SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K
(Mark One)
  X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended      December 31, 1996
                          ---------------------------------

                                    - 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:   0-27126
                          -------

                          First Colorado Bancorp, Inc.
-------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                Colorado                                        84-1320788
---------------------------------------------             ----------------------
       (State or other jurisdiction of                       (I.R.S. employer
      of incorporation or organization)                    identification no.)

  215 S. Wadsworth Boulevard, Lakewood Colorado                   80226
-----------------------------------------------              ---------------
   (Address of principal executive offices)                    (Zip code)

Registrant's telephone number, including area code:              (303) 232-2121
                                                                 --------------
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 $0.10 per share
                    ---------------------------------------
                               (Title of class)

      Indicate  by check  mark  whether  registrant  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or for such shorter period that  Registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes X No

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]

      Registrant's  voting stock  trades on the Nasdaq  National  Market  System
under the symbol "FFBA." The aggregate  market value of the voting stock held by
non-affiliates  of registrant,  based upon the closing price of such stock as of
March 21, 1997 ($17.125 per share), was $283.5 million.

      As of March 21, 1997,  registrant  had  16,555,197  shares of Common Stock
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

1.    Parts II and IV -- Portions of registrant's  Annual Report to Stockholders
      for the fiscal year ended December 31, 1996.

2.    Part III -- Portions of registrant's Proxy Statement for Annual Meeting of
      Stockholders to be held on April 30, 1997.


<PAGE>



                                    PART I

Item 1.  Business
-----------------

Business of the Company

      First Colorado  Bancorp,  Inc. (the  "Company") is a Colorado  corporation
organized in September  1995,  at the direction of the Board of Directors of the
First  Federal Bank of Colorado  (the "Bank") to  facilitate  the  conversion of
First Savings Capital,  M.H.C. (the "Mutual Holding Company") from the mutual to
stock form of ownership  and to acquire and hold all of the capital stock of the
Bank  (collectively,   the  "Conversion  and  Reorganization").   Prior  to  the
consummation  of the Conversion and  Reorganization,  the Mutual Holding Company
was the majority stockholder of the Bank and upon consummation of the Conversion
and  Reorganization,  the Mutual  Holding  Company  was merged with and into the
Bank.  The  Company  acquired  the Bank as a wholly  owned  subsidiary  upon the
consummation  of the  Conversion  and  Reorganization  on December 29, 1995.  In
connection with the Conversion and  Reorganization,  the Company sold 13,403,798
shares of its  common  stock to the public in an initial  public  offering  (the
"Offering") and issued 6,619,539  shares in exchange for the outstanding  shares
of the Bank  held by  persons  other  than the  Mutual  Holding  Company.  As of
December 31, 1996, the Company had total assets of $1.5 billion,  total deposits
of $1.1 billion,  and stockholders'  equity of $216.6 million, or 14.3% of total
assets.

      The primary  activity  of the  Company is holding the common  stock of the
Bank. The Company is therefore a unitary savings and loan holding  company.  The
Company has no significant  assets other than all of the  outstanding  shares of
Bank Common Stock, the note evidencing the Company's loan to the Bank's Employee
Stock  Ownership  Plan  ("ESOP")  and the portion of the net  proceeds  from the
Offering  retained by the Company,  which have been  invested in a $21.5 million
loan to the Bank and in deposits in the Bank and in a stock  repurchase  program
resulting in the  repurchase of 2.0 million  shares of Company  common stock for
$29.0  million.  The Company  neither owns nor leases any property,  but instead
uses the premises, equipment and furniture of the Bank. At the present time, the
Company does not intend to employ any persons other than executive  officers who
are also  executive  officers  of the Bank,  and the  Company  will  utilize the
support staff of the Bank from time to time.  Additional employees will be hired
as appropriate to the extent the Company  expands or changes its business in the
future.

      Management  believes that the holding  company  structure will provide the
Company with additional flexibility to diversify, should it decide to do so, its
business  activities through existing or newly formed  subsidiaries,  or through
acquisitions  of or mergers  with other  financial  institutions  and  financial
services  related  companies.   Although  there  are  no  current  arrangements,
understandings or agreements  regarding any such  opportunities or transactions,
the  Company  is in a  position,  subject  to  regulatory  limitations  and  the
Company's  financial  position,  to take advantage of any such  acquisition  and
expansion opportunities that may arise.

Business of the Bank

      The Bank is a federally-chartered stock savings bank, originally chartered
by the State of Colorado as the  Cooperative  Building and Loan  Association  on
April 25, 1885. In connection with the Conversion and  Reorganization,  the Bank
changed its name from First Federal Savings Bank of Colorado to its current name
and became a wholly owned subsidiary of the Company.  The Bank is believed to be
the oldest savings institution  headquartered in Colorado. A federal charter was
granted to the Bank in

                                      1

<PAGE>



1934, the same year that deposit accounts became federally  insured and the Bank
became a member of the  Federal  Home  Loan Bank  ("FHLB")  System.  The  Bank's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC") under
the Savings  Association  Insurance Fund ("SAIF"),  and the Bank is regulated by
the Office of Thrift Supervision ("OTS").

      The principal  business of the Bank is the acceptance of savings  deposits
from the general public and the  origination  and purchase of mortgage loans for
the  purpose  of  constructing,  financing  or  refinancing  one-to-four  family
residences and other improved  residential and commercial real estate.  The Bank
is also active in the  origination  of home equity  loans.  The Bank's income is
derived  largely  from  interest  on  interest-earning  assets  such  as  loans,
mortgage-backed securities and investments.  Its principal expenses are interest
paid on deposits and  borrowings,  operating  expenses and  provisions  for loan
losses.

Market Area and Competition

      The Bank is  authorized  to make real estate loans  throughout  the United
States. The Bank's primary lending area is the Denver  metropolitan area and the
Western  Slope of  Colorado  communities  served by the Bank's  offices in Grand
Junction, Delta and Montrose. The Bank has no significant loan concentrations in
any one part of its primary lending area.

      The Colorado real estate market was generally depressed in the mid-to-late
1980's.  The market,  however,  has shown improvement in the 1990's, but whether
the recovery will continue is dependent upon general  economic  conditions,  not
just in Colorado, but in the United States as a whole.

      The Bank faces strong  competition in its attraction of savings  deposits,
which are its primary  source of funds for lending,  and in the  origination  of
real  estate  loans.  The Bank's  competition  for  savings  deposits  and loans
historically  has come from  other  thrift  institutions  and  commercial  banks
located in the Bank's market area. The Bank also competes with mortgage  banking
companies for real estate loans,  and faces  competition for investor funds from
short-term  money market  securities  and corporate and  government  securities.
During recent periods the Bank has also experienced withdrawals of deposit funds
which it believes are being invested in the stock market.

      The Bank  considers  its primary  market area to consist of the  following
Colorado counties: Denver, Adams, Arapahoe,  Jefferson,  Boulder, Douglas, Mesa,
Delta and Montrose.

      The Bank  competes for loans by charging  competitive  interest  rates and
loan fees,  remaining  efficient  and  providing a wide range of services to its
customers.  The  Bank's  goal is to be the best  "consumer  bank" in the area it
serves. The Bank offers all consumer banking services such as checking accounts,
certificates of deposit,  retirement  accounts,  consumer and mortgage loans and
ancillary  services such as safe deposit boxes,  convenient offices and drive-up
facilities,  automated teller machines, credit cards, check guarantee cards, and
overdraft  protection.  These  services help the Bank compete for deposits.  The
Bank  offers  competitive  rates on  deposits  but does not  attempt  to pay the
highest rates in its market area.

      Based upon total assets, the Bank was the largest thrift institution based
in the State of Colorado as of December 31, 1996.  As of December 31, 1996,  one
other thrift  institution  and 49  commercial  banks were  headquartered  in the
Denver  metropolitan  area.  The Bank also  competes  with several  other larger
financial  institutions,  headquartered  outside  of  Colorado,  which  maintain
offices in the Bank's market area. These competitors may be able to offer better
loan  rates  from  time to time  due to their  size,  financial  resources,  and
competitive strategy.

                                      2

<PAGE>




      Legislative  and  regulatory   measures  in  the  past  two  decades  have
significantly expanded the range of services which thrift institutions can offer
the public, such as demand deposits,  trust services and consumer and commercial
lending.  These changes,  combined with increasingly  sophisticated  depositors,
have  dramatically  increased  competition  for  savings  dollars  among  thrift
institutions and other types of investment entities,  as well as with commercial
banks in  regard to  loans,  checking  accounts  and  other  types of  financial
services.  In addition,  large  conglomerates and investment  banking firms have
entered the market for financial  services.  Such  legislation has increased the
competition  between commercial banks and thrift  institutions by allowing banks
to acquire healthy thrift institutions, imposing similar capital requirements on
banks  and  thrift  institutions,  and  placing  certain  investment  and  other
regulatory  restrictions  on  thrift  institutions  which are  similar  to those
imposed on banks. Thus, in the future, the Bank, like other thrift institutions,
will face increased  competition to provide savings and lending services and, in
order to remain competitive,  will have to be innovative and knowledgeable about
its market, as well as to continue to exert effective controls over its costs.

Investment Strategy

      The Bank has adopted an investment  strategy  designed to help control the
Bank's interest rate risk, while  maintaining  profitability and reducing credit
risk.  The Bank invests its funds  primarily in mortgage  loans  receivable  and
mortgage  products,   such  as   mortgage-backed   securities  and  asset-backed
securities. The Bank's strategy is to first invest its funds in loans secured by
real estate  located in its primary market area. The Bank's first priority is to
originate  adjustable rate mortgage ("ARM") loans,  predominately on residential
properties and to a lesser extent on commercial real estate,  whenever  possible
for its own  portfolio.  The Bank also  originates for its own portfolio 15 year
fixed-rate residential mortgages on which interest is paid on a bi-weekly basis.
These mortgages have a relatively  short average life of approximately 12 years,
and help reduce the Bank's long term interest rate risk. When interest rates are
rising, the demand for ARM loans increases. When the Bank is unable to originate
a sufficient amount of ARM loans or 15 year fixed-rate  mortgage loans, the Bank
purchases  ARM  loans in the  secondary  market.  When  whole  ARM loans are not
available in the  secondary  market,  the Bank's  third  priority is to purchase
mortgage-backed  securities  backed  by ARM loans or other  acceptable  mortgage
collateral.  Pending such  purchases,  the Bank invests its funds in  short-term
investments,  such  as  U.S.  government  and  agency  securities,  asset-backed
securities,  non-government  securities and corporate bonds rated AAA or higher,
and certificates of deposit.

      The Bank's net interest  income will vary,  depending  upon the difference
between  the amount of income that it  receives  from its loan,  mortgage-backed
securities  and  investment  portfolios  and its cost of  funds.  A  significant
portion of the Bank's loan portfolio consists of long-term real estate loans and
mortgage-backed  securities with interest rate features which, while variable to
some degree,  do not vary as rapidly or to the same extent as the Bank's cost of
funds.  Consequently,  the Bank is  vulnerable  to future  increases in interest
rates which, if significant, may have a material adverse affect on its financial
condition and results of operations.

      In order to reduce the Bank's  interest rate risk  exposure,  the Bank has
sold  essentially  all fixed-rate 30 year mortgage loans it originates  into the
secondary   market.   The  Bank  has  also   developed  its  consumer   lending,
concentrating  in the area of home equity  loans.  This  strategy is designed to
improve and  stabilize its  operational  results to counter the volatile cost of
its funds and the mismatch between its relatively  long-term,  fixed-rate assets
and  short-term,  rate sensitive  liabilities.  The principal  objective of this
strategy is to  restructure  assets to lessen the potential  adverse  effects of
interest rate volatility on earnings, while maintaining high quality (low credit
risk) assets and improving profits.


                                      3

<PAGE>



      For further information,  see "Management's Discussion of 1996 Results" in
the Annual Report to Stockholders for the year ended December 31, 1996.

Lending Activities

      Loan Portfolio Composition. The Bank's loan portfolio composition consists
primarily of conventional  fixed-rate and  adjustable-rate  first mortgage loans
secured by one-to-four  family residences and, to a lesser extent,  multi-family
residences and commercial real estate. As of December 31, 1996, the Bank's total
net portfolio of loans and  mortgage-backed  and other  asset-backed  securities
outstanding  (the "loan  portfolio")  was $1,342.8  million,  of which  $1,168.7
million,  or 87.0% was secured by one-to-four family residential  dwellings.  At
that same date,  $82.9  million,  or 6.2% of the loan  portfolio  was secured by
multi-family  dwellings,  and $81.8  million,  or 6.1% of the loan portfolio was
secured by non-residential commercial real estate.

      The Bank is active in making second  mortgage loans on one-to-four  family
residential  properties,  which constituted $143.4 million, or 10.7% of the loan
portfolio  at  December  31,  1996.  To a lesser  extent,  the  Bank  originates
construction loans, primarily for one-to-four family residential properties, and
at December 31, 1996, such loans  constituted  $27.9 million or 2.1% of the loan
portfolio.  The Bank does not actively offer  commercial  business loans, and at
December  31,  1996,  such  loans  constituted  $283,000  or  0.02%  of the loan
portfolio.

      Mortgage  loans in the  Bank's  portfolio  generally  include  due-on-sale
clauses  that  provide  the  Bank  with the  contractual  right to deem the loan
immediately due and payable in the event that the borrower  transfers  ownership
of the property without the Bank's consent.

      The Bank also invests in mortgage and other asset-backed securities. As of
December 31, 1996,  total  mortgage/asset-backed  securities  aggregated  $281.3
million,  or  21.0%  of  the  Bank's  net  loan  portfolio.  A  portion  of  the
mortgage-backed  securities  portfolio  as of  December  31, 1996 was insured or
guaranteed  as to  principal  by the  Federal  Home  Loan  Mortgage  Corporation
("FHLMC"),  the Federal National Mortgage Association ("FNMA") or the Government
National Mortgage Association ("GNMA").

                                      4

<PAGE>



      Analysis of Loan and Mortgage-Backed Securities Portfolio. Set forth below
is  selected  data  relating  to  the   composition   of  the  Bank's  loan  and
mortgage-backed  securities  portfolios  by type of loan and type of security on
the dates indicated.

<TABLE>
<CAPTION>
                                                      As of December 31,
                                 -------------------------------------------------------------
                                         1994                 1995                1996
                                 --------------------  ------------------  -------------------
                                   Balance    Percent   Balance   Percent   Balance    Percent
                                   -------    -------   -------   -------   -------    -------

Type of Loan:
Conventional real estate loans:
<S>                               <C>          <C>     <C>         <C>     <C>          <C>
  Construction.................   $  28,525    2.45%   $  30,731   2.47%   $    27,931  2.08%
  One- to four-family..........     567,621    48.78     736,240   59.28     855,992    63.75
  Multi-family.................      76,217     6.55      71,965    5.79      73,543     5.48
  Nonresidential...............      70,695     6.08      67,329    5.42      66,918     4.98
Commercial loans...............         271     0.02         491    0.04         283     0.02
Consumer loans:
  Savings account..............       3,731     0.32       4,657    0.37       5,252     0.39
  Home improvement.............      19,053     1.64      23,356    1.88      30,403     2.27
  Automobile...................       7,263     0.62       8,404    0.68      10.233     0.76
  Unsecured open-end...........       1,744     0.15       4,415    0.36       5,099     0.38
  Other........................         937     0.08       1,090    0.09       1,498     0.11

Less:
  Loans in process.............     (9,056)   (0.78)    (11,440)  (0.92)     (9,758)   (0.73)
  Deferred loan origination fees
   and costs...................      (3,748)  (0.32)     (3,153)  (0.25)     (2,020)   (0.15)
  Allowance for loan losses....      (3,310)  (0.28)     (2,926)  (0.24)     (3,850)   (0.29)
                                 ----------  ------    ---------- ------   ---------- ------

    Total loans, net...........     759,943   65.31%     931,159  74.97%   1,061,524   79.05%
                                 ----------  ------    ---------- ------   ---------- ------

Mortgage and asset-backed
  securities...................     403,694   34.69%     310,886  25.03%     281,289   20.95%
                                 ----------  ------    ---------- ------   ---------- ------

   Total loans and mortgage and
    asset-backed securities, net $1,163,637  100.00%   $1,242,045 100.00%  $1,342,813 100.00%
                                 ==========  ======    ========== ======   ========== ======
</TABLE>



      One-to-Four  Family Mortgage  Loans.  The Bank offers first mortgage loans
secured by one-to-four  family  residences in the Bank's  primary  lending area.
Typically,  such  residences  are single  family homes that serve as the primary
residence of the owner.  As of December 31, 1996,  87.0% of the Bank's loans and
mortgage-backed  and other  asset-backed  securities  receivable were secured by
one-to-four family residential real estate mortgages.  The Bank currently offers
ARM loans with  interest  rates that adjust every six months with a maximum rate
increase cap of 1% per adjustment, and a lifetime cap of 4% to 6%. Some of these
ARM loans are fixed for three or five years with rates  adjusting  semi-annually
after the initial  term.  The  interest  rates on the Bank's ARM loans are based
primarily on the one-year U.S.  Treasury CMT rate. As of December 31, 1996,  six
month,  one year and three  year ARM loans  originated  by the Bank  constituted
79.9%, 17.9%, and 2.2% of the originated ARM loan portfolio,  respectively.  ARM
loans are originated for a term of up to 30 years. The Bank generally originates
one-to-four  family  residential  mortgage  loans  in  amounts  up to 85% of the
appraised  value of the  mortgaged  property,  but will  consider  loan-to-value
ratios of up to 97% if the loan amount exceeding the 85% loan-to-value  ratio is
insured  by a private  mortgage  insurance  ("PMI")  company.  The Bank  usually
charges an origination fee of 0.5% of the loan amount (1/2 point) on one to-four
family ARM loans. Due to the

                                      5

<PAGE>



current economic  environment  which has caused an increase in the overall level
of interest rates, the Bank has seen a significant increase in customer interest
in ARM  loans.  The  Bank  retains  the ARM  loans  it  originates  for its loan
portfolio.

