan is  accounted  for under APB Opinion 25 and related
interpretations.  Accordingly,  no compensation cost has been recognized for the
plan. Had compensation cost for the plan been determined based on the fair value
of the  options at the grant  dates  consistent  with the fair  value  method of
Statement of Financial  Accounting  Standards 123,  Accounting  for  Stock-Based
Compensation (SFAS 123), the Company's net earnings and earnings per share would
have been reduced to the pro forma  amounts  indicated  below for the year ended
September 30, 1998.

                      Net earnings - as reported                    $901,420
                      Net earnings - pro forma                       894,270
                      Earnings per share
                         Basic - as reported                            $.98
                         Basic - pro forma                               .97
                         Diluted - as reported                           .92
                         Diluted - pro forma                             .91

     The fair value of each option grant is estimated on the date of grant using
the  Black-Scholes  options-pricing  model with the  following  weighted-average
assumptions  used:  dividend  yield  of .51%,  expected  volatility  of  28.39%,
risk-free interest rate of 5.62% and expected lives of 10 years.

     The Association  participates in a defined benefit  multi-employer  pension
plan.  Substantially  all  employees  are eligible and benefits are based on the
employee's salary and years of service.  No contribution was made or required to
be made by the  Association  for the years ended September 30, 1998 and 1997 due
to the plan's overfunded status.  Separate actuarial  disclosure  information is
not available due to the plan being a multi-employer pension plan.

NOTE K -- INCOME TAXES

     Income  tax  expense  for the years  ended  September  30  consists  of the
following:

<TABLE>
<CAPTION>
                                                                                    1998        1997
                                                                                  ---------   ---------
<S>                                                                               <C>         <C>
     Current                                                                      $ 579,159   $ 275,950
     Deferred                                                                        69,928     191,768
                                                                                  ---------   ---------
                                                                                  $ 649,087   $ 467,718
                                                                                  =========   =========
</TABLE>

     Reconciliation of income tax expense computed at the federal statutory rate
of 34% and income tax expense for the years ended September 30 is as follows:

<TABLE>
<CAPTION>
                                                                                     1998        1997
                                                                                  ---------   ---------
<S>                                                                               <C>         <C>
     Income tax expense at statutory rate                                         $ 527,172   $ 400,995
     Kansas privilege tax, net of federal tax benefit                                69,075      52,542
     State contribution credit                                                      (26,303)    (28,875)
     Nondeductible ESOP fair value adjustment                                        48,109      30,461
     Other                                                                           31,034      12,595
                                                                                  ---------   ---------
                                                                                  $ 649,087   $ 467,718
                                                                                  =========   =========
</TABLE>


                                       29

<PAGE>


First Independence Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
--------------------------------------------------------------------------------

September 30, 1998 and 1997

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

                                                          1998           1997
                                                       ---------      ---------
Deferred tax assets
   Allowance for loan losses                           $ 231,272      $ 241,667
   Accrued bonuses                                         8,775          8,327
   State contribution credit                                  --         18,924
   Other                                                      --          5,780
                                                       ---------      ---------
       Total deferred tax assets                         240,047        274,698
                                                       ---------      ---------
Deferred tax liabilities
   Securities available for sale                          33,022         23,393
   Depreciation of property and equipment                 37,637         34,622
   Federal Home Loan Bank stock dividends                289,302        250,731
   Other                                                   6,975             --
                                                       ---------      ---------
       Total deferred tax liabilities                    366,936        308,746
                                                       ---------      ---------
Net deferred tax liability                             $(126,889)     $ (34,048)
                                                       =========      =========

     The Association was allowed a special bad debt deduction, generally limited
to 8% of  otherwise  taxable  income  subject  to certain  limitations  based on
aggregate  loans and deposit  account  balances  at the end of the year.  If the
amounts that qualify as deductions  for federal  income taxes are later used for
purposes other than for bad debt losses, including distributions in liquidation,
such  distributions  will be subject to federal income taxes at the then current
corporate  income tax rate.  Retained  earnings at September 30, 1998,  includes
approximately  $2.6  million  for  which  federal  income  taxes  have  not been
provided.  The amount of  unrecognized  deferred tax  liability  relating to the
cumulative  bad  debt   deduction  at  September  30,  1998,  is   approximately
$1,000,000.

