<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                  FORM 10-KSB

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the fiscal year ended September 30, 1997

                                      OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 
     For the transition period from _____________ to _____________________

                        Commission File Number 0-22184

                        FIRST INDEPENDENCE CORPORATION
          -----------------------------------------------------------
         (Name of small business issuer as specified in its charter)
 
                   Delaware                                  36-3899950
       -------------------------------                    ---------------- 
       (State or other jurisdiction of                    (I.R.S. Employer 
        incorporation or organization)                  Identification No.) 
       
Myrtle and Sixth Streets, Independence, Kansas                  67301
----------------------------------------------            ----------------
   (Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code:  (316) 331-1660
                                                     --------------
          Securities Registered Pursuant to Section 12(b) of the Act:

                                     None
                                     ----

          Securities Registered Pursuant to Section 12(g) of the Act:

                    Common Stock, par value $.01 per share
                    --------------------------------------
                               (Title of Class)

         Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and
(2) has been subject to such requirements for the past 90 days.
YES __X__. NO___.

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

         State the issuer's revenues for its most recent fiscal year:
$8,315,300.

         The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the average of the bid and asked
prices of such stock on the NASDAQ Stock Market as of December 5, 1997, was
$10.6 million. (The exclusion from such amount of the market value of the
shares owned by any person shall not be deemed an admission by the registrant
that such person is an affiliate of the registrant.)

         As of December 16, 1997, there were issued and outstanding 978,333
shares of the Registrant's Common Stock (including 8,734 shares of restricted
stock issued pursuant to the Registrant's Recognition and Retention Plan).

                      DOCUMENTS INCORPORATED BY REFERENCE

        Part II of Form 10-KSB - Annual Report to Stockholders for the
                    fiscal year ended September 30, 1997.

           Part III of Form 10-KSB - Proxy Statement for 1998 Annual
                           Meeting of Stockholders.

          Transitional Small Business Disclosure Format: YES ____. NO__X__.

<PAGE>
                                    PART I

Item 1.    Description of Business

General

         First Independence Corporation (the "Company") is a Delaware
corporation which was formed at the direction of First Federal Savings and
Loan Association of Independence ("First Federal" or the "Association") in
June 1993 for the purpose of becoming the savings and loan holding company of
First Federal. The Company owns all of the outstanding stock of First Federal
issued on October 5, 1993 in connection with the completion of First Federal's
conversion from the mutual to the stock form of organization (the
"Conversion"). The Company issued 727,375 shares of common stock at a price of
$10.00 per share in the Conversion. All references to the Company at or before
October 5, 1993 refer to First Federal. At September 30, 1997, the Company had
total assets of $112.5 million, and stockholders' equity of $11.5 million.

         First Federal is a federally chartered stock savings and loan
association headquartered in Independence, Kansas. First Federal was
originally organized in 1905 as a state-chartered savings and loan association
and later converted to a federally chartered institution.

         First Federal has been, and intends to continue to be, a
community-oriented financial institution offering a variety of financial
services to meet the needs of the communities it serves. The Association
attracts deposits from the general public and uses such deposits, together
with borrowings and other funds, to originate one- to four-family residential
mortgage loans. To a much lesser extent, the Association also originates loans
secured by non-residential real estate and consumer loans and a limited amount
of loans secured by multi-family real estate. Subject to market conditions and
loan demand in its market area, the Association expects to continue to
originate the same types of loans it currently offers, which include the
origination of a limited number of commercial and multi-family real estate
loans secured by property located in its market area. The Association does not
intend to originate or purchase interests in commercial or multi-family real
estate loans secured by properties located outside of its market area.

         The Association also invests in mortgage-backed securities which are
insured by or guaranteed by federal agencies and other investment securities.
See "Lending Activities - Originations, Purchases and Sales of Loans and
Mortgage-Backed Securities."

         Like all federally chartered savings associations, First Federal's
operations are regulated by the Office of Thrift Supervision (the "OTS").
First Federal is a member of the Federal Home Loan Bank System ("FHLB System")
and a stockholder in the Federal Home Loan Bank ("FHLB") of Topeka. The
Association is also a member of the Savings Association Insurance Fund
("SAIF") and its deposit accounts are insured up to applicable limits by the
Federal Deposit Insurance Corporation ("FDIC").

         The principle sources of funds for the Association's lending
activities include deposits, amortization and prepayment of loan principal
(including mortgage-backed securities), sales or maturities of investment
securities, mortgage-backed securities and short-term investments, borrowings
and funds provided from operations.

         The Association's revenues are derived principally from interest on
mortgage loans and mortgage-backed securities, interest on investment
securities, dividends on FHLB stock and loan origination income.


                                       2

<PAGE>

         The executive offices of the Company are located at Myrtle and Sixth
Streets in Independence, Kansas 67301 and its telephone number is (316)
331-1660. Unless the context otherwise requires, all references herein to the
Association or the Company include the Company and the Association on a
consolidated basis.

Forward-Looking Statements

         When used in this Form 10-K or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated", "estimate",
"project", "believe" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only
as of the date made, and to advise readers that various factors, including
regional and national economic conditions, changes in levels of market
interest rates, credit risks of lending activities, and competitive and
regulatory factors, could affect the Company's financial performance and could
cause the Company's actual results for future periods to differ materially
from those anticipated or projected.

         The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.

Market Area

         Through its offices in Independence and Coffeyville, Kansas, First
Federal currently serves primarily Montgomery County, Kansas and, to a lesser
extent, Wilson County and the eastern part of Chautauqua County in Kansas. The
Association competes in loan originations and in attracting deposits with
approximately nine financial institutions serving its primary market area. The
Association estimates its share of the savings market in Montgomery County to
be approximately 14%.

         First Federal established a loan production office in Lawrence,
Kansas effective October 15, 1997. The office will primarily originate
construction loans in Lawrence and the surrounding area. Loan approvals will
be made at the Association's main office with disbursements and collections
handled at the loan production office. The office is currently staffed with a
loan originator and two processors.

         Independence, Kansas, located in southeastern Kansas, is
approximately 110 miles from Wichita, Kansas. Independence is the County Seat
of Montgomery County and the location of Independence Community College.

         Montgomery County has a population of approximately 37,000. Although
the economy of southeast Kansas is closely tied to the gas, oil and
agricultural industries, Montgomery County has attracted a variety of other
industries. Major employers in Montgomery County include Automotive Controls
Corp., Inc., a manufacturer of electronic and electrical parts, City
Publishing Company, a publisher of cross-reference directories, Emerson
Electric Co., a manufacturer of small electric motors, Hackney & Sons
(Midwest) Inc., a manufacturer of beverage delivery truck bodies, Heartland
Cement, a manufacturer of cement and Cessna Aircraft, a manufacturer of single
engine airplanes.

Lending Activities

         General. Historically, the Association originated fixed-rate mortgage
loans. Since 1982, however, the Association has emphasized, subject to market
conditions, the origination and holding of adjustable-rate mortgage ("ARM")
loans and loans with shorter terms to maturity than traditional 30-year,
fixed-rate loans. Management's strategy has been to increase the percentage of
assets in its portfolio with more frequent repricing or shorter maturities. In
response to customer demand, however, the Association continues to originate
for its loan portfolio fixed-rate mortgages with terms not greater than 30
years.

                                       3

<PAGE>

         The Association's primary focus in lending activities is on the
origination of loans secured by first mortgages on owner-occupied, one- to
four-family residences. To a much lesser extent, the Association also
originates loans secured by non-residential real estate and consumer loans and
a limited amount of multi-family real estate loans. See "- Originations,
Purchases and Sales of Loans and Mortgage-Backed Securities." At September 30,
1997, the Association's net loan portfolio totaled $74.6 million.

         All loans must be reviewed by a committee comprised of the
Association's President and three other officers of the Association. The
committee has authority to approve loans secured by real estate to any one
borrower of up to $500,000. The executive committee has authority to approve
loans up to $750,000 which provide for a personal guarantee from the borrower.
Loans in excess of this limit require approval of the Board of Directors. All
loan approvals made by the loan committee are ratified by the Board of
Directors.

         The aggregate amount of loans that the Association is permitted to
make under applicable federal regulations to any one borrower, including
related entities, is generally equal to the greater of 15% of unimpaired
capital and surplus or $500,000. At September 30, 1997, the maximum amount
which the Association could have lent to any one borrower and the borrower's
related entities was approximately $1.4 million. See "Regulation - Federal
Regulation of Savings Associations."

                                       4

<PAGE>

         Loan Portfolio Composition. The following information sets forth the
composition of the Association's loan portfolio in dollar amounts and in
percentages (before deductions (or additions) for loans in process, deferred
fees and discounts and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>


                                                                                   At September 30,
                                           ----------------------------------------------------------------------------------------
                                                        1997                             1996                           1995
                                           -----------------------------    --------------------------    -------------------------
                                              Amount            Percent       Amount           Percent       Amount        Percent
                                              ------            -------       ------           -------       ------        -------
                                                                                (Dollars in Thousands)

<S>                                          <C>                 <C>         <C>               <C>        <C>               <C>   
Real Estate Loans

 One- to four-family.....................    $64,152             84.30%      $57,353           82.29%     $50,747           82.34%
 Multi-family............................      1,164              1.53         1,371            1.97        1,420            2.30
 Non-residential.........................      7,479              9.83         7,224           10.36        7,454           12.10
 Construction............................        764              1.00         1,834            2.63          526            0.85
                                            --------            ------        ------            ----    ---------         -------
    Total real estate loans..............     73,559             96.66        67,782           97.25       60,147           97.59
                                            --------            ------        ------           -----     --------          ------

Consumer Loans:

 Deposit account.........................        350              0.46           364            0.52          314            0.50
 Automobile..............................        705              0.93           402            0.58          269            0.44
 Home equity.............................        550              0.72           781            1.12          641            1.04
 Home improvement........................        274              0.36           183            0.26          102            0.17
 Other...................................        661              0.87           185            0.27          159            0.26
                                            --------            ------        ------         -------    ---------         -------

    Total consumer loans.................      2,540              3.34         1,915            2.75        1,485            2.41
                                            --------            ------        ------         -------     --------         -------

     Total Loans.........................     76,099            100.00%       69,697          100.00%      61,632          100.00%
                                                                ======                        ======                       ======

Less:

 Loans in process........................        572                           1,050                          372
 Deferred fees and discounts.............        300                             274                          200
 Allowance for losses....................        668                             690                          690
                                            --------                         -------                      -------
 Total loans receivable, net.............    $74,559                        $ 67,683                      $60,370
                                             =======                        ========                      =======
</TABLE>


                                       5

<PAGE>

         The following table shows the composition of the Association's loan
portfolio by fixed- and adjustable-rate categories at the dates indicated.
<TABLE>
<CAPTION>


                                                                                   At September 30,
                                           ----------------------------------------------------------------------------------------
                                                        1997                             1996                           1995
                                           -----------------------------    --------------------------    -------------------------
                                              Amount            Percent       Amount           Percent       Amount     Percent
                                              ------            -------       ------           -------       ------     -------
                                                                                (Dollars in Thousands)

<S>                                          <C>                 <C>         <C>               <C>        <C>            <C>   
Real Estate Loans

 Real estate:
  One- to four-family.......................    $37,581          49.38%     $31,231          44.81%        $23,163           37.59%
  Multi-family..............................        683           0.90          871           1.25             821            1.33
  Non-residential...........................      5,055           6.64        4,835           6.94           5,304            8.61
  Construction..............................        764           1.00          ---            ---             526            0.85
                                                -------         ------      -------          -----         -------          ------
    Total fixed-rate real estate loans......     44,083          57.92       36,937          53.00          29,814           48.38
 Consumer...................................      1,990           2.62        1,437           2.06           1,123            1.82
                                                -------          -----       ------          -----          ------           -----
    Total fixed-rate loans..................     46,073          60.54       38,374          55.06          30,937           50.20
                                                 ------          -----       ------          =====          ------           -----

Adjustable-Rate Loans
 Real estate:
  One- to four-family.......................     26,571          34.92       26,122          37.47          27,584           44.75
  Multi-family..............................        481           0.63          500           0.72             599            0.97
  Non-residential...........................      2,424           3.19        2,389           3.43           2,150            3.49
  Construction..............................        ---            ---        1,834           2.63             ---             ---
                                               --------         ------      -------          -----        --------          ------
     Total adjustable-rate real estate loans     29,476          38.74       30,845          44.25          30,333           49.21
 Consumer...................................        550           0.72          478           0.69             362            0.59
                                               --------         ------      -------          -----        --------          ------
     Total adjustable-rate loans............     30,026          39.46       31,323          44.94          30,695           49.80
                                               --------         ------       ------          -----         -------          ------

     Total Loans............................     76,099         100.00%      69,697         100.00%         61,632          100.00%
                                                                ======                      ======                          ======

Less
 Loans in process...........................        572                       1,050                            372
 Deferred fees and discounts................        300                         274                            200
 Allowance for losses.......................        668                         690                            690
                                               --------                      ------                       --------

 Total loans receivable, net................    $74,559                     $67,683                        $60,370
                                                =======                     =======                        =======
</TABLE>


                                       6

<PAGE>

         The following schedule shows the scheduled contractual maturities of
the Association's loan portfolio at September 30, 1997. Mortgages which have
adjustable or renegotiable interest rates are shown as repaying in the period
during which the contract is due. The schedule does not reflect the effects of
possible prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>


                                           Real Estate
                             -----------------------------------------
                                     One- to        Multi-family, and
                                   Four-Family       Non-Residential       Construction         Consumer               Total
                             -------------------  --------------------  -------------------  ---------------    --------------------
                                        Weighted             Weighted             Weighted            Weighted              Weighted
                                        Average              Average               Average             Average               Average
                              Amount     Rate     Amount      Rate       Amount     Rate     Amount     Rate      Amount       Rate
                              ------     ----     ------      ----       ------     ----     ------     ----      ------       ----
                                                                       (Dollars in Thousands)

    Due During Periods
   Ending September 30,
   --------------------

<S>                          <C>         <C>     <C>           <C>     <C>          <C>     <C>          <C>     <C>           <C>  
1998(1) .................    $   213     8.49%   $    18       6.50%   $  144       7.50%   $ 1,159      8.94%   $ 1,534       8.71%
1999 ....................         99     9.10        221       8.49        --         --        182      9.11        502       8.84
2000 ....................        123     8.16         22       9.43        --         --        300      9.31        445       9.00
2001 and 2002 ...........      1,441     7.76      1,083       8.85        --         --        661      8.96      3,185       8.38
2003 to 2007 ............      6,729     7.88      1,616       8.36        96       8.75        238      8.63      8,583       7.99
2008 to 2022 ............     34,832     7.74      5,535       8.42        --         --         --        --     40,463       7.84
2023 and following ......     20,715     7.52        148       8.25       524       7.74         --        --     21,387       7.53
                                                                                                                 -------
       Total ............                                                                                        $76,099
                                                                                                                 =======
</TABLE>

---------
(1) Includes demand loans, loans having no stated maturity and overdraft loans.