      The Bank also  offers 10, 12, 15 and 30 year  fixed rate  mortgage  loans.
Interest rates charged on fixed rate loans are competitively priced based on the
FNMA/FHLMC daily pricing of one-to-four family mortgages.  Loan origination fees
on these loans are generally 0.75% to 1.0% of the loan amount. One type of fixed
rate 15 year  mortgage  loan offered by the Bank is the  bi-weekly  loan,  which
features  bi-weekly  mortgage  payments.  These  bi-weekly  payments  cause  the
principal of the mortgage  loan to be repaid more  rapidly than  traditional  15
year mortgage loans and therefore cause the borrower to pay less interest during
the lifetime of the bi-weekly  loan than would be paid for a traditional 15 year
mortgage loan made at the same interest  rate.  The Bank  currently  retains all
loans with terms of less than 15 years to maturity,  both regular  amortized and
bi-weekly,  for  its  loan  portfolio  and  attempts  to  sell  its  fixed  rate
non-biweekly loans of 15 years and more in the secondary market.

      The Bank originates second mortgage loans and home equity loans secured by
one-to-four  family  residences.  These loans  generally are originated as fixed
rate loans with terms of from five to ten years.  An origination  fee is usually
charged.  The loans  are  generally  subject  to an 80%  combined  loan-to-value
limitation,  including any other outstanding mortgages or liens. The Bank's most
popular  second  mortgage loan is a ten year fixed rate loan which is originated
for retention in the Bank's loan portfolio.  Based upon experience,  these loans
have an average life of 6.6 years and as of December 31, 1996 constituted  10.7%
of the Bank's loan  portfolio.  The Bank also  originates  a  revolving  line of
credit secured by one-to-four family residences.

      Multi-Family  Mortgage Loans.  The Bank  originates,  to a limited extent,
fixed rate and adjustable rate multi-family  mortgage loans secured primarily by
apartment  buildings  located in its primary  lending  area.  As of December 31,
1996,  $82.9  million,  or 6.2%,  of the  Bank's  loan  portfolio  consisted  of
multi-family  residential loans. These loans are generally made in amounts up to
75% of the appraised value of the mortgaged property.  In making such loans, the
Bank evaluates the mortgage  primarily on the net operating  income generated by
the real  estate  to  support  the debt  service.  The Bank also  considers  the
financial resources and income level of the borrower,  the borrower's experience
in owning or managing similar  property,  the  marketability of the property and
the Bank's lending experience,  if any, with the borrower. An origination fee of
1% to 2% is usually charged on such loans. The largest  multi-family  loan as of
December 31, 1996, had an outstanding balance of $3.5 million and was secured by
a 182 unit retirement center located in the Denver metropolitan area.

      Commercial Real Estate. To a lesser degree, the Bank originates commercial
real estate loans secured by properties  located within its primary market area.
The Bank's  commercial real estate loans are permanent loans secured by improved
property such as office  buildings,  retail stores,  including  shopping  malls,
industrial  facilities and other non-residential  buildings.  The Bank generally
originates  commercial  real  estate  loans  with  terms of 10 to 15  years  and
balances  generally  under $2.0 million.  As of December 31, 1996,  the Bank had
loans secured by commercial real estate totalling $81.8 million,  or 6.1% of the
Bank's  net loan  portfolio.  Twenty of the  commercial  real  estate  loans had
principal balances outstanding of over $1.0 million as of December 31, 1996. The
largest  commercial  real  estate  loan  was  secured  by  a  bank  building  in
Wheatridge,  Colorado, with a loan balance of $3.8 million at December 31, 1996.
Commercial  real estate loans are generally  originated in amounts  ranging from
65% to 75% of the appraised value of the mortgaged property. The Bank makes both
adjustable and fixed rate  commercial  real estate loans.  The  adjustable  rate
loans have amortization  terms of up to 20 years, and most have balloon payments
after 10 years. The rate of interest on these loans is tied to either the prime

                                      6

<PAGE>



rate or the Constant Maturity Treasury Index.  Fixed rate commercial real estate
loans generally have 10 to 15 year terms, and some are balloon loans.

      Construction  Loans.  The  Bank's  construction  loan  portfolio  consists
primarily of residential  construction loans with initial terms of six months to
one year.  Land  acquisition  and  development  loans are also made on a limited
basis. The  construction  loans made by the Bank have an adjustable rate tied to
the prime rate, adjusted monthly. Generally, such loans are repaid or refinanced
by  permanent  loans when the  property  is  completed  or sold.  A majority  of
construction  loans are made on properties that are presold.  Construction loans
constituted $27.9 million, or 2.1%, of the Bank's total net loan portfolio as of
December 31, 1996.

      Consumer Loans. Federal savings associations are permitted to make secured
and unsecured  consumer loans up to 35% of their assets. In addition,  a savings
association has lending  authority  above the 35% category for certain  consumer
loans, such as home equity loans,  property improvement loans, mobile home loans
and  loans  secured  by  savings  accounts.   Consumer  loans,   including  home
improvement  loans,  amounted  to  $52.5  million,  or 3.9% of the  Bank's  loan
portfolio as of December 31, 1996.

      The Bank has engaged in  consumer  lending for the past 17 years and had a
specialized  consumer loan department for 11 years.  The Bank's consumer lending
consists   primarily  of  home  equity  loans  secured  by  one-to-four   family
residential  properties.  These loans are described  above under "- One-to- Four
Family Mortgage Loans" and are included in the table  describing the Bank's loan
portfolio as loans secured by one-to-four family residential property.  The Bank
also offers unsecured consumer loans, unsecured lines of credit, savings account
loans, and automobile loans.

      Commercial Business Loans.  Regulations authorize the Bank to make secured
or  unsecured  loans  for  commercial,   corporate,  business  and  agricultural
purposes.  The aggregate amount of such loans  outstanding may not exceed 10% of
the Bank's assets.  In addition,  another 10% of total assets may be invested in
commercial  equipment  leasing.  The Bank  does not  actively  offer  commercial
business loans. As of December 31, 1996,  $283,000,  or 0.02%, of the Bank's net
loan portfolio was classified as commercial business loans.

      Loan  Underwriting  Risks.  While  commercial  real estate,  construction,
commercial   business  and  consumer  loans  provide   benefits  to  the  Bank's
asset/liability management program and reduce exposure to interest rate changes,
such loans may entail  significant  additional  credit and  interest  rate risks
compared  to  residential   mortgage   lending.   Commercial   real  estate  and
construction  mortgage loans may involve large loan balances to single borrowers
or groups of related  borrowers.  In addition,  the payment  experience on loans
secured by income producing  properties is typically dependent on the successful
operation  of the  properties  and thus may be  subject  to a greater  extent to
adverse  conditions  in  the  real  estate  market  or in the  general  economy.
Construction lending is generally considered to involve a higher level of credit
risk than one-to-four  family  residential  lending due to the  concentration of
principal in a limited  number of loans and borrowers and the effects of general
economic  conditions on real estate developers and managers.  Construction loans
may  involve  additional  risks  attributable  to the fact that  loan  funds are
advanced upon the security of the project under construction.  Moreover, because
of the uncertainties  inherent in estimating  construction costs, delays arising
from labor problems, material shortages, and other unpredictable  contingencies,
it is relatively  difficult to evaluate accurately the total loan funds required
to  complete a  project,  and  related  loan-to-value  ratios.  Because of these
factors,  the analysis of  prospective  construction  loan projects  requires an
expertise that is different in significant  respects from the expertise required
for residential mortgage lending. The Bank seeks to minimize these

                                      7

<PAGE>



risks by lending  primarily to established  customers and generally  restricting
such loans to its primary market area.  Consumer loans have historically  tended
to have a higher rate of default than residential  mortgage loans,  although the
Bank's loan loss  experience  to date on consumer  loans has been  favorable  in
comparison to industry averages.

      There  are,  due to the  unseasoned  nature of ARM loans in the  industry,
risks  resulting  from  increased  costs to the borrower as a result of periodic
repricing.  Despite  the  benefits  of ARM loans to the  Bank's  asset/liability
management  program,  ARMs pose  potential  additional  credit risks,  primarily
because as interest rates rise, the  underlying  payment by the borrower  rises,
increasing the potential for default. At the same time, the marketability of the
underlying property may be adversely affected by higher interest rates.

      Mortgage-Backed   and   Other   Asset-Backed   Securities.    The   Bank's
mortgage-backed   securities,   or   pass-through   certificates,   represent  a
participation interest in a pool of single-family  mortgages,  the principal and
interest  payments on which are passed from the  mortgage  originators,  through
intermediaries (generally  quasi-governmental  agencies) that pool and repackage
the participation  interest in the form of securities,  to investors such as the
Bank. Such  quasi-governmental  agencies that guarantee the payment of principal
and interest to investors  include the FHLMC,  GNMA, or the FNMA.  Pass- through
certificates  typically  are  issued  with  stated  principal  amounts,  and the
securities  are backed by pools of mortgages that have loans with interest rates
and  maturities  that are  within a  specified  range.  The  underlying  pool of
mortgages  can be composed  of either  fixed rate  mortgage  loans or ARM loans.
Mortgage-backed  securities are generally referred to as mortgage  participation
certificates or pass-through  certificates.  As a result, the interest rate risk
characteristics  of the  underlying  pool of  mortgages,  (i.e.,  fixed  rate or
adjustable  rate) as well as prepayment  risk, are passed on to the  certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying  mortgages.  Mortgage- backed securities issued by FHLMC, FNMA
and GNMA make up a majority  of the  pass-through  market.  Generally,  the Bank
purchases   mortgage-backed   securities   guaranteed   by  GNMA  and  FNMA  and
participation  certificates issued by the FHLMC. GNMA mortgage-backed securities
are  certificates  issued and backed by the GNMA and are secured by interests in
pools of mortgages which are fully insured by the Federal Housing Administration
("FHA") or partially  guaranteed by the Veterans'  Administration  ("VA"). FHLMC
mortgage-backed  securities are participation certificates issued and guaranteed
by the  FHLMC  and  secured  by  interests  in pools of  conventional  mortgages
originated by savings associations.  See "- Investment Activities" regarding the
Bank's investment in structured notes.

      Mortgage-backed  securities  provide for monthly payments of principal and
interest and generally have contractual  maturities  ranging from five to thirty
years.  However,  due to expected repayment terms being  significantly less than
the underlying mortgage loan pool contractual maturities, the estimated lives of
these securities could be significantly shorter.

      The Bank also  purchases  mortgage-backed  securities  and  collateralized
mortgage obligations ("CMOs") issued by government agencies, private issuers and
financial  institutions,  some of which are qualified under the Internal Revenue
Code of 1986,  as  amended  (the  "Code")  as Real  Estate  Mortgage  Investment
Conduits ("REMICs").  CMOs and REMICs (collectively CMOs) have been developed in
response to investor concerns regarding the uncertainty of cash flows associated
with the prepayment option of the underlying  mortgagor and are typically issued
by governmental agencies, governmental sponsored enterprises and special purpose
entities, such as trusts, corporations or partnerships, established by financial
institutions or other similar  institutions.  Some CMO instruments are most like
traditional  debt  instruments  because they have stated  principal  amounts and
traditionally  defined  interest-rate  terms.  Purchasers  of certain  other CMO
instruments are entitled to the excess, if any, of the issuer's cash

                                      8

<PAGE>



inflows,  including  reinvestment  earnings,  over  the cash  outflows  for debt
service and  administrative  expenses.  These mortgage  related  instruments may
include instruments designated as residual interests,  which represent an equity
ownership  interest in the underlying  collateral,  subject to the first lien of
the  investors in the other classes of the CMO.  Certain  residual CMO interests
may be riskier  than many  regular CMO  interests  to the extent that they could
result in the loss of a portion of the original investment. Moreover, cash flows
from residual  interests are very sensitive to prepayments and, thus,  contain a
high degree of interest-rate risk.

      At December 31, 1996,  all of the Bank's  investment in CMOs  consisted of
regular interests.  As of December 31, 1996, the Bank's CMOs did not include any
residual interests or interest-only or principal-only securities. As a matter of
policy,  the Bank does not invest in residual interests of CMOs or interest-only
and  principal-only  securities.  The CMOs held by the Bank at December 31, 1996
consisted  of floating  rate and fixed rate  tranches.  The  interest  rate of a
majority of the Bank's floating-rate securities adjusts monthly and provides the
institution with net interest margin protection in an increasing market interest
rate environment.  The securities are backed by mortgages on one-to-four  family
residential  real estate and have  contractual  maturities  up to 30 years.  The
securities  are  primarily  PACs and TACs  (Planned  and  Targeted  Amortization
Classes) are designed to provide a specific principal and interest cash-flow.

      Private  issued CMOs tend to have greater  prepayment and credit risk than
those issued by government agencies or government  sponsored  enterprises (e.g.,
FHLMC,  FNMA, and GNMA) generally  because they often are secured by jumbo loans
(i.e., loans with aggregate  outstanding  balances above the limit for purchases
by FHLMC or FNMA).  At December  31,  1996,  the Bank had CMOs with an aggregate
carrying amount (including  discounts and premiums) of $208.5 million,  of which
$179.7 million, or 86.2%, were privately issued. To minimize the risk of private
issued CMOs, the Bank only purchases those CMOs rated AA or better by one of the
rating agencies.

      Mortgage-backed  securities  generally  yield  less than the  loans  which
underlie  such  securities   because  of  their  payment  guarantees  or  credit
enhancements which offer nominal credit risk. In addition,  mortgage-backed  and
related  securities  are more liquid than  individual  mortgage loans and may be
used  to  collateralize  borrowings  of the  Bank in the  event  that  the  Bank
determined  to  utilize  borrowings  as  a  source  of  funds.   Mortgage-backed
securities  issued  or  guaranteed  by  the  GNMA,  FNMA  or the  FHLMC  (except
interest-only  securities or the residual  interests in CMOs) are weighted at no
more than 20.0% for risk-based  capital purposes,  compared to a weight of 50.0%
to 100.0%  for  residential  loans.  See  "Regulation  of the Bank -  Regulatory
Capital Requirements."

      During the most  recent  declining  interest  rate  environment,  the Bank
experienced   significant   prepayments  of  both  fixed-  and   adjustable-rate
mortgage-backed  securities.  Such circumstances generally make it difficult for
the Bank to  reinvest  the cash  flow  from  these  securities  into  comparable
yielding investments, thereby decreasing its yield.

      As of  December  31,  1996,  these  mortgage-backed  securities  and  CMOs
amounted to $72.8 million or 5.4% of the loan  portfolio,  and $208.5 million or
15.5% of the loan  portfolio,  respectively.  The CMOs purchased by the Bank are
generally  in the first or  second  tranche  priorities  with a two to five year
average  life based upon  prepayment  schedules  and carried a weighted  average
coupon of 6.47% and a  weighted  average  expected  maturity  of 66 months as of
December 31, 1996.

      In  addition,  the  Bank  periodically  purchases  AAA-rated  asset-backed
securities,  generally  secured by credit card receivables and automobile loans.
The Bank's investment policy limits the maturity of

                                      9

<PAGE>



these  securities to an average life of three years. No asset-backed  securities
were included in the Bank's loan portfolio as of December 31, 1996.

      The following table presents the Bank's  mortgage-backed  and asset-backed
securities at the dates indicated.  Securities  classified  held-to-maturity and
available-for-sale are carried at amortized cost and market value, respectively.

                                                  As of December 31,
                                            ----------------------------------
                                              1994         1995        1996
                                            --------    ---------    ---------
                                                    (In Thousands)
Federal Home Loan Mortgage
   Corporation............................. $ 48,246    $ 39,168     $ 47,366
Federal National Mortgage Association......   25,219      23,263       30,862
Government National Mortgage Association ..    1,509         520          419
Other government mortgage-backed
   securities..............................      901          --           --
Collateralized mortgage obligations and
   other mortgage-backed securities........  316,596     243,024      200,004
Asset-backed securities....................    7,721       2,292           --
                                            --------    --------   ----------

                                             400,192     308,267      278,651
Allowance for losses.......................     (43)       (171)        (181)
Unamortized premiums, net..................    3,545       2,790        2,819
                                            --------    --------     --------
     Total................................. $403,694    $310,886     $281,289
                                            ========    ========     ========


      During periods of rising  mortgage  interest rates, if the coupon rates of
the  underlying  mortgages are less than the  prevailing  market  interest rates
offered  for  mortgage  loans,  refinancings  generally  decrease  and  slow the
prepayment of the underlying  mortgages and the related securities.  Conversely,
during periods of falling  mortgage  interest  rates, if the coupon rates of the
underlying  mortgages  exceed the prevailing  market  interest rates offered for
mortgage loans,  refinancing  generally increases and accelerates the prepayment
of  the   underlying   mortgages   and  the  related   securities.   Under  such
circumstances,  the Bank may be  subject  to  reinvestment  risk  because to the
extent that the Bank's  mortgage-related  securities  amortize or prepay  faster
than  anticipated,  the Bank may not be able to  reinvest  the  proceeds of such
repayments  and  prepayments at a comparable  rate. The declining  yields earned
during recent periods is a direct  response to falling  interest rates in fiscal
1992  and 1993  and the  first  part of  fiscal  1994 as well as to  accelerated
prepayments.  At December 31,  1996,  of the $278.7  million of  mortgage-backed
securities  (including  CMOs),  an aggregate  of $168.9  million were secured by
fixed-rate  securities  and an  aggregate  of $109.8  million  were  secured  by
adjustable-rate securities.