NOTE L -- STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL

     The  Association  is  subject to various  regulatory  capital  requirements
administered by the Office of Thrift Supervision (OTS).  Failure to meet minimum
capital  requirements  can initiate  certain  mandatory and possibly  additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material  effect  on  the  Association's  financial  statements.  Under  capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
the Association must meet specific capital guidelines that involve  quantitative
measures of the Association's assets,  liabilities and certain off-balance-sheet
items as calculated under regulatory  accounting  practices.  The  Association's
capital amounts and classification are also subject to qualitative  judgments by
the regulators about components, risk weightings, and other factors.

     Quantitative  measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital to  risk-weighted  assets and of Tier 1
(core)  capital  and  tangible  capital to  adjusted  total  assets.  Management
believes,  as of September  30,  1998,  that the  Association  meets all capital
adequacy requirements to which it is subject.


                                       30

<PAGE>


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

     As of  September  30,  1998,  the  most  recent  notification  from the OTS
categorized the Association as well capitalized  under the regulatory  framework
for prompt  corrective  action.  There are no  conditions  or events  since that
notification that management  believes have changed the Association's  category.
To be categorized as well  capitalized  the  Association  must maintain  minimum
total risk-based, Tier 1 risk-based and Tier 1 (core) ratios as set forth in the
table below.

<TABLE>
<CAPTION>
                                                                            To be well
                                                       For capital       capitalized under
                                                        adequacy         prompt corrective
                                     Actual             purposes         action provisions
                                ----------------     --------------     ------------------
                                 Amount    Ratio     Amount   Ratio      Amount   Ratio
                                -------    -----     ------   -----     -------  ---------
                                                (Dollars in thousands)
<S>                             <C>        <C>      <C>      <C>        <C>     <C>
     As of September 30, 1998
     Total risk-based capital   $11,161    17.8%    $5,012   >=8.0%     $6,265  >=10.0%
     Tier 1 risk-based capital   10,505    16.8      2,506   >=4.0       3,759  >= 6.0
     Core capital                10,505     8.5      3,691   >=3.0       6,152  >= 5.0
     Tangible capital            10,505     8.5      1,846   >=1.5         N/A     N/A
</TABLE>

<TABLE>
<CAPTION>
                                                                          To be well
                                                     For capital       capitalized under
                                                      adequacy         prompt corrective
                                   Actual             purposes         action provisions
                              -----------------     ---------------    ------------------
                                  Amount  Ratio      Amount   Ratio      Amount    Ratio
                              ----------  -----     -------   -----    ------      ------
                                              (Dollars in thousands)
<S>                             <C>        <C>       <C>      <C>        <C>     <C>
     As of September 30, 1997
     Total risk-based capital   $ 9,989    19.5%     $4,093   >=8.0%     $5,116  >=10.0%
     Tier 1 risk-based capital    9,349    18.3       2,046   >=4.0       3,069  >= 6.0
     Core capital                 9,349     8.4       3,333   >=3.0       5,555  >= 5.0
     Tangible capital             9,349     8.4       1,666   >=1.5         N/A     N/A
</TABLE>

     Regulations  of the OTS impose  limitations on the payment of dividends and
other capital  distributions by savings  associations.  Under such regulations a
savings  association that immediately  prior to and on a pro forma basis,  after
giving effect to a proposed capital distribution,  has total capital (as defined
by OTS  regulation)  that is equal to or  greater  than the  amount of its fully
phased-in capital  requirement is generally  permitted without OTS approval (but
subsequent  to 30 days prior notice to the OTS of the planned  dividend) to make
capital  distributions during a calendar year in the amount of up to the greater
of (1) 100% of its net  earnings to date during the year plus an amount equal to
one-half of the amount by which its total  capital to assets ratio  exceeded its
fully phased-in  capital to assets ratio at the beginning of the year or (2) 75%
of its net  income  for the most  recent  four  quarters.  Pursuant  to such OTS
dividend  regulations,  the  Association  had the  ability to pay  dividends  of
approximately  $3,800,000  to First  Independence  Corporation  at September 30,
1998.