         The total amount of loans due after September 30, 1997, which have
predetermined interest rates is $45.2 million, while the total amount of loans
due after such date which have floating or adjustable interest rates is $29.4
million.

                                       7

<PAGE>

         One- to Four-Family Residential Mortgage Lending. Residential loan
originations are generated by the Association's marketing efforts, its present
customers, walk-in customers and referrals from real estate brokers and
builders. The Association has focused its lending efforts primarily on the
origination of loans secured by first mortgages on owner-occupied,
single-family residences in its market area. At September 30, 1997, the
Association's one- to four-family residential mortgage loans, totaled $64.2
million, or 84.3% of the Association's loan portfolio.

         The Association currently makes adjustable-rate, one- to four-family
residential mortgage loans in amounts up to 95% of the appraised value, or
selling price, of the security property, whichever is less. For loans with a
loan-to-value ratio of 90% or greater, the Association requires private
mortgage insurance equal to 20% of the loan value in order to reduce the
Association's exposure level. For loans with loan-to-value ratios of greater
than 80% but less than 90%, the Association typically requires private
mortgage insurance to reduce the Association's exposure. The determination as
to whether to obtain such insurance is made on a case-by-case basis, based on
a variety of factors including the borrower's payment history, the borrower's
length of employment, the quality of the property, the term of the loan and
the debt to income ratio of the borrower. At September 30, 1997, the
Association had 474 loans totaling $25.5 million with a loan-to-value ratio of
greater than 80% but less than 90% and 307 loans totaling $14.7 million with a
loan-to-value ratio of 90% or greater.

         The Association currently offers one-year ARM loans at rates
determined in accordance with market and competitive factors for a term of up
to 30 years. The interest rate charged on ARM loans currently originated by
the Association is based upon the one year Constant Maturity Treasury Index.
The adjustable-rate loans currently originated by the Association provide for
a 1% annual cap and floor, and a 5% lifetime cap on the interest rate
adjustment over the rate in effect on the date of origination. The actual
interest rate on these adjustable-rate loans may not be reduced below 5% over
the life of the loan. The annual and lifetime caps on interest rate increases
reduce the extent to which these loans can help protect the Association
against interest rate risk. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset/Liability Management" in
the Company's Annual Report to Stockholders attached hereto as Exhibit 13 (the
"Annual Report"). Approximately 38.8% of the loans secured by one- to
four-family real estate originated by the Association during fiscal 1997 were
originated with adjustable rates of interest. See "- Originations, Purchases
and Sales of Loans and Mortgage-Backed Securities."

         Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the terms
of the loan, thereby increasing the potential for default. At the same time,
the marketability of the underlying property may be adversely affected by
higher interest rates. The Association believes that these risks, which have
not had a material adverse effect on the Association to date, are more than
outweighed by the benefits received by the Association in offering ARM loans.

         The Association also originates fixed-rate mortgage loans. Fixed-rate
loans currently originated by the Association have terms of up to 30 years.
Interest rates charged on these fixed-rate loans are competitively priced
according to local market conditions.

         In underwriting residential real estate loans, the Association
evaluates the borrower's ability to make monthly payments, employment history,
credit history and the value of the property securing the loan. Potential
borrowers are typically qualified for both adjustable- and fixed-rate loans
based upon the initial or stated rate of the loan. Adjustable rate loans
increase the risk of default to the extent the interest rate adjusts upward
and the borrower is unable to make the payments at the increased rate.
Although borrowers on adjustable-rate loans are qualified based upon the
initial rate of the loan, if a borrower's debt to income ratios are marginal,
the Association will take into consideration the borrower's ability to make

                                       8

<PAGE>



future payments in the event the interest rate adjusts upward. Since the size
of the Association's average new loan originated is approximately $50,000,
management believes increases in interest rates do not generally increase
payment amounts to levels that would significantly impair the borrower's
ability to make monthly payments.

         An appraisal of the security property is obtained on all loan
applications from Board-approved independent fee appraisers. In connection
with the origination of residential real estate loans, the Association
generally requires that the borrower obtain an opinion from an attorney
regarding the title to the property or title insurance and fire and casualty
insurance, as well as flood insurance, where applicable, to protect the
Association's interest.

         Approximately $2.5 million, or 3.9% of the Association's one- to
four-family residential mortgage loan portfolio, was purchased by the
Association. These loans are primarily secured by property located in Texas
and have been in the Association's portfolio for several years. The
Association has purchased only a limited amount of one- to four-family
residential mortgage loans since 1989. The level of delinquencies in the
Association's portfolio of purchased loans secured by one- to four-family
residential real estate is consistent with that of the loans originated and
retained by the Association.

         The Association's residential mortgage loans customarily include
due-on-sale clauses giving the Association the right to declare the loan
immediately due and payable in the event, among other things, the borrower
sells or otherwise disposes of the property subject to the mortgage and the
loan is not repaid. The Association has enforced due-on-sale clauses in its
mortgage contracts for the purpose of increasing its loan portfolio yield. The
yield increase is obtained through the authorization of assumptions of
existing loans at higher rates of interest and the imposition of assumption
fees. One- to four-family real estate loans may be assumed provided home
buyers meet the Association's underwriting standards and the loan terms are
modified, to the extent necessary, to conform with present yield and maturity
requirements.

         As a result, in part, of the decrease in loan demand for residential
loans in the Association's principal market area during recent periods and the
Association's asset/liability management objectives, First Federal has
increased its investments in mortgage-backed securities. Although such
securities are held for investment, they can serve as collateral for
borrowings and, through repayments, as a source of liquidity. For information
regarding the carrying and market values of First Federal's mortgage-backed
securities portfolio, see Note C of the Notes to Consolidated Financial
Statements in the Annual Report attached as Exhibit 13 hereto. The Association
has also, from time to time, purchased single-family loans from other
financial institutions. See "- Originations, Purchases and Sales of Loans and
Mortgage-Backed Securities" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition" in the
Annual Report.

         The Association also makes a limited number of construction loans to
individuals for the construction of their residences. There were $764,000 of
construction loans outstanding at September 30, 1997.

         Construction loans to individuals for their residences are structured
to be converted to permanent loans at the end of the construction phase, which
typically runs up to 12 months. These construction loans have rates and terms
which match any one- to four-family loans then offered by the Association,
except that during the construction phase, the borrower pays interest only.
Residential construction loans are generally underwritten pursuant to the same
guidelines used for originating permanent residential loans.


                                       9

<PAGE>

         Because of the uncertainties inherent in estimating development and
construction costs, it is relatively difficult to evaluate accurately the
total loan funds required to complete a project. Also, the funding of loan
fees and interest during the construction phase makes the monitoring of the
progress of the project particularly important, as customary early warning
signals of project difficulties may not be present.

         Non-Residential/Multi-Family Real Estate Lending. In order to enhance
the yield on and decrease the average term to maturity of its assets, the
Association has originated and purchased permanent loans and participation
interests in loans originated by other lenders secured by non-residential and
multi-family real estate. The Association also has a limited amount of loans
secured by land. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management" in the
Annual Report. At September 30, 1997, the Association had $8.6 million in
non-residential/multi-family real estate loans, representing 11.4% of the
Association's loan portfolio.

         Approximately 12.7% of the property securing the Association's
non-residential/multi-family (including land) real estate loan portfolio is
located outside the Association's primary market area. Many of the properties
securing these purchased loans or participations are located in Texas and
neighboring states. Some of these areas have experienced adverse economic
conditions including a general softening in real estate markets and the local
economy, which may result in increased loan delinquencies and loan losses.
However, most of the Association's non-residential/multi-family real estate
loan portfolio is seasoned and, during the past five years, the Association
has had no significant purchases or participations in such loans.

         The table below sets forth, by type of security property, the
Association's non-residential/ multi-family real estate loans at September 30,
1997.
<TABLE>
<CAPTION>


                                                                Number        Outstanding            Amount
                                                                  of           Principal         Non-Performing
                                                                 Loans          Balance           or of Concern
                                                                 -----          -------           -------------
                                                                             (Dollars in Thousands)

<S>                                                                 <C>           <C>             <C>      
Multi-family................................................        6             $1,164          $      --
Small business facilities and office buildings..............       43              3,470                 98
Health care facility........................................        9              1,207                 --
Churches....................................................        5                215                 --
Warehouse/mini-storage......................................        3                338                 --
Shopping centers............................................        1                 73                 --
Hotel/motel.................................................        3              1,284                 --
Land........................................................       25                892                 --
                                                                  ---            -------             ------

    Total multi-family residential and non-residential real
        estate loans........................................       95             $8,643             $   98
                                                                  ===              =====              =====

</TABLE>
         Permanent non-residential and multi-family real estate loans
originated by the Association generally have terms ranging from 5 to 20 years
and up to a 30-year amortization schedule. Rates on permanent loans either (i)
adjust (subject, in some cases, to specified interest rate caps) at one year
intervals to specified spreads over an index, (ii) float (subject, in some
cases, to specified interest rate caps) with changes in a specified prime rate
or (iii) carry fixed rates. Under the Association's current loan policy,
multi-family/non-residential real estate loans (other than loans to
facilitate) are written in amounts of up to 80% of the appraised value of the
properties.

         Appraisals on properties securing non-residential and multi-family
real estate property loans originated by the Association are performed by an
independent appraiser designated by the Association at

                                      10

<PAGE>

the time the loan is made. All appraisals on multi-family and non-residential
real estate loans are reviewed by the Association's management. In addition,
the Association's underwriting procedures generally require verification of
the borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property. Personal
guarantees are generally obtained for all or a portion of the Association's
multi-family/non-residential real estate loans. While the Association
continues to monitor multi-family/non-residential real estate loans on a
regular basis after origination, updated appraisals are not normally obtained
after closing unless the Association believes that there are questions
regarding the progress of the loan or the value of the collateral.

         At September 30, 1997, the Association had no
non-residential/multi-family real estate loans to one borrower, or group of
borrowers, which had an existing carrying value in excess of $500,000, except
for the loans to four unrelated borrowers or groups of borrowers described
below. The first loan is secured by a hotel located in Columbia, Missouri and
had an outstanding balance at September 30, 1997 of $707,000. This loan was
reviewed by the OTS prior to origination and has been current since its
inception in June 1991. The other loans in excess of $500,000 at September 30,
1997, included a loan to one borrower totaling $615,000 secured by an
apartment building located in Rogers, Arkansas; a loan with an outstanding
balance of $533,000 secured by a motel in Independence, Kansas; and a loan
with an outstanding balance of $728,000 secured by an apartment building
located in Gladstone, Missouri. All of these loans were current at September
30, 1997. See "Regulation - Federal Regulation of Savings Associations."

         Non-residential/multi-family real estate lending affords the
Association an opportunity to receive interest at rates higher than that
generally available from one- to four-family residential lending.
Nevertheless, loans secured by such properties are generally larger and
involve a greater degree of risk than one- to four-family residential mortgage
loans. Because payments on loans secured by non-residential/multi-family real
estate properties are often dependent on the successful operation or
management of the properties, repayment of such loans may be subject to
adverse conditions in the real estate market or the economy. If the cash flow
from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired. The
Association has attempted to minimize these risks through its underwriting
standards and by lending primarily on existing income-producing properties.

         The Association also generally maintains an escrow account for most
of its loans secured by real estate, in order to ensure that the borrower
provides funds to cover property taxes in advance of the required payment.
These accounts are analyzed annually to confirm that adequate funds are
available. For loans which do not include an escrow requirement, an annual
review of tax payments is performed by the Association in order to confirm
payment. In order to monitor the adequacy of cash flows on income-producing
properties, the borrower or lead lender is notified annually, requesting
financial information including rental rates and income, maintenance costs and
an update of real estate property tax payments.