      Loans to One Borrower. Savings associations are subject to the same limits
as those  applicable  to national  banks,  which under  current law have lending
limits in an amount equal to 15% of unimpaired capital and unimpaired surplus on
an unsecured basis and an additional  amount equal to 10% of unimpaired  capital
and unimpaired surplus if the loan is secured by readily marketable  collateral.
However,  the Bank's policy has been to limit loans to a single  borrower to 10%
of capital and to require  approval of the Board of Directors for aggregation of
loans to one  borrower  greater than $1 million.  As of December  31, 1996,  the
Bank's loan to one borrower limit was $21.6  million.  The lending limits to one
borrower  has  not  adversely   affected  the  Bank's  ability  to  conduct  its
operations, particularly because

                                      10

<PAGE>



it does not typically make real estate  development and construction loans which
carry  large  balances.  The  largest  aggregation  of loans to one  borrower at
December 31, 1996 was $8.0 million of loans secured by six  apartment  buildings
in the Denver  metropolitan area. The second largest aggregation of loans to one
borrower was $7.7 million of loans  secured by new housing  developments  in the
Denver  metropolitan  area and by an office  building in Arapahoe County that is
owned and occupied by the developer.  The third largest  aggregation of loans to
one  borrower  was  $6.9  million  of  loans  secured  by  residential   housing
developments in the Denver  metropolitan area. The fourth largest aggregation of
loans to one  borrower  was a $6.8  million loan which is secured by five office
and retail properties located in the Denver metropolitan area. The fifth largest
aggregation  of loans to one borrower  was $6.1 million of loans  secured by ten
apartment  buildings in Boulder,  Colorado.  All of these loans were current and
were at market rates of interest at December 31, 1996.

      Loan Maturity Schedule. The following table sets forth certain information
as of  December  31,  1996,  regarding  the  dollar  amount of loans,  including
mortgage-backed  securities and asset-backed securities, in the Bank's portfolio
based on their maturity. The table does include scheduled principal payments and
estimated prepayments,  which totalled $314.2 million, $250.9 million and $307.6
million for the years ended  December 31, 1994,  1995,  and 1996,  respectively.
Demand  loans,  loans  having no stated  schedule  of  repayments  and no stated
maturity, and overdrafts are reported as due in one year or less. Adjustable and
floating  rate loans are included in the period in which they mature,  and fixed
rate loans are included in the period in which the final contractual  payment is
due.

<TABLE>
<CAPTION>

                                                                          At December 31, 1996
                                           -----------------------------------------------------------------------------------
                                                           Over One       Over         Over Five
                                                           Through        Three         Through
                                            One Year        Three        Through          Ten         Over Ten
                                             or Less         Years      Five Years       Years         Years         Total
                                           -----------   ------------  ------------  ------------  ------------- -------------
                                                                              (In Thousands)
1-4 family first mortgage loans:
<S>                                        <C>           <C>           <C>           <C>           <C>           <C>
  Adjustable rate ......................   $    14,329   $    44,931   $    45,380   $   119,777   $   427,326   $   651,743
  Fixed rate ...........................        57,720        97,218        83,830       148,072        40,298       427,138
Other residential and all
  nonresidential:
  Adjustable rate ......................         8,063         8,165         9,620       110,861         4,985       141,694
  Fixed rate ...........................         1,097         2,477         2,908        16,528            --        23,010
Second mortgage and home equity loans...        16,177        28,895        24,076        10,947            --        80,095
Consumer loans .........................         7,572        14,499            --            --            --        22,071
Commercial business loans ..............            --           283            --            --            --           283
Deferred loan origination
  fees and costs .......................            --            --            --            --            --           799
Allowance for loan loss ................            --            --            --            --            --        (4,020)
                                           -----------   -----------   -----------   -----------   -----------   -----------
Total loans and mortgage-backed
  and other asset-backed
  securities ...........................   $   104,958   $   196,468   $   165,814   $   406,185   $   472,609   $ 1,342,813
                                           ===========   ===========   ===========   ===========   ===========   ===========


</TABLE>



                                       11

<PAGE>



      The  following  table  sets  forth  the  dollar  amount  of all  loans and
mortgage-backed  and asset- backed  securities due after December 31, 1996, that
have  pre-determined  (or  fixed)  interest  rates and which  have  floating  or
adjustable interest rates.
                                      Fixed        Adjustable
                                       Rate           Rate
                                     --------      -----------
                                         (In Thousands)
Real estate mortgage............     $391,331       $771,045
Second mortgage.................       63,918             --
Consumer........................       14,499             --
Commercial......................           --            283
                                     --------       --------

 Total..........................     $469,748       $771,328
                                     ========       ========



      Loan Solicitation and Processing. The Bank actively solicits mortgage loan
applications from existing or past customers,  customer  referrals,  real estate
brokers,  contractors,  and call-ins  and walk-ins to its offices.  The Bank has
loan  officers who  originate  mortgage,  consumer,  commercial  real estate and
construction  loans.  The Bank also advertises in local newspapers for first and
second  mortgage  loans,  home equity and  consumer  loans.  One-to-four  family
residential  mortgage  loans are also  originated in areas of Colorado where the
Bank  does  not  have  offices  through  loan  originators  who are  independent
contractors and are compensated on a commission basis.  Since 1994, the Bank has
used  these  independent  contractors  to  originate  a  significant  volume  of
one-to-four  family  mortgage  loans  in  the  Denver  metropolitan  area.  Loan
applications  originated by independent  loan originators are in compliance with
the Bank's  underwriting  policies and procedures.  For the years ended December
31, 1994, 1995, and 1996, loans originated through  independent loan originators
totalled $32.5 million, $152.7 million, and $135.6 million, respectively.

      Upon receipt of any loan application from a prospective borrower, a credit
report and other  documentation  are  ordered to  confirm  specific  information
relating to the loan applicant's  employment,  income,  and credit standing.  An
appraisal or other evaluation of the real estate intended to secure the proposed
loan is obtained.  In connection with the loan approval process, the Bank's loan
officers  analyze  the  loan  applications  and  the  property   involved.   All
residential,  multi-family,  construction,  and commercial real estate loans are
processed  at the  Bank's  main  office,  while home  equity and other  types of
consumer loans may be processed at any of the Bank's offices.  Residential first
mortgage  loans  of  up  to  $400,000  may  be  approved  (with  varying  dollar
limitations) by one of seven underwriters  designated by the Board of Directors.
Residential  first mortgage loans over $400,000 also require the approval of the
Bank's  President or the Chief Executive  Officer.  Construction  and commercial
real  estate  loans up to $400,000  may be  approved  by a specific  senior vice
president;  loans for over  $400,000 up to $750,000 also require the approval of
the President.  Construction  and commercial real estate loans for over $750,000
require the approval of the Chief Executive Officer,  and those for $1.0 million
or more require the  approval of the entire Board of Directors or the  Executive
Committee  of the  Board  of  Directors.  All  loans  purchased  by the Bank are
reviewed by senior lending  officers.  In connection with loans purchased by the
Bank, the Bank requires an appraisal,  in addition to the  information  required
for all loans originated by the Bank.

      Loan  applicants are promptly  notified of the decision of the Bank orally
or by a letter  setting  forth the  terms and  conditions  of the  decision.  If
approved,  these terms and conditions  include the amount of the loan,  interest
rate  basis,  amortization  term,  a  brief  description  of real  estate  to be
mortgaged to the

                                      12

<PAGE>



Bank, and the notice of  requirement  of insurance  coverage to be maintained to
protect the Bank's interest.  The Bank requires title, fire,  casualty and flood
(if applicable) insurance on all properties securing loans, which insurance must
be maintained during the entire term of the loan. In certain instances where the
Bank is making a small second mortgage,  and the Bank holds the performing first
mortgage,  it may not require a title policy,  but the Bank does require certain
informal  assurances  that  there  are no other  liens  superior  to the  second
mortgage.

      Loan Purchases and Sales.  The Bank  originates  adjustable  rate and less
than 15 year fixed rate  residential  mortgage  loans,  commercial  real  estate
loans,  and  construction  loans for  retention in its loan  portfolio and sells
fixed rate  residential  mortgage  loans with terms of 15 years or longer in the
secondary  market.  These loans are sold without  recourse by the Bank. The Bank
also  purchases  mortgage-backed  securities  and  adjustable  rate  residential
mortgage loans in the secondary market.

      The Bank's purchases in the secondary market are dependent upon the demand
for  mortgage  credit  in the local  market  area and the  inflow of funds  from
traditional  sources.  Purchases of loans  enable the Bank to utilize  available
funds more quickly and to obtain a yield higher than could generally be obtained
in the alternative  investment  vehicles.  The purchase of such loans is part of
the Bank's strategy to make its overall loan portfolio more sensitive to current
market conditions and interest rates.

      The Bank  purchases  owner-occupied  residential  first mortgage ARM loans
that meet the Bank's  underwriting  standards,  which generally follow FHLMC and
FNMA  guidelines,  except  that the Bank  will  generally  purchase  loans up to
$500,000, which exceeds the limit up to which FHLMC and FNMA may purchase loans.
The majority of these loans  purchased are sold by the seller without  recourse.
It is the Bank's policy not to purchase loan packages secured by a concentration
of properties in a single subdivision or condominium project.

      The Bank reviews each  purchased loan as if it were  originating  the loan
according to its underwriting standards. All loans must be documented, including
an original  appraisal that  substantiates  the value of the subject property at
the time of  origination  of the  loan.  The  Bank  obtains  from  the  seller a
duplicate copy of each original loan file, which generally  includes an executed
loan application and mortgage note,  financial  statements and credit reports of
the borrower,  appraisal and title insurance. The Bank may purchase a qualifying
loan  up to  $500,000  with  an  exposure  of up to 80%  based  on the  original
appraisal of the property.

      The Bank  purchases  only ARM loans with  interest  rates that adjust on a
monthly,  semi-annual and annual basis. Most of the ARMs are indexed to interest
rates at a margin of 250 to 275 basis points above a recognized  index,  usually
the FHLB 11th District Cost of Funds or the One Year Constant Maturity Treasury.
This cost of funds index generally lags the current market  interest rates.  The
Bank does not purchase loans that provide for negative amortization.

      Most of the loans  purchased are secured by real estate located outside of
Colorado,  including  California,  Wisconsin,  Illinois  and the East Coast.  At
December 31, 1996, the Bank's purchased loan portfolio totaled $79.1 million, or
5.9% of the loan  portfolio.  Of the  purchased  loan  portfolio at December 31,
1996, 6.0% are Colorado loans,  while the majority,  83.9%, are California loans
(of which  approximately  0.6% were nonperforming at December 31, 1996) and 9.3%
are loans in the Midwestern United States.



                                      13

<PAGE>



      The  following  table  sets  forth  total  loans and  mortgage-backed  and
asset-backed  securities  originated,  purchased,  sold,  and repaid  during the
periods indicated.

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                          ------------------------------------------
                                                              1994           1995          1996
                                                          -----------    -----------    ------------
                                                                       (In Thousands)
Total loans receivable, net at beginning
<S>                                                       <C>            <C>            <C>
  of period ...........................................   $ 1,040,413    $ 1,163,637    $ 1,242,045
                                                          -----------    -----------    -----------

Loans originated:
  One-to-four family residential ......................       159,542        232,136        235,352
  Multi-family residential and commercial real
       estate .........................................        47,399         10,660         35,504
  Construction loans ..................................        40,096         32,782         28,955
  Consumer loans ......................................        64,678         62,003         87,523
  Commercial loans ....................................         1,116          1,604          1,549
                                                          -----------    -----------    -----------
    Total loans originated ............................       312,831        339,185        388,883
                                                          -----------    -----------    -----------

Loans purchased:
  One-to-four family residential ......................        45,137         17,932             --
  Mortgage-backed securities ..........................       109,940             --         34,149
                                                          -----------    -----------    -----------
    Total loans purchased .............................       155,077         17,932         34,149
                                                          -----------    -----------    -----------

Net addition to revolving loans receivable ............           200          2,663         11,358

Loans sold:
  Whole loans sold ....................................       (23,820)        (6,468)       (25,258)
  Mortgage-backed securities ..........................            --        (24,469)            --
                                                          -----------    -----------    -----------
    Total loans sold ..................................       (23,820)       (30,937)       (25,258)
                                                          -----------    -----------    -----------

Loan principal repayments(1) ..........................      (314,235)      (250,899)      (307,554)

Other addition (reduction) to loans receivable(2)              (6,829)           464           (810)
                                                          -----------    -----------    -----------
Net loan activity .....................................       123,224         78,408        100,768
                                                          -----------    -----------    -----------

    Total loans receivable, net, at end of period......   $ 1,163,637    $ 1,242,045    $ 1,342,813
                                                          ===========    ===========    ===========
</TABLE>

-------------------------------
(1)   Includes  principal   repayments  on   mortgage-backed   and  asset-backed
      securities.
(2)   Loans transferred to real estate owned or real estate in judgement, net of
      amortization of any deferred fees, and net change in loan loss reserves.



                                      14

<PAGE>



      Loan   Commitments.   The  Bank  generally  grants   commitments  to  fund
fixed-rate,  single-family  mortgage  loans  for  periods  of up to 30 days at a
specified term and interest  rate. The Bank also makes standby loan  commitments
for up to six months for which it receives a non-refundable commitment,  usually
equal to approximately 1% of the committed funds. These six month commitments do
not normally  specify a loan rate.  The Bank also  provides  standby  letters of
credit,  for which it  charges  fees based on 1% of the loan  amount.  The total
amount of the Bank's commitments to originate real estate loans, consumer loans,
and lines and letters of credit as of December 31, 1996 was $52.4  million.  See
Note 5 of the Notes to Consolidated Financial Statements.

      Loan Servicing and Servicing  Fees. The Bank retains  servicing on most of
the  loans it sells to FHLMC and FNMA.  The Bank  also  services  all of its own
loans through a loan servicing  department  located at its main office. The loan
servicing  department  also oversees the adjustment  process on adjustable  rate
loans and performs clerical functions in regard to loan  foreclosures.  The loan
servicing   department  is  also   responsible  for  making   disbursements   on
construction  loans made by the Bank.  Site  inspections  are performed prior to
payment  of such  disbursements  in order  to  ascertain  that the  construction
process has progressed in accordance with the loan agreement.

      As of December 31, 1994,  1995, and 1996 the Bank serviced $156.5 million,
$144.1 million, and $145.6 million  respectively,  of loans serviced for others.
Loan servicing fees from the sold portfolio provided 0.36%,  0.34%, and 0.16% of
the Bank's net income for the fiscal years ended  December 31, 1994,  1995,  and
1996, respectively.

      Loan  Origination and Other Fees. In addition to interest earned on loans,
the Bank  received loan  origination  and  commitment  fees for  originating  or
purchasing  loans.  Prior to January 1, 1988,  fees for  originating  loans were
deferred for amounts in excess of the Bank's estimated cost of origination. Fees
deferred  prior to 1988 are being  amortized to income over the average lives of
the related loans using the level-interest-yield method. Any unamortized fees on
loans sold are credited to income in the year the transaction  occurs. Loan fees
received and certain direct loan origination  costs incurred on or after January
1,  1988 are  deferred  and  recognized  as an  adjustment  of yield  using  the
level-interest-yield method over the contractual life of the loans.

      The   Bank's   loan   origination   fees   generally   are  1/2  point  on
adjustable-rate residential mortgages, 3/4 to 1 point for fixed-rate residential
mortgage  loans and 1 1/2 points for  construction  and  commercial  real estate
loans.  The  total  amount of  deferred  loan  fees and net  discounts  on loans
originated and purchased as of December 31, 1996 was $2.4 million.

      The Bank also receives other fees and charges  relating to existing loans,
which  include  prepayment  penalties,  late  charges,  and  fees  collected  in
connection with a change in borrower or other loan modifications. These fees and
charges have not constituted a material source of income.


                                      15

<PAGE>



      The following  table shows loan fees and service  charges  received by the
Bank expressed as a percentage of gross and pre-tax income, as well as the total
amount of loan fees and service charges received by the Bank.