NOTE M -- COMMITMENTS

     The Association is a party to financial  instruments with off-balance sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers including  commitments to extend credit. Such commitments  involve, to
varying  degrees,  elements  of credit and  interest-rate  risk in excess of the
amount recognized in the consolidated  balance sheets.  The contract or notional
amounts of the commitments  reflect the extent of the Association's  involvement
in such financial instruments.

     The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial  instrument for commitments to extend credit is
represented  by the  contractual  notional  amount  of  those  instruments.  The
Association uses the same credit policies in making  commitments and conditional
obligations   as  those   utilized  for  on-balance   sheet   instruments.   The
Association's  commitments  to extend credit at September 30, 1998 include loans
in process as  disclosed  in Note D and first  mortgage  loans with fixed  rates
ranging from 6.5% to 11.0% aggregating  $2,231,130 and $131,000 of variable rate
loans at 5.5%.  Collateral for loans in process and  commitments are the same as
for other  Association  loans. The commitment period is generally for forty-five
days.

NOTE N -- ACQUISITION

     On February 18, 1998,  the Boards of Directors of the  Corporation  and The
Neodesha Savings and Loan Association,  FSA (Neodesha)  adopted a Plan of Merger
Conversion.  Pursuant to the Plan,  Neodesha  will combine with the  Association
through the conversion of Neodesha from a mutual savings and loan association to
a stock savings and loan  association  and the  simultaneous  merger of Neodesha
into the  Association.  The  transaction  is subject to approval  by  regulatory
authorities.

     Pursuant to the conversion  merger  transaction the Corporation  will issue
new common  shares with a fair value equal to the  appraised  value of Neodesha.
The  appraised  value  of  Neodesha  is  currently  anticipated  to  range  from
$1,020,000 to $1,380,000.


                                       31

<PAGE>


First Independence Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
--------------------------------------------------------------------------------

September 30, 1998 and 1997

     The  transaction  will be  accounted  for  under  the  purchase  method  of
accounting for business combinations.  Issuance costs will be netted to proceeds
if the merger/conversion is successful. If unsuccessful,  costs will be recorded
as  expense  in  the  applicable  period,  two-thirds  by  the  Corporation  and
one-third, capped at $150,000, by Neodesha. Total costs incurred and deferred at
September 30, 1998 were $274,625.

     At the  date  of  conversion,  the  merged  association  will  establish  a
liquidation  account equal to the amount of retained  earnings  contained in the
offering circular. The liquidation account will be maintained for the benefit of
the merged  association's  eligible savings account holders who maintain deposit
accounts in the Association after conversion.

     In the  event of a  complete  liquidation  (and only in such  event),  each
eligible  savings  account  holder  will  be  entitled  to  receive  a pro  rata
liquidation  distribution from the liquidation account in the amount of the then
current  adjusted  balance  of deposit  accounts  held,  before any  liquidation
distribution may be made with respect to common stock. Except for the repurchase
of stock and payment of dividends, the existence of the liquidation account will
not  restrict  the  use  or  application  of  such  retained   earnings  by  the
Association.

     Subsequent to  consummation  of the  transaction,  the  Association may not
declare or pay a cash dividend on or repurchase any of its common stock,  if the
effect thereof would cause  stockholders'  equity to be reduced below either the
amount required for the combined  liquidation accounts or the regulatory capital
requirements for insured institutions.

NOTE O -- FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following  methods and assumptions were used to estimate the fair value
of each class of financial instruments at September 30, 1998 and 1997.

     Cash and cash equivalents:  The balance sheet carrying amounts for cash and
short-term instruments approximate the estimated fair values of such assets.

     Investment  securities  and  mortgage-backed  securities:  Fair  values for
investment securities and mortgage-backed  securities are based on quoted market
prices, if available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.

     Loans receivable: For variable rate loans that reprice frequently and which
entail no  significant  change  in credit  risk,  fair  values  are based on the
carrying  values.  The  estimated  fair values of fixed rate loans are estimated
based on discounted cash flow analyses using prepayment assumptions and interest
rates  currently  offered for loans with  similar  terms to borrowers of similar
credit  quality.  Nonperforming  loans have not been  discounted.  The  carrying
amount of accrued interest receivable approximates its fair value.