         Consumer Lending. Consumer loans generally have shorter terms to
maturity (thus reducing First Federal's exposure to changes in interest rates)
and carry higher rates of interest than do one- to four-family residential
mortgage loans. In addition, management believes that the offering of consumer
loan products helps to expand and create stronger ties to its existing
customer base, by increasing the number of customer relationships and
providing cross-marketing opportunities. At September 30, 1997, the
Association's consumer loan portfolio totaled $2.5 million, or 3.3% of its
loan portfolio. Under applicable federal law, the Association is authorized to
invest up to 35% of its assets in consumer loans.

         First Federal offers a variety of secured consumer loans, including
home equity loans, home improvement loans, auto loans, and loans secured by
savings deposits and other consumer collateral. The

                                      11

<PAGE>

Association also offers a limited amount of unsecured loans. The Association
currently originates all of its consumer loans in its market area. The
Association's home equity and home improvement loans comprised approximately
32.4% of the Association's total consumer loan portfolio. These loans are
generally originated in amounts, together with the amount of the existing
first mortgage, of up to 90% of the appraised value of the property securing
the loan. The term to maturity on such loans may be up to seven years. Other
consumer loan terms vary according to the type of collateral, length of
contract and credit worthiness of the borrower. The Association's consumer
loans generally have a fixed rate of interest, except for the home equity
lines of credit which adjust based upon changes in the prime rate.

         The Association does not originate any consumer loans on an indirect
basis (i.e., where loan contracts are purchased from retailers of goods or
services which have extended credit to their customers).

         The underwriting standards employed by the Association for consumer
loans include a determination of the applicant's payment history on other
debts and an assessment of the ability to meet existing obligations and
payments on the proposed loan. Although creditworthiness of the applicant is a
primary consideration, the underwriting process also includes a comparison of
the value of the security, if any, in relation to the proposed loan amount.

         Consumer loans may entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured, such as
checking account overdraft privilege loans, or are secured by rapidly
depreciable assets, such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability,
and thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans. Although the level of delinquencies in the Association's consumer
loan portfolio has generally been low (at September 30, 1997, $43,000, or
approximately 1.7% of the consumer loan portfolio, was 60 days or more
delinquent), there can be no assurance that delinquencies will not increase in
the future.

Originations, Purchases and Sales of Loans and Mortgage-Backed Securities

         The Association originates real estate loans through marketing
efforts, the Association's customer base, walk-in customers, and referrals
from real estate brokers. The Association originates both adjustable-rate and
fixed-rate loans. Its ability to originate loans is dependent upon the
relative demand for fixed-rate or ARM loans in the origination market, which
is affected by the term structure (short-term compared to long-term) of
interest rates as well as the current and expected future level of interest
rates.

         Historically, the Association has also purchased loans and loan
participations, predominantly for non-residential real estate and one- to
four-family residential loans. Such purchases have enabled First Federal to
offset the relatively low level of loan demand in the Association's principal
market areas, to take advantage of favorable lending opportunities in other
markets, to diversify its portfolio and to limit origination expenses while
generally providing the Association with a higher yield than was available on
mortgage-backed securities.

         The Association has underwritten its loan purchases using the same
criteria it uses in originating loans. Servicing of purchased loans is
generally performed by the seller. At September 30, 1997, approximately $4.3
million of First Federal's loan portfolio was serviced by others. During the
year ended September 30, 1997, the Association purchased loans totaling
$546,000 secured by non-residential real estate.

                                      12

<PAGE>

         During recent years, most of the Association's loan purchase
opportunities have been at yields that management believed were not
sufficiently higher than the yields of comparable mortgage-backed securities
that were guaranteed by a Federal agency as to principal and interest (or
derived from certificates that were so guaranteed) to offset such credit
protection. Accordingly, the Association has recently increased its
mortgage-backed securities portfolio rather than loan purchases. See
"Investment Activities - Mortgage-Backed Securities."

         The Association had $2.2 million in loans serviced for others as of
September 30, 1997.

         The following table shows the loan origination, purchase, sale and
repayment activities of the Association for the periods indicated.



<TABLE>
<CAPTION>
                                                                                     Year Ended September 30,
                                                                              --------------------------------------
                                                                                1997            1996          1995
                                                                              --------        --------      --------
                                                                                           (In Thousands)
Originations by type
 Adjustable-rate:
<S>                                                                            <C>             <C>           <C>    
  Real estate - one- to four-family....................................        $ 6,437         $4,465        $ 6,144
                - multi-family.........................................            ---            ---            173
                - non-residential......................................            633            614            921
  Consumer - home equity...............................................            673            314            469
                                                                              --------         ------       --------
         Total adjustable-rate.........................................          7,743          5,393          7,707
                                                                               -------         ------        -------
 Fixed-rate:
  Real estate - one- to four-family....................................         10,167         14,879          5,886
                - non-residential......................................          1,492            320            219
  Consumer - non-real estate...........................................          1,965          1,429          1,234
                                                                              --------         ------        -------
         Total fixed-rate..............................................         13,624         16,628          7,339
                                                                               -------         ------        -------
         Total loans originated........................................         21,367         22,021         15,046
                                                                               -------         ------        -------

Purchases
  Real estate - non-residential........................................            546            ---            ---
  Mortgage-backed securities (excluding
    REMICs and CMOs)...................................................            ---          4,660          2,982
                                                                             ---------         ------      ---------
         Total purchased...............................................            546          4,660          2,982
                                                                              --------          -----        -------

Sales and Repayments
  Mortgage-backed securities...........................................          4,412          5,237          3,041
  Transfer of mortgage-backed securities to mortgage-backed
      securities available for sale....................................            ---            ---            968
  Principal repayments(1)..............................................         15,512         13,956         11,854
                                                                               -------         ------         ------
        Total reductions...............................................         19,924         19,193         15,863
Increase (decrease) in other items, net(2).............................            375          (730)            287
                                                                              --------        -------        -------
         Net increase (decrease).......................................        $ 2,364         $6,758        $ 2,452
                                                                               =======         ======        =======

</TABLE>

---------
(1)      Includes transfers to real estate acquired through foreclosure.
(2)      Consists of loans in process, net deferred origination costs,
         unamortized discounts and allowance for loan losses.


                                      13

<PAGE>

Asset Quality

         When a borrower fails to make a required payment on a loan, the
Association attempts to cause the delinquency to be cured by contacting the
borrower. In the case of loans secured by real estate, a computer generated
late notice is sent 15 days after the due date. If the delinquency is not
cured between the 30th and 60th day, a personal letter is sent to the borrower
and if the delinquency is not cured by the 75th day, contact with the borrower
is made by phone. Additional written and verbal contacts are made with the
borrower to the extent the borrower appears to be cooperative. If the
delinquency is not cured or a payment plan arranged by the 90th day, the
Association sends a 30-day default letter and, once that period elapses,
usually institutes appropriate action to foreclose on the property. Interest
income on loans at this point is reduced by the full amount of accrued and
uncollected interest. If foreclosed, the property is sold at a sheriff's sale
and may be purchased by the Association. Delinquent consumer loans are handled
in a similar manner. If these efforts fail to bring the loan current,
appropriate action may be taken to collect any loan payment that remains
delinquent. The Association's procedures for repossession and sale of consumer
collateral are subject to various requirements under Kansas consumer
protection laws.

         Real estate acquired by First Federal as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate acquired through
foreclosure until it is sold. When property is acquired, it is recorded at the
lower of the loan's unpaid principal balance (cost) or fair value less
estimated selling expenses at the date of acquisition and any write-down
resulting therefrom is charged to the allowance for losses on loans. See Note
A of the Notes to Consolidated Financial Statements in the Annual Report. Upon
acquisition, all costs incurred in maintaining the property are expensed.
However, costs relating to the development and improvement of the property are
capitalized to the extent of net realizable value.

                                      14

<PAGE>

         Delinquent Loans. The following table sets forth information
concerning delinquent loans at September 30, 1997, in dollar amounts and as a
percentage of the Association's loan portfolio. The amounts presented
represent the total remaining principal balances of the related loans, rather
than the actual payment amounts which are overdue.
<TABLE>
<CAPTION>


                                                                    Loans Delinquent for:                  
                                           -------------------------------------------------------------   Total Loans Delinquent   
                                                       60-90 Days                  Over 90 Days                60 Days or more
                                           -------------------------------  ----------------------------  --------------------------
                                                               Percent of                     Percent of                  Percent of
                                                               Total Loan                     Total Loan                  Total Loan
                                             Number     Amount  Portfolio   Number   Amount    Portfolio  Number  Amount   Portfolio
                                             ------     ------  ---------   ------   ------    ---------  ------  ------   ---------
                                                                                         (Dollars in Thousands)
<S>                                             <C>     <C>       <C>         <C>    <C>          <C>      <C>    <C>          <C>  
Real Estate:
  One- to four-family......................     8       $235      0.31%       27     $1,211       1.59%    35     $1,446       1.90%
  Non-residential..........................     2        264      0.35         1         98       0.13      3        362       0.48
Consumer. . . . . .........................     3         11      0.01         4         32       0.04      7         43       0.05
                                              ---       ----      ----        --   --------       ----     --        ---       ----
                                                                            
     Total.................................    13       $510      0.67%       32     $1,341       1.76%    45     $1,851       2.43%
                                             ====       ====      ====        ==     ======       ====     ==     ======       ====
</TABLE>

         The following table sets forth information concerning delinquent
loans at September 30, 1996, in dollar amounts and as a percentage of the
Association's loan portfolio. The amounts presented represent the total
remaining principal balances of the related loans, rather than the actual
payment amounts which are overdue.
<TABLE>
<CAPTION>


                                                                    Loans Delinquent for:                  
                                           -------------------------------------------------------------   Total Loans Delinquent   
                                                       60-90 Days                  Over 90 Days                60 Days or more
                                           -------------------------------  ----------------------------  --------------------------
                                                               Percent of                     Percent of                  Percent of
                                                               Total Loan                     Total Loan                  Total Loan
                                             Number     Amount  Portfolio   Number   Amount    Portfolio  Number  Amount   Portfolio
                                             ------     ------  ---------   ------   ------    ---------  ------  ------   ---------
                                                                                         (Dollars in Thousands)
<S>                                        <C>     <C>       <C>         <C>    <C>          <C>      <C>    <C>          <C>  
Real Estate:
  One- to four-family.................          8       $168        0.24%      15     $331      0.48%      23       $499       0.72%
  Non-residential.....................        ---        ---         ---        1       99      0.14        1         99       0.14
  Construction........................        ---        ---         ---        1       94      0.13        1         94       0.13
Consumer. . . . . ....................          1          3         ---        4       26      0.04        5         29       0.04
                                              ---       ----       -----       --      ---      ----       --        ---       ----

     Total............................          9       $171        0.24%      21     $550      0.79%      30       $721       1.03%
                                              ===       ====        ====       ==     ====      ====       ==       ====       ====

</TABLE>


                                      15

<PAGE>

         Non-Performing Assets. The table below sets forth the amounts and
categories of the Association's non-performing assets. Loans are placed on
non-accrual status when the collection of principal and/or interest become
doubtful. As a matter of policy, the Association does not generally accrue
interest on loans past due more than 90 days. For all periods presented,
troubled debt restructurings (which involve forgiving a portion of interest or
principal on any loans or making loans at a rate materially less than that of
market rates) are included in the following table. Real estate acquired
through foreclosure includes assets acquired in settlement of loans and
reflects the lower of cost or fair value less selling expense.
<TABLE>
<CAPTION>


                                                                                   Year Ended September 30,
                                                                        -------------------------------------------
                                                                          1997              1996              1995
                                                                        -------             ------          -------
                                                                                    (Dollars in Thousands)

<S>                                                                      <C>                 <C>             <C>   
Non-accruing loans:
  One- to four-family.........................................           $  919              $148            $  444
  Non-residential real estate.................................               98                99               100
  Construction................................................              ---                94               ---
  Consumer....................................................               32                26                11
                                                                        -------               ---           -------
     Total non-accruing loans.................................            1,049               367               555
                                                                        -------               ---           -------

Accruing loans delinquent 90 days or more:
  One- to four-family.........................................              292               183               116

Troubled debt restructurings:
  One- to four-family.........................................               50                52                56

Total non-performing loans....................................            1,391               602               727
                                                                          -----               ---           -------

Real estate acquired through foreclosure:
  One- to four-family.........................................               12                12               ---
  Non-residential real estate.................................              ---               ---                62
                                                                        -------              ----           -------
     Total real estate acquired through foreclosure...........               12                12                62
                                                                         ------               ---           -------

Total non-performing assets...................................           $1,403              $614            $  789
                                                                         ======              ====            ======
Total as a percentage of total assets........................             1.25%             0.57%             0.77%
                                                                          ====              ====              ====
</TABLE>

         For the year ended September 30, 1997, gross interest income which
would have been recorded had the non-accruing loans been current in accordance
with their original terms amounted to $82,720. The amount included in interest
income on such loans was $40,011 for the year ended September 30, 1997.