                                                     Year Ended December 31,
                                                     -----------------------
                                                     1994      1995     1996
                                                     ----      ----     ----
                                                      (Dollars in Thousands)
Loan fees and service charges as a percentage
  of gross income ..............................       0.1%     0.1%      0.2%
Loan fees and service charges as a percentage of
  pre-tax income ...............................       0.2%     0.4%      0.8%
Total loan fees and service charges ............     $  49    $  75    $  167



      Non-Performing  Loans  and Asset  Classification.  The  Bank's  collection
procedures provide that when a loan is 30 days or more delinquent,  the borrower
is contacted by mail and telephone and payment is requested.  If the delinquency
continues,  subsequent efforts will be made to contact the delinquent  borrower.
In certain instances, the Bank may modify the loan or grant a limited moratorium
on loan payments to enable the borrower to reorganize his financial affairs.  If
the loan  continues in a delinquent  status for 60 days,  the Bank will initiate
foreclosure  proceedings.  Any property acquired as the result of foreclosure or
by deed in lieu of  foreclosure  is  classified  as real estate owned until such
time as it is sold or otherwise  disposed of by the Bank.  At December 31, 1996,
the Bank had transferred loans totalling $1.5 million to real estate owned. When
real  estate  owned is  acquired,  it is  recorded  at the  lower of the  unpaid
principal  balance of the related loan or its fair market value.  Any write-down
in the property is charged to the allowance for losses.

      Loans are  reviewed  on a regular  basis and are  placed on a  non-accrual
status when, in the opinion of management, the collection of additional interest
is doubtful.  Residential mortgage loans are placed on a non-accrual status when
either  principal  or  interest  is 90 days or more  past  due.  Consumer  loans
generally  are  charged  off  when  the loan  becomes  over 90 days  delinquent.
Commercial  business and real estate loans are placed on non-accrual status when
the loan is 90 days or more past due.  Interest accrued and unpaid at the time a
loan is placed  on  non-accrual  status  is  charged  against  interest  income.
Subsequent  payments are either applied to the outstanding  principal balance or
recorded  as  interest  income,  depending  on the  assessment  of the  ultimate
collectibility of the loan.




                                      16

<PAGE>



     The following table sets forth  information  with respect to the Bank's non
performing  assets for the periods  indicated.  At such  dates,  the Bank had no
nonperforming loans (i.e., loans delinquent 90 days or more) accounted for on an
accrual basis.  During the periods  indicated the Bank had certain  restructured
loans within the meaning of Statement of Financial Accounting Standards ("SFAS")
No.  15.  Under  certain  economic  or legal  circumstances,  the Bank may grant
concessions to a borrower.  These concessions may include restructuring loans in
order to change  payment  terms,  reduce the stated  interest  rate,  reduce the
amount of interest  due, or extend the maturity  date.  The new or modified loan
constitutes  a  troubled  debt  restructuring  under  SFAS No.  15. The Bank has
adopted SFAS No. 114,  Accounting by Creditors for Impairment of a Loan,and SFAS
No. 118,  Accounting by Creditors for Impairment of a Loan - Income  Recognition
and Disclosures.  Troubled debt restructurings involving a modification of terms
are accounted for in accordance with SFAS No. 114 and SFAS No. 118.

<TABLE>
<CAPTION>
                                                                                     As of December 31,
                                                                     ----------------------------------------------
                                                                      1992      1993     1994       1995     1996
                                                                     ------    ------   ------     ------   -------
                                                                                (Dollars in Thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
<S>                                                                  <C>       <C>       <C>       <C>       <C>
 Permanent loans secured by one-to-four family dwelling units.....   $  856    $1,419    $  992    $1,706    $1,372
 Commercial real estate and multi-family .........................       --        --       199       205         5
 Non-mortgage loans:
    Commercial ...................................................       --        --        --        --        --
   Consumer ......................................................       19        60        49        49        80
                                                                                                             ------

Total non-accrual loans ..........................................      875     1,479     1,240     1,960     1,457

Real estate owned and in judgment ................................    5,903     2,491     4,230     1,647     1,457

Non-accruing federal funds sold ..................................       --        --        --       382        --
                                                                     ------    ------    ------    ------    ------

Total nonperforming assets .......................................   $6,778    $3,970    $5,470    $3,989    $2,914
                                                                     ======    ======    ======    ======    ======

Troubled debt restructuring loans:
Mortgage loans:
  Permanent loans secured by one-to-four family dwelling units....   $   --    $   --    $   --    $   --    $   --
  Commercial real estate and multi-family ........................    3,738     7,465     5,250        --        --
                                                                     ------    ------    ------    ------    ------

Total restructured loans, net ....................................   $3,738    $7,465    $5,250    $   --    $   --
                                                                     ======    ======    ======    ======    ======

Total non-accrual loans to net loans .............................     0.16%     0.24%     0.16%     0.21%     0.14%

Total non-accrual loans to total assets ..........................     0.09%     0.12%     0.10%     0.13%     0.10%

Total nonperforming assets to total assets .......................     0.70%     0.32%     0.42%     0.27%     0.19%

Total restructured loans to
  total assets ...................................................     0.38%     0.61%     0.40%       --%       --%

</TABLE>




                                       17

<PAGE>



      Management of the Bank  regularly  reviews the loan  portfolio in order to
identify potential problem loans, and classifies any potential problem loan as a
special  mention,  substandard,  doubtful,  or loss asset  according  to the OTS
classification of asset  regulations.  Potential problem loans that had not been
classified   or  had  not  been  recorded  as   non-accrual   or  troubled  debt
restructuring as of December 31, 1996 were insignificant.

      OTS regulations  provide for savings  associations to classify their loans
and other assets as substandard,  doubtful or loss assets.  Assets classified as
substandard  are  inadequately  protected  by the  current  net worth and paying
capacity of the obligor or the pledged collateral. They are characterized by the
distinct  possibility  that  the  association  will  sustain  some  loss  if the
deficiencies  are not  corrected.  Assets  classified  as doubtful  have all the
weaknesses of those classified as substandard with the additional characteristic
that the weaknesses make  collection or liquidation in full highly  questionable
and improbable.  Assets  classified as loss are considered  uncollectible and of
such little value that their  continuance as assets without the establishment of
a specific  reserve is not  warranted.  Assets  that do not  currently  expose a
savings association to a sufficient degree of risk to warrant classification but
do possess credit deficiencies or potential  weaknesses  deserving  management's
close attention are designated  "special mention." Special mention assets have a
potential weakness or pose an unwarranted financial risk that, if not corrected,
could weaken the asset and increase risk in the future.  All  classified  assets
are recorded at fair market value.

      Classified  Assets  and Loss  Allowances.  The  following  table  provides
further  information on the Bank's classified and nonperforming  assets and loan
loss allowances.


                                                       As of December 31,
                                                   ---------------------------
                                                    1994      1995      1996
                                                   ------    ------    -------
                                                         (In Thousands)
Substandard .......................................$10,993   $ 4,087   $ 8,603
Doubtful ..........................................     --        --        --
Loss ..............................................    674       778        --
                                                   -------   -------   -------
    Total .........................................$11,667   $ 4,865   $ 8,603
                                                   =======   =======   =======

Special Mention Assets ............................$ 2,309   $11,697   $ 6,138
                                                   =======   =======   =======

Allowance for losses on loans .....................$ 3,310   $ 2,926   $ 3,850
Allowance for estimated losses on real estat owned.  1,105       912       691
                                                   -------   -------   -------
    Total loss allowance ..........................$ 4,415   $ 3,838   $ 4,541
                                                   =======   =======   =======


      As of December 31, 1996, the Bank's total classified  assets with balances
in excess of $500,000 totalled $12.4 million.  The following is a summary of the
Bank's  classified assets with balances in excess of $500,000 as of December 31,
1996, or later, if such information was available.  All of the classified assets
are either special mention, substandard or real estate owned. The net realizable
values or the fair values on these  classified  assets are  determined  at least
annually  based on cash flow from the  properties and the condition of the local
real estate market.


                                      18

<PAGE>



      Special Mention
      ---------------

      Denver  Apartment  Complex.  The property is a 78 unit  apartment  complex
located in Denver, Colorado. The original balance on this loan was $1.3 million,
and the  origination  date was May 4, 1982. The loan is special  mention with an
interest  rate of 7.6% and a remaining  balance of $1.17  million as of December
31, 1996. The fair value as of February 2, 1996 was $1.38  million.  The loan is
classified because the loan rate was previously modified to a below market rate.
At December  31,  1996,  the loan was at a market  rate and has been  performing
since March 1992.

      Office and Retail  Building in  Littleton.  The  property is an office and
retail building  located in Littleton,  Colorado.  The original loan balance was
$1.6 million,  and the  origination  date was June 4, 1986.  The loan is special
mention with a current  interest rate of 7.25% and a remaining  balance of $1.16
million as of December 31, 1996. The fair value as of January 17, 1995 was $1.16
million. The loan is classified because the rate was below market and the status
was uncertain for a time  following the death of one of the partners.  Since the
modification  went into effect,  the loan has been  performing  according to the
terms of that  modification,  and at December 31, 1996, the loan was at a market
rate. The heirs of the deceased partner have assumed this loan.

      Wheat Ridge Office Building. This is a four-story office building in Wheat
Ridge,  Colorado. The original loan balance was $5.1 million and the origination
date was June, 1988. The loan balance was $3.75 million as of December 31, 1996.
It had been  classified  substandard  because of problems within the partnership
that obtained the loan,  including the  bankruptcy of one partner.  The loan was
reclassified  as special  mention  during the second quarter of 1995. One of the
original partners has assumed the loan and is managing the property.  There is a
large  junior lien behind the Bank's  investment,  and this junior  lienor could
possibly step in and take the property over in the event of a default.  The loan
was current at  December  31,  1996.  The fair value of the  property  was $4.76
million  at  April  30,  1996.  The loan  has  performed  as  agreed  since  its
assumption.

      Guardian  Savings  and  Loan  Association  Pass  Through   Mortgage-Backed
Security 1989-3A.  This mortgage-backed  security was issued by Guardian Savings
and Loan  Association in 1989 and was reclassified as special mention during the
first  quarter  of 1996.  The Bank  bought a  portion  of the  security  with an
original face amount of $5.0 million in June 1989. The remaining balance of this
portion was 575,000 as of December 31, 1996. The security was classified special
mention  because loans in foreclosure and real estate owned backing the security
reached an unacceptable  level.  In addition,  Moody's has lowered the rating on
the security from an original  rating of Aa2 to A3.  Although  credit support of
the security has  diminished,  at December 20, 1996 there  apparently  was still
enough support to protect the senior piece of the security, which the Bank owns.
At December 31, 1996, the Bank had received all payments due on a timely basis.

      Substandard
      -----------

      Dime Bank,  FSB Pass Through  Mortgage-Backed  Securities  1988 - 1A. This
mortgage-backed  security  was  issued  by  Dime  Bank,  FSB,  in  1988  and was
reclassified  as  special  mention  during the first  quarter of 1995.  The Bank
bought a portion of the security  with an original  face amount of $10.0 million
in November  1988 and a portion with an original  face amount of $5.5 million in
January 1990. The remaining  balances on these two portions of the security were
$3.1  million and $1.7  million,  respectively,  as of December  31,  1996.  The
securities  were  classified  substandard  because loans in foreclosure and real
estate owned backing the securities reached an unacceptable  level. In addition,
Moody's has lowered the rating on the security from an original rating of Aa2 to
Baa1. Although credit support for the security

                                       19

<PAGE>



has diminished,  at November 21, 1996 there  apparently was still enough support
to protect the senior piece of the  security,  which the Bank owns.  At December
31, 1996, the Bank had received all payments due on a timely basis.

      Real Estate Owned
      -----------------

      Vacant Land in Littleton.  The property is vacant land with a large parcel
located in Littleton,  Colorado, and a small parcel located in Aurora, Colorado.
The original loan balance was $2.8 million,  and the origination  date was April
24, 1989.  The property is now real estate owned with a carrying  value of $1.18
million as of December 31,  1996.  The fair value as of January 4, 1995 was $1.2
million.

      Allowance for Losses on Loans.  In making loans,  the Bank recognizes that
credit  losses  will be  experienced  and that the risk of loss will vary  with,
among other things,  the type of loan being made,  the  creditworthiness  of the
borrower  over the term of the loan  and,  in the case of a  secured  loan,  the
quality of the security for the loan. The Bank's  management  evaluates the need
to establish  reserves against losses on loans and other assets each month based
on  estimated  losses on specific  loans and on any real estate held for sale or
investment  when a finding is made that a loss is estimable and  probable.  Such
evaluation  includes a review of all loans for which full collectibility may not
be reasonably assured and considers,  among other matters,  the estimated market
value of the  underlying  collateral of problem  loans,  prior loss  experience,
economic  conditions,  and overall portfolio  quality.  In addition,  management
provides a general  allowance for estimated loan losses that is not specifically
allocated to identified problem loans, based on several factors,  including loss
experience and business and economic conditions. These provisions for losses are
charged  against  earnings  in the  year  they  are  established.  Based on past
experience and future expectations, management feels that loan loss reserves are
adequate.  However, there can be no assurance that further additions will not be
made to the loss  allowances  or that such losses will not exceed the  estimated
amounts.

      As a  result  of the  declines  in  real  estate  market  values  and  the
significant losses experienced by many financial institutions,  there has been a
greater level of scrutiny by regulatory  authorities  of the loan  portfolios of
financial institutions nationwide,  undertaken as part of the examination of the
institution  by the FDIC, OTS or other federal or state  regulators.  Results of
recent  examinations  indicate  that  these  regulators  may  be  applying  more
conservative criteria in evaluating real estate values,  requiring significantly
increased provisions for loan losses. While the Bank believes it has established
its existing  allowance for loan losses in accordance with GAAP, there can be no
assurance  that  regulators,  in reviewing the Bank's loan  portfolio,  will not
request  the Bank to  significantly  increase  its  allowance  for loan  losses,
therefore negatively affecting the Bank's financial condition and earnings.


                                      20

<PAGE>



      The following  table sets forth certain  information  regarding the Bank's
allowances for loan losses for the periods indicated.

<TABLE>
<CAPTION>

                                                                                As of December 31,
                                                    ---------------------------------------------------------------------------
                                                       1992            1993             1994           1995            1996
                                                      ------          ------           ------         -------          -----
                                                                              (Dollars in Thousands)
<S>                                                 <C>             <C>             <C>             <C>             <C>
Total loans outstanding(1) ......................   $   545,382     $   606,543     $   759,943     $   931,159     $ 1,061,524
                                                    ===========     ===========     ===========     ===========     ===========

Average loans outstanding .......................   $   540,525     $   578,284     $   679,236     $   868,948     $   998,024
                                                    ===========     ===========     ===========     ===========     ===========


Allowance for loan losses - beginning ...........   $     3,187     $     3,333     $     3,575     $     3,310     $     2,926

Provision (credit) for loan losses(2) ...........         1,297             193            (411)           (495)          1,143
Recoveries ......................................           120             133             203             232              86
Charge-offs .....................................        (1,271)            (84)            (57)           (121)           (305)
                                                    -----------     -----------     -----------     -----------     -----------
Allowance for loan losses - ending ..............   $     3,333     $     3,575     $     3,310     $     2,926     $     3,850
                                                    ===========     ===========     ===========     ===========     ===========

Allowance for loan losses as a
  percentage of total loans outstanding .........          0.61%           0.59%           0.44%           0.31%         0.36 %
Allowance for loan losses as a
  percentage of non-performing loans ............           381%            242%            267%            149%          264 %
Net loans recovered (charged-off) as a percentage
  of average loans outstanding ..................         (0.21)%          0.01%           0.02%           0.01%          (0.02)%

</TABLE>

----------------
(1)   Excludes mortgage and other asset-backed securities.
(2)   The established allowance for loan losses is predominately related to real
      estate mortgage loans. As a result,  the activities of provision  (credit)
      for losses, charge-offs,  and recoveries are also predominately related to
      those same loans.


      The following  table sets forth certain  information  regarding the Bank's
allowance for possible real estate owned losses for the periods indicated.

<TABLE>
<CAPTION>
                                                                  As of December 31,
                                               -------------------------------------------------------
                                                1992        1993        1994        1995         1996
                                               -------     -------     -------     -------     -------
                                                 (Dollars in Thousands)

<S>                                            <C>         <C>         <C>         <C>         <C>
Total real estate owned and in judgment, net   $ 5,903     $ 2,491     $ 4,230     $ 1,647     $ 1,457
                                               =======     =======     =======     =======     =======

Allowance balances - beginning .............   $ 2,262     $ 1,907     $ 1,159     $ 1,105     $   912
Provision for losses .......................       797         172         448         (95)          3
Charge-offs ................................    (1,152)       (920)       (502)        (98)       (224)
                                               -------     -------     -------     -------     -------
Allowance balances - ending ................   $ 1,907     $ 1,159     $ 1,105     $   912     $   691
                                               =======     =======     =======     =======     =======

Allowance for losses on real estate owned
  and in judgment to net real estate owned
  and in judgment ..........................     32.31%      46.53%      26.12%      55.37%      47.43%

</TABLE>



                                      21

<PAGE>



Investment Activities

      Income from investment  securities provides a significant source of income
for the Bank.  The Bank maintains a portfolio of investment  securities  such as
U.S.  government and agency  securities,  non-government  securities,  including
corporate  bonds and  certificates  of deposit  securities  (in  addition to the
Bank's mortgage-backed and asset-backed securities portfolio, which is discussed
above  under  "  -  Lending   Activities  -  Mortgage-Backed   and  Asset-Backed
Securities".)  The Bank is required by federal  regulation to maintain a minimum
percentage of its liquidity  base in the form of qualifying  long and short-term
liquid assets.  Currently, the liquidity requirement is 5%, of which at least 1%
must be held in the form of  short-term  liquid assets such as  certificates  of
deposit, federal funds, banker's acceptances,  discount notes, commercial paper,
time deposits and short-term  treasury and agency debt securities,  all of which
are subject to certain  creditworthiness  and  ratings  criteria.  In  addition,
longer term corporate, agency and government debt securities may be held subject
to similar  creditworthiness,  ratings and maturity criteria. As of December 31,
1996, the Bank exceeded both the 5% liquidity  requirement and the 1% short-term
liquidity  requirement with a liquidity ratio of 9.7% and a short-term liquidity
ratio of 7.7%.  The  balance of  short-term  security  investments  in excess of
regulatory  requirements  reflects  management's  response to the  significantly
increasing  percentage  of savings  deposits  with short  maturities.  It is the
intention of management to maintain shorter  maturities in the Bank's investment
portfolio in order to better match the interest rate sensitivities of its assets
and liabilities.  However,  during periods of rapidly declining  interest rates,
the yield on such  investments also decline at a faster rate than does the yield
on long-term investments.