     Commitments to extend  credit:  No premium or discount was ascribed to loan
commitments  because when funded virtually all funding will be at current market
rates.

     Federal  Home  Loan  Bank  stock:   The  balance  sheet   carrying   amount
approximates the stock's fair value.

     Deposit  liabilities:  The fair values estimated for demand  deposits,  NOW
accounts, savings and certain types of money market accounts are, by definition,
equal to the  amount  payable  on  demand at the  reporting  date  (i.e.,  their
carrying  amounts).  The carrying  amounts of variable  rate,  fixed-term  money
market accounts and certificates of deposit approximate their fair values at the
reporting date. Fair values of fixed rate  certificates of deposit are estimated
using a discounted cash flow  calculation  that applies interest rates currently
being  offered  to a  schedule  of  aggregated  expected  monthly  time  deposit
maturities.  The carrying amount of accrued  interest  payable  approximates its
fair value.

     Advances  from Federal  Home Loan Bank:  For variable  rate  advances  fair
values are considered equal to their carrying  values.  The estimated fair value
of fixed rate  advances are  estimated  based on  discounted  cash flow analysis
using interest rates currently offered for advances with similar terms.


                                       32

<PAGE>


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

     The  following  table  provides  summary  information  on the fair value of
financial  instruments.  Such  information  does not  purport to  represent  the
aggregate net fair value of the Company.  Further,  the fair value estimates are
based on various assumptions, methodologies and subjective considerations, which
vary widely  among  different  financial  institutions  and which are subject to
change. The carrying amounts are the amounts at which the financial  instruments
are reported in the consolidated financial statements.

                                                               1998
                                                    ----------------------------
                                                     Carrying        Estimated
                                                      amount of     fair value
                                                     assets and    of assets and
                                                    (liabilities)  (liabilities)
                                                    -------------  -------------

     Cash and cash equivalents                      $    913,580   $    913,580
     Investment securities available for sale          3,418,311      3,418,311
     Investment securities held to maturity            5,000,000      5,004,700
     Mortgage-backed securities held to maturity      17,274,238     17,403,143
     Loans                                            94,340,003     94,885,003
     Federal Home Loan Bank stock                      1,574,000      1,574,000
     Deposits                                        (80,573,077)   (81,128,077)
     Advances from Federal Home Loan Bank            (30,100,000)   (30,769,000)

                                                                1997
                                                   -----------------------------
                                                     Carrying        Estimated
                                                     amount of      fair value
                                                    assets and     of assets and
                                                    liabilities)   (liabilities)
                                                   ------------     ------------


     Cash and cash equivalents                      $  3,151,227    $ 3,151,227
     Investment securities available for sale          4,311,406      4,311,406
     Investment securities held to maturity            3,000,000      2,996,300
     Mortgage-backed securities available for sale       471,618        471,618
     Mortgage-backed securities held to maturity      23,527,689     23,748,569
     Loans                                            75,226,968     75,929,533
     Federal Home Loan Bank stock                      1,368,900      1,368,900
     Deposits                                        (76,229,176)   (75,926,401)
     Advances from Federal Home Loan Bank            (23,700,000)   (23,736,269)


                                       33

<PAGE>






                          STOCKHOLDER INFORMATION
--------------------------------------------------------------------------------

Stock Listing Information

First Federal  Savings and Loan  Association  of  Independence  converted from a
mutual to a stock savings and loan  association  effective  October 5, 1993, and
formed First  Independence  Corporation  (the  "Company")  to act as its holding
company.  The  Company's  Common  Stock  (the  "Common  Stock") is traded on the
National  Association,  of Securities  Dealers  Automated  Quotation  ("NASDAQ")
Small-Cap Market under the symbol "FFSL."

Stock Price Information and Dividends

As of December 4, 1998, there were  approximately  193 shareholders of record of
the Company's Common Stock, not including those shares held in nominee or street
name through various brokerage firms or banks.