         Included in non-accruing loans at September 30, 1997, were seventeen
loans totaling $919,000 secured by one- to four-family real estate, one loan
totaling $98,000 secured by non-residential real estate, and four consumer
loans totaling $32,000. All non-accruing loans at September 30, 1997, were
located in the Association's primary market except for one low totaling
$344,000, secured by a single family residence located in Texas. At September
30, 1997, accruing loans delinquent in excess of 90 days included ten loans
totaling $292,000 secured by one- to four-family real estate. At September 30,
1997, all of the Association's accruing loans delinquent in excess of 90 days
secured by real estate were located in the Association's primary market area,
except for one loan totaling 139,000 secured by a single family residence
located in Texas.



                                      16

<PAGE>

         Management has considered loans of concern in establishing the
Association's allowance for loan losses.

         Real Estate Acquired through Foreclosure. At September 30, 1997, the
Association's real estate acquired through foreclosure consisted of one single
family residence located in the Association's market area with a carrying
value of $12,000, which is currently offered for sale.

         Classified Assets. Federal regulations provide for the classification
of loans and other assets, such as debt and equity securities considered by
the OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An
asset is considered "substandard" if it is inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as "doubtful" have
all of the weaknesses inherent in those classified "substandard," with the
added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions,
and values, "highly questionable and improbable." Assets classified as "loss"
are those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss reserve is
not warranted. Assets which do not currently expose the insured institution to
sufficient risk to warrant classification in one of the aforementioned
categories but possess weaknesses are placed on a "watch list" by management.

         When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses
in an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies problem assets as "loss," it is required either to
establish a specific allowance for losses equal to 100% of that portion of the
asset so classified or to charge-off such amount. An institution's
determination as to the classification of its assets and the amount of its
valuation allowances is subject to review by the regulatory authorities, who
may order the establishment of additional general or specific loss allowances.

         In connection with the filing of its periodic reports with the OTS
and in accordance with its classification of assets policy, the Association
regularly reviews the problem loans in its portfolio to determine whether any
loans require classification in accordance with applicable regulations.
Classified assets of the Association all of which, at September 30, 1997, are
included in the table of non-performing assets above or are described under
the caption "- Other Loans of Concern" above, were as follows:
<TABLE>
<CAPTION>


                                                                                   September 30,
                                                                       -----------------------------------------
                                                                       1997              1996           1995
                                                                       ------            ----          ------
                                                                                   (In Thousands)

<S>                                                                    <C>               <C>           <C>   
Substandard...................................................         $1,261            $676          $1,003
Doubtful......................................................             92              95              89
Loss..........................................................            ---             ---             ---
                                                                       ------            ----          ------

Total classified assets.......................................         $1,353            $771          $1,092
                                                                       ======            ====          ======
</TABLE>

         Allowance for Loan Losses. The allowance for loan losses is
established through a provision for loan losses based on management's
evaluation of the risk inherent in its loan portfolio and changes in the
nature and volume of its loan activity. Such evaluation, which includes a
review of all loans for which full collectibility may not be reasonably
assured, considers among other matters, the estimated fair value of the
underlying collateral, economic conditions, historical loan loss experience
and other factors that warrant

                                      17

<PAGE>



recognition in providing for an adequate loan allowance. Although management
believes it uses the best information available to make such determinations,
future adjustments to the allowance may be necessary, and net income could be
significantly affected if circumstances differ substantially from the
assumptions used in making the initial determinations. At September 30, 1997,
the Association had an allowance for loan losses of $668,185.

         The following table sets forth an analysis of the Association's
allowance for loan losses at the dates indicated.

<TABLE>
<CAPTION>


                                                                                       Year Ended September 30,
                                                                                  ---------------------------------
                                                                                   1997          1996          1995
                                                                                   ----          ----          ----
                                                                                         (Dollars In Thousands)

<S>                                                                                <C>           <C>           <C> 
Balance at beginning of period...........................................          $690          $690          $667

Charge-offs:
  One- to four-family....................................................            22           ---            15
                                                                                 ------        ------       -------
     Total Charge-offs...................................................            22           ---            15
                                                                                  -----        ------        ------

Recoveries:
  Non-residential real estate............................................           ---           ---            38
                                                                                 ------        ------        ------
     Total recoveries....................................................           ---           ---            38
                                                                                 ------        ------        ------

  Net charge-offs........................................................            22           ---          (23)
                                                                                  -----        ------       ------
Additions charged to operations..........................................           ---           ---           ---
                                                                                 ------        ------        ------
Balance at end of period.................................................          $668          $690          $690
                                                                                   ====          ====          ====

Ratio of net charge-offs during the period to total loans at end of
period...................................................................          0.03%         0.00%        (0.04)%
                                                                                  =====          ====         =====
                                                                               
Allowance for loan losses to total loans at end of period................          0.90%         1.02%         1.14%
                                                                                  =====          ====         =====
                                                                               
Allowance for loan losses to non-performing loans at end of period.......         48.05%       114.62%        94.91%
                                                                                  =====        ======         =====
                                                                           
</TABLE>


                                      18

<PAGE>



         The distribution of the allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
                                                                           September 30,
                                              --------------------------------------------------------------------
                                                       1997                   1996                    1995
                                              ----------------------  ---------------------   --------------------
                                                            Percent                Percent                 Percent
                                                           of Loans               of Loans                of Loans
                                                            in Each                in Each                 in Each
                                                           Category               Category                Category
                                                           to Total               to Total                to Total
                                                Amount       Loans     Amount       Loans      Amount       Loans
                                                ------       -----     ------       -----      ------       -----
                                                                    (Dollars in Thousands)
<S>                                             <C>            <C>       <C>          <C>      <C>           <C>   
Real Estate
  One- to four-family.....................      $ 391          84.30%    $357         82.29%   $ 343         82.34%
  Multi-family............................        ---           1.53      ---          1.97       17          2.30
  Non-residential.........................         92           9.83       87         10.36       87         12.10
Construction..............................        ---           1.00       11          2.63      ---           .85
Consumer..................................         35           3.34       30          2.75        7          2.41
Unallocated...............................        150            ---      205           ---      236           ---
                                                -----         ------     ----        ------    -----        ------
    Total.................................      $ 668         100.00%    $690        100.00%   $ 690        100.00%
                                                =====         ======     ====        ======    =====        ======
</TABLE>

Investment Activities

         General. First Federal must maintain minimum levels of investments
that qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. Historically, the Association
has maintained liquid assets at levels above the minimum requirements imposed
by the OTS regulations and at levels believed adequate to meet the
requirements of normal operations, including repayments of maturing debt and
potential deposit outflows. Cash flow projections are regularly reviewed and
updated to assure that adequate liquidity is maintained. At September 30,
1997, the Association's liquidity ratio (liquid assets as a percentage of net
withdrawable savings deposits and current borrowings) was 7.2%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in the Annual Report and
"Regulation - Liquidity."

         Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers'
acceptances, repurchase agreements and federal funds. Subject to various
restrictions, federally chartered savings institutions may also invest their
assets in commercial paper, investment grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally
chartered savings institution is otherwise authorized to make directly.

         Generally, the investment policy of the Company is to invest funds
among various categories of investments and maturities based upon the
Company's asset/liability management policies, investment quality and
marketability, liquidity needs and performance objectives.

         Investment Securities. At September 30, 1997, investment securities
totaled $7.3 million, or 6.5% of total assets. As of such date, the
Association also had a $1.4 million investment in FHLB stock, satisfying its
requirement for membership in the FHLB of Topeka. It is the Company's general
policy to purchase investment securities which are U.S. Government securities
or federal agency obligations or other issues that are rated investment grade
or have credit enhancements. At September 30, 1997, the average term to
maturity or repricing of the investment portfolio was 3.5 years.

                                      19

<PAGE>



         The following table sets forth the composition of the Company's
securities portfolio at the dates indicated.
<TABLE>
<CAPTION>


                                                                                      September 30,
                                                       --------------------------------------------------------------------------
                                                              1997                       1996                       1995
                                                       --------------------    ------------------------- ------------------------
                                                        Book            % of      Book         % of          Book          % of
                                                        Value           Total     Value        Total        Value         Total
                                                        -----           -----     -----        -----        -----         -----
                                                                                 (Dollars in Thousands)
<S>                                                     <C>             <C>        <C>           <C>        <C>             <C>  
Securities held to maturity:
  Federal agency obligations ......................    $3,000           34.56%    $2,000         23.60&    $1,000           11.68%
                                                       ------          ------     ------        ------     ------          ------ 
     Total securities held to maturity ............     3,000           34.56      2,000         23.60      1,000           11.68
                                                       ------          ------     ------        ------     ------          ------ 

Securities available for sale:
  U.S. Government securities ......................    $  999           11.51      1,993         23.52      1,997           23.32
  Federal agency obligations ......................     2,985           34.39      2,934         34.62      3,981           46.48
  FHLMC preferred stock ...........................        --              --         --            --        253            2.95
  Other marketable equity securities(1) ...........       327            3.77        308          3.63        294            3.43
                                                       ------          ------     ------        ------     ------          ------ 
     Total securities available for sale ..........     4,311           49.67      5,235         61.77      6,525           76.18
                                                       ------          ------     ------        ------     ------          ------ 

  FHLB stock ......................................     1,369           15.77      1,240         14.63      1,040           12.14
                                                       ------          ------     ------        ------     ------          ------ 
     Total securities and FHLB stock ..............    $8,680          100.00%    $8,475        100.00%    $8,565          100.00%
                                                       ======          ======     ======        ======     ======          ====== 

  Average remaining life or term to repricing 
  of securities (excluding FHLMC preferred 
  stock, FHLB stock and other marketable equity
  securities).......................................     4.61 yrs.                  5.04 yrs.                4.49 yrs.
Other Interest-Earning Assets:
  Short-term money market investments...............   $2,190          100.00%    $1,010        100.00%    $1,745          100.00%
                                                       ------          ------     ------        ------     -------         ------ 
     Total..........................................   $2,190          100.00%    $1,010        100.00%    $1,745          100.00%
                                                       ======          ======     ======        ======     =======         ======

Average remaining life or term to repricing 
of securities and other interest-earning assets
(excluding FHLB stock, FHLMC preferred
stock and other marketable equity securities).......    3.51 yrs.                   4.40 yrs.                3.59 yrs.

</TABLE>
---------
(1) Represents primarily investments in mutual funds investing in U.S.
    Government securities and federal agency obligations.

                                      20

<PAGE>

         The composition and maturities of the securities portfolio, excluding
FHLB of Topeka stock, are indicated in the following table.
<TABLE>
<CAPTION>


                                                                           September 30, 1997
                                    -----------------------------------------------------------------------------------------------
                                        Less Than       1 to 5          5 to 10            Over             Total Investment
                                         1 Year          Years           Years          10 Years               Securities
                                    --------------  --------------   --------------   --------------  -----------------------------
                                    Amortized Cost  Amortized Cost   Amortized Cost   Amortized Cost  Amortized Cost    Fair Value
                                    --------------  --------------   --------------   --------------  --------------    ----------
                                                                         (Dollars in Thousands)
<S>                                      <C>            <C>            <C>            <C>                <C>              <C>   
Held to Maturity:
  Federal agency obligations ..........  $      --      $1,000         $   2,000      $      --          $3,000           $2,996
                                         ---------      ------         ---------      ---------          ------           ------
     Total investment securities ......  $      --      $1,000         $   2,000      $      --          $3,000           $2,996
                                         =========      ======         =========      =========          ======           ======
     Weighted average yield ...........        ---%       7.00%             7.59%           ---%           7.39%
                                             ======     =======        =========      =========           ======       
                                                                                                                       
Available for Sale:                                                                                                    
  U.S. Government securities ..........                 $  994         $    --        $    --            $  994              999
  Federal agency obligations ..........       --         2,968              --             --             2,968            2,985
  Other marketable equity securities(1)        327        --                --             --               327              327
                                         ---------      ------         ---------      ---------          ------           ------
     Total investment securities ......  $   1,321      $2,968         $    --        $    --            $4,289           $4,311
                                         =========      ======         =========      =========          ======           ======
     Weighted average yield ...........       5.33%       5.72%             --%            --%             5.60%       
                                             ======     =======        =========      =========           ======       
</TABLE>

---------
(1)  Represents primarily investments in mutual funds investing in U.S.
     Government securities and federal agency obligations.

         The Company's securities portfolio at September 30, 1997, did not
contain securities of any issuer with an aggregate book value in excess of 10%
of the Company's stockholders' equity, excluding securities issued by the
United States Government, or its agencies.

         The Association's securities portfolio is managed in accordance with
a written investment policy adopted by the Board of Directors. Investments may
be made by the Association's officers within specified limits and must be
approved in advance by the Board of Directors for transactions over certain
limits. Effective October 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). SFAS No. 115 requires that securities and
mortgage-backed securities be classified as held to maturity, available for
sale or trading purposes. Under SFAS No. 115, securities that the Company has
the positive intent and ability to hold until maturity are classified as held
to maturity and are reported at amortized cost. Securities classified as
available for sale are those the Company may sell in response to liquidity
needs, for asset/liability management purposes and other reasons and are
reported at fair value. Unrealized gains and losses on securities available
for sale are reported as a separate component of equity. Trading securities
are those which are purchased for sale in the near future and are reported at
fair value. Unrealized gains and losses on trading securities are included in
income. Transfers between categories are accounted for as sales and
repurchases at fair value. For any sales or transfers of securities classified
as held to maturity, the cost basis, the realized gain or loss, and the
circumstances lending to the decision to sell are required to be disclosed. At
the time of purchase of new securities, management of the Company makes a
determination as to the appropriate classification of securities as available
for sale or held to maturity. At September 30, 1997, the Company held no
investments for trading purposes, but did hold securities and mortgage-backed
securities as available for sale with an amortized cost and market value of
$4.8 million and $4.8 million, respectively.