      Investment decisions are made within policy guidelines  established by the
Board of Directors and the Asset/Liability  Committee.  As of December 31, 1996,
the Bank's investment portfolio,  including unamortized premiums, totalled $72.7
million.

      At December  31, 1996,  the Bank's  investments  included  $9.5 million of
callable  Federal  Agency  instruments.  While  the  Bank  projects  that  these
instruments will be called before their stated maturity date, the Bank does have
the ability to hold these instruments to maturity.

      At December 31, 1996,  the Bank held the  following  three  step-up  bonds
which are considered structured notes by the OTS:

      FHLB Variable Rate Structured Note (one position) with total par, book and
market  values  of  $1,500,000,  $1,500,000,  and  $1,496,250,  respectively  at
December 31, 1996.  The bond has a variable rate which adjusts  quarterly at one
half the 10 year  constant  maturity  treasury,  plus 1.25%.  The note carries a
coupon  floor of 5.0% and a ceiling of 24.0%.  The bond has a current  coupon of
5.0% at December  31, 1996 and a stated  maturity of April 2, 1998.  The bond is
discretely callable every three months until maturity.

      FHLB Variable Rate Structured Note (one position) with total par, book and
market  values  of  $5,000,000,  $4,999,408,  and  $5,000,000,  respectively  at
December 31, 1996.  The bond has a variable rate which adjusts  quarterly at one
half the 10 year  constant  maturity  treasury,  plus 1.50%.  The note carries a
coupon floor of 4.50% and a ceiling of 24.0%.  The bond has a current  coupon of
4.59% at December 31, 1996 and a stated  maturity of February 25, 1998. The bond
is discretely callable every three months until maturity.


                                      22

<PAGE>



      FHLB  Step-up  Structured  Note (one  position)  with total par,  book and
market  values  of  $2,000,000,  $2,013,306,  and  $2,009,560,  respectively  at
December 31,  1996.  The bond has a current  coupon of 6.375%  until  October 7,
1997, at which time the coupon steps-up to 7.25% until maturity.  The bond has a
stated  maturity of October 7, 1999. The bond is discretely  callable on October
7, 1997.

      Commencing  in 1992,  the Bank  sold  $1.0  million  in  Federal  funds to
Nationar,  a New York  State-chartered  trust company.  On February 6, 1995, the
Superintendent of Banks of the State of New York took possession of the business
and property of Nationar.  The Bank  subsequently  wrote down its  investment in
Nationar to $382,500 and filed a proof of claim with the  Superintendent for the
monies due, totalling $1.0 million. The claim was recovered in full in 1996.

      The Bank  prospectively  adopted  the  provisions  of SFAS No.  115, as of
January 1,  1994.  Under  SFAS No.  115,  the Bank  classifies  its  investment,
mortgage-backed,  and other asset-backed  securities in one of three categories:
trading, available-for-sale, or held-to-maturity.  Trading securities are bought
and  held  principally  for  the  purpose  of  selling  them in the  near  term.
Held-to-maturity  securities  are  those  securities  in which  the Bank has the
ability and intent to hold the security until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale.

      Held to maturity  securities are recorded at amortized cost,  adjusted for
the   amortization   or  accretion  of  premiums  or   discounts.   Trading  and
available-for-sale  securities  are recorded at fair value.  Unrealized  holding
gains and losses on trading  securities  are  included in  earnings.  Unrealized
holding gains and losses,  net of the related tax effect, on  available-for-sale
securities  are excluded from earnings and are reported as a separate  component
of  stockholders'  equity  until  realized.   Transfers  of  securities  between
categories  are recorded at fair value at the date of transfer.  Transfers  from
the held-to-maturity category are only appropriate in limited circumstances.

      Realized gains and losses for securities  classified as available-for-sale
and  held-to-maturity  are  recognized  in earnings  upon sale or  redemption at
maturity.  The specific  identification  method is used to determine the cost of
securities  sold.  Discounts or premiums are  accredited or amortized  using the
level-interest-yield  method  to the  earlier  of call date or  maturity  of the
related held-to-maturity security.


                                      23

<PAGE>



      The following  table sets forth certain  information  regarding the Bank's
investments at the dates indicated.

<TABLE>
<CAPTION>
                                                                         As of December 31,
                                                        -----------------------------------------------------
                                                           1992      1993       1994       1995       1996
                                                        ---------  --------   --------   --------   ---------
                                                                          (In Thousands)
Investment Securities:

<S>                                                     <C>        <C>        <C>         <C>       <C>
U.S. government obligations .........................   $ 15,012   $ 20,999   $ 10,725    $ 8,015   $     --
Federal agency obligations ..........................     34,164     30,135     45,194     70,078     71,629
Obligations of state and political subdivisions......      3,037      1,004         --         --         --
Corporate notes .....................................     21,021     25,188      5,016         --         --
Commercial paper ....................................         --         --         --         --         --
Export/import notes .................................      5,765      4,062         --         --         --
Foreign bank obligations ............................      1,000        999      1,000         --         --
FHLMC stock .........................................        372        372        249        418        552
FNMA stock ..........................................         --        153        157        268        326
Other equity investments ............................         --         --         --         --        234
                                                        --------   --------   --------   --------   --------
Total investment securities .........................     80,371     82,912     62,341     78,779     72,741
                                                        --------   --------   --------   --------   --------

Other Investments:

FHLB of Topeka stock ................................      6,932      6,693      7,745      8,829      9,554
Federal funds sold ..................................     18,400     25,800      1,000     80,483     15,000
Other interest-earning assets .......................      6,823      4,159      7,828      6,097     12,777
Investment in property tax certificates .............        255         53         36         21          6
                                                        --------   --------   --------   --------   --------

Total other investments .............................     32,410     36,705     16,609     95,430     37,337
                                                        --------   --------   --------   --------   --------
Total investments ...................................   $112,781   $119,617   $ 78,950   $174,209   $110,078
                                                        ========   ========   ========   ========   ========

</TABLE>



                                      24

<PAGE>



      The following table sets forth certain information  regarding the carrying
values, weighted average yields and expected maturities of the Bank's investment
securities  portfolio as of December 31, 1996.  Expected  maturities  may differ
from  contractual  maturities,  because  issuers may have the right to call some
obligations  without penalty.  Market Value  adjustments  recorded in compliance
with SFAS No.  115 are now  considered  when  computing  the  yields and cost of
securities.

<TABLE>
<CAPTION>

                                                                      As of December 31, 1996
                             -------------------------------------------------------------------------------------------------------
                             One Year or Less  One to Five Years  Five to Ten Years More Than Ten Years          Securities
                             ---------------- ------------------ -----------------  -------------------  ---------------------------
                             Carrying Average Carrying   Average Carrying  Average   Carrying  Average   Carrying  Average  Market
                              Value    Yield    Value     Yield   Value     Yield     Value     Yield     Value     Yield   Value
                             -------  -------  -------   ------- -------   -------   -------   -------   -------   ------- --------
                                                                     (Dollars in Thousands)

Investment securities held
  to maturity:
<S>                          <C>       <C>     <C>        <C>    <C>          <C>    <C>          <C>     <C>        <C>   <C>
U.S. Government Obligations  $    --     -- %  $    --      --%  $   --       --%    $   --       --%     $    --      --% $    --
Federal Agency Obligations.   49,091   6.02     12,551    6.27       --       --         --       --       61,642    6.07    61,701
FHLMC Stock................       --     --         --      --       --       --         --       --           --      --        --
FNMA Stock.................       --     --         --      --       --       --         --       --           --      --        --
Other Equity Investments...       --     --         --      --       --       --         --       --           --      --        --
                             -------   ----    -------    ----   ------     ----     ------     ----      -------    -----  -------
     Total Held-To-Maturity
      Securities...........  $49,091   6.02%   $12,551    6.27%  $   --       --%    $   --       --%     $61,642    6.07%  $61,701
                             =======   ====    =======    ====   ======     ====     ======     ====      =======    ====   =======

Investment Securities
  Available-for-Sale:
U.S. Government Obligations  $    --     --%   $    --      --%  $   --       --%    $   --       --%     $    --      --%  $    --
Federal Agency Obligations.    5,000   4.39      4,987    4.50       --       --         --       --        9,987    4.44     9,987
FHLMC Stock................      552   1.27         --      --       --       --         --       --          552    1.27       552
FNMA Stock.................      326   2.02         --      --       --       --         --       --          326    2.02       326
Other Equity Investments...      234   1.09         --      --       --       --         --       --          234    1.09       234
                             -------   ----    -------    ----   ------     ----     ------     ----      -------    -----  -------
     Total Available-for-
      Sale.................  $ 6,112   3.85%    $ 4,987   4.50%  $   --       --%    $   --       --%     $11,099   4.14%   $11,099
                             =======   ====    =======    ====   ======     ====     ======     ====      =======    ====   =======
     Total Investment
      Securities...........  $55,203   5.78%    $17,538    5.77%  $  --      -- %    $   --       --%     $72,741   5.78%   $72,800
                             =======   ====    =======    ====   ======     ====     ======     ====      =======    ====   =======
</TABLE>





                                       25

<PAGE>



Sources of Funds

      General. Deposits are the major source of the Bank's funds for lending and
other investment purposes. In addition to deposits,  the Bank derives funds from
loan and mortgage-backed  securities principal repayments, and proceeds from the
sale of loans,  mortgage-backed  securities and investment securities.  The Bank
has relied to an increasing  extent on borrowings from the FHLB of Topeka and as
of December 31, 1996 had $122.5 million of such borrowings outstanding. The Bank
also has derived funds from the issue of mortgage-backed bonds in 1988 and as of
December  31,  1996  had  $5.0  million  of  such  bonds  outstanding.  See  " -
Borrowings"  and  "  -  Subsidiaries  and  Joint  Venture  Activity."  Loan  and
mortgage-backed  securities  payments are a relatively  stable  source of funds,
while deposit inflows are significantly influenced by general interest rates and
money  market  conditions.  Borrowings  may be used  on a  short-term  basis  to
compensate for reductions in the availability of funds from other sources.  They
also may be used on a longer term basis for general business purposes.

      Deposits.  The Bank offers a wide variety of deposit accounts,  although a
majority of such deposits are in fixed-term,  market-rate  certificate accounts.
Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds must  remain on  deposit,  and the  applicable
interest rate.

      Fixed-term  certificates have been the primary sources of new deposits for
the Bank and as of December 31, 1996, such certificates represented 58.5% of the
Bank's deposit accounts.  As of December 31, 1996,  $221.8 million,  or 19.5% of
the Bank's deposit  portfolio  consisted of money market rate deposit  accounts.
Fixed-term,  market-rate  certificates  with  terms of 13 to 24  months  are the
second  largest  individual  source  of  deposit  funds  for the  Bank and as of
December  31,  1996,  represented  $191.2  million,  or  16.8%  of  the  deposit
portfolio.  The third largest  category of deposits are 7 to 12 month fixed-term
market-rate  certificates  which  constituted  $178.5  million  or  15.7% of the
portfolio.

      The Bank also offers standardized individual retirement accounts ("IRAs"),
as well as qualified  defined master plans for self employed  individuals.  IRAs
are marketed in the form of an 18-month  variable  interest  rate account with a
minimum balance of $1,000 with the rate based on 90 day U.S.  Treasury Bills and
three-year  fixed-rate  accounts with a minimum balance of $2,000, with the rate
based on three-year U.S. Treasury Note. The rates adjust quarterly.

      The Bank  intends to  continue to  emphasize  retail  deposits,  including
checking,  certificates of deposit,  savings  accounts and IRAs. The Bank had no
brokered  certificates of deposit as of December 31, 1996.  Institutional  jumbo
certificates  of deposit may be solicited on a limited basis. As of December 31,
1996, the Bank had $36.9 million of Colorado State Deferred  Compensation  Funds
in deposit  accounts.  State employees can open accounts at the Bank and deposit
deferred compensation funds.

      The  Bank  pays  interest  rates  on its  certificate  accounts  that  are
competitive in its market,  but does not attempt to pay the highest rates in its
market area. Interest rates on deposits are set bi-weekly by the Bank's division
managers committee, which consists of the Bank's seven senior officers, based on
a combination  of factors  including:  (i) the previous  week's deposit flows by
product;  (ii) a current survey of a selected group of competitors'  products of
similar term and type;  (iii) current  yields on U.S.  Treasury  offerings  with
terms  similar to the Bank's  products;  (iv) new  account  activity  during the
previous  week;  (v)  overall  cost of  deposits;  (vi)  external  data that may
influence interest rates, including securities markets trends, the policy of the
Board of Governors of the Federal Reserve System (the "Federal  Reserve Board"),
and federal government releases of statistics on national economic  performance,
inflation, and money supply; (vii) investment opportunities and loan demand; and
(viii) schedule of maturities by term.


                                      26

<PAGE>



      Deposit  Portfolio.  Deposits in the Bank as of December  31,  1996,  were
represented by various types of savings programs  described below. % of Interest
Minimum Balance Total Category Term Rate Amount (In Thousands) Deposits

<TABLE>
<CAPTION>


<S>                     <C>                   <C>          <C>       <C>             <C>
NOW accounts            None                  1.97%        $100      $  110,294      9.71%
Regular savings         None                  2.71          100          92,945       8.18
Money market accounts   None                  4.17          100         221,824      19.53
Noninterest deposits    None                    --          100          46,544       4.10

Certificates of
  deposit:
Fixed term, fixed rate  1 - 3 months          4.42          500          10,063       0.89
Fixed term, fixed rate  4 - 6 months          4.93          500          56,941       5.01
Fixed term, fixed rate  7 - 12 months         5.27          500         178,500      15.71
Fixed term, fixed rate  13 - 24 months        5.53          500         191,235      16.84
Fixed term, fixed rate  25 - 36 months        5.88          500          53,923       4.75
Fixed term, fixed rate  37 - 48 months        5.07          500          23,373       2.06
Fixed term, fixed rate  49 - 120 months       6.01          500          98,064       8.63
Fixed term, variable
  rate                  25 - 36 months        6.12          500          44,022       3.88
Jumbo certificates                            5.24      100,000           8,095       0.71
                                                                     ----------    -------
Total                                                                $1,135,823     100.00%
                                                                     ==========    ======
</TABLE>


      Time Deposits by Rate and Time  Maturity.  The following  table sets forth
the time deposits in the Bank classified by rates as of the dates indicated.

                                             As of December 31,
                                   ----------------------------------------
                                     1994           1995            1996
                                   ----------     -----------    ----------
                                             (In Thousands)
Weighted Average Rate
   2.01 -  3.00%.............      $   1,665      $       4      $       4
   3.01 -  4.00%.............        122,603         12,942             --
   4.01 -  5.00%.............        142,843        144,416        138,716
   5.01 -  6.00%.............        171,346        327,268        401,190
   6.01 -  7.00%.............         98,961        130,147        123,116
   7.01 -  8.00%.............         18,829         11,911            248
   8.01 -  9.00%.............            904            875            622
   9.01 - 10.00%.............            809            665            314
  10.01 - 11.00%.............            627             --             --
  11.01 - 12.00%.............            419             --             --
  12.01% or more.............              5              5              6
                                    --------       ---------      --------
    Total....................       $559,011       $628,233       $664,216
                                    ========       ========       ========



                                       27

<PAGE>



      Time Deposit Maturity Schedule.  The following table sets forth by various
rate categories the amount and the periods to maturity of the Bank's certificate
accounts outstanding as of December 31, 1996.