The  following  table sets forth the high and low bid prices of the Common Stock
and dividends  declared for each fiscal quarter since October 1, 1996. The stock
price  information was provided by the NASD, Inc.  Amounts have been adjusted to
reflect a two-for-one stock split in fiscal 1997.
                                                        Dividends
    Quarter Ended              High          Low        Declared
    -------------            -------       -------      ---------
December 31, 1996            $10.250       $ 9.375       $.0500
March 31, 1997                11.750        10.250        .0625
June 30, 1997                 11.750        10.750        .0625
September 30, 1997            14.000        11.375        .0625
December 31, 1997             14.625        13.625        .0625
March 31, 1998                15.000        13.500        .0750
June 30, 1998                 14.750        12.750        .0750
September 30, 1998            13.250        10.000        .0750

The Company has paid a cash  dividend on its Common Stock for each quarter since
the Association's  conversion to stock form.  Future dividends,  if any, will be
dependent upon the results of operations and financial condition of the Company,
tax considerations,  industry standards,  economic conditions,  general business
practices and other factors. The Company's ability to pay dividends is dependent
on the dividend payments it receives from the Association,  which are subject to
regulations  and the  Association's  continued  compliance  with all  regulatory
capital  requirements.  See  Note  L of  the  Notes  to  Consolidated  Financial
Statements for a discussion of regulations  governing the Association's  ability
to pay dividends.

Annual Report on Form 10-KSB and Investor Information

A copy of the Company's annual report on Form 10-KSB,  filed with the Securities
and Exchange Commission, is available without charge by writing:

   Gary L. Overfield
   Senior Vice President and Secretary
   First Independence Corporation
   Myrtle and Sixth
   Independence, Kansas 67301

Stock Transfer Agent

Inquiries regarding stock transfer,  registration,  lost certificates or changes
in name and address should be directed to the stock transfer agent and registrar
by writing:

   Registrar and Transfer Company
   10 Commerce Drive
   Cranford, New Jersey 07016

Investor Information

Stockholders, investors, and analysts interested in additional information may 
contact:

   James B. Mitchell,
   Vice President and Chief Financial Officer

Corporate Office
First Independence Corporation
Myrtle and Sixth
Independence, Kansas 67301
(316) 331-1660

Special Counsel
Silver, Freedman & Taff, L.L.P.
7th Floor - East Tower
1100 New York Avenue, NW
Washington, DC 20005

Independent Auditor
Grant Thornton, LLP
100 N. Broadway, Suite 800
Wichita, Kansas 67202

First Federal Savings and Loan Association of Independence
Myrtle and Sixth
Independence, Kansas 67301
(316) 331-1660


<PAGE>

                        DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------------------------------------------------------
                         FIRST INDEPENDENCE CORPORATION


OFFICERS
Donald E. Aitken
Chairman of the Board

Larry G. Spencer
President and Chief Executive Officer

Gary L. Overfield
Senior Vice President and Secretary

James B. Mitchell
Vice President and Chief Financial Officer


BOARD OF DIRECTORS
Donald E. Aitken
Chairman of the Board
First Independence Corporation and
First Federal Savings and Loan Association of Independence
Retired - Manager
City Publishing Co., Inc.

Larry G. Spencer
President and Chief Executive Officer
First Independence Corporation
President and Chief Executive Officer
First Federal Savings and Loan Association of Independence

William T. Newkirk II
Agent
Newkirk, Dennis & Buckles Insurance Co.

John T. Updegraff
Retired - Former Vice President and Senior Counsel
Arco Pipe Line Company

Harold L. Swearingen
Retired - Former Telecommunications Manager
Arco Pipe Line Company

Joseph M. Smith
County Extension Agent - Agriculture and Coordinator
Montgomery County Extension Council

Lavern W. Strecker
Retired - Former Manager of Accounting and Control
Arco Pipe Line Company

           FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF INDEPENDENCE

OFFICERS
Donald E. Aitken
Chairman of the Board

Larry G. Spencer
President and Chief Executive Officer

Gary L. Overfield
Senior Vice President and Secretary

James B. Mitchell
Vice President and Chief Financial Officer

Jim L. Clubine
Vice President and Asset Manager

Gregg S. Webster
Vice President

C. Alan Hoggatt
Vice President

Lori L. Kelley
Assistant Vice President and Compliance Officer

Betty J. Redman
Treasurer

BOARD OF DIRECTORS
Donald E. Aitken

Larry G. Spencer

William T. Newkirk II

John T. Updegraff

Harold L. Swearingen

Lavern W. Strecker

Joseph M. Smith