         Mortgage-Backed Securities. The Association has a portfolio of
mortgage-backed securities and has utilized such investments to complement its
mortgage lending activities. At September 30, 1997, the Association's
mortgage-backed securities totaled $24.0 million. For information regarding
the carrying and fair values of First Federal's mortgage-backed securities
portfolio, see Note C of the Notes to Consolidated Financial Statements in the
Annual Report.


                                      21

<PAGE>

         At September 30, 1997, $14.0 million, or 56.6%, of the Association's
mortgage-backed securities carried adjustable-rates of interest. Under the
OTS's risk-based capital requirements, Government National Mortgage
Association ("GNMA") mortgage-backed securities have a zero percent risk
weighting and Federal National Mortgage Association ("FNMA"), FHLMC and
AA-rated mortgage-backed securities have a 20% risk weighting, in contrast to
the 50% risk weighting carried by one- to four-family performing residential
mortgage loans.

         The following table sets forth the contractual maturities of the
mortgage-backed securities at September 30, 1997.
<TABLE>
<CAPTION>


                                                                                                                       September 30,
                                                                        Due in                                             1997
                                 ------------------------------------------------------------------------------------  -------------
                                  6 months     6 months      1 to       3 to 5       5 to 10    10 to 20     Over 20
                                   or Less     to 1 Year    3 Years      Years        Years       Years       Years     Book Value
                                 ----------- ------------------------------------ ------------------------------------------------
                                                                          (In Thousands)
<S>                               <C>         <C>         <C>         <C>         <C>         <C>          <C>            <C>    
Held to Maturity
Adjustable-Rate Mortgage-Backed
Securities:
  Federal Home Loan Mortgage
     Corporation................  $   --      $    --     $    --     $    --     $     --    $     --     $ 6,644        $ 6,644
  Federal National Mortgage
     Association................      --           --          --          --           --         797       6,152          6,949
                                   -----       ------      ------      ------      -------      ------    --------         ------
     Total adjustable-rate......      --           --          --          --           --         797      12,796         13,593
                                   -----       ------      ------      ------      -------      ------     -------         ------

Fixed-Rate Mortgage-Backed
Securities:
Federal Home Loan Mortgage
   Corporation..................      --           --          --          --        2,014       3,824          --          5,838
Federal National Mortgage
   Association..................      --           --          --          --        1,406       2,602          --          4,008
Government National Mortgage
   Association..................      --           --          --          --           --          --          89             89
                                   -----       ------      ------      ------     --------     -------    --------     ----------
  Total fixed-rate..............      --           --          --          --        3,420       6,426          89          9,935
                                   -----       ------      ------      ------        -----       -----    --------       --------
Total mortgage-backed securities
    held to maturity............  $   --      $    --     $    --     $    --       $3,420      $7,223     $12,885        $23,528
                                  ======      =======     =======     =======       ======      ======     =======        =======

Available for Sale
Fixed-Rate Mortgage-Backed
Securities:
Federal Home Loan Mortgage
   Corporation..................    $472      $    --      $   --     $    --     $     --    $     --    $     --       $    472
                                    ====      =======      ======     =======     ========    ========    ========       ========
</TABLE>

Sources of Funds

         General. The Company's primary sources of funds are deposits,
amortization and repayment of loan principal (including mortgage-backed
securities), sales or maturities of investment securities, mortgage-backed
securities and short-term investments, borrowings, and funds provided from
operations.

         Borrowings may be used on a short-term basis to compensate for
seasonal reductions in deposits or deposit inflows at less than projected
levels, and have been used in the past on a longer-term basis to support
lending activities. The Association had $23.7 million in FHLB advances
outstanding at September 30, 1997.

         Deposits. First Federal offers a variety of deposit accounts having a
wide range of interest rates and terms. The Association's deposits consist of
passbook accounts, NOW accounts, and money market and certificate accounts.
The Association relies primarily on advertising, competitive pricing policies
and customer service to attract and retain these deposits. First Federal
solicits deposits from its market area only and does not use brokers to obtain
deposits.

                                      22

<PAGE>

         The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition. The variety of deposit accounts offered by the Association has
allowed it to be competitive in obtaining funds and to respond with
flexibility to changes in consumer demand. The Association has become more
susceptible to short-term fluctuations in deposit flows as customers have
become more interest rate conscious. The Association manages the pricing of
its deposits in keeping with its asset/liability management and profitability
objectives. Based on its experience, the Association believes that its
passbook, NOW and non-interest-bearing checking accounts are relatively stable
sources of deposits. However, the ability of the Association to attract and
maintain certificates of deposit, and the rates paid on these deposits, has
been and will continue to be significantly affected by market conditions.

         Effective April 1, 1993, the Association introduced a new certificate
of deposit program in an attempt to reduce deposit outflows and attract longer
term deposits which were lost as a result of the general decline in market
rates of interest. This program offers two new certificate products which have
four- and five-year terms. The following table sets forth information
regarding the dollar amount and percent of certificates of deposit of this
program.

<TABLE>
<CAPTION>


                                                               At September 30, 1997       % of Total Certificates
                                                               ---------------------       -----------------------
                                                              (Dollars in Thousands)

<S>                                                                   <C>                              <C>  
Four-Year Certificate.....................................            $1,695                           3.45%
Five-Year Certificate.....................................             6,382                          13.01

</TABLE>
         The following table sets forth the dollar amount of savings deposits
in the various types of deposit programs offered by the Association for the
dates indicated and the rates offered. See Note H of the Notes to the
Consolidated Financial Statements in the Annual Report for weighted average
nominal rates.

<TABLE>
<CAPTION>

                                                                         September 30,
                                                ----------------------------------------------------------------------
                                                        1997                   1996                     1995
                                                ---------------------   --------------------   -----------------------
                                                            Percent                 Percent                  Percent
                                                Amount      of Total     Amount     of Total      Amount     of Total
                                                ------      --------     ------     --------      ------     --------
                                                                       (Dollars In Thousands)
<S>                                             <C>           <C>       <C>          <C>         <C>         <C>  
Transactions and Savings Deposits:

 Passbook Demand (2.85%)..................      $2,703         3.54%    $ 2,649        3.82%     $ 2,752        4.05%
 NOW Accounts (2.00-2.50%)................       3,763         4.93       3,232        4.66        2,899        4.26
 Money Market Accounts (2.50-5.75%).......      20,702        27.13      15,553       22.40       11,694       17.20
                                                ------        -----      ------       -----       ------      ------
                                                                                                
   Total Transactions and Savings Deposits      27,168        35.60      21,434       30.88       17,345       25.51%
                                                ------        -----      ======       -----       ------      ------
                                                                                                
Certificates:                                                                                   
                                                                                                
 0.00  -  3.99%...........................           5         0.01           9        0.01          804        1.18
 4.00  -  4.99%...........................       2,189         2.87       4,216        6.07       10,498       15.44
 5.00  -  5.99%...........................      39,911        52.30      30,296       43.64       16,882       24.83
 6.00  -  6.99%...........................       6,930         9.08      13,367       19.25       22,351       32.87
 7.00%  and over..........................          26         0.03          34        0.05           47        0.07
                                              --------         ----     -------       -----     --------     -------
                                                                                                
Total Certificates........................      49,061        64.29      47,922       69.02       50,582       74.39
                                                ------        -----      ------       -----       ------      ------
Accrued Interest..........................          82         0.11          70        0.10           70        0.10
                                             ---------         ----    --------       -----     --------     -------
Total Deposits............................     $76,311       100.00%    $69,426      100.00%     $67,997      100.00%
                                               =======       ======     =======      ======      =======      ======
</TABLE>                                


                                      23

<PAGE>

         The following table sets forth the savings flows at the Association
during the periods indicated. Net increase refers to the amount of deposits
during a period less the amount of withdrawals during the period.
<TABLE>
<CAPTION>


                                                                                  Year Ended September 30,
                                                                       ----------------------------------------------
                                                                          1997              1996              1995
                                                                        --------           -------          --------
                                                                                  (Dollars In Thousands)
<S>                                                                     <C>                <C>              <C>     
Opening balance...............................................          $ 69,356           $67,927          $ 64,384
Deposits......................................................            86,304            65,771            61,024
Withdrawals...................................................           (82,247)          (67,067)          (59,578)
Interest credited.............................................             2,816             2,725             2,097
                                                                        --------           -------          --------
Ending balance................................................          $ 76,229           $69,356          $ 67,927
                                                                        ========           =======          ========

Net increase .................................................         $   6,873           $ 1,429          $  3,543
                                                                       =========           =======          ========

Percent increase .............................................              9.91%             2.10%             5.50%
                                                                       =========            ======            ======
</TABLE>

         The following table shows rate and maturity information for the
Association's certificates of deposit as of September 30, 1997.
<TABLE>
<CAPTION>


                                       0.00-       4.00-      5.00-       6.00-    7.00% or                Percent
                                       3.99%       4.99%      5.99%       6.99%     greater    Total      of Total
                                     --------    --------   ---------   --------  ----------- --------    --------
Certificate accounts maturing 
in quarter ending:

<S>                                    <C>      <C>       <C>           <C>          <C>      <C>            <C>   
December 31, 1997...............       $  5     $   966   $  3,957      $1,017       $---     $ 5,945        12.12%
March 31, 1998..................        ---         754      7,183       1,230        ---       9,167        18.69
June 30, 1998...................        ---          14      5,032         ---        ---       5,046        10.29
September 30, 1998..............        ---         ---      7,747         105        ---       7,852        16.00
December 31, 1998...............        ---         309      4,848         172        ---       5,329        10.86
March 31, 1999..................        ---         146      5,701          36        ---       5,883        11.99
June 30, 1999...................        ---         ---      1,356          63        ---       1,419         2.89
September 30, 1999..............        ---         ---      1,707         660        ---       2,367         4.82
December 31, 1999...............        ---         ---        449         427        ---         876         1.79
March 31, 2000..................        ---         ---      1,152         711         26       1,889         3.85
June 30, 2000...................        ---         ---        281         146        ---         427         0.87
September 30, 2000..............        ---         ---        ---         196        ---         196         0.40
December 31, 2000...............        ---         ---         95         558        ---         653         1.33
Thereafter......................        ---         ---        403       1,609        ---       2,012         4.10
                                       ----    --------   --------    --------       ----    --------         ----

  TOTAL.........................       $  5      $2,189    $39,911      $6,930        $26     $49,061       100.00%
                                       ====      ======    =======      ======        ===     =======       ======

Percent of Total................       0.01%       4.46%     81.35%      14.13%      0.05%
                                       ====        ====      =====       =====       ====

</TABLE>



                                      24

<PAGE>

         The following table indicates the amount of the Association's
certificates of deposit and other deposits by time remaining until maturity as
of September 30, 1997.
<TABLE>
<CAPTION>
                                                                       Maturity
                                                   -------------------------------------------------
                                                                  Over          Over
                                                  3 Months       3 to 6        6 to 12       Over
                                                   or Less       Months        Months      12 Months       Total
                                                   -------       ------        ------      ---------       -----
                                                                           (In Thousands)

<S>                                                <C>          <C>           <C>          <C>           <C>    
Certificates of deposit less than $100,000.....    $5,436       $ 8,460       $11,574      $19,746       $45,216
Certificates of deposit of $100,00 or more.....       ---           211           600        1,070         1,881
Public funds(1)................................       509           495           723          237         1,964
                                                  -------       -------       -------     --------       -------
Total certificates of deposit..................    $5,945       $ 9,166       $12,897      $21,053       $49,061
                                                   ======       =======       =======      -------       =======
</TABLE>


---------
(1) Deposits from governmental and other public entities.

         Borrowings. Although deposits are the Company's primary source of
funds, the Company's policy has been to utilize borrowings when they are a
less costly source of funds or can be invested at a positive rate of return.
In addition, the Association has relied upon borrowings for short-term
liquidity needs.

         First Federal may obtain advances from the FHLB of Topeka upon the
security of its capital stock in the FHLB of Topeka and certain of its
mortgage loans and mortgage-backed securities. Such advances may be made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. At September 30, 1997, the Association
had $23.7 million in FHLB advances outstanding.

         The following table sets forth the maximum month-end balance and
average balance of the Association's FHLB advances and other borrowings at and
for the dates indicated.