<TABLE>
<CAPTION>

                                              As of December 31, 1996
                                                 Amount Due Within
                         -----------------------------------------------------------------
                          Less than                               Greater than
                           1 Year      1-2 Years      2-3 Years      3 Years         Total
                         ----------    ---------      ---------    -----------     -------
                                                    (In Thousands)

Weighted Average Rate
<S>                       <C>          <C>            <C>             <C>          <C>
  2.01 - 3.00%.......     $      --    $      --      $      --       $      4     $       4
  3.01 - 4.00%.......            --           --             --             --            --
  4.01 - 5.00%.......        97,787       37,095          3,734            100       138,716
  5.01 - 6.00%.......       234,247      128,400         17,114         21,429       401,190
  6.01 - 7.00%.......        75,483       13,084          1,152         33,397       123,116
  7.01 - 8.00%.......            91           60             14             83           248
  8.01 - 9.00%.......             7           95            520             --           622
  9.01 - 10.00%......            --           --            314             --           314
  10.01 or more......            --           --             --              6             6
                            -------      -------         ------         ------       -------
    Total............     $ 407,615    $ 178,734      $  22,848      $  55,019    $  664,216
                            =======      =======         ======         ======       =======

</TABLE>



      Jumbo Certificate Maturities. The following table indicates as of December
31, 1996, the amount of the Bank's  certificates  of deposit of $100,000 or more
by time remaining until maturity.

Maturity Period                        Balance
---------------                        -------
                                    (In Thousands)

Three Months or Less.........           $4,057
Three Through Six Months.....            2,050
Six Through Twelve Months....            1,390
Over Twelve Months...........              598
                                         -----
Total........................           $8,095
                                         =====



                                        28

<PAGE>



      Deposit Flow.  The following  table sets forth the change in dollar amount
of savings deposits in the various types of savings accounts offered by the Bank
between the dates indicated.

<TABLE>
<CAPTION>
                                              Balance at    Percent  Balance at   Percent   Increase  Balance at   Percent  Increase
                                              December 31,    of     December 31,   of     (Decrease) December 31   of    (Decrease)
                                                 1994      Deposits     1995     Deposits   1994-1995    1996     Deposits 1995-1996
                                              ------------ --------  ----------- ---------  --------- ----------- --------- --------
                                                                                     (In Thousands)

<S>                                          <C>             <C>     <C>            <C>   <C>       <C>            <C>   <C>
Noninterest bearing deposits ................$   40,286      3.95%   $   45,393     4.20% $  5,107  $   46,544     4.10% $  1,151
NOW, Super NOW, and other transaction
  accounts...................................    99,093      9.73       100,077     9.26       984     110,294     9.71    10,217
Money Market deposit accounts ...............   225,191     22.10       214,486    19.85   (10,705)    221,824    19.53     7,338
Regular savings accounts ....................    95,106      9.34        92,100     8.53    (3,006)     92,945     8.18       845
Less than 7 month fixed rate, fixed
  maturity deposits..........................    67,110      6.59        70,868     6.56     3,758      67,004     5.90    (3,864)
7 - 12 month fixed rate, fixed maturity
  deposits...................................   165,136     16.21        98,139     9.08   (66,997)    178,500    15.72    80,361
13 - 36 month fixed rate, fixed maturity
  deposits...................................   171,218     16.81       271,949    25.18   100,731     245,158    21.58   (26,791)
13 - 36 month variable rate, fixed maturity
  deposits...................................    69,381      6.81        62,431     5.78    (6,950)     44,022     3.88   (18,409)
Greater than 36 month fixed rate, fixed
  maturity deposits..........................    80,017      7.86       119,491    11.06    39,474    121,437     10.69     1,946
Jumbo accounts and brokered deposits ........     6,149      0.60         5,355     0.50      (794)      8,095     0.71     2,740
                                             ----------    ------    ----------   ------  --------  ----------   ------  --------
     Total ..................................$1,018,687    100.00%   $1,080,289   100.00% $ 61,602  $1,135,823   100.00% $ 55,534
                                             ==========    ======    ==========   ======  ========  ==========   ======  ========

</TABLE>


                                       29

<PAGE>



      Savings  Deposit  Activity.  The  following  table sets forth the  savings
activities of the Bank for the periods  indicated.

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                      --------------------------------------------------------------
                                                         1992          1993        1994        1995        1996
                                                         ----          ----        ----        ----        ----
                                                                              (In Thousands)

<S>                                                   <C>          <C>          <C>          <C>          <C>
Deposits and accrued interest purchased ............  $       --   $  162,236   $      --    $      --    $     --

Deposits and accrued interest sold .................          --           --     (45,608)          --          --

Net deposits received,
   less deposits withdrawn .........................     (30,599)       1,104         (25)      18,236      11,533

Interest credited ..................................      33,752       30,975      32,537       43,366   $  44,001
                                                       ---------    ---------   ---------    ---------   ---------

Net increase (decrease) in savings deposits.........  $    3,153   $  194,315   $ (13,096)   $  61,602   $  55,534
                                                       =========    =========   =========    =========   =========
</TABLE>

      Borrowings.  Although deposits are the Bank's primary source of funds, the
Bank's policy has been to utilize  borrowings as an  alternative  or less costly
source  of  funds.  The Bank  obtains  advances  from the  FHLB of  Topeka.  See
"Regulation  of the Bank - Federal Home Loan Bank  System."  These  advances are
collateralized  by the capital of the FHLB of Topeka  stock held by the Bank and
certain  of the  Bank's  mortgage  loans and  mortgage-backed  securities.  Such
advances are made pursuant to several  different credit programs,  each of which
has its own interest rate and range of  maturities.  The maximum amount that the
FHLB of Topeka will  advance to member  institutions,  including  the Bank,  for
purposes  other  than  meeting  withdrawals,  fluctuates  from  time  to time in
accordance  with the  policies  of the OTS and the FHLB of Topeka.  The  maximum
amount of FHLB of Topeka advances to a member  institution  generally is reduced
by borrowings from any other source. As of December 31, 1996, the Bank's FHLB of
Topeka  advances   totalled  $  122.5  million,   representing   9.4%  of  total
liabilities.  Of these  advances,  at December 31, 1996,  $50.1 million are at a
rate of 6.05%  and  mature  in 1997,  $36.4  million  are at a rate of 6.17% and
mature in 1998,  $4.0  million  are at a rate of 7.96% and  mature in 1999,  and
$32.0 million are at a rate of 6.58% and mature in 2000.  The Bank has a blanket
pledge  with the FHLB of Topeka and has pledged all of its stock in the FHLB and
all  otherwise  unpledged  or  unencumbered  federal  funds  sold,  U.S.  agency
securities,  certain qualifying loans, and mortgage-backed  securities to secure
these advances as of December 31, 1996.

      In 1988, the Bank formed a finance  subsidiary,  First Savings  Securities
Company  ("FSSC"),   for  the  sole  purpose  of  borrowing  funds  through  the
participation  in a REMIC issued by Ryland  Acceptance  Corporation.  REMICs are
bonds collateralized by mortgage-backed  securities. See "- Lending Activities -
Mortgage-Backed  and Asset-Backed  Securities" for a more detailed discussion of
REMICs and the risks related  thereto.  The original amount borrowed through the
REMIC bond on March 1, 1988 and the amounts  outstanding as of December 31, 1996
were $22.0 million and $5.0 million, respectively. The REMIC bonds, which have a
fixed rate of interest of 8.75%, were secured by mortgage-backed securities with
carrying and market values of $5.6 million and $5.8 million, respectively, as of
December 31, 1996. The original bonds were scheduled to retire as follows: $11.9
million in 2005,  $2.4 million in 2007, $6.3 million in 2011 and $1.4 million in
2019;  however,  the  actual  timing of the  retirement  of the  REMIC  bonds is
dependent  upon  mortgage  prepayments  and  reinvestment  rates.  The increased
retirement  of  the  REMIC  bonds  is  due  to  accelerated  prepayments  of the
underlying  mortgage-backed  securities collateral due to the decrease in market
interest rates. Unamortized bond issue costs amounted to $176,000 as of December
31, 1996. See Note 12 of Notes to Consolidated Financial Statements.


                                      30

<PAGE>



      As of December 31, 1996,  the Bank had unsecured  lines of credit in place
with two commercial  banks located in Colorado through which the Bank may borrow
a total of $8.0 million.  The Bank utilizes these lines of credit to buy federal
funds in order to meet its short term liquidity needs.  Longer term arrangements
for funds can be made with these banks, if needed, on a secured basis.

      The Bank has also  borrowed  funds in the past  through the use of reverse
repurchase agreements,  although it did not have any such borrowings outstanding
during the fiscal years ended December 31, 1994, 1995, and 1996.

      The following tables set forth certain information regarding borrowings by
the Bank.


                                                 As of December 31,
                                        ---------------------------------------
                                        1994           1995            1996
                                        ----           ----            ----

Weighted average rate paid on:
  FHLB advances..................       5.662%         6.549%          6.285%
  REMIC issued...................       8.750          8.750           8.750
  ESOP loan......................       9.000          8.500 (1)       8.750 (1)
  Loan from Company (1)..........          --          5.540           6.120


<TABLE>
<CAPTION>
                                                                                   During the Year Ended December 31,
                                                                                   ----------------------------------
                                                                                     1994       1995        1996
                                                                                   --------   --------    ---------
                                                                                           (In Thousands)
Maximum amount of borrowings outstanding
  at any month end during the period:
<S>                                                                                <C>        <C>         <C>
  FHLB advances ................................................................   $143,578   $171,726    $138,415
  REMIC issued .................................................................      9,959      6,743       5,543
  ESOP loan ....................................................................        729     13,404(1)   13,404(1)
  Loan from Company (1) ........................................................         --     52,100      52,100

Maximum  amount  of  short-term  borrowings  outstanding  at any  month end with
respect to:
  FHLB advances ................................................................     80,594     77,555      66,005

</TABLE>

---------------------
      (1)     Payable to the Company.

Subsidiaries and Joint Venture Activity

      The Company has one wholly owned subsidiary,  the Bank. The Bank has three
wholly  owned  subsidiary  corporations,  First  Savings  Insurance  Corporation
("FSIC"), First Savings Insurance Services ("FSIS") and First Savings Securities
Corporation ("FSSC").  The Bank is permitted to invest up to 2% of its assets in
the capital stock of, or secured or unsecured loans to, subsidiary corporations,
with an additional investment of 1% of assets when such additional investment is
utilized primarily for community development  purposes.  Under such limitations,
as of December 31, 1996, the Bank was  authorized to invest up to  approximately
$30.3 million in the stock of, or loans to, service corporations (based upon the
2%  limitation).  As of  December  31,  1996,  the net book  value of the Bank's
investment  in stock,  unsecured  loans,  and  conforming  loans in its  service
corporations was $3.0 million.


                                       31

<PAGE>



      First  Savings   Investment   Corporation.   The  Bank's  largest  service
corporation is FSIC,  with total assets of $2.4 million as of December 31, 1996.
The principal activities of this service corporation are investing in delinquent
real estate tax  certificates,  land  development,  and equity ownership of real
property.  The Bank is in the process of liquidating this service corporation in
an orderly manner,  which will take place over several years. Assets that remain
are as follows:

      (1)   Approximately  $6,000 in a real  estate tax  certificate.  This real
            estate tax  certificate is issued by the County  Treasurer of Denver
            County  in the  State of  Colorado  acting  under  authority  of the
            statutes  of Colorado  and  represents  unpaid  taxes on real estate
            properties auctioned off by the County Treasurer.  During the fiscal
            years ended  December 31, 1994,  1995, and 1996, net income from tax
            certificates and the resulting deeds to the underlying  property was
            $453,000,   $0,  and  $0,   respectively.   Because  the   Financial
            Institutions  Reform Recovery and Enforcement Act of 1989 ("FIRREA")
            generally prohibits savings associations from making investments not
            permitted  to be made by  national  banks,  the OTS  prohibited  any
            further  investment in these real estate tax certificates.  FSIC has
            purchased no additional tax certificates in the past four years, and
            at present has no plans to make additional purchases.

      (2)   In the land  development  area,  FSIC still owns nine single  family
            home  sites  in  Brighton,  Colorado,  with a net  investment  as of
            December  31,  1996 of  $40,000.  Due to the area's  depressed  real
            estate  market in the past,  these  sites had  declined in value and
            FSIC has reserved $78,000 to reflect market conditions.

      (3)   FSIC also owns 27 apartment  units in  Louisville,  Colorado.  These
            units  are  all  rented  and the  Bank  will  hold  these  units  as
            investment property.

      (4)   In March 1995,  80,000 square feet of land with a book value of $1.2
            million,  located  adjacent  to the main  office  of the  Bank,  was
            transferred  from the Bank to FSIC.  This land is leased to  General
            Mills  Restaurant  Group  for  the  operation  of  an  Olive  Garden
            Restaurant, which opened in April 1995.

      The Bank's net equity  investment in FSIC as of December 31, 1996 was $2.2
million.

      First Savings Insurance Services.  FSIS is a Colorado corporation which in
the  past has been a  full-service  insurance  agency.  FSIS  sold its  casualty
insurance business in 1989, and now specializes in health,  life and credit life
insurance.  Beginning  in the second half of 1994,  FSIS began  offering  mutual
funds and annuity products. The Bank's net equity investment in FSIS at December
31, 1996 was $171,000.

      First Savings Securities Company. FSSC is a California  corporation formed
expressly to participate in a REMIC issue by Ryland Acceptance  Corporation (see
"-  Borrowings").  As of  December  31,  1996,  the  Bank had  $5.0  million  of
borrowings  outstanding  through  the REMIC  issue,  which was  secured  by $5.6
million of  mortgage-backed  securities.  As of December 31, 1996,  the FSSC had
$5.7 million in assets and a deficit of $890,000. FSSC plans no other activities
in the immediate future.

      Under the OTS  risk-based  capital  regulations,  a savings  association's
investments in and extensions of credit to any subsidiary  engaged in activities
not  permissible  for a national  bank must be deducted  from the  institution's
capital.  Because a  national  bank is not  permitted  to engage in real  estate
acquisition and development,  and the OTS has informed the Bank that investments
in  tax  certificates  are  not  permissible  for  national  banks,  the  Bank's
investment in and loans to FSIC must be deducted from

                                      32

<PAGE>



the Bank's capital in calculating the minimum  required  capital  ratios.  As of
December 31, 1996, the Bank's investments in and loans to subsidiaries  required
to be  deducted  from its  regulatory  capital  pursuant  to this rule were $2.0
million, all of which consisted of investments and loans to FSIC.

Personnel

      As of December  31, 1996,  the Bank had 289  full-time  employees  and 152
part-time  employees,  including 25 part-time security employees.  The employees
are not  represented  by a collective  bargaining  unit.  The Bank  believes its
relationship with its employees to be satisfactory.

Company Regulation

      General. 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,  should such subsidiaries be formed, which
also permits the OTS to restrict or prohibit  activities  that are determined to
be a serious risk to the subsidiary  savings  association.  This  regulation and
oversight is intended primarily for the protection of the depositors of the Bank
and not for the benefit of stockholders of the Company.

      Qualified  Thrift  Lender  Test.  As a unitary  savings  and loan  holding
company, the Company generally is not subject to activity restrictions, provided
the Bank  satisfies  the Qualified  Thrift  Lender  ("QTL") test. 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  (other  than the  Bank or any  other
SAIF-insured   savings   association)   would  become  subject  to  restrictions
applicable to bank holding  companies unless such other  associations  each also
qualify  as a QTL  and  were  acquired  in a  supervisory  acquisition.  See  "-
Regulation of the Bank Qualified Thrift Lender Test."

      Restrictions  on  Acquisitions.  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  law  generally  provides  that no  "person,"  acting  directly or
indirectly or through or in concert with one or more other persons,  may acquire
"control," as that term is defined in OTS  regulations,  of a federally  insured
savings  institution  without  giving at least 60 days written notice to the OTS
and providing the OTS an  opportunity  to disapprove  the proposed  acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things,  that (i) the acquisition would substantially  lessen competition;  (ii)
the financial  condition of the acquiring  person might jeopardize the financial
stability  of  the  savings  institution  or  prejudice  the  interests  of  its
depositors;  or (iii) the  competency,  experience or integrity of the acquiring
person or the proposed  management  personnel  indicates that it would not be in
the  interest  of the  depositors  or the public to permit the  acquisitions  of
control by such person.

      Subject to appropriate  regulatory  approvals,  a bank holding company can
acquire  control  of a  savings  association,  and  if  it  controls  a  savings
association,  merge or  consolidate  the assets and  liabilities  of the savings
association  with, or transfer  assets and  liabilities  to, any subsidiary bank
which is a member of the Bank  Insurance  Fund  ("BIF") with the approval of the
appropriate federal banking agency

                                      33

<PAGE>



and the Federal  Reserve Board.  Generally,  federal  savings  associations  can
acquire or be acquired by any insured depository institution.

      Federal  Securities  Law.  The Company is subject to filing and  reporting
requirement by virtue of having its common stock registered under the Securities
Exchange  Act of  1934.  Furthermore,  Common  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.

Regulation of the Bank

      General. As a federally chartered,  SAIF-insured savings association,  the
Bank is  subject  to  extensive  regulation  by the OTS  and the  FDIC.  Lending
activities  and other  investments  must comply with  various  state and federal
statutory  and  regulatory  requirements.  The Bank is also  subject  to certain
reserve requirements promulgated by the Federal Reserve Board.

      The OTS, in  conjunction  with the FDIC,  regularly  examines the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that are found in the Bank's  operations.  The Bank's  relationship
with its depositors and borrowers is also regulated to a great extent by federal
and state law,  especially in such matters as the ownership of savings  accounts
and the form and content of the Bank's mortgage documents.