<TABLE>
<CAPTION>

                                                                      At and for the Year Ended September 30,
                                                                --------------------------------------------------
                                                                 1997                  1996                  1995
                                                                 ----                  ----                  ----
                                                                                  (In Thousands)

<S>                                                             <C>                   <C>                   <C>    
Maximum Balance:
 FHLB advances...................................               $25,000               $24,400               $19,900

Average Balance:
 FHLB advances...................................               $23,583               $19,133               $17,275
</TABLE>


                                      25

<PAGE>

         The following table sets forth certain information as to the
Association's FHLB advances at the dates indicated.
<TABLE>
<CAPTION>


                                                                                          September 30,
                                                                          ---------------------------------------- 
                                                                           1997             1996            1995
                                                                          -------          -------         -------
                                                                                      (Dollars in Thousands)

<S>                                                                       <C>              <C>             <C>    
FHLB advances....................................................         $23,700          $24,300         $18,800

Weighted average interest rate of FHLB advances..................           5.930%           5.682%          5.933%
</TABLE>

Regulation

         General. First Federal is a federally chartered savings and loan
association, the deposits of which are federally insured and backed by the
full faith and credit of the United States Government. Accordingly, First
Federal is subject to broad federal regulation and oversight extending to all
its operations. First Federal is a member of the FHLB of Topeka and is subject
to certain limited regulation by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board"). As the savings and loan holding company of
First Federal, the Company also is subject to federal regulation and
oversight. The purpose of the regulation of the Company and other holding
companies is to protect subsidiary savings associations. First Federal is a
member of the Savings Association Insurance Fund ("SAIF"), which together with
the Bank Insurance Fund ("BIF") are the two deposit insurance funds
administered by the FDIC, and the deposits of First Federal are insured by the
FDIC. As a result, the FDIC has certain regulatory and examination authority
over First Federal.

         Certain of these regulatory requirements and restrictions are
discussed below or elsewhere in this document.

         Federal Regulation of Savings Associations. The OTS has extensive
authority over the operations of savings associations. As part of this
authority, First Federal is required to file periodic reports with the OTS and
is subject to periodic examinations by the OTS and the FDIC. The last regular
OTS and FDIC examinations of First Federal were commenced as of July 8, 1996
and October 5, 1992, respectively. Under agency scheduling guidelines, it is
likely that another examination will be initiated in the near future. When
these examinations are conducted by the OTS and the FDIC, the examiners may
require First Federal to provide for higher general or specific loan loss
reserves. All savings associations are subject to a semi-annual assessment,
based upon the savings association's total assets, to fund the operations of
the OTS. First Federal's OTS assessment for the fiscal year ended September
30, 1997, was $33,415.

         The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including First Federal and the
Company. This enforcement authority includes, among other things, the ability
to assess civil money penalties, to issue cease-and-desist or removal orders
and to initiate injunctive actions. In general, these enforcement actions may
be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.

         In addition, the investment, lending and branching authority of First
Federal is prescribed by federal laws, and it is prohibited from engaging in
any activities not permitted by such laws. For instance, no savings
institution may invest in non-investment grade corporate debt securities. In
addition, the permissible level of investment by federal associations in loans
secured by non-residential real property may not exceed 400% of total capital,
except

                                      26

<PAGE>
with approval of the OTS. Federal savings associations are also generally
authorized to branch nationwide. First Federal is in compliance with the noted
restrictions.

         First Federal's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At September 30, 1997, First Federal's
lending limit under this restriction was approximately $1.4 million. At
September 30, 1997, the Association had no loans in excess of its loans-to-one
borrower limit.

         The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to
comply with an approved plan will subject the institution to further
enforcement action.

         Insurance of Accounts and Regulation by the FDIC. First Federal is a
member of the SAIF, which is administered by the FDIC. Deposits are insured up
to applicable limits by the FDIC and such insurance is backed by the full
faith and credit of the United States Government. As insurer, the FDIC imposes
deposit insurance premiums and is authorized to conduct examinations of and to
require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the SAIF or the BIF. The FDIC
also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound
condition.

         The FDIC's deposit insurance premiums are assessed through a
risk-based system under which all insured depository institutions are placed
into one of nine categories and assessed insurance premiums based upon their
level of capital and supervisory evaluation. Under the system, institutions
classified as well capitalized (i.e., a core capital ratio of at least 5%, a
ratio of Tier 1 or core capital to risk-weighted assets ("Tier 1 risk-based
capital") of at least 6% and a risk-based capital ratio of at least 10%) and
considered healthy pay the lowest premium while institutions that are less
than adequately capitalized (i.e., core or Tier 1 risk-based capital ratios of
less than 4% or a risk-based capital ratio of less than 8%) and considered of
substantial supervisory concern pay the highest premium. Risk classification
of all insured institutions will be made by the FDIC for each semi-annual
assessment period.

         The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than
the designated reserve ratio of 1.25% of SAIF-insured deposits. In setting
these increased assessments, the FDIC must seek to restore the reserve ratio
to that designated reserve level, or such higher reserve ratio as established
by the FDIC. The FDIC may also impose special assessments on SAIF members to
repay amounts borrowed from the United States Treasury or for any other reason
deemed necessary by the FDIC.

           For the first six months of 1995, the assessment schedule for BIF
and SAIF members ranged from .23% to .31% of deposits. As is the case with the
SAIF, the FDIC is authorized to adjust the insurance premium rates for banks
that are insured by the BIF of the FDIC in order to maintain the reserve ratio
of the BIF at 1.25% of BIF-insured deposits. As a result of the BIF reaching
its statutory reserve ratio, the FDIC revised the premium schedule for
BIF-insured institutions to provide a range of .04% to .31% of deposits. The
revisions became effective in the third quarter of 1995. In addition, the BIF
rates were further revised, effective January 1996, to provide a range of 0%
to .27%. The SAIF rates, however, were not adjusted. At the time the FDIC
revised the BIF premium schedule, it noted that, absent legislative action (as
discussed below), the SAIF would not attain its designated reserve ratio until
the year 2002. As a result, SAIF insured members would continue to be
generally subject to

                                      27

<PAGE>

higher deposit insurance premiums than BIF insured institutions until, all
things being equal, the SAIF attained its required reserve ratio.

         In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provided for a one-time assessment to be imposed on all
deposits assessed at the SAIF rates, as of March 31, 1995, in order to
recapitalize the SAIF. It also provided for the merger of the BIF and the SAIF
on January 1, 1999 if no savings associations then exist. The special
assessment rate was established at .657% of deposits by the FDIC and the
resulting assessment of $431,625 was paid in November 1996. This special
assessment significantly increased noninterest expense and adversely affected
the Company's results of operations for the year ended September 30, 1996. As
a result of the special assessment, First Federal's deposit insurance premiums
were reduced to .0632% based upon its current risk classification and the new
assessment schedule for SAIF insured institutions. These premiums are subject
to change in future periods.

         Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations
issued by a federally chartered corporation to provide financing ("FICO") for
resolving the thrift crisis in the 1980s. Although the FDIC has proposed that
the SAIF assessment be equalized with the BIF assessment schedule, effective
October 1, 1996, SAIF-insured institutions will continue to be subject to a
FICO assessment as a result of this continuing obligation. Although the
legislation also now requires assessments to be made on BIF-assessable
deposits for this purpose, effective January 1, 1997, that assessment will be
limited to 20% of the rate imposed on SAIF assessable deposits until the
earlier of December 31, 1999 or when no savings association continues to
exist, thereby imposing a greater burden on SAIF member institutions such as
First Federal. Thereafter, however, assessments on BIF-member institutions
will be made on the same basis as SAIF-member institutions. The rates to be
established by the FDIC to implement this requirement for all FDIC-insured
institutions is uncertain at this time, but are anticipated to be about a 6.5
basis points assessment on SAIF deposits and 1.5 basis points on BIF deposits
until BIF insured institutions participate fully in the assessment.

         Regulatory Capital Requirements. Federally insured savings
associations, such as First Federal, are required to maintain a minimum level
of regulatory capital. The OTS has established capital standards, including a
tangible capital requirement, a leverage ratio (or core capital) requirement
and a risk-based capital requirement applicable to such savings associations.
These capital requirements must be generally as stringent as the comparable
capital requirements for national banks. The OTS is also authorized to impose
capital requirements in excess of these standards on individual associations
on a case by case basis.

         The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital. At September 30, 1997, the
Association did not have any intangible assets.

         The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities
permissible for national banks or engaged in certain other activities solely
as agent for its customers are "includable" subsidiaries that are consolidated
for capital purposes in proportion to the association's level of ownership.
For excludable subsidiaries, the debt and equity investments in such
subsidiaries are deducted from assets and capital. At September 30, 1997, the
Association had no subsidiaries.

         At September 30, 1997, First Federal had tangible capital of $9.3
million, or 8.42% of adjusted total assets, which is approximately $7.7
million above the minimum requirement of 1.5% of adjusted total assets in
effect on that date.


                                      28

<PAGE>

         The capital standards also require core capital equal to at least 3%
of adjusted total assets. Core capital generally consists of tangible capital
plus certain intangible assets, including a limited amount of purchased credit
card relationships. As a result of the prompt corrective action provisions
discussed below, however, a savings association must maintain a core capital
ratio of at least 4% to be considered adequately capitalized unless its
supervisory condition is such to allow it to maintain a 3% ratio. At September
30, 1997, First Federal had no intangibles which were subject to these tests.

         At September 30, 1997, First Federal had core capital equal to $9.3
million, or 8.42% of adjusted total assets, which is $6.0 million above the
minimum leverage ratio requirement of 3% in effect on that date.

          The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists
of core capital, as defined above, and supplementary capital. Supplementary
capital consists of certain permanent and maturing capital instruments that do
not qualify as core capital and general valuation loan and lease loss
allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary
capital may be used to satisfy the risk-based requirement only to the extent
of core capital. The OTS is also authorized to require a savings association
to maintain an additional amount of total capital to account for concentration
of credit risk and the risk of non-traditional activities. At September 30,
1997, First Federal had no capital instruments that qualify as supplementary
capital and $668,000 of general loss reserves, which was $28,000 in excess of
1.25% of risk-weighted assets.

         Certain exclusions from capital and assets are required to be made
for the purpose of calculating total capital. Such exclusions consist of
equity investments (as defined by regulation) and that portion of land loans
and non-residential construction loans in excess of an 80% loan-to-value ratio
and reciprocal holdings of qualifying capital instruments. First Federal had
no such exclusions from capital and assets at September 30, 1997.

         In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk
weight, ranging from 0% to 100%, based on the risk inherent in the type of
asset. For example, the OTS has assigned a risk weight of 50% for prudently
underwritten permanent one- to four-family first lien mortgage loans not more
than 90 days delinquent and having a loan to value ratio of not more than 80%
at origination unless insured to such ratio by an insurer approved by the FNMA
or FHLMC.

         OTS regulations also require that every savings association with more
than normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to
50% of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net
portfolio value of a savings association, greater than 2% of the present value
of its assets, based upon a hypothetical 200 basis point increase or decrease
in interest rates (whichever results in a greater decline). Net portfolio
value is the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule will not become effective until the OTS
evaluates the process by which savings associations may appeal an interest
rate risk deduction determination. It is uncertain as to when this evaluation
may be completed. Any savings association with less than $300 million in
assets and a total capital ratio in excess of 12%, such as the Association, is
exempt from this requirement unless the OTS determines otherwise.

         On September 30, 1997, First Federal had total risk-based capital of
$10.0 million (including $9.3 million in core capital and $640,000 in
qualifying supplementary capital) and risk-weighted assets of $51.2 million;
or total capital of 19.53% of risk-weighted assets. This amount was $5.9
million above the 8% requirement in effect on that date.

         The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to
meet their capital requirements. The OTS is generally required to take action
to restrict the activities of an "undercapitalized association" (generally
defined to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such

                                      29

<PAGE>

association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized
associations.

          As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.

         Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a
forced merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less)
is subject to further mandatory restrictions on its activities in addition to
those applicable to significantly undercapitalized associations. In addition,
the OTS must appoint a receiver (or conservator with the concurrence of the
FDIC) for a savings association, with certain limited exceptions, within 90
days after it becomes critically undercapitalized. Any undercapitalized
association is also subject to the general enforcement authority of the OTS
and the FDIC, including the appointment of a conservator or receiver.

         The OTS is also generally authorized to reclassify an association
into a lower capital category and impose the restrictions applicable to such
category if the institution is engaged in unsafe or unsound practices or is in
an unsafe or unsound condition.

         The imposition by the OTS or the FDIC of any of these measures on
First Federal may have a substantial adverse effect on First Federal's
operations and profitability and the value of the Company's common stock.
Company shareholders do not have preemptive rights, and therefore, if the
Company is directed by the OTS or the FDIC to issue additional shares of
common stock, such issuance may result in the dilution in the percentage of
ownership of the Company's shareholders.

         Limitations on Dividends and Other Capital Distributions. OTS
regulations impose various restrictions on savings associations with respect
to their ability to make distributions of capital, which include dividends,
stock redemptions or repurchases, cash-out mergers and other transactions
charged to the capital account. OTS regulations also prohibit a savings
association from declaring or paying any dividends or from repurchasing any of
its stock if, as a result, the regulatory capital of the association would be
reduced below the amount required to be maintained for the liquidation account
established in connection with its mutual to stock conversion.

         Generally, savings associations, such as First Federal, that before
and after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter
period. However, an association deemed to be in need of more than normal
supervision by the OTS may have its dividend authority restricted by the OTS.
The Company may pay dividends in accordance with this general authority.

         Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to
the distribution during that 30-day period notice based on safety and
soundness concerns. See "- Regulatory Capital Requirements."


                                      30

<PAGE>

         The OTS has proposed regulations that would revise the current
capital distribution restrictions. Under the proposal a savings association
may make a capital distribution without notice to the OTS (unless it is a
subsidiary of a holding company) provided that it has a CAMEL 1 or 2 rating,
is not of supervisory concern, and would remain adequately capitalized (as
defined in the OTS prompt corrective action regulations) following the
proposed distribution. Savings associations that would remain adequately
capitalized following the proposed distribution but do not meet the other
noted requirements must notify the OTS 30 days prior to declaring a capital
distribution. The OTS stated it will generally regard as permissible that
amount of capital distributions that do not exceed 50% of the institution's
excess regulatory capital plus net income to date during the calendar year. A
savings association may not make a capital distribution without prior approval
of the OTS and the FDIC if it is undercapitalized before, or as a result of,
such a distribution. As under the current rule, the OTS may object to a
capital distribution if it would constitute an unsafe or unsound practice. No
assurance may be given as to whether or in what form the regulations may be
adopted.

         Liquidity. All savings associations, including First Federal, are
required to maintain an average daily balance of liquid assets equal to a
certain percentage of the sum of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. For a discussion
of what the Association includes in liquid assets, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations
-Liquidity and Capital Resources" in the Annual Report. This liquid asset
ratio requirement may vary from time to time (between 4% and 10%) depending
upon economic conditions and savings flows of all savings associations.
At the present time, the minimum liquid asset ratio is 5%.

         In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's
average daily balance of net withdrawable deposit accounts and current
borrowings. Penalties may be imposed upon associations for violations of
either liquid asset ratio requirement. At September 30, 1997, First Federal
was in compliance with both requirements, with an overall liquid asset ratio
of 7.20% and a short-term liquid asset ratio of 3.23%.

         Accounting. An OTS policy statement applicable to all savings
associations clarifies and re-emphasizes that the investment activities of a
savings association must be in compliance with approved and documented
investment policies and strategies, and must be accounted for in accordance
with generally accepted accounting principles ("GAAP"). Under the policy
statement, management must support its classification of and accounting for
loans and securities (i.e., whether held for investment, sale or trading) with
appropriate documentation. First Federal is in compliance with these amended
rules.

         OTS accounting regulations, which may be made more stringent than
GAAP by the OTS, require that transactions be reported in a manner that best
reflects their underlying economic substance and inherent risk and that
financial reports must incorporate any other accounting regulations or orders
prescribed by the OTS.

         Qualified Thrift Lender Test. All savings associations, including
First Federal, are required to meet a qualified thrift lender ("QTL") test to
avoid certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out
of every 12 months on a rolling basis. As an alternative, the savings
association may maintain 60% of its assets in those assets specified in
Section 7701(a)(19) of the Internal Revenue Code. Under either test, such
assets primarily consist of residential housing related loans and investments.
Such assets primarily consist of residential housing related loans and
investments. At September 30, 1997, First Federal met the test and has always
met the test since its effectiveness. At September 30, 1997, First Federal's
QTL percentage was 88.8%.

         Any savings association that fails to meet the QTL test must convert
to a national bank charter, unless it requalifies as a QTL and thereafter
remains a QTL. If an association does not requalify and converts to a national

                                      31

<PAGE>

bank charter, it must remain SAIF-insured until the FDIC permits it to
transfer to the BIF. If such an association has not yet requalified or
converted to a national bank, its new investments and activities are limited
to those permissible for both a savings association and a national bank, and
it is limited to national bank branching rights in its home state. In
addition, the association is immediately ineligible to receive any new FHLB
borrowings and is subject to national bank limits for payment of dividends. If
such association has not requalified or converted to a national bank within
three years after the failure, it must divest of all investments and cease all
activities not permissible for a national bank. In addition, it must repay
promptly any outstanding FHLB borrowings, which may result in prepayment
penalties. If any association that fails the QTL test is controlled by a
holding company, then within one year after the failure, the holding company
must register as a bank holding company and become subject to all restrictions
on bank holding companies. See "- Holding Company Regulation."

         Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), every FDIC insured institution has a continuing and affirmative
obligation consistent with safe and sound banking practices to help meet the
credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with the examination of First Federal, to
assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by First
Federal. An unsatisfactory rating may be used as the basis for the denial of
an application by the OTS.

         The federal banking agencies, including the OTS, have recently
revised the CRA regulations and the methodology for determining an
institution's compliance with the CRA. Due to the heightened attention being
given to the CRA in the past few years, the Association may be required to
devote additional funds for investment and lending in its local community. The
Association was examined for CRA compliance in September 1995 and received a
rating of satisfactory.

         Transactions with Affiliates. Generally, transactions between a
savings association or its subsidiaries and its affiliates are required to be
on terms as favorable to the association as transactions with non-affiliates.
In addition, certain of these transactions, such as loans to an affiliate, are
restricted to a percentage of the association's capital. Affiliates of First
Federal include the Company and any company which is under common control with
First Federal. In addition, a savings association may not lend to any
affiliate engaged in activities not permissible for a bank holding company or
acquire the securities of most affiliates. First Federal's subsidiaries are
not deemed affiliates; however, the OTS has the discretion to treat
subsidiaries of savings associations as affiliates on a case by case basis.

         Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS.
These conflict of interest regulations and other statutes also impose
restrictions on loans to such persons and their related interests. Among other
things, such loans must be made on terms substantially the same as for loans
to unaffiliated individuals.

         Holding Company Regulation. The Company is a unitary savings and loan
holding company subject to regulatory oversight by the OTS. As such, the
Company is required to register and file reports with the OTS and is subject
to regulation and examination by the OTS. In addition, the OTS has enforcement
authority over the Company and its non-savings association subsidiaries which
also permits the OTS to restrict or prohibit activities that are determined to
be a serious risk to the subsidiary savings association.

         As a unitary savings and loan holding company, the Company generally
is not subject to activity restrictions. If the Company acquires control of
another savings association as a separate subsidiary, it would become a
multiple savings and loan holding company, and the activities of the Company
and any of its subsidiaries

                                      32

<PAGE>

(other than the Association or any other SAIF-insured savings association)
would become subject to such restrictions, unless such other associations each
qualify as a QTL and were acquired in a supervisory acquisition.

         If First Federal fails the QTL test, the Company must obtain the
approval of the OTS prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than those
approved for multiple savings and loan holding companies or their
subsidiaries. In addition, within one year of such failure the Company must
register as, and will become subject to, the restrictions applicable to bank
holding companies. The activities authorized for a bank holding company are
more limited than are the activities authorized for a unitary or multiple
savings and loan holding company. See "- Qualified Thrift Lender Test."

         The Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.

         Federal Securities Law. The stock of the Company is registered with
the SEC under the Exchange Act. The Company is subject to the information,
proxy solicitation, insider trading restrictions and other requirements of the
SEC under the Exchange Act.

         Company stock held by persons who are affiliates (generally officers,
directors and principal stockholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions. If
the Company meets specified current public information requirements, each
affiliate of the Company is able to sell in the public market, without
registration, a limited number of shares in any three-month period.

         Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super
NOW checking accounts). At September 30, 1997, First Federal was in compliance
with these reserve requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements that may be imposed by the OTS. See "- Liquidity."

         Savings associations are authorized to borrow from the Federal
Reserve Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds,
including FHLB borrowings, before borrowing from the Federal Reserve Bank.

         Federal Home Loan Bank System. First Federal is a member of the FHLB
of Topeka, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a
reserve or central bank for its members within its assigned region. It is
funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances) in
accordance with policies and procedures, established by the board of directors
of the FHLB, which are subject to the oversight of the Federal Housing Finance
Board. All advances from the FHLB are required to be fully secured by
sufficient collateral as determined by the FHLB. In addition, all long-term
advances are required to provide funds for residential home financing.

         As a member, First Federal is required to purchase and maintain stock
in the FHLB of Topeka. At September 30, 1997, First Federal had $1.4 million
in FHLB stock, which was in compliance with this requirement. In past years,
First Federal has received substantial dividends on its FHLB stock. Over the
past five fiscal years such dividends have averaged 6.56% and were 6.84% for
fiscal year 1997.

         Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies
on advances targeted for community investment and low- and moderate-income
housing projects. These

                                      33

<PAGE>

contributions have affected adversely the level of FHLB dividends paid and
could continue to do so in the future. These contributions could also have an
adverse effect on the value of FHLB stock in the future. A reduction in value
of First Federal's FHLB stock may result in a corresponding reduction in First
Federal's capital.

         For the fiscal year ended September 30, 1997, dividends paid by the
FHLB of Topeka to First Federal totaled $89,181, which constitute an $18,783
increase over the amount of dividends received in fiscal year 1996.

         Federal Taxation. Savings associations such as the Association that
met certain definitional tests relating to the composition of assets and other
conditions prescribed by the Internal Revenue Code of 1986, as amended (the
"Code"), were permitted to establish reserves for bad debts and to make annual
additions thereto which could, within specified formula limits, be taken as a
deduction in computing taxable income for federal income tax purposes for
taxable years beginning prior to January 1, 1997. The amount of the bad debt
reserve deduction for "non-qualifying loans" was computed under the experience
method. The amount of the bad debt reserve deduction for "qualifying real
property loans" (generally loans secured by improved real estate) could be
computed under either the experience method or the percentage of taxable
income method (based on an annual election).

         Under the experience method, the bad debt reserve deduction was an
amount determined under a formula based generally upon the bad debts actually
sustained by the savings association over a period of years.

         The percentage of specially computed taxable income that was used to
compute a savings association's bad debt reserve deduction under the
percentage of taxable income method (the "percentage bad debt deduction") was
8%. The percentage bad debt deduction thus computed was reduced by the amount
permitted as a deduction for non-qualifying loans under the experience method.
The availability of the percentage of taxable income method permitted
qualifying savings associations to be taxed at a lower effective federal
income tax rate than that applicable to corporations generally (approximately
31.3% assuming the maximum percentage bad debt deduction).

         Under the percentage of taxable income method, the percentage bad
debt deduction could not exceed the amount necessary to increase the balance
in the reserve for "qualifying real property loans" to an amount equal to 6%
of such loans outstanding at the end of the taxable year or the greater of (i)
the amount deductible under the experience method or (ii) the amount which
when added to the bad debt deduction for "non-qualifying loans" equalled the
amount by which 12% of the amount comprising savings accounts at year end
exceeded the sum of surplus, undivided profits and reserves at the beginning
of the year.

         In August 1996, legislation was enacted that repeals the
above-described reserve method of accounting (including the percentage of
taxable income method) used by many thrift institutions to calculate their bad
debt reserve for federal income tax purposes. Thrift institutions with $500
million or less in assets may, however, continue to use the experience method.
As a result, First Federal must recapture that portion of the reserve that
exceeds the amount that could have been taken under the experience method for
post-1987 tax years. The legislation also requires thrifts to account for bad
debts for federal income tax purposes on the same basis as commercial banks
for tax years beginning after December 31, 1995. The recapture will occur over
a six-year period, commencing with the year ended September 30, 1997. The 
legislation also requires thrift institutions to account for bad debts for 
federal income tax purposes on the same basis as commercial banks for tax years
beginning after December 31, 1995.

         In addition to the regular income tax, corporations, including
savings associations such as the Association, generally are subject to a
minimum tax. An alternative minimum tax is imposed at a minimum tax rate of
20% on alternative minimum taxable income, which is the sum of a corporation's
regular taxable income (with certain adjustments) and tax preference items,
less any available exemption. The alternative minimum tax is imposed to the
extent it exceeds the corporation's regular income tax and net operating
losses can offset no more than 90% of alternative minimum taxable income. For
taxable years beginning after 1986 and before 1997, corporations,

                                      34

<PAGE>

including savings associations such as First Federal, are also subject to an
environmental tax equal to .12% of the excess of alternative minimum taxable
income for the taxable year (determined without regard to net operating losses
and the deduction for the environmental tax) over $2 million.

         To the extent earnings appropriated to a savings association's bad
debt reserves for "qualifying real property loans" and deducted for federal
income tax purposes exceed the allowable amount of such reserves computed
under the experience method and to the extent of the association's
supplemental reserves for losses on loans ("Excess"), such Excess may not,
without adverse tax consequences, be utilized for the payment of cash
dividends or other distributions to a shareholder (including distributions on
redemption, dissolution or liquidation) or for any other purpose (except to
absorb bad debt losses). As of September 30, 1997, the Association's Excess
for tax purposes totaled approximately $2.5 million.

         The Company and Association file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting. Thrift
institutions, such as the Association, that file federal income tax returns as
part of a consolidated group are required by applicable Treasury regulations
to reduce their taxable income for purposes of computing the percentage bad
debt deduction for losses attributable to activities of the non-savings
association members of the consolidated group that are functionally related to
the activities of the savings association member.

         The Company has not been audited by the Internal Revenue Service for
the last 10 years and has federal income tax returns which are open and
subject to audit for the years 1994 through 1996. In the opinion of
management, any examination of still open returns would not result in a
deficiency which could have a material adverse effect on the financial
condition of the Association.

         Kansas Taxation. The Company and Association file separate Kansas
income and Kansas privilege tax returns on a fiscal year basis using the
accrual method of accounting.

         Kansas law permits savings and loan associations to deduct from net
income, a reserve established for the sole purpose of meeting or absorbing
losses, in the amount of five percent of such net income determined without
the benefit of such deduction, or, in the alternative, a reasonable addition
to a reserve for losses based on past experiences. The Kansas privilege tax is
computed on the basis of 4.5% of taxable income, plus 2.25% of taxable income
in excess of $25,000.