      The Bank  must  file  reports  with the OTS and the  FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to entering into certain  transactions  such as mergers with or
acquisitions  of other savings  institutions.  This  regulation and  supervision
establishes a comprehensive  framework of activities in which an institution can
engage and is intended  primarily for the protection of the SAIF and depositors.
The  regulatory  structure  also  gives  the  regulatory  authorities  extensive
discretion in connection with their  supervisory and enforcement  activities and
examination  policies,  including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves.  Any change in such
regulations, whether by the OTS, the FDIC, or the Congress could have a material
adverse impact on the Company, the Bank, and their operations.

      Insurance of Deposit Accounts.  The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation).  The FDIC has the  authority,  should it  initiate  proceedings  to
terminate an institution's  deposit  insurance,  to suspend the insurance of any
such institution without tangible capital. However, if a savings association has
positive capital when it includes qualifying  intangible assets, the FDIC cannot
suspend deposit  insurance unless capital declines  materially,  the institution
fails to enter into and remain in  compliance  with an approved  capital plan or
the institution is operating in an unsafe or unsound manner.

      Regardless of an institution's capital level, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or  unsound  practices,  is  in an  unsafe  or  unsound  condition  to  continue
operations  or has violated  any  applicable  law,  regulation,  rule,  order or
condition imposed by the FDIC or the institution's primary regulator.

      The FDIC charges an annual  assessment for the insurance of deposits based
on the risk a particular  institution poses to its deposit insurance fund. Under
this  system,  a bank or thrift  pays within a range of 23 cents to 31 cents per
$100 of domestic deposits, depending upon the institution's risk

                                      34

<PAGE>



classification.  This risk  classification is based on an institution's  capital
group and supervisory subgroup assignment.  In addition,  the FDIC is authorized
to  increase  such  deposit  insurance  rates,  on a  semi-annual  basis,  if it
determines  that such  action is  necessary  to cause the balance in the SAIF to
reach the designated  reserve ratio of 1.25% of  SAIF-insured  deposits within a
reasonable period of time. The FDIC also may impose special  assessments on SAIF
members to repay amounts borrowed from the U.S. Treasury or for any other reason
deemed  necessary by the FDIC.  The Bank's  federal  deposit  insurance  premium
expense for the year ended  December 31, 1996,  amounted to  approximately  $9.4
million.

      Included in that expense, the Bank recorded what it believes is a one-time
assessment of approximately 65.7 basis points on every $100 of deposits based on
the Bank's deposits at March 31, 1995 for a cost of  approximately  $4.3 million
(net of taxes).  Future  deposit  insurance  premiums are expected to be reduced
from 0.23% to approximately 0.065. Based upon the Bank's deposits as of December
31, 1996, the Bank's deposit  insurance  expense would decrease by approximately
$1.1 million per year after taxes.  Management  of the Bank is unable to predict
whether  ongoing SAIF premiums will be reduced to a level  comparable to that of
BIF premiums.

      Regulatory Capital  Requirements.  OTS capital regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of total adjusted assets,  (2) a leverage ratio (core capital) equal to at least
3% of total adjusted assets, and (3) a risk-based  capital  requirement equal to
8.0% of total risk-weighted assets.

      Savings  associations  with a greater than "normal" level of interest rate
exposure  will,  in the future,  be subject to a deduction  for an interest rate
risk ("IRR")  component  may be from capital for purposes of  calculating  their
risk-based capital requirement. See "- Net Portfolio Value."

      As shown  below,  the  Bank's  regulatory  capital  exceeded  all  minimum
regulatory capital requirements applicable to it as of December 31, 1996:

                                                      Percent of
                                                       Adjusted
                                          Amount        Assets
                                          ------      ----------
                                          (Dollars in Thousands)
Tangible Capital:
Regulatory requirement............       $ 22,625        1.50%
Actual capital....................        178,976        11.87
                                          -------        -----
      Excess......................       $156,351       10.37%
                                          =======       =====

Core Capital:
Regulatory requirement............       $ 45,333        3.00%
Actual capital....................        181,733        12.03
                                          -------        -----
      Excess......................       $136,400        9.03%
                                          =======       =====

Risk-Based Capital:
Regulatory requirement............       $ 61,643        8.00%
Actual capital....................        183,728        23.84
                                          -------        -----
      Excess......................       $122,085       15.84%
                                          =======       =====



                                      35

<PAGE>



      Net Portfolio  Value. The OTS requires the computation of amounts by which
the net present value of an institution's  cash flows from assets,  liabilities,
and off balance sheet items (the  institution's  net portfolio  value, or "NPV")
would  change  in the event of a range of  assumed  changes  in market  interest
rates.  The OTS also  requires  the  computation  of  estimated  changes  in net
interest  income over a four-quarter  period.  These  computations  estimate the
effect of an  institution's  NPV and net interest  income of  instantaneous  and
permanent 1% to 4% increases  and  decreases in market  interest  rates.  In the
Bank's interest rate sensitive policy,  the Board of Directors has established a
maximum decrease in net interest income and maximum decreases in NPV given these
instantaneous changes in interest rates.

      An  institution's  interest rate risk is measured as the change to its NPV
as a result of a hypothetical 200 basis point change in market interest rates. A
resulting  change in NPV of more than 2% of the  estimated  market  value of its
assets  will  require  the  institution  to deduct  from its capital 50% of that
excess  change.  The rules provide that the OTS will calculate the IRR component
quarterly for each institution.

      The  following  table  presents the Bank's NPV at December  31,  1996,  as
calculated  by  the  OTS  and  based  on  OTS  assumptions  utilizing  raw  data
voluntarily provided to the OTS by the Bank.

Change in Interest
Rates in Basis Points
  (Rate Shock)(1)            Net Portfolio Value            NPV as % of Assets
  ---------------     --------------------------------     --------------------
                    $ Amount    $ Change      % Change      NPV Ratio     Change
                      ------      ------        ------      ---------     ------
                                 (Dollars in Thousands)
+400 bp              113,259     -95,366           -46 %        7.97%    -559 bp
+300 bp              139,840     -68,786           -33          9.62     -394 bp
+200 bp              165,802     -42,824           -21         11.17     -239 bp
+100 bp              189,634     -18,991           - 9         12.53     -103 bp
0  bp                208,626          --            --         13.56       --
-100 bp              223,349      14,724           + 7         14.32     + 76 bp
-200 bp              233,519      24,893           +12         14.82     +126 bp
-300 bp              242,213      33,587           +16         15.22     +166 bp
-400 bp              253,713      45,088           +22         15.77     +221 bp

---------------
(1) Denotes rate shock used to compute interest rate risk capital component.


                                                                    As of
                                                                 December 31,
                                                                    1996
                                                                 ------------
RISK MEASURES:
200 Basis Point Rate Shock
Pre-Shock NPV Ratio:  NPV as % of Present Value of Assets.....     13.56%
Exposure Measure:  Post-Shock NPV Ratio ......................     11.17%
Sensitivity Measure:  Change in NPV Ratio ....................      -239 bp

CALCULATION OF CAPITAL COMPONENT:
Change in NPV as % of Present Value of Assets.................     -2.78%
Interest Rate Risk Capital Component .........................  $6.0 million




                                      36

<PAGE>



      Computations of prospective effects of hypothetical  interest rate changes
are based on numerous assumptions,  including relative levels of market interest
rates, loan prepayments and deposit  run-offs,  and should not be relied upon as
indicative of actual results.  Further,  the computations do not contemplate any
actions the Bank may undertake in response to changes in interest rates.

      While the OTS has deferred for the present time the date on which the Bank
is subject to the interest rate risk component  reduction  discussed  above, the
Bank  remains  subject to interest  rate risk and, as can be seen above,  rising
interest rates will reduce the Bank's NPV.

      Dividend  and Other  Capital  Distribution  Limitations.  OTS  regulations
require  the  Bank  to  give  the OTS 30 days  advance  notice  of any  proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the Company.

      OTS  regulations  impose  limitations  upon all capital  distributions  by
savings  institutions,  such  as  cash  dividends,  payments  to  repurchase  or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out  merger and other  distributions  charged against  capital.  The rule
establishes  three tiers of  institutions,  based primarily on an  institution's
capital  level.  An  institution  that  exceeds  all  fully  phased-in   capital
requirements  before  and  after  a  proposed  capital   distribution  ("Tier  1
institution")  and has not  been  advised  by the OTS that it is in need of more
than the normal  supervision can, after prior notice but without the approval of
the OTS, make capital  distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the  calendar  year plus the amount
that would reduce by one-half its "surplus  capital  ratio" (the excess  capital
over its fully phased-in capital  requirements) at the beginning of the calendar
year,  or (ii) 75% of its net income over the most recent four  quarter  period.
Any additional capital  distributions  require prior regulatory approval.  As of
December 31, 1996,  the Bank was a Tier 1  institution.  In the event the Bank's
capital fell below its fully  phased-in  requirement or the OTS notified it that
it was in need of more than  normal  supervision,  the  Bank's  ability  to make
capital distributions could be restricted. In addition, the OTS could prohibit a
proposed  capital  distribution  by any  institution,  which would  otherwise be
permitted by the regulation,  if the OTS determines that such distribution would
constitute an unsafe or unsound practice.

      In  addition,  the  Bank may not  declare  or pay a cash  dividend  on its
capital stock if the effect thereof would be to reduce the regulatory capital of
the Bank below the amount required for the liquidation account to be established
pursuant to the Bank's Plan of  Conversion.  Finally,  a savings  association is
prohibited from making a capital distribution if, after making the distribution,
the  savings  association  would be  undercapitalized  (not  meet any one of its
minimum regulatory capital requirements).

      Qualified Thrift Lender Test.  Savings  institutions must meet a QTL test.
If the Bank  maintains  an  appropriate  level of Qualified  Thrift  Investments
(primarily  residential  mortgages and related  investments,  including  certain
mortgage-related  securities) ("QTIs") and otherwise qualifies as a QTL, it will
continue  to enjoy  full  borrowing  privileges  from the  FHLB of  Topeka.  The
required  percentage of QTIs is 65% of portfolio  assets  (defined as all assets
minus  intangible  assets,  property used by the  institution  in conducting its
business and liquid  assets equal to 10% of total  assets).  Certain  assets are
subject to a  percentage  limitation  of 20% of portfolio  assets.  In addition,
savings associations may include shares of stock of the FHLBs, FNMA and FHLMC as
qualifying  QTIs. An  association  must be in compliance  with the QTL test on a
monthly basis in nine out of every 12 months.  As of December 31, 1996, the Bank
was in compliance with its QTL requirement  with 97.1% of its assets invested in
QTIs.

      A savings association that does not meet a QTL test must either convert to
a bank charter or comply with the following restrictions on its operations:  (i)
the savings association may not engage in any

                                      37

<PAGE>



new activity or make any new  investment,  directly or  indirectly,  unless such
activity or investment is permissible  for a national  bank;  (ii) the branching
powers of the savings  association  shall be  restricted  to those of a national
bank; (iii) the savings association shall not be eligible to obtain any advances
from its FHLB; and (iv) payment of dividends by the savings association shall be
subject to the rules regarding payment of dividends by a national bank. Upon the
expiration of three years from the date the savings  association  ceases to be a
QTL, it must cease any activity and not retain any  investment  not  permissible
for a national bank and immediately repay any outstanding FHLB advances (subject
to safety and soundness considerations).

      Loans to One Borrower.  See "Lending Activities - Loans to One Borrower."

      Community  Reinvestment.  Under the Community Reinvestment Act ("CRA"), as
implemented  by OTS  regulations,  a savings  association  has a continuing  and
affirmative obligation consistent with its safe and sound operation 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 its  examination of a savings  institution,
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
by such institution.  Federal law requires public disclosure of an institution's
CRA  rating  and  requires  the  OTS  to  provide  a  written  evaluation  of an
institution's CRA performance  utilizing a four-tiered system. The Bank received
an "outstanding" rating as a result of its last evaluation in June 1996.

      Transactions With Affiliates. Generally, restrictions on transactions with
affiliates  require  that  transactions  between  a savings  association  or its
subsidiaries  and  its  affiliates  be on  terms  as  favorable  to the  Bank as
comparable  transactions  with  non-affiliates.  In  addition,  certain of these
transactions  are restricted to an aggregate  percentage of the Bank's  capital;
collateral  in  specified  amounts  must  usually be provided by  affiliates  to
receive loans from the Bank.  Affiliates of the Bank include the Company and any
company  which would be under  common  control  with the Bank.  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 any
affiliate  that  is not a  subsidiary.  The  OTS has  the  discretion  to  treat
subsidiaries of savings associations as affiliates on a case-by-case basis.

      The Bank's authority to extend credit to its officers,  directors, and 10%
shareholders,  as well as to entities  that such  persons  control is  currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board. Among other things,  these regulations
require such loans to be made on terms substantially similar to those offered to
unaffiliated individuals,  place limits on the amount of loans the Bank may make
to such persons  based,  in part, on the Bank's  capital  position,  and require
certain  approval  procedures  to  be  followed.  OTS  regulations,  with  minor
variation, apply Regulation O to savings associations.

      Liquidity Requirements.  All savings associations 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. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  associations.  At December 31, 1996,  the Bank's  required
liquid asset ratio is 5%.


                                      38

<PAGE>



      Federal Home Loan Bank System. The Bank 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.

      As a member,  the Bank is required to purchase and  maintain  stock in the
FHLB of  Topeka  in an  amount  equal  to at least  1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year.  At December 31, 1996,  the Bank had $9.6 million in
FHLB stock, which was in compliance with this requirement.

      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) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements  imposed by the Federal Reserve Board may be used
to satisfy the liquidity  requirements  that are imposed by the OTS. At December
31, 1996, the Bank was in compliance with the applicable reserve requirements.

Federal and State Taxation

      The  Company  and the Bank report  their  income on a calendar  year basis
using the  accrual  method of  accounting  and are  subject  to  federal  income
taxation  in the  same  manner  as  other  corporations  with  some  exceptions,
including,  particularly,  the Bank's reserve for bad debts discussed below. The
Company  and  its  subsidiaries,   including  the  Bank,   anticipate  filing  a
consolidated federal income tax return.  Consolidated returns have the effect of
eliminating   intercompany   distributions,   including   dividends,   from  the
computation  of  consolidated  taxable income for the taxable year in which such
distributions occur. However,  based upon the best interests of the Company, the
Bank,  stockholders,  and other  conditions,  the  Company may elect not to file
consolidated returns.

      Prior to certain  changes to the Internal  Revenue Code  ("Code") in 1996,
thrift  institutions  enjoyed  a  tax  advantage  over  banks  with  respect  to
determining additions to their bad debt reserves. All thrift institutions, prior
to 1996, were generally allowed a deduction for an addition to their reserve for
bad debts. In contrast,  only "small banks"  (defined as institutions  where the
average adjusted bases of all assets of such institution  equals $500 million or
less) were allowed a similar deduction for additions to their bad debt reserves.
In addition, while small banks were only allowed to use the experience method in
determining their annual addition to a bad debt reserve, all thrift institutions
generally  enjoyed a choice  between (i) the percentage of taxable income method
and, (ii) the experience  method,  for  determining the annual addition to their
bad debt reserve.

      The Code was  revised in August 1996 to  equalize  the  taxation of thrift
institutions and banks, effective for taxable years beginning after December 31,
1995. All thrift  institutions  are now subject to the same  provisions as banks
with respect to deductions for bad debt. Now, only thrift  institutions that are
treated as small  banks may  continue to account for bad debts under the reserve
method;  however  such  institutions  may only  use the  experience  method  for
determining  additions to their bad debt reserve.  Thrift  institutions that are
not treated as small  banks may no longer use the reserve  method to account for
their bad debts but must alternatively use the specific charge-off method. Under
the Code,  the Bank is not  considered to be a small bank and therefore the Bank
must change its method of  accounting  for bad debts to the specific  charge off
method.

                                      39

<PAGE>




      The  revisions  to  the  Code  in  1996  also  provided  that  all  thrift
institutions  must generally  recapture any  "applicable  excess  reserves" into
their taxable income,  over a six year period beginning in 1996;  however,  such
recapture  may be  delayed  up to two  years  if a  thrift  institution  meets a
"residential loan requirement."  Generally,  a thrift  institution's  applicable
excess reserves equals the excess of (i) the balance of its bad debt reserves as
of the close of its taxable year beginning before January 1, 1996, over (ii) the
balance of such  reserves  as of the close of its last  taxable  year  beginning
before  January 1, 1988  ("pre-1988  reserves").  The Bank will be  required  to
recapture  $7.5 million into its taxable  income;  however,  the Bank expects to
meet the  residential  loan  requirement to delay such recapture for the taxable
years ending December 31, 1996 and 1997.

      In addition,  all thrift institutions must continue to keep track of their
pre-1988 reserves because this amount remains subject to recapture in the future
under the Code.  A thrift  institution,  such as the Bank,  would  generally  be
required to recapture into its taxable income its pre-1988  reserves in the case
of certain excess  distributions  to, and  redemptions of,  shareholders  (e.g.,
stock  repurchases).  The balance of the Bank's pre-1988  reserves  approximates
$12.0 million.

      In addition to their regular  federal income tax  liability,  corporations
are also  subject to an  alternative  minimum  tax.  The  corporate  alternative
minimum  tax rate is 20%.  The tax is applied on  "alternative  minimum  taxable
income"  ("AMTI")  which  includes:   (1)  100%  of  the  excess  of  a  savings
association's  bad debt deduction over the amount allowable under the experience
method;  (2) 75% of the excess of the "adjusted current earnings" of the Company
over the AMTI; and (3) interest on certain tax-exempt bonds.