         The Company has not been audited by the Kansas Department of Revenue
for the last ten years and has Kansas privilege tax returns which are open and
subject to audit for the years 1994 through 1996. In the opinion of
management, any examination of such open returns would not result in a
deficiency which could have a material adverse effect on the financial
condition of the Company.

         Delaware Taxation. As a Delaware holding company, the Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Company is
also subject to an annual franchise tax imposed by the State of Delaware.

         For additional information regarding taxation, see Note K of the
Notes to the Consolidated Financial Statements in the Annual Report.

Competition

         First Federal faces strong competition, both in originating real
estate and other loans and in attracting deposits. Competition in originating
real estate loans comes primarily from commercial banks and credit unions.


                                      35

<PAGE>

         The Association attracts all of its deposits, primarily from
Montgomery County where the Association's offices are located; therefore,
competition for those deposits is principally from commercial banks and credit
unions located in the same communities. The Association competes for these
deposits by offering a variety of deposit accounts at competitive rates and
convenient business hours. The Association estimates its share of the savings
market in its primary market area to be approximately 14%.

Executive Officers of the Company

         The following table sets forth certain information with respect to
each of the executive officers of the Company.

<TABLE>
<CAPTION>

                    NAME                        AGE(1)               POSITION(S) HELD
                    ----                        ------               ----------------
<S>                                               <C>       <C>                                     
              Larry G. Spencer                    49        President and Chief Executive Officer
             Gary L. Overfield                    45        Senior Vice President and Secretary
             James B. Mitchell                    42        Vice President and Chief Financial Officer
</TABLE>
----------------
(1)At September 30, 1997.

Executive Officers of the Association

         The following table sets forth certain information with respect to
each of the executive officers of the Association.
<TABLE>
<CAPTION>


           NAME                AGE(1)                                  POSITION(S) HELD
--------------------------- ------------- ---------------------------------------------
<S>                              <C>          <C>                                                  
Larry G. Spencer                 49           President and Chief Executive Officer and Director
Gary L. Overfield                45           Senior Vice President, and Secretary and Chief Loan Officer
Jim L. Clubine                   44           Vice President and Asset Manager
James B. Mitchell                42           Vice President and Chief Financial Officer
</TABLE>
----------------
(1)At September 30, 1997.

         Larry G. Spencer. Mr. Spencer is President and Chief Executive
Officer of the Association. Mr. Spencer has been employed by First Federal
since 1974 and has held a variety of positions including Executive Vice
President. Mr. Spencer was promoted to his present position in 1990. Mr.
Spencer received a degree in Business Administration from Pittsburg State
University and served in the U.S. Army for three years. He has served on the
board of the Chamber of Commerce, Main Street, the Independence Community
College Endowment Association and the Community Chest and is presently a
member of the board of Junior Achievement, Heartland Community Bankers, USD
#446 Endowment Association, Independence Food Bank, and Independence
Industries. He is also a member of the Rotary Club.

         Gary L. Overfield. Mr. Overfield is Senior Vice President, Secretary
and Chief Loan Officer of the Association, a position he has held since 1990.
Mr. Overfield has been employed by First Federal since 1976 and has held a
variety of positions including Vice President and Loan Officer from 1985 to
1990. Mr. Overfield is a graduate of Pittsburg State University. He is
currently licensed by the State of Kansas as a Life and Accident and Health
Insurance agent. He was a member of the Board of Directors and previous
Secretary of the Independence Rotary Club, a youth coach for the Independence
Recreation Commission, previous Treasurer for the local chapter of Duck's
Unlimited, and previous Director and Treasurer for the Independence Chamber of
Commerce.


                                      36

<PAGE>

         Jim L. Clubine. Mr. Clubine is Vice President and Asset Manager, a
position he has held since 1990. Prior to joining First Federal, he was
employed as Branch Manager by MidAmerica Federal of Parsons, Kansas from 1979
to 1990. Mr. Clubine is a member of Independence Chamber of Commerce
(Ambassador Club), Mercy Hospital Foundation Fund Raising Committee,
Eisenhower Site Council team, Chairman of the Airport Advisory Board, Carnival
Chairman for Neewolah, and a member of the Rotary Club and served on the board
of the Chamber of Commerce, Community Chest and Junior Achievement. He was a
Previous Chairman of the March of Dimes. Mr. Clubine is a graduate of Kansas
State University.

         James B. Mitchell. Mr. Mitchell is Vice President and Chief Financial
Officer of the Association, a position he has held since March 1992. Prior to
joining First Federal, he was employed by Eureka Savings Bank, Eureka, Kansas,
in the capacity of Strategic Asset Manager from 1988 to 1991 and Chief
Financial Officer from 1991 to 1992. From 1976 to 1988, Mr. Mitchell was Chief
Financial Officer for Peoples Savings and Loan, Parsons, Kansas. Mr. Mitchell
has an accounting degree from Pittsburg State University.

Employees

         At September 30, 1997, the Association had a total of 25 employees.
The Association's employees are not represented by any collective bargaining
group. Management considers its employee relations to be good.

Item 2. Description of Property

         The Company owns its offices located at Myrtle and Sixth in
Independence, Kansas and McArthur and Eleventh in Coffeyville, Kansas. The
total net book value of the Company's premises and equipment at September 30,
1997, was $1,297,500.

         First Federal established a loan production office in Lawrence,
Kansas effective October 15, 1997. The office will primarily originate
construction loans in Lawrence and the surrounding area. Loan approvals will
be made at the Associations main office with disbursements and collections
handled at the loan production office. The office is currently staffed with a
loan originator and two processors.

         The Company maintains depositor and borrower customer files on an
on-line basis with the FiServ Data Processing System, Milwaukee, Wisconsin.
The net book value of the data processing and computer equipment utilized by
the Company at September 30, 1997, was approximately $103,434.

Item 3. Legal Proceedings

         First Federal is involved as plaintiff or defendant in various legal
actions arising in the normal course of their business. While the ultimate
outcome of these proceedings cannot be predicted with certainty, it is the
opinion of management, after consultation with counsel representing First
Federal in the proceedings, that the resolution of these proceedings should
not have a material effect on the Company's results of operations. The Company
was not involved in any legal proceedings at September 30, 1997.

Item 4. Submission of Matters to a Vote of Security Holders

         No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended September 30,
1997.


                                      37

<PAGE>



                                    PART II

Item 5. Market for Common Equity and Related Stockholder Matters

         Page 32 and the inside back cover of the attached 1997 Annual Report
to Stockholders is herein incorporated by reference.

Item 6. Management's Discussion and Analysis or Plan of Operation

         Pages 4 through 13 of the attached 1997 Annual Report to Stockholders
is herein incorporated by reference.

Item 7. Financial Statements

         The following information appearing in the Company's Annual Report to
Stockholders for the year ended September 30, 1997, is incorporated by
reference in this Annual Report on Form 10-KSB as Exhibit 13.
                                                                    Pages in
                                                                     Annual
                     Annual Report Section                           Report
                     ---------------------                           ------

Report of Independent Certified Public Accountants.............          14

Consolidated Balance Sheets (September 30, 1997 and 1996)......          15

Consolidated Statements of Earnings (For the Years Ended
September 30, 1997 and 1996)...................................          16

Consolidated Statements of Stockholders' Equity (For the
Years Ended September 30, 1997 and 1996).......................          17

Consolidated Statements of Cash Flows (For the Years Ended
September 30, 1997 and 1996)...................................          18

Notes to Consolidated Financial Statements.....................    19 to 31

                  With the exception of the aforementioned information in Part
II of the Form 10-KSB, the Corporation's Annual Report to Stockholders for the
year ended September 30, 1997 is not deemed filed as part of this Annual
Report on Form 10-KSB.

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

         There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change
of accountants and/or reporting disagreements on any matter of accounting
principle or financial statement disclosure.


                                      38

<PAGE>

                                   PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
        Compliance with Section 16(a) of the Exchange Act

Directors

         Information concerning Directors of the Company is incorporated
herein by reference from the definitive Proxy Statement for the Annual Meeting
of Stockholders to be held in 1998, a copy of which will be filed not later
than 120 days after the close of fiscal year.

Executive Officers

         Information regarding the business experience of the executive
officers of the Company and the Association contained in Part I of this Form
10-KSB is incorporated herein by reference.

Item 10. Executive Compensation

         Information concerning executive compensation is incorporated herein
by reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 1998, a copy of which will be filed not later than
120 days after the close of the fiscal year.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         Information concerning security ownership of certain beneficial
owners and management is incorporated herein by reference from the definitive
Proxy Statement for the Annual Meeting of Stockholders to be held in 1998, a
copy of which will be filed not later than 120 days after the close of the
fiscal year.

Item 12. Certain Relationships and Related Transactions

         Information concerning certain relationships and related transactions
is incorporated herein by reference from the definitive Proxy Statement for
the Annual Meeting of Stockholders to be held in 1998, a copy of which will be
filed not later than 120 days after the close of the fiscal year.



                                      39

<PAGE>



Item 13. Exhibits and Reports on Form 8-K

         (a)  Exhibits
<TABLE>
<CAPTION>

                                                                                                Reference to
                                                                                                 Prior Filing
                                                                                                  or Exhibit
                                                                                                   Number
Regulation S-B                                                                                     Attached
Exhibit Number                       Document                                                       Hereto
--------------                       --------                                                       ------
        <S>         <C>                                                                          <C>                    
        2          Plan of acquisition, reorganization, arrangement,                                 None
                   liquidation, or succession

        3(a)       Articles of Incorporation                                                          *

        3(b)       By-Laws                                                                            *

        4          Instruments defining the rights of security holders,                               *
                   including debentures

        9          Voting Trust Agreement                                                            None

        10         Executive Compensation Plans and Arrangements

                   (a)  1994 Stock Option and Incentive Plan                                          **

                   (b)  Recognition and Retention Plan                                                *

                   (c)  Employment Agreements                                                         *

        11         Statement re:  computation of per share earnings                                  ***

        12         Statement re:  computation of ratios                                          Not required

        13         Annual Report to Security Holders                                                  13

        16         Letter on change in certifying accountants                                        None

        18         Letter on change in accounting principles                                         None

        21         Subsidiaries of the Registrant                                                     21

        23         Consents of Experts and Counsel                                                    23

        24         Power of Attorney                                                             Not required

        27         Financial Data Schedule                                                            27

        99         Additional exhibits                                                               None

</TABLE>
--------------------

*    Filed as exhibits to the Company's Form S-1 registration statement filed
     on June 22, 1994 (File No. 33-64812) pursuant to Section 5 of the
     Securities Act of 1933. All of such previously filed documents are hereby
     incorporated herein by reference in accordance with Item 601 of
     Regulation S-B.

**   Filed as an exhibit to the Company's Annual Report on Form 10-KSB filed
     on December 29, 1994 (File No. 0-22184) pursuant to the Securities
     Exchange Act of 1934.

***  See Note A of Notes to Consolidated Financial Statements in the Annual
     Report to Shareholders' attached hereto as Exhibit 13.


         (b)  Reports on Form 8-K

         During the quarter ended September 30, 1997, the Company did not file
any Current Reports on Form 8-K.


                                      40

<PAGE>

                                  SIGNATURES

         Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                 FIRST INDEPENDENCE CORPORATION




Date: December 29            By: /s/Larry G. Spencer
-----------------                ----------------------------------------------
                                 Larry G. Spencer, President, Chief Executive
                                 Officer and Director (Duly Authorized
                                 Representative)

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
<S>                                                     <C> 

/s/ Larry G. Spencer                                    /s/ James B. Mitchell                       
---------------------------------------------           ---------------------------------------------
Larry G. Spencer, President, Chief Executive            James B. Mitchell, Vice President and Chief 
Officer, Officer and Director (Principal                Financial Officer (Principal Financial and  
Executive and  Operating Officer)                       Accounting Officer)                         
                                                                                                    
Date: December 29                                       Date: December 29                           
                                                                                                    
                                                                                                    
                                                                                                    
/s/ Donald E. Aitken                                    /s/ William T. NewKirk II                   
---------------------------------------------           ---------------------------------------------
Donald E. Aitken, Chairman of the Board                 William T. NewKirk II, Director             
                                                                                                    
Date: December 29                                       Date: December 29                           
                                                                                                    
                                                                                                    
                                                                                                    
/s/ Harold L. Swearingen                                /s/ John T. Updegraff                       
---------------------------------------------           ---------------------------------------------
Harold L. Swearingen, Director                          John T. Updegraff, Director                 
                                                                                                    
Date: December 29                                       Date: December 29                           
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    
/s/ Lavern W. Strecker                                  /s/ Joseph M. Smith                         
---------------------------------------------           ---------------------------------------------
Lavern W. Strecker, Director                            Joseph M. Smith, Director                   
                                                                                                    
Date: December 29                                       Date: December 29                           

</TABLE>
                                                                             

                                      41

<PAGE>
                               INDEX TO EXHIBITS





 Exhibit
 Number
 ------


   11           Statement Regarding Computation of Per Share Earnings
                (included under Note A of Notes to Consolidated Financial
                Statements in the Annual Report to Stockholders' attached
                hereto as Exhibit 13)

   13           Annual Report to Security Holders

   21           Subsidiaries of the Registrant

   23           Consent of Accountants

   27           Financial Data Schedule

                                      42