      The  Revenue  Reconciliation  Act of 1993 added a new  Section  475 to the
Code.  Section 475 is a new  mark-to-market  tax law, that is different from the
accounting  mark-to-market  SFAS  No.  115.  The term  "securities"  in the Code
includes not just traditional debt and equity securities, but mortgages as well.
For tax  purposes,  institutions  were  required  to identify  which  securities
qualified  for an  exemption by October 31,  1993.  A financial  institution  is
subject  to a  mark-to-market  rule  if  its  activities  bring  it  within  the
definition of a dealer in securities under Section 475(c)(1) of the Code.

      Non-thrift  members are not subject to the special  federal tax provisions
for savings  associations  described  above. The Department of Treasury issued a
regulation  effective for taxable years ended after  November 30, 1982 requiring
savings  associations  which  file  consolidated  income  tax  returns to reduce
proportionately   their  bad  debt   deductions  for  tax  losses   incurred  by
(functionally related) non-thrift members of the consolidated group.

      The State of  Colorado  has a  corporate  income tax which  subjected  the
Bank's Colorado taxable income to tax at a 5.0% rate for the calendar year ended
December 31, 1995 and a 5.0% rate for the calendar year ended December 31, 1996.
Colorado  taxable income is computed by applying  certain  modifications  (e.g.,
state income tax deduction,  interest on U.S.  government  securities,  etc.) to
federal taxable income.

      The IRS recently completed an examination of the Bank's Federal income tax
returns for tax years  ending 1985  through  1990.  The Bank had made an advance
payment of $1.755 million to the IRS against possible  deficiencies arising from
this examination.  In 1995, all examination issues were settled,  resulting in a
tax assessment of $488,000. After application of the advance payment and related
interest  thereon,  the Bank received refunds  amounting to  approximately  $1.4
million.  The Bank has made all  appropriate  amendments  to its prior  Colorado
income  tax  returns  related  to  this  settlement.  See  Note 14 of  Notes  to
Consolidated Financial Statements.

                                      40

<PAGE>



Item 2.  Properties
-------------------

      The Bank's  and the  Company's  executive  offices  are  located at 215 S.
Wadsworth Boulevard in Lakewood,  Colorado, a suburb of Denver. The Company does
not own any real  property but uses the offices and  facilities of the Bank from
time to time. The Bank conducts its business through 26 offices, 22 of which are
located  in the  Denver,  Colorado  area,  and four of which are  located on the
Western Slope of Colorado.

      The following table sets forth the location of each of the Bank's offices,
the year the office  was first  acquired  or rented,  and the net book value and
square footage  (excluding  basement) of each office.  All of the Bank's offices
are owned, with the exception of the Downtown branch, the Bonnie Brae branch and
the Montbello  branch,  all located in Denver,  and the Grand Junction Mesa Mall
branch, located in Grand Junction, Colorado, as noted below.

                                                      Net Book
                                     Year Facility  Value as of
                                      Opened or     December 31,     Square
        Office Location                Acquired         1996        Footage
--------------------------------      ----------       ------       -------

Main Office and Lakewood Branch:         1973        1,107,950      38,420
215 S. Wadsworth Boulevard
Lakewood, Colorado

Arvada Branch:                           1974          600,570       6,820
5805 Carr Street
Arvada, Colorado

Arvada West Branch:                      1994        1,087,860       3,811
12880 W. 64th Avenue
Arvada, Colorado

Aurora Branch:                           1972          410,640       6,820
1389 S. Havana
Aurora, Colorado

Bonnie Brae Branch(1):                   1990          174,580       1,152
750 S. University Boulevard
Denver, Colorado

Brighton Branch:                         1990          657,280      12,105
1795 Bridge Street
Brighton, Colorado

Cherry Creek Branch:                     1979          447,680       3,494
3610 E. First Avenue
Denver, Colorado

Columbine Branch:                        1976          468,950       3,494
6775 W. Ken Caryl
Littleton, Colorado

Commerce City Branch:                    1990          388,400       5,200
7326 Magnolia Street
Commerce City, Colorado



                                       41

<PAGE>

                                                      Net Book
                                     Year Facility  Value as of
                                      Opened or     December 31,     Square
        Office Location                Acquired         1996        Footage
--------------------------------      ----------       ------       -------



Delta Branch:                            1993           266,750       4,427
564 Main Street
Delta, Colorado

Downtown Branch(2):                      1983                --       3,040
216 Sixteenth Street
Denver, Colorado

Englewood Branch:                        1962           542,800       8,106
4301 S. Broadway
Englewood, Colorado

Golden Branch:                           1983           496,360       5,854
701 13th Street
Golden, Colorado

Greenwood Village Branch:                1994         1,068,150       4,748
6050 S. Holly
Englewood, Colorado

Grand Junction Branch:                   1993           524,730       6,999
130 N. Fourth Street
Grand Junction, Colorado

Grand Junction - Mesa Mall Branch(3):    1996                --       2,473
2452 Patterson Road
Grand Junction, Colorado

Heather Gardens Branch:                  1981           718,620       4,075
13781 E. Yale Avenue
Aurora, Colorado

Highlands Ranch Branch:                  1987         1,728,360      11,108
7120 E. County Line Road
Highlands Ranch, Colorado

Louisville Branch:                       1978           469,410       3,500
865 S. Boulder Road
Louisville, Colorado

Montbello Branch(4):                     1995         55,570(5)       1,300
4850 Chambers Road
Denver, Colorado

Montrose Branch:                         1995         1,329,440       3,811
1105 S. Townsend
Montrose, Colorado

North Denver Branch:                     1954           290,640       6,800
3460 W. 38th Avenue
Denver, Colorado


                                       42

<PAGE>


                                                      Net Book
                                     Year Facility  Value as of
                                      Opened or     December 31,     Square
        Office Location                Acquired         1996        Footage
--------------------------------      ----------       ------       -------


Smoky Hill Branch:                       1994         1,148,360       3,811
16778 Smoky Hill Road
Aurora, Colorado

South Denver Branch:                     1989         1,752,820       5,638
2050 S. Downing
Denver, Colorado

Thornton Branch:                         1995         1,074,940       3,811
12080 Colorado Boulevard
Thornton, Colorado

Westminister Branch:                     1991           905,540       3,656
9150 N. Sheridan
Westminister, Colorado


------------------------
(1)   The Bank owns the building and  improvements  at this  location but leases
      the land.  The land lease  runs  until  April 1, 2000 for rent of $800 per
      month. There are two five-year options to extend the term at a market rate
      to be negotiated.
(2)   Leased  branch with  original  lease term to expire in March  1998,  and 4
      five-year  options  to extend  term at market  rate.  Current  rent on the
      branch office is $6,856 per month.
(3)   Leased  branch with  original  term to expire in November  2000,  and five
      five-year  options  to extend  the term at market  rate.  Current  rent is
      $2,567 per month.
(4)   Leased Branch with  original  lease term to expire in December  1997,  and
      five three-year options to extend term at market rate. Current rent on the
      branch office is $625 per month.
(5)   Unamortized leasehold improvements.


      The Bank opened three additional  offices in the Denver market area during
the year ended December 31, 1994,  two additional  offices during the year ended
December  31, 1995,  and one  additional  office in the year ended  December 31,
1996.

      The Bank owns several properties  adjoining its existing  facilities which
it is holding  for  possible  future  expansion.  These are  included  in office
properties  on the Bank's  financial  statements  and, as of December  31, 1996,
amounted to $700,000.  The Bank and its service  corporation,  FSIC, own several
properties  on the corner of Alameda  and  Wadsworth,  and  Alameda  and Yarrow,
adjoining the main office in Lakewood,  Colorado. These consist principally of a
1.5 acre vacant site, known as 280 S. Yarrow, and a property to the east of this
and  directly  south of the main office,  consisting  of  approximately  100,000
square feet of land. Eighty thousand square feet of this land was leased in 1994
to  General  Mills  Restaurant  Group  for  the  operation  of an  Olive  Garden
Restaurant,  which opened in April 1995. To the east of the land are two smaller
properties  on  sites  of  about  10,000  square  feet  each.   These  lots  and
improvements  are  leased.  In  February  1996,  the  Bank  purchased  a site in
Highlands  Ranch for the purpose of  constructing a new branch office.  The Bank
also leases space to tenants at many of its office locations.  Net rental income
from  unaffiliated   tenants,   including  tenants  renting  property  held  for
development of future branch offices, is immaterial.


                                      43

<PAGE>



      The Bank  performs  its own data  processing  through its data  processing
department  located in its main office and utilizes several  hardware  platforms
and a combination of internally  developed and purchased  software systems.  The
net book value of this data  processing  equipment  as of December  31, 1996 was
$628,000.  The Bank expects to incur  significant  additional  expenses for data
processing equipment during the next three years in order to expand capacity and
improve  services.  The  cost  of  this  equipment,  which  is  expected  to  be
approximately $4.0 million,  will  significantly add to the Bank's  non-interest
expense as the equipment is  depreciated.  As of December 31, 1996, the net book
value of land,  buildings,  furniture,  and equipment  owned by the Bank and the
Company, less accumulated  depreciation and amortization totalled $22.9 million.
See Note 9 of Notes to Consolidated Financial Statements.

Item 3.  Legal Proceedings
--------------------------

      In the normal course of business, the Company is involved in various legal
actions  arising from its lending and collection  activities.  In the opinion of
management, the outcome of these legal actions will not significantly affect the
consolidated financial position of the Company.

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

      No matters were submitted to a vote of security  holders during the fourth
quarter of the year ended December 31, 1996.

                                    PART II

Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
--------------------------------------------------------------------------------
Matters
-------

      The  information   contained  under  the  sections  captioned   "Corporate
Information"  and "Additional  Stockholder  Information" in the Company's Annual
Report to Stockholders  for the Year ended December 31, 1996 ("Annual  Report"),
is incorporated herein by reference.

Item 6.  Selected Financial Data
--------------------------------

      The information  contained in the table captioned  "Selected  Consolidated
Financial  and  Other  Data" in the  Annual  Report  is  incorporated  herein by
reference.

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------

      The  information   contained  in  the  section   captioned   "Management's
Discussion  of 1996  Results"  in the Annual  Report is  incorporated  herein by
reference.

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------

      The financial  statements  contained in the Annual Report which are listed
under Item 14 herein are incorporated herein by reference.

Item  9.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
--------------------------------------------------------------------------------
Financial Disclosure
--------------------

      None.


                                      44

<PAGE>



                                   PART III

Item 10.  Directors and Executive Officers of the Registrant
------------------------------------------------------------

      The  information  contained  under the  section  captioned  "Proposal  I -
Election of  Directors"  in the  Company's  definitive  proxy  statement for the
Annual Meeting of Stockholders to be held April 30, 1997 ("Proxy  Statement") is
incorporated  herein by  reference.  For  information  regarding  the  executive
officers of the Company,  see "Part I - Item 1. Business - Executive Officers of
the Company."

      Because the Common Stock of the Company is registered  pursuant to Section
12(g) of the Securities  Exchange Act of 1934  ("Exchange  Act"),  the executive
officers and directors of the Company and beneficial  owners of greater than 10%
of the Bank's  Common  Stock  ("10%  beneficial  owners")  are  required to file
reports on Forms 3, 4, and 5 with the Securities and Exchange Commission ("SEC")
disclosing  changes  in  beneficial  ownership  of the Common  Stock.  SEC rules
require  disclosure in the Company's  Proxy  Statement and Annual Report on Form
10-K of the failure of an executive officer,  director,  or 10% beneficial owner
of the Common  Stock to file a Form 3, 4, or 5 on a timely  basis.  Based on the
Company's review of such ownership  reports,  one director of the Company failed
to file such  ownership  reports on a timely  basis during the fiscal year ended
December 31, 1996.

Item 11.  Executive Compensation
--------------------------------

      The  information  contained  under the  section  captioned  "Director  and
Executive  Compensation"  in the  Proxy  Statement  is  incorporated  herein  by
reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
------------------------------------------------------------------------

      (a)   Security Ownership of Certain Beneficial Owners

            Information   required  by  this  Item  is  incorporated  herein  by
            reference to the section captioned "Voting  Securities and Principal
            Holders Thereof" in the Proxy Statement.

      (b)   Security Ownership of Management

            Information   required  by  this  Item  is  incorporated  herein  by
            reference to the sections captioned "Voting Securities and Principal
            Holders  Thereof" and  "Proposal I -- Election of  Directors" in the
            Proxy Statement.

      (c)   Management  of the Company knows of no  arrangements,  including any
            pledge by any person of securities of the Company,  the operation of
            which may at a subsequent  date result in a change in control of the
            Registrant.

Item 13.  Certain Relationships and Related Transactions
--------------------------------------------------------

      The information  required by this Item is incorporated herein by reference
to the section captioned "Certain Relationships and Related Transactions" in the
Proxy Statement.



                                      45

<PAGE>



                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
---------------------------------------------------------------------------

1.    Independent Auditors' Report

2.    Consolidated Financial Statements of First Colorado Bancorp, Inc.

      (a)   Consolidated  Statements of Financial Condition -- December 31, 1995
            and 1996

      (b)   Consolidated  Statements of  Operations -- Years ended  December 31,
            1994, 1995, and 1996

      (c)   Consolidated  Statements  of  Stockholders'  Equity  -- Years  ended
            December 31, 1994, 1995, and 1996

      (d)   Consolidated  Statements  of Cash Flows -- Years ended  December 31,
            1994, 1995, and 1996

      (e)   Notes to Consolidated Financial Statements

      All  schedules  have been  omitted as the required  information  is either
      inapplicable   or  included  in  the  Notes  to   Consolidated   Financial
      Statements.

3.    (a)   Exhibits

            3(i)  Articles of Incorporation of First Colorado Bancorp, Inc.*

            3(ii) Bylaws of First Colorado Bancorp, Inc.*

            4.1   Stock Certificate of First Colorado Bancorp, Inc.*

            4.2   Preferred Share Purchase Rights Agreement**
            10.1  Severance Agreement with Malcolm E. Collier, Jr.***

            10.2  Form of Severance Agreement with Key Officers

            10.3  1992 Stock Option Plan

            10.4  1992 Management Recognition Plan

            10.5  1996 Stock Option Plan

            10.6  1996 Management Stock Bonus Plan

            11    Statement  regarding  computation  of per share  earnings (See
                  Note 1-  "Earnings  Per  Share" of the  Notes to  Consolidated
                  Financial  Statements  in the  Annual  Report to  Stockholders
                  included as Exhibit 13 hereto.)


                                       46

<PAGE>



            13    Annual  Report  to  Stockholders  for the  fiscal  year  ended
                  December 31, 1996

            21    Subsidiaries of the Registrant  (Incorporated  by reference to
                  "Item I - Subsidiary Activities.")

            23    Consent of KPMG Peat Marwick LLP

            27    Financial Data Schedule ****


      (b)         Reports on Form 8-K

                  None

---------------
*     Incorporated by reference to the Registration  Statement on Form S-1 (file
      no. 33-97228) declared effective by the SEC on November 13, 1995.
**    Incorporated by reference to the  Registrant's  Current Report on Form 8-K
      filed with the SEC on July 25, 1996.
***   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the year ended December 31, 1995.
****  Filed electronically only.

                                      47

<PAGE>



                                  SIGNATURES


      Pursuant  to the  requirements  of Section  13 or 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 COLORADO BANCORP, INC.



Date: March 27, 1997                        By:/s/Malcolm E. Collier, Jr.
                                               --------------------------
                                               Malcolm E. Collier, Jr.
                                               President, Chairman of the Board,
                                                and Chief Executive Officer
                                               (Duly Authorized Representative)


      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
Report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.



By:   /s/Brian L. Johnson                   By:/s/Malcolm E. Collier, Jr.
      -----------------------------------      ---------------------------------
      Brian L. Johnson                         Malcolm E. Collier, Jr.
            Vice President and Treasurer       President, Chairman of the Board,
      (Principal Financial and Accounting        and Chief Executive Officer
         Officer)                              (Principal Executive Officer)

      Date: March 27, 1997                     Date: March 27, 1997




By:   /s/Robert W. Richards                 By:/s/Leeon E. Hayden
      -----------------------------------      --------------------------------
      Robert W. Richards                       Leeon E. Hayden
      Director                                 Director

      Date: March 27, 1997                     Date: March 27, 1997




By:   /s/John J. Nicholl                    By:/s/E. William Foerster, Jr.
      -----------------------------------      --------------------------------
      John J. Nicholl                          E. William Foerster, Jr.
      Director                                 Director

      Date: March 27, 1997                     Date: March 27, 1997




<PAGE>




By:   /s/Stephen Burkholder                 By:/s/Robert T. Person, Jr.
      ----------------------------------       --------------------------------
      Stephen Burkholder                       Robert T. Person, Jr.
      Director                                 Director

      Date: March 27, 1997                     Date:  March27, 1997




By:   /s/James R. Wexels                    By:/s/Polly Baca
      ----------------------------------       --------------------------------
      James R. Wexels                          Polly Baca
      Director                                 Director

      Date: March 27, 1997                     Date: March 27, 